STOCK PURCHASE AND ASSET TRANSFER AGREEMENT

Exhibit 10.21

 

CONFORMED COPY

 

STOCK PURCHASE AND ASSET TRANSFER AGREEMENT

 

by and among

 

CIGNA CORPORATION,

 

CONNECTICUT GENERAL LIFE INSURANCE COMPANY,

 

CONNECTICUT GENERAL CORPORATION,

 

CIGNA HOLDINGS, INC.

 

and

 

PRUDENTIAL FINANCIAL, INC.,

 

dated as of

 

November 17, 2003

Table of Contents

 

 

-i-

 

-ii-

 

-iii-

 

-iv-

 

-v-

INDEX OF EXHIBITS

 

 

-vi-

INDEX OF SCHEDULES

 

 

-vii-

 

-viii-

 

-ix-

STOCK PURCHASE AND ASSET TRANSFER AGREEMENT , dated as of November 17, 2003 (together with the Schedules hereto, the “Agreement”), by and among CIGNA Holdings, Inc., a Delaware corporation (“CIGNA Holdings”), Connecticut General Corporation, a Connecticut corporation and a wholly owned subsidiary of CIGNA Holdings (“Connecticut General”), Connecticut General Life Insurance Company, a specially-chartered Connecticut corporation and a wholly owned subsidiary of Connecticut General (“CGLIC”) and CIGNA Corporation, a Delaware corporation (“CIGNA” and, together with Connecticut General, CIGNA Holdings and CGLIC, “Sellers”) and Prudential Financial, Inc., a New Jersey corporation (“Buyer”).

 

W I T N E S S E T H

 

WHEREAS, Sellers and certain of their Affiliates, including the Acquired Companies (as defined below), conduct the Business (as defined below); and

 

WHEREAS, Sellers and certain of their Affiliates (other than the Acquired Companies) intend to convey the Transferred Assets (as defined below) and Assumed Liabilities (as defined below) used or held by them in connection with the Business to CIGNA Life Insurance Company, a Connecticut life insurance company (“CIGNA Life”); and

 

WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the issued and outstanding shares of capital stock of CIGNA Life and the other Acquired Companies owned directly or indirectly by Sellers, in order to convey to Buyer direct or indirect ownership of each of the Acquired Companies which conduct the Business; and

 

WHEREAS, the Boards of Directors of each Seller and of Buyer have approved this Agreement and the transactions contemplated hereby, and has determined that this Agreement and such transactions are in the best interests of their respective stockholders.

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants set forth herein, and in reliance upon the representations, warranties, conditions and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

 

ARTICLE I

INTERPRETATION

 

Section 1.1 Definitions .

 

For purposes of this Agreement, the following terms shall have the following meanings:

“ Acquired Companies ” means the operating companies listed in Schedule 1.1(a).

 

“ Acquired Companies Balance Sheet ” means the unaudited consolidated GAAP balance sheets and income statements of the Acquired Companies (other than CIGNA Life) as of and for the twelve months ending December 31, 2002 and the six months ending June 30, 2003 attached hereto as Schedule 1.1(b).

 

“ Acquired Companies Liabilities ” means the following Liabilities of the Acquired Companies (other than CIGNA Life): (i) all Liabilities to the extent recorded on the Acquired Companies Balance Sheet, (ii) all Liabilities set forth on Schedule 1.1(c) and (iii) all Liabilities incurred or accrued in the ordinary course since June 30, 2003 to the extent relating to the Business that would be reflected on a balance sheet prepared as of the Closing Date in a manner consistent with the preparation of the Acquired Companies Balance Sheet.

 

“ Acquired Stock ” means all of the issued and outstanding shares of stock of CIGNA Life, Global Portfolio Strategies, Inc., CIGNA Financial Services, Inc. and CIGNA Bank.

 

“ Action ” means any action, suit, litigation, investigation or proceeding.

 

“ Adjustment Amount ” shall have the meaning set forth in Section 2.11(d)(ii).

 

“ Administrative Services Agreement ” means the Administrative Services Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit A.

 

“ Advisory Client ” means any Person for which an Advisory Entity provides investment management, investment advisory or subadvisory services.

 

“ Advisory Entities ” shall have the meaning set forth in Section 3.29(a).

 

“ Affected Employees ” shall have the meaning set forth in Section 5.5(b).

 

“ Affiliate ” of any Person means another Person that directly or indirectly controls, is controlled by, or is under common control with, such first Person, where “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise.

 

“ Affiliate Agreements ” shall have the meaning set forth in Section 3.15(b).

 

-2-

“ Affiliate Owned Intellectual Property ” means the Intellectual Property owned by Sellers or Affiliates of Sellers (other than the Acquired Companies) primarily used in the conduct of the Business.

 

“ Affiliate Owned IT Hardware ” means the IT Hardware owned by Sellers or Affiliates of Sellers (other than the Acquired Companies) primarily used in the conduct of the Business.

 

“ Agreement ” shall have the meaning set forth in the preamble.

 

“ Allocable Amount ” shall have the meaning set forth in Section 2.8(a).

 

“ Amending Party ” shall have the meaning set forth in Section 5.19(n).

 

“ Ancillary Agreements ” means the Administrative Services Agreement, the Assignment and Assumption Agreement, the Bank Merger Agreement, the Bill of Sale, the Ceded Business Trust Agreement, the CGLIC Separate Account Management Agreements, the CGLIC Guaranteed Cost Management Agreement, CIGNA Life Guaranteed Cost Management Agreement, the Coinsurance Agreement, the Excluded Business Administrative Services Agreement, the Excluded Business Coinsurance Agreement, the Facilities Sharing Agreement Term Sheet, the Guaranteed Cost Administrative Services Agreement, the Guaranteed Cost Coinsurance Agreement, Guaranteed Cost Business Trust Agreement, the Investment Subadvisory Agreement, the LINA Administrative Services Agreement, the LINA Modco Agreement, the LINA Separate Account Management Agreement, the Master Assignment of Derivatives Agreement, the Master Assignment of Securities Agreement, the Participation Agreement, the Real Estate Separate Account Administrative Services Agreement, the Real Estate Separate Account Coinsurance Agreement, the Registered Products Administrative Services Agreement, the Registered Products Modified Coinsurance Agreement, the Substitution and Indemnification Agreement, the TimesSquare Letter Agreement, Transitional Subadvisory Agreement, Transitional Subadvisory Agreement II, Transitional Subadvisory Agreement (Prudential Bank), Transitional Subadvisory Agreement (Trust), the Trademark/Trade Name Licenses Agreement and the Transition Services Agreement and any other agreement that specifies that it is to be an Ancillary Agreement.

 

“ Antitrust Division ” means the antitrust division of the United States Department of Justice.

 

“ Applicable Law ” means all laws, common laws, rules, regulations, codes, statutes, judgments, injunctions, orders, decrees, policies and other requirements of all Governmental Entities applicable to the Person, place and situation in question.

 

“ Applicable Percentage ” shall mean, with respect to any Eligible Liability, 20% of any Eligible Liability Identified in the first two years after Closing, 40% of any

 

-3-

Eligible Liability Identified after the second anniversary of the Closing but on or prior to the third anniversary of the Closing, 50% of any Eligible Liability Identified after the third anniversary of the Closing but on or prior to the fourth anniversary of the Closing and 100% of any Eligible Liability Identified after the fourth anniversary of the Closing.

 

“ Asserted Liability ” shall have the meaning set forth in Section 7.5(a).

 

“ Assignment and Assumption Agreement ” means the Assignment and Assumption Agreement among Sellers, Buyer and CIGNA Life substantially in the form attached hereto as Exhibit B.

 

“ Assigned and Assumed Contracts ” means the Contracts described on Schedule A to the Assignment and Assumption Agreement and any Contracts added to such Schedule pursuant to Section 5.28.

 

“ Assumed Liabilities ” means the following Liabilities of Sellers and their Affiliates: (i) all Insurance-Related Liabilities relating to the Business of the type reflected on the Final Statement of Net Settlement; (ii) all Non-Insurance-Related Liabilities relating to the Business to the extent recorded on the Final Statement of Net Settlement; (iii) all Liabilities constituting Reinsured Liabilities; (iv) the Assumed Portion of the Eligible Liabilities; and (v) (a) all Liabilities arising in connection with or out of the Actions, written claims or written demands set forth on Schedule 2.2, (b) all Liabilities arising out of the ownership, operation or management of Transferred Investment Assets to the extent such Transferred Investment Assets are allocated to the portfolios of the Business set forth on Schedule 1.1(l) (“Experience Rated Assets”), except to the extent any such Liabilities would not, consistent with the Subject Contracts or past practice of the Business, be borne by the holders or beneficiaries of the Subject Contracts and (c) all Liabilities arising in connection with or out of Transferred Investment Assets that are not Experience Rated Assets, except to the extent any such Liabilities (w) relate to facts, circumstances or events occurring or existing prior to the Closing which are actually known by any of the Persons listed on Schedule 1.1(m) as of the Closing, (x) relate to acts or omissions before the Closing by Sellers or any of their Affiliates or any of their employees or authorized representatives constituting a fiduciary duty breach, malfeasance, tortious interference, improper lender behavior, negligence constituting more than ordinary negligence or similar malfeasance, (y) relate to Transferred Investment Assets that are real property or to partnerships or limited liability entities whose sole property is real property as a result of the ownership, operation or management of such real property or interest in real property prior to the Closing, except for Liabilities assumed by Buyer, its Affiliates or CIGNA Life pursuant to assignment or conveyance instruments relating to the Transferred Investment Assets or (z) relate to Actions, written claims or written demands made, filed or asserted prior to the Closing but not set forth on Schedule 2.2.

 

“ Assumed Portion of the Eligible Liabilities ” means an amount equal to the Applicable Percentage applicable to any Eligible Liability multiplied by the amount

 

-4-

of such Eligible Liability; provided , that in no event shall the aggregate Assumed Portion of the Eligible Liabilities arising out of all Specified Common Interest Matters Identified on or prior to the fourth anniversary of the Closing exceed $100 million, and provided , further , that in no event shall the aggregate Assumed Portion of the Eligible Liabilities arising out of Eligible Liabilities Identified on or prior to the fourth anniversary of the Closing exceed $200 million.

 

“ AVR ” means asset valuation reserves required to be maintained by CGLIC or CIGNA Life, as applicable, determined in accordance with applicable Connecticut insurance laws and regulations, consistently applied.

 

“ Bank Merger ” shall have the meaning set forth in Section 2.5.

 

“ Bank Merger Agreement ” means an agreement substantially in the form of Exhibit C.

 

“ Bill of Sale ” means an agreement substantially in the form of Exhibit D.

 

“ Books and Records ” means the originals or copies of all customer lists, policies, policy information, policyholder information, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records, sales records, underwriting records, financial records, corporate and accounting and other records (including the books of account, minute books, stock record books and other records), compliance records prepared for or filed with regulators of the Business, Tax records and any other agreements, instruments, information, data, files or records, each in the possession or control of Sellers or any of their Affiliates and related to the Business, the Acquired Companies, the Transferred Assets, the Transferred Investment Assets, the Assigned and Assumed Contracts, the Assumed Liabilities or the Subject Contracts, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding (i) any such lists, information and records that are subject to the attorney-client and work product privileges or prohibited from being disclosed or transferred by Applicable Law or regulatory requirements and (ii) any such information that is part of any consolidated, combined, unitary or similar Tax Return except to the extent solely related to the Business.

 

“ Broker-Dealer Subsidiary ” shall have the meaning set forth in Section 3.28(a).

 

“ Business ” has the meaning set forth on Schedule 1.1(d) hereto.

 

“ Business Coinsurance Agreements ” means the Coinsurance Agreement, the LINA Modco Agreement, the Real Estate Separate Account Coinsurance Agreement, the Registered Products Modified Coinsurance Agreement and the Guaranteed Cost Coinsurance Agreement.

 

-5-

“ Business Day ” means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of Connecticut or the State of New York are not authorized or obligated by Applicable Law to close.

 

“ Business Employees ” shall have the meaning set forth in Section 5.5(a).

 

“ Business Financial Statements ” shall have the meaning set forth in Section 3.6(a).

 

“ Buyer ” shall have the meaning set forth in the preamble.

 

“ Buyer Financial Statements ” shall have the meaning set forth in Section 4.5.

 

“ Buyer Indemnitees ” shall have the meaning set forth in Section 7.3(a).

 

“ Buyer MAE ” any event or development that has had a material adverse effect on the business reputation of Buyer or the “Prudential” brand in a manner that has materially and adversely affected the willingness of a material portion of clients to become and remain customers of Buyer and its subsidiaries; provided , however , that the following shall be excluded from the definition of “Buyer MAE” and from any determination as to whether such Buyer MAE has occurred or may occur: (i) the effects of changes that are generally applicable to (A) the insurance, investment management, securities and annuity industries (provided that such effect is not disproportionately more adverse with respect to Buyer or its subsidiaries, taken as a whole, than the effect on comparable businesses generally, except that, if such effect is disproportionately more adverse with respect to Buyer and its subsidiaries, taken as a whole, any assessment of whether there is, or has been, a Buyer MAE shall only take into account the incremental impact of such adverse effect on Buyer and its subsidiaries, taken as a whole, over the impact of such effect on the insurance, investment management, securities and annuity business generally) or (B) the financial, banking, currency or capital markets (either in the United States or any international market); (ii) the effects of any facts or circumstances relating to the Business, including the effects of any facts or circumstances arising out of or relating to market conduct or other business practices of the Business; (iii) the effects of any breach of any provision of this Agreement by Sellers; (iv) the execution of this Agreement or the Ancillary Agreements; and (v) the announcement of this Agreement, the Ancillary Agreements, or the transactions contemplated hereby or thereby, other than matters relating to (A) the Business which are covered by clause (ii) above and (B) the Sellers which are covered by clause (iii) above.

 

“ Buyer Material Adverse Effect ” means an effect which materially impairs or delays Buyer’s ability to perform its obligations under this Agreement and the Ancillary Agreements, taken as a whole.

 

-6-

“ Buyer Negative Condition ” means a material adverse effect on the business, financial condition, operations or results of operations of Buyer and its Subsidiaries, taken as a whole.

