Exhibit 10.24
STOCK PURCHASE
AGREEMENT
BY AND BETWEEN
AMERICAN FOUNDERS FINANCIAL
CORPORATION
AND
SAGICOR USA, INC.
DATED AS OF JUNE 1,
2005
Execution Copy
STOCK PURCHASE
AGREEMENT
This STOCK PURCHASE AGREEMENT
(this “Agreement”), dated as of June 1, 2005, is
entered into by and between AMERICAN FOUNDERS FINANCIAL
CORPORATION , an Arizona corporation (“Seller”),
SAGICOR USA, INC. , a Delaware corporation
(“Buyer”), and, for the limited purpose of fully
guaranteeing the performance, payment and all other obligations of
Seller contemplated by this Agreement, VESTA FIRE INSURANCE
CORPORATION , an Illinois corporation (“Vesta
Fire”), and, for the limited purpose of fully guaranteeing
the performance, payment and all other obligations of Buyer
contemplated by this Agreement, SAGICOR LIFE INC. (
BARBADOS ), a Barbados corporation (“SLIB”).
Certain initially capitalized terms used herein are defined in
Article 12.
RECITALS
A. Seller owns, beneficially and of
record, all of the issued and outstanding shares of the capital
stock of Laurel Life Insurance Company, a Texas insurance
corporation (“Laurel”), and Laurel owns, beneficially
and of record, all of the issued and outstanding shares of the
capital stock of American Founders Life Insurance Corporation, a
Texas insurance corporation (“AFL” together with
Laurel, the “Insurance Companies”); and
B. Seller desires to sell, and Buyer
desires to purchase, all of the issued and outstanding shares of
the capital stock of Laurel (the “Shares”) and the
Surplus Debentures (defined in Section 12), on the terms and
subject to the conditions set forth in the Agreement.
AGREEMENT
NOW THEREFORE
, in consideration of the foregoing
recitals and of the representations, warranties, covenants,
agreements, promises and conditions contained herein, the adequacy
of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES;
EXCLUDED ASSETS
Section 1.1 Shares
. On the terms and
subject to the conditions set forth in this Agreement, at Closing,
Seller agrees to sell, transfer and assign the Shares and the
Surplus Debentures to Buyer, and Buyer agrees to purchase the
Shares and the Surplus Debentures from Seller, free and clear of
all Liens (the “Share Purchase”).
Section 1.2 Purchase Price
. In consideration for
the sale by Seller to Buyer of the Shares and the Surplus
Debentures, Buyer shall pay to Seller on the Closing Date an
aggregate purchase price (the “Purchase Price”) equal
to the Fifty Eight Million Dollars ($58,000,000) (a) plus the
amount by which AFL’s capital and surplus reflected on
AFL’s SAP Statement most recently filed with the Texas
Department of Insurance prior to the Closing Date exceeds
$31,637,770, or (b) minus the amount by which AFL’s
capital and surplus reflected on AFL’s SAP Statement most
recently filed with the Texas Department of Insurance prior to the
Closing Date is less than $31,637,770.
- 1 -
Section 1.3 Payment of
Purchase Price . The
Purchase Price for the Shares shall be paid by Buyer to Seller on
the Closing Date by delivering: (a) a wire transfer of
immediately available funds in the amount of Fifteen Million
Dollars ($15,000,000) (the “Escrowed Closing Payment”)
to the escrow account provided for in the escrow agreement attached
as Exhibit 1.3 (the “Escrow Agreement”); and (b) a
wire transfer of immediately available funds in the amount of Forty
Three Million Dollars ($43,000,000) (the “Cash Closing
Payment”) to an account designated by Seller prior to the
Closing.
Section 1.4 Transfer Taxes and
Fees . Seller shall
pay all Taxes charged to grantors, transferors or assignors under
applicable Law in connection with the transactions provided for
herein, together with all other transfer, sales, recording and
filing fees resulting from the transfer of the Shares to
Buyer.
ARTICLE 2
CLOSING
Section 2.1 Time and Place of
Closing . The closing
of the Share Purchase and the transactions provided for in this
Agreement (the “Closing”) shall take place no later
than the last day of the month after all conditions to closing have
been fully performed or satisfied (or waived) by the respective
parties (the “Closing Date”), or at such other time as
the parties may mutually agree. The place of Closing shall be at
the offices of Maynard, Cooper & Gale, P.C., in
Birmingham, Alabama, or such other place as may be mutually agreed
upon by the parties.
Section 2.2 Closing
Obligations .
(a) At Closing, Seller will deliver
to Buyer:
(i) Certificates representing the
Shares, duly endorsed (or accompanied by duly executed stock
powers), for transfer to Buyer or its designee, free of all
encumbrances;
(ii) The officer’s certificate
described in Section 7.1(c) of this Agreement, duly executed
by an authorized officer of Seller;
(iii) Copies of (x) the
resolutions of the board of directors of Vesta Insurance Group,
Inc., Vesta Fire and Seller and the shareholder of Seller,
certified as being correct and complete and then in full force and
effect, authorizing the execution, delivery and performance of this
Agreement and the other documents provided for herein, and the
consummation of the transactions provided for herein and therein
and (y) the charter and bylaws of Seller, certified by the
Secretary of Seller as being true, correct and complete as of the
Closing Date;
(iv) The Surplus Debentures,
together with an assignments thereof to Buyer, duly executed by an
authorized officer of Seller.
(v) Resignations of all directors
and officers of AFL and Laurel who are not employees of AFL as of
the date of this Agreement;
- 2 -
(vi) Termination with respect to the
Insurance Companies of Vesta Insurance Group, Inc.’s
consolidated tax allocation agreement disclosed at
Section 3.12(p);
(vii) The third-party waivers or
consents listed on Schedule 3.6 ;
(viii) The SAP Statements for any
quarterly period ending more than 45 days prior to the Closing
Date;
(ix) The Escrow Agreement and any
other Ancillary Agreements contemplated by the parties in
connection with this transaction to which Seller is a party;
and
(x) Such other documents or
approvals as Seller deems reasonably necessary or as Buyer may
reasonably request for the purposes of consummating or facilitating
the consummation or performance of any of the transactions provided
for herein or contemplated hereby.
(b) At Closing, Buyer will deliver
to Seller:
(i) The Cash Closing
Payment;
(ii) The officer’s certificate
described in Section 6.1(c) of this Agreement, duly executed
by an authorized officer of Buyer;
(iii) Copies of (x) the
resolutions of the board of directors of SLIB and Buyer and the
shareholders of Buyer, certified as being correct and complete and
then in full force and effect, authorizing the execution, delivery
and performance of this Agreement and the other documents provided
for herein, and the consummation of the transactions provided for
herein and therein and (y) the charter and bylaws of Buyer,
certified by the Secretary of Buyer as being true, correct and
complete as of the Closing Date; and
(iv) The Escrow Agreement and any
other Ancillary Agreements contemplated by the parties in
connection with this transaction to which Buyer is a
party;
(v) Such other documents as Seller
may reasonably request for the purposes of facilitating the
consummation or performance of any of the transactions provided for
herein or contemplated hereby.
(c) At Closing, Buyer will deliver
the Escrowed Closing Payment to the escrow account pursuant to the
terms of the Escrow Agreement.
- 3 -
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller hereby represents and
warrants to Buyer as follows:
Section 3.1 Organization and
Standing; Corporate Power; Minute Books .
(a) Each of Seller and Insurance
Companies is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and
has full corporate power and authority to conduct its business as
currently conducted and to own, lease and operate all its
properties and assets in the manner currently operated by it. Each
of Seller and the Insurance Companies is duly qualified or licensed
to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of its business or the
ownership or leasing of its properties or assets makes such
qualification or licensing necessary, except to the extent that
failure to be so qualified or licensed would not, individually or
in the aggregate, result in a Material Adverse Effect.
