STOCK PURCHASE AGREEMENT
BY AND AMONG
SAFECO CORPORATION,
GENERAL AMERICA CORPORATION,
WHITE MOUNTAINS INSURANCE GROUP, LTD.
AND
OCCUM ACQUISITION CORP.
dated as of
March 15, 2004
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of March 15, 2004
(this "Agreement"), is by and among Safeco
Corporation, a Washington corporation
("Seller"), General America Corporation
("GAC"), a Washington corporation and a
wholly owned subsidiary of Seller, White
Mountains Insurance Group, Ltd., a
company existing under the laws of Bermuda
("Parent"), and Occum Acquisition
Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Buyer").
WHEREAS,
Seller operates on a nationwide basis in segments of
the insurance industry and other financial
services-related businesses,
including, through those certain direct and
indirect Subsidiaries of Seller
identified on Schedule A (each such person,
an "Acquired Company"), the
provision of individual and group insurance
products, annuity products, mutual
funds and investment advisory services;
WHEREAS, Buyer desires to purchase (directly or indirectly)
all of the issued and outstanding capital
stock of the Acquired Companies as of
the Closing Date (collectively, the
"Shares") for the consideration and subject
to the terms and conditions set forth in
this Agreement.
NOW THEREFORE, in consideration of the representations,
warranties, covenants and agreements
contained herein, and intending to be
legally bound hereby, the parties hereto
agree as follows:
ARTICLE I.
PURCHASE AND SALE OF THE SHARES
Section 1.1 Purchase and Sale of Shares. At
the Closing, on the terms and
subject to the conditions set forth in this
Agreement, Seller shall, and, with
respect to the stock of SIS, shall cause
GAC to, sell, assign, transfer, convey
and deliver to Buyer, and Buyer hereby
agrees to purchase, all of the Shares,
free and clear of all Liens.
Section 1.2 Closing. Subject to the
provisions of Article VI, the closing of the
purchases and sales contemplated by this
Agreement (the "Closing") shall take
place in Seattle, WA at the offices of
Seller at 10:00 a.m. Pacific time on the
later of (i) June 30, 2004 and (ii) the
last day of the month after the date on
which each of the conditions set forth in
Article V (other than conditions that
are satisfied by the delivery of documents
or the payment of money at the
Closing) have been satisfied or waived by
the party or parties entitled to the
benefit of such conditions (or if such day
is not a Business Day, on the next
succeeding Business Day); provided, that
solely for purposes of the parties'
respective accounting, the Closing shall be
deemed to have occurred at 12:01
a.m. on the first day of the following
month, or at such other place, at such
other time or on such other date as Parent
and Seller may mutually agree. The
date on which the Closing actually occurs
is hereinafter referred to as the
"Closing Date." Subject to the provisions
of Article VI, a party's failure to
consummate the purchases and sales provided
for in this Agreement on the date
and time and at the place determined
pursuant to this Section 1.2 will not
result in the termination of this Agreement
and will not relieve any party of
any obligation under this Agreement.
<PAGE>
Section 1.3
Closing Obligations.
(a) At the Closing,
Seller shall, or with
respect to SIS, cause
GAC
to, deliver to
Buyer:
(i) certificates
representing
the Shares of the Acquired
Companies that are
direct subsidiaries of Seller and GAC, duly
endorsed (or accompanied by duly executed stock powers) in proper
form
for transfer of such Shares, with appropriate transfer stamps, if
any,
affixed, to Buyer;
(ii) a Transition Services Agreement, substantially in the form
attached hereto as Exhibit A (the "Transition Services
Agreement");
(iii) an Intellectual
Property License from Seller to Buyer,
substantially in the
form attached
hereto as Exhibit B
(the "Buyer
Intellectual Property License");
(iv) a Transitional Trademark License, substantially in the form
attached hereto as Exhibit C (the "Transitional Trademark
License");
(v) a Lease
Agreement for the Redmond, WA campus facility,
substantially in the
form attached
hereto as Exhibit D
(the "Lease
Agreement"); and
(vi) a copy of each new Investment Company Advisory Agreement
(or, where permitted,
approval of the
continuation
of the existing
Investment
Company Advisory
Agreement)
described
in Section
4.9(b)(i)(B)(x).
(b) At the Closing,
Buyer shall, and Parent shall cause Buyer to,
deliver to
Seller, including for the benefit of GAC with respect to SIS:
(i) $1,350,000,000 (the "Closing Consideration") by wire
transfer
of immediately
available funds to an account designated by Seller in
writing at least two (2) Business Days' prior to the Closing Date,
subject to the
post-Closing purchase
price adjustment pursuant to
Section 1.4 hereof;
(ii) the Transition Services Agreement;
(iii) the Transitional Trademark License; and
(iv) the Lease
Agreement (the
documents described in clauses
(ii)-(iv) along
with this Agreement and the Buyer Intellectual
Property License,
being referred to
collectively as the "Transaction
Documents").
Section 1.4
Post-Closing Adjustment.
(a) As soon as practicable following the Closing, Seller shall
prepare
or cause to be
prepared audited
financial statements
(including
balance
sheets and
statements of income and the requisite footnotes thereto) of
the
Insurance
Subsidiaries
as of and for the six
months ended June 30,
2004
(the "June
Financial Statements"). The June Financial Statements (i)
shall
be prepared in
accordance with SAP
(which for purposes of this Section 1.4
only shall
include the Agreed Accounting Policies) consistently applied in
accordance
with the accounting policies and practices (including with
respect to
assumptions,
estimations methodology and actuarial methodology)
used to prepare the
Insurance Subsidiary Statements as of December 31, 2003
(the "December
Financial Statements")
and (ii) shall be audited by Ernst &
Young LLP in
accordance with generally accepted auditing standards in the
United
States ("GAAS"). For the avoidance of doubt, certain of the
accounting
policies and practices
used to prepare the
December Financial
Statements and
to be used to prepare the June Financial Statements are set
forth on
Schedule 1.4 attached
hereto (such policies
and practices,
the
"Agreed
Accounting Policies"). No later than forty-five (45) days
following
the Closing,
Seller shall cause a
copy of the June Financial Statements to
be delivered to
Buyer, along with an unqualified executed audit opinion of
Ernst &
Young LLP
substantially in the form attached hereto as Exhibit 1.4
stating that (i)
the June Financial
Statements were prepared in accordance
with SAP and
(ii) the June
Financial Statements
were audited by Ernst &
Young LLP in
accordance with GAAS.
(b) Buyer shall have
forty-five (45) days
following delivery of
the
June
Financial Statements (the "Objection Period") to provide written
notice to Seller
(the "Objection
Notice") of any good
faith objection to
any portion of the June Financial Statements (and the June Adjusted
Statutory Book
Value calculated
therefrom),
which objection shall
be set
forth with
reasonable detail in such Objection Notice. Unless Buyer timely
delivers an
Objection Notice before the expiration of the Objection Period,
the June
Financial Statements
(and the June Adjusted
Statutory Book Value
calculated
therefrom) shall be deemed to have been accepted and approved
by
Buyer and shall
thereafter be final
and binding upon Buyer for purposes of
any post-closing
adjustment set forth
in this Section 1.4 (and any amounts
to be paid
pursuant to Section 1.4(f) hereof shall thereupon be paid). In
addition,
to the extent any
portion of the June Financial Statements or of
the calculation of the June Adjusted Statutory Book Value shall not be
expressly
objected to in the Objection Notice, such matters shall be
deemed
to have been
accepted and approved
by Buyer and shall be final and binding
upon Buyer for
purposes hereof. If Buyer timely delivers an Objection
Notice before
the expiration of the Objection Period, then those aspects of
the June
Financial Statements objected to in the Objection Notice shall
not
thereafter
be final and binding
until resolved in accordance with this
Section 1.4.
<PAGE>
(c) Following receipt of any Objection Notice, Seller and Buyer shall
discuss in good
faith the applicable
objections
set forth therein for a
period of thirty
(30) days thereafter and shall, during such period,
attempt
to resolve
the matter or matters in dispute by mutual written
agreement. If
the parties reach such an agreement, such agreement shall be
confirmed in
writing and the June Financial Statements shall be revised to
reflect such
agreement (or the parties shall otherwise agree to reflect
such
agreement in a written memorandum of adjustment (an "Adjustment
Memorandum")),
which agreement (and
the (i) June Financial Statements, as
so revised,
including the June
Adjusted Statutory
Book Value
calculated
therefrom or
(ii) Adjustment Memorandum, as applicable) shall thereafter be
final and
binding upon Seller
and Buyer for purposes
of any
post-closing
adjustment
set forth in this Section 1.4 (and any amounts to be paid
pursuant to
Section 1.4(f) hereof shall thereupon be paid).
<PAGE>
(d) If the
parties are unable to reach a mutual agreement in
accordance
with Section
1.4(c) hereof during the thirty (30) day
period
referred to
therein, then Seller and Buyer shall jointly select a qualified
partner
(with fifteen (15) or more years of life insurance accounting
experience)
of either Deloitte & Touche LLP or KPMG
LLP (the
"Accounting
Expert"), who,
acting as an expert and not as an arbitrator, shall resolve
those matters still in dispute with respect to the June Financial
Statements and
the June Adjusted Statutory Book Value calculated therefrom.
If the
parties fail to agree on an Accounting Expert within five (5)
Business Days
after the expiration
of the thirty (30) day
period, either
party may
request the American
Arbitration
Association to appoint such an
Accounting
Expert (or a qualified
partner (with fifteen (15) or more years
of life
insurance accounting experience) of another accounting firm if
both
accounting
firms decline to or are disqualified from accepting the
dispute),
and such appointment shall be conclusive and binding upon the
parties.
The Accounting Expert's resolution of the matters in dispute,
including any
adjustments
to the June
Financial Statements (or the June
Adjusted
Statutory Book Value calculated therefrom) made by the
Accounting
Expert,
shall be made by a
detailed writing and shall be final and binding
on Seller and
Buyer (and any amounts to be paid pursuant to Section 1.4(f)
hereof shall
thereupon be paid). Within twenty (20) days of the appointment
of the
Accounting Expert,
each party shall deliver a written presentation
of its
position to the Accounting Expert and the other party, and the
parties
will then have ten
(10) days to prepare a written response to the
other party's
presentation. The
Accounting Expert may also request written
responses from
the parties to specific questions at any time,
which shall
be delivered to
the Accounting Expert
and the other party.
The Accounting
Expert shall
make a determination
as soon as practicable
and in any event
within
sixty (60) days (or
such other time as the
parties shall agree
in
writing) after
its engagement.
Notwithstanding
anything set forth in this
Section
1.4(d), the scope of any dispute to be
resolved by the Accounting
Expert pursuant
to this Section 1.4(d) shall be limited to whether the June
Financial
Statements
were prepared in
accordance with SAP
(including the
Agreed
Accounting Policies), consistently applied with their application
as
of December 31,
2003, or whether there were mathematical errors in the June
Financial
Statements or the calculation of the June Adjusted Statutory
Book
Value, and,
except for the foregoing matters, the Accounting Expert shall
not and is not
to make any further determination. In resolving any disputed
item, the
Accounting Expert may
not assign a value to any particular item
greater than the
greatest value for such item claimed by Seller or Buyer or
less than the
smallest value for
such item claimed by Seller or Buyer, in
each case as
presented to the Accounting Expert. Seller and Buyer agree to
fully
cooperate with each
other and with the Accounting Expert to resolve
any dispute.
<PAGE>
(e) Seller and Buyer agree that judgment may be entered to give
effect
to the determination of the Accounting Expert in any court having
jurisdiction
over the party
against which such determination is to be
enforced.
Notwithstanding
any other provision of this Agreement to the
contrary, the
procedure set forth in this Section 1.4 shall be each party's
exclusive
remedy against the
other party to this Agreement with respect to
any disputes relating to an adjustment to the Closing Consideration;
provided,
however, that, except as provided in this sentence and in
Section
7.3(d),
Seller and GAC acknowledge that neither the decision of the
Accounting
Expert, if any, nor
Parent and Buyer's
acceptance of the final
and binding June
Financial Statements
shall in any way limit
or otherwise
affect
Parent and Buyer's rights to make any claim for breach of any
representation,
warranty or covenant of Seller or GAC under this Agreement,
or in Parent and
Buyer's right to indemnification for any such breach under
Article VII.