 

“ Buyer Practice ” means any Relevant Practice which is substantially the same as a practice, method or policy employed by Buyer or its Affiliates at the Closing.

 

“ Buyer’s Severance Plans ” mean the Prudential Severance Plan, the Prudential Severance Plan for Executives, and the Prudential Severance Plan for Senior Executives.

 

“ Capital ” means the capital stock component of statutory surplus, determined in accordance with applicable Connecticut insurance laws and regulations, consistently applied.

 

“ Capitalization Amount ” shall have the meaning set forth in Section 2.1(b).

 

“ Ceded Business Trust ” shall have the meaning set forth in the Coinsurance Agreement.

 

“ Ceded Business Trust Agreement ” shall have the meaning set forth in the Coinsurance Agreement.

 

“ CFS ” shall have the meaning set forth in Section 3.28(a).

 

“ CGLIC ” shall have the meaning set forth in the preamble.

 

“ CGLIC Guaranteed Cost Management Agreement ” means the investment management agreement among CGLIC, CIGNA Life and              , as trustee, substantially in the form of Exhibit O-3.

 

“ CGLIC Separate Account Management Agreements ” means the Investment Management Agreement (Non Manager of Managers Program) between CGLIC and PIM substantially in the form attached hereto as Exhibit Q, and the Investment Management Agreement (Manager of Managers Program) between CGLIC and PRICOA substantially in the form attached hereto as Exhibit R.

 

“ CIGNA ” means CIGNA Corporation, a Delaware corporation and the ultimate parent entity of Sellers.

 

“ CIGNA Above-Market Options ” shall have the meaning set forth in Section 5.5(j)(1)(b).

 

“ CIGNA Above-Market Remaining Value ” shall have the meaning set forth in Section 5.5(j)(1)(b).

 

 

-7-

“ CIGNA Above-Market Replacement Value ” shall have the meaning set forth in Section 5.5(j)(1)(b).

 

“ CIGNA Bank ” means CIGNA Bank & Trust Company, FSB, a wholly owned subsidiary of Connecticut General.

 

“ CIGNA Below-Market Options ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

“ CIGNA Below-Market Replacement Value ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

“ CIGNA Holdings ” shall have the meaning set forth in the preamble.

 

“ CIGNA Intellectual Property Holding Company ” means CIGNA Intellectual Property, Inc.

 

“ CIGNA Intrinsic Value ” shall have the meaning set forth in Section 5.5(j)(1)(b).

 

“ CIGNA Life ” shall have the meaning set forth in the Recitals.

 

“ CIGNA Life Guaranteed Cost Management Agreement ” means the investment management agreement among CGLIC, CIGNA Life and              , as trustee, substantially in the form of Exhibit O-5.

 

“ CIGNA LTIP ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

“ CIGNA Restricted Stock ” shall have the meaning set forth in Section 5.5(j)(1)(c).

 

“ CIGNA Stock Plan ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

“ CIGNA Stock Plans ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

“ CII ” means CIGNA Investment, Inc.

 

“ Claims Notice ” shall have the meaning set forth in Section 7.4.

 

“ Closing ” shall have the meaning set forth in Section 2.7(a).

 

“ Closing Date ” shall have the meaning set forth in Section 2.7(a).

 

-8-

“ Closing Statement of Net Settlement ” shall have the meaning set forth in Section 2.9(c).

 

“ Code ” means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

 

“ Coinsurance Agreement ” means the Coinsurance and Assumption Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit E.

 

“ Commissions ” means any and all commissions, expense allowances, and other fees and compensation payable to producers of the Business.

 

“ Company Separate Account ” shall have the meaning set forth in Section 3.27.

 

“ Competing Business ” shall have the meaning set forth in Section 5.2(a).

 

“ Computer Software ” means all computer software and databases (including without limitation source code, object code, and all related documentation).

 

“ Confidentiality Agreement ” shall mean the Confidentiality Agreement, dated as of June 20, 2003, between CIGNA and Buyer.

 

“ Connecticut General ” shall have the meaning set forth in the preamble.

 

“ Connecticut SAP ” shall have the meaning set forth in Section 3.6.

 

“ Consulting Agreement ” shall have the meaning set forth in Section 3.10(a).

 

“ Continued Practice ” means any Relevant Practice which is continued in substantially the same manner by Buyer or any of its Affiliates, including the Acquired Companies, for at least eighteen (18) months following the Closing, other than conduct that is inconsistent with established policies of Buyer or its Affiliates.

 

“ Contract ” means any loan or credit agreement, note, bond, mortgage, indenture, Lease, Lien or other agreement, legally binding obligation or instrument; provided , however , for purposes of this definition in no event shall a “Subject Contract” constitute a Contract.

 

“ Controlling Party ” shall have the meaning set forth in Section 5.19(k)(ii).

 

“ Data Input Inaccuracy ” shall have the meaning set forth in Section 2.11(d)(i).

 

-9-

“ Deductible ” shall have the meaning set forth in Section 7.3(c).

 

“ Department of Labor ” means the United States Department of Labor.

 

“ Derivative ” means any rate swaps, basis swaps, forward rate transactions, commodity swaps, commodity options, equity or equity index swaps, equity or equity index options, bond options, credit swaps, options or options on swaps or other credit derivatives, interest rate options, foreign exchange transactions, cap transactions, floor transactions, collar transactions, forward transactions, currency swap transactions, cross currency rate swap transactions, currency options or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.

 

“ Determined Practice ” means any accounting, sales or other business practice, method or policy which is determined by an Expert Panel to be a Relevant Practice which is consistent with the practices, methods or policies of roughly half, or more, of the participants in the relevant business segment (measured by volume of business or otherwise), taking into account the product, the method of distribution and all other relevant criteria relating to the practice in question at the time in question; provided , however , that (i) in making such determination, the members of the Expert Panel shall be entitled to rely upon their own experience, knowledge and understanding of the industry rather than only the evidence presented by the parties, it being agreed and acknowledged that such determination is not intended to be a strict formulaic calculation, calculation based on specific percentages or other mathematical exercise; (ii) the Expert Panel shall have no power to award any relief other than determining whether a practice (or portion of a practice) is a Determined Practice; and (iii) the Expert Panel shall not make any determination contrary to the explicit terms hereof or of the Purchase Agreement.

 

“ Eligible Liability ” means any Liability arising out of any Industry Practice or Specified Common Interest Matters to the extent related to the conduct of the Business prior to the Closing. Each Eligible Liability shall be treated in the same manner as a claim for indemnification under Section 7.5 of the Agreement and, subject to Section 7.5(e), Buyer shall be treated for procedural purposes only as the Indemnifying Party with regard to such matter. For the avoidance of doubt, in no event shall Section 7.3(c) be deemed to apply to any such indemnification.

 

“ Employment Agreement ” shall have the meaning set forth in Section 3.10(a).

 

“ Environmental Law ” means any law, regulation, order, decree or agency requirement relating to pollution, contamination, hazardous wastes, hazardous substances, noise, odor, lead, polychlorinated biphenyls, asbestos, black mold or the protection of the environment or to occupational, health and safety.

 

-10-

“ Equity Interest ” means any capital stock, partner interests, member interests, beneficial interests or any other equity or ownership interests, any instruments convertible or exchangeable for any such interests, or any other rights, warrants, options, agreements, commitments, arrangements or understandings of any kind, contingently or otherwise, to acquire or dispose of any of the foregoing.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations of the Department of Labor thereunder.

 

“ ERISA Affiliate ” shall have the meaning set forth in Section 3.10(a).

 

“ Estimated Statement of Net Settlement ” shall have the meaning set forth in Section 2.9(b).

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and all rules and regulations of the SEC thereunder.

 

“ Excluded Assets ” means those assets listed on Schedule 1.1(e), the Excluded IP Assets, the Contracts which are not Assigned and Assumed Contracts and the Investment Assets other than the Transferred Investment Assets.

 

“ Excluded Business ” means the business of CIGNA Life which is to be coinsured and administered by CGLIC pursuant to the Excluded Business Coinsurance Agreement and Excluded Business Administrative Services Agreement, respectively.

 

“ Excluded Business Administrative Services Agreement ” means the Administrative Services Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit F.

 

“ Excluded Business Coinsurance Agreement ” means the Indemnity Coinsurance Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit G, pursuant to which all liabilities of CIGNA Life unrelated to the Business will be coinsured by CGLIC.

 

“ Excluded Employees ” shall have the meaning set forth in Section 5.3(b).

 

“ Excluded Investment Employees List ” shall have the meaning set forth in Section 5.5(d).

 

“ Excluded IP Assets ” means those assets listed on Schedule 3.12(a)(v).

 

“ Excluded Liabilities ” means (i) the Retained ECOs (as defined in the Business Coinsurance Agreements); (ii) all Liabilities of Sellers, the Acquired Companies or any other Affiliate of Sellers other than the Assumed Liabilities and the Acquired Companies Liabilities; and (iii) the Liabilities listed on Schedule 1.1(f).

 

-11-

“ Excluded Retirement Services Employees List ” shall have the meaning set forth in Section 5.5(d).

 

“ Experience Rated Assets ” shall have the meaning set forth in the definition of Assumed Liabilities.

 

“ Expert Panel ” means a panel selected in accordance with the procedures set forth on Schedule 1.1(g).

 

“ Facilities Sharing Agreements ” shall have the meaning set forth in Section 5.18(b).

 

“ Facilities Sharing Agreement Term Sheet ” means the term sheet attached hereto as Exhibit H.

 

“ Field Locations shall have the meaning set forth in Section 3.14.

 

“ Final Settlement Date ” shall have the meaning set forth in Annex 2 to Schedule 1.1(h).

 

“ Final Statement of Net Settlement ” shall have the meaning set forth in Sections 2.9(d) and 2.10(a).

 

“ FRB ” shall have the meaning set forth in Section 3.30(a).

 

“ GAAP ” means generally accepted accounting principles in effect in the United States of America at the time of determination, consistently applied.

 

“ General Account ” means the assets of an insurance company, other than Separate Account Assets and associated Reserves held in the Separate Accounts (in each case whether or not for variable life insurance).

 

“ General Account Policy Reserves ” shall have the meaning set forth in the Coinsurance Agreement.

 

“ General Account Reinsurance Premium ” means General Account Reinsurance Premium Assets with an aggregate statutory carrying value determined in accordance with the Statement of Net Settlement Methods equal to one-hundred percent (100%) of the amount set forth on the line item “Net Settlement Liability due to CIGNA Life” reflected on the applicable Statement of Net Settlement.

 

“ General Account Reinsurance Premium Assets ” means investment portfolios held in CGLIC’s General Account and selected in accordance with the Investment Asset Identification Protocol.

 

-12-

“ General Account Subject Contracts ” means the “General Account Subject Contracts,” as such term is defined in the Coinsurance Agreement.

 

“ Governing Advisory Authorities ” shall have the meaning set forth in Section 3.29(a)(ii)(A).

 

“ Governmental Approvals ” shall have the meaning set forth in Section 6.1(b).

 

“ Governmental Entity ” shall have the meaning set forth in Section 3.4.

 

“ GPS ” shall have the meaning set forth in Section 3.29(a).

 

“ Guaranteed Cost Administrative Services Agreement ” means the Guaranteed Cost Business Administrative Services Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit O-1.

 

“ Guaranteed Cost Business Trust ” shall have the meaning set forth in the Guaranteed Cost Coinsurance Agreement.

 

“ Guaranteed Cost Business Trust Agreement “ means the Trust Agreement between CGLIC, CIGNA Life and              , as trustee, substantially in the form attached hereto as Exhibit O-4.

 

“ Guaranteed Cost Coinsurance Agreement ” means the Guaranteed Cost Coinsurance and Assumption Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit O-2.

 

“ Guaranteed Cost Reinsurance Premium ” means General Account Reinsurance Premium Assets with an aggregate statutory carrying value determined in accordance with the Statement of Net Settlement Methods equal to one-hundred percent (100%) of the amount set forth on the line item “Guaranteed Cost Net Settlement Liability due to Modco Account” reflected on the applicable Statement of Net Settlement.

 

“ HSR Act ” shall have the meaning set forth in Section 3.4.

 

“ Identified ”, when used with respect to any Eligible Liability, means that any third party, including any Governmental Entity, has either (i) communicated in writing an intention to seek any recovery for any Industry Practice or Specified Common Interest Matter from any of Sellers or their Affiliates, CIGNA Life or Buyer or its Affiliates or (ii) instituted, or communicated in writing an intention to institute, any Action against Sellers or their Affiliates, CIGNA Life or Buyer or its Affiliates for any Industry Practice or Specified Common Interest Matter. Each of Seller and Buyer agrees to notify the other promptly in the event any such written communications are received by it or its Affiliates.

 

-13-

“ IMR ” means interest maintenance reserves required to be maintained by CGLIC or CIGNA Life, as applicable, determined in accordance with applicable Connecticut insurance laws and regulations, consistently applied.

 

“ IMR Adjustment ” means an amount equal to the excess, if any, of (i) $90,461,830 over (ii) the actual IMR for the Business as of June 30, 2003 as recalculated by Sellers in accordance with Connecticut SAP and verified by CIGNA’s independent, external auditors after eliminating any changes between (i) and (ii) resulting from changes in the IMR of Separate Accounts of the Business, other than the Business’ guaranteed investment contracts Separate Accounts.

 

“ Inactive Employees ” shall have the meaning set forth in Section 5.5(b).

 

“ Included Agreement ” means any Ancillary Agreement that is not a Transfer Agreement.

 

“ Indemnified Party ” shall have the meaning set forth in Section 7.4.

 

“ Indemnifying Party ” shall have the meaning set forth in Section 7.4.

 

“ Industry Practice ” means any accounting, sales or other business practice, method or policy which is a Buyer Practice, a Continued Practice or a Determined Practice.

 

“ Insurance-Related Liabilities ” means those Liabilities of a type or kind identified as “Insurance-Related Liabilities” on the Final Statement of Net Settlement which correlate to the line items for “Insurance-Related Liabilities” on the Pro-Forma Statement of Net Settlement.

 

“ Intellectual Property ” means, collectively, all United States and foreign registered, unregistered and pending (i) Trademarks, (ii) Computer Software, (iii) copyrights (including those in Computer Software, and all registrations and applications therefor), (iv) Patents, (v) Trade Secrets, (vi) all moral rights, rights of publicity, rights of privacy, and (vii) all other intellectual property rights and rights of a similar nature.