(b) The minute books of the
Insurance Companies have previously been made available to Buyer
and accurately reflect in all material respects all formal actions
taken at all meetings and all consents in lieu of meetings of the
stockholders and of the boards of directors (including all
committees thereof) of the Insurance Companies. The stock
certificate books and the stock record books of the Insurance
Companies that have previously been made available to Buyer
constitute all of the stock ownership records of the Insurance
Companies. Each of the Insurance Companies is not in default under
or in violation of any provision of its Articles of Incorporation
or By-Laws. Seller has previously made available to Buyer true and
complete copies of the Articles of Incorporation and By-Laws of the
Insurance Companies.
Section 3.2 Authorization
. Seller has full
corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder. Each of Seller and the
Insurance Companies has full corporate power and authority to
execute and deliver each of the Ancillary Agreements to which it is
a party and to perform its obligations thereunder. The execution
and delivery of this Agreement by Seller and the performance by
Seller of its obligations hereunder have been duly and validly
authorized and approved by all requisite corporate action of Seller
and no other acts or proceedings on its part are necessary to
authorize the execution, delivery and performance of this Agreement
or the transactions contemplated hereby. The execution and delivery
by each of Seller and the Insurance Companies of the Ancillary
Agreements to be executed by it and the consummation of the
transactions contemplated thereby have been duly and validly
authorized and approved by all requisite corporate action of Seller
or the Insurance Companies, as applicable, and no other acts or
proceedings on the part of Seller or the Insurance Companies, as
applicable, are necessary to authorize the execution, delivery and
performance of the Ancillary Agreements to which each of Seller or
the Insurance Companies is a party or to consummate the
transactions contemplated thereby. This Agreement constitutes a
legal, valid and binding obligation of Seller, and is and will be
enforceable against Seller in accordance with its terms, except
(i) as enforcement may be limited by applicable bankruptcy,
insolvency, rehabilitation, moratorium or similar laws affecting
creditors’ rights generally, including, without limitation,
the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers and (ii) for the
limitations
- 4 -
imposed by general principles of equity. The
foregoing exceptions set forth in clauses (i) and (ii) of
this Section 3.2 are hereinafter referred to as the
“Enforceability Exceptions.” As of the Closing Date,
assuming the due authorization and execution of each of the
Ancillary Agreements to which Seller or the Insurance Companies is
a party, each such Ancillary Agreement will constitute a legal,
valid and binding obligation of Seller or the Insurance Companies,
as applicable, and will be enforceable against Seller or the
Insurance Companies, as applicable, in accordance with its terms,
subject to the Enforceability Exceptions.
Section 3.3 Governmental
Consents and Approvals . Except as set forth in Schedule 3.3
hereto, no consent, approval, authorization, ruling, order of,
notice to, or registration or filings with, any Governmental
Entity, is required on the part of Seller or the Insurance
Companies in connection with (i) the execution and delivery by
Seller of this Agreement, (ii) the execution and delivery by
each of Seller or the Insurance Companies of the Ancillary
Agreements, or (iii) the consummation by Seller or the
Insurance Companies of the transactions contemplated by this
Agreement or the Ancillary Agreements.
Section 3.4 Stock Ownership;
Subsidiaries .
(a) The authorized capital stock of
Laurel consists solely of 1,400,000 shares of Common Stock, of
which 700,000 shares are issued and outstanding. The issued and
outstanding shares of capital stock described in the preceding
sentence constitute the Shares. Seller owns beneficially and of
record all of the Shares and Surplus Debentures, free of any Lien
or Stock Restriction of any kind or character whatsoever. The
Shares are not subject to any restriction with respect to their
transferability other than those regulatory approvals and consents
referred to in Section 3.3. All of the Shares are duly
authorized, validly issued, fully paid, nonassessable and free of
any preemptive rights. There is no outstanding option, warrant,
right, subscription, call, convertible or exchangeable security or
other agreement, instrument, commitment or right of any kind (other
than this Agreement) pursuant to which Seller or the Insurance
Companies is obligated to issue, sell, purchase, return or redeem
any shares of capital stock of, other securities of, or other
ownership interests in, Laurel, and there are no equity securities
of Laurel reserved for issuance for any purpose, nor is there any
agreement providing for an amendment to Laurel’s Articles of
Incorporation so as to increase the amount of authorized capital
stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect
to Laurel. There are no voting trusts, proxies or other agreements
or understandings with respect to the voting of the capital stock
of Laurel. There are no restrictions on the ability of Laurel after
the Closing to declare and pay dividends, other than those imposed
by applicable state laws and regulations.
(b) The authorized capital stock of
AFL consists solely of 4,000,000 shares of Common Stock, of which
2,000,000 shares are issued and outstanding (the “AFL
Shares”). Laurel owns beneficially and of record 2,000,000 of
the AFL Shares, free of any Lien or Stock Restriction of any kind
or character whatsoever. The AFL Shares are not subject to any
restriction with respect to their transferability other than those
regulatory approvals and consents referred to in Section 3.3.
All of the AFL Shares are duly authorized, validly issued, fully
paid, nonassessable and free of any preemptive rights. There is no
outstanding option, warrant, right, subscription, call, convertible
or exchangeable security or other agreement, instrument, commitment
or right of any kind (other than this Agreement) pursuant to which
Seller or the
- 5 -
Insurance Companies is obligated to issue, sell,
purchase, return or redeem any shares of capital stock of, other
securities of, or other ownership interests in, AFL, and there are
no equity securities of AFL reserved for issuance for any purpose,
nor is there any agreement providing for an amendment to
AFL’s Articles of Incorporation so as to increase the amount
of authorized capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation or similar
rights with respect to AFL. There are no voting trusts, proxies or
other agreements or understandings with respect to the voting of
the capital stock of AFL. There are no restrictions on the ability
of AFL after the Closing to declare and pay dividends, other than
those imposed by applicable state laws and regulations.
(c) Except for AFL, Laurel does not
own, directly or indirectly, any Subsidiaries, and except for
portfolio investments made in the ordinary course of business
consistent with past practices, there are no corporations,
partnerships or other entities or Persons in which the Insurance
Companies own, of record or beneficially, any direct or indirect
equity interest or any right (contingent or otherwise) to acquire
the same.
Section 3.5 Actions
Pending . Except as
set forth on Schedule 3.5 :
(a) There are no Actions pending
against the Insurance Companies, their respective businesses,
properties or Assets (including investment assets), or, to the
Knowledge of Seller, any current or former officer, Employee or
director acting in his or her respective capacity as an officer,
Employee or director of any of the Insurance Companies;
(b) To the Knowledge of Seller,
there are no Actions or series of related Actions threatened
against the Insurance Companies, their respective businesses,
properties or Assets (including investment assets), or, to the
Knowledge of Seller, any current or former officer, Employee or
director acting in his or her respective capacity as an officer,
Employee or director of the Insurance Companies that could
reasonably be expected to have an adverse effect or series of
related adverse effects on the business, Assets, liabilities,
condition (financial or otherwise) or results of operations of the
Insurance Companies; and
(c) There is no injunction, order,
judgment, decree, award or regulatory restriction imposed upon
Seller or the Insurance Companies or any of their respective
properties or Assets which (i) restricts the ability of any of
the Insurance Companies to conduct its business in the ordinary
course of business consistent with past practices or (ii) has
had or reasonably could be expected to have, individually or in the
aggregate, a Material Adverse Effect.