(f) If the June Adjusted Statutory Book Value as calculated
from the
final and
binding June Financial Statements: (i) is greater than the
Target
Statutory
Book Value, then Buyer shall pay to Seller the
amount by which
the June
Adjusted Statutory
Book Value exceeds the
Target Statutory
Book
Value;
or (ii) is less than
the Target Statutory
Book Value, then
Seller
shall pay to
Buyer the amount by
which the June
Adjusted Statutory
Book
Value is less
than the Target
Statutory Book Value
(the amount of
either
such adjustment,
a "Post-Closing
Adjustment Amount"). The "Purchase Price"
shall
equal the Closing
Consideration
plus the Post-Closing Adjustment
Amount, if
payable by Buyer, or minus the Post-Closing Adjustment Amount,
if payable by
Seller. Buyer and Seller acknowledge that for purposes of the
procedures
set forth in this
Section 1.4 only,
the calculation of June
Adjusted
Statutory Book Value will be made subject to
the provisions
of
Section
4.15.
<PAGE>
(g) Any Post-Closing
Adjustment Amount
payable by Seller pursuant to
this
Section 1.4 shall be
paid promptly by
Seller, but in no
event later
than ten (10)
Business Days
following the final and binding determination
of such
Post-Closing
Adjustment
Amount (as
determined by the
Accounting
Expert).
Any Post-Closing
Adjustment
Amount payable by
Buyer pursuant to
this Section
1.4, shall be paid
promptly by Buyer,
but in no event
later
than ten (10)
Business Days
following the final and binding determination
of such
Post-Closing
Adjustment
Amount (as
determined by the
Accounting
Expert);
provided, however, that if any Post-Closing
Adjustment
Amount
payable by Buyer
pursuant to this
Section 1.4 shall be
an amount greater
than $20 million
(the "Initial
Adjustment Amount"),
then Buyer shall
(i)
pay the Initial
Adjustment
Amount to Seller
within ten (10) Business Days
following
the final and binding determination of such Post-Closing
Adjustment
Amount (as determined
by the Accounting
Expert) and (ii) shall
issue to Seller
a note (the "Adjustment Note") in the amount of the
excess
of such
Post-Closing
Adjustment Amount over the Initial Adjustment Amount,
payable by
Parent upon the earlier to occur of (A) the second Business Day
after the date
when it becomes
permissible under
applicable Law for Buyer
to cause any
Insurance Subsidiary to make a dividend to Buyer in the amount
of such excess
(and Buyer agrees to use its commercially reasonable efforts
to facilitate
the making of such dividend as promptly as practicable) and
(B) the first
Business Day after the
twelve-month
anniversary of the date
that is 90 days
after the Closing Date. Payment by either party of (i)
any
Post-Closing
Adjustment Amount or (ii) the principal of any Adjustment Note
shall in each
case be made in immediately available funds via wire transfer
to an account
designated by the
party entitled to
receive such payment in
writing,
and shall in each case
be paid together with interest thereon, at
a rate per annum
equal to the "Prime Rate" (as reported from time to time
in The Wall
Street Journal) plus 200 basis points, calculated on the basis
of the actual
number of days elapsed divided by 365, from and including the
Closing Date to
but excluding the date of payment.
(h) All fees and expenses of Seller relating to the matters
described
in this Section
1.4, including
the preparation and delivery of the June
Financial
Statements and the fees of Ernst & Young LLP and Milliman,
shall
be borne by
Seller, and all fees
and expenses
of Buyer relating to the
matters
described
in this Section 1.4 shall be borne by Buyer.
Notwithstanding
the foregoing, in the event any dispute is submitted to the
Accounting
Expert for resolution as provided in Section 1.4(d) hereof,
the
fees and
expenses of the Accounting Expert (and any arbitrator
appointing
such expert, if
applicable) shall be borne equally by Seller and Buyer.
(i) Following
the Closing, Buyer shall not take any action with
respect to the
accounting books and
records of the Acquired Companies and
their
Subsidiaries
on which the June Financial Statements or the
calculation
of June Adjusted
Statutory Book Value is to be based that
is
not consistent
with the past practices of the Acquired Companies (including
the Agreed Accounting Policies) and would affect the June Financial
Statements
or the calculation of June Adjusted Statutory Book Value.
Without limiting
the generality of the foregoing, no changes shall be made
in the
methodology for
establishing any
reserve or other account existing
as of the date
of the balance
sheet included within the June Financial
Statements
(including with respect to assumptions, estimations methodology
and actuarial
methodology) that
would affect the June Financial Statements
or the
calculation of June Adjusted Statutory Book Value.
Section 1.5
Closing Costs;
Transfer Taxes and Fees. Except as otherwise
provided in this Section 1.5, Buyer and Seller shall each bear
50% of the cost
of (a) all documentary, sales, use, stamp
and transfer Taxes and any other Taxes
or fees imposed by reason of the
transfer of the Shares
(and any deficiency,
interest or penalty asserted with respect
thereto) ("Transfer Taxes") and filing
any associated Tax Returns and (b) all
recording, filing, title and registration
fees or other charges in connection with or as a direct result of the
transfer
of the Shares. Buyer shall bear all Transfer
Taxes resulting solely from the
fact that Parent is a foreign entity and all costs (including those costs
relating to insurance regulatory approvals) of applying for new Required
Licenses and obtaining the transfer of
existing Required
Licenses which may
be
lawfully transferred.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF SELLER AND GAC
Except as set forth in the disclosure letter delivered by
Seller to Buyer (the "Seller Disclosure
Letter") (provided, that the listing of
an item in one part of the Seller
Disclosure Letter shall be deemed to be a
listing in each part of the Seller
Disclosure Letter and to apply to any other
representation and warranty of Seller and
GAC in this Agreement to which its
relevance is reasonably apparent on its
face), each of Seller and GAC represents
and warrants to Buyer as of the date of
this Agreement and, unless such
representations and warranties address a
matter only as of a certain date, as of
the Closing Date as follows:
Section 2.1
Organization. Each of
Seller, GAC and the
Acquired Companies
has been duly organized and is validly
existing and in good
standing under the
laws of the jurisdiction of its incorporation or organization and has all
requisite corporate power and authority to
own, lease and operate its properties
and to carry on its business as now being conducted. Each of the Acquired
Companies is duly qualified to do business and is in good standing in each
jurisdiction in which the property owned,
leased or operated by
it, the sale of
insurance or the nature of the business
conducted by it makes such qualification
necessary, except for such failures to be
so duly qualified and in good standing
that, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect on the
Acquired Companies.
<PAGE>
Section 2.2
Capitalization.
(a) The capitalization
of each Acquired
Company is set forth on Part
2.2(a) of the
Seller Disclosure
Letter, and there are no equity securities
issued and
outstanding
of any Acquired
Company except as so
set forth on
Part 2.2(a) of
the Seller Disclosure Letter. All of the Shares are owned of
record by
Seller, GAC or an Acquired Company.
(b) All of the outstanding equity securities of each Acquired
Company
have
been duly authorized and are validly issued, fully paid and
nonassessable.
None of the Shares
have been issued in
violation of, and
none of the
Shares are subject to,
any purchase
option, call, right of
first
refusal, preemptive, subscription or similar rights under any
provision of
Law, the Constituent
Documents of Seller or any subsidiary of
Seller or any
Contract or Other Agreement.
(c) The
Acquired Companies
have no preferred
stock, voting common
stock,
non-voting
common stock, or other
shares of capital stock reserved
for or otherwise
subject to issuance
under existing plans or contractual
commitments.
The Acquired Companies do not have any
outstanding
bonds,
debentures,
notes or other debt obligations, or any outstanding warrants or
options for the
purchase of any class
of equity security,
the holders of
which have the
right to vote or which are convertible into or exercisable
for securities having the right to vote with the
holders of the Shares on
any matter.
(d) There are no
outstanding
purchase rights, warrants, options,
rights,
phantom stock rights, agreements, convertible or exchangeable
securities or
other Contracts or Other Agreements relating to the issuance,
sale, voting,
rescission,
redemption or transfer
of any equity securities
or other
securities of any Acquired Company.
(e) None of the Acquired Companies owns, directly or indirectly,
any
capital stock of
or other equity interests in any corporation, partnership
or other Person
(other than investments held in the Investment Portfolio in
accordance with the Investment Guidelines) and none of the Acquired
Companies is a
member of or participant in any partnership or joint venture
other than as
may be permitted by the Investment Guidelines.
(f) Prior to the execution of this Agreement, Seller (i) has
delivered
to Buyer true
and complete copies of
the Constituent
Documents,
each as
amended
to date, of each of the Acquired Companies and (ii) has made
available to
Buyer true and complete copies of the stock certificate and
transfer books
and the minute books of each of the Acquired Companies.
<PAGE>
Section 2.3
Authorization; Binding
Agreement.
Each of Seller and GAC
has
all requisite corporate power and authority to execute and deliver this
Agreement and the other Transaction Documents to which each is a party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the other
Transaction Documents
to which each
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly
authorized by all necessary corporate action
on the part of each of Seller and GAC. This
Agreement has been
duly and validly
executed and delivered by each of Seller and
GAC and (assuming the
accuracy of
the representations and warranties in Section 3.2)
constitutes a legally valid
and binding agreement of each of Seller,
and GAC enforceable against each of
Seller and GAC in accordance with its terms, subject to (i) the effect of
any
applicable bankruptcy, insolvency,
reorganization,
moratorium and similar
laws
relating to or affecting creditors' rights
and remedies generally, and (ii) the
effect of equitable principles (regardless of whether enforceability is
considered in a proceeding in equity or at
law).
Section 2.4
Noncontravention. Neither the execution and delivery of this
Agreement and the other Transaction
Documents nor the consummation of the
transactions contemplated hereby and
thereby will conflict with or result in any
breach of any provision of, or require any
consent or approval (other than
consents and approvals described in Section
2.5 below) under or constitute (with
or without notice or lapse of time or both)
a violation or default (or give rise
to any right of termination, cancellation
or acceleration or to loss of a
material benefit) under, or result in the
creation of any Lien upon the property
or assets of any Acquired Company under,
any of the terms, conditions or
provisions of (i) the Constituent Documents
of Seller, GAC or any Acquired
Company, (ii) any note, bond, mortgage,
indenture, deed of trust, license,
lease, contract, commitment, agreement,
arrangement or other instrument or
obligation (collectively, "Contracts or
Other Agreements") to which Seller, GAC
or any Acquired Company is a party or by
which any of them or any portion of
their properties or assets may be bound or
(iii) any Law or Order applicable to
Seller, GAC, any Acquired Company or any
portion of their properties or assets
or any Registered Investment Company or
Registered Separate Account, other than
in the case of foregoing clauses (ii) and
(iii), any such items that,
individually or in the aggregate, would not
reasonably be expected to result in
a Material Adverse Effect on the Acquired
Companies.
Section
2.5 Approvals. No license, permit, consent, approval, order,
certificate, authorization, declarations of or filing with any Governmental
Entity on the part of Seller, GAC or any Acquired Company that has not been
obtained or made is required in
connection
with the execution or delivery by
Seller or GAC of this Agreement or the other Transaction Documents or the
consummation by Seller and GAC of the transactions contemplated hereby and
thereby, other than (a) filings
and other applicable requirements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (b) approvals, filings and/or
notices required under any applicable state
or federal banking laws or any applicable
state or federal laws
related to the
sale or operation of insurance,
investment
companies,
investment
advisers or
broker-dealers set forth in Part 2.5 of the
Seller Disclosure
Schedule, or (c)
consents, approvals, authorizations, declarations or filings that, if not
obtained or made, would not reasonably be expected to result in a Material
Adverse Effect on the Acquired Companies, or prevent Seller or GAC from
consummating the transactions contemplated
hereby.