 

“ Intellectual Property Contracts ” means all license, assignment, distribution, Computer Software (including maintenance), trademark consent, trademark coexistence, non-assertion or other Contracts relating to Intellectual Property to which (i) the Acquired Companies are a party (or under which they otherwise derive or grant Intellectual Property rights), or (ii) Sellers or Affiliates of Sellers (other than the Acquired Companies) are a party (or under which they otherwise derive or grant Intellectual Property rights) primarily used in the Business.

 

-14-

“ Intellectual Property Office ” shall have the meaning set forth in Section 3.12(a).

 

“ Intercompany Agreements ” shall have the meaning set forth in Section 3.15(a).

 

“ Investment Advisers Act ” means the Investment Advisers Act of 1940 and all rules and regulations of the SEC thereunder.

 

“ Investment Advisory Contract ” means any Contract pursuant to which an Advisory Entity provides investment management, investment advisory or subadvisory services.

 

“ Investment Asset Identification Protocol ” means the guidelines attached hereto as Schedule 1.1(h) for identifying Investment Assets to be transferred (or maintained in Modco Accounts) pursuant to Section 2.1(b), 2.3 or 2.11.

 

“ Investment Assets ” means any interest in bonds, notes, debentures, mortgage loans, real estate, collateral loans and all other instruments of indebtedness, stocks, partnership or joint venture interests and all other equity interests, certificates issued by or interests in trusts, Derivatives or other assets acquired for investment purposes.

 

“ Investment Company Act ” means the Investment Company Act of 1940 and all rules and regulations of the SEC thereunder.

 

“ Investment Employees ” shall have the meaning set forth in Section 5.5(a).

 

“ Investment Employees List ” shall have the meaning set forth in Section 5.5(a).

 

“ Investment Subadvisory Agreement ” means the Investment Subadvisory Agreement between PIM and TimesSquare substantially in the form attached hereto as Exhibit X.

 

“ IT Assets ” means computers, Computer Software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, and all other information technology equipment, and all associated documentation.

 

“ IT Hardware ” means IT Assets which are not Computer Software.

 

“ IT Hardware Lease ” means a Contract pursuant to which (i) the Acquired Companies are a party (or under which they otherwise derive rights relating to IT Hardware) and use, lease or otherwise have access to IT Hardware, or (ii) Sellers or Affiliates of Sellers (other than Acquired Companies) are a party (or under which they otherwise derive rights relating to IT Hardware) and use, lease or otherwise have access to IT Hardware primarily used in the conduct of the Business.

 

-15-

“ Knowledge ” of a Person means: (a) in the case of Sellers, or any of them, the actual knowledge of any Person listed on Schedule 1.1(i), subject to the subject matter limitations set forth on such schedule, or (b) in the case of Buyer, the actual knowledge of any Person listed on Schedule 1.1(j), subject to the subject matter limitations set forth on such schedule.

 

“ Leases ” shall have the meaning set forth in Section 3.14.

 

“ Liability ” means, with respect to any Person, any liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise.

 

“ Lien ” means any and all liens, charges, security interests, claims, judgments, mortgages, pledges, voting trusts or agreements, obligations, understandings or arrangements restricting title or transfer of any nature whatsoever.

 

“ LINA ” means Life Insurance Company of North America, a Pennsylvania life insurance company.

 

“ LINA Administrative Services Agreement ” means the Administrative Services Agreement between LINA and CIGNA Life substantially in the form attached hereto as Exhibit I.

 

“ LINA Modco Account ” shall mean the Modco Account as defined in the LINA Modco Agreement.

 

“ LINA Modco Agreement ” means the LINA Separate Account Modified Coinsurance Agreement between LINA and CIGNA Life substantially in the form attached hereto as Exhibit J.

 

“ LINA Modco Reserves ” shall mean the Separate Account Policy Reserves, as defined in the LINA Modco Agreement.

 

“ LINA Separate Account Management Agreement ” means the LINA Separate Account Management Agreement between LINA and PIM substantially in the form attached hereto as Exhibit Y.

 

“ Loss ” shall have the meaning set forth in Section 7.3(a).

 

“ Master Assignment of Derivatives Agreement ” means an agreement substantially in the form of Exhibit L.

 

-16-

“ Master Assignment of Securities Agreement ” means an agreement substantially in the form of Exhibit M.

 

“ Material Business Contracts ” shall have the meaning set forth in Section 3.13.

 

“ Material Negative Condition ” shall have the meaning set forth in Section 5.6.

 

“ Modco Accounts ” means the “Modco Accounts,” as such term is defined in the Coinsurance Agreement, the Guaranteed Cost Coinsurance Agreement, the LINA Modco Agreement and the Excluded Business Coinsurance Agreement.

 

“ Moody’s ” means Moody’s Investors Service.

 

“ NASD ” means NASD, Inc.

 

“ Net Data Adjustment Amount ” shall have the meaning set forth in Section 2.11(d)(iii).

 

“ Net Reserve Release Amount ” means the net amount in Insurance-Related Liabilities due to the STAT items identified on Attachment 1 to Schedule 3.9 (aggregating $53.133 million on a pre-tax basis) or similar special adjustments which are recorded in the SAP statements of CGLIC or CIGNA Life after June 30, 2003 through the Closing Date or the effect of which is reflected on the Final Statement of Net Settlement.

 

“ Non-Amending Party ” shall have the meaning set forth in Section 5.19(n).

 

“ Non-Insurance-Related Liabilities ” means those Liabilities of a type or kind identified as “Non-Insurance-Related Liabilities” on the Final Statement of Net Settlement which correlate to the line items for Non-Insurance-Related Liabilities on the Pro-Forma Statement of Net Settlement.

 

“ Notice of Demand ” shall have the meaning set forth in Section 2.11(d)(viii).

 

“ Novation Approvals ” means the approval of the relevant state insurance departments for the novation of the Subject Contracts by CIGNA Life.

 

“ OFAC ” shall have the meaning set forth in Section 3.32.

 

“ Offsetting Data Input Inaccuracies Amount ” shall have the meaning set forth in Section 2.11(d)(iv).

 

-17-

“ Omnibus Plan ” shall have the meaning set forth in Section 5.5(j)(1).

 

“ Optional Retirement Services Employees ” shall have the meaning set forth in Section 5.5(e).

 

“ Order ” means any award, decision, injunction, judgment, charge, decree, settlement, order, subpoena or verdict (whether temporary, preliminary or permanent) entered, issued, made or rendered by any Governmental Entity.

 

“ Organizational Documents ” shall have the meaning set forth in Section 3.1

 

“ OTS ” shall have the meaning set forth in Section 3.7(c).

 

“ Owned Intellectual Property ” means all Intellectual Property owned by the Acquired Companies.

 

“ Owned IT Hardware ” means all IT Hardware owned by the Acquired Companies.

 

“ Participate Fully ” shall have the meaning set forth in Section 7.5(c).

 

“ Participating Party ” shall have the meaning set forth in Section 7.5(c).

 

“ Participation Agreement ” means the Master Loan Sale, Participation and Servicing Agreement substantially in the form attached hereto as Exhibit N.

 

“ Patents ” means all utility and design patents, registered designs and invention disclosures (including, without limitation, those relating to Computer Software), and all grants, registrations and applications therefor.

 

“ PBGC ” shall have the meaning set forth in Section 3.10(c).

 

“ Permitted Factors ” shall have the meaning set forth in Section 2.9(d).

 

“ Permitted Liens ” means the following of the Business: (a) Liens for Taxes or assessments or charges or levies by Governmental Entities, including those arising by operation of law, which are not yet due or delinquent or which are being contested in good faith and subject to the establishment of appropriate reserves therefor; (b) statutory deposits; (c) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business and securing obligations that are not due or which are being contested in good faith and subject to the establishment of appropriate reserves therefor; (d) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; and (e) zoning restrictions, easements, rights of way, restrictions on use of real property, other similar encumbrances

 

-18-

and other Liens which, in the aggregate, are not substantial in amount and except in immaterial respects do not detract from the value of the property as used by the Business subject thereto or interfere with the ordinary conduct of the Business as currently conducted.

 

“ Person ” means an individual, corporation, partnership, joint venture, association, limited liability company, trust, unincorporated organization, Governmental Entity or other entity.

 

“ PIM ” means Prudential Investment Management, Inc.

 

“ Plans ” shall have the meaning set forth in Section 3.10(a).

 

“ Positive Data Input Inaccuracies Amount ” shall have the meaning set forth in Section 2.11(a)(v).

 

“ Post-Closing Business Liabilities ” mean all (i) Liabilities to the extent arising out of the conduct of Business on or after the Closing, (ii) Liabilities assumed by Buyer or its Affiliates (including the Acquired Companies) to pay or perform obligations pursuant to any Ancillary Agreement and (iii) Liabilities to the extent arising pursuant to the Assigned and Assumed Contracts and the Transferred Assets on or after the Closing.

 

“ Post-Closing Period ” shall have the meaning set forth in Section 5.19(b).

 

“ Pre-Closing Period ” shall have the meaning set forth in Section 5.19(a).

 

“ Preliminary Remaining Gain ” shall have the meaning set forth in Annex 2 to Schedule 1.1(h).

 

“ Preparer ” shall have the meaning set forth in Section 5.19(c).

 

“ PRICOA ” means The Prudential Insurance Company of America, a wholly owned subsidiary of Buyer.

 

“ Pro-Forma Statement of Net Settlement ” shall have the meaning set forth in Section 2.9(a).

 

“ Producer ” shall have the meaning set forth in Section 3.22(a).

 

“ Producer Agreements ” shall have the meaning set forth in Section 3.22(a).

 

“ Prudential Bank ” means The Prudential Savings Bank, FSB.

 

“ Prudential Options ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

 

-19-

“ Prudential Restricted Stock ” shall have the meaning set forth in Section 5.5(j)(1)(c).

 

“ PTCE 84-14 ” shall have the meaning set forth in Section 3.7(d).

 

“ Purchase Price ” shall have the meaning set forth in Section 2.6.

 

“ Ratings Event ” means a reduction in the financial strength rating of CGLIC to (i) BBB+ or below by Standard & Poor’s or (ii) Baa1 or below by Moody’s.

 

“ Real Estate Separate Account Administrative Services Agreement ” means the Real Estate Separate Account Administrative Services Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit Z.

 

“ Real Estate Separate Account Coinsurance Agreement ” means the Real Estate Separate Account Coinsurance Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit AA.

 

“ Registered Products Administrative Services Agreement ” means the Registered Products Administrative Services Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit P-1.

 

“ Registered Products Modified Coinsurance Agreement ” means the Registered Products Modified Coinsurance Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit P-2.

 

“ Regulatory Agreement ” shall have the meaning set forth in Section 3.7(b).

 

“ Reinsured Liabilities ” shall mean all of the “Reinsured Liabilities,” as such term is defined in each of the Business Coinsurance Agreements.

 

“ Relevant Practice ” means any accounting, sales or other business practice, method or policy that is particularly applicable to the retirement services business, rather than a practice applicable to businesses generally.

 

“ Remaining Gain Adjustment Amount ” shall have the meaning set forth in Annex 2 to Schedule 1.1(h).

 

“ Reserve Adjustment ” means an amount equal to 0.65 times the greater of (A)(i) the Net Reserve Release Amount minus (ii) $53 million and (B) $0.

 

“ Reserves ” shall mean reserves, funds or provisions for losses, claims, premiums, policy benefits, costs and expenses in respect of (a) insurance obligations (including life benefit reserves, life claim reserves, IMR, unearned premium reserves, premium deposit fund liabilities or otherwise) or (b) reinsurance collectibles.

 

 

-20-

“ Restructuring ” shall have the meaning set forth in Section 2.7(b).

 

“ Retention Awards ” shall have the meaning set forth in Section 5.5(j)(3).

 

“ Retirement Services Employees ” shall have the meaning set forth in Section 5.5(a).

 

“ Retirement Services Employees List ” shall have the meaning set forth in Section 5.5(a).

 

“ Reviewer ” shall have the meaning set forth in Section 5.19(c).

 

“ SAP ” means, with respect to any Person, the statutory accounting principles and practices prescribed or permitted by the domiciliary state of such Person at the time of determination, consistently applied.

 

“ SAP Disallowance ” shall have the meaning set forth in Section 5.32.

 

“ Schedules ” means the disclosure schedules hereto prepared and delivered simultaneously with the execution hereof.

 

“ SEC ” shall have meaning set forth in Section 3.28(a).

 

“ Section 338(h)(10) Election ” shall have the meaning set forth in Section 5.19(p).

 

“ Securities Act ” means the Securities Act of 1933, as amended.

 

“ Seller Indemnitees ” shall have the meaning set forth in Section 7.3(b).

 

“ Seller-Licensed Intellectual Property ” shall have the meaning set forth in Section 5.26(a).