Section 3.6 No Conflict or
Violation . Except as
set forth on Schedule 3.6 , the execution, delivery and
performance by Seller of this Agreement do not, and the execution,
delivery and performance by Seller or any of the Insurance
Companies of the Ancillary Agreements to which it is a party will
not, and the consummation by Seller or any of the Insurance
Companies of the transactions contemplated by this Agreement and by
such Ancillary Agreements in accordance with the terms and
conditions hereof and thereof, will not (i) violate any
provision of the Articles of Incorporation or By-Laws of Seller or
any of the Insurance Companies; (ii) result in the creation of
any Lien on any of the Shares or the Surplus Debentures or on any
of the Assets or properties of the Insurance Companies;
(iii) assuming that the consents and approvals referred to in
Section 3.3 are duly obtained, result in the breach of the
terms and
- 6 -
conditions or cause an impairment of any
Insurance License of the Insurance Companies; (iv) require the
consent or other action by any Person under, violate or result in
the breach of any of the terms of, result in any modification of or
loss of a benefit under, accelerate or permit the acceleration of
the performance required by, otherwise give any other contracting
party the right to terminate or cancel, or constitute (with or
without notice or lapse of time, or both) a default under, any
Material Contract to which Seller or any of the Insurance Companies
is a party or by or to which Seller or the Insurance Companies or
any of their respective Assets or properties is subject;
(v) violate any order, judgment, injunction, award or decree
of any Governmental Entity or arbitrator against, or binding upon,
or any agreement with, or condition imposed by, any Governmental
Entity or arbitrator with respect to Seller or any of the Insurance
Companies; or (vi) assuming that the consents and approvals
referred to in Section 3.3 are duly obtained, violate any
Law.
Section 3.7 Licenses and
Permits . Each of the
Insurance Companies has all Permits necessary to engage in the life
insurance and annuities lines of business in each jurisdiction set
forth on Schedule 3.7(a) (collectively, the
“Insurance Licenses”). Each of the Insurance Companies
has all other Permits necessary to conduct their businesses in the
manner and in the areas in which it is conducting its businesses,
which Permits are set forth on Schedule 3.7(a) . Seller
has delivered to Buyer true, correct and complete copies of all
Insurance Licenses and all other material Permits held by the
Insurance Companies (and, at the Closing, Seller will deliver, as
part of the books and records, the originals or certified copies of
all Insurance Licenses and all other Permits held by the Insurance
Companies). Neither of the Insurance Companies has transacted any
insurance business in any jurisdiction requiring it to have an
Insurance License or other Permit therefor in which it did not
possess such Permit. All such Insurance Licenses and other Permits
are in full force and effect without suspension, revocation,
restriction, amendment or nonrenewal, and there are no pending or,
to the Knowledge of Seller, threatened suits or proceedings with
respect to the suspension, revocation, restriction, amendment or
nonrenewal of any Insurance License or other Permit, and, to the
Knowledge of Seller, no event which (whether with notice or lapse
of time or both) would result in a suspension, revocation,
restriction, amendment or nonrenewal of any such Insurance License
or other Permit has occurred.
Section 3.8
Contracts .
(a) Schedule 3.8(a)
contains a true and complete list of all the following contracts
currently in force or terminated but pursuant to which any of the
Insurance Companies continues to have liabilities or receive
benefits, in each case excluding Insurance Contracts, to which
either of the Insurance Companies is a party or by which any Assets
of the Insurance Companies are bound, as such contracts may have
been amended to the date hereof (collectively, the “Material
Contracts”):
(i) all contracts with any present
or former officer, director or trustee of the Insurance Companies
(including, but not limited to, employment contracts and contracts
evidencing loans or advances to any such Person or any Affiliate of
such Person);
(ii) all contracts with any Person
including, but not limited to, any Governmental Entity, containing
any provision or covenant (A) limiting the ability of the
Insurance Companies to engage in any line of business, to sell any
products or services,
- 7 -
to compete with any Person in any
geographical area, to do business with any Person or in any
location or to employ any Person or (B) limiting the ability
of any Person to compete with, or obtain or provide products or
services from or to the Insurance Companies in any line of business
or in any geographical area;
(iii) (A) all contracts
relating to the borrowing of money by the Insurance Companies
(other than any the Surplus Debentures and intercompany obligations
created in the ordinary course of business) or the direct or
indirect guarantee by the Insurance Companies of any obligation of
any Person for borrowed money or other financial obligation of any
Person or other liability of the Insurance Companies in respect of
indebtedness for borrowed money or other financial obligations of
any Person, including, but not limited to, lines of credit or
similar facilities and (B) any contract involving the deferred
purchase price of property in excess of $10,000;
(iv) all contracts (other than
Insurance Contracts) with any person containing any provisions or
covenant relating to the indemnification or holding harmless by the
Insurance Companies which have had or reasonably could be expected
to have, individually or in the aggregate, a Material Adverse
Effect;
(v) all contracts relating to the
future disposition (including, but not limited to, restrictions on
transfer or rights of first refusal) of any Assets of the Insurance
Companies other than in the ordinary course of business, or for the
grant to any person of any preferential rights to purchase or use
any Assets of the Insurance Companies other than, in the case of
each of the foregoing, any contracts for the sale of investment
assets in the ordinary course of business;
(vi) any partnership, joint venture,
joint marketing, strategic alliance or similar
contracts;
(vii) any form of contract that any
of the Insurance Companies has entered into with a Producer,
provided that all contracts entered into with Producers are
materially comparable to the forms of Producer contracts set forth
on Schedule 3.23 ;
(viii) any contract for the
provision of any administrative services with respect to any
Insurance Contract, including any such contracts with third party
administrators or managing general agents;
(ix) all outstanding powers of
attorney or similar delegations of authority of the Insurance
Companies;
(x) all contracts relating to the
acquisition by the Insurance Companies of any operating business or
the capital stock of any other Person entered into on or after
January 1, 2000;
(xi) all contracts under which
either of the Insurance Companies has made advances or loans to any
other Person other than (1) the Surplus Debentures and
intercompany obligations created in the ordinary course of business
and (2) mortgage loans generated in the ordinary course of
business;
- 8 -
(xii) all contracts providing for
severance, retention, change of control or other similar payments;
and
(xiii) all other contracts (other
than (i) contracts regarding the purchase or sale of
investment assets entered into in the ordinary course of business,
(ii) contracts otherwise required to be set forth on
Schedule 3.8(a) with respect to Sections 3.8(i) through
(xii) or Schedule 3.23 and (iii) other
contracts which are expressly excluded under any other subsection
of this Section 3.8) that (A) involve or are reasonably
likely to involve the payment pursuant to the terms of such
contracts by or to the Insurance Companies of $10,000 or more
within any 12 month period or $100,000 in the aggregate during
the terms of such contracts and are not terminable on 30 days
or less notice without the payment of any penalty by, or any other
material adverse consequence to, the Insurance Companies, or
(B) are otherwise material to the business of the Insurance
Companies.
(b) Each of the Material Contracts
constitutes a legal, valid and binding obligation of each Insurance
Company to the extent that it is party thereto, and, to the
Knowledge of Seller, of each other Person that is a party thereto.
Each of the Insurance Companies is not, and to the Knowledge of
Seller, no other party to such Material Contract is, in material
breach or default of any such Material Contract or, with or without
notice or lapse of time or both, would be, in material breach or
default of any such Material Contract. None of such Material
Contracts have been terminated or threatened in writing to be
terminated, except for those Material Contracts that terminate in
the ordinary course.
(c) True and complete copies of each
of the Material Contracts, including all amendments, supplements
and modifications to each Material Contract, have been provided to
Buyer. In the case of any Material Contract which is not written,
Seller has provided to Buyer a written description of such Material
Contract.
Section 3.9
Compliance with Law .
Except as set forth on Schedule 3.9 , to the Knowledge of
Seller, each of the Insurance Companies has conducted its business
in material compliance with all Law in each jurisdiction in which
it has conducted its business and is in material compliance with
the requirements of each applicable Governmental Entity to file
reports, registrations, filings or submissions with respect to the
conduct of its business in each such jurisdiction. Since
January 1, 2002, neither Seller nor the Insurance Companies
has received any written notice of any material violation of Law
with respect to the Insurance Companies’ business.
Section 3.10
Intellectual Property
.
