<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998.
REGISTRATION NO. 333-43687
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WADDELL & REED FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6211 51-0261715
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
6300 LAMAR AVENUE
OVERLAND PARK, KANSAS 66202
(913) 236-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEITH A. TUCKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WADDELL & REED FINANCIAL, INC.
6300 LAMAR AVENUE
OVERLAND PARK, KANSAS 66202
(913) 236-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
ALAN J. BOGDANOW MATTHEW J. MALLOW
HUGHES & LUCE, L.L.P. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1717 MAIN STREET, SUITE 2800 919 THIRD AVENUE
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10022
(214) 939-5500 (212) 735-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to 462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
The Prospectus relating to the shares of Class A Common Stock to be used in
connection with a United States and Canadian offering (the "U.S. Prospectus")
is set forth following this page. The Prospectus to be used in a concurrent
international offering (the "International Prospectus") will consist of the
alternate page set forth following the U.S. Prospectus and the balance of the
pages included in the U.S. Prospectus for which no alternate is provided. The
U.S. Prospectus and the International Prospectus are identical except that
they contain different front cover pages.
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the estimated expenses to be incurred in
connection with the Offering, all of which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 177,728
NASD fee.......................................................... 30,500
NYSE listing fee.................................................. 210,600
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Printing and engraving............................................ *
Transfer Agent's fees............................................. *
Blue Sky fees and expenses (including counsel fees)............... *
Miscellaneous expenses............................................ *
---------
Total........................................................... $ *
=========
</TABLE>
- --------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or any of its stockholders
for monetary damages arising from the director's breach of fiduciary duty as a
director, with certain limited expectations. See "Description of Capital
Stock--Certificate of Incorporation and Bylaw Provisions--Liability of
Directors; Indemnification" in the Prospectus.
Pursuant to the provisions of (S) 145 of the Delaware General Corporation
Law, every Delaware corporation has the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit, or proceeding (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee, or agent of any corporation, partnership, joint
venture, trust, or other enterprise, against any and all expenses, judgments,
fines, and amounts paid in settlement and reasonably incurred in connection
with such action, suit, or proceeding. The power to indemnify applies only if
such person acted in good faith and in a manner such person reasonably
believed to be in the best interest, or not opposed to the best interest, of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself,
and with the further limitation that in such actions no indemnification will
be made in the event of any adjudication of negligence or misconduct unless
the court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of such actions, such person
is entitled, pursuant to Section 145, to indemnification as described above.
The Company's Certificate of Incorporation and Bylaws provide for
indemnification to officers and directors of the Company to the fullest extent
permitted by the Delaware General Corporation Law. See "Description of Capital
Stock--Certificate of Incorporation and Bylaw Provisions--Liability of
Directors; Indemnification" in the Prospectus.
II-1
<PAGE>
The form of Underwriting Agreement filed as Exhibit 1.1 contains agreements
of indemnity between the Company and the Underwriters and controlling persons
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments which the Underwriters or any such
controlling persons may be required to make in respect thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEMS 16. EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1+ --Form of Underwriting Agreement
3.1+ --Certificate of Incorporation of the Company
3.2+ --Bylaws of the Company
4.1+ --Specimen of Common Stock Certificate
4.2+ --Promissory Note of United Investors Management Company, payable to
Torchmark Corporation,
dated November 25, 1997
4.3+ --Promissory Note of United Investors Management Company, payable to
Liberty National Life
Insurance Company, dated November 25, 1997
4.4+ --Promissory Note of Waddell & Reed Financial Services, Inc., payable
to United Investors Management Company, dated December 23, 1996
4.5+ --Assignment by United Investors Management Company to Liberty
National Life Insurance Company, dated December 23, 1996
--Form of Opinion of Hughes & Luce, L.L.P. regarding legality of
5.1+ securities being registered
10.1** --Form of Public Offering and Separation Agreement between Torchmark
Corporation and Waddell
& Reed Financial, Inc.
10.2** --Form of Tax Disaffiliation Agreement between Torchmark Corporation
and Waddell & Reed
Financial, Inc.
10.3+ --Form of Investment Services Agreement between Waddell & Reed
Investment
Management Company and Waddell & Reed Asset Management Company.
10.4+ --General Agent Contract, dated January 1, 1985, between United
Investors Life Insurance Company
and W&R Insurance Agency, Inc.
10.5+ --Form of Amendment Extending General Agent Contract between United
Investors Life Insurance
Company and W & R Insurance Agency, Inc.
10.6+ --Independent Agent Contract, dated June 25, 1997, between United
American Insurance Company,
W & R Insurance Agency, Inc., and affiliates identified therein.
10.7+ --Form of Amendment Extending Independent Agent Contract between
United American Insurance
Company, W & R Insurance Agency, Inc., and affiliates identified
therein.
10.8+ --Form of The 1998 Stock Incentive Plan.
10.9+ --Form of The 1998 Non-Employee Director Stock Option Plan.
10.10+ --Form of The 1998 Executive Deferred Compensation Stock Option Plan.
10.11* --Form of Waddell & Reed Financial, Inc. Savings and Investment Plan.
10.12* --Form of Waddell & Reed Financial, Inc. Retirement Income Plan.
10.13* --Form of Waddell & Reed, Inc. Career Field Retirement Plan.
10.14+ --Form of Property Management Contract between United Investors Park
Owners Association and Waddell & Reed Property Management Division.
10.15+ --Form of Agreement Amending Distribution Contract between United
Investors Life Insurance Company and TMK/United Funds, Inc.
10.16+ --Distribution Contract, dated April 4, 1997, between United Investors
Life Insurance Company and TMK/United Funds, Inc.
10.17+ --Form of Agreement Amending Principal Underwriting Agreement between
United Investors Life Insurance Company and Waddell & Reed, Inc.
10.18+ --Principal Underwriting Agreement, dated May 1, 1990, between United
Investors Life Insurance Company and Waddell & Reed, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.19+ --Form of Services Agreement between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company.
10.20+ --Form of Reciprocity Agreement between Torchmark Corporation and
Waddell & Reed Financial, Inc.
10.21+ --Form of Administrative Services Agreement between Torchmark
Corporation and Waddell & Reed Financial, Inc.
21.1+ --Subsidiaries of the Registrant
23.1* --Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2** --Consent of KPMG Peat Marwick LLP
24.1+ --Powers of Attorney (appearing on Signature Page of Registration
Statement on Form S-1 filed
January 2, 1998, Registration No. 333-43687).
27.1+ --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Filed herewith.
+Previously filed.
(b) Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable
or because the information is included in the Financial Statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the underwriting agreements, the
Company's Certificate of Incorporation, Bylaws, Delaware law or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OVERLAND PARK, STATE OF
KANSAS, ON FEBRUARY 27, 1998.
Waddell & Reed Financial, Inc.
By: /s/ Ronald K. Richey
----------------------------------
RONALD K. RICHEY CHAIRMAN OF THE
BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the February 27, 1998
- ------------------------------------ Board
RONALD K. RICHEY
President, Chief
/s/ Keith A. Tucker Executive Officer, February 27, 1998
- ------------------------------------ and Director
KEITH A. TUCKER (Principal
*ATTORNEY-IN-FACT Financial Officer)
* Vice-President, February 27, 1998
- ------------------------------------ Secretary, and
FRANCIS B. JACOBS, II Director
* Principal February 27, 1998
- ------------------------------------ Accounting Officer
MICHAEL D. STROHM
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1+ --Form of Underwriting Agreement
3.1+ --Certificate of Incorporation of the Company
3.2+ --Bylaws of the Company
4.1+ --Specimen of Common Stock Certificate
4.2+ --Promissory Note of United Investors Management Company, payable to
Torchmark Corporation, dated November 25, 1997
4.3+ --Promissory Note of United Investors Management Company, payable to
Liberty National Life Insurance Company, dated November 25, 1997
4.4+ --Promissory Note of Waddell & Reed Financial Services, Inc., payable
to United Investors Management Company, dated December 23, 1996
4.5+ --Assignment by United Investor Management Company to Liberty National
Life Insurance Company, dated December 23, 1996
5.1* --Form of Opinion of Hughes & Luce, L.L.P. regarding legality of
securities being registered
10.1** --Form of Public Offering and Separation Agreement between Torchmark
Corporation and Waddell & Reed Financial, Inc.
10.2** --Form of Tax Disaffiliation Agreement between Torchmark Corporation
and Waddell & Reed Financial, Inc.
10.3+ --Form of Investment Services Agreement between Waddell & Reed
Investment Management Company and Waddell & Reed Asset Management
Company.
10.4+ --General Agent Contract, dated January 1, 1985, between United
Investors Life Insurance Company and W&R Insurance Agency, Inc.
10.5+ --Form of Amendment Extending General Agent Contract between United
Investors Life Insurance Company and W & R Insurance Agency, Inc.
10.6+ --Independent Agent Contract, dated June 25, 1997, between United
American Insurance Company, W & R Insurance Agency, Inc., and
affiliates identified therein.
10.7+ --Form of Amendment Extending Independent Agent Contract between
United American Insurance Company, W & R Insurance Agency, Inc., and
affiliates identified therein.
10.8+ --Form of The 1998 Stock Incentive Plan.
10.9+ --Form of The 1998 Non-Employee Director Stock Option Plan.
10.10+ --Form of The 1998 Executive Deferred Compensation Stock Option Plan.
10.11* --Form of Waddell & Reed Financial, Inc. Savings and Investment Plan.
10.12* --Form of Waddell & Reed Financial, Inc. Retirement Income Plan.
10.13* --Form of Waddell & Reed, Inc. Career Field Retirement Plan.
10.14+ --Form of Property Management Contract between United Investors Park
Owners Association and Waddell & Reed Property Management Division.
10.15+ --Form of Agreement Amending Distribution Contract between United
Investors Life Insurance Company and TMK/United Funds, Inc.
10.16+ --Distribution Contract, dated April 4, 1997, between United Investors
Life Insurance Company and TMK/United Funds, Inc.
10.17+ --Form of Agreement Amending Principal Underwriting Agreement between
United Investors Life Insurance Company and Waddell & Reed, Inc.
10.18+ --Principal Underwriting Agreement, dated May 1, 1990, between United
Investors Life Insurance Company and Waddell & Reed, Inc.
10.19+ --Form of Services Agreement between Waddell & Reed Investment
Management Company and Waddell & Reed Asset Management Company.
10.20+ --Form of Reciprocity Agreement between Torchmark Corporation and
Waddell & Reed Financial, Inc.
10.21+ --Form of Administrative Services Agreement between Torchmark
Corporation and Waddell & Reed Financial, Inc.
21.1+ --Subsidiaries of the Registrant
23.1* --Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
23.2** --Consent of KPMG Peat Marwick LLP
24.1+ --Powers of Attorney (appearing on Signature Page of Registration
Statement on Form S-1 filed January 2, 1998, Registration No. 333-
43687).
27.1+ --Financial Data Schedule
</TABLE>
- --------
*To be filed by amendment.
**Filed herewith.
+Previously filed.
<PAGE>
EXHIBIT 10.1
PUBLIC OFFERING AND SEPARATION AGREEMENT
THIS AGREEMENT is made and entered into this __ day of March, 1998,
between Torchmark Corporation, a Delaware corporation ("Torchmark"), and Waddell
& Reed Financial, Inc., a Delaware corporation which as of the date hereof is an
indirect wholly owned subsidiary of Torchmark (the "Company").
WHEREAS, Torchmark and the Company have determined that it is
desirable, on the terms and conditions described in this Agreement, to cause the
Company to make an initial public offering of certain newly issued shares of
common stock of the Company;
WHEREAS, Torchmark directly or indirectly owns 100% of the common
stock of the Company;
WHEREAS, the Company is planning an initial public offering and
Torchmark has determined, subject to satisfaction of certain conditions, to
separate the ownership of the Company and the other members of the Company Group
(as defined herein) from Torchmark and the other members of the Torchmark Group
(as defined herein), by means of a distribution of the common stock of the
Company held by Torchmark and the other members of the Torchmark Group to
Torchmark stockholders as described in this Agreement; and
WHEREAS, this Agreement is made to set forth the principal corporate
actions required to effect the Public Offering (as defined herein) and the Spin-
Off (as defined herein) and to set forth other agreements that will govern
certain other matters following the Public Offering and the Spin-Off;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following words, terms and phrases
herein written with an initial capital letter shall have the meanings assigned
to them below:
"Action" shall mean any suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"Agent" shall mean the distribution agent to be appointed by Torchmark
to distribute to the stockholders of Torchmark, pursuant to the Distribution,
the shares of Class A Common Stock and Class B Common Stock held by Torchmark.
1
<PAGE>
"Ancillary Agreement" shall have the meaning set forth in Section 8.1.
"Balancing Cash" shall have the meaning set forth in Section
2.1(m).