<PAGE>
Section 2.6
Financial Statements. (a) Attached as Part 2.6(a) of the Seller
Disclosure Letter are (i) the unaudited combined financial statements
(consisting of balance sheets and statements of income)
as of and for the year
ended December 31, 2003 of the Acquired Companies that are not Insurance
Subsidiaries and (ii) the audited
financial statements (consisting of balance
sheets, statements of income and statements of cash flows), including the
related footnotes, as of and for the year
ended December 31, 2003 of each of the
Acquired Companies listed on Part 2.6(a)(ii) of the
Seller Disclosure
Letter
(collectively, the financial statements described in clauses
(i) and (ii), the
"Non-Insurance Financial Statements"). The Non-Insurance Financial
Statements
were derived from the same data and
prepared using the
same methodologies
as
were used in the annual audited GAAP
financial statements
of Seller included in
the Seller's filings under the Exchange Act,
and fairly present in all material
respects (except, in the case of the Non-Insurance Financial Statements
described in clause (i) above, for the absence of footnotes) the financial
condition of the Acquired Companies that are not Insurance
Subsidiaries
as of
the respective dates thereof and the results of
operations
of the Acquired
Companies that are not Insurance
Subsidiaries
for the respective
periods then
ended.
(b) The Acquired Companies that are not Insurance Subsidiaries
do not have any liabilities or obligations
of any nature (whether accrued,
absolute, contingent, unasserted or
otherwise) required by GAAP to be reflected
on a balance sheet or in the notes thereto,
except (i) as disclosed, reflected
or reserved against in the balance sheet
included in the Non-Insurance Financial
Statements and (ii) for ordinary course
liabilities and obligations incurred in
the ordinary course of the business of the
Acquired Companies that are not
Insurance Subsidiaries consistent with past
practice since December 31, 2003 and
not in violation of this Agreement. This
representation and warranty shall not
be deemed to be breached as a result of any
change in GAAP or Law after the date
of this Agreement.
Section 2.7
Certain Subsidiaries.
(a) Insurance Subsidiaries.
<PAGE>
(i) Part 2.7(a)(i) of the Seller Disclosure Letter sets forth
the
name of each Acquired Company that is an insurance company
(collectively, the
"Insurance
Subsidiaries"). Each
of the Insurance
Subsidiaries is (i)
duly licensed or authorized in all material
respects as an insurance company in its jurisdiction of
incorporation,
(ii) duly licensed or authorized in all material respects to carry on
an insurance business
in each other jurisdiction where it is required
to be so licensed or authorized, and (iii) duly licensed or
authorized
in all material respects in its jurisdiction of incorporation and
each
other applicable
jurisdiction to issue
the Life & Annuity
Contracts
that it is currently
writing, and was duly
licensed or authorized in
all material respects
to issue the Life & Annuity Contracts that it
wrote at the time such
Life &
Annuity Contracts were issued and
otherwise to conduct its insurance and variable products business,
as
required by Law. Seller, GAC and the Insurance Subsidiaries have made
all required filings
under applicable Law regulating the business and
products of insurance,
except where the failure to file, individually
or in the aggregate,
would not reasonably
be expected to result in a
Material Adverse Effect on the Acquired Companies. Part 2.7(a)(i) of
the Seller Disclosure
Letter sets forth the states where Seller, GAC
and the Insurance Subsidiaries are domiciled or "commercially
domiciled" for insurance regulatory purposes. Seller has previously
delivered to
Parent true and complete copies of all examination
reports of
insurance departments and any insurance regulatory
authorities received
by any Insurance
Subsidiary
since January 1,
2001.
(ii) With respect to each Insurance Subsidiary, each such
Insurance Subsidiary's
audited Insurance Subsidiary Statements as of
and for the
year ended December 31, 2003 are attached as Part
2.7(a)(ii) of the Seller Disclosure Letter. Such Insurance
Subsidiary
Statements present
(and, with respect to any Insurance Subsidiary
Statement for any
quarter after December
31, 2003, and prior to
the
Closing, will
present) fairly in all material respects, on a
consistent basis
and in accordance with the statutory accounting
practices prescribed
or permitted by the appropriate regulatory
agencies of the
jurisdiction in which
such Insurance
Subsidiary is
domiciled ("SAP"),
the financial position at the date of each
such
statement and results of each such Insurance Subsidiary's operations
for each such
referenced period.
Schedule 1.4 sets
forth certain of
the
accounting
policies and practices (including with respect to
assumptions,
estimations
methodology and actuarial methodology) used
by Seller to prepare the December Financial Statements. No material
deficiency has been
asserted in writing by
any Governmental
Entity
with respect to any Insurance Subsidiary Statements that has not been
addressed to the satisfaction of such Governmental Entity. Except as
indicated therein, all assets that are reflected as admitted assets
on
the Insurance
Subsidiary Statements
comply in all material
respects
with all applicable
Laws regulating the business and products of
insurance with respect
to admitted assets,
as applicable, and the
amounts of capital reflected on the Insurance Subsidiary Statement of
each Insurance
Subsidiary are sufficient in nature and amount to meet
all requirements
of applicable Law. The Insurance Subsidiary
Statements comply in all material respects with all applicable
Law.
<PAGE>
(iii) All reserves for policyholder liabilities reflected on the
balance sheets of the Insurance Subsidiary Statements as of December
31, 2003, (A) were determined in accordance with actuarial standards
of practice,
consistently
applied, (B) were based on actuarial
assumptions that were
reasonable in relation
to the relevant
policy
and contract
provisions
and (C) are in
compliance
with SAP in all
material respects
(it being understood by Parent and Buyer that in
making the
representations and warranties in this Section 2.7(a)(iii)
Seller and GAC are not
representing
and warranting that
the reserves
referred to therein or the assets supporting such reserves have been
or will be sufficient or adequate for the purposes for which they
were
established or that
reinsurance
recoverables
taken into account
in
determining the amount
of such reserves
will be collectible). The
Insurance Subsidiaries
do not have any
liabilities or obligations of
any nature (whether
accrued, absolute, contingent, unasserted or
otherwise) required by
SAP to be reflected on
a balance sheet or
in
the notes thereto,
except (i) as
disclosed,
reflected or reserved
against in the balance
sheets included in the
Insurance Subsidiary
Statements, and (ii)
for ordinary course
liabilities and obligations
incurred in the ordinary course of business and consistent
with past
practice since
December 31, 2003 and not in violation of this
Agreement (it being
understood by Parent and Buyer that in making the
representations and
warranties in this Section 2.7(a)(iii) Seller and
GAC are not representing and warranting that the reserves
referred to
therein or the assets
supporting such
reserves have been or
will be
sufficient or
adequate for the purposes for which they were
established or that
reinsurance
recoverables
taken into account
in
determining the amount of such reserves will be collectible).
(iv) Since January 1, 2001, each Insurance Subsidiary has had
procedures and
programs which are reasonably designed to provide
assurance that its
respective
agents and
employees are in
material
compliance with
Law, including without limitation, advertising,
licensing and sales practices laws, regulations, directives,
bulletins
and opinions of governmental authorities. Seller has no knowledge of
any material noncompliance with such procedures and programs.
<PAGE>
(v) Each of the Life & Annuity Contracts has been marketed and
sold by the Insurance
Subsidiaries
and, to the knowledge
of Seller,
marketed and
sold by the independent agents of the Insurance
Subsidiaries, in each
case, in compliance
in all material
respects
with applicable Law of the respective jurisdiction in which such
Life
& Annuity
Contracts have been
sold, including (i) all applicable
prohibitions against "redlining" or withdrawal of business lines,
(ii)
all applicable
requirements relating
to the disclosure of the nature
of insurance products
as policies of insurance, (iii) all applicable
requirements
relating to
insurance
product
projections
and
illustrations, (iv) all applicable prohibitions against
discrimination
based on factors relating to race, gender, national origin or similar
distinctions, (v) all
applicable
prohibitions against "churning," or
other improper replacement practices, (vi) all applicable
prohibitions
against "vanishing premium," premium offsets or other under-funding
of
life insurance policies, (vii) all applicable requirements relating
to
"Holocaust victims"
and (viii) all other requirements or prohibitions
relating to unfair trade practices under applicable Law. Each of the
Insurance Subsidiaries
has provided
notice and
disclosure,
to the
extent such notice and
disclosure is required by applicable Law, to
prospective insureds
of situations,
if any, in which
premiums are
charged (or policy
charges are imposed)
from the date of issue
of a
Life & Annuity
Contract,
notwithstanding that
coverage begins at
a
later date.
(vi) Since
January 1, 2001, each Insurance Subsidiary has
maintained records
which in all material respects accurately reflect
transactions in reasonable detail, and accounting controls, policies
and procedures
reasonably designed to
ensure that such
transactions
are recorded in a manner which permits the preparation of financial
statements in accordance with GAAP and applicable statutory
accounting
requirements.
(vii) Seller has
delivered to Buyer a true and correct copy
of
the Investment
Guidelines,
and since January 1,
2002 the Investment
Portfolio has been
invested in compliance
in all material
respects
with the Investment
Guidelines,
as in effect at the time any such
investment was made.
(b) Broker/Dealer
Subsidiaries.
Part
2.7(b) of the Seller
Disclosure Letter sets forth the name of each Acquired Company that
is
registered as a broker
or dealer
(collectively, the
"Broker/Dealer
Subsidiaries"). Except
as would not
reasonably be expected to result
in, individually or in the aggregate, a Material Adverse Effect on
the
Acquired Companies, (i) each of the Acquired Companies and each of
its
respective employees
that is required, in order to conduct its
business as it
is now conducted, to be registered, licensed or
qualified as a broker-dealer under the Exchange Act or, in the case
of
any employees, is
otherwise required to
be registered,
licensed or
qualified under the Exchange Act or NASD Regulations (which for this
purpose shall include the NASD's Membership and Registration Rules
(Rules 1000-1140)) is
so registered,
licensed or qualified
(and has
been so registered,
licensed or qualified
at all times since January
1, 1999 it has been required under applicable Law to be so
registered,
licensed
or qualified), (ii) each Broker/Dealer Subsidiary is a member
organization in good standing of the NASD, Inc. ("NASD"), securities
exchanges,
commodities
exchanges,
boards of trade, clearing
organizations,
trade
organizations and
such other Governmental
Entities and
organizations
in which its
membership
is required in
order to conduct
its business as it is now conducted, (iii) each
Broker/Dealer
Subsidiary has
timely filed all registrations,
declarations, reports,
notices, forms or other filings required to be
filed with the SEC,
NASD, the New York
Stock Exchange
or any other
Governmental Entity
and all fees and
assessments due and
payable in
connection therewith
have been paid, (iv) since the later of its
inception or January 1, 2002, each Broker/Dealer Subsidiary has had
net capital (as such
term is defined in Rule 15c3-1 of the Exchange
Act) that satisfies
the minimum net capital requirements of the
Exchange Act
and of the
laws of any jurisdiction in which such
Broker/Dealer
Subsidiary conducts business, and (v) no Broker/Dealer
Subsidiary is, nor is
any "associated
person" of any
Broker/Dealer
Subsidiary, subject to
a "statutory
disqualification" (as such terms
are defined in the Exchange Act) or subject to a disqualification
that
would be a basis for censure, limitations on the activities,
functions
or operations of, or suspension or revocation of the registration of
such Broker/Dealer
Subsidiary as a broker-dealer, under the Exchange
Act and, to the knowledge of Seller and GAC, there is no proceeding
or
investigation pending
by any Governmental
Entity or
self-regulatory
organization that is
reasonably likely to result in any such censure,
limitations, suspension or revocation.