(a) Schedule 3.10(a)
contains a list of all patents and patent applications, registered
trademarks and trademarks normally used by Seller or the Insurance
Companies with a notice of trademark usage (whether federal, state,
common law or otherwise), registered copyrights and software
applications (other than commercially available off-the-shelf
software applications which have not been modified as used in the
business of the Insurance Companies except as permitted by the
relevant license) owned by the Insurance Companies and licensed or
otherwise used by or for the benefit of the Insurance Companies, to
the extent such licenses or use are
- 9 -
material or necessary to carry on the business
of the Insurance Companies, as currently conducted, which list
shall include the product names and the licensor or grantors of
use.
(b) The business and operations of
the Insurance Companies as currently conducted do not infringe upon
any Intellectual Property rights of any third party. There are no
present infringement suits pending or, to the Knowledge of Seller,
threatened infringements or violations by an third party with
respect to any Intellectual Property that is owned by the Insurance
Companies.
(c) Each of Seller and the Insurance
Companies are subject to internal policies and practices regarding
the protection of trade secrets and other confidential information
and proprietary know-how, ideas and information used or necessary
for the businesses of Seller and its Affiliates (including the
Insurance Companies). Each Employee of Seller and the Insurance
Companies is notified of such policies and has agreed to be bound
by them. To the Knowledge of Seller, no Employee is in breach of
any such policies.
(d) To the Knowledge of Seller, all
computer programs owned by the Insurance Companies and all software
that is not owned by the Insurance Companies is free of all
viruses, worms, Trojan horses, back doors, spyware, malware and
other infections or harmful routines and contains no bugs, errors,
or problems in each case that would be likely to disrupt its
operation or have an adverse impact on the operation of other
software programs or operating systems.
(e) The Insurance Companies have
complied with and are in compliance with the terms of all privacy
policies adopted by the Insurance Companies and applicable to
personal, customer and other information received, processed or
maintained by the Insurance Companies.
(f) Except for software used in the
preparation of Tax Returns, there are no computer programs,
software tools, data or databases owned by Seller or any Affiliate
or Subsidiary of Seller (other than the Insurance Companies) which
is used by, for or in support of, the business of the Insurance
Companies.
Section 3.11 Financial
Statements; Liabilities .
(a) Seller has previously made
available to Buyer true, complete and correct copies of the
statutory financial statements and all amendments thereto of the
Insurance Companies as audited by PriceWaterhouseCoopers LLP and
filed with the Texas Department of Insurance for the years ended
December 31, 2004, 2003 and 2002 and the unaudited statutory
financial statements as of and for the quarterly period ended
March 31, 2005, together with all exhibits and schedules
thereto (collectively, the “SAP Statements”). Each of
the SAP Statements presents, in all material respects, the
statutory financial condition of the Insurance Companies, at the
respective dates thereof, and the statutory results of operations
for the periods then ended in accordance with SAP, applied on a
consistent basis by the Insurance Companies throughout the periods
indicated except as otherwise specifically noted
therein.
(b) There are no liabilities or
obligations of the Insurance Companies required to be reflected as
liabilities in financial statements prepared in accordance with SAP
other than (i) liabilities or obligations reflected or
reserved against in the March 31, 2005 balance
sheet
- 10 -
included in the March 31, 2005 SAP
Statements, not heretofore discharged, or (ii) policyholder
benefits payable or other liabilities arising after March 31,
2005 in the ordinary course of business consistent with past
practice and in amounts consistent with past practice, none of
which has had or is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect. All reserve liabilities
reflected in the SAP Statements (w) were determined in
accordance with commonly accepted actuarial standards consistently
applied except as noted therein, (x) were fairly stated in
accordance with sound actuarial principles, (y) met the
requirements of the insurance Laws of the state of domicile, and,
in the aggregate, each other jurisdiction in which any of the
Insurance Companies is licensed to write insurance and
(z) reflected or will reflect, as applicable, the related
reinsurance, coinsurance and other similar agreements of the
Insurance Companies.
(c) The Insurance Companies have
paid in full or established reserves reflected in the SAP
Statements for all guaranty or other similar state governmental
fund assessments required by any Governmental Entity to be paid by
them prior to the date of this Agreement. As of the date of this
Agreement and except as and to the extent paid prior to
March 31, 2005 or reserved against in the SAP Statements, the
Insurance Companies have not received any guaranty fund
assessments.
Section 3.12 Taxes
. Except as provided in
Schedule 3.12 :
(a) (i) All Tax Returns
required to be filed on or before the Closing Date by or with
respect to the Insurance Companies have been or will be timely
filed (taking into account permitted extensions) with the
appropriate Governmental Entity in the manner prescribed by Law;
(ii) such Tax Returns are true, correct and complete in all
material respects and will be true, correct and complete in all
material respects for the periods covered thereby;
(iii) Seller and the Insurance Companies have timely paid (or
there has been paid on their behalf) all Taxes shown as due and
payable on any such Tax Return or that are otherwise due and
payable, in each case, in the manner prescribed by Law;
(iv) no Liens (other than Permitted Liens) for Taxes on the
Shares or the Insurance Companies’ assets exist;
(v) neither Seller nor the Insurance Companies has requested
nor is any of them currently the beneficiary of any extension of
time within which to file any Tax Return; (vi) as of the date
of the SAP Statements, to the extent that any material Tax
liabilities and assessments have accrued but not yet become
payable, such Tax liabilities and assessments have been reflected
as liabilities in accordance with SAP on the SAP Statements and
adequate reserves have been established for the payment thereof and
no difference exists between the amount recorded on the SAP
Statements and the amount of such Tax liability as determined by
the appropriate Governmental Entity; (vii) no written claim
has ever been made by a Governmental Entity in a jurisdiction where
any of the Insurance Companies does not file Tax Returns that any
of the Insurance Companies is or may be subject to taxation by that
jurisdiction; (viii) there is no action, suit, investigation,
audit, claim, administrative or court proceeding, or assessment
(“Audits”) pending or, to Seller’s Knowledge,
proposed or threatened with respect to Taxes of any of the
Insurance Companies’ or Seller’s Consolidated Group;
(ix) all material deficiencies asserted or assessments made as
a result of any examination of the Tax Returns of the
Seller’s Consolidated Group or the Insurance Companies have
been paid in full; (x) except as required by applicable Law,
since December 31, 2003, none of the Insurance Companies has:
(A) made or changed any election concerning any Taxes,
(B) filed any amended Tax Return, (C) settled any Tax
Claim or assessment, or (D) surrendered any right to claim
a
- 11 -
refund of any Taxes, in each case, to the extent
such action would materially affect the Taxes or any Tax benefit of
the Insurance Companies following the Closing Date; (xi) there
are no Tax rulings, request for Tax rulings, or Closing Agreements
relating to the Insurance Companies’ or Seller’s
Consolidated Group which could affect Buyer’s (or any
Affiliate thereof) or the Insurance Companies’ liability for
Taxes for any period (or portion thereof) commencing after the
Closing Date; (xii) none of the Insurance Companies (or any
Person on behalf of the Insurance Companies): (A) has agreed
to or is required to make any adjustments pursuant to Sections
481(a) or 807(f) of the Code (or any predecessor provision) or any
similar provision of foreign, state or local law by reason of a
change in accounting method initiated by any such person,
(B) has Knowledge that any Governmental Entity has proposed in
writing any such adjustment or change in accounting method, or
(C) has made any written application pending with any
Governmental Entity requesting permission for any change in
accounting method that relates to the business or operations of the
Insurance Companies; (xiii) as a result of any agreement with
a Governmental Entity, none of the Insurance Companies will be
required to include any material item of income in, or exclude any
material Tax credit or item of deduction from, any taxable period
beginning on or after the Closing Date; (xiv) no intercompany
obligation (as described in Treas. Reg. § 1.1502-13(g))
between the Insurance Companies, on the one hand, and any other
member of Seller’s Consolidated Group (including any of the
Insurance Companies), on the other hand, will remain outstanding
following the Closing and the Insurance Companies have not engaged
in any transaction with Seller or any of its Affiliates which could
result in the recognition of income by the Insurance Companies with
respect to such transaction for any period ending on or after the
Closing Date; (xv) no power of attorney currently in force has
been granted with respect to any matter relating to the Taxes of
the Insurance Companies; (xvi) no indebtedness of the
Insurance Companies is “corporate acquisition
indebtedness” within the meaning of Code Section 279(b);
(xvii) no property of the Insurance Companies is property that
the Insurance Companies or any party to this transaction is or will
be required to treat as being owned by another person pursuant to
the provisions of Code Section 168(f)(8) (as in effect prior
to its amendment by the Tax Reform Act of 1986) or is tax-exempt
use property within the meaning of Code Section 168;
(xviii) none of the Insurance Companies has (A) filed a
consent pursuant to Code Section 341(f) or (B) agreed to
have Code Section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code
Section 341(f)(4)) owned by the Insurance Companies and
(xix) except as disclosed in Schedule 3.12 , none of
the Insurance Companies has been at any time a partner or member of
any entity that is classified as a partnership for U.S. Tax
purposes, a joint venture or the holder of a beneficial interest in
any trust for any period for which the statute of limitations for
any Tax has not expired.