 

“ Seller Material Adverse Effect ” means a material adverse effect on the business, financial condition, operations or results of operations of the Business, the Acquired Companies, the Transferred Assets, the Transferred Investment Assets and the Subject Contracts, taken as a whole; provided , however , that the following shall be excluded from the definition of “Seller Material Adverse Effect” and from any determination as to whether such Seller Material Adverse Effect has occurred or may occur: (i) the effects of changes that are generally applicable to (A) the insurance or annuity industries (provided that such effect is not disproportionately more adverse with respect to the Business, taken as a whole, than the effect on comparable insurance and annuity businesses generally, except that, if such effect is disproportionately more adverse with respect to the Business, any assessment of whether there is, or has been, a Seller Material Adverse Effect shall only take into account the incremental impact of such adverse effect on the Business, taken as a whole, over the impact of such effect on

 

-21-

the insurance and annuity business generally) or (B) the financial, banking, currency or capital markets (either in the United States or any international market); (ii) the effects of any facts or circumstances relating to Buyer or its existing or former Affiliates, including the effects of any facts or circumstances arising out of or relating to market conduct or other business practices of the Buyer or its former or existing Affiliates; (iii) the effects of any breach of any provision of this Agreement by Buyer; (iv) the rating of any of CGLIC’s Affiliates other than CIGNA Life, provided that if CIGNA Life’s Moody’s rating is “A3” or higher and its Standard & Poor’s financial strength rating is “A-” or higher than CIGNA Life’s rating, any change in CIGNA Life’s rating and the effects of such ratings or change in ratings shall also be excluded pursuant to this clause (iv); (v) the execution of this Agreement or the Ancillary Agreements; (vi) the identity of the Buyer; (vii) the announcement of this Agreement, the Ancillary Agreements, or the transactions contemplated hereby or thereby, other than matters relating to Buyer which are covered by clauses (ii) and (iii) above; (viii) if CGLIC’s Moody’s rating is at least “Baa1” and Standard & Poor’s financial strength rating is at least “BBB+”, CGLIC’s rating, any change in CGLIC’s rating and the effects of such ratings or change in ratings shall also be excluded pursuant to this clause (viii); and (ix) the effects of any facts or circumstances relating to the absence for CIGNA Life of either (A) an A.M. Best, Standard & Poor’s or Moody’s rating or (B) a rating by Standard & Poor’s, Moody’s or another rating agency which is separate from the rating of CGLIC, provided, in the case of this clause (B), that CGLIC’s Moody’s rating is at least “Baa1” and Standard & Poor’s financial strength rating is at least “BBB+”. Notwithstanding anything to the contrary set forth in the foregoing, in the event of the occurrence after the date of this Agreement of a Buyer MAE, it is understood and agreed that Buyer shall have the burden of proof in establishing that any such adverse effect did not result from and was not caused by the matters covered by clauses (ii), (v), (vi) and (vii).

 

“ Seller Permits ” shall have the meaning set forth in Section 3.7(a).

 

“ Sellers ” shall have the meaning set forth in the preamble.

 

“ Separate Account ” means a separate account established and maintained pursuant to Section 38a-433 or Section 38a-459 of the Connecticut General Statutes, including any such separate account to the extent guaranteed by CGLLC’s General Account.

 

“ Separate Account Assets ” means investment portfolios held in CGLIC’s Separate Accounts and identified in accordance with the Investment Asset Identification Protocol.

 

“ Separate Account Subject Contracts ” shall mean all of the “Separate Account Subject Contracts” as such term is defined in each of the Business Coinsurance Agreements.

 

-22-

“ Services ” shall have the meaning set forth in Section 1.2(b) of the Transition Services Agreement

 

“ 60-Day Treasury Rate ” means the annual yield rate, on the date to which the 60-Day Treasury Rate relates, of actively traded U.S. Treasury securities having a remaining term to maturity of two months, as such rate is published under “Treasury Constant Maturities” in Federal Reserve Statistical Release H.15(519).

 

“ Specified Common Interest Matter ” means those matters described in writing by CIGNA to Buyer prior to the date of this Agreement and as to which the parties have agreed they have a common interest.

 

“ Specified Data Input Factors ” shall have the meaning set forth in Section 2.11(d)(vi).

 

“ Specified Data Input Factors Amount ” shall have the meaning set forth in Section 2.11(d)(vii).

 

“ Specified Judgment ” shall have the meaning set forth in Section 2.9(d).

 

“ SPU ” shall have the meaning set forth in Section 5.5(j)(2).

 

“ Standard & Poor’s ” means Standard & Poor’s Ratings Services, Inc., a division of the McGraw-Hill Companies, Inc.

 

“ Statement of Net Settlement ” shall have the meaning set forth in Section 2.9(a).

 

“ Statement of Net Settlement Methods ” means the methodologies, procedures, judgments, assumptions and estimates described in Schedule 2.9(a)(iii).

 

“ Statutory Financial Statements ” shall have the meaning set forth in Section 3.6(c).

 

“ Straddle Period ” shall have the meaning set forth in Section 5.19(b).

 

“ Subject Contracts ” means the “Subject Contracts,” as such term is defined in the Business Coinsurance Agreements.

 

“ Substitution and Indemnification Agreement ” means the Substitution and Indemnification Agreement substantially in the form attached hereto as Exhibit S.

 

“ Summary Plan Description ” means, with respect to any Plan that is subject to the requirements of ERISA, any document or documents that satisfy the requirements of Department of Labor Regulations Section 2520.104b-2.

 

-23-

“ Surplus ” means total statutory surplus less Capital, adjusted for the par value of any treasury stock, determined in accordance with applicable Connecticut insurance laws and regulations, consistently applied.

 

“ Tax Audit ” shall have the meaning set forth in Section 5.19(k)(i).

 

“ Tax Authority ” means any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising regulatory authority with respect to Taxes.

 

“ Tax Return ” shall mean any report, return, document, declaration or other filing required to be supplied to any Tax Authority or jurisdiction with respect to Taxes.

 

“ Taxes ” means any and all taxes, charges, fees, levies or other assessments, including, without limitation, income, gross receipts, excise, real or personal property, sales, withholding, social security, insurance premium, retaliatory, occupation, use, service, service use, value added, license, net worth, payroll, franchise, transfer and recording taxes, fees and charges, imposed by the United States Internal Revenue Service or any Tax Authority, whether computed on a separate, consolidated, unitary, combined or any other basis, and any and all entries in accounts maintained in respect of such amounts; and such term shall include any interest, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments.

 

“ Termination Date ” shall have the meaning set forth in Section 8.1(b).

 

“ Third Party Accountant ” means an independent accounting firm which is mutually acceptable to Sellers and Buyer, or, if Sellers and Buyer cannot agree on such an accounting firm, an independent accounting firm selected pursuant to the provisions of Article XIII of the Coinsurance Agreement.

 

“ Third Party Accountant Report ” shall have the meaning set forth in Section 2.10(a).

 

“ Third Party Actuary ” shall have the meaning set forth in Section 2.11(d)(xi).

 

“ Third Party Claimant ” shall have the meaning set forth in Section 7.5(a).

 

“ TimesSquare ” means TimesSquare Capital Management, Inc.

 

“ TimesSquare Letter Agreement ” means the Letter Agreement from TimesSquare to CGLIC, CIGNA Life and PRICOA substantially in the form attached hereto as Exhibit BB.

 

 

-24-

“ Trade Secrets ” means all trade secrets, inventions, processes, formulae, know how, and other proprietary and confidential business information and data, concepts, ideas, research and development, designs, business plans, strategies, marketing and customer lists.

 

“ Trademarks ” means all trade names, trade dress, trademarks, service marks, assumed names, business names and logos, slogans, internet domain names, and all registrations and applications therefor, together with all goodwill symbolized thereby.

 

“ Trademark/Trade Name Licenses Agreement ” means the Trademark/Trade Name Licenses Agreement between CIGNA Intellectual Property Inc. and CIGNA Life substantially in the form attached hereto as Exhibit T.

 

“ Transfer Agreements ” means the Master Assignment of Derivatives Agreement, the Master Assignment of Securities Agreement, the Participation Agreement or other conveyance documents required by Annex IV to the Investment Asset Identification Protocol or Section 5.18(e) and any conveyancing documents executed and delivered pursuant to any of the foregoing.

 

“ Transaction ” means the transactions contemplated by this Agreement.

 

“ Transfer Taxes ” shall have the meaning set forth in Section 5.13.

 

“ Transferred Assets ” means all assets, properties and rights, real, personal or mixed, tangible and intangible, of every kind and description, wherever located, other than the Acquired Stock, used or held for use by Sellers or any of their Affiliates (other than the Acquired Companies) primarily in the Business, including the Books and Records, the Transferred IP Assets, the Transferred IT Hardware, the Assigned and Assumed Contracts, the Intellectual Property Contracts and the IT Hardware Leases, but not including any of the Transferred Investment Assets, Reserves relating to the Subject Contracts or the Excluded Assets.

 

“ Transferred Investment Assets ” means all Investment Assets which are transferred to CIGNA Life, Buyer, any of its Affiliates or any Ceded Business Trust (or held in the Modco Accounts or any Separate Account relating to the Business) pursuant to the Investment Asset Identification Protocol, but excluding Transferred Assets.

 

“ Transferred IP Assets ” means all Owned Intellectual Property and Affiliate Owned Intellectual Property.

 

“ Transferred IT Hardware ” means all Owned IT Hardware and Affiliate Owned IT Hardware.

 

 

-25-

“ Transferred IT Items ” means all Transferred IT Hardware, Transferred IP Assets which are Computer Software, and Computer Software which is the subject of the Intellectual Property Contracts and the IT Hardware Leases.

 

“ Transition Services ” shall have the meaning set forth in the Transition Services Agreement.

 

“ Transition Services Agreement ” means the Transition Services Agreement between CGLIC and CIGNA Life substantially in the form attached hereto as Exhibit U including its Schedule 1 to be supplemented in accordance with Sections 5.9(b) and 5.18.

 

“ Transitional Subadvisory Agreement ” means the Transitional Subadvisory Agreement between PIM and TimesSquare substantially in the form attached hereto as Exhibit CC.

 

“ Transitional Subadvisory Agreement II ” means the Transitional Subadvisory Agreement between PIM and CII substantially in the form attached hereto as Exhibit DD.

 

“ Transitional Subadvisory Agreement (Prudential Bank) ” means the Transitional Subadvisory Agreement between PIM and CII substantially in the form attached hereto as Exhibit EE.

 

“ Transitional Subadvisory Agreement (Trust) ” means the Transitional Subadvisory Agreement between PIM and CII substantially in the form attached hereto as Exhibit FF.

 

“ Treasury Regulations ” means the Treasury Regulations, including temporary regulations, promulgated under the Code.

 

“ 20-Day CIGNA Average ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

“ 20-Day Prudential Average ” shall have the meaning set forth in Section 5.5(j)(1)(a).

 

“ Unassigned Funds ” shall have the meaning set forth in Section 3.6(c).

 

“ Unaudited Interim Buyer Financial Statements ” shall have the meaning set forth in Section 4.5.

 

“ Withheld Capital Loss Amount ” means an amount equal to 0.65 multiplied by the sum of: (I) (W)(a) $26 million, minus (b) the greater of: (i) the amount as of the Closing of the Withheld Capital Loss Balance attributable to the Defined Benefit portion of the Business and (ii) zero; minus (X) the portion of any difference between

 

-26-

(W)(a) and (W)(b) above that has been transferred since June 30, 2003 to the IMR of CGLIC and/or CIGNA Life, determined in accordance with Connecticut SAP; plus (II) (Y)(a) $46 million, minus (b) the greater of (i) the amount as of the Closing of the Withheld Capital Loss Balance attributable to the Defined Contribution Non-Pooled portion of the Business and (ii) zero; minus (Z) the portion of any difference between (Y)(a) and (Y)(b) above that has been transferred since June 30, 2003 to the IMR of CGLIC and/or CIGNA Life, determined in accordance with Connecticut SAP; provided , that in no event may the sum of (I) and (II) above be less than zero.

 

“ Withheld Capital Loss Balance ” means the balance of net realized capital losses recorded on the books of account as a charge to contract-holder liabilities, determined in accordance with CIGNA’s accounting practice, consistently applied with the Business Financial Statements.

 

Section 1.2 Interpretation .

 

(a) The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

(b) When a reference is made in this Agreement to a section or article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary.

 

(c) Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by the words “without limitation.”

 

(d) The words “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, Exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified.

 

(e) The meaning assigned to each term defined herein shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning.

 

(f) A reference to any party to this Agreement or any other agreement or document shall include such party’s successors and permitted assigns.

 

(g) The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

 

-27-

ARTICLE II

CLOSING

 

Section 2.1 Transfer of Assets to CIGNA Life .

 

(a) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing Sellers shall convey, transfer and deliver, and shall cause their Affiliates (other than the Acquired Companies) to convey, transfer and deliver, to CIGNA Life, and CIGNA Life shall accept all of Sellers’ and their Affiliates’ right, title and interest in, to and under the Transferred Assets, free and clear of all Liens, except Permitted Liens, pursuant to the Assignment and Assumption Agreement and the Bill of Sale.

 

(b) At the Closing, Connecticut General shall contribute an amount equal to approximately (i) $840,000,000 (Eight Hundred and Forty Million Dollars) plus (ii) the Withheld Capital Loss Amount, plus (iii) the Reserve Adjustment, plus (iv) the IMR Adjustment, plus (v) the Preliminary Remaining Gain if it is a positive number, minus (vi) the absolute value of the Preliminary Remaining Gain if it is a negative number, minus (vii) CIGNA Life’s surplus, valued in accordance with the Statement of Net Settlement Methods, without giving effect to the transactions contemplated by this Article II, minus (viii) CIGNA Life’s AVR as of immediately prior to giving effect to the transactions contemplated by this Article II, (the aggregate of (i) through (viii), the “Capitalization Amount”). The Capitalization Amount shall be contributed in cash and/or Investment Assets in accordance with the Investment Asset Identification Protocol to CIGNA Life and valued in accordance with the Statement of Net Settlement Methods. For purposes of this Section 2.1(b)(iv), “surplus” shall have its ordinary insurance meaning but asset and liability values to determine such surplus shall be determined in accordance with the Statement of Net Settlement Methods ( provided , that deferred tax assets shall be valued at $4 million).

 

(c) On the Final Settlement Date, CIGNA Life shall pay to Sellers the Remaining Gain Adjustment Amount (if such amount is a negative number) or Sellers shall pay to CIGNA Life the Remaining Gain Adjustment Amount (if such amount is a positive number). The Remaining Gain Adjustment Amount shall be paid in cash and/or Investment Assets in accordance with the Investment Asset Identification Protocol and valued in accordance with the Statement of Net Settlement Methods.

 

Section 2.2 Assumption of Liabilities .

 

At the Closing, immediately following the consummation of the transactions set forth in Section 2.1, CIGNA Life shall assume from Sellers and their Affiliates (other than the Acquired Companies) all of the Assumed Liabilities, pursuant to

 

-28-

the Assignment and Assumption Agreement. At the Closing, Sellers, CIGNA Life and Buyer shall execute and deliver, and Sellers shall cause their Affiliates to execute and deliver, the Assignment and Assumption Agreement and the Bill of Sale and such other documents and instruments as may be necessary in order to effect the conveyance of the Transferred Assets and the assumption of the Assumed Liabilities.

 

Section 2.3 Coinsurance Transactions .