"Class A Common Stock" shall mean shares of Class A Common Stock, par
value $.01 per share, of the Company.
"Class B Common Stock" shall mean shares of Class B Common Stock, par
value of $.01 per share, of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Affiliate" shall mean a Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by the Company,
provided, however, that for purposes of this Agreement none of the following
Persons shall be considered Company Affiliates: (i) Torchmark or any Torchmark
Affiliate, (ii) any corporation less than 50.1% of whose voting stock is
directly or indirectly owned by any member of the Company Group, any partnership
less than 50.1% of whose interests in profits and losses is directly or
indirectly owned by any member of the Company Group, and any corporation
(regardless of the percentage of its ownership) where the ownership by any
member of the Company Group was made as a venture capital or a portfolio (as
opposed to operational) investment or where the equity ownership resulted from a
default on a loan to such corporation, (iii) UILIC, and (iv) any former
Torchmark Affiliate previously Controlled by the Company.
"Company's Business" shall mean all of the investment management
business and the business of acting as underwriter, administrator or distributor
of Registered Investment Companies and any related or ancillary business
conducted by any member of the Company Group in the past, at the date hereof, or
in the future.
"Company Group" shall mean collectively, the Company and the Company
Affiliates, or any one or more of such companies.
"Company Registration Statement" shall have the meaning set forth in
Section 5.3(f).
"Control" shall mean the possession, directly or indirectly of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise, provided that no person shall be deemed to control a Registered
Investment Company solely by reason of serving as an investment advisor,
administrator, principal underwriter or distributor for such Registered
Investment Company.
"Demand Registration Statement" shall have the meaning set forth in
Section 5.1.
2
<PAGE>
"Distribution" shall mean the distribution by Torchmark on a pro rata
basis to holders of Torchmark common stock of all of the outstanding shares of
Class A Common Stock and Class B Common Stock owned by Torchmark on the
Distribution Date as provided in Article IV.
"Distribution Date" shall mean the date determined by Torchmark in
accordance with Section 4.3 on which the Spin-Off will occur.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Firm Shares" shall mean the number of newly issued shares of Class A
Common Stock specified as "Firm Shares" in the Underwriting Agreement included
in the Public Offering.
"Group" shall mean the Company Group or the Torchmark Group.
"Indemnifying Party" shall mean a party to this Agreement which is
obligated to provide indemnification under this Agreement.
"Indemnitee" shall mean a Person who is entitled to indemnification
under this Agreement.
"Information" shall have the meaning set forth in Section 7.1.
"Insurance Proceeds" shall mean those moneys (i) received by an
insured from an insurance carrier or (ii) paid by an insurance carrier on behalf
of the insured, in either case net of any applicable premium adjustments,
retrospectively rated premium adjustments, deductibles, retentions or costs paid
by such insured.
"Internal Distribution" shall mean the distribution by Liberty to its
sole stockholder, Torchmark, of all of the outstanding shares of Class B Common
Stock owned by it on the Distribution Date as provided in Article IV.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, together with the rules and regulations promulgated
thereunder.
"Liabilities" shall mean all debts, liabilities and obligations,
matured or unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown, whenever arising, and whether or not the same
would properly be reflected on a balance sheet, including all costs and expenses
related thereto.
"Liberty" shall mean Liberty National Life Insurance Company, an
Alabama corporation and a wholly owned subsidiary of Torchmark.
"Losses" shall mean any and all losses, Liabilities, claims, damages,
obligations, payments, costs and expenses, matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown
(including, without limitation, the costs and
3
<PAGE>
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating thereto and attorneys' fees and
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any such Actions or threatened Actions).
"Net Base Proceeds" shall mean the proceeds of the Public Offering
other than the proceeds attributable to the Overallotment Shares, after
deducting underwriting commissions and discounts, reduced by all Offering
Expenses paid or advanced by Torchmark to the Company which the Company
reimburses to Torchmark pursuant to Section 3.4(a) hereof.
"Offering Expenses" shall mean the costs and expenses of any
registration by the Company which is made hereunder, including specifically the
fees and expenses of counsel and accountants; all out-of-pocket costs and
expenses incidental to the preparation, printing and filing of any registration
statement and all amendments and supplements thereto; the costs of furnishing
copies of preliminary prospectuses, each final prospectus and each amendment or
supplement thereto to the underwriter, dealers and other purchasers of shares so
registered; the reimbursable expenses of the underwriter; the costs and expenses
incurred in connection with the qualification of such shares under the "blue
sky" laws of various jurisdictions; the fees and expenses of the Company's
transfer agent; stock exchange listing fees; fees paid to the National
Association of Securities Dealers, Inc.; and similar expenses incurred in
complying with the registration provisions of this Agreement, but excluding the
underwriter's discounts and commissions and any overtime expenses charged by
R.R. Donnelley.
"Overallotment Shares" shall have the meaning set forth in Section
3.1(a)(1).
"Person" shall mean an individual, corporation, partnership,
association, joint venture, unincorporated organization, trust, or other entity,
including, without limitation, employee pension, profit sharing or other benefit
plan or trust.
"Public Offering" shall mean the registered offering for sale to the
public of the newly issued Shares as contemplated by Section 3.1 hereof.
"Public Offering Date" shall mean the date of the closing of the sale
of the Firm Shares in the Public Offering.
"Record Date" shall mean the close of business on the date to be
determined by the Torchmark Board of Directors as the record date for
determining stockholders of Torchmark entitled to receive shares of Class A
Common Stock and Class B Common Stock.
"Registered Investment Company" shall mean an investment company
registered as such under the Investment Company Act.
"Registration Statement" shall mean the registration statement to be
filed by the Company with the SEC in connection with the Public Offering as
contemplated by Section 3.1(a)(1) hereof.
4
<PAGE>
"Representatives" shall mean the authorized accountants, counsel and
other designated representatives of any Person.
"Ruling Request" shall have the meaning set forth in Section
4.1(a)(1).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Shares" shall mean the Firm Shares and the Overallotment Shares, if
any, included in the Public Offering, in the aggregate constituting no more than
thirty six percent (36%) of the outstanding shares of common stock of the
Company on a fully diluted basis.
"Spin-Off" shall mean the Internal Distribution and the Distribution.
"Torchmark Affiliate" shall mean a Person that directly, or indirectly
through one or more intermediaries Controls or is Controlled by Torchmark and
shall include Century Capital Partners, L.P., a Delaware limited partnership
("Century") although not Controlled by Torchmark; provided, however, that for
purposes of this Agreement none of the following Persons shall be considered
Torchmark Affiliates: (i) the Company or any Company Affiliate and (ii) any
corporation less than 50.1% of whose voting stock is directly or indirectly
owned by any member of the Torchmark Group, any partnership (other than Century)
less than 50.1% of whose interests in profits and losses is directly or
indirectly owned by any member of the Torchmark Group, and any corporation
(regardless of the percentage of its ownership) where the ownership by any
member of the Torchmark Group was made as a venture capital or a portfolio (as
opposed to operational) investment or where the equity ownership resulted from a
default on a loan to such corporation.
"Torchmark's Business" shall mean any business other than the
Company's Business conducted by any member of the Torchmark Group in the past,
at the date hereof, or in the future, including without limitation, Vesta
Insurance Group, Inc.
"Torchmark Group" shall mean collectively, Torchmark and the Torchmark
Affiliates, or any one or more of such companies.
"UILIC" shall mean United Investors Life Insurance Company, a Missouri
corporation and a wholly owned subsidiary of the Company.
"Underwriters" shall mean Morgan Stanley & Co. Incorporated and Morgan
Stanley & Co. International Limited, the managing underwriters for the Public
Offering, and Goldman, Sachs & Co, Goldman Sachs International, Merrill Lynch &
Co., and Merrill Lynch International.
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"Underwriting Agreement" shall mean the underwriting agreement to be
entered into between the Company and the Underwriters with respect to the Public
Offering.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO THE PUBLIC OFFERING
SECTION 2.1 Actions by the Company. At the request of Torchmark, the
Company shall, prior to the Public Offering, take or cause to be taken, the
following actions in the order set forth below:
(a) The Company shall cancel the balance of all remaining promissory
notes payable to the Company by Torchmark, which notes were in the aggregate
original principal amount of approximately $194 million, in exchange for
preferred stock of Torchmark in an amount equal to the remaining unpaid
principal and interest on such notes (the "$200 Million Preferred");
(b) Waddell & Reed Financial Services, Inc. ("WRFS") shall cancel the
balance of a promissory note payable to WRFS by Torchmark, which note was in the
original principal amount of approximately $124 million, in exchange for
preferred stock of Torchmark in an amount equal to the remaining unpaid
principal and interest on such note (the "$124 Million Preferred");
(c) WRFS shall distribute the $124 Million Preferred to the Company,
and simultaneously the Company shall assume WRFS's obligation to pay principal
and interest on a promissory note payable by WRFS to Liberty in the original
principal amount of approximately $124 million (the "$124 Million Note");
(d) The Company shall transfer the $124 Million Preferred to Liberty
as partial prepayment of the $124 Million Note and partial prepayment of a
promissory note payable by the Company to Liberty in the original principal
amount of approximately $390 million (the "$390 Million Note"), such aggregate
prepayment to be applied to the $124 Million Note and the $390 Million Note in
proportion to their respective outstanding amounts of unpaid principal and
interest, and such prepayments to be applied to interest first, then
principal;
(e) The Company shall transfer part of the $200 Million Preferred to
UILIC as a contribution to capital, in an amount equal to the excess of (i) the
aggregate face amount of the $200 Million Preferred over (ii) the remainder (but
not less than zero) obtained by subtracting (A) the greater of the Net Base
Proceeds and $428 million, from (B) the aggregate remaining outstanding amounts
of principal and interest due under the $124 Million Note, the
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$390 Million Note, and the promissory note payable by the Company to Torchmark
in the original principal amount of approximately $90 million (the "$90 Million
Note");
(f) The Company shall transfer the portion of the $200 Million
Preferred not transferred to UILIC to Torchmark as partial prepayment of the $90
Million Note, such prepayment to be applied to interest first, then
principal;
(g) The Company shall distribute all of the capital stock of UILIC to
the Company's shareholders pro rata in a distribution pursuant to Section 355 of
the Code;
(h) The Company shall distribute a dividend of all of the stock of
Torch Royalty Company, a Delaware corporation, owned by the Company to Liberty
as a non-pro rata dividend;
(i) The Company shall distribute a dividend of all of its interest in
Century Capital Partners, L.P., a Delaware limited partnership, to Liberty as a
non-pro rata dividend;
(j) The Company shall distribute a dividend of that certain account
receivable, payable by Torch Energy Advisors Incorporated in the amount of
approximately $1,938,000 and received in connection with the disposition of
Torch Energy Advisors Incorporated, to Torchmark as a non-pro rata dividend;
(k) The Company shall distribute a dividend of all of its interest in
Associates Oil & Gas Company, L.P., a Texas limited partnership, to Liberty as a
non-pro rata dividend;
(l) The Company shall distribute all its interest in that certain
prepaid expense in the amount of approximately $122,538 that was created in
connection with the sale of stock of Nuevo Energy Company, a Delaware
corporation, to Torchmark as a non-pro rata dividend;
(m) The Company shall distribute cash to Torchmark as a non-pro rata
dividend in the amount necessary for the aggregate dividends paid by the Company
pursuant to Sections 2.1(h) through (m) hereof to be paid to Torchmark and
Liberty in proportion to their stock holdings in the Company (approximately
$251,298) (the "Balancing Cash"); and
(n) The Company shall sell all its interest in Velasco Gas Company
Ltd., a Texas limited partnership, to Torchmark Development Corporation.
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SECTION 2.2 Certificate of Incorporation and Bylaws. The Company and
Torchmark shall take all actions necessary to adopt and make effective prior to
the Public Offering Date the amendments to the Certificate of Incorporation and
Bylaws of the Company in substantially the forms attached as Exhibits A and B
hereto.
ARTICLE III
PUBLIC OFFERING
SECTION 3.1 Public Offering. Subject to the conditions specified in
Section 3.2, the Company and Torchmark shall use all reasonable efforts to
consummate the Public Offering and shall take all actions necessary in
connection therewith, including, without limitation, the following actions:
(a) Actions by each Party.
(1) The Company has filed a Registration Statement on Form S-1 to
register under the Securities Act for sale or distribution to the public newly
issued Shares for the account of the Company. The Company shall hereafter file
such amendment or amendments to the Registration Statement as shall be necessary
to cause it to become effective. The Registration Statement shall provide for
an Overallotment option to the Underwriters to purchase from the
Company shares of Class A Common Stock in an amount of up to ten percent
(10%) of the Firm Shares (the "Overallotment Shares").
(2) The Company and Torchmark shall use all reasonable efforts to
obtain any and all approvals and authorizations necessary to consummate the
Public Offering and the other transactions and agreements contained herein.