(b) The Insurance Companies are
members of an affiliated group of which Seller is a member, within
the meaning of Section 1504(a) of the Code (the
“Seller’s Consolidated Group”). The Insurance
Companies became members of the Seller’s Consolidated Group
beginning with the tax year beginning on January 1, 2003.
Except with respect to any liability under Treasury
Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign law) that directly results from the
Insurance Companies being a member of Seller’s Consolidated
Group, the Insurance Companies will not have as of the Closing Date
any liability for Taxes of any other Person (i) as a
transferee or successor, (ii) by contract (including any Tax
Sharing Agreements), (iii) by operation of Law, or
(iv) otherwise.
- 12 -
(c) The Insurance Companies have
complied (and until Closing will comply) with all Law relating to
the payment and withholding of Taxes and each of them has withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any Employee, independent
contractor, creditor, stockholder, foreign person, or other third
party.
(d) Seller has delivered or made
available to Buyer correct and complete copies of all Tax Returns
filed by or relating to Laurel or AFL (separate return included in
consolidated returns) or the Seller’s Consolidated Group and
all examination reports and other relevant written materials with
respect to Audits (whether pending or concluded or, to
Seller’s Knowledge, proposed or threatened) related to the
three taxable years ending prior to the Closing Date.
(e) Neither of the Insurance
Companies has engaged in any transaction that may result in the
recognition of income by the Insurance Companies in any Tax period
(or portion thereof) beginning after the Closing Date (including,
but not limited to, transactions subject to Code
Section 355).
(f) None of the Insurance Companies
has executed any waiver or comparable consents regarding any
statute of limitations in respect of Taxes or requested or agreed
to any extension of time with respect to a Tax assessment or
deficiency.
(g) None of the Insurance Companies
(or Seller with respect to the Insurance Companies) has
participated, within the meaning of Treasury
Regulation Section 1.6011-4(c), in (i) any
“reportable transaction” within the meaning of
Section 6011 of the Code and the Treasury Regulations
thereunder (without regard to any cumulative or aggregate effect),
(ii) any “confidential corporate tax shelter”
within the meaning of Section 6111 of the Code and the
Treasury Regulations thereunder, or (iii) any
“potentially abusive tax shelter” within the meaning of
Section 6112 of the Code and the Treasury Regulations
thereunder.
(h) The Insurance Companies each
satisfy the definition of a “life insurance company”
for purposes of the Code and all reinsurance contracts entered into
by the Insurance Companies are insurance contracts for U.S. federal
income tax purposes.
(i) The insurance reserves set forth
in the Tax Returns filed by or including the Insurance Companies
have been determined in all material respects in accordance with
Section 807 or 846 of the Code, as applicable.
(j) To the Knowledge of Seller, with
respect to reinsurance contracts to which any of the Insurance
Companies is a party, no facts, circumstances or basis exists under
which the IRS could make any reallocation, recharacterization or
other adjustment under Section 845(a) of the Code, or make any
adjustment arising from a determination that any reinsurance
contract had or has a significant tax avoidance effect under
Section 845(b) of the Code.
(k) None of the Insurance Companies
has any existing policyholder surplus accounts as defined in Code
Section 815.
(l) All Insurance Contracts issued,
assumed, modified, exchanged or sold by the Insurance Companies
which are subject to Sections 101(f) or 7702 of the Code qualify
(and have
- 13 -
qualified since issuance) as “life
insurance contracts” within the meaning of Sections 101(f) or
7702(a) of the Code, as applicable. No Life Insurance Contract
issued, assumed, modified, exchanged or sold by the Insurance
Companies is a “modified endowment contract” within the
meaning of Section 7702A of the Code.
(m) To the Knowledge of Seller, all
Annuity Contracts issued, assumed, modified, exchanged or sold by
the Insurance Companies that are subject to Section 72(s) of
the Code contain (and have contained since issuance) all of the
necessary provisions of Section 72(s) of the Code and all
Annuity Contracts that are represented as qualifying under
Sections 130, 403(a), 403(b) or 408(b) of the Code contain
(and have contained since issuance) all provisions required for
qualification under such sections of the Code.
(n) All Life Insurance Contracts and
Annuity Contracts marketed by the Insurance Companies, their
agents, or any Person from which the Insurance Companies acquired
such contract, as, or in connection with, plans that are intended
to qualify under sections 401, 403, 408, or 457 of the Code
(“Qualified Plans”) comply (and have complied since
issuance) with the requirements of such sections. All Qualified
Plans marketed or administered by the Insurance Companies are
marketed and administered in compliance with relevant provisions of
the Code.
(o) In providing record keeping and
administrative services in the ordinary course with respect to
customers’ Insurance Contracts whether individual or group
retirement or deferred compensation plans or arrangements, and with
respect to any Life Insurance Contracts or Annuity Contracts
issued, assumed, modified, exchanged or sold by the Insurance
Companies as of the Closing Date, the Insurance Companies are in
compliance with the applicable administrative requirements of the
Code, including sections 72, 401(a), 401(k), 403(b), 408(k),
408(p), 457(b), 345, 647, 7702 and 7702A of the Code and the rules
and regulations hereunder, and, to the extent applicable, the
requirements of Parts 2, 3 and 4 of Title I of ERISA.
(p) Other than the Tax Sharing
Agreement between the Insurance Companies and the Seller’s
Consolidated Group, none of the Insurance Companies is a party to
any Tax Sharing Agreement with any other person or entity. The
total tax liability of the Insurance Companies under the Tax
Sharing Agreement with the Seller’s Consolidated Group does
not exceed $25,000.
Section 3.13 Employee Benefit
Matters .
(a) Set forth in
Schedule 3.13(a) is a complete and correct list of any
retirement, pension, savings, profit-sharing, bonus, incentive
compensation, deferred compensation, stock option or stock
compensation, welfare benefit, severance or termination, retiree
medical, dental, life or disability insurance, supplemental
retirement, or other material employee benefit plans, programs, or
arrangements, including but not limited to “employee benefit
plans” within the meaning of Section 3(3) of ERISA
(each, a “Plan,” and collectively, “Plans”)
as to which Seller or the Insurance Companies has any liability for
current or former employees or directors of the Insurance Companies
(the “Covered Employees”). Seller has previously
provided to Buyer a true and correct list of the Covered Employees,
along with their current compensation, dates of hire and dates of
termination, if applicable.
- 14 -
(b) Set forth on
Schedule 3.13(b) is a complete and correct list of all
Plans covering the Covered Employees that are currently in effect.
With respect to all such Plans, true and complete copies of all
documents and summary plan descriptions relating to each Plan have
heretofore been provided to Buyer. No Plans are maintained or
sponsored by the Seller or Laurel.