 

(a) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing and simultaneously with the consummation of the transactions set forth in Sections 2.1 and 2.2, CGLIC, as ceding company, and CIGNA Life, as coinsurer and administrator, will enter into the Coinsurance Agreement, the Administrative Services Agreement, the Ceded Business Trust Agreement and the Separate Account Management Agreement, and LINA, as ceding company, and CIGNA Life, as coinsurer and administrator, will enter into the LINA Modco Agreement, the LINA Administrative Services Agreement and the LINA Separate Account Management Agreement.

 

(b) At the Closing in accordance with Section 4.1 of the Coinsurance Agreement, CGLIC (on behalf of CIGNA Life, the grantor of the Ceded Business Trust established pursuant to the Ceded Business Trust Agreement) shall transfer to such Ceded Business Trust the General Account Reinsurance Premium due to CIGNA Life reflected on the Estimated Statement of Net Settlement (as defined in Section 2.9(b)).

 

(c) At the Closing, in accordance with Section 5.1 of the Coinsurance Agreement, CGLIC shall maintain the Separate Account Assets relating to Separate Account Subject Contracts in Modco Accounts.

 

(d) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing and simultaneously with the consummation of the transactions set forth in Sections 2.1 and 2.2, CIGNA Life, as ceding company, and CGLIC, as coinsurer and administrator, will enter into the Excluded Business Coinsurance Agreement and the Excluded Business Administrative Services Agreement.

 

(e) At the Closing, in accordance with Section 4.1 of the LINA Modco Agreement, CGLIC shall maintain the Separate Account Assets relating to Separate Account Subject Contracts in the LINA Modco Account.

 

(f) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing and simultaneously with the consummation of the transactions set forth in Sections 2.1 and 2.2, CGLIC, as ceding company, and CIGNA Life, as coinsurer and administrator, will enter into the Guaranteed Cost Coinsurance Agreement, the Guaranteed Cost Administrative Services Agreement, the Guaranteed Cost Business Trust Agreement and the CGLIC Guaranteed Cost Management Agreement.

 

-29-

(g) At the Closing in accordance with Section 4.1 of the Guaranteed Cost Coinsurance Agreement, CGLIC, the grantor of the Guaranteed Cost Business Trust established pursuant to the Guaranteed Cost Business Trust Agreement, shall transfer to such Guaranteed Cost Business Trust the Guaranteed Cost Reinsurance Premium (to be retained therein pursuant to the modified coinsurance arrangement under the Guaranteed Cost Coinsurance Agreement) reflected on the Estimated Statement of Net Settlement (as defined in Section 2.9(b)).

 

(h) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing and simultaneously with the consummation of the transactions set forth in Sections 2.1 and 2.2, CGLIC, as ceding company, and CIGNA Life, as coinsurer and administrator, will enter into the Registered Products Modified Coinsurance Agreement and the Registered Products Administrative Services Agreement.

 

(i) At the Closing, in accordance with Section 4.1 of the Registered Products Modified Coinsurance Agreement, CGLIC shall maintain the Separate Account Assets relating to Separate Account Subject Contracts in the Modco Account established under the Registered Products Modified Coinsurance Agreement.

 

(j) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing and simultaneously with the consummation of the transactions set forth in Sections 2.1 and 2.2, CGLIC, as ceding company, and CIGNA Life, as coinsurer and administrator, will enter into the Real Estate Separate Account Coinsurance Agreement and the Real Estate Separate Account Administrative Services Agreement.

 

Section 2.4 Dividend of Stock of CIGNA Life to Connecticut General .

 

At least three (3) Business Days prior to the consummation of the transactions set forth in Sections 2.1, 2.2 and 2.3, CGLIC shall dividend to Connecticut General all of the issued and outstanding shares of stock of CIGNA Life.

 

Section 2.5 Purchase and Sale of the Acquired Stock .

 

Upon the terms and subject to the conditions set forth in this Agreement, at the Closing and prior to the transactions set forth in clause (b) below, (a) CIGNA Bank shall be merged with and into Prudential Bank, with Prudential Bank being the surviving entity in such merger, pursuant to the Bank Merger Agreement (the “Bank Merger”) and (b) Sellers shall convey, transfer and deliver to Buyer, and Buyer shall acquire and accept from Sellers, all of their right, title and interest in, to and under the Acquired Stock (other than CIGNA Bank), free and clear of all Liens, except for transfer restrictions arising under the Securities Act and similar Applicable Laws. Sellers shall deliver to Buyer all of the Acquired Stock (other than CIGNA Bank) free and clear of any Lien, duly assigned to Buyer and duly endorsed in blank or accompanied by stock powers duly executed.

 

-30-

Section 2.6 Consideration .

 

(a) The consideration (the “Purchase Price”) for the Transferred Assets, the Acquired Stock (other than CIGNA Bank) and the Bank Merger shall be a cash amount equal to (i) $2,100,000,000 (Two Billion One Hundred Million Dollars) minus (ii) only if a Ratings Event shall have occurred, $250,000,000. The Purchase Price shall be paid by Buyer to Sellers at the Closing by wire transfer of immediately available funds to an account or accounts designated in writing by Sellers no less than five (5) Business Days prior to the Closing Date.

 

(b) Any dispute over the amount or value of cash and/or Investment Assets paid pursuant to Section 2.1(b) shall be determined by the Third Party Accountant at the same time and, to the extent applicable in the same manner as provided in Sections 2.10 and 2.11 with respect to the Final Statement of Net Settlement, provided that (i) any amount contributed to CIGNA Life pursuant to Section 2.1(b) in excess of the Capitalization Amount shall be payable by CIGNA Life to Connecticut General in cash and/or Investment Assets in accordance with the Investment Asset Identification Protocol to CIGNA Life and valued in accordance with the Statement of Net Settlement Methods, together with interest on such amount from and including the Closing Date up to but not including the date of payment accrued at the 60-Day Treasury Rate, and (ii) in the event that the amount contributed to CIGNA Life pursuant to Section 2.1(b) is less than the Capitalization Amount, such amount shall be payable by Connecticut General to CIGNA Life in cash and/or Investment Assets in accordance with the Investment Asset Identification Protocol, together with interest on such amount from and including the Closing Date up to but not including the date of payment accrued at the 60-Day Treasury Rate. In the event of any dispute over the Withheld Capital Loss Amount or the Reserve Adjustment, such dispute shall be determined by the Third Party Accountant at the same time as provided in Sections 2.10 and 2.11 but determining the appropriate Withheld Capital Loss Amount in accordance with the terms of this Agreement under GAAP applied on a basis consistent with the Business Financial Statements as of June 30, 2003.

 

Section 2.7 Closing .

 

(a) The closing of the Transaction (the “Closing”) will take place at 10:00 A.M., New York time, on the last day of the month in which the last unfulfilled and unwaived condition to be satisfied prior to the Closing set forth in Article VI hereof shall be fulfilled or waived in accordance with the terms of this Agreement; provided , that if Sellers notify Buyer on or before February 1, 2004 that Sellers determine that they cannot accurately prepare the necessary financial and other information for Closing as of a month end that is not a quarter end, the Closing shall take place on the last day of the calendar quarter on which such condition is satisfied (such time, the “Closing Date”) at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, NY 10036, or such other place as the parties may agree. Closing shall be effective as of 12:01 a.m. on the next day.

 

-31-

(b) Notwithstanding anything in this Agreement or any Ancillary Agreement to the contrary, Sellers may implement the transactions contemplated by Sections 2.4 and 2.1, 2.2, or 2.3 hereof (the “Restructuring”) as of any month end that is reasonably expected to be more than thirty-one (31) days prior to the Closing Date, provided, that (i) Buyer shall be permitted to participate fully with Sellers in all communications with Governmental Entities relating to the Restructuring unless Sellers conclude in their reasonable judgment that (A) there is a substantial risk that the Transaction will not be completed and (B) as to a particular communication, the full participation of Buyer in such communication would reveal either sensitive confidential information about Sellers’ business plans in the event the Transaction is not completed or information about Sellers proposed response to the risk of the Transaction not being completed and (ii) Sellers shall consult and confer with Buyers regarding developments relating to the implementation of the Restructuring and keep Buyer fully informed of any proposals made to and any conditions discussed with, requested by or imposed by Governmental Entities in connection with implementation of the Restructuring, and such Restructuring is effected on terms and conditions that would not, individually or in the aggregate, reasonably be expected to have a Material Negative Condition; and provided further, that if the Restructuring is implemented prior to the Closing, Sellers, jointly and severally, agree to indemnify, defend and hold harmless Buyer Indemnitees from any Losses by any Buyer Indemnitees that would not have been incurred had such implementation occurred at Closing (taking into account any economic concessions by Sellers in connection with such implementation). Buyer Indemnitees shall exercise the indemnification rights provided in this Section 2.7(b) as if such rights were exercised pursuant to Section 7.3(a)(i), provided that such indemnification shall not be subject to the third sentence of Section 7.3(c). Notwithstanding the foregoing and without limitation to Section 5.6, if the Restructuring is to be implemented as of or immediately prior to the Closing Date, Sellers shall consult and confer with Buyer regarding any aspects of the implementation of the Restructuring differing from those provided for by the Ancillary Agreements and obtain the approval of Buyer for any such aspect, such approval not to be unreasonably withheld, conditioned or delayed. Sellers agree that in implementing the Restructuring they shall cooperate with Buyer and endeavor to avoid any negative effect upon the Unassigned Funds.

 

Section 2.8 Purchase Price Allocation .

 

Sellers and Buyer will allocate the Purchase Price and other applicable consideration (the “Allocable Amount”) in accordance with the requirements of sections 1060 and 338 of the Code for all Tax purposes. As soon as practicable after the Closing Date, Buyer shall prepare a schedule reflecting the allocation of the Allocable Amount and shall submit it to Sellers.

 

Section 2.9 Statements of Net Settlement .

 

(a) Attached hereto as (i) Schedule 2.9(a) (i) is a form of statement of the Liabilities of the Business, including the Reinsured Liabilities and Assumed

 

-32-

Liabilities but excluding the Excluded Liabilities, and related Separate Account Assets and General Account Reinsurance Premium Assets (the “Statement of Net Settlement”) and (ii) as Schedule 2.9(a)(ii) is a pro-forma Statement of Net Settlement as of June 30, 2003 (the “Pro-Forma Statement of Net Settlement”).

 

(b) CGLIC shall cause to be prepared and delivered to Buyer at least five (5) days prior to the Closing Date a proposed Statement of Net Settlement estimated as of the Closing Date in accordance with the Statement of Net Settlement Methods. Buyer shall be given an opportunity to review and comment on the proposed Statement of Net Settlement and Sellers shall provide Buyer with access to such information and personnel as Buyer may reasonably request in connection with such review and comment. Buyer shall provide any comments on the proposed Statement of Net Settlement at least one (1) day prior to the Closing Date and Buyer and CGLIC shall negotiate in good faith a resolution of any differences in the amounts stated on the proposal. The Statement of Net Settlement prepared by CGLIC, as revised to reflect any revisions thereto agreed to by CGLIC and Buyer, shall be the “Estimated Statement of Net Settlement”; provided , however , that if any differences between CGLIC and Buyer as to such Statement of Net Settlement are not resolved by the Closing Date, the Statement of Net Settlement estimated as of the Closing Date and prepared by CGLIC and revised by CGLIC to reflect any revisions thereto agreed to by CGLIC and Buyer, but not any of Buyer’s comments not agreed to by CGLIC, shall be the “Estimated Statement of Net Settlement”.

 

(c) Within ninety (90) days following the Closing Date, CGLIC shall prepare and deliver to Buyer a Statement of Net Settlement as of the Closing Date (the “Closing Statement of Net Settlement”) in accordance with the Statement of Net Settlement Methods.

 

(d) Buyer, on behalf of itself and CIGNA Life, shall review the Closing Statement of Net Settlement solely to determine whether in the preparation of the Closing Statement of Net Settlement (i) CGLIC appropriately utilized the Statement of Net Settlement Methods, (ii) CGLIC has not committed any arithmetic error in the calculation of any of the line items on the Closing Statement of Net Settlement, (iii) Data Input Inaccuracies affected one or more line items in the Closing Statement of Net Settlement, (iv) if the manner of making any judgment involved in the calculation of any line item in the Closing Statement of Net Settlement is not provided for by the Statement of Net Settlement Methods, such judgment is made consistently with either (x) CGLIC’s historical practices used in preparing the Pro-Forma Statement of Net Settlement or (y) if it cannot be made consistently with such historical practices, with SAP consistently applied with the Statutory Financial Statements or (z) if not made consistently with SAP or such historical practices, with sound industry practices (each of (x), (y) and (z), a “Specified Judgment”) (clauses (i) through (iv) being the “Permitted Factors”), and Buyer shall not consider any other matter, including the valuation of any Investment Assets reflected in the Closing Statement of Net Settlement. If Buyer and CGLIC are able to agree within one-hundred twenty (120) days of Buyer’s receipt of the Closing Statement

 

-33-

of Net Settlement, or earlier as mutually agreed to, that (A) the methodologies, procedures, judgments, assumptions and estimates used in the preparation of the Closing Statement of Net Settlement conform to the Statement of Net Settlement Methods, (B) CGLIC has not committed any arithmetic error in the calculation of any of the numerical data underlying the line items on the Closing Statement of Net Settlement, (C) Data Input Inaccuracies did not affect any line items of the Closing Statement of Net Settlement and (D) if any judgment involved in the calculation of any line item in the Closing Statement of Net Settlement is not addressed by the Statement of Net Settlement Methods, that such judgment is in accordance with the applicable Specified Judgment, then the Closing Statement of Net Settlement shall be deemed to be the “Final Statement of Net Settlement” for purposes of Section 2.11.

 

(e) If the parties are not able to agree to the matters set forth in the previous paragraph within one-hundred twenty (120) days of Buyer’s receipt of the Closing Statement of Net Settlement, then the Closing Statement of Net Settlement shall be promptly submitted for resolution to the Third Party Accountant pursuant to Section 2.10.

 

(f) Buyer, on behalf of itself and CIGNA Life, agrees that following the Closing Date CGLIC shall have such access to CIGNA Life’s books and records, including internal accounting records relating to the Business, and employees involved with the Business and the Subject Contracts as CGLIC may reasonably request for the preparation of the Closing Statement of Net Settlement or Buyer’s objections thereto. CIGNA, on behalf of itself and the other Sellers, agrees that following the Closing Date CIGNA Life and Buyer shall have such access to the books and records, including internal accounting records relating to the Business, and employees involved with the Business and Subject Contracts as Buyer or CIGNA Life may reasonably request for the review of the Closing Statement of Net Settlement or Buyer’s objections thereto.