(3) The Company and Torchmark shall use all reasonable efforts to
cause the Shares, upon their issuance pursuant to the Public Offering, to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.
(4) Except for the individuals to be directors of the Company in
accordance with Section 3.1(c)(4) and for such other individuals as to whom
Torchmark and the Company may agree, Torchmark shall cause all directors and
employees of the Torchmark Group to resign, effective as of the Public Offering
Date, from all boards of directors or similar governing bodies of all members of
the Company Group on which they serve, and from all positions as officers of all
members of the Company Group in which they serve, it being understood that,
without limitation, this provision does not apply to any directorships of any
Registered Investment Company.
(5) Except for such individuals as to whom Torchmark and the Company
may agree, the Company shall cause all directors and employees of the Company
Group to resign, effective as of the Public Offering Date, from all boards of
directors or similar governing bodies of all members of the Torchmark Group on
which they serve, and from all positions as officers of all members of the
Torchmark Group in which they serve.
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(6) Prior to the Public Offering Date:
(a) Torchmark shall advise the Company as to all outstanding
guarantees, letter of credit obligations, performance or surety bonds, comfort
letters and other similar obligations of Torchmark and the Torchmark Affiliates
relating to the Company's Business. Except as otherwise provided in Section
8.4, the Company shall use its best efforts from and after the Public Offering
Date to obtain the release of Torchmark and the Torchmark Affiliates from all
such obligations or liabilities.
(b) The Company shall advise Torchmark as to all outstanding
guarantees, letter of credit obligations, performance or surety bonds, comfort
letters and other similar obligations of the Company and the Company Affiliates
relating to Torchmark's Business. Except as otherwise provided in Section 8.4,
Torchmark shall use its best efforts from and after the Public Offering Date to
obtain the release of the Company and the Company Affiliates from all such
obligations or liabilities.
(b) Actions by the Company.
(1) The Company shall use all reasonable efforts to have the
Registration Statement declared effective as promptly as reasonably practicable
and will promptly notify Torchmark and confirm such advice in writing, (i) when
the Registration Statement has become effective, (ii) when any post-effective
amendment to the Registration Statement becomes effective, (iii) of any SEC
comment letters, and (iv) of any request by the SEC for any amendment or
supplement to the Registration Statement or any prospectus relating thereto or
for additional information.
(2) The Company shall promptly deliver to Torchmark copies of the
Registration Statement and amendments thereto as filed with the SEC. The
Company shall furnish to the Underwriters such number of copies of any
prospectus (including any preliminary prospectus) as such Underwriters may
reasonably request in order to effect the offering and sale of any Shares being
offered and sold pursuant to such Registration Statement.
(3) The Company shall use its reasonable efforts to qualify not later
than the effective date of the Registration Statement the Shares registered
thereunder under the "blue sky" laws of such states as the Underwriters may
reasonably request; provided, however, that the Company shall not be required to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
(4) The Company shall enter into customary agreements (including the
Underwriting Agreement) and take all other customary and appropriate actions in
order to expedite or facilitate the disposition of Shares subject to the
Registration Statement.
(5) On the Public Offering Date, the Company shall hereby
represent and warrant to Torchmark that the Registration Statement, in the form
declared effective by the SEC,
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and any amendment and supplement thereto and any prospectus included therein,
will comply in all material respects with the applicable provisions of the
Securities Act, and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided that the Company shall not represent and warrant
as to the information provided in writing by or on behalf of Torchmark which
either (i) related to Torchmark, Torchmark's Business, its operations or its
relationship with the Company, or (ii) was furnished specifically for use in the
Registration Statement or any amendment or supplement thereto or any prospectus
included therein.
(6) On the Public Offering Date, the Company shall issue to the
Underwriters such number of Shares as provided in the Underwriting Agreement.
(c) Actions by Torchmark.
(1) Torchmark shall furnish the Company such information regarding
Torchmark as is reasonably required by the Company in connection with any
registration, qualification or compliance referred to in this Article III.
(2) On the Public Offering Date, Torchmark shall hereby represent and
warrant to the Company that information furnished in writing to the Company by
or on behalf of Torchmark which either (i) related to Torchmark, Torchmark's
Business, its operations or its relationship with the Company, or (ii) was
furnished specifically for use in the Registration Statement or any amendment or
supplement thereto or any prospectus included therein, did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(3) Torchmark shall, and shall cause Liberty to, take all action
necessary to cause the persons identified on Exhibit C to be elected to the
Board of Directors of the Company promptly after the date hereof.
SECTION 3.2 Conditions Precedent to Consummation of the Public
Offering. The obligations of the parties to consummate the Public Offering shall
be conditioned on the satisfaction of the following conditions:
(a) The Registration Statement shall have been filed and declared effective
by the SEC, and there shall be no stop-order in effect with respect thereto;
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(b) The actions and filings with regard to state securities and blue sky
laws of the United States, if any are required, shall have been taken and, where
applicable, have become effective or been accepted;
(c) The Company shall have entered into the Underwriting Agreement and all
conditions to the obligations of the Underwriters shall have been satisfied or
waived;
(d) As of the Public Offering Date, Liberty shall control (within the
meaning of Sections 355 and 368(c) of the Code) the Company, and all other
conditions to permit the Internal Distribution to qualify as a tax-free
distribution to Torchmark and the Distribution to qualify as a tax-free
distribution to Torchmark shareholders shall, to the extent applicable as of the
time of the Public Offering, be satisfied, and there shall be no event or
condition that is likely to cause any of the foregoing not to be satisfied as of
the time of the Distribution Date or thereafter;
(e) The Shares shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance;
(f) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Public Offering or any of the other transactions
contemplated by this Agreement or any other agreement or document contemplated
by this Agreement shall be in effect;
(g) Torchmark and the Company shall have received any necessary
governmental or regulatory approval or authorization;
(h) This Agreement shall not have been terminated;
(i) The Board of Directors of Torchmark or a duly authorized committee of
Torchmark directors shall have determined that the terms of the Public Offering
are acceptable to Torchmark;
(j) The actions required pursuant to Section 2.1 shall have been taken; and
(k) Such other actions as the parties may, based upon the advice of
counsel, reasonably request to be taken prior to the Public Offering in order to
assure the successful completion of the Public Offering, the Spin-Off and the
other transactions contemplated by this Agreement or any other agreement or
document contemplated by this Agreement shall have been taken.
SECTION 3.3 Participation. The participation of any party or its
counsel or other representatives in the preparation of the Registration
Statement or any amendment or supplement thereto or any prospectus included
therein, or its approval of all or any of such documents to be filed, shall not
alter the rights to indemnification or to contribution pursuant to Article VI.
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SECTION 3.4 Use of Proceeds. The Company shall apply the proceeds
of the Public Offering other than the proceeds attributable to the Overallotment
Shares, after deducting underwriting commissions and discounts, as follows:
(a) First, to reimburse Torchmark for all Offering Expenses paid or
advanced by Torchmark to the Company;
(b) Second, to prepay the amounts due under the Company's promissory
notes outstanding as of the Public Offering Date to Torchmark and Liberty to the
extent of such remaining proceeds; and
(c) Third, any remaining amount of such net proceeds, less an amount equal
to the Balancing Cash, shall be paid to Torchmark and Liberty as a pro rata
dividend.
SECTION 3.5 Use of Overallotment Proceeds. The Company shall apply the
proceeds of the Public Offering attributable to the Overallotment Shares, after
deducting underwriting commissions and discounts, as follows:
(a) First, the Company shall retain $28,000,000; and
(b) Second, any remaining amount of such net proceeds, less an amount equal
to the Balancing Cash (but only to the extent the Balancing Cash was not
deducted pursuant to Section 3.4(c) above) shall be paid to Torchmark and
Liberty as a pro rata dividend.
SECTION 3.6 Overtime Charges. The Company agrees to pay overtime expenses
charged by R.R. Donnelley as approved by the Company from time to time in
connection with the Public Offering.
SECTION 3.7 Intercompany Debt.
(a) In the event the Company's transfer to Torchmark and Liberty of the
cash amounts to be paid pursuant to Section 3.4(b) are sufficient to constitute
the final payment of the remaining outstanding principal plus accrued interest
under the $90 Million Note, the $390 Million Note and the $124 Million Note,
Torchmark shall cancel the $90 Million Note and Liberty shall cancel the $390
Million Note and the $124 Million Note.
(b) In the event the Company's transfer to Torchmark and Liberty of the
cash amounts to be paid pursuant to Section 3.4(b) are not sufficient to
constitute the final payment of the remaining outstanding principal plus accrued
interest under the $90 Million Note, the $390 Million Note and the $124 Million
Note, the cash shall be applied first to the $90 Million Note and the $390
Million Note in the proportions directed by Torchmark, and then to the $124
Million Note, and the unpaid portion of any such Notes shall remain outstanding
as an obligation of the Company. If such payment completely prepays all amounts
due under any such Note, then Torchmark or Liberty, as applicable, shall cancel
such Note.
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ARTICLE IV
DISTRIBUTION
SECTION 4.1 Actions Prior to the Spin-Off.
(a) Actions by Torchmark.
(1) Torchmark shall continue to seek to obtain a private letter ruling
from the Internal Revenue Service to the effect that, among other things, the
Spin-Off will qualify as a tax-free distribution for federal income tax purposes
under Section 355 of the Code (the "Ruling Request"). The Company shall provide
all information requested by Torchmark as necessary for Torchmark to obtain such
ruling.
(2) Subject to Section 4.3, on or prior to the Distribution Date,
Torchmark shall, subject to any necessary governmental approvals and consents,
cause Liberty to distribute a dividend of all of the Class B Common Stock held
by Liberty to Torchmark, its sole stockholder.
(3) On or prior to the Distribution Date, Torchmark shall, subject to
any necessary governmental approvals and consents, transfer all of the stock of
American Income Life Insurance Company to Globe Life and Accident Insurance
Company as a contribution to capital.
(b) Actions by each Party.
(1) Subject to Section 4.3, prior to the Distribution Date, the
Company and Torchmark shall prepare and mail to the holders of Torchmark common
stock, such information concerning the Company, its business, operations and
management, the Spin-Off and such other matters as Torchmark and the Company
shall reasonably determine and as may be required by law. Torchmark and the
Company, as may be appropriate, will prepare and, to the extent required under
applicable law, will file with the SEC any such documentation which Torchmark
determines is necessary or desirable to effectuate the Spin-Off and Torchmark
and the Company shall each use its reasonable efforts to obtain all necessary
approvals from the SEC with respect thereto.
(2) In addition to their respective obligations under Section
4.1(b)(1) above, Torchmark and the Company shall take all other actions as may
be necessary or appropriate under the securities or blue sky laws of the United
States in connection with the Spin-Off.
(3) Torchmark and the Company shall use their reasonable efforts to
cause the conditions set forth in Section 4.3 to be satisfied and to effect the
Spin-Off on the Distribution Date.
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(c) Actions by the Company.
(1) The Company shall prepare and file, and shall use its reasonable
efforts to have approved, an application for the listing of the Class A Common
Stock and Class B Common Stock to be distributed in the Spin-Off on the New York
Stock Exchange.
(2) Between the Public Offering Date and the Distribution Date, the
Company shall not issue any shares of stock or enter into any binding obligation
to do so if the effect thereof would be that Liberty would not control the
Company within the meaning of Sections 355 and 368(c) of the Code, or,
subsequent to the Internal Distribution, that Torchmark would not control the
Company within the meaning of Sections 355 and 368(c) of the Code.
SECTION 4.2 The Spin-Off.
(a) Subject to Section 4.3, on or prior to the Distribution Date, Torchmark
shall deliver to the Agent for the benefit of holders of record of Torchmark
common stock on the Record Date, a single stock certificate endorsed by
Torchmark in blank, representing all of the outstanding shares of Class A Common
Stock then owned by Torchmark or any other member of the Torchmark Group and a
single stock certificate endorsed by Torchmark in blank, representing all of the
outstanding shares of Class B Common Stock then owned by Torchmark or any other
member of the Torchmark Group, and shall cause the transfer agent for the shares
of Torchmark common stock to instruct the Agent to distribute on the
Distribution Date the appropriate number of such shares of Class A Common Stock
and Class B Common Stock (except for fractional shares which will be sold for
cash pursuant to Section 4.4 to be distributed in lieu thereof) to each such
holder or designated transferee or transferees of such holder.