(c) No liability under Subtitle C or
D of Title IV of ERISA has been incurred and not satisfied, and no
condition exists that presents a material risk that liability would
be incurred by the Insurance Companies, with respect to any
ongoing, frozen, or terminated Plan currently or formerly
maintained or contributed to by the Insurance Companies, or any
Person that would be now or at the applicable time considered a
member of the Insurance Companies’ “controlled
group” within the meaning of Section 414(b), 414(c),
414(m) or 414(o) of the Code or Section 4001(a)(14) of ERISA
(an “ERISA Affiliate”), and no withdrawal liability has
been incurred and not satisfied under Subtitle E of Title IV of
ERISA or is anticipated that could result in a liability to the
Insurance Companies. No Notice of Reportable Event (within the
meaning of Section 4043 of ERISA) has been filed or required
to be filed for any Plan within the six years preceding the date of
this Agreement. No Plan is a “multiemployer plan”
within the meaning of Section 4001(a)(3) of ERISA. Neither
Seller nor the Insurance Companies are entering into the
transactions contemplated by this Agreement for the principal
purpose of evading liability within the meaning of
Section 4069 of ERISA.
(d) No Plan of an ERISA Affiliate
has an “accumulated funding deficiency” (within the
meaning of Section 302 of ERISA or Section 412 of the
Code), and none of the Insurance Companies or any ERISA Affiliate
has any outstanding funding waiver.
(e) Except as set forth on
Schedule 3.13(a) , none of the Insurance Companies has
any formal plan or express or implied commitment to employ any
Covered Employees or to create any Plan that would be maintained by
them or to contribute to or participate in any Plan maintained by
any ERISA Affiliate.
(f) Each Plan that is intended to be
qualified under Section 401(a) or Section 401(k) of the
Code has received a favorable determination letter or opinion
letter, as applicable, from the Internal Revenue Service, and to
the Knowledge of Seller, no event or condition has occurred that
would reasonably be expected to have an adverse effect on the
qualified status of any such Plan. Each Plan complies in all
material respects with its terms and with the requirements
prescribed by any and all Law, including but not limited to the
Code and ERISA.
(g) No liability, claim,
investigation, audit, action or litigation has been incurred, made,
commenced or, to the Knowledge of Seller, threatened (other than
routine claims for benefits) with respect to any Plan.
(h) None of Seller or the Insurance
Companies, any ERISA Affiliate, any of the Plans, any trust created
thereunder, nor, to the Knowledge of Seller, any trustee or
administrator thereof has engaged in a transaction or has taken or
failed to take any action in connection with which Seller, the
Insurance Companies or any ERISA Affiliate could be subject to any
material liability for either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Section 4975, 4976 or 4980B of the Code with respect to any
Plans.
- 15 -
(i) No Plan provides medical,
surgical, hospitalization, death or similar benefits (whether or
not insured) for the Covered Employees for periods extending beyond
their retirement or other termination of service, other than
(i) coverage mandated by Law, (ii) death benefits under
any “pension plan” or (iii) benefits the full cost
of which is borne by the Employee or former employee or director of
the Insurance Companies (or his beneficiary).
(j) None of the Insurance Companies
(i) has made any payments, (ii) is obligated to make any
payments, or (iii) is a party to any agreement, contract or
arrangement that under certain circumstances could obligate it to
make any payments that have resulted or will result, separately or
in the aggregate, in the payment of any “excess parachute
payments” within the meaning of Section 280G of the
Code.
(k) The consummation of the
transactions contemplated by this Agreement will not
(i) entitle any Covered Employee to severance pay,
unemployment compensation, retention pay or any other payment from
the Insurance Companies, except as expressly provided in this
Agreement, or (ii) except to the extent, if any, required by
law, with respect to any Plan that is intended to be qualified
under Section 401(a) or 401(k) of the Code, accelerate the
time of payment or vesting, or increase the amount of compensation
from the Insurance Companies due to any such Covered
Employee.
Section 3.14
No Brokers . Other
than Sagent Advisors, Inc. and William Blair & Company,
all the fees and expenses of which will be paid by Seller, no
investment banker, broker, finder or other intermediary has acted
directly or indirectly for Seller or the Insurance Companies or
their Affiliates, and the Insurance Companies have not and will not
incur any obligation to pay any brokerage or finder’s fee or
other commission, in connection with the transactions contemplated
by this Agreement.
Section 3.15 Insurance Issued
by the Insurance Companies .
(a) Since January 1, 2002, all
benefits claimed by any Person under any Insurance Contract have in
all material respects been paid (or provision for payment thereof
has been made) in accordance with the terms of the contracts under
which they arose and such payments were not materially delinquent
and were paid (or will be paid) without fines or penalties, except
for any such claim for benefits for which any of the Insurance
Companies reasonably believes that there is a reasonable basis to
contest payment and is taking such action.
(b) Seller has made available to
Buyer true, complete and correct copies of all underwriting manuals
(including each amendment thereto) utilized by the Insurance
Companies with respect to the Insurance Contracts. The underwriting
standards utilized and rates and rating factors and criteria
applied by the Insurance Companies with respect to the Insurance
Contracts outstanding as of the date hereof conformed in all
material respects to those contained in the Insurance
Companies’ applicable underwriting manuals as in effect at
the times such Insurance Contracts were underwritten and, with
respect to any Insurance Contract reinsured in whole or in part,
conform in all material respects to the standards and ratings
required pursuant to the terms of the related reinsurance,
coinsurance, modified coinsurance or other similar
contracts.
- 16 -
(c) To the Knowledge of Seller:
(i) each Producer, at the time such Producer solicited,
negotiated, wrote, sold or produced business for the Insurance
Companies, to the extent required by Law as then in effect, was
duly and appropriately appointed by the Insurance Companies to act
as a Producer for the Insurance Company and was duly and
appropriately licensed as a Producer (for the type of business
solicited, negotiated, written, sold or produced by such Producer),
in each case, in the particular jurisdiction in which such Producer
solicited, negotiated, wrote, sold or produced such business for
the Insurance Companies; (ii) no such Producer violated any
material term or provision of any Law as then in effect applicable
to any aspect (including, but not limited to, the soliciting,
negotiating, marketing, sale or production) of the Insurance
Companies’ products; (iii) no such Producer has
materially breached the terms of any agency or broker Contract with
or for the benefit of the Insurance Companies (excluding engaging
in “twisting” activities); and (iv) no Producer
designated by any of the Insurance Companies as a General Agent has
engaged in “twisting” activities.
(d) Each Insurance Contract policy
or certificate form, as well as any related application form,
written advertising material (including such material placed on any
of the Insurance Companies’ websites) and rate or rule
currently or previously marketed, filed or otherwise utilized by
the Insurance Companies, the use or issuance of which requires
filing or approval, has been appropriately filed and, if required,
approved by the applicable Governmental Entities in each
jurisdiction requiring such filing or approval. To the Knowledge of
Seller, all such policies and certificates, forms, applications,
advertising materials and rates or rules are or were, as
applicable, in compliance with, and utilized in compliance with Law
and within the scope of the approvals received therefor.
(e) No provision in any in-force
Insurance Contract gives the holder thereof or any other Person the
right to receive dividends, distributions or other benefits based
on the revenue, earnings or profits of the Insurance Companies,
except for traditional participating policies and charter policies.
Neither of the Insurance Companies is a party to any agreement
providing for the collection of insurance premiums payable to the
Insurance Companies by any other Person other than agreements that
allow the Producer to collect the initial premium payment in the
form of a remittance made payable to the Insurance
Companies.
(f) Since December 31, 2002, no
customer or related group of customers, and no Producer, in either
case which accounted for (i) one percent or more of the
aggregate annuity considerations or deposits collected by the
Insurance Companies during the 12 month period ended
December 31, 2004 or during the years ended December 31,
2003 or 2002, or (ii) one percent or more of the aggregate
reserves of the Insurance Companies under Annuity Contracts as
reflected on the SAP Statements for the years ended
December 31, 2004, 2003 or 2002, has or have at its or their
initiative, terminated or threatened in writing to terminate its or
their relationship with the Insurance Companies.