<PAGE>
(c) Investment
Adviser. Part 2.7(c)
of the Seller
Disclosure Letter
sets
forth the name of each
Acquired Company that is registered as an
"investment
adviser" under the Investment Advisers Act (an "Investment
Adviser
Subsidiary"). Except
as would not reasonably be expected to result
in, individually or in the aggregate, a Material Adverse Effect on the
Acquired
Companies,
(i) each of the
Acquired Companies and each of its
employees
that is required,
in order to conduct
its business as it is now
conducted, to be
registered, licensed or qualified as an investment adviser
under the
Investment Advisers
Act is so registered,
licensed or qualified
(and has been so
registered,
licensed or qualified at all times since
January
1, 1999 it has been required under applicable Law to be so
registered,
licensed
or qualified), (ii) each "investment adviser
representative"
(as defined in the Investment Advisers Act) of an
Investment
Adviser Subsidiary, if
any, who is required to be registered as
such is so
registered (and has been so registered, licensed or qualified
at
all times since
January 1, 1999 it has been required under applicable Law
to be so
registered, licensed
or qualified), (iii) each Investment Adviser
Subsidiary
has timely filed all registrations, declarations, reports,
notices,
forms or other
filings required to be filed with the SEC
or any
other
Governmental Entity (the "SEC Documents"), and as of their
respective
dates, the SEC
Documents of each Investment Adviser Subsidiary complied in
all respects with the requirements of applicable Law (including the
Securities
Laws), and all fees and assessments due and payable in
connection
therewith have been
paid, (iv) no Investment Adviser Subsidiary
or any
Person "associated" (as such term is defined in the Investment
Advisers Act)
with any Investment
Adviser Subsidiary has been convicted of
any crime or is
subject to any
disqualification that
would be a basis for
denial,
suspension, or
revocation of registration of an investment adviser
under Section
203(e) of the
Investment
Advisers Act or Rule
206(4)-4(b)
thereunder
and, to the
knowledge of Seller, there is no proceeding or
investigation
pending
by any Governmental Entity or self-regulatory
organization
that is reasonably likely to result in any such denial,
suspension or
revocation,
(v) in the conduct of
its business with respect
to employee
benefit plans subject to Title I of ERISA ("ERISA Plans"), none
of the Acquired
Companies have (A)
breached any applicable fiduciary duty
under Part 4 of
Title I of ERISA which would subject it to liability under
Sections
405 or 409 of ERISA,
(B) engaged in a
"prohibited
transaction"
within
the meaning of Section 406 of ERISA or Section
4975 of the Code
which would
subject it to
liability or taxes under Sections 409 or 502 of
ERISA or Section
4975 of the Code or
(C) engaged in any conduct that could
constitute a
crime or violation
listed in Section 411
of ERISA that could
preclude such
Person from providing
services to any ERISA
Plan, and (vi)
each Investment
Adviser Subsidiary and each of its
predecessors, if
any,
has at all
times rendered investment advisory services to investment
advisory
clients, including the
Clients, in compliance with all applicable
requirements as
to portfolio composition and portfolio management including
the terms of any
and all applicable investment advisory agreements, written
instructions
from such investment
advisory clients, the organizational
documents
of such investment advisory clients, prospectuses, board of
director or
trustee directives and applicable Law.
<PAGE>
(d) Except
as would not reasonably be expected to result in,
individually or
in the aggregate, a Material Adverse Effect on the Acquired
Companies, no
Investment Adviser Subsidiary has taken any action that would
(x) prevent any of the Registered Investment Companies (other than a
Registered
Separate Account) from qualifying as a "regulated
investment
company",
within the
meaning of
Section 851 of the Code, (y) cause any
Client
account which is subject to ERISA to fail to comply with the
applicable
requirements of ERISA
or (z) otherwise be inconsistent with any
of the
Investment Adviser
Subsidiaries'
prospectus
and other offering,
advertising and
marketing materials. The Seller has previously delivered to
the Buyer a
complete copy of each
SEC Document
filed by each
Investment
Adviser
Subsidiary from
January 1, 2001 through the date hereof (including
a composite Form
ADV as in effect on the date hereof).
(e) Each Acquired
Company that acts as an investment adviser or
distributor to a
Registered Investment Company has adopted a formal code of
ethics and a
written policy
regarding insider trading, a complete and
accurate
copy of each of which
has been delivered
to Parent and each of
which
substantially
complies with Law. The policies of each Investment
Adviser
Subsidiary
with respect to
avoiding conflicts of
interest are as
set forth in its
most recent Form ADV thereof, as amended, copies of which
have been
delivered to Parent,
and there have been no material violations
or allegations of violations of such policies that
have occurred or been
made that have
not been addressed in accordance with these procedures.
(f) Each Investment
Adviser Subsidiary has at all times
maintained
books and
records which
accurately
reflect transactions in reasonable
detail,
and accounting controls, policies and procedures reasonably
designed to ensure
that such transactions
are (i) executed in
accordance
with its
management's general or specific authorization, as applicable,
and
(ii)
recorded in a manner
which permits the preparation of financial
statements in
accordance with GAAP
and applicable
regulatory
accounting
requirements
and other account and
financial data,
including
performance
results,
in accordance with
applicable regulatory
requirements,
and the
documentation
pertaining thereto is
retained, protected
and duplicated in
accordance
with all applicable regulatory requirements, including the
Investment
Advisers Act and the Investment Company Act.
Section 2.8
Absence of Certain Changes or Events. Since December 31, 2003,
the Acquired Companies have conducted their
respective
businesses only in
the
ordinary course consistent with past practice (except in connection with the
transactions contemplated hereby) and have used
commercially reasonable efforts
to preserve intact the business
organization
of the Acquired
Companies and to
maintain satisfactory relationships with
the customers,
suppliers and employees
and others with which the Acquired
Companies have
business relationships
and,
without limiting the generality of the
foregoing:
(a) There have
been no changes, effects, events, occurrences or
developments
which, individually or in the aggregate, have had or would
reasonably
be expected to result in a Material Adverse Effect on the
Acquired
Companies.
<PAGE>
(b) None of the Acquired Companies has sold, assigned, transferred or
conveyed any
Proprietary Right.
(c) Except as otherwise contemplated by this Agreement or
as required
to ensure that
any Plan is maintained in compliance with applicable Law or
to comply with
any Contract or Other Agreement regarding Business Employees
or Plan entered
into prior to the date hereof (complete and accurate copies
of which have been
heretofore
delivered to Buyer), none of the Acquired
Companies
has (A) adopted, entered into, terminated or amended any
collective
bargaining agreement
or Plan or any Contract or Other Agreement
with respect to
any current or former
employees of an Acquired Company or
any Bank Channel
Employee, (B) increased in any manner the
compensation,
bonus or
fringe or other benefits of, or paid any bonus of any kind
or
amount
whatsoever to, any current or former Business Employee, except for
any planned
salary increases and
payment of bonuses,
each as described in
Part 2.8(c) of
the Seller Disclosure Letter, (C) paid any benefit or amount
not required
under any Plan or Contract or Other Agreement as in effect on
the date of this
Agreement,
other than as
contemplated
in the foregoing
clause (B), (D)
except in the ordinary
course of business
consistent with
past practice,
granted or paid any severance or termination pay or increase
in any manner
the severance
or termination pay of any current or former
employees of an
Acquired Company or any Bank Channel Employee, (E) granted
any awards under
any bonus, incentive,
performance or other Plan, Contract
or Other Agreement or otherwise, other than as contemplated in the
foregoing
clause (B), (F) taken any action to fund or in any other
way
secure the
payment of
compensation or
benefits under any Plan or Contract
or Other
Agreement,
(G) taken any
action to accelerate the vesting or
payment of any
compensation or
benefit under any Plan or Contract or Other
Agreement or (H)
materially changed any
actuarial or other assumption used
to calculate
funding obligations
with respect to any Acquired Company Plan
or changed the
manner in which
contributions to any
Acquired Company Plan
are made or the
basis on which such contributions are determined.
(d) No Acquired
Company has effected
any amendment or
modification to its
Constituent Documents.
(e) None of the
Acquired Companies has made any material change in its
fiscal year, accounting methods or principles used for GAAP or statutory
reporting purposes, except for changes
which are required by Law, SAP or GAAP of
all enterprises in the same business.
(f) Except in the ordinary course of business consistent with past
practice, no Acquired Company has made any
material change, and neither Seller,
GAC nor any Acquired Company has permitted
any of the Insurance
Subsidiaries to
make any material change, in its underwriting or claims
management
practices,
pricing practices, reserving practices, reinsurance practices, marketing
practices or investment policies or
practices or Investment Guidelines, except
in each case as required by Law.
(g) None of the
Acquired Companies
has made any new
material Tax election
or any settlement or compromise of any
material income Tax liability.
<PAGE>
(h) No Acquired
Company has revalued
any properties or
assets, including
writing off notes or accounts receivable, other than in the ordinary course
of
the business of the applicable Acquired Company, or as required by applicable
Law, SAP or GAAP.
(i) The
investments of the Acquired Companies have been maintained,
and no
sales or other dispositions of investments have been effected, other than in
accordance with the Investment Guidelines and in the ordinary course of
business.
(j) The Seller
has not taken or failed to take any action or permitted
any
Acquired Company to take or fail to take
any action, in each case for the
purpose of either (i) shifting statutory income or surplus from the period
following June 30, 2004 to the period
preceding June 30, 2004 or (ii) increasing
statutory income or surplus with the intent of increasing the June Adjusted
Statutory Book Value or increasing the
Closing Consideration to the detriment of
Buyer and Parent; provided, however, that
Parent and Buyer agree that any action
taken by Seller, to the extent necessary to
ensure that an independent auditor's
opinion will be unqualified after an issue as to ability to
give an unqualified
opinion is raised by such auditor, shall not be deemed to be a breach
of this
Section 2.8(j).
(k) No Acquired
Company has launched or introduced any material new product
or service.
Section
2.9 Litigation, Judgments, No Default, Etc. There is no suit,
action or proceeding (collectively, "Proceeding") pending or, to the
knowledge
of Seller, threatened in writing since January 1, 2001, to which any of the
Acquired Companies or any Registered
Investment Company or
Registered
Separate
Account is a party and which (i) relate to or involve a claim for specified
damages of more than $1,000,000, (ii) relate to or involve any class action
claims, (iii) seek any material
injunctive
relief or (iv) would
reasonably be
expected to give rise to any legal
restraint on or prohibition against the
transactions contemplated by this
Agreement. There is no
Proceeding or claim by
any of the Acquired Companies pending, or which the Seller or a Subsidiary
intends to initiate on behalf of any
Acquired Company, against any other Person.
To the knowledge of Seller, there is no pending or threatened
investigation of
any of the Acquired Companies or any
Registered Investment Company or Registered
Separate Account by any Governmental
Entity. To the
knowledge of Seller,
there
is no judgment, decree, injunction (preliminary or otherwise),
rule or order
(collectively "Orders") of any arbitrator or
Governmental
Entity outstanding
against any of the Acquired Companies,
any Registered
Investment Company or any
Registered Separate Account.
Section 2.10
Compliance; Material Contracts.
(a) No Acquired
Company is in violation, breach or default of any
term, condition
or provision of its Constituent Documents.
<PAGE>
(b) None of the Acquired Companies or, to the knowledge of Seller,
any
other party
thereto, is in violation of or in breach or default under (nor,
to the knowledge
of Seller, does there
exist any condition
which upon the
passage
of time or the giving of notice or both would cause such a
violation of or
breach or default under) any Material Contract (as defined
below) to which
any Acquired Company
is a party or by which any of them or
any portion of
their respective
properties
or other assets may be
bound,
except for
violations,
breaches or defaults
that, individually or
in the
aggregate, would
not reasonably be expected to result in a Material Adverse
Effect on the
Acquired Companies. Other than Related Contracts, none of the
Acquired
Companies has entered
into any Contract or Other Agreement with
any Affiliate of
the Seller (other than another Acquired Company) that is
in effect.