(b) Subject to Section 4.4, each holder of Torchmark common stock on the
Record Date (or such holder's designated transferee or transferees) shall be
entitled to receive, in the Spin-Off, the following:
(1) A number of shares of Class A Common Stock equal to the number of
shares of Class A Common Stock owned by Torchmark and any other member of the
Torchmark Group on the Record Date multiplied by a fraction, the numerator of
which is the number of shares of Torchmark common stock held by such holder on
the Record Date, and the denominator of which is the number of shares of
Torchmark common stock outstanding on the Record Date, which number shall be
rounded down to the nearest whole number of shares; and
(2) A number of shares of Class B Common Stock equal to the number of
shares of Class B Common Stock owned by Torchmark or any other member of the
Torchmark Group on the Record Date multiplied by a fraction, the numerator of
which is the number of shares of Torchmark common stock held by such holder on
the Record Date, and the denominator of which is the number of shares of
Torchmark common stock outstanding on the Record Date, which number shall be
rounded down to the nearest whole number of shares.
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(c) Torchmark and the Company, as the case may be, will provide to the
Agent all share certificates and any information required in order to complete
the Spin-Off on the basis specified above.
SECTION 4.3 Conditions to Spin-Off. Torchmark shall effect the Spin-
Off as promptly as practicable after October 1, 1998 as determined by Torchmark,
following the satisfaction or waiver by Torchmark, in its sole discretion, of
the conditions set forth below:
(a) A private letter ruling from the Internal Revenue Service shall have
been obtained, and shall continue in effect, providing that, among other things,
the Spin-Off will qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Code, such ruling shall be in form and
substance satisfactory to Torchmark in its sole discretion and Torchmark and the
Company shall have complied with all conditions set forth in such ruling;
(b) Any material governmental approvals and consents necessary to
consummate the Spin-Off shall have been obtained and shall be in full force and
effect;
(c) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-Off shall be in effect and no other event outside the
control of Torchmark shall have occurred or failed to occur that prevents the
consummation of the Spin-Off;
(d) The transactions contemplated hereby shall be in compliance with
applicable federal and state securities and insurance laws;
(e) Each of the Company and Torchmark shall have received such material
consents, and shall have received executed copies of such agreements or
amendments of agreements, as they shall deem material in connection with the
completion of the transactions contemplated by this Agreement or any other
agreement or document contemplated by this Agreement or otherwise;
(f) All action and other documents and instruments deemed necessary or
advisable in connection with the transactions contemplated hereby shall have
been taken or executed, as the case may be, in form and substance satisfactory
to Torchmark;
(g) Since December 31, 1997, no material adverse change shall have occurred
with respect to the business or financial condition of Torchmark and no other
event or development shall have occurred which the Board of Directors of
Torchmark determines, in its sole discretion, make the Spin-Off not in the best
interests of Torchmark and its stockholders.
The foregoing conditions are for the sole benefit of Torchmark and shall not
give rise to or create any duty on the part of Torchmark to waive or not waive
any such condition.
SECTION 4.4 Fractional Shares. As soon as practicable after the
Distribution Date, Torchmark shall direct the Agent to determine the number of
whole shares and fractional shares
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of the Class A Common Stock and the Class B Common Stock allocable to each
holder of record of Torchmark common stock as of the Record Date, to aggregate
all such fractional shares and sell the whole shares obtained thereby in open-
market transactions in the Agent's sole discretion as to when, how, through
which broker-dealer and at what price to make such sales, and to cause to be
distributed to each such holder or for the benefit of each such holder, in lieu
of any fractional share, such holder's ratable share of the proceeds of such
sale, after making appropriate deductions of the amount required to be withheld
for federal income tax purposes and after deducting an amount equal to all
brokerage charges, commissions and transfer taxes attributed to such sale.
Torchmark and the Agent shall use their reasonable efforts to aggregate the
shares of Torchmark common stock that may be held by any holder of record
thereof through more than one account in determining the fractional shares
allocable to such holder.
ARTICLE V
REGISTRATION RIGHTS
SECTION 5.1 Registration of Shares In the event that the Spin-Off
has not occurred by March 31, 1999, upon the request of Torchmark [made at any
time after such date but prior to March 31, 2002], the Company shall file with
the SEC, as promptly as practicable, a demand registration statement (the
"Demand Registration Statement") including the shares of Class A Common Stock
and/or Class B Common Stock then held by Torchmark or any other member of the
Torchmark Group Torchmark requests to be included, provided, however, that the
number of shares of Class A Common Stock and/or Class B Common Stock Torchmark
requests be included must represent not less than the lesser of (i) twenty
percent (20%) of the Class A Common Stock and the Class B Common Stock then held
by Torchmark and any other member of the Torchmark Group and (ii) all of the
shares of Class A Common Stock and Class B Common Stock then held by Torchmark
and the other members of the Torchmark Group. Torchmark shall have the right to
request up to three Demand Registration Statements, provided that the Company
shall have no obligation to file any such Demand Registration Statement on or
prior to a ninety (90) day period following the filing of any other registration
statement by the Company (other than registration statements on Form S-4 or Form
S-8 or another form available for registration of securities other than for sale
to the public for cash). The Company shall use its best efforts to cause each
Demand Registration Statement to be declared effective by the SEC as promptly as
practicable. If a Demand Registration Statement shall be withdrawn by the
Company before effectiveness, it shall not be counted against Torchmark's right
to request three registrations. Torchmark will pay all reasonable costs incurred
to obtain shareholder approval for any mutual fund which is a party to an
investment advisory contract with any member of the Company Group in the event a
sale by Torchmark pursuant to a Demand Registration Statement or a Company
Registration Statement would constitute an "assignment" as defined in the
Investment Company Act and the Advisors Act of such investment advisory
contract.
SECTION 5.2 Limitations of Registration Rights.
(a) The Company may, by written notice to Torchmark, for a period of
up to forty-five (45) days from the date of written notice, delay the filing or
effectiveness of any of the Demand Registration Statements in the event that (1)
the Company is engaged in any activity or
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transaction that the Company desires to keep confidential for business reasons,
(2) the Company's Board of Directors determines in good faith that the
disclosure of such information would be detrimental to the Company, and (3) the
Company's Board of Directors determines in good faith that the public disclosure
requirements imposed on the Company under the Securities Act in connection with
any Demand Registration Statement would require disclosure of such activity
or transaction.
(b) If the Company delays a Demand Registration Statement, the Company
shall, as promptly as practicable following the termination of the circumstances
which entitled the Company to do so, provide notice to Torchmark of the
termination of such circumstances and take such actions as may be necessary to
file or reinstate the effectiveness of a Demand Registration Statement. If as a
result thereof the prospectus included in a Demand Registration Statement has
been amended to comply with the requirements of the Securities Act, the Company
shall enclose such revised prospectus with the notice to Torchmark given
pursuant to this paragraph (b), and Torchmark shall make no offers or sales of
shares pursuant to a Demand Registration Statement other than by means of such
revised prospectus.
SECTION 5.3 Registration Procedures.
(a) In connection with the filing by the Company of a Demand
Registration Statement, the Company shall furnish to Torchmark as many copies of
the prospectus, including each preliminary prospectus, in conformity with the
requirements of the Securities Act as Torchmark shall reasonably request for the
purpose of effecting the plan of distribution set forth therein.
(b) The Company shall use its best efforts to register or qualify the
shares of Class A Common Stock and/or Class B Common Stock covered by a Demand
Registration Statement under the securities laws of such states as Torchmark
shall reasonably request; provided, however, that the Company shall not be
required in connection with this paragraph (b) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
(c) If the Company has delivered preliminary or final prospectuses to
Torchmark and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify Torchmark
and, if requested by the Company, Torchmark shall immediately return all
prospectuses to the Company. The Company shall promptly provide Torchmark with
revised prospectuses.
(d) At the request of Torchmark, the Company shall sign an
underwriting agreement in customary form with managing underwriter selected by
Torchmark and reasonably satisfactory to the Company, and shall cooperate with
such managing underwriter in all reasonable respects to facilitate the
distribution contemplated by Torchmark, including without limitation making
available the books, records and personnel of the Company for the purpose of the
underwriter's "due diligence" and providing customary legal opinions and
auditors' comfort letters.
(e) The Offering Expenses incurred in complying with this Section 5.3
shall be paid as follows:
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(i) Offering Expenses in connection with a Demand Registration
Statement shall be paid by Torchmark; provided, that in the event any shares of
the Company's stock are included in a Demand Registration Statement in addition
to the shares of Class A Common Stock and/or Class B Common Stock held by
Torchmark or any other member of the Torchmark Group, the Company shall pay its
prorata portion of the Offering Expenses equal to the Offering Expenses
multiplied by a fraction, the numerator of which is the number of any shares
included in the Demand Registration Statement other than the shares held by
Torchmark or any other member of the Torchmark Group and the denominator of
which is the total number of shares included in the Demand Registration
Statement; and
(ii) Offering Expenses in connection with a Company Registration
Statement (as defined below) shall be paid by the Company; provided, that in the
event Class A Common Stock and/or Class B Common Stock held by Torchmark or any
other member of the Torchmark Group is included in the Company Registration
Statement, Torchmark shall pay its prorata portion of the Offering Expenses
equal to the Offering Expenses multiplied by a fraction, the numerator of which
is the number of such Class A Common Stock and/or Class B Common Stock held by
Torchmark or any other member of the Torchmark Group and included in the Company
Registration Statement and the denominator of which is the total number of
shares included in the Company Registration Statement.
(f) Prior to March 31, 2002, each time the Company proposes to
register any of its securities (except with respect to registration statements
on Form S-4 or Form S-8 or another form available for registration of securities
other than for sale to the public for cash), whether or not for sale for its own
account, which is in whole or in part, an underwritten public offering (a
"Company Registration Statement"), it will give prompt written notice to
Torchmark of its intention to do so and of Torchmark's rights under this Section
5.3(f). Torchmark may request within thirty (30) days after receipt of any such
notice to include in the Company Registration Statement some or any portion of
the shares of Class A Common Stock or Class B Common Stock then held by
Torchmark or any other member of the Torchmark Group. The Company shall use its
best efforts to cause the Company Registration Statement to include all shares
of Class A Common Stock and/or Class B Common Stock that Torchmark requested to
be included; provided, however, the number of shares of Class A Common Stock
and/or Class B Common Stock Torchmark requested be included in the Company
Registration Statement may be reduced (pro rata among Torchmark and any other
stockholder with similar registration rights based on the number of shares so
requested to be registered) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold. Torchmark's exercise of its right under this
Section 5.3(f) to include shares in any Company Registration Statement shall not
be counted against Torchmark's right to request three registrations.
SECTION 5.4 Requirements of Torchmark. The Company shall not be
required to include any Class A Common Stock and/or Class B Common Stock owned
by Torchmark or any other member of the Torchmark Group in a Demand Registration
Statement or a Company Registration Statement unless:
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(a) Torchmark furnishes to the Company in writing such information
regarding Torchmark as the Company may reasonably request in writing in
connection with the Demand Registration Statement or the Company Registration
Statement, as the case may be, or as shall be required in connection therewith
by the SEC or any state securities law authorities; and
(b) Torchmark shall have provided to the Company its written agreement
to report to the Company sales made pursuant to the Demand Registration
Statement or the Company Registration Statement, as the case may be.
SECTION 5.5 Sales without Registration. Torchmark and any other
member of the Torchmark Group may sell shares of Class A Common Stock and/or
Class B Common Stock without a registration in the event Torchmark provides to
the Company an opinion of counsel, satisfactory in form and substance to the
Company, to the effect that such Class A Common Stock and/or Class B Common
Stock is eligible for sale without limitation or restriction of any sort under
Rule 144 under the Securities Act.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 Indemnification by the Company. Subject to Section 6.5,
the Company hereby agrees to indemnify and hold harmless Torchmark and the
Torchmark Affiliates and their respective directors, officers, employees, and
agents, and each Person, if any, who controls Torchmark within the meaning of
the Securities Act (the "Torchmark Indemnitees"), against:
(a) All Liabilities of the Company Group under this Agreement, any
Ancillary Agreement or the Underwriting Agreement;
(b) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Demand Registration Statement, or any Company
Registration Statement, any prospectus (including a preliminary prospectus)
contained therein, or any amendment or supplement to any such Registration
Statement, Demand Registration Statement, Company Registration Statement or
prospectus, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided that the Company shall not be so liable insofar as such
Losses arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, Demand Registration Statement, Company Registration Statement,
prospectus, supplement or amendment in conformity with or based upon information
furnished in writing to the Company by or on behalf of Torchmark which either
(i) related to Torchmark, Torchmark's Business, its operations, or its
relationship with the Company, or (ii) was furnished specifically for use
therein;
(c) All Losses relating to, arising out of or due to an untrue
statement or alleged untrue statement of a material fact contained in any
Exchange Act report by Torchmark or the
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omission or alleged omission to state therein a material fact required to be
stated in any such report or necessary to make the statements therein not
misleading, but only insofar as such Losses arise out of or are based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made in such report in conformity with or based upon information
furnished in writing to Torchmark by or on behalf of the Company which either
(i) related to the Company, the Company's Business, its operations, or its
relationship with Torchmark, or (ii) was furnished specifically for use therein;
(d) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact contained in any Exchange Act report
by the Company or the omission or alleged omission to state therein a material
fact required to be stated in any such report or necessary to make the
statements therein not misleading; provided that the Company shall not be liable
insofar as such Losses arise out of or are based upon any such untrue statement
or alleged untrue statement or omission or alleged omission made in such report
in conformity with or based upon information furnished in writing to the Company
by or on behalf of Torchmark which either (i) related to Torchmark, Torchmark's
Business, its operations or its relationship with the Company or (ii) was
furnished specifically for use therein;
(e) All Losses relating to, or arising out of or due to, directly or
indirectly, (i) the Company's Business, (ii) any individual employed by any
member of the Company Group on the Public Offering Date or any individual
employed by any member of the Company Group prior to the Public Offering Date,
except to the extent such person was acting solely as an officer, director or
employee of any member of the Torchmark Group, or (iii) any Representative of
any member in the Company Group, in each case, whether relating to or arising
out of occurrences prior to, on or after the Public Offering Date; and
(f) All Losses to which Torchmark and the Torchmark Affiliates may be
subject as a result of the Spin-Off not qualifying as a tax-free transaction
under Section 355 of the Code, to the extent that any Losses would not have
resulted but for (x) the actions described in Section 4.1(c)(2) or (y) any
untrue statement or alleged untrue statement of a material fact contained in the
Ruling Request or the Registration Statement or the omission or alleged omission
to state in the Ruling Request or the Registration Statement a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only insofar as any such statement or omission was made in
reliance upon, and in conformity with information furnished in writing by or on
behalf of the Company which either (i) related to the Company, the Company's
Business, its operations, or its relationship with the Company, or (ii) was
furnished specifically for use therein.