(g) The financial strength or
claims-paying ability of (i) Laurel is rated “B”
and (ii) AFL is rated “B,” in each case by A.M.
Best Company, Inc. as of the date hereof.
- 17 -
Section 3.16
Assets .
(a) Except for Assets disposed of
since March 31, 2005 in the ordinary course of business or
otherwise in accordance with the terms of this Agreement, the
Insurance Companies have good and marketable title to all Assets
that are disclosed or otherwise reflected in the March 31,
2005 SAP Statements and all Assets acquired thereafter, and all
such Assets are owned by the Insurance Companies free and clear of
all Liens, other than Permitted Liens.
(b) Except as set forth on
Schedule 3.16(b) , with respect to investment assets
disclosed or otherwise reflected in the March 31, 2005 SAP
Statements or acquired thereafter:
(i) to the Knowledge of Seller, all
are realizable in accordance with their terms except to the extent
otherwise appropriately reflected as an impairment or an investment
reserve in such SAP Statements;
(ii) there are no Payment Defaults,
or to the Knowledge of Seller, any other defaults with respect to
which the prospect of a Payment Default is reasonably likely (as
used herein, “Payment Default” shall mean a default (or
an event which, with notice or lapse of time or both, would
constitute a default) in the payment on any of the bonds, notes,
mortgages, debentures and other evidences of indebtedness that
constitute investment assets);
(iii) Seller does not have any
Knowledge of any pending or threatened bankruptcy, reorganization,
insolvency, moratorium or similar event or proceeding by any
issuer, guarantor or other Person responsible for making payment
with respect to any such investment asset as of the date hereof;
and
(iv) neither Seller, the Insurance
Companies nor any Person on its or their behalf, has taken, or
omitted to take, any action which would cause any such Investment
Asset to be subject to any valid offset, defense or counterclaim
against the right of the Insurance Companies to enforce the terms
of such investment asset.
(c) As fully disclosed on
Schedule 3.16(c), the Insurance Companies own, have a
valid leasehold interest in or have a valid right under contract to
use, all tangible personal property that is material to the conduct
of their respective businesses, free and clear of all Liens, other
than Permitted Liens.
(d) The Assets (other than
Intellectual Property which is covered by Section 3.10) owned
or leased by the Insurance Companies are sufficient for the
Insurance Companies to conduct their business from and after the
Closing without interruption and in the ordinary course of business
as they are being conducted on the date hereof.
Section 3.17 Environmental
Matters . Except as
set forth on Schedule 3.17 : (i) The Insurance
Companies have operated their current and former businesses in
compliance, in all material respects, with all applicable
Environmental Laws and Permits required thereunder; (ii) there
are no events, conditions or circumstances that would result in any
action, claim or allegation by any Person against the Insurance
Companies under applicable Environmental Laws or related to
Hazardous Substances nor has Seller or the Insurance Companies
received any
- 18 -
notice that any of the Insurance
Companies’ businesses or Assets is in material violation of
any Environmental Laws or that any of the Insurance Companies is
responsible (or potentially responsible) for the investigation,
cleanup, monitoring or other remediation of any Hazardous
Substances on, at or under any property; (iii) the Insurance
Companies have not assumed or retained, contractually or by
operation of law, from any Person any liability under Environmental
Laws or related to Hazardous Substances; and (iv) Seller has
made available to Buyer all environmental reports, assessments,
audits or studies of the Insurance Companies in its possession or
control.
Section 3.18
Regulatory Filings .
Seller has made available for inspection by Buyer all reports,
statements, documents, registrations, filings and submissions made
by or with respect to the Insurance Companies with any Governmental
Entity, and reports of examinations issued by any such Governmental
Entity, since December 31, 2002, in addition to correspondence
with the Florida Insurance Department regarding the suspension of
new writings in the State of Florida. The Insurance Companies have
timely filed, or caused to be timely filed, all material reports,
statements, documents, registrations, filings, applications or
submissions required to be filed by or on behalf of the Insurance
Companies with any Governmental Entity in connection with the
business conducted by the Insurance Companies, the Insurance
Companies are acting in compliance in all material respects with
all such reports, statements, documents, registrations, filings,
applications and submissions, and all required regulatory approvals
in respect thereof are in full force and effect. All such reports,
statements, documents, registrations, filings, applications and
submissions were in compliance in all material respects with Law
when filed or as amended or supplemented and there were no material
omissions therefrom, and no material deficiencies have been
asserted by any Governmental Entity with respect to such reports,
statements, documents, registrations, filings, applications or
submissions that have not been satisfied.
Section 3.19 Real Property;
Leases .
(a) Schedule 3.19(a)
hereto sets forth a summary description of the real property owned
by the Insurance Companies (the “Owned Real Property”)
all of which is presently in material compliance with all Law
relating to the use and operation of the Owned Real Property
(including but not limited to building codes and zoning laws). All
material Permits required by any Governmental Entity in order to
own and operate the Owned Real Property have been obtained and are
in full force and effect and the certificates of occupancy for the
Owned Property permit its current uses in all material respects.
The Insurance Companies have good and marketable fee title to all
Owned Real Property, free and clear of all Liens, other than
Permitted Liens.
(b) Schedule 3.19(b)
hereto sets forth a true and complete list and summary description
of all real property leased by any of the Insurance Companies (the
“Leased Real Property”), including whether any consent
of the lessor or other third party is required to maintain the
effectiveness of the Leases in connection with the transactions
contemplated hereby. Seller has delivered to Buyer true, correct
and complete copies of the Leases. All of such Leases are valid and
in full force and effect in all material respects and all rents and
additional rents and other material assessments due to date on each
such Lease have been paid. Neither of the Insurance Companies is in
default in any material respect under any of such
- 19 -
Leases and, to the Knowledge of Seller, no
lessor is in default under any of such Leases. No material waiver,
indulgence or postponement of the obligations of any of the
Insurance Companies under such Leases has been granted by the
lessor, and no event has occurred which, with the passage of time
or the giving of notice, or both, would constitute a default
thereunder by any of the Insurance Companies. To the Knowledge of
Seller, no event has occurred which, with the passage of time or
the giving of notice or both, would constitute a default thereunder
by any lessor. The Owned Real Property together with the Leased
Real Property constitutes all interests in real property currently
used or currently held for use in connection with the business of
the Insurance Companies and which are necessary for the continued
operation of the business of the Insurance Companies as it is now
being conducted.
(c) The Insurance Companies enjoy
peaceful and undisturbed possession in all material respects under
all Leases, none of which contain any provisions that will
materially impair or adversely affect its ability to continue to
use the premises leased thereunder as it currently does, and
(i) no notice of violation of any law, ordinance or
administrative regulation (including any zoning or building law)
has been received by Seller or the Insurance Companies with respect
to any Leased Real Property or Owned Real Property and
(ii) none of the Insurance Companies has received notice that
any Lease will not be renewed upon its expiration date, or notice
that such Lease will be renewed but upon terms and conditions
which, taken as a whole, will differ in a material adverse manner
from existing terms under such Lease. If the consents specified in
Schedule 3.19(b) are obtained, the continuation,
validity and effectiveness of such Leases under the current terms
thereof will not be materially affected by the consummation of the
transactions contemplated herein. The property leased or subleased
by the Insurance Companies in respect of their respective
businesses is in a state of reasonable maintenance and repair,
ordinary wear and tear excepted. To the Knowledge of Seller,
neither the whole nor any portion of any real property leased or
subleased by the Insurance Companies in respect of their respective
businesses is being condemned or otherwise taken by any public
authority, nor, to the Knowledge of Seller, is any such
condemnation or taking threatened or contemplated. Neither the
whole nor any portion of any real property leased or subleased by
the Insurance Companies in respect of their respective businesses
has been damaged in any material respect or destroyed by fire or
other casualty. All work required to be performed by the lessor at
any premises leased or subleased by the Insurance Companies is
materially complete.