Part 2.10(b) of the
Seller Disclosure
Letter sets forth a true
and complete
list of each Contract
or Other Agreement
(other than a Life
and Annuity Contract or Related Contract entered into in the ordinary
course of
business) to which any Acquired Company is a party, or by which
any of them or any
portion of their
respective properties
or other assets
may be
bound, and that is of a nature described below in this Section
2.10(b) (each, a
"Material Contract"):
(i) an employment
contract (whether oral or written) that has an
aggregate future liability in excess of $100,000 and is not
terminable
by such Acquired Company by notice of not more than 60 days for a
cost
of less than $50,000;
(ii) a Contract or Other Agreement (x) containing a provision
limiting the ability of any Acquired Company to engage in any line
of
insurance or asset management in any geographical area or to compete
with any Person, or
(y) providing for
"exclusivity"
as a result of
which any Acquired
Company is restricted with respect to distribution
and marketing;
(iii) a (A) management, service, consulting or other similar
type
of contract or (B) advertising agreement or arrangement,
in any such
case which has an aggregate future liability to any person (other
than
another Acquired
Company) in excess of $250,000 and is not terminable
by such Acquired Company by notice of not more than 60 days for a
cost
of less than $125,000;
(iv) a material
license, option or
other agreement
relating in
whole or in part to any Proprietary Rights described in Section 2.14
(including any license
or other agreement
under which any
Acquired
Company is licensee or licensor of any such Proprietary Right);
<PAGE>
(v) a Contract
or Other Agreement under which any Acquired
Company has
borrowed any money from, or issued any note, bond,
debenture or other
evidence of
indebtedness to, any
Person, or any
other note, bond,
debenture or other evidence of indebtedness issued
to any Person, in any such case which, individually, is in excess of
$1,000,000;
(vi) a Contract or Other Agreement under which (A) any Person
has
directly or
indirectly
guaranteed
indebtedness,
liabilities
or
obligations of such Acquired Company or (B) any Acquired
Company has
directly or
indirectly
guaranteed
indebtedness,
liabilities
or
obligations of any
Person (in each case other than endorsements for
the purpose of collection in the ordinary course of business),
in any
such case which, individually, is in excess of $1,000,000;
(vii) a Contract or Other Agreement under which such Acquired
Company has made any
advance, loan,
extension of credit or capital
contribution to, or other investment in, any Person, in any such case
which, individually, is in excess of $1,000,000;
(viii) a
Contract
or Other Agreement providing for
indemnification
outside of the
ordinary course of
business of any
Person with respect to
liabilities relating
to any current or former
business of any
Acquired Company or
any predecessor
to an Acquired
Company;
(ix) a Contract or Other Agreement with any Person (other than
an
Acquired Company) to
which a Broker/Dealer
Subsidiary is a party and
pursuant to which such
Broker/Dealer
Subsidiary acts as a
placement
agent for securities;
(x) a Contract or
Other Agreement
by or to which any
Acquired
Company or any of an Acquired Companies' assets or business is bound
or subject
which has an
aggregate future liability to any Person
(other than another
Acquired Company) in
excess of $1,000,000 and is
not terminable by such Acquired Company by notice of not more than
60
days for a cost of less than $500,000;
(xi) a Contract or Other Agreement preventing the solicitation
for employment of third parties by the applicable Acquired
Company;
(xii) a "standstill"
Contract or Other Agreement prohibiting an
Acquired Company
from acquiring the assets or securities of any
person;
(xiii) a partnership, joint venture, shareholders or other
similar Contract or Other Agreement with any Person; or
(xiv) a Contract
or Other Agreement relating to the future
disposition or
acquisition of any
investment in any person or of any
interest in any business enterprise (other than the disposition or
acquisition of
investments in the ordinary course of the business of
the applicable
Acquired
Company, including the disposition or
acquisition of investments forming part of the Investment
Portfolio),
or requiring an Acquired Company to purchase any security
(other than
the disposition or
acquisition of investments in the ordinary course
of business
of the applicable Acquired Company, including the
disposition or
acquisition
of investments forming part of the
Investment Portfolio).
<PAGE>
Section
2.11 Finders and Investment Bankers. Neither Seller nor any
Acquired Company nor any of their
respective officers,
directors or
Affiliates
has employed any investment banker, financial advisor, broker or finder in
connection with the transactions contemplated by this Agreement, except for
Goldman, Sachs & Co. ("Goldman Sachs")
and Milliman USA, Inc.
("Milliman"), or
incurred any liability for any investment banking, business consultancy,
financial advisory, brokerage or finders'
fees or commissions in connection with
the transactions contemplated hereby, except for fees payable to Goldman
Sachs
and Milliman, all of which fees have been or will be paid by Seller in
accordance with the agreements between Seller and Goldman Sachs
and Seller and
Milliman.
Section 2.12
Collective Bargaining
Agreements.
No Acquired
Company is a
party to or subject to any collective
bargaining agreement with any labor union.
To the knowledge of Seller, no union
organization
campaign is in
progress with
respect to the Business Employees.
There are no labor
controversies pending or,
to the knowledge of Seller, threatened in writing against any
Acquired Company
which, individually or in the aggregate,
would reasonably be
expected to result
in a Material Adverse Effect on the Acquired Companies. There are not any
pending charges against Seller (relating to
any of the Acquired
Companies, any
of their current or former employees or the Bank Channel Employees), any
Acquired Company or any current or former
employees of Seller or any Acquired
Company by any Governmental Entity responsible for the prevention of
unlawful
employment practices, and none of Seller or any Acquired
Company has
received
written communication during the past three years of the intent of any
Governmental Entity responsible for the
enforcement of labor or employment laws
to conduct an investigation of or affecting any Acquired Company and, to the
knowledge of Seller, no such investigation
is in progress.
Section
2.13 Insurance. Seller carries insurance with respect to the
Acquired Companies with insurers that, to
the knowledge of Seller, are solvent,
in amount and types of coverage
which are customary in
the industry and against
risks and losses which are usually insured against by persons holding or
operating similar properties and similar businesses. Except as would not
reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Effect on the Acquired
Companies, all such policies are in full
force and effect, all premiums due and payable thereon have been paid (other
than retroactive or retrospective
premium adjustments
that are not yet, but may
be, required to be paid with respect
to any period ending
prior to the Closing
Date), and no notice of cancellation or termination has been received with
respect to any such policy which has not
been replaced on substantially similar
terms prior to the date of such
cancellation.
To the knowledge of
Seller, the
business of the Acquired Companies has been conducted in a manner so as to
conform in all material respects to all
applicable provisions
of such insurance
policies. No material claims have been asserted under any of such insurance
policies or relating to the properties, assets or operations of the Acquired
Companies since January 1, 2002.
<PAGE>
Section 2.14
Proprietary Rights.
(a) The Acquired Company Proprietary Rights, together with the
intellectual
property being licensed under each of the Transitional
Trademark
License, the Buyer Intellectual Property License and the IP
Side
Letters,
will immediately after the Closing be sufficient to
conduct the
business
of the Acquired Companies as it is now being conducted. Part
2.14(a) of the
Seller Disclosure Letter sets forth a true and complete list
of all material
unregistered and
unpatented Acquired
Company
Proprietary
Rights.
With respect to all
Acquired Company
Proprietary Rights
that are
registered
or subject to an
application
for registration in the United
States,
Part 2.14(a) of the
Seller Disclosure
Letter sets forth a list of
all registered Acquired Company Proprietary Rights and a list of all
jurisdictions
in which such Proprietary Rights are registered or
registrations
applied for and all registration and application numbers. All
the material
Acquired Company
Proprietary Rights have been duly registered
in, filed in or
issued by the
appropriate
Governmental Entity
where such
registration,
filing or issuance is necessary for the conduct of the
business
of the Acquired Companies as it is presently conducted. The
Acquired
Companies are the owners of, and, to the knowledge of Seller,
have
the right to
use, execute,
reproduce, display,
perform, modify,
enhance,
distribute,
prepare derivative
works of and sublicense, without payment to
any other
Person, all the
Acquired Company
Proprietary
Rights, and the
consummation of
the transactions
contemplated hereby does not and will not
conflict with,
alter or impair any
such rights, and since
January 1, 2002
neither
Seller
nor any Acquired Company has received any written
communication
from any Person
asserting any ownership interest in any
Acquired
Company Proprietary Rights. Neither Seller nor any Acquired
Company
has granted any license of any kind relating to any Acquired
Company
Proprietary Rights (other than to an Acquired Company).
(b) To the
knowledge of Seller, the operations of the Acquired
Companies do not
violate, conflict
with or infringe and,
to the knowledge
of Seller,
since January 1, 2002,
no Person has asserted in writing to the
Acquired
Companies that such operations violate, conflict with or infringe
any patents,
copyrights
or trademarks owned by any third party.
To the
knowledge of
Seller, there are no
third parties whose operations infringe
nor has anyone
asserted in writing
that such operations
conflict with or
infringe, any
Acquired Company Proprietary Rights.
Section 2.15
Compliance with Law. The businesses of the Acquired Companies
have been conducted in compliance with all Laws applicable to the Acquired
Companies, except for instances of
non-compliance which would not reasonably be
expected to have, individually or in the
aggregate, a Material Adverse Effect on
the Acquired Companies. None of the Acquired Companies or any Registered
Investment Company or Registered Separate Account has received any written
notice of any alleged violation of Law from
a Governmental Entity
since January
1, 2002 (other than written notices which have been cured or otherwise
remedied), and there are no pending or, to
the knowledge of Seller, threatened
hearings or investigations with respect to
any such violation. To
the knowledge
of the Seller, there is no unresolved
violation or exception by any Governmental
Entity with respect to any report or
statement relating to
any examination
of
any Acquired Company or any Registered
Investment Company or Registered Separate
Account. This Section 2.15 does not relate
to matters covered by
Section 2.17,
Section 2.18, Section 2.19 or Section
2.20.
<PAGE>
Section 2.16
Real Property.
(a) Each of the Acquired Companies has good, clear and
marketable fee
title to the
real property listed on Part 2.16(a) of the Seller Disclosure
Letter,
free and clear of all
Liens except (i) taxes
not yet due and (ii)
such
imperfections or
irregularities of title or other Liens as do not and
would not
reasonably be expected
to materially affect
the use of the real
property subject
thereto or affected thereby or otherwise materially impair
business
operations at such properties.
(b) Part 2.16(b)
of the Seller Disclosure Letter sets forth the
address of each
material parcel of property leased or subleased by an
Acquired Company
(each, a "Leased Property"), and a true and complete list
of all leases
for each such Leased
Property (each, a
"Lease")
(including
the date and
name of the parties to such Lease). With respect to each of
the Leases:
(i) such Lease is valid and in full force and effect;
(ii) to the knowledge of Seller, the transactions contemplated
in
this Agreement
do not require the consent of any other party to
a
Lease, an assignment of Lease or a sublease;
(iii) to the knowledge of Seller, (A) the Acquired Company or
any
other party to the Lease is not in breach or default under such
Lease,
and (B) no event has occurred or circumstance exists which, with the
delivery of notice, the passage of time or both, would constitute
such
a breach or
default, or permit the termination, modification or
acceleration of rent under such Lease;
(iv) to the knowledge
of Seller, the
Acquired Company has not
subleased, licensed or
otherwise granted
anyone the right to
use or
occupy such Leased Property or any portion thereof; and
(v) to the knowledge
of Seller,
the Acquired Company has not
collaterally assigned
or granted any other security interest in such
Lease or any interest therein.
(c) The Leased
Properties comprise
all of the real
property used in
the business of
the Acquired Companies as currently conducted.
<PAGE>
Section 2.17
Licenses and Permits.
(a) Except as
otherwise expressly addressed in Section 2.7, the
Acquired
Companies and each
Registered Investment
Company and
Registered
Separate Account
have obtained, and are and have at all times since January
1, 2002 been in
compliance in all respects with, all necessary licenses,
permits,
consents, approvals, orders, certificates, authorizations,
declarations
and filings
required by all
Governmental
Entities for the
conduct of the
businesses and
operations of the Acquired Companies as now
conducted
(collectively, the "Required Licenses"), except where the
failure
to have obtained
or complied with any such Required Licenses, individually
or in the
aggregate,
would not reasonably be expected to result in a
Material Adverse
Effect on the Acquired Companies.
(b) Part 2.17(b) of the Seller Disclosure Letter sets forth a
list of
all Required Licenses. Since January 1, 2002, Seller has not received
written
notice
of any Proceedings relating to the revocation or
modification of
any Required Licenses the loss of which, individually or in
the aggregate,
would reasonably be expected to result in a Material Adverse
Effect on the
Acquired Companies.
To the knowledge of
Seller, and except
for the
"relicensing" requirements in the states identified on Part
2.17(b)
of the Seller
Disclosure
Letter and any similar requirements in other
states
that may be
triggered by the change in control of the Insurance
Subsidiaries
but do not require the
approval of any
Governmental
Entity
sooner than 90
days following the
Closing, none of the
Required Licenses
will be subject
to suspension, modification, revocation or nonrenewal as a
result
of the execution and delivery of this Agreement or the other
Transaction
Documents or the consummation of the transactions contemplated
hereby or
thereby.
Section
2.18 Environmental Matters. Except for such matters that,
individually or in the aggregate,
would not reasonably
be expected to result in
a Material Adverse Effect on the Acquired
Companies:
(a) each of the Acquired Companies is, and has been, in compliance
with
all Environmental Laws, and none of the Acquired Companies has
received any
communication that
alleges that any of the Acquired Companies
are in violation
of, or have liability under, any Environmental Law;
(b) each of the Acquired Companies has obtained and is in
compliance
with all
Environmental
Permits necessary for its operations as
currently
conducted;
(c) there are no Environmental Claims pending or, to the
knowledge of
Seller,
threatened in writing, against any of the Acquired Companies;
(d) there have been no releases of any Hazardous Material that would
reasonably be
expected to form the basis of any Environmental Claim against
any of the
Acquired Companies or
against any Person whose liabilities for
such
Environmental Claims
any of the Acquired Companies have, or may have,
retained or
assumed, either contractually or by operation of law; and
(e) (i) none of the Acquired Companies has retained or assumed,
either
contractually
or by operation of
law, any liabilities or obligations that
could reasonably
be expected to form the basis of any Environmental Claim
against any of
the Acquired Companies
and (ii) to the knowledge of Seller,
no Environmental Claims are pending against any
Person whose
liabilities
for such
Environmental
Claims any of the
Acquired Companies
have, or may
have, retained
or assumed, either contractually or by operation of law.