 

(g) Transfer Taxes incurred in connection with the conveyance of the Subject Contracts shall be paid in accordance with Section 5.13 hereof and shall not be reflected as an asset or a liability on any Statement of Net Settlement Liability.

 

Section 2.10 Third Party Accountant .

 

(a) Within forty-five (45) days after the delivery of the Closing Statement of Net Settlement to the Third Party Accountant pursuant to Section 2.9(e), the Third Party Accountant shall review the Closing Statement of Net Settlement and render a written report thereon to Buyer, CIGNA Life and CGLIC (the “Third Party Accountant Report”). The parties hereto acknowledge and agree that such review by the Third Party Accountant and the Third Party Accountant Report shall be limited to, and only to, a determination by the Third Party Accountant as to the Permitted Factors. In conducting its review, the Third Party Accountant shall take into consideration submissions made by Buyer and CGLIC with regard to the Permitted Factors, and the basis for the parties’ respective views. The Third Party Accountant Report shall include a reasonably detailed

 

-34-

description of any change to the Closing Statement of Net Settlement that results from the Third Party Accountant’s review of the Closing Statement of Net Settlement and a restatement by the Third Party Accountant of the Closing Statement of Net Settlement which reflects any changes made by the Third Party Accountant (such statement to be deemed the “Final Statement of Net Settlement” for purposes of Section 2.11), provided , however , that each individual adjustment reflected on the Final Statement of Net Settlement, if there are any, must be based solely upon a finding by the Third Party Accountant that (A) CGLIC utilized methodologies, procedures, judgments, assumptions and estimates that were not provided for in the Statement of Net Settlement Methods, (B) CGLIC committed any arithmetic error in the calculation of any line item on the Closing Statement of Net Settlement, (C) Data Input Inaccuracies affected one or more line items in the Closing Statement of Net Settlement, or (D) if any judgment involved in the calculation of any line item in the Closing Statement of Net Settlement is not provided for by the Statement of Net Settlement Methods, such judgment is not in accordance with the applicable Specified Judgment. The dollar amount of each such individual adjustment to the total liabilities as shown on the Closing Statement of Net Settlement shall not be greater than the dollar amount which corresponds to the underlying finding set forth in the foregoing clauses (A), (B), (C) or (D) which the Third Party Accountant used to justify such adjustment. The fees, costs and expenses of the Third Party Accountant shall be shared equally by CGLIC and CIGNA Life.

 

(b) Notwithstanding anything to the contrary contained in this Agreement or in any of the Ancillary Agreements, each of the parties hereto acknowledges and agrees that (i) the Third Party Accountant shall not be authorized to make any adjustments to the Closing Statement of Net Settlement which are not based solely upon the Permitted Factors and (ii) the Third Party Accountant shall not review or make any adjustment (A) to a line item on or other matter involving the Closing Statement of Net Settlement not challenged pursuant to Section 2.9(e) or (B) based on the valuation of any Transferred Investment Assets reflected in the Closing Statement of Net Settlement.

 

(c) Following the Closing Date, the Third Party Accountant shall have access to any of Sellers’, CIGNA Life’s, Buyer’s and their respective Affiliates’ accounting records relating to the Business and Subject Contracts and employees involved with the Business and Subject Contracts, including with respect to the preparation by CGLIC, and the review by Buyer of the Estimated Statement of Net Settlement, and the preparation by CGLIC, and the review by CIGNA Life, of the Closing Statement of Net Settlement.

 

(d) Any (i) determination made by the Third Party Accountant pursuant to this Section 2.10 or (ii) agreement by the parties pursuant to the last sentence of Section 2.9(d) shall be final and binding on Buyer, CIGNA Life and Sellers. For purposes hereof, “final and binding” shall mean that the aforesaid determination or agreement, as the case may be, shall have the same preclusive effect for all purposes as a determination embodied in a final judgment, no longer subject to appeal and entered by a court of competent jurisdiction after full and fair litigation on the merits.

 

-35-

Section 2.11 Post-Closing Adjustment .

 

(a) In the event that (i) the General Account Reinsurance Premium determined by reference to the Final Statement of Net Settlement exceeds the General Account Reinsurance Premium determined by reference to the Estimated Statement of Net Settlement, then Sellers shall transfer to the Ceded Business Trust assets (selected in accordance with Investment Asset Identification Protocol) with an aggregate statutory carrying value determined in accordance with the Statement of Net Settlement Methods equal to such excess within five (5) Business Days of the delivery of the Final Statement of Net Settlement, plus interest on such amount from and including the Closing Date up to but not including the date of payment accrued at the 60-Day Treasury Rate, or (ii) the General Account Reinsurance Premium determined by reference to the Final Statement of Net Settlement is less than the General Account Reinsurance Premium determined by reference to the Estimated Statement of Net Settlement, then CIGNA Life, directly or from the Ceded Business Trust, as determined in accordance with the Coinsurance Agreement and the Ceded Business Trust Agreement, shall return to CGLIC assets (selected in accordance with the Investment Asset Identification Protocol) previously transferred by CGLIC to the Ceded Business Trust with an aggregate statutory carrying value determined in accordance with the Statement of Net Settlement Methods equal to such shortfall within five (5) Business Days of the delivery to the Buyer of the Final Statement of Net Settlement, plus interest on such amount from and including the Closing Date up to but not including the date of payment accrued at the 60-Day Treasury Rate. The foregoing shall apply to the Guaranteed Cost Reinsurance Premium, provided that any adjustment to the Guaranteed Cost Reinsurance Premium shall be transferred to the Guaranteed Cost Business Trust by CGLIC or from the Guaranteed Cost Business Trust by the trustee thereof to CGLIC, as the case may be.

 

(b) On the Closing Date all Separate Account Assets as of such date shall be retained in the corresponding Modco Account. In the event any Separate Account Assets are not retained in the appropriate Modco Account at Closing, Sellers shall cause such assets to be transferred thereto promptly after discovery thereof, together with any interest, dividends or other earnings after the Closing Date in respect of such assets.

 

(c) Notwithstanding any other provision of this Agreement to the contrary, in the event CGLIC (i) fails to transfer to CIGNA Life or to the Ceded Business Trust, as the case may be, an asset reflected on either the Estimated Statement of Net Settlement or the Final Statement of Net Settlement, or (ii) erroneously transfers an Investment Asset to CIGNA Life which was not reflected on either the Estimated Statement of Net Settlement or the Final Statement of Net Settlement (and which was not to be transferred pursuant to this Agreement or any Ancillary Agreement), the parties agree to correct such error by effectuating a transfer or return, as the case may be, of the

 

-36-

assets in question (or cash equal to the fair market value of such asset) promptly upon receipt of a written notice from the other party describing the error. All written notice of any such error shall be provided on or before the second anniversary of the Closing Date.

 

(d) (i) In the event that (A) there are inaccuracies or omissions in the factual data inputs utilized in the calculation of Insurance-Related Liabilities or the value of Transferred Investment Assets not addressed by Section 2.11(c) (such as inputting the wrong CUSIP number or interest rate), including data (and the omission of data) relating to the inventory of policies in force, the terms of such policies, the relevant information related to the holders or annuitants of such policies and activities related thereto, CUSIP numbers, interest rates, principal amounts, the terms of loan documents and organizational documents, the terms of leases, lease abstracts and rent rolls, or such factual data inputs are coded, compiled or aggregated inaccurately, other than omissions in the factual data inputs utilized in the calculation of the Insurance-Related Liabilities resulting from reasonable judgments by an actuary or other financial professional as to the scope of factual data inputs (or omissions of factual data inputs) (a “Data Input Inaccuracy”); (B) such Data Input Inaccuracy has resulted in a demonstrable error in the aggregate Insurance-Related Liabilities reflected on the Final Statement of Net Settlement or in the aggregate statutory carrying value (determined in accordance with the Statement of Net Settlement Methods) of the Transferred Investment Assets, and (C) Buyer has transmitted to Sellers a Notice of Demand (as defined below) with respect to such Data Input Inaccuracy prior to the second anniversary of the Closing Date, then the requirements of this Section 2.11(d) shall be applicable.

 

(ii) “Adjustment Amount” shall be any amount, positive or negative, equal to (A)(x) 0.5 multiplied by (y) the Specified Data Input Factors Amount; provided that such amount, when cumulated with all prior amounts pursuant to this Section 2.11(d)(ii), shall not be greater than an aggregate amount of $100 million or be less than an aggregate amount of negative $100 million; provided further that if such amount is positive the Adjustment Amount shall be increased by the amount, if any, that the aggregate Losses incurred by Buyer Indemnities pursuant to Section 7.3(a)(i) hereof and this Section 2.11(d) (treating any positive amount under this Section 2.11(d)(ii) as Losses solely for purposes of the third sentence of Section 7.3(c)) are less than the Deductible, but only to the extent of the product of (A)(x) multiplied by A(y).

 

(iii) “Net Data Adjustment Amount” shall be the amount, positive or negative, equal to the Positive Data Input Inaccuracies Amount minus the Offsetting Data Input Inaccuracies Amount minus the Adjustment Amount.

 

(iv) “Offsetting Data Input Inaccuracies Amount” means the absolute value of the amount of the aggregate decrease in Insurance-Related Liabilities reflected on the Final Statement of Net Settlement plus the amount of the aggregate increase in the statutory carrying value (determined in accordance with the Statement of Net Settlement Methods) of the Transferred Investment Assets resulting from Data Input Inaccuracies (excluding any excess in the Transferred Investment Assets resulting from the decrease in the Insurance-Related Liabilities).

 

-37-

(v) “Positive Data Input Inaccuracies Amount” means the amount of the aggregate increase in Insurance-Related Liabilities reflected on the Final Statement of Net Settlement plus the absolute value of the amount of the aggregate decrease in the statutory carrying value (determined in accordance with the Statement of Net Settlement Methods) of the Transferred Investment Assets resulting from Data Input Inaccuracies (excluding any shortfall in the Transferred Investment Assets resulting from the increase in the Insurance-Related Liabilities).

 

(vi) “Specified Data Input Factors” means (A) errors and omissions in any information provided by the holder of, or annuitant under, Subject Contracts or by any Person who is not an Affiliate or employee of Sellers and (B) the design features and functioning of, and defects in, any software or hardware.

 

(vii) “Specified Data Input Factors Amount” shall be an amount, positive or negative, equal to (A) the portion of Positive Data Input Inaccuracies Amount resulting from Specified Data Input Factors minus (B) the portion of Offsetting Data Input Inaccuracies Amount resulting from Specified Data Input Factors.

 

(viii) At any time prior to the second anniversary of the Closing Date, Buyer may transmit to Sellers a written notice stating that one or more Data Input Inaccuracies have resulted in a demonstrable error in the aggregate Insurance-Related Liabilities reflected on the Final Statement of Net Settlement or in the aggregate statutory carrying value (determined in accordance with the Statement of Net Settlement Methods) of all the Transferred Investment Assets, which identifies with reasonable specificity the (A) relevant Data Input Inaccuracy or Data Input Inaccuracies, (B) the effect of such Data Input Inaccuracy or Data Input Inaccuracies on the aggregate Insurance-Related Liabilities reflected on the Final Statement of Net Settlement or the aggregate statutory carrying value (determined in accordance with the Statement of Net Settlement Methods) of the Transferred Investment Assets, and (C) the Positive Data Input Inaccuracies Amount and, if any, the Offsetting Data Input Inaccuracies Amount and Adjustment Amount (a “Notice of Demand”).

 

(ix) In the event that Buyer transmits a Notice of Demand to Sellers pursuant to Section 2.11(d)(viii), as a condition precedent to any payment under Section 2.11(d)(xii) Sellers shall have access for a reasonable period of time not to exceed nine (9) months to CIGNA Life’s, Buyer’s and its Affiliates’ books and records, including internal accounting records, and employees as Sellers may reasonably request, for purposes of verifying the information provided to Sellers in the Notice of Demand and identifying any Offsetting Data Input Inaccuracies. Any information provided to Sellers pursuant to the previous sentence shall be kept confidential by Sellers. Any verification, examination or interview by or on behalf of Sellers or access pursuant to this Section 2.11(d)(ix) shall be conducted or occur at reasonable times, during regular business

 

-38-

hours, upon reasonable prior written notice and in a manner that does not unreasonably interferes with the Business or operations of Buyer or its Affiliates (or their successors). Buyer and its Affiliates and employees shall cooperate fully and in good faith in providing Sellers such access and information.

 

(x) Buyer and Sellers shall endeavor to agree as to the correct Offsetting Data Input Inaccuracies Amount, Adjustment Amount and Positive Data Input Inaccuracies Amount and the effects of any Specified Data Input Factors.

 

(xi) In the event of any dispute between the parties relating to the matters set forth in this Section 2.11(d), once Sellers have completed their review of the Buyer’s Notice of Demand and any Offsetting Data Input Inaccuracies, Sellers and Buyer shall retain an independent actuarial firm mutually acceptable to Sellers and Buyer or, if they are unable to agree, designated by The American Arbitration Association (“Third Party Actuary”) who shall review the Buyer’s Notice of Demand, together with any supporting information thereto provided by the Buyer, together with Seller’s response to the Buyer’s Notice of Demand, together with any supporting information thereto provided by the Sellers. The parties hereto acknowledge and agree that such review by the Third Party Actuary shall be limited to, and only to, a determination by the Third Party Actuary as to the correct Net Data Adjustments Amount, Positive Data Input Inaccuracies Amount, Offsetting Data Input Inaccuracies Amount, Specified Data Input Factors Amount and Adjustment Amount in accordance with Section 2.11(d). In conducting its review, the Third Party Actuary shall take into consideration submissions made by Sellers and Buyer and the basis for the parties’ respective views. Any determination made by the Third Party Actuary pursuant to this Section 2.11(d)(xi) shall be final and binding (as such term is defined in Section 2.10(d) of this Agreement) on Sellers and Buyer.