Section 3.20 Conduct of
Business; Absence of Certain Changes . Except as set forth on Schedule 3.20
or as permitted or contemplated by this Agreement, since March 31,
2005, (i) the Insurance Companies have conducted their
respective businesses in the ordinary course of business consistent
with past practices and the Insurance Companies have not taken any
action that would have constituted a violation of Section 5.1,
if Section 5.1 had applied since March 31, 2005 and
(ii) the Insurance Companies have not experienced any event or
occurrence outside the ordinary course of business which has or
reasonably could be expected to have a Material Adverse Effect;
provided, for purposes of clarity, that ordinary course of business
events or occurrences include claims made on Insurance Contracts
and changes in the value of investment assets of the Insurance
Companies.
Section 3.21
Insurance Coverage .
Schedule 3.21 sets forth a true, complete and correct
list of insurance policies and fidelity bonds covering the
Insurance Companies, including the amounts and coverages. All such
policies and fidelity bonds are in full force and effect as
of
- 20 -
the date of this Agreement. Neither Seller nor
the Insurance Companies nor any of their Affiliates are in default
under any such policy or bond and, to the Knowledge of Seller, no
other party to such policy or bond is in default thereof. There are
no claims under such insurance policies as to which the insurers
have denied liability.
Section 3.22
Market Conduct . To
the Knowledge of Seller, neither Seller, the Insurance Companies
nor the Producers have engaged in any Market Conduct Activities
which violate Law or otherwise enable any third party to recover
damages from the Insurance Companies.
Section 3.23
Producers . The
Insurance Companies enjoy good relations, and are not involved in
any material dispute, with any of their respective agents, general
agents, brokers, reinsurance intermediaries, consultants,
producers, financial institutions or other Persons which market its
products as of the date of this Agreement (collectively,
“Producers”). Schedule 3.23 contains the
standard form of contract with such Producers entered into since
December 31, 2001 and compensation schedules for such
Producers. Except as set forth on Schedule 3.23 , there are
no other compensation agreements with such Producers.
Section 3.24
Labor and Employment
Matters .
(a) With respect to the employees of
the Insurance Companies (the “Employees”):
(i) there is no labor strike, dispute, slowdown, stoppage or
lockout actually pending or, to the Knowledge of Seller, threatened
against the Insurance Companies, (ii) no union claims to
represent the Employees and, to the Knowledge of Seller, there are
no current union organizing activities among such Employees, and
(iii) none of Seller or the Insurance Companies is a party to
or bound by any collective bargaining, labor union contract or
similar agreement with any labor organization applicable to any
Employees.
(b) Except as set forth on
Schedule 3.24(b) hereto, with respect to the Employees,
to the Knowledge of Seller, each of Seller and the Insurance
Companies is and has been in material compliance with all Law
respecting employment and employment practices, terms and
conditions of employment, age and sex discrimination, wages and
hours, and none of the Insurance Companies has engaged in or is
engaged in any unfair labor practices. Except as set forth on
Schedule 3.24(b) hereto, with respect to the Employees,
no unfair labor practice complaints have been filed against the
Insurance Companies with any Governmental Entity and neither of the
Insurance Companies has received any notice or communication
reflecting an intention or threat to file any such complaint.
Except as set forth on Schedule 3.24(b) hereto, no
Person has made any claim against the Insurance Companies arising
out of any statute, ordinance or regulation relating to
discrimination with respect to the Employees, or employment
practices with respect to the Employees.
(c) To the Knowledge of Seller, the
Insurance Companies have at all times properly classified each of
their respective Employees as employees and as exempt or non-exempt
for overtime pay, and have properly classified each of their
independent contractors as independent contractors, as applicable,
and have treated each person classified by them consistently with
such status.
- 21 -
(d) Schedule 3.24(d) contains
a complete list of the each officer and employee of the Insurance
Companies with the following information: employer, department,
name, job grade and/or title, current salary, performance review
dates, health and life insurance information, and 401(k) plan
information.
Section 3.25 Third Party
Reinsurance . Schedule 3.25 sets forth a true, complete and correct list of
(a) all reinsurance and retrocession treaties and agreements
in force as of the date of this Agreement to which either of the
Insurance Companies is either a ceding or an assuming party, and
(b) any such treaty or agreement that is terminated or expired
but under which the Insurance Companies may be either obligated to
make payments or eligible to continue to receive benefits
(collectively, the “Third Party Reinsurance
Agreements”), copies of which have been made available to
Buyer. Each Third Party Reinsurance Agreement is in full force and
effect to the respective dates noted on the Schedule and is a valid
and binding obligation of the Insurance Companies and, to the
Knowledge of Seller, each other party thereto, subject to the
Enforceability Exceptions. The Insurance Companies are not in
default in any material respect as to any provision of any Third
Party Reinsurance Agreement, and have not failed to meet in any
material respect the underwriting standards required for any
business reinsured thereunder, and there are no material
outstanding disputes with regard to any Third Party Reinsurance
Agreement. No Third Party Reinsurance Agreement contains any
provision providing that the other party thereto may terminate such
treaty or agreement by reason of the transactions contemplated by
this Agreement or the Ancillary Agreements.
Section 3.26
Improper Payments .
Since December 31, 2002:
(a) no funds or Assets of the
Insurance Companies have been used for any illegal
purpose;
(b) no unrecorded fund of the
Insurance Companies has been established for any purpose and no
unrecorded material Asset of the Insurance Companies
exists;
(c) no accumulation or use of the
corporate funds of the Insurance Companies has been made without
being properly accounted for on the Books and Records of the
Insurance Companies;
(d) all payments by or on behalf of
the Insurance Companies have been duly and properly recorded and
accounted for on the Books and Records of the Insurance
Companies;
(e) no false or artificial entry has
been made on the Books and Records of the Insurance Companies for
any purpose or reason whatsoever;
(f) no payment has been made by or
on behalf of the Insurance Companies with the understanding that
all or any part of such payment is to be used for a purpose other
than as described in the documents supporting such
payment;
(g) none of the Insurance Companies
has made, directly or indirectly, any illegal contribution to a
political party or candidate, either domestic or foreign;
and
- 22 -
(h) none of the Insurance Companies
has made any improper foreign payment as that term is defined in
the Foreign Corrupt Practices Act.
Section 3.27
Security Deposits .
Schedule 3.27 sets forth a true, complete and correct
list of all securities deposited by the Insurance Companies with
Governmental Entities as of the date hereof.
Section 3.28
Bank Accounts .
Schedule 3.28 sets forth a true, complete and correct
list of bank accounts and investment accounts maintained by the
Insurance Companies, including the name of each bank or other
institution, account numbers and a list of signatories to such
account. Neither of the Insurance Companies has commingled any such
account with Seller or any Affiliate of Seller.
Section 3.29
Books and Records .
The Books and Records are true, complete and correct in all
material respects, have been maintained in accordance with sound
business practices and accurately present and reflect in all
material respects all of the transactions and actions therein
described.
Section 3.3 0 Solvency
. Seller is not
insolvent, as such term is defined in Title 11 of the United States
Code, and will not be insolvent at any time during the 90 days
immediately preceding the Closing Date.
Section 3.31
Full Disclosure .
Neither the representations or warranties made by Seller in this
Agreement or in any Schedule hereto, nor any certificate, report,
statement, memorandum or other document furnished or required to be
furnished to Buyer pursuant hereto contains any untrue statement of
a material fact or, omits to state a material fact necessary in
order to make the statements contained therein or herein not
misleading in light of the circumstances in which they were
made.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer hereby represents and warrants
to Seller as follows:
Section 4.1
Organization and Authority of
Buyer . Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the