SECTION 6.2 Indemnification by Torchmark. Subject to Section 6.5,
Torchmark hereby agrees to indemnify and hold harmless the Company and the
Company Affiliates and their respective directors, officers, employees, and
agents, and each Person, if any, who controls the Company within the meaning of
the Securities Act (the "Company Indemnitees"), against:
(a) All Liabilities of the Torchmark Group under this Agreement, any
Ancillary Agreement, or the Underwriting Agreement;
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(b) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact in the Registration Statement, any
Demand Registration Statement, or any Company Registration Statement, any
prospectus (including a preliminary prospectus) contained therein, or any
amendment or supplement to such Registration Statement, Demand Registration
Statement, Company Registration Statement, or prospectus, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only insofar as
such Losses arise out of or are based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, Demand Registration Statement, Company Registration Statement,
prospectus, supplement or amendment that was based upon or in conformity with
information furnished in writing to the Company by or on behalf of Torchmark
which either (i) related to Torchmark, Torchmark's Business, its operations or
its relationship with the Company or (ii) was furnished specifically for use
therein;
(c) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact contained in any Exchange Act report
by Torchmark or the omission or alleged omission to state therein a material
fact required to be stated in any such report or necessary to make the
statements therein not misleading; provided that Torchmark shall not be liable
insofar as such Losses arise out of or are based upon any such untrue statement
or alleged untrue statement or omission or alleged omission made in such report
in conformity with or based upon information furnished in writing to Torchmark
by or on behalf of the Company which either (i) related to the Company,
Company's Business, its operations or its relationship with Torchmark or (ii)
was furnished specifically for use therein;
(d) All Losses relating to, arising out of or due to an untrue statement or
alleged untrue statement of a material fact contained in any Exchange Act report
by the Company or the omission or alleged omission to state therein a material
fact required to be stated in any such report or necessary to make the
statements therein not misleading, but only insofar as such Losses arise out of
or are based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made in such report in conformity with or based
upon information furnished in writing to the Company by or on behalf of
Torchmark which either (i) related to Torchmark, Torchmark's Business, its
operations, or its relationship with the Company, or (ii) was furnished
specifically for use therein;
(e) All Losses relating to, or arising out of or due to, directly or
indirectly, (i) Torchmark's Business, (ii) any individual employed by any member
of the Torchmark Group on the Public Offering Date or any individual employed by
any member of the Torchmark Group prior to the Public Offering Date, except to
the extent such person was acting solely as an officer, director or employee of
any member of the Company Group, (iii) or any Representative of any member of
the Torchmark Group, in each case, whether relating to or arising out of
occurrences prior to, on or after the Public Offering Date; and
(f) All Losses to which the Company and the Company Affiliates may be
subject as a result of the Spin-Off not qualifying as a tax-free transaction
under Section 355 of the Code,
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provided that Torchmark shall not be liable in any such case to the extent that
any Losses would not have resulted but for (x) the actions described in Section
4.1(c)(2) or (y) any untrue statement or alleged untrue statement of a material
fact contained in the Ruling Request or the Registration Statement or the
omission or alleged omission to state in the Ruling Request or the Registration
Statement a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon, and in conformity with information furnished
in writing by or on behalf of the Company which either (i) related to the
Company, the Company's Business, its operations or its relationship with the
Torchmark or (ii) was furnished specifically for use therein.
SECTION 6.3 Indemnification Procedure. Promptly after receipt by an
Indemnitee of notice of the commencement of any action or proceeding in respect
of which indemnity may be sought by such Indemnitee pursuant to Section 6.1 or
6.2, such Indemnitee will, if a claim in respect thereof is to be made against
an Indemnifying Party under Section 6.1 or 6.2, notify the Indemnifying Party of
the commencement thereof, but the omission so to notify the Indemnified Party
will not relieve the Indemnifying Party from any liability which it may have to
any Indemnitee under Section 6.1 or 6.2 or otherwise, except to the extent the
Indemnifying Party is prejudiced by such omission. In case any such action or
proceeding is brought against any Indemnitee and it notifies an Indemnifying
Party of the commencement thereof, the Indemnifying Party will be entitled to
participate therein and, to the extent that it may wish to assume the defense
thereof, and if it assumes such defense, it shall retain counsel reasonably
satisfactory to such Indemnitee to represent the Indemnitee and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnitee shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee
unless in the reasonable judgment of the Indemnitee separate and conflicting
defenses are available to such Indemnitee, in which event the Indemnitee may
select one firm of separate counsel reasonably satisfactory to the Indemnifying
Party for purposes of defending such action, whose fees and expenses shall be
borne by the Indemnifying Party, provided that the Indemnifying Party shall not
be responsible for the fees and expenses of more than one counsel for all such
Indemnitees. After notice from the Indemnifying Party to such Indemnitee of its
election so to assume the defense thereof, the Indemnifying Party will not
(except as otherwise provided herein) be liable to such Indemnitee under
Sections 6.1 or 6.2 for any legal or other expenses subsequently incurred by
such Indemnitee in connection with the defense thereof other than reasonable
costs of investigation. If the Indemnifying Party elects not to assume the
defense of a claim or action, it will not be obligated to pay the fees and
expenses of more than one counsel for the Indemnitee with respect to such claim
or action. No Indemnifying Party shall consent to entry of any judgment or enter
into any settlement without the consent of any Indemnitee which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such action or
proceeding. No Indemnifying Party shall be subject to any liability for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
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SECTION 6.4 Indemnification Payments.
(a) The amount which any Indemnifying Party is or may be required to
pay to an Indemnitee pursuant to Section 6.1 or Section 6.2 shall be reduced,
including, without limitation, retroactively, by any Insurance Proceeds or other
amounts actually recovered by or on behalf of such Indemnitee, in reduction of
the related Loss. If an Indemnitee shall have received the payment required by
this Agreement from an Indemnifying Party in respect of any Loss and shall
subsequently actually receive Insurance Proceeds or other amounts in respect of
such Loss, then such Indemnitee shall pay to such Indemnifying Party a sum equal
to the amount of such Insurance Proceeds or other amounts actually received (up
to but not in excess of the amount of any indemnity payment made hereunder). An
insurer who would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto, or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
third party shall be entitled to a "windfall" (i.e., a benefit they would not be
entitled to receive in the absence of the indemnification provisions) by virtue
of the indemnification provisions hereof.
(b) Any payment required to be made pursuant to this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or losses, damages or
liabilities are incurred.
(c) If the indemnification provided for in this Article VI is held by a
court of competent jurisdiction to be unavailable to an Indemnitee with respect
to any Loss, then the Indemnifying Party, in lieu of indemnifying such
Indemnitee hereunder, shall contribute the amount that would have been due
hereunder to the amount paid or payable by such Indemnitee as a result of such
Loss.
SECTION 6.5 Tax Liabilities. This Article VI shall not be applicable
to Losses related to Taxes (as defined in the Tax Disaffiliation Agreement)
which shall be governed by the Tax Disaffiliation Agreement, attached hereto as
Exhibit D, except as otherwise provided in Sections 6.1(e) and 6.2(e). To the
extent this Agreement and the Tax Disaffiliation Agreement are inconsistent, the
provisions of the Tax Disaffiliation Agreement shall control.
ARTICLE VII
ACCESS TO, AND TREATMENT OF, INFORMATION
SECTION 7.1 Access to Information. From and after the Public
Offering Date Torchmark shall afford to the Company and its Representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to all records, books, contracts, instruments, computer data and other
data and information (collectively, "Information") within Torchmark's possession
relating to the businesses of the Company, insofar as such access is reasonably
required by the Company. The Company shall afford to Torchmark and its
Representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing Information) and duplicating rights during
normal business hours to Information within the Company's possession
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relating to the business of the Company, insofar as such access is reasonably
required by Torchmark. Information may be requested under this Article VII for,
without limitation, audit, accounting, claims, litigation and tax purposes, as
well as for purposes of fulfilling disclosure and reporting obligations and for
performing the transactions contemplated in this Agreement or any other
agreement or document contemplated by this Agreement or otherwise.
SECTION 7.2 Securities Filings. For a period of three (3) years
following the Effective Date, each of the Company and Torchmark shall provide to
the other, (a) promptly following such time at which such documents shall be
filed with the SEC, copies of all documents which shall be filed by either the
Company or Torchmark, as the case may be, with the SEC pursuant to the periodic
and interim reporting requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder, and (b) promptly following
receipt thereof, any comment letter of the SEC related to any documents
described in paragraph (a) of this Section 7.2.
SECTION 7.3 Reimbursement. Except to the extent otherwise
contemplated by any Ancillary Agreement, a party providing information to the
other party under this Article VII shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses,
as may be reasonably incurred in providing such information.
SECTION 7.4 Production of Witnesses. After the Public Offering Date,
each of Torchmark and the Company and the other members of their respective
Group shall use reasonable efforts to make available to the other party and the
other members of their Group, upon written request, its directors, officers,
employees and agents as witnesses to the extent that any such Person may
reasonably be required (giving consideration to business demands of such
Representatives) in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved
(other than proceedings between the parties or the other members of their
Group).
SECTION 7.5 Confidentiality. Each of Torchmark and the other members
of the Torchmark Group on the one hand, and the Company and the other members of
the Company Group on the other hand, shall hold, and shall cause its
Representatives to hold, in strict confidence, all Information concerning the
other in its possession or furnished by the other or the other's Representatives
pursuant to this Agreement (except to the extent that such Information is (a)
publicly available or (b) known or becomes known to such party on a non-
confidential basis from a source not bound by a confidentiality agreement to the
other party), and each party shall not release or disclose such Information to
any other Person, except its auditors, attorneys, financial advisors, bankers
and other consultants and advisors, unless compelled to disclose by judicial or
administrative process or, as advised by its counsel, by other requirements of
law or the applicable rules of any securities exchange.
SECTION 7.6 Retention of Records. For a period of six (6) years
following the Public Offering Date, each of Torchmark and the Company shall
retain all Information relating to the other as of the Public Offering Date,
except as otherwise required by law or set forth in an
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Ancillary Agreement or except to the extent that such Information is in the
public domain or in the possession of the other party.
ARTICLE VIII
RELATIONSHIP FOLLOWING PUBLIC OFFERING
SECTION 8.1 Ancillary Agreements. Torchmark and the Company agree
to, as soon as practicable following the execution of this Agreement, execute
and deliver the following agreements which agreements will become effective as
of the Public Offering Date (the "Ancillary Agreements"):
(a) Tax Disaffiliation Agreement, attached hereto as Exhibit D;
(b) Investment Services Agreement, attached hereto as Exhibit E;
(c) Amendment No. 1 to the General Agent Contract, attached hereto as
Exhibit F;
(d) Amendment No. 1 to Independent Agent Contract, attached hereto as
Exhibit G;
(e) Amendment to Distribution Contract, attached hereto as Exhibit H;
(f) Amendment to Principal Underwriting Agreement, attached hereto as
Exhibit I;
(g) Services Agreement, attached hereto as Exhibit J;
(h) Administrative Services Agreement, attached hereto as Exhibit
K;
(i) Reciprocity Agreement, attached hereto as Exhibit L; and
(j) Management Contract, attached hereto as Exhibit M.