<PAGE>
Section 2.19 Tax
Returns and Tax Payments.
(a) Seller has timely
filed all U.S. federal
income Tax Returns
and
Combined
Returns and each of
the Acquired Companies
has timely filed
all
other Tax
Returns required to be filed by them for taxable periods prior
to
the Closing
Date, except,
as to such Tax
Returns, to the extent
that any
failure
to have filed, individually or in the aggregate, would not
reasonably
be expected to result in a Material Adverse Effect on the
Acquired
Companies,
and all such Tax
Returns were true and correct in all
material
respects. Seller and the Acquired
Companies have paid
all Taxes
shown to be due
on such Tax Returns
and all other
Taxes otherwise due,
except to the
extent that any
failure so to pay,
individually
or in the
aggregate, would
not reasonably be expected to result in a Material Adverse
Effect
on the Acquired Companies. The unpaid Taxes of the Acquired
Companies (i)
did not, as of December 31, 2003, exceed the reserve for Tax
liability
set forth on the face
of the December
31, 2003 balance sheet
included within
the December Financial Statements and the December 31, 2003
combined
balance sheet included within the Non-Insurance Financial
Statements and
(ii) will not exceed such reserve as adjusted for operations
through the
Closing Date, except to the extent that any failure to reserve,
individually
or in the aggregate, would not reasonably be expected to
result in a
Material Adverse Effect on the Acquired Companies. Subject to
Section
4.8(c), the reserve for Tax liability will be prepared in
accordance
with the past custom
and practice of the Acquired Companies in
filing
their Tax Returns.
The reserve for Taxes
for federal income
Taxes
and state
income Taxes for Combined Returns on the December 31, 2003
balance sheet
included within the December Financial Statements and the
December 31,
2003 combined balance sheet included within the Non-Insurance
Financial
Statements will be
settled prior to the Closing Date pursuant to
Section 4.13 or
otherwise.
(b)
No claim for unpaid Taxes in writing by a Tax authority has been
asserted
against Seller or any Acquired
Company and no written
notice of
audit by a Tax
authority has been
received by Seller,
which, if resolved
unfavorably,
individually or in the aggregate, would reasonably be expected
to result in a
Material Adverse Effect on the Acquired Companies. No audit
or examination of any Acquired Company is being conducted by a Tax
authority,
which,
if resolved unfavorably, individually or in the
aggregate,
would reasonably be expected to result in a
Material Adverse
Effect
on the Acquired Companies. No extension of the statute of
limitations
is in effect on the
assessment
of any Taxes of the
Acquired
Companies.
None of the
Acquired Companies is or has been during
any year
for which the
applicable statute of limitations with respect to the payment
of federal
income Taxes has not yet expired, a member of an affiliated
group of
corporations within
the meaning of Section 1504 of the Code other
than an
affiliated group the common parent of which is or was Seller or
has
any liability resulting from Taxes of any Person other
than the Acquired
Companies
under Treasury Regulation Section 1.1502-6 (or any similar
provision of
state, local or foreign Law).
<PAGE>
(c) Seller is not a
"foreign person"
within the
meaning of Section
1445 of the
Code.
(d)
Each of the Acquired
Companies has complied
with all
applicable
laws
relating to the payment and withholding of Taxes (i) pursuant to
Sections 1441,
1442, 3121 and 3402 of the Code or similar provisions under
any state, local
or foreign laws) and (ii) with respect to any Policy under
Sections 3405,
6047(a) and
6047(d)(1)(B) of the Code or similar provisions
under any state,
local or foreign laws, except to the extent that any
failure to have
paid or withheld,
individually or in the aggregate, would
not reasonably be expected to result
in a Material Adverse
Effect on the
Acquired
Companies and has,
within the time and manner prescribed by law,
withheld from
and paid over to the proper authorities all amounts
required
to be so
withheld and paid over under applicable laws.
(e) None of the Acquired Companies shall be required to include in
a
Tax period
ending after the
Closing Date taxable
income attributable
to
income
that accrued in a prior Tax period but
was not recognized
in any
prior Tax period
as a result of the installment method of accounting, the
long-term
contract method of
accounting, the cash
method of accounting or
Section 481 of
the Code or comparable provisions of state, local or foreign
Tax law.
(f) No material
liens for Taxes
exist with respect to any of the
assets or
properties of the Acquired Companies except for statutory liens
for Taxes not
yet due or payable.
(g) Each deficiency
resulting from any closed audit or
examination
relating to
Taxes of the Seller and the Acquired Companies has been timely
paid,
except to the extent
that any failure to have paid, individually or
in the
aggregate, would not
reasonably be expected to result in a Material
Adverse Effect
on the Acquired Companies.
<PAGE>
(h) Except as otherwise provided in this Section 2.19(h), each
reserve
item with
respect to the Insurance Subsidiaries, in all material respects,
was determined
correctly in
accordance with the
requirements of
Sections
807,
811 and 846 of the
Code for any tax returns in which any of them were
included for the
taxable periods ended
December 31, 2001 and
December 31,
2002,
has been consistently and correctly applied with respect to the
filing of all
tax returns including
any of them for all
taxable years for
which the
applicable statute of
limitations has not
expired, and will
be
consistently
and correctly applied with respect to the filing
of any tax
returns in which
any of them will be included for the taxable period ended
December
31, 2003 and the
taxable period from
January 1, 2004 through the
Closing Date
when such tax returns are filed (it being understood by Parent
and Buyer that
in making the representations and warranties in this Section
2.19(h),
Seller and GAC are not representing and warranting that the
reserves
referred to therein or
the assets supporting
such reserves have
been or will be
sufficient or adequate
for the purpose for which they were
established
or that reinsurance receivables taken into account in
determining
the amount of such reserves will be collectible). No
representation
or warranty is made in
this Section 2.19(h) with respect to
reserve items in
connection with the
implementation of 2001
CSO reserving
methodology.
(i) No Insurance
Subsidiary has agreed,
or is required to
make, any
adjustment under
Section 807(f) of the Code.
(j) Each Insurance Subsidiary is and has been taxable as a life
insurance
company within the meaning of Section 816 of the Code for the
taxable
period ending on or including
the Closing date and
for all prior
taxable periods
for which the statute of limitations has not expired.
(k) Set forth on Part 2.19(k) of the Seller Disclosure Letter is the
policyholders
surplus account and the shareholders surplus account (as
defined in
Section 815 of the
Code) for each
Insurance Subsidiary
as of
December 31,
2002 as reported on Seller's consolidated federal income Tax
Return for the
taxable year ending on
December 31,
2002, which surplus
accounts were
materially correct as of the date such Tax Returns was filed.
(l) All tax sharing
agreements to which
the Acquired Companies
are
parties or by which
the Acquired
Companies are bound will be terminated
before closing.
None of the Acquired
Companies is party to or bound by any
written, tax
indemnity obligation.
<PAGE>
Section 2.20
Employee Benefit Plans.
(a)
Part 2.20(a)(i) of the Seller Disclosure Letter sets forth a
true
and correct list of each bonus, pension, profit sharing, deferred
compensation,
incentive compensation, stock ownership, stock purchase,
stock
appreciation,
restricted
stock, stock option, phantom stock,
performance,
retirement, thrift, savings, stock bonus, cafeteria, paid time
off,
perquisite,
fringe
benefit, vacation, severance, termination,
retention,
change of control, disability, death benefit, hospitalization,
medical or other
welfare benefit or
other plan, program,
arrangement
or
understanding,
whether oral or written, formal or informal, funded or
unfunded
(whether or not legally binding), including, without limitation,
each "employee
pension benefit plan"
(as defined in Section 3(2) of ERISA,
whether or not
subject to ERISA) (a "Pension Plan") and "employee welfare
benefit plan"
(as defined in Section 3(1) of ERISA, whether or not subject
to ERISA) (a
"Welfare Plan"),
whether or not subject
to the United States
law,
in each case maintained or contributed to, or required to be
maintained or
contributed to, by
Seller or any of its
Subsidiaries or any
other person or
entity that, together
with Seller, is or was
treated as a
single
employer under Section
414(b), (c), (m) or (o) of the Code
(each,
together
with
Seller, a "Commonly Controlled Entity") providing
compensation or
benefits to any current or former employees of an Acquired
Company
or any Bank
Channel Employee (each such plan, a "Plan" and,
collectively,
the "Plans") that is a material Plan, other than the Acquired
Company Plans.
Part 2.20(a)(ii) of
the Seller Disclosure Letter sets forth
a true and
correct list of each Acquired Company Plan. With respect to
each
Acquired
Company Plan and other
material Plan, Seller has delivered to
Parent
complete and correct
copies of such Plan
(or a description of such
Plan if not
written). To the extent applicable to an Acquired Company Plan,
Seller has
delivered to Buyer complete and correct copies of all trust
agreements,
insurance
contracts
or other funding agreements or
arrangements,
the three most recent
actuarial and trust reports, the three
most
recent Form 5500s required to have been filed with the IRS
and all
schedules
thereto, the most recent IRS determination
letter, all
current
summary plan
descriptions, and any and all amendments to any such document.
To the
knowledge of Seller, each item described in the immediately
preceding
sentence was as of its date and is true and correct in all
material
respects.
(b) Each Plan intended
to be qualified under
Section 401(a) of the
Code,
and the trust (if any) forming a part thereof, has received a
favorable
determination
letter from the IRS with respect to all tax law
changes
through the Economic
Growth and Tax Relief
Reconciliation Act
of
2001 as to its
qualification
under the Code and to
the effect
that each
such trust is
exempt from taxation
under Section 501(a) of the Code. No
such
determination
letter has been
revoked, and, to the knowledge of
Seller,
revocation has not
been threatened.
No event has occurred
and no
circumstances
exist that would (i) be reasonably likely to adversely affect
(x) such
qualification or tax-exempt status in form or operation or (y)
the
tax-qualification of
such Plan, or (ii)
materially
increase its cost
or
require security
under Section 307 of ERISA.
<PAGE>
(c) Each of the Acquired Company Plans has been operated and
administered
in compliance in all
material respects with
its terms. Each
Acquired
Company and all the
Acquired Company
Plans are in
compliance in
all material
respects with the applicable provisions of ERISA, the Code and
all other
Applicable
Laws. All contributions required to be made to any
Acquired
Company Plan have been timely made or properly accrued on the
Non-Insurance
Financial Statements
or the Insurance Subsidiary Statements.
There
are no pending or, to the knowledge of Seller, threatened
investigations
by any Governmental Entity, termination proceedings or other
claims (except
routine claims for
benefits payable under
the Plans) by or
on behalf of any
employee or beneficiary under any Acquired Company Plan,
or otherwise
involving any such
Acquired Company Plan or the assets of any
Acquired
Company Plan and there are not any facts
or circumstances
that
could
give rise to any material liability in the event of any such
investigation,
claim or proceeding. All reports, returns and similar
documents
with respect to the
Acquired Company Plans
required to be filed
with any
Governmental
Entity or distributed
to any Acquired
Company Plan
participant have
been duly and timely filed or distributed and all reports,
returns and
similar documents
actually filed or
distributed were true and
correct in all
material respects.
(d) Except as expressly provided in Section 4.6,
with respect to
any
Plan (other than
any Acquired Company
Plan), there is no
liability which
could reasonably
be expected to become a liability of Parent, Buyer and its
Subsidiaries
(including the
Acquired Companies)
following the Closing. No
Commonly
Controlled
Entity has (i) engaged
in a transaction
described in
Section
4069 of ERISA that could subject Parent, Buyer or any of its
Subsidiaries
(including
each Acquired Company) to liability at any
time
after the date
hereof or (ii) acted in a manner that could, or failed to
act so as to,
result in material fines, penalties, taxes or related charges
under (x)
Section 502(c), (i) or (1) of ERISA, (y) Section 4071 of ERISA
or
(z) Chapter 43
of the Code.