 

(xii) Within ten (10) days following either agreement by the parties as to the matters set forth in paragraph (x) or the determination of the Third Party Actuary pursuant to paragraph (xi), Sellers shall pay to Buyer any positive Net Data Adjustment Amount or Buyer shall pay to Sellers the absolute value of any negative Net Data Adjustment Amount. Payment shall be made by payment of cash or cash equivalents in immediately available funds. In the event of multiple adjustments pursuant to this Section 2.11(d) as a result of the issuance of more than one Notice of Demand, the aggregate Positive Data Input Inaccuracies Amounts, Offsetting Data Input Inaccuracies Amounts and Adjustment Amounts and net amounts paid pursuant to this Section 2.11(d) shall be cumulated so that any settlement pursuant to this paragraph takes into account all such Net Data Adjustment Amounts, Positive Data Input Inaccuracies Amounts, Offsetting Data Input Inaccuracies Amounts, Specified Data Input Factors Amounts, Adjustment Amounts and the net amounts previously paid.

 

(xiii) In no event shall any of the provisions of this Section 2.11(d) apply to the Insurance Related Liabilities associated with the Guaranteed Cost Coinsurance Agreement, the Subject Contracts thereunder or the Transferred Investment Assets supporting such Insurance-Related Liabilities.

 

 

-39-

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Subject to Section 7.1, and except as set forth on the Schedules, Sellers hereby represent and warrant to Buyer on the date of this Agreement and the Closing Date (or if another date is specified in the representation or warranty, on such date) as follows:

 

Section 3.1 Organization, Standing and Corporate Power .

 

(a) Each Seller and each Affiliate of a Seller engaged in the Business is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and authority to carry on its business as now being conducted. Each Seller and each Affiliate of a Seller engaged in the Business is duly qualified or licensed to do business and is in all material respects in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary. Each Seller and each Affiliate of a Seller engaged in the Business has full corporate power and authority and necessary to carry on the businesses in which it is engaged and to own and use the properties owned and used by it, except as such matters may be otherwise addressed in Section 3.7.

 

(b) Sellers have made available to Buyer prior to the execution of this Agreement true and correct copies of the certificate of incorporation and bylaws (or comparable organizational documents) (as amended to date, the “Organizational Documents”) for each of the Acquired Companies (each as amended to date). None of Sellers or the Acquired Companies is in material default under or in material violation of any provision of its Organizational Documents and the Organizational Documents for each of the Acquired Companies as made available to Buyer are in full force and effect. The minute books (containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books of each Seller and each Affiliate of a Seller engaged in the Business are correct and complete in all material respects.

 

Section 3.2 Authority; Binding Effect .

 

Each Seller has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. Each Seller and its Affiliates which are parties hereto or to an Ancillary Agreement have all requisite power and authority to execute and deliver this Agreement, the Ancillary Agreements and the other agreements, documents and instruments to be executed and delivered in connection

 

-40-

with this Agreement or the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement by Sellers and the consummation by Sellers of the transactions contemplated hereby, and the execution and delivery of the Ancillary Agreements and the other agreements, documents and instruments to be executed and delivered in connection with this Agreement or the Ancillary Agreements by Sellers and their Affiliates which are parties thereto and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary action on the part of each such Person. This Agreement has been duly executed and delivered by Sellers and, assuming the due authorization, execution and delivery of this Agreement by Buyer, constitutes a legal, valid and binding obligation of Sellers, enforceable against Sellers in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, equitable subordination and similar laws of general applicability affecting creditors’ rights generally and to general principles of equity. The Ancillary Agreements and the other agreements, documents and instruments to be executed and delivered in connection with this Agreement or the Ancillary Agreements, when duly executed and delivered by Sellers and their Affiliates which are a party thereto, assuming the due authorization, execution and delivery of such other agreements, documents and instruments by each of the other parties thereto, constitute legal, valid and binding obligations of Sellers and their Affiliates which are parties thereto, enforceable against each such Person in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, equitable subordination and similar laws of general applicability affecting creditors’ rights generally and to general principles of equity.

 

Section 3.3 Noncontravention .

 

Except as set forth in Schedule 3.3, the execution and delivery of this Agreement does not and the Ancillary Agreements will not, and the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements will not (a) result in the creation of any Lien upon (i) any of the Acquired Stock or (ii) any of the Transferred Assets, or any properties or assets of any of the Acquired Companies, (b) violate, contravene or conflict with the Organizational Documents of any Seller or any Affiliate of a Seller engaged in the Business or with any resolutions adopted by the board of directors of any Seller, any Acquired Company or any of their Affiliates, (c) conflict with, or result in the breach, violation, right of termination, or prepayment of, or constitute a default under (whether with notice or lapse of time or both), or accelerate or permit the acceleration of the performance required by, or alter any rights or obligations under, or require the giving of notice under, any (x) Contract, (y) Subject Contract or (z) award, decision, injunction, judgment, charge, decree, settlement, order, process, ruling, subpoena or verdict (whether temporary, preliminary or permanent) entered, issued, made or rendered by any Governmental Entity (as defined below) (any of the items enumerated in this clause (y), an “Order”), in each case relating to the Business, (d) subject to the governmental filings and other matters referred to in Section 3.4, contravene, conflict with, or constitute or result in a breach or violation of, or a default

 

-41-

under, any provision of, or give any Governmental Entity the right to revoke, withdraw, suspend, cancel, terminate or modify, any Seller Permit (as defined in Section 3.7(a)) issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or pursuant to any Applicable Law that is held by any Seller, any Affiliate of a Seller engaged in the Business or that otherwise relates to the Business or (e) subject to the governmental filings and other matters referred to in Section 3.4, constitute a violation of any Applicable Law, other than, in the case of clause (a)(ii), (c) or (d) of this Section 3.3 as would not, individually result in a Loss to the Business in excess of $50,000.

 

Section 3.4 Governmental Approvals .

 

Except as set forth in Schedule 3.4, no consent, approval, order, authorization or licensing of, action by or in respect of, or registration, declaration, notice, report, filing or expiry of any waiting period with, any federal, state, local or foreign government, any court, administrative, regulatory or other governmental agency, commission or authority or any non-governmental United States or foreign self-regulatory agency, commission or authority or any arbitral tribunal (each, a “Governmental Entity”) is required by any Seller, any Acquired Company or any of their Affiliates in connection with the execution and delivery of this Agreement by Sellers or the execution and delivery of the Ancillary Agreements by Sellers or their Affiliates which are a party thereto or the consummation by Sellers and such Affiliates of the transactions contemplated hereby or thereby, except for such filings with Governmental Entities to satisfy the applicable requirements of state securities or “blue sky” laws or similar foreign laws and approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”).

 

Section 3.5 Capitalization .

 

Schedule 3.5 accurately sets forth, with respect to each Acquired Company (i) the number of and designation of all authorized Equity Interests and (ii) the number of issued and outstanding Equity Interests, the names of the holders thereof and the number of Equity Interests held by each such holder. All such Equity Interests have been validly issued and are fully paid and, to the extent applicable, non-assessable and have been issued in compliance with all foreign, federal and state securities laws. One or more of the Sellers or an Acquired Company are and shall be on the Closing Date the sole record and beneficial owners and holders of good and valid title to each of the outstanding Equity Interests of the Acquired Companies, free and clear of all Liens. Except as listed on Schedule 3.5, no legend or other reference to any purported encumbrance appears on any certificate representing Equity Interests of any Acquired Company. Except as listed in Schedule 3.5, none of the Acquired Companies owns any Equity Interests in any Person, except for Equity Interests owned as investments in the ordinary course of business and consistent with past practice. There are no outstanding options, warrants, calls, preemptive or similar rights, commitments or agreements of any kind to which Sellers or any of their subsidiaries or any of the Acquired Companies is a

 

-42-

party, or by which any of Sellers, any of their subsidiaries or any of the Acquired Companies is bound, relating to the sale, issuance or voting of, or the granting of rights to acquire, all or a portion of the Equity Interests of any of the Acquired Companies, or any securities convertible or exchangeable into or evidencing the right to purchase all or a portion of the Equity Interests in any of the Acquired Companies. There are no outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to any Acquired Company. There are no voting trusts or other agreements or understandings to which Sellers, any of their subsidiaries, or any of the Acquired Companies is a party with respect to the voting of the Equity Interests of any of the Acquired Companies. There are no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the holders of Equity Interests of the Acquired Companies on any matter.

 

Section 3.6 Financial Statements .

 

(a) Attached hereto as Schedule 3.6(a) are copies of the unaudited pro-forma GAAP balance sheets and income statements of the Business as of and for the twelve months ending December 31, 2002 and the six months ending June 30, 2003 (such financial statements, together with the notes thereto, being hereinafter collectively referred to as the “Business Financial Statements”). Except as set forth in the notes to the Business Financial Statements, the Business Financial Statements (i) were prepared in accordance with GAAP applied on a consistent basis with the audited consolidated financial statements of CIGNA and its subsidiaries for the year ended as of December 31, 2002, and the unaudited consolidated financial statements of CIGNA and its subsidiaries for the six months ended June 30, 2003, respectively, (ii) were prepared using the Books and Records of CGLIC and its Affiliates, (iii) were prepared using the same data with respect to the Business as was used in preparing the audited consolidated financial statements of CIGNA and its subsidiaries for the year ended as of December 31, 2002, and the unaudited consolidated financial statements of CIGNA and its subsidiaries for the six months ended June 30, 2003, respectively, and (iv) fairly present in all material respects the combined financial position and the results of operations of the Business for the periods indicated.

 

(b) Except as set forth in Schedule 3.6(b), the Pro-Forma Statement of Net Settlement was prepared in all material respects in accordance with the Statement of Net Settlement Methods. Except as set forth in Schedule 3.6(b), the Statement of Net Settlement Methods is consistent in all material respects with the methodologies and procedures utilized by Sellers to prepare the Statutory Financial Statements.

 

(c) Attached hereto as Schedule 3.6(c) are copies of the unaudited pro-forma statutory statements for the portion of the Business contained in CGLIC as of and for the twelve months ending December 31, 2002 and the six months ending June 30, 2003 (such statutory statements, together with the notes thereto, being hereinafter collectively referred to as the “Statutory Financial Statements”). Except as set forth in the

 

-43-

notes to the Statutory Financial Statements, the Statutory Financial Statements (i) were prepared in accordance with statutory accounting principles prescribed or permitted by the Connecticut Insurance Department (“Connecticut SAP”) applied on a consistent basis with the statutory financial statements of CGLIC for the year ended as of December 31, 2002 and the six month period ended June 30, 2003, (ii) were prepared using the Books and Records of CGLIC and (iii) fairly present in all material respects the statutory results of operations and financial condition of the portion of the Business contained in CGLIC for the periods indicated; provided, that this representation and warranty shall not be breached with respect to the IMR amount if the IMR of the Business as of June 30, 2003 is within $50 million of the $55 million current estimate of the recalculated IMR Amount. As of the date of this Agreement the unassigned funds of CIGNA Life calculated in accordance with Connecticut SAP (the “Unassigned Funds”) is greater than zero.

 

Section 3.7 Seller Permits, Regulatory Agreements and Compliance with Applicable Laws .

 

(a) Except as set forth in Schedule 3.7(a), (i) each of Sellers and Affiliates of Sellers (in each case, to the extent relating to the Business) hold and maintain in full force and effect all permits, licenses, variances, exemptions, orders, registrations and approvals of all Governmental Entities which are material for the operation of the Business as currently conducted (collectively, the “Seller Permits”), (ii) each of Sellers and Affiliates of Sellers (in each case, to the extent relating to the Business) are, and at all times have been, in compliance in all material respects with the terms of the Seller Permits and all Applicable Laws, (iii) none of Sellers nor any Affiliate of Sellers (in each case, to the extent relating to the Business) has received, at any time since January 1, 2002, any written notice or other written communication from any Governmental Entity regarding (A) any actual or alleged violation of, or failure on the part of any Seller or Affiliate of any Seller to comply in any material respect with, any Applicable Law (in the case of any Seller or Affiliate of any Seller, to the extent relating to the Business) or any term or requirement of any Seller Permit or (B) any actual or potential revocation, withdrawal, suspension, cancellation, termination of, or material modification to, any Seller Permit, and (iv) all applications required to have been filed for the renewal of each such Seller Permit have been duly filed on a timely basis with the appropriate Governmental Entity, or the Seller Permit nevertheless has been renewed, re-issued or otherwise resolved without material negative consequence to the Business, and all other material filings required to have been made with respect to each such Seller Permit have been duly made on a timely basis with the appropriate Governmental Entity, or if not filed on a timely basis, the lapse did not cause a material negative consequence to the Business.

 

(b) Except as set forth in Schedule 3.7(b), none of Sellers or Affiliates of any Seller (in each case, to the extent relating to the Business), or any of the Transferred Assets, the Transferred Investment Assets or assets of the Acquired Companies is subject to any outstanding Order or is a party to any written agreement,

 

-44-

consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any supervisory letter from or has adopted any resolutions at the request of any Governmental Entity that by its terms restricts in any material respect the conduct of, or that otherwise relates to, the Business (each, a “Regulatory Agreement”), nor has any Seller or Affiliates of any Seller (in each case, to the extent relating to the Business) been advised since January 1, 2002 by any Governmental Entity that it is considering issuing or requesting any such Regulatory Agreement.

 

(c) CIGNA Bank has filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 2000 with or pursuant to the requirements of (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance Corporation, (iii) the Office of Thrift Supervision (“OTS”), and (iv) any other Governmental Entity, and has paid all fees and assessments due and payable in connection therewith. Except for examinations conducted by a Governmental Entity in the regular course of the business of CIGNA Bank, and except as set forth in Schedule 3.7(c), no Governmental Entity has initiated any proceeding or, to the Knowledge of Sellers, investigation into the business or operations of the CIGNA Bank since December 31, 2000. Except as set forth in Schedule 3.7(c), there is no unresolved material violation or material criticism asserted or made by any Governmental Entity contained in any report or statement relating to any examination of CIGNA Bank.