SECTION 8.2 Cancellation of Agreements. Torchmark and the Company
agree, on their own behalf and on behalf of the other members of their
respective Group, that each and every agreement, arrangement, commitment or
understanding, whether or not in writing, by or among any such parties except
this Agreement, the agreements specifically identified in this Article VIII, and
the agreements set forth on Exhibit N, shall be canceled and of no further
effect as of the Public Offering Date. Each party shall, at the reasonable
request of the other party, take, or cause to be taken, such other actions as
may be necessary to effect the foregoing. Notwithstanding the foregoing,
neither party shall be relieved from any obligations or liabilities accruing
prior to the Public Officering Date by any member of the Company Group or any
member of the Torchmark Group, as the case may be, which obligations or
liabilities shall be paid or satisfied consistent with past practices.
SECTION 8.3 Use of Name.
(a) As soon as practicable following the Public Offering Date,
Torchmark shall take all action necessary to change the name of Waddell & Reed
Asset Management Company to a name bearing no similarity to "Waddell & Reed".
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(b) The Company shall take all necessary action to ensure that the
members of the Company Group, and Torchmark shall take all necessary action to
ensure that the members of the Torchmark Group, shall take all reasonable
diligent action to discontinue the use of any existing printed material or any
signage implicitly or explicitly showing any current affiliation or connection
between Torchmark and the Company or any member of their respective Groups as
promptly after the Distribution Date as practicable. After the Distribution
Date, neither party shall permit any member of its respective Group, to
represent to third parties that it has a present business affiliation with the
other party or its affiliates other than for ongoing contractual relationships.
SECTION 8.4 Insurance.
(a) All insurance coverage provided by Torchmark or any other member
of the Torchmark Group to any member of the Company Group insuring the
properties, employees, assets or operations of any member of the Company Group
and all insurance coverage provided by the Company or any other member of the
Company Group to any member of the Torchmark Group, insuring the properties,
employees, assets or operations of any member of the Torchmark Group, in each
case, as identified on Exhibit O, shall continue in full force and effect
until the earlier of the renewal date of the respective policy as set forth on
Exhibit O, or the Distribution Date (the "Coverage Expiration Date"). The
Company shall or shall cause the other members of the Company Group (as the case
may be) to, reimburse Torchmark or other members of the Torchmark Group (as the
case may be), and Torchmark shall or shall cause the other members of the
Torchmark Group (as the case may be) to, reimburse the Company or other members
of the Company Group (as the case may be), the portion of the premiums for such
coverage in accordance with the past practices established by Torchmark and the
Company related to the period of such coverage through the Coverage Expiration
Date. The Company shall be responsible for obtaining insurance coverage for
itself and the other members of the Company Group, at the Company's expense, and
Torchmark shall be responsible for obtaining insurance coverage for itself and
the other members of the Torchmark Group, at Torchmark's expense, from and after
the Coverage Expiration Date of the respective policy.
(b) Torchmark and the Company agree that each party (the "Insured
Party") shall have the right to present claims to the other party (the "Insuring
Party") or the other party's insurers under all policies of insurance identified
on Exhibit N for insured incidents occurring prior to the Coverage Expiration
Date of the relevant policy. The parties acknowledge that any such policies
written on a "claims made" rather than an "occurrence" basis will not provide
coverage for incidents occurring prior to the Coverage Expiration Date of the
relevant policy but which are first reported after the Coverage Expiration Date
of the relevant policy. With respect to any insured Losses prior to the
Coverage Expiration Date of the relevant policy (i) the Insuring Party shall pay
promptly over to the Insured Party, any Insurance Proceeds it receives on
account of such Losses; and (ii) the Insured Party shall promptly reimburse the
Insuring Party for all costs, expenses or payments made by the Insuring Party in
good faith and consistent with past practice on or after the Coverage Expiration
Date of the relevant policy on account of such Losses (including any self-
insured retention), with such costs, expenses or payments allocated on a basis
consistent with that utilized by the parties as of the date hereof.
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SECTION 8.5 Employee Benefits.
(a) Torchmark and the Company agree to establish stock
option conversion programs as described in this Section 8.5(a) to become
effective on the date the Spin-Off occurs. Outstanding options to purchase
shares of common stock of Torchmark (the "Torchmark Options") granted by
Torchmark to officers, directors, and employees of Torchmark and its affiliates,
including the Company, under various Torchmark stock compensation plans (the
"Torchmark Plans") will be adjusted (the "Adjusted Torchmark Options") and the
Company will provide for the issuance of options (the "Conversion Options") to
purchase Class A Common Stock to the holders of outstanding Torchmark Options
(except for options granted December 24, 1997). The Company and Torchmark agree
to then provide (i) holders of Torchmark Options that are employees of the
Company an election to receive either solely Conversion Options or a combination
of Conversion Options and Adjusted Torchmark Options in a ratio that is
reflective of the pro rata distribution of Class A Common Stock to Torchmark
stockholders in the Spin-Off and (ii) holders of Torchmark Options who are
employees of Torchmark an election to receive either solely Adjusted Torchmark
Options or a combination of Conversion Options and Adjusted Torchmark Options in
a ratio that is reflective of the pro rata distribution of Class A Common Stock
to Torchmark stockholders in the Spin-Off. The number of options that the
option holder will be entitled to receive and respective exercise prices will be
determined so that (i) the ratio of the exercise price of each of the Conversion
Options and the Adjusted Torchmark Options to the market value of their
respective underlying common stock will not be less than the ratio of the
exercise price of Torchmark Options to the underlying market value of the
Torchmark common stock immediately prior to the Spin-Off and (ii) the aggregate
intrinsic value of the Conversion Options and Adjusted Torchmark Options (the
difference between the aggregate exercise price and aggregate market value of
the underlying stock) will not exceed the aggregate intrinsic value inherent in
Torchmark Options immediately prior to the Spin-Off. All other terms and
conditions of the options issued in the conversions described above will be the
same as the original options. Notwithstanding the foregoing, if either
Torchmark or the Company determines that because of legal, accounting, tax,
and/or regulatory rules or requirements applicable to options, stock
appreciation rights or restricted stock in any jurisdiction, compliance with any
of its obligations under this Section 8.5(a) with respect to options, stock
appreciation rights or restricted stock held by or to be issued to any
individual would be impossible, illegal, impracticable or unreasonably
expensive, it shall so notify the other party, and Torchmark and the Company
shall use their best efforts to agree to appropriate alternative
arrangements.
(b) Until the date the Spin-Off occurs, Torchmark agrees to cause
Liberty to continue to provide insurance to the employees of members of the
Company Group at a discount and the Company agrees to continue to provide
certain net asset value accounts without certain charges to employees of members
of Torchmark Group, in each case, consistent with past practice.
SECTION 8.6 Unclaimed Stock. The Company agrees to provide to
Torchmark any claim or notice of claim for payment for shares of non-voting
stock of the Company converted into cash as a result of the merger of the
Company and a wholly owned subsidiary of Torchmark
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on October 1, 1993 and Torchmark agrees to pay any amounts legally owing to such
claimants prior to the date their claim escheats to any state.
ARTICLE IX
DISPUTE RESOLUTION
SECTION 9.1 Negotiation. Any dispute, controversy or claim arising
out of or relating to this Agreement or the Tax Disaffiliation Agreement,
attached hereto as Exhibit D, other than those disputes governed by Section 7.1
of the Tax Disaffiliation Agreement, or the breach, termination or invalidity
hereof or thereof (a "Dispute") shall be settled by the procedures provided in
this Article IX. Either party may send the other party written notice
identifying the matter in Dispute and invoking the procedures in this Article
IX. Within ten (10) days of such written notice, the parties shall meet to
negotiate in good faith a resolution of the Dispute.
SECTION 9.2 Arbitration. Any Dispute which cannot be resolved
pursuant to Section 9.1 within fifteen (15) days of the written request provided
pursuant to Section 9.1, will be settled by binding arbitration in accordance
with Title 9 of the United States Code (the Federal Arbitration Act) and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). A
party may initiate arbitration by sending written notice of its intention to
arbitrate to the other party and to the AAA office located in Chicago, Illinois.
Such written notice will contain a description of the Dispute and remedy sought.
Each party shall select one arbitrator, and such arbitrators, jointly, shall
select another arbitrator. If either party fails to appoint an arbitrator or the
two arbitrators fail to agree on the third arbitrator, either party may request
that the AAA appoint such arbitrator. The place of the arbitration will be
Chicago, Illinois. The law of the State of Delaware shall govern the
arbitration. The award rendered by the arbitrators shall be conclusive and
binding upon the parties and judgment on the award may be entered in any court
of competent jurisdiction. The parties intend that this agreement to arbitrate
by irrevocable.
SECTION 9.3 Injunctive Relief. Notwithstanding anything in this
Article IX, in advance of the institution of any arbitration proceeding, but in
aid thereof, an application may be filed for order or orders to be entered by
any court of competent jurisdiction (i) invoking the jurisdiction of the court
over the controversy in rem, by attachment, garnishment, sequestration, or (ii)
seeking to restrain or enjoin the destruction of the subject matter of the
controversy or any essential part thereof, or the destruction or alteration of
books, records, documents, or evidence needed for the arbitration proceeding.
No such judicial proceeding by a party shall be deemed a waiver of the party's
right to arbitrate.
SECTION 9.4 Consolidation of Disputes. The arbitrators, in their
discretion, may consolidate two or more arbitrations or Disputes between the
parties into one arbitration, or terminate any such consolidation and/or
establish other arbitration proceedings for different Disputes that may arise in
any one arbitration. Notwithstanding the foregoing, the arbitrators shall
consolidate arbitrations and/or Disputes, if they determine that it would be
more efficient to consolidate such arbitrations and/or Disputes than to continue
them separately and (i) there are matters of fact or law that are common to the
arbitrations and/or Disputes to be consolidated, (ii)
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there are related payment and performance obligations considered in the
arbitrations and/or Disputes to be consolidated, or (iii) there is a danger of
inconsistent awards.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Survival. All representations, covenants and agreements
contained or provided for herein shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the party
benefiting from any such covenant or agreement and shall survive the Public
Offering Date and the Distribution Date.
SECTION 10.2 Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand, or when sent by telex or telecopier (without
receipt confirmed), provided a copy is also sent by certified mail, postage
prepaid and return receipt requested, addressed as follows (or to such other
address as a party may designate by notice to the other):
If to the Company:
Waddell & Reed Financial, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: General Counsel
If to Torchmark:
Torchmark Corporation
2001 Third Avenue South
Birmingham, Alabama 35203
Attn: General Counsel
SECTION 10.3 Governing Law. This Agreement shall be governed by,
construed and interpreted in accordance with the laws of the State of Delaware,
without regard to the conflicts of law principles thereof.
SECTION 10.4 Headings. The Article and Section headings contained in
this Agreement are for reference purposes only and shall not in any way affect
the meaning of interpretation of this Agreement.
SECTION 10.5 Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto and supersedes all prior
agreements and understandings, written or oral, between the parties.
SECTION 10.6 Amendment and Modification. The parties may, by written
agreement, (i) extend the time for the performance of any of the obligations or
other acts of the
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parties hereto, (ii) waive any inaccuracies in any document delivered pursuant
to this Agreement, and (iii) waive compliance with or modify, amend or
supplement any of the agreements contained in this Agreement or waive or modify
performance of any of the obligations of any of the parties hereto. This
Agreement may not be amended or modified except by an instrument in writing duly
signed on behalf of the parties hereto.
SECTION 10.7 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by any party hereto without the prior
written consent of the other party. No purchaser (or transferee or assignee) of
Shares from Torchmark shall have any rights or obligations under this
Agreement.
SECTION 10.8 Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remaining provisions of this Agreement shall be unaffected and
shall continue in full force and effect.
SECTION 10.9 Waiver. No failure by any party to take any action or
assert any right hereunder shall be deemed to be a waiver of such right in the
event of the continuation or repetition of the circumstances giving rise to such
right, unless expressly waived in writing as contemplated by the terms of
Section 10.6 hereof.
SECTION 10.10 Termination. Notwithstanding any provision hereof,
this Agreement may be terminated and the Public Offering and/or the Spin-Off
abandoned at any time prior to the Public Offering Date by Torchmark in its sole
discretion without the approval of the Company. This Agreement may be terminated
by either party if the Spin-Off does not occur on or before March 31, 1999. In
the event this Agreement is terminated on or after the Public Offering Date,
only the provisions of Article IV will terminate and the other provisions of
this Agreement or any agreement or document contemplated by this Agreement or
otherwise shall remain in full force and effect.
SECTION 10.11 Limitation of Liability. Neither Torchmark nor the
Company shall be liable to the other for any special, indirect, incidental or
consequential damages of the other arising in connection with this Agreement.
SECTION 10.12 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
TORCHMARK CORPORATION
By: ________________________________________
Title: _____________________________________
WADDELL & REED FINANCIAL, INC.