(e) No amount or other
entitlement or economic benefit that could be
received
(whether in cash or
property or the
vesting of
property) as a
result
of the execution or delivery of this Agreement or any of the
transactions
contemplated by this
Agreement (alone or in
combination with
any other event,
including termination of employment) by any current or
former employees
of an Acquired Company or any Bank Channel Employee who is
a "disqualified
individual" (as such term is defined in Treasury Regulation
Section
1.280G-1) under any Plan or Contract or Other Agreement or
otherwise would
be characterized as an "excess parachute payment" (as such
term is defined
in Section 280G(b)(1) of the Code) and no such disqualified
individual is
entitled to receive any additional payment from an Acquired
Company in the
event that the excise tax required by Section 4999(a) of the
Code is
imposed.
(f) No Acquired
Company Plan (i) is
subject to Title IV or Part 3 of
Title I of ERISA
or Section 412 of the Code or (ii) is a multiemployer plan
as defined in
Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and no
employee benefit
plan (that would be treated as an Acquired Company Plan if
it were still in
existence) described
in the immediately
preceding clause
(i) or (ii) has
been terminated
within the six years prior to the date
hereof, the
liabilities of which have not been satisfied in full.
<PAGE>
(g) With respect to each Plan that is subject to Title IV or Part 3
of
Title I of
ERISA or Section 412 of the Code: (i) no reportable event
(within the
meaning of Section 4043 of ERISA, other than an event for which
the reporting
requirements have been waived by regulations) has occurred in
the six (6)
years prior to the
date hereof or is
expected to occur on
or
prior to the
Closing; (ii) there has been no application for waiver and has
been no
accumulated funding
deficiency (within the
meaning of Section 302
of ERISA or
Section 412 of the Code), whether or not waived, as of the most
recently ended
plan year of such Plan; (iii) no Commonly Controlled Entity
has been
required to provide security under Section 401(a)(29) of the
Code;
(iv) all
premiums (and interest charges and penalties for late payment,
if
applicable)
have been paid when due to the Pension Benefit Guaranty
Corporation
("PBGC"); and (v) no
filing has been made with the PBGC and no
proceeding
has beencommenced by the PBGC to terminate any Plan and no
condition exists
which could constitute
grounds for the termination of any
such Plan by the
PBGC.
(h) No Acquired
Company has any unsatisfied actual or contingent
liability under
Title IV of ERISA for any employee benefit plan that is not
a Plan.
(i) No
"prohibited
transaction"
(as defined in Section
4975 of the
Code or Section
406 of ERISA) has occurred that involves the assets of
any
Acquired Company
Plan that could subject any Acquired Company or any of its
Subsidiaries,
any of their
employees,
or, to the knowledge
of Seller, a
trustee,
administrator
or other fiduciary of any trust created
under any
Acquired
Company Plan to the
tax or sanctions on
prohibited
transactions
imposed
by Section 4975 of the Code or Title I of ERISA; no Acquired
Company
or any of its
Subsidiaries,
any of their
employees,
or, to the
knowledge of
Seller, a trustee,
administrator
or other fiduciary of any
Acquired
Company Plan or any
agent of any of the
foregoing has engaged in
any transaction
or acted in a manner that could, or has failed to act so as
to, subject any
Acquired Company or any of its Subsidiaries, any of their
employees or any
trustee, administrator or other fiduciary to any liability
for breach of
fiduciary duty under ERISA or any other applicable Law.
(j) No Acquired Company Plan that is a Welfare Plan provides
benefits
after
termination
of employment except where the cost thereof is
borne
entirely
by the former
employee (or his or her eligible dependents or
beneficiaries)
or as required by Section 4980B(f) of the Code or any
similar
statute.
<PAGE>
(k) No current or former employee of any Acquired Company or any Bank
Channel
Employees will be entitled to any additional compensation,
severance or
other benefits or any
acceleration of the
time of payment or
vesting of any
compensation or benefits under any Plan or Contract or Other
Agreement as a
result of the transactions contemplated hereby (alone or
in
combination with
any other event) or any compensation or benefits under any
Plan or Contract
or Other Agreement
the value of which
will be calculated
on the basis of
any of the
transactions
contemplated hereby
(alone or in
combination
with any other
event), except as expressly provided in this
Agreement.
The execution and delivery of this Agreement and the other
Transaction
Documents and the consummation of the transactions contemplated
hereby
and thereby (alone or in combination with any other event) and
compliance with
the provisions of this Agreement and the other Transaction
Documents
do not and will not
require the funding (whether through a
grantor
trust or otherwise) of, or increase the cost of, any Plan or
Contract and
Other Agreement or any other employment arrangement.
(l) No Acquired
Company has any material liability or obligations,
including
under or on account of
a Plan or Contract
or Other Agreement,
arising out of
the hiring of persons to provide services and treating such
persons as
consultants or independent contractors and not as employees.
Section 2.21
Investment Advisory Activities.
(a) Advisory Agreements, Investment Companies and Other
Clients.
(i) Part 2.21(a)(i) of the Seller Disclosure Letter sets forth a
list, as of
December 31, 2003, of each Client with an account of
greater than
$1,000,000 of each
Investment Advisor
Subsidiary
and
shows for each such
Client the aggregate amount of assets under
management with Safeco Asset Management Company as of such
date.
(ii) Seller has
previously delivered
to Parent copies of each
Advisory Agreement
with any of the Clients listed on Part 2.21(a)(i)
of the Seller
Disclosure
Letter, such Advisory Agreements being
referred to herein as
the "Client
Contracts";
provided that, for
purposes of clauses
(iii) and (iv) below,
"Client Contracts"
shall
include all Advisory Agreements, regardless of the size of any
related
account. Since
January 1, 2003, none of the Investment Adviser
Subsidiaries has
received and none is aware of any written demands or
formal requests for
reductions in the fee
rates, waivers of fees
or
other reductions in the amounts payable under the Client
Contracts.
<PAGE>
(iii) Each Client
Contract and any
subsequent renewal has
been
duly authorized,
executed and
delivered by the
Investment
Adviser
Subsidiary party
thereto and, to the knowledge of Seller, each other
party thereto,
and is a valid and legally binding agreement,
enforceable against
such Investment
Adviser Subsidiary and, to the
knowledge of Seller,
each other
party thereto, subject to (i) the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors'
rights
and remedies
generally, and (ii)
the effect of equitable principles
(regardless of whether enforceability is considered in a proceeding
in
equity or at law).
(iv) Each Investment
Adviser Subsidiary and, to the knowledge of
Seller, each other
party thereto, is in
substantial compliance
with
the terms of each Client Contract to which it is a party,
and is not
in default under any of the terms of any such Client Contract,
except
where such default
would not reasonably be expected to result in,
individually or in the
aggregate,
a Material
Adverse Effect on
the
Acquired Companies; there does not exist under any Client Contract
any
event or condition that, after notice or lapse of time or
both, would
constitute an
event of default thereunder on the part of the
Investment Adviser
Subsidiary
in question,
or, to the knowledge
of
Seller, any other
party thereto,
except, in each case, where such
event or condition
would not reasonably be expected to result in,
individually or in the
aggregate,
a Material
Adverse Effect on
the
Acquired Companies.
(b) Registered Investment Companies.
(i) Each Registered
Investment
Company is, and at all times
required under the Securities Laws has been, duly registered
with the
SEC as an investment
company under the Investment Company Act. Since
January 1, 1999, each Registered Investment Company has continuously
been (A) in substantial compliance with (w) the terms and
conditions
of its Constituent
Documents,
(x) the Securities
Laws and the rules
and regulations
promulgated
thereunder, (y) its
investment policies
and investment restrictions set forth in its registration statement
as
from time to time in effect and (z) the laws of its
jurisdiction
of
formation and of each
jurisdiction in which shares of such Registered
Investment Company
have been offered for
sale or sold, and (B)
duly
registered or licensed
and in good
standing under the laws of each
jurisdiction in which qualification is necessary. Without limiting
the
generality of the foregoing, each Registered Investment Company has
maintained its records
in compliance
in all material
respects with
each of the Investment
Company Act, the
Investment Advisers
Act and
the rules of the National Association of Securities Dealers, Inc.,
including records
necessary to
substantiate
the performance of
the
Registered Investment
Company set forth in such Registered Investment
Company's registration
statements
as from time to time in effect.
There are no special restrictions, consent judgments or SEC or
judicial orders
on or against or with regard to any Registered
Investment Company in
effect, except for exemptive orders issued
pursuant to Section 6(c) of the Investment Company Act listed on Part
2.21(b)(i) of the Seller Disclosure Letter.
<PAGE>
(ii) Seller
has delivered to Parent copies of the audited
financial statements
for each of the Registered Investment Companies
for their fiscal
year ending in 2002, and will deliver to Parent
copies of any interim financial statements (whether quarterly,
semi-annual or annual)
prepared in the
ordinary course for periods
ending after the date hereof and before the Closing Date promptly
upon
such financial
statements becoming available (the "Investment Company
Financial Statements"). Each Investment Company Financial Statement
is
consistent with the
books and records of such Registered Investment
Company, and has been
prepared in accordance
with GAAP applied on
a
consistent basis
throughout the periods
presented in such Investment
Company Financial Statement, subject, in the case of interim
unaudited
Investment Company
Financial Statements, only to normal recurring
year-end adjustments.
The minute books of
each Registered Investment
Company accurately
record all material
corporate action taken by its
shareholders and
trustees and committees and true, correct and
complete copies of
such documents with respect to meetings occurring
after January 1, 2001, have been delivered to Buyer.
(iii) (A) Seller has
delivered to Parent copies of each Advisory
Agreement in effect on the date hereof between Safeco Asset
Management
Company and each Registered Investment Company; (B) each such
Advisory
Agreement and
any subsequent renewal has been duly authorized,
executed and delivered by Safeco Asset Management Company, and, to
the
knowledge of Seller, the Registered Investment Company party
thereto;
and is a valid and
legally binding
agreement,
enforceable
against
Safeco Asset Management Company and, to the knowledge of Seller,
each
other party
thereto (subject to (i) the effect of any applicable
bankruptcy,
insolvency,
reorganization,
moratorium and similar laws
relating to or affecting creditors' rights and remedies generally,
and
(ii) the effect of equitable principles (regardless of whether
enforceability is
considered
in a proceeding in
equity or at law));
and (C) in the case
of each Advisory Agreement with a Registered
Investment Company has
been adopted in compliance with Section 15 of
the Investment Company Act, and if applicable, Rule 12b-1
thereunder.
<PAGE>
(iv) Each current prospectus (which term, as used in this
Agreement, shall
include
any related statement of additional
information), as amended or supplemented, relating to each Registered
Investment Company
has been delivered to Parent. Each Registered
Investment
Company has
timely filed all prospectuses, annual
information
forms,
registration
statements,
proxy statements,
financial statements,
notices on Form 24f-2,
other forms,
reports,
sales literature and
advertising
materials and any
other documents
required to be filed with any Governmental Entity, and any amendments
thereto (the
"Fund Reports"), and has timely paid all fees and
interest required to be paid in connection therewith. The Fund
Reports
(i) have been prepared in accordance with the requirements of
applicable Law, and (ii) did not at the time they were filed, and
with
respect to any
prospectus,
proxy statement, sales literature or
advertising material, did not during the period of its authorized
use,
contain any untrue
statement of a material fact or omit to state a
material fact required
to be stated therein
or necessary in order to
make the statements
therein, in the light
of the circumstances under
which they were or are made, not misleading.
(v) None of the Advisory Agreements between a Registered
Investment Company
or any of its Subsidiaries and Safeco Asset
Management Company contains any undertaking by such entity to cap
fees
or to reimburse
any or all fees
thereunder
except, as of the date
hereof, as may be
disclosed in the applicable Investment Company
Financial Statements.
(vi) Part 2.21(b)(vi) of the Seller Disclosure Letter sets forth
all of the investment advisory agreements, sub-advisory agreements
and
distribution or
underwriting contracts
or plans adopted
pursuant to
Rule 12b-1
under the Investment Company Act (a "12b-1 Plan") or
arrangements for the
payment of service fees (as such term is defined
in Rule 2830
of the NASD Conduct Rules), and all administrative
services and other
services agreements,
if any (collectively, the
"Fund Agreements"),
to which any
Registered Investment
Company is a
party and which are in
effect on the date of
this Agreement.