 

(d) To the extent any Seller or Affiliate of a Seller has relied on ERISA Prohibited Transaction Class Exemption 84-14 (“PTCE 84-14”), it has not, to the Knowledge of Sellers, failed to satisfy, or taken any action or failed to take any action which could cause an impending or potential failure in any material respect to satisfy, all of the relevant requirements for the maintenance of its status as a “qualified professional asset manager” under PTCE 84-14, including, but not limited to, the conviction or impending conviction of any Affiliate of any Seller, or any of the Affected Business Employees who are officers of any Seller or any of the Affiliates of any Seller and are responsible for the Business, or any offense enumerated under Section 411 of ERISA or the relevant provisions of PTCE 84-14.

 

(e) Except as set forth in Schedule 3.7(e), neither Sellers nor any of their Affiliates accept, under the terms of any contracts related to the Business, the status of, or responsibility as, a “fiduciary” (as such term is defined under ERISA Section 3(21)(A) or the parallel provisions of the Code) with respect to the Business.

 

Section 3.8 Litigation .

 

Except as set forth on Schedule 3.8, as of the date of this Agreement no material Action by any Governmental Entity or other Person is pending, or, to the Knowledge of Sellers, threatened against or with respect to any of Sellers or their Affiliates (in each case, to the extent relating to the Business), the Acquired Companies,

 

-45-

the Business, the Transferred Assets or the Subject Contracts. As of the date of this Agreement, no Action, written claim or written demand by any Governmental Entity or other Person is pending or, to the Knowledge of Sellers, threatened that seeks to enjoin, or would reasonably be expected to have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated by this Agreement or the Ancillary Agreements. Except as set forth in Schedule 3.8, as of the date of this Agreement, no Person or Governmental Entity has brought or, to the Knowledge of Sellers, threatened any material Action against the Sellers or any of the Acquired Companies pertaining to the Business Employees arising out of any law governing labor, employment, employment practices or employment discrimination.

 

Section 3.9 Absence of Changes .

 

Except as set forth in Schedule 3.9, as contemplated by Section 2.7(b) or as required by this Agreement or by any Ancillary Agreement, (a) from June 30, 2003 to the date of this Agreement, Sellers have conducted the Business in all material respects only in the usual and ordinary course consistent with past practice, and (b) since June 30, 2003, there has not been any event that individually or in the aggregate with all other events has had, or could reasonably be expected to have, a Seller Material Adverse Effect. Without limiting the generality of the foregoing, except as set forth in Schedule 3.9, from June 30, 2003 to the date of this Agreement, none of the Sellers or the Acquired Companies has:

 

(i) entered into, amended in any material respect or extended any Material Business Contract or other Contract that would have been a Material Business Contract had it been entered into, amended or extended, in each case, outside the ordinary course of business consistent with past practice;

 

(ii) other than Investment Assets and other than acquisitions, dispositions or transfers in the ordinary course of business consistent with past practice, acquired, disposed of or transferred any asset relating to the Business or that presently does or would constitute part of the Transferred Assets, in each case, with a value in excess of $1,000,000 per such asset or $5,000,000 in the aggregate;

 

(iii) paid, discharged or satisfied any material claim or Liability relating to the Business other than the payment, discharge or satisfaction of claims and Liabilities reserved against in the Business Financial Statements, subject to reimbursement by insurance or indemnity, or accrued in the ordinary course of business consistent with past practice since the date of the Business Financial Statements;

 

(iv) declared, set aside, made or paid any dividend or other distribution in respect of any Equity Interests of any Acquired Company or otherwise purchased or redeemed, directly or indirectly, any Equity Interests of any Acquired Company;

 

-46-

(v) other than in connection with the management of Investment Assets associated with the Business or in the ordinary course of business consistent with past practice, (A) incurred indebtedness for borrowed money or guaranteed such indebtedness of another Person in excess of $1,000,000, (B) made any loans or advances of borrowed money or capital contributions to, or equity investments in, any other Person or group of related loans, and advances or contributions in excess of $1,000,000 or (C) issued or sold any debt securities, in each case, with respect to the Business;

 

(vi) issued, sold, granted, conferred, awarded, pledged, or otherwise encumbered any Equity Interests of any Acquired Company;

 

(vii) other than in connection with the management of Investment Assets acquired (by merger, consolidation, acquisition of stock or assets or otherwise) any Person or assets comprising a business in connection with the Business or made in connection with the Business any material investment, either by purchase of any Equity Interests, or contribution to capital, in or of any other Person in an amount, in cash or property, in excess of $5,000,000;

 

(viii) promised, granted or agreed to grant any bonus or increased the contributions to benefit plans, the compensation or benefits of any Business Employee, other than in the ordinary course of business consistent with past practice and other than as required by Applicable Law;

 

(ix) (A) made any material change with respect to the Business in any (1) accounting or financial reporting principles, practices, methods or policies, except as may be required by Applicable Law, GAAP or SAP or (2) method of calculating any bad debt contingency or other reserve for accounting, financial reporting or Tax purposes, except, in each case, as may be appropriate to conform to Applicable Law, GAAP or SAP, or (B) except in the ordinary course of business consistent with past practice, made any change with respect to the Business in any pricing, employment, practices, methods or policies;

 

(x) made or determined to make any material addition to or material release from Reserves for future insurance policy or reinsurance Contract benefits, or other insurance policy claims and benefits related to the Business, other than (i) as a result of new business produced, (ii) in the ordinary course of business consistent with past practice or (iii) as is otherwise consistent with the Statement of Net Settlement Methods;

 

-47-

(xi) made any material change in the actuarial, investment (including allocation of investments among segments of CGLIC’s general account and derivatives transactions), reserving, hedging, underwriting or claims administration policies, practices or principles with respect to the Business, except as may be appropriate to conform to Applicable Law, GAAP or SAP;

 

(xii) made any material changes, other than in the ordinary course of business consistent with past practice, in the terms or policies with respect to, the appointment of Producers or the payment of commissions to any Producer, to the extent related to the Business;

 

(xiii) disposed of or failed to keep in effect any material rights in, to, or for the use of any of the Intellectual Property except for rights which expire or terminate in accordance with their terms;

 

(xiv) made or authorized with respect to the Business any single capital expenditure in excess of $1,000,000 or capital expenditures in excess of $5,000,000 in the aggregate;

 

(xv) other than in the ordinary course of business consistent with past practice or in an amount in excess of $1,000,000, with respect to the Business, forgiven, cancelled, compromised, waived or released any debts, claims or rights;

 

(xvi) amended the Organizational Documents of any Acquired Company, or adopted or entered into a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of any Acquired Company;

 

(xvii) undertaken any write down in the book value of (A) any Investment Assets by an amount in excess of $1,000,000 or (B) any other Transferred Assets by an amount in excess of $1,000,000, except in each case as is otherwise consistent with the Statement of Net Settlement Methods;

 

(xviii) agreed to any material change in the schedule of fees charged to customers pursuant to outstanding Separate Account Subject Contracts;

 

(xix) terminated, assigned or attempted to assign any Investment Advisory Contracts; or

 

(xx) agreed in writing or otherwise taken any of the actions described above in clauses (i) through (xix) of this Section 3.9.

 

-48-

Section 3.10 Employee Benefits .

 

(a) Schedule 3.10(a)(i) contains a true and correct list, as of the date of this Agreement, of: each deferred compensation plan, incentive compensation plan, bonus compensation plan, profit sharing plan, stock option or other equity compensation plan, “employee welfare benefit plan,” fund or program (within the meaning of Section 3(1) of ERISA); each “employee pension benefit plan,” fund or program (within the meaning of Section 3(2) of ERISA); each employment, termination, retention, change of control or severance plan, program or policy; and each other employee benefit plan, fund, program, or arrangement, in each case, in which any two or more employees or former employees of the Business participate and is sponsored, maintained or contributed to or required to be contributed to by any of the Sellers or any of their Affiliates or by any trade or business, whether or not incorporated (an “ERISA Affiliate”), that together with Sellers or any of their Affiliates would be deemed a “single employer” within the meaning of Section 4001(b) of ERISA, or to which any of the Sellers or any of their Affiliates or any ERISA Affiliate is party, for the benefit of any employee or former employee of the Business (the “Plans”). Schedule 3.10(a)(ii) contains a true and correct list, as of the date of this Agreement, of each individual employment, termination, retention, change of control or severance agreement, in each case, to which any current employee of the Business or any of the Acquired Companies are parties (collectively the “Employment Agreements”). Schedule 3.10(a)(iii) contains a true and correct list, as of the Closing Date, of (A) each individual consultant or independent contractor who provides services to the Business and (B) each person employed by an entity that provides technology consulting services with respect to the Business, (collectively the “Consulting Agreements”). Schedule 3.10(a)(iii) does not include agreements with third party vendors to provide non-technology services or temporary employee services, or agreements that may be terminated upon no more than 30 days advance notice.

 

(b) With respect to each Plan and Employment Agreement, Sellers have heretofore made available to Buyer true, correct and complete copies of each of the following documents, to the extent applicable: a copy of each Plan, Employment Agreement and any amendments thereto; and a copy of the most recent Summary Plan Description to the extent required under ERISA. Sellers shall make available to Buyer true, correct and complete copies of each Consulting Agreement and any amendments thereto no later than 45 days after the date of this Agreement.

 

(c) No Liability under Section 412 of the Code or Section 302 or Title IV of ERISA has been incurred by Sellers or any of their ERISA Affiliates that has not been satisfied in full, other than Liability for premiums due the Pension Benefit Guaranty Corporation (the “PBGC”) which premiums have been paid when due and neither Sellers nor any of their ERISA Affiliates is the subject of any outstanding funding waiver. The PBGC has not instituted proceedings to terminate any Plan that is subject to Section 302 or Title IV of ERISA.

 

-49-

(d) Each of the Plans, Employment Agreements and Consulting Agreements have been operated and administered in all material respects in compliance with its terms and all Applicable Laws. Except as set forth in Schedule 3.10(d), there are no material pending or, to the Knowledge of Sellers, threatened claims by or on behalf of any employee or beneficiary under any Plan, Employment Agreement or Consulting Agreement, or otherwise involving any such Plan, Employment Agreement or Consulting Agreement, or the assets of any Plan (other than routine claims for benefits).

 

(e) Neither the execution of this Agreement nor the transactions contemplated hereby will (i) entitle any employee of the Sellers or any of their Affiliates to severance pay or any increase in severance pay upon any termination of employment after the date hereof or (ii) accelerate the time of payment or vesting or result in any payment or funding of compensation or benefits under, increase the amount payable or result in any other material obligation pursuant to, any of the Plans.

 

(f) Unless specifically provided for in Schedule 3.10 (f) or under the terms of Section 5.5, the Sellers shall retain all Plans, Employment Agreements and Consulting Agreements, and the Buyers shall not be liable for any claims for benefits or other Liabilities, financial or otherwise (whether or not arising out of litigation or arbitration) arising under or with respect to such Plans, Employment Agreements or Consulting Agreements and Buyer shall not assume, shall not be obligated to continue, and shall not be responsible or liable for, any Seller severance practice (whether written or unwritten) with respect to such Affected Employees.

 

(g) Schedule 3.10(g) sets forth any outstanding Order or directive, any written agreement, consent agreement or memorandum of understanding, any commitment letter or similar undertaking, any supervisory letter from any Governmental Entity and any resolutions adopted at the request of any Governmental Entity, in each case, related to the Business Employees or the Business’ employment practices.

 

Section 3.11 Taxes .

 

Except as set forth in Schedule 3.11:

 

(a) Each of the Acquired Companies and, to the extent it relates, in whole or in part, to the Business, each of Sellers has (i) timely filed or caused to be filed all material Tax Returns required to be filed by them, and all such Tax Returns were true and correct in all material respects when filed and (ii) paid or accrued (in accordance with generally accepted accounting principles consistently applied) all Taxes shown to be due on such Tax Returns. All material Taxes required to be withheld by or on behalf of the Acquired Companies and, to the extent it relates, in whole or in part, to the Business, by or on behalf of the Sellers have been timely paid to the proper Tax Authority or properly set aside in accounts for such purpose.

 

-50-

(b) No material federal, foreign, state or local audits or other administrative proceedings have formally commenced or are presently pending with regard to any Taxes or Tax Returns of the Acquired Companies, and, to the extent relating, in whole or in part, to the Business, Sellers, and no notification has been received in writing that such an audit or other proceeding is pending or threatened with respect to any Taxes.

 

(c) There are no outstanding written requests, agreements, consents or waivers to extend the statutory period of limitations applicable to any Tax Returns of the Acquired Companies or, to the extent relating, in whole or in part, to the Business, Sellers.

 

(d) There are no Liens for Taxes (other than Permitted Liens) upon the assets of any of the Acquired Companies and, to the extent relating, in whole or in part, to the Business, Sellers.

 

(e) None of the Acquired Companies or, to the extent relating, in whole or in part, to the Business, Sellers, is a party to or has any obligations or liabilities arising pursuant to any Tax sharing, funding, allocation, indemnification or similar Tax agreement.

 

(f) No claim has been asserted in writing by any Tax Authority that any of the Acquired Companies or, to the extent relating, in whole or in part, to the Business, Sellers, is liable for any Taxes based on Section 482 of the Code or comparable provisions of other Applicable Law.

 

(g) Books and Records in respect of the Business and the Acquired Companies have been maintained in all material respects in accordance with Revenue Procedure 98-25.

 

(h) To the best Knowledge of Sellers, no closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings (other than local, negotiated economic incentive zone rulings) have been entered into with or issued by any Tax Authority with respect to any of the Acquired Companies or, to the extent relating, in whole or in part, to the Business, Sellers (i) within the past ten (10) years or (ii) that would reasonably be expected to have a material effect on any Taxes for which Buyer is liable pursuant to this Agreement.

 

(i) Each Acquired Company is a member of the affiliated group (within the meaning of Section 1504(a)(1) of the Code) for which CIGNA Corporation files a consolidated return as the common parent.

 

-51-

(j) The Buyer will not be required to deduct and withhold any amount pursuant to Section 1445 of the Code in connection with the transactions contemplated by this Agreement.

 

(k) None of the Acquired Companies is, or has been, a passive foreign investment company within the meaning of Section 1297 of the Code.

 

(l) None of the Acquired Companies, or to the extent it relates, in whole or in part, to the Business, Sellers has “participated in” (as described in Treasury Regulation Section 1.6011-4(c)(3)(i)(A)) a transaction that either constitutes a “listed transaction” (as described in Treasu