By: ________________________________________
Title: _____________________________________
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EXHIBIT A
CERTIFICATE OF INCORPORATION
EXHIBIT A - Page 1
<PAGE>
EXHIBIT B
BYLAWS
EXHIBIT B - Page 1
<PAGE>
EXHIBIT C
BOARD OF DIRECTORS
EXHIBIT C - Page 1
<PAGE>
EXHIBIT D
TAX DISAFFILIATION AGREEMENT
EXHIBIT D - Page 1
<PAGE>
EXHIBIT E
INVESTMENT SERVICES AGREEMENT
EXHIBIT E - Page 1
<PAGE>
EXHIBIT F
AMENDMENT NO. 1 TO GENERAL AGENT CONTRACT
EXHIBIT F - Page 1
<PAGE>
EXHIBIT G
AMENDMENT NO. 1 TO INDEPENDENT AGENT CONTRACT
EXHIBIT G - Page 1
<PAGE>
EXHIBIT H
AMENDMENT TO DISTRIBUTION AGREEMENT
EXHIBIT H - Page 1
<PAGE>
EXHIBIT I
AMENDMENT TO PRINCIPAL UNDERWRITING AGREEMENT
EXHIBIT I - Page 1
<PAGE>
EXHIBIT J
SERVICES AGREEMENT
EXHIBIT J - Page 1
<PAGE>
EXHIBIT K
ADMINISTRATIVE SERVICES AGREEMENT
EXHIBIT K - Page 1
<PAGE>
EXHIBIT L
RECIPROCITY MANAGEMENT AGREEMENT
EXHIBIT L - Page 1
<PAGE>
EXHIBIT M
MANAGEMENT CONTRACT
EXHIBIT M - Page 1
<PAGE>
EXHIBIT N
CONTINUING AGREEMENTS
1. Tax Sharing Agreement dated August 29, 1990, effective as of January 1,
1989, by and among Torchmark and each of the corporations listed on Exhibit A
thereto, to the extent provided in the Tax Disaffiliation Agreement, between
Torchmark and the Company.
2. Wholesale Agreement, dated _____, by and among, LifeUSA, United Investors
Life Insurance Company and Waddell & Reed, Inc.
EXHIBIT N - Page 1
<PAGE>
EXHIBIT O
INSURANCE
I. Policies provided by Torchmark or other members of the Torchmark Group.
Policy Renewal Date
------ ------------
II. Policies provided by the Company or other members of the Company Group.
Policy Renewal Date
------ ------------
EXHIBIT O - Page 1
<PAGE>
EXHIBIT 10.2
TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of March ___, 1998 by and between
Torchmark corporation, a Delaware corporation ("Torchmark") and Waddell & Reed
Financial, Inc., a Delaware corporation ("WRFI").
RECITALS
A. Torchmark is the common parent of an affiliated group of corporations
(the "Torchmark Group") within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Torchmark Group includes
WRFI and its direct and indirect subsidiaries. The members of the Torchmark
Group have heretofore joined in filing consolidated Federal income tax returns.
B. WRFI expects, pursuant to the Public Offering and Separation Agreement
dated as of March ___, 1998 (the "Separation Agreement") by and between
Torchmark and WRFI, to (i) make and receive payments to and from Torchmark and
its Subsidiaries with respect to, and to transfer, intercompany debt (the
"Intercompany Debt Settlement"), (ii) contribute preferred stock of Torchmark to
United Investors Life Insurance Company, a Missouri corporation ("UILIC") as a
contribution to capital (the "UILIC Capital Contribution") and distribute all of
the stock of UILIC to WRFI's shareholders pro rata (the "UILIC Spinoff"); (iii)
distribute all of the stock of Torch Royalty Company, a Delaware corporation and
wholly owned subsidiary of WRFI ("Torch Royalty") to Liberty National Life
Insurance Company, an Alabama corporation and a wholly owned subsidiary of
Torchmark ("Liberty") as a non-pro rata dividend (the "Torch Royalty
Distribution"), (iv) distribute its interest in [Century Capital Partners, L.P.,
a Delaware limited partnership ]("Century Capital") to Liberty as a non-pro rata
dividend (the "Century Capital Distribution"); (v) sell its interest in Velasco
Gas Company Ltd., a Texas limited partnership ("Velasco"), to Torchmark
Development Corporation, a wholly-owned subsidiary of Torchmark, in a taxable
sale (the "Velasco Sale"); (vi) distribute its interest in Associates Oil & Gas
Company, L.P., a Texas limited partnership ("Associates"), to Liberty as a non-
pro rata dividend (the "Associates Distribution"); (vii) distribute all of its
interest in that certain prepaid expense in the amount of $122,538 that was
created in connection with the sale of stock of Nuevo Energy Company, a Delaware
corporation ("Nuevo Expense"), to Torchmark as a non-pro rata dividend (the
"Nuevo Expense Distribution"); and (viii) distribute that certain account
receivable, payable by Torch Energy Advisors Incorporated in the amount of
approximately $1,938,000 and received in connection with the disposition of
Torch Energy Advisors Incorporated, plus the Balancing Cash (as defined in the
Separation Agreement) (together, the "Waddell Ranch Receivable") to Torchmark as
a non-pro rata dividend (the "Waddell Ranch Receivable Distribution") and (ix)
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make an initial public offering of certain newly issued shares of common stock
of WRFI (the "Offering").
C. Torchmark expects, after the Offering, to (i) cause Liberty to
distribute all of the WRFI stock it owns to Torchmark as a dividend (the
Liberty/WRFI Spinoff"), (ii) [contribute the stock of American Income Life
Insurance Company, an Indiana corporation and a wholly owned subsidiary of
Torchmark, to Globe Life and Accident Insurance Company, a Delaware corporation
and a wholly owned subsidiary of Torchmark ("Globe") as a capital contribution
(the "Globe Capital Contribution"), ] and (iii) distribute all of the stock of
WRFI it owns to the Torchmark shareholders as a pro rata dividend (the
"Torchmark/WRFI Spinoff").
D. Torchmark and WRFI expect, as a result of the Offering, that (i) WRFI
and its direct and indirect subsidiaries will no longer be eligible members of
the Torchmark Group, and (ii) after the Offering WRFI will be the common parent
of an affiliated group of corporations within the meaning of Section 1504(a) of
the Code which will file consolidated Federal income tax returns.
E. Torchmark and WRFI intend (the "Intended Tax Results") (i) the
Intercompany Debt Settlement to be tax free (other than with respect to any
taxable interest designated as interest under the terms of the relevant debt
instrument) to all parties, (ii) the UILIC Capital Contribution and the Globe
Capital Contribution to be tax free to each transferor and transferee pursuant
to Sections 351 and 1032 of the Code, (iii) the UILIC Spinoff and the
Torchmark/WRFI Spinoff to be tax-free to each distributing corporation and to
each transferee shareholder pursuant to Section 355 of the Code, (iv) the
Liberty/WRFI Spinoff to cause Liberty to recognize taxable income pursuant to
Section 815 of the Code and otherwise to be tax-free to Liberty and Torchmark
pursuant to section 355 of the Code, (v) each of the Torch Royalty Distribution,
the Century Capital Distribution, the Associates Distribution, the Nuevo Expense
Distribution, and the Waddell Ranch Receivable Distribution to be taxable
distributions pursuant to Sections 301 and 311 of the Code, subject to the
deferred intercompany transaction provisions of Section 1.1502-13 of the
Treasury Regulations until the closing of the Torchmark/WRFI Spinoff, (vi) the
receipt of the proceeds of the Velasco Sale by WRFI to be taxable, and (vii) the
receipt of the Offering proceeds by WRFI to be tax free pursuant to Section 1032
of the Code. The "Intended Tax Results" include all tax consequences that are
consistent with and follow from the tax treatment described in the immediately
preceding sentence (e.g., it is an Intended Tax Result for a transferee
shareholder's adjusted tax basis in a transaction under Section 355 of the Code
to be allocated pursuant to Section 358 of the Code). Notwithstanding anything
to the contrary in this paragraph, (i) if any of the Intended Transactions is
addressed in a private letter ruling issued by the Internal Revenue Service in a
manner requested by Torchmark, the "Intended Tax Results" of that Intended
Transaction shall be the tax results requested by Torchmark and set forth in
such private letter ruling, and (ii) the "Intended Tax Results" include the
recognition of income from previously deferred intercompany transactions caused
by any Intended Transaction.
F. Torchmark and WRFI desire on behalf of themselves, their direct and
indirect subsidiaries, and their successors to set forth their rights and
obligations with respect to Taxes (as hereinafter defined) due for periods
before and after the Offering.
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NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "American Income" shall have the meaning set forth on page 1 of this
Agreement.
1.2 "Associates" shall have the meaning set forth on page 1 of this
Agreement.
1.3 "Associates Distribution" shall have the meaning set forth on page 1
of this Agreement.
1.4 "Century Capital" shall have the meaning set forth on page 1 of this
Agreement.
1.5 "Century Capital Distribution" shall have the meaning set forth on
page 1 of this Agreement.
1.6 "Code" shall have the meaning set forth on page 1 of this
Agreement.
1.7 "Existing Tax Allocation Agreement" means that certain
Consolidated Tax Allocation Agreement dated August 29, 1990, effective as of
January 1, 1989, by and among Torchmark and each of the corporations listed on
Exhibit A thereto (which includes WRFI and its Subsidiaries).
1.8 "Final Determination" shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (3) the completion
of the highest level of administrative proceedings if a judicial contest is not
or is no longer available.
1.9 "Former WRFI Subsidiaries" means Century Capital and any entity that
is, or ever has been, a Subsidiary of WRFI, but which is not currently, or will
not continue to be as a result of the Intended Transactions, a Subsidiary of
WRFI, including but not limited to WRAMCO, UILIC, Torch Royalty, Torch Energy,
Associates, and Velasco.
1.10 "Globe" shall have the meaning set forth on page 1 of this
Agreement.
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1.11 "Globe Capital Contribution" shall have the meaning set forth on
page 1 of this Agreement.
1.12 "Intended Tax Results" shall have the meaning set forth on page 2
of this Agreement.
1.13 "Intended Transactions" shall mean the UILIC Capital Contribution, the
UILIC Spinoff, the Intercompany Debt Settlement, the Torch Royalty Distribution,
the Century Capital Distribution, the Associates Distribution, the Velasco Sale,
the Nuevo Expense Distribution, the Waddell Ranch Receivable Distribution, the
Offering, the Globe Capital Contribution, the Liberty/WRFI Spinoff, and the
Torchmark/WRFI Spinoff.
1.14 "Intercompany Debt Settlement" shall have the meaning set forth
on page 1 of this Agreement.
1.15 "Liability Issue" shall have the meaning set forth in Section
4.2.
1.16 "Liberty" shall have the meaning set forth on page 1 of this
Agreement.
1.17 "Liberty/WRFI Spinoff" shall have the meaning set forth on page
1 of this Agreement.
1.18 "Nuevo Expense" shall have the meaning set forth on page 1 of this
Agreement.
1.19 "Nuevo Expense Distribution" shall have the meaning set forth on page
1 of this Agreement.
1.20 "Offering" shall have the meaning set forth on page 1 of this
Agreement.
1.21 "Offering Date" shall mean the last day on which, due to the
issuance of shares of WRFI stock in the Offering, WRFI could be considered a
member of the Torchmark Group.
1.22 "Payor" shall have the meaning set forth in Section 2.5.
1.23 "Payee" shall have the meaning set forth in Section 2.5.
1.24 "Period After Offering" shall mean any taxable year or other
taxable period beginning after the Offering Date and, in the case of any taxable
year or other taxable period that begins before and ends after the Offering
Date, that part of the taxable year or other taxable period that begins after
the close of the Offering Date.
1.25 "Period Before Offering" shall mean any taxable year or other
taxable period that ends on or before the Offering Date and, in the case of any
taxable year or other
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taxable period that begins before and ends after the Offering Date, that part of
the taxable year or other taxable period through the close of the Offering Date.
1.26 "Retained Group" shall mean, for any period, Torchmark and its
Subsidiaries (which, as defined in "Subsidiary" below, includes the Former WRFI
Subsidiaries and excludes WRFI and its Subsidiaries).
1.27 "Separation Agreement" shall have the meaning set forth on page
1 of this Agreement.
1.28 "Subsidiary" of an entity (the "first entity") shall mean a current or
former corporation, partnership, joint venture or other business entity (the
"second entity") where 50% or more of the outstanding equity or voting power of
such second entity is owned directly or indirectly by the first entity. In
determining whether a Subsidiary is a Subsidiary of WRFI or Torchmark for any
period, WRFI shall not be considered a Subsidiary of Torchmark, and any
Subsidiary of WRFI shall be considered a Subsidiary of WRFI, not Torchmark, for
such period except the Former WRFI Subsidiaries, each of which shall be
considered a subsidiary of Torchmark for all periods.