True,
correct and complete copies of the Fund Agreements have been
delivered
to Parent prior to the date hereof. As to each Registered Investment
Company (other than
any Registered
Separate Account that is not a
management
investment
company), there has been in full force and
effect an investment advisory agreement and a distribution or
underwriting agreement at all times since inception of such
Registered
Investment
Company. Each Fund Agreement was duly approved in
accordance with the
applicable provisions
of the Investment
Company
Act and all payments due since December 31, 2002 under each
distribution or
principal underwriting agreement to which any
Registered Investment
Company is a party have been made in compliance
with the related 12b-1 Plan; and the operation of each such 12b-1
Plan
complies with Rule 12b-1 under the Investment Company Act.
<PAGE>
(vii) Each of the Registered Investment Companies has issued
its
shares, units or other
interests and operated in compliance in all
material respects with its investment objectives and policies and
with
Law, including
Section 17 of the
Investment
Company Act; and each
Board of a Registered
Investment
Company has been
established
and
operates in conformity
with the requirements and restrictions of
Sections 9, 10 and 16 of the Investment Company Act. All shares of
each Registered
Investment
Company have been duly
authorized,
are
validly issued,
fully-paid and
non-assessable and
have been sold in
compliance with the
Securities Act. With
respect to each
Registered
Investment Company,
all registration or
qualification
statements or
notices of
offering to sell or sales under which shares of such
Registered Investment
Company have been sold
have, at all times when
such registration
statement,
qualification
statement or notice
has
been effective,
complied
in all material respects with the
requirements of the Investment Company Act, the Securities Act and
any
other applicable
Law then in effect.
No stop order
suspending
the
effectiveness of any such registration or qualification
statement or
notice has been issued and no proceedings for that purpose have been
instituted or, to the
knowledge of Seller, are contemplated with
respect to any Registered Investment Company.
(viii) As of the Closing Date, each Investment Company Board of
a
Registered
Investment
Company having such a Board has taken such
action required to be
taken to approve new Advisory Agreements with
Safeco Asset Management Company and to constitute itself
in each case
so as to comply with the provisions of Section 15 of the Investment
Company Act and Rule 12b-1 thereunder.
(ix) Except as
contemplated by Sections 4.9 and 4.10, no further
action of the Investment Company Board of any Registered Investment
Company having
such a Board or of the shareholders of any such
Registered Investment
Company is
required in connection with the
transactions contemplated by this Agreement.
(x) Each of (1) the proxy solicitation materials to be
distributed to the shareholders of any Registered Investment Company
in connection with the
approvals described in Sections 4.9 and
4.10
and (2) the materials provided to the Boards of any Registered
Investment Companies
in connection
with the approvals of the Board
resolutions have
provided and will provide all information necessary
in order to make the
disclosure of
information therein
satisfy the
requirements of Section 14 of the Exchange Act, Sections 15 and 20 of
the Investment Company
Act and the rules and
regulations
thereunder
and such materials and
information (except to
the extent supplied by
Parent or its
Affiliates) will be
complete in all
respects and will
not contain
(at the time such materials or information are
distributed, filed
or provided, as the case may be) any untrue
statement of a
material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light
of the circumstances
under which they were
made, not misleading or
necessary to correct any statement or any earlier communication with
respect to the solicitation of a proxy for the same meeting or
subject
matter which has become false or misleading.
<PAGE>
(xi) As of the date
hereof, no
exemptive orders or no action
letters from any Governmental Entity have been obtained,
nor are any
requests pending therefor, with respect to any Registered
Investment
Company under any of the Securities Laws except for exemptive
orders
issued pursuant
to Section
6(c) of the
Investment
Company Act for
regular operations in
the ordinary course of
business listed on Part
2.21(b)(xi) of the Seller Disclosure Letter.
(xii) No Acquired Company nor any of their Subsidiaries or
Affiliates has any
express or implied
understanding or
arrangement
which would
impose an unfair burden on any of the Registered
Investment Companies
or would in any way violate Section 15(f) of the
Investment Company Act
as a result of the
transactions set forth
in
Section 1.1.
(xiii) Neither the Seller nor any "affiliated person" (as
defined
in
the Investment
Company Act) of the Seller or any Registered
Investment Company receives or is entitled to receive any
compensation
directly or
indirectly
(i) from any Person in
connection
with the
purchase or sale of securities or other property to, from or on
behalf
of any Registered
Investment Company,
other than bona fide
ordinary
compensation as principal underwriter for such Registered
Investment
Company or as
broker in connection with the purchase or sale of
securities in compliance with Section 17(e) of the Investment
Company
Act or (ii) from any
Registered Investment
Company or its
security
holders for other than bona fide investment advisory, administrative
or other services.
Disclosure of any such
compensation
arrangements
has been made in the registration statement of each Registered
Investment Company filed with the SEC to the extent such disclosure
is
required by applicable Law.
(xiv) Since
the dates of the most recent audited financial
statements included in the Investment Company Financial
Statements of
each Registered Investment Company, such Registered Investment
Company
has not, except
for such actions expressly required under this
Agreement to be taken in connection with the transactions
contemplated
hereby:
(1) declared, set
aside, made or paid any dividend or other
distribution in
respect of its equity
interests or otherwise
purchased or redeemed,
directly or indirectly, any of its equity
interests, except in the ordinary course of its business;
(2) adopted,
or amended in any material respect, any
deferred compensation
or other plan,
agreement, trust, fund
or
arrangement for the benefit of any trustees;
(3) amended its Constituent Documents;
(4) changed
in any material respect its accounting
practices, policies
or principles, except as may be required
under applicable Law or GAAP; or
<PAGE>
(5) operated
its business in any manner other than
in the
ordinary course.
(xv) Each Registered
Investment
Company has in full force and
effect such insurance
and fidelity bonds as may be required by
the
Investment Company
Act. Part 2.21(b)(xv) of the Seller Disclosure
Letter sets
forth all policies of insurance in effect with each
Registered
Investment Company
and with each Investment Adviser
Subsidiary relating to
the Asset Management
Business, and true and
correct copies of such
policies of insurance
have previously been
delivered to Parent.
(xvi) Notwithstanding
any other provision in this Agreement to
the contrary, Sections
2.21(b)(xvii) through
2.21(b)(xx) contain the
only representations
that Seller makes with respect to the Tax
treatment of
any Registered Investment Company and each such
representation is subject to the dispute rights of Section
4.10(f).
(xvii) All Tax Returns of each Registered Investment Company
that
are required to be filed by it for taxable periods ending on or prior
to the Closing Date (with due regard to any extensions) have been
duly
and timely filed. All such Tax Returns are true, correct and complete
in all material
respects. All Taxes of any Registered Investment
Company for any
Pre-Closing Tax Period have been duly and timely paid
in full (or adequate provision for such has been made in its
financial
statements in accordance with GAAP).
(xviii) Each Registered Investment Company has complied
with all
laws relating to the payment and withholding of Taxes and has,
within
the time and the
manner prescribed
by law, paid over to the proper
taxing authorities
all amounts
required to be so
withheld and paid
over.
(xix) Each Registered Investment Company that has elected to be
a
"regulated investment
company" pursuant to Section 851(b)(1) of
the
Code has satisfied the relevant requirements of the Code for all
taxable years, or parts thereof, of such Registered Investment
Company
ending on or prior to the Closing Date as to its status as a
regulated
investment company as
defined in
Section 851 of the Code. Neither
Seller, any Affiliate
of Seller nor, to the knowledge of Seller, any
Registered Investment
Company or any other
agent of any
Registered
Investment Company has received any notice or other communication
from
any Governmental
Entity relating to or affecting any Registered
Investment
Company's
compliance with
any of these relevant
requirements.
<PAGE>
(xx) With respect to each Registered Investment Company, to the
knowledge of Seller,
no claims have been or are being asserted by any
Governmental Entity
with respect to any Taxes and there are no
threatened claims
for Taxes. None of the Registered Investment
Companies has ever
entered into a closing agreement pursuant to
Section 7121 of the Code or otherwise. There has not been any audit
by
any Governmental Entity of any Tax period of any Registered
Investment
Company, and, to the knowledge of Seller, no such audit is in
progress
and no Registered Investment Company has been notified by any
Governmental Entity
that any such audit is
contemplated or
pending.
Except with
respect to any
extension granted pursuant to Internal
Revenue Service Form 7004 (or any predecessor), no extension of time
with respect
to any date on which a
Tax Return was or is to be filed
by any Registered
Investment
Company is in force,
and no waiver or
agreement by any
Registered
Investment
Company is in force
for the
extension of time for the assessment or payment of any Taxes.
<PAGE>
(xxi) No Registered Investment Company, Investment Adviser
Subsidiary, or
Broker/Dealer
Subsidiary
(including
any officer,
director, or employee
of any of them) has entered into, or acquiesced
in, any agreement,
arrangement or
understanding to permit any person
to engage in improper
"market timing" or "late trading" activity (as
such terms are commonly used in the securities industry) with respect
to any Registered Investment Company or Separate Account. No
Registered Investment
Company, Investment Adviser Subsidiary, or
Broker/Dealer Subsidiary (including any officer, director, or
employee
of any of them) has
agreed to waive,
modify, or otherwise not to
enforce, any limitation or requirement in the then-current
prospectus
or statement of additional information or other constituent
documents
of a Registered
Investment Company or Separate Account, the effect of
which waiver,
modification,
or failure to enforce
would be to permit
or facilitate improper
"market timing" or
"late trading"
activities
with respect
to such Registered Investment Company or Separate
Account. No access person (as such term is defined in Rule 17j-1
under
the Investment Company
Act) of any Registered
Investment Company
or
employee of
any Investment Adviser Subsidiary or Broker/Dealer
Subsidiary has engaged
in any improper
"market timing" or improper
"late trading"
activities with
respect to any Registered Investment
Company or Separate Account. Each Registered Investment Company has
established
procedures (i)
to prevent patterns of transactions
characteristic of improper "market timing" strategies, (ii) regarding
the fair-value
pricing and determination of the net asset value
("NAV") of fund shares in connection with purchase and redemption
orders by investors in each Registered Investment Company (including
policies and procedures to deter improper "late trading"), (iii) to
prevent the improper or illegal disclosure of its portfolio
holdings
to any person and to prevent disclosure of its portfolio holdings
in a
manner that might reasonably be expected to facilitate improper
market
timing activities
in respect of its shares or other improper or
illegal activities in
respect of it and (iv)
reasonably designed
to
monitor and ensure
that investors obtain the proper "breakpoint"
discount with
respect to purchases of shares of each Registered
Investment Company
with front-end sales loads (collectively, the
procedures described in clauses (i)-(iv), the "RIC Procedures").
Each
Investment Adviser
Subsidiary and each Registered Investment Company
is and has at all times since January 1, 2003 been in
compliance
in
all material respects with all such procedures. No Investment Adviser
Subsidiary, Registered
Investment Company or Broker/Dealer Subsidiary
has acted,
directly or indirectly, to facilitate purchase and
redemption orders
for fund shares received after the NAV has been
determined for a
particular
day at that day's NAV, nor is any
Investment Adviser
Subsidiary,
Registered
Investment
Company or
Broker/Dealer
Subsidiary aware
of such activities occurring in
connection with the operations of any Registered Investment Company,
except with respect to the Safeco Resource Series Trust, as
permitted
by New York Life Fund,
Inc., SEC no-action
letter published May 6,
1971 and as provided for in the Participation Agreements filed with
the SEC as exhibits to
registration
statements
(which in each
case
requires that the
beneficial
owner of any fund
shares shall have
provided the relevant
purchase or sale order
or instruction
to the
relevant intermediary
prior to the time as of which such NAV is
determined for the day
in question).
The parties agree
that, in the
event that any
Governmental Entity
asserts in any
context, or any
other Person asserts
in a Proceeding,
that any specified activity
prior to the Closing
constituted or might have constituted improper
"market timing" or
improper "late
trading," then for the purposes of
determining whether
any of the representations in this Section
2.21(b)(xxi) has been breached, as between the parties the activity
in
question will be assumed to have constituted improper "market timing"
or "late trading," as
the case may be,
regardless of whether
Seller
believes that
the activity