1.29 "Tax or Taxes" means all taxes, charges, fees, levies, imposts,
duties or other assessments, including, without limitation, income, gross
receipts, estimated taxes, excise, personal property, real property, sales, ad
valorem, value-added, leasing, withholding, social security, workers'
compensation, unemployment insurance, occupation, use, service, service use,
license, stamp, payroll, employment, windfall profit, environmental, alternative
or add-on minimum tax, franchise, transfer and recording taxes, fees and
charges, imposed by the United States or any state, local, or foreign
governmental authority whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, fines,
penalties or additional amounts attributable or imposed on or with respect to
any such taxes, charges, fees, levies, imposts, duties or other assessments.
1.30 "Tax Controversy" shall have the meaning set forth in Section
4.3.
1.31 "Tax Refund" shall mean a refund of Taxes (including a reduction
in Taxes as a result of any credit or any offset against Taxes) reduced (but not
below zero) by any net increase in Taxes by the recipient (or its affiliate)
thereof as a result of the receipt thereof.
1.32 "Tax Returns" shall mean all returns, reports or other documents
or information to be filed or that may be filed for any period with any Taxing
authority (whether domestic or foreign) in connection with any Tax or Taxes
(whether domestic or foreign).
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1.33 "Torch Energy" shall mean Torch Energy Advisors, Incorporated, a
Delaware corporation, and formerly a wholly owned subsidiary of WRFI, and the
former subsidiaries of Torch Energy.
1.34 "Torch Royalty" shall have the meaning set forth on page 1 of
this Agreement.
1.35 "Torch Royalty Distribution" shall have the meaning set forth on
page 1 of this Agreement.
1.36 "Torchmark" shall have the meaning set forth on page 1 of this
Agreement.
1.37 "Torchmark Group" shall have the meaning set forth on page 1 of
this Agreement.
1.38 "Torchmark Item" shall have the meaning set forth in Section 4.3.
1.39 "Torchmark/WRFI Spinoff" shall have the meaning set forth on
page 1 of this Agreement.
1.40 "UILIC" shall have the meaning set forth on page 1 of this
Agreement.
1.41 "UILIC Capital Contribution" shall have the meaning set forth on
page 1 of this Agreement.
1.42 "UILIC Spinoff" shall have the meaning set forth on page 1 of
this Agreement.
1.43 "Underpayment Rate" shall mean the rate specified under Section
6621(a)(2) of the Code.
1.44 "Velasco" shall have the meaning set forth on page 1 of this
Agreement.
1.45 "Velasco Sale" shall have the meaning set forth on page 1 of this
Agreement.
1.46 "Waddell Ranch Receivable" shall have the meaning set forth on
page 1 of this Agreement.
1.47 "Waddell Ranch Receivable Distribution" shall have the meaning
set forth on page 1 of this Agreement.
1.48 "WRAMCO" shall mean Waddell & Reed Asset Management Company, a
Missouri corporation.
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1.49 "WRAMCO Ruling" shall mean the private letter ruling dated July 8,
1997 issued by the Internal Revenue Service with respect to the WRAMCO Spinoff.
1.50 "WRAMCO Spinoff" shall mean the 1997 distributions of the stock
of WRAMCO from Waddell & Reed, Inc. to Waddell & Reed Financial Services, Inc.,
from Waddell & Reed Financial Services, Inc., to United Investors Management
Company, from United Investors Management Company to Liberty and Torchmark, and
from Liberty to Torchmark, and related transactions, as more fully described in
the WRAMCO Ruling.
1.51 "WRFI" shall have the meaning set forth on page 1 of this Agreement.
1.52 "WRFI Group" shall mean, for any period, WRFI and its Subsidiaries
(which, as defined in "Subsidiary" above, excludes the Former WRFI
Subsidiaries).
1.53 "WRFI Item" shall have the meaning set forth in Section 4.3.
ARTICLE II
TAX RETURNS, TAX PAYMENTS AND EVENT OF LOSS
2.1 Obligation to File Tax Returns.
(a) Torchmark shall timely prepare and file (or cause to be prepared and
filed) all Tax Returns that (i) are filed on a consolidated, combined or unitary
basis, (ii) include Torchmark or any of its Subsidiaries, and (iii) are required
to be filed (A) for any Period Before Offering or (B) for any taxable year or
period of Torchmark or any such Subsidiary that begins before and ends after the
Offering Date, provided, however, that if WRFI, any of its Subsidiaries, or
any of the WRFI Former Subsidiaries are included in any such Tax Return, WRFI
shall prepare or cause to be prepared in accordance with the Existing Tax
Allocation Agreement and past practice of WRFI and its predecessors and deliver
to Torchmark (or cause to be prepared and delivered to Torchmark) 30 days prior
to the due date for filing of such Tax Return by Torchmark (7 days in the case
of estimated Tax Returns), all information Torchmark needs regarding WRFI, its
Subsidiaries and any of the WRFI Former Subsidiaries in order to prepare and
file such Tax Return, in the form required by section 2 of the Existing Tax
Allocation Agreement.
(b) Torchmark shall timely file (or cause to be filed) any other Tax Return
with respect to the Retained Group and its members, and WRFI shall timely file
(or cause to be filed) any other Tax Return with respect to the WRFI Group and
its members.
(c) Torchmark shall have sole discretion to take or not take a position in
and with respect to any Tax Return which Torchmark is required to file or cause
to be filed hereunder, and WRFI shall have sole discretion to take or not take a
position in and with respect to any Tax
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Return which WRFI is required to file or cause to be filed hereunder, provided,
however, that all such Tax Returns shall be consistent with the Intended Tax
Results and the WRAMCO Ruling, and each party agrees not to, and not to allow
any of its respective Subsidiaries to, take or fail to take any action which is
inconsistent with the Intended Tax Results or the WRAMCO Ruling.
2.2 Obligation to Remit Taxes. Torchmark and WRFI shall each remit or
cause to be remitted any Taxes due in respect of any Tax for which it is
required to file a Tax Return and shall be entitled to reimbursement for such
payments only to the extent provided in Article II hereof.
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Except as provided in Section 2.3(b)(ii) hereof, Torchmark shall be
liable for and shall hold each member of the WRFI Group harmless on an after tax
basis against (i) any liability attributable to any member of the Retained Group
for Taxes, regardless of whether attributable to a Period Before Offering or a
Period After Offering, including any such Tax liability asserted against any
member of the WRFI Group under the provisions of Treas. Reg. 1.1502-6(a) that
impose several liability on members of an affiliated group of corporations that
files consolidated returns, or similar provisions of any foreign, state or local
law, and (ii) any liability attributable to any member of the Retained Group or
the WRFI Group for Taxes with respect to the WRAMCO Spinoff or with respect to
any of the Intended Transactions (including all Intended Tax Results). Torchmark
shall be entitled to any Tax Refund which is attributable to both an entity and
a taxable year or taxable period for which Torchmark has liability
hereunder.
(b) WRFI shall be liable for and shall hold each member of the Retained
Group harmless on an after tax basis against (i) except as provided in Sections
2.3(a)(ii) and 2.8 hereof, any liability attributable to any member of the WRFI
Group for Taxes, regardless of whether attributable to a Period Before Offering
or a Period After Offering, and (ii) any liability attributable to any member of
the Retained Group or the WRFI Group for Taxes with respect to any of the
Intended Transactions or the WRAMCO Spinoff caused by or resulting directly or
indirectly from the breach (including inconsistent actions or positions, other
than actions or positions referred to by the registration statement prepared in
connection with the Offering), subsequent to the date of this Agreement, by any
member of the WRFI Group of any of the agreements set forth in section 2.3(c)
hereof, or of any of the representations, warranties or agreements of any member
of the Torchmark Group set forth in the private letter ruling requests and
supplemental submissions filed or to be filed with the Internal Revenue Service
with respect to any of the Intended Transactions, but only to the extent the
Retained Group in the aggregate is liable for more Taxes with respect to the
Intended Transactions and the WRAMCO Spinoff than they would have been had such
breach not occurred. WRFI shall be entitled to any Tax Refund which is
attributable to both an entity and a taxable year or taxable period for which
WRFI has liability hereunder.
(c) Each party agrees to report and treat, and to cause its Subsidiaries to
report and treat, (i) the Intended Transactions in accordance
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with the Intended Tax Results, and take no position inconsistent therewith in
any document, filing or forum whether Tax related or not, and (ii) the WRAMCO
Spinoff in accordance with the WRAMCO Ruling, and take no position inconsistent
therewith in any document, filing or forum whether Tax related or not.
Torchmark and WRFI shall not, and shall not permit any of their respective
Subsidiaries to, take or cause or permit to be taken, any action that would
cause (y) any Tax results to occur with respect to the Intended Transactions
other than the Intended Tax Results, or (z) any Tax results to occur with
respect to the WRAMCO Spinoff other than the Tax results contemplated by the
WRAMCO Ruling.
(d) (i) Torchmark and WRFI and its Subsidiaries are parties to the
Existing Tax Allocation Agreement. The parties acknowledge that the obligations
of WRFI and its Subsidiaries under the Existing Tax Allocation Agreement will
terminate as of the Offering Date, but that pursuant to section 10 of the
Existing Tax Allocation Agreement it will remain in effect for each of WRFI and
its Subsidiaries with respect to any period during which WRFI or such Subsidiary
must be included in the Torchmark Group. Notwithstanding such continuing effect
of the Existing Tax Allocation Agreement, the parties agree that to the extent
the provisions of this Tax Disaffiliation Agreement and the provisions of the
Existing Tax Allocation Agreement differ or conflict, the provisions of this Tax
Disaffiliation Agreement shall be controlling, and the Existing Tax Allocation
Agreement is hereby amended to such extent.
(ii) In consideration of the mutual indemnities and other
obligations of this Agreement, any and all existing tax sharing agreements and
prior practices regarding Taxes and their payment, allocation, or sharing
between any member of the Retained Group and any member of the WRFI Group (other
than the Existing Tax Allocation Agreement) shall be terminated with respect to
each member of the WRFI Group as of the Offering Date, provided, however, that
such agreements and practices shall remain in effect for each of WRFI and its
Subsidiaries with respect to any period during which WRFI or such Subsidiary
must be included in the Torchmark Group. Notwithstanding such continuing effect
of such agreements and practices, the parties agree that to the extent the
provisions of this Tax Disaffiliation Agreement and the provisions of such
agreements or practices differ or conflict, the provisions of this Tax
Disaffiliation Agreement shall be controlling, and such agreements and practices
are hereby amended to such extent.
2.4 Period that includes the Offering Date. If it is necessary for
purposes of this Agreement to determine the income tax liability of any member
of the WRFI Group or of the Retained Group for a taxable year that begins on or
before and ends after the Offering Date and is not treated under Section 2.3(a)
as closing at the close of the Offering Date, the determination shall be made by
assuming that such member of the WRFI Group or of the Retained Group had a
taxable year that ended at the close of the Offering Date, except that
exemptions, allowances or deductions that are calculated on an annual basis
shall be apportioned on a per diem basis.
2.5 Payments. To the extent that a party owes money (the "Payor") to
another party (the "Payee") pursuant to this Article II, the Payor shall pay the
Payee the amount for which the Payor is required to pay or indemnify the Payee
under this Article II on the dates and in the manner specified in the Existing
Tax Allocation Agreement. The payee shall submit the Payee's calculations of
the amount required to be paid pursuant to this Article II, showing such
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calculations in sufficient detail so as to permit the Payor to understand the
calculations. The Payor shall have the right to disagree with such
calculations. Any dispute regarding such calculations shall be resolved in
accordance with Article VII of this Agreement.
2.6 Interest. Any payment required by this Agreement which is not made on
or before the date provided hereunder shall bear interest after such date at the
Underpayment Rate.
2.7 Tax Refund Claims. WRFI shall be permitted to file at WRFI's sole
expense, and Torchmark and its Subsidiaries shall reasonably cooperate
(including signing any Torchmark Tax Return that WRFI prepares and executing and
delivering powers of attorney in favor of persons designated by WRFI) with WRFI
in connection with, any claims for a Tax Refund to which WRFI is entitled
pursuant to this Article II or any other provision of this Agreement. WRFI
shall reimburse Torchmark for any reasonable out-of-pocket costs and expenses
incurred by any member of the Torchmark Group in connection with such
cooperation. Torchmark shall be permitted to file at Torchmark's sole expense,
and WRFI and its Subsidiaries shall reasonably cooperate (including signing any
WRFI Tax Return that Torchmark prepares and executing and delivering powers of
attorney in favor of persons designated by Torchmark) with Torchmark in
connection with, any claims for a Tax Refund to which Torchmark is entitled
pursuant to this Article II or any other provision of this Agreement. Torchmark
shall reimburse WRFI for any reasonable out-of-pocket costs and expenses
incurred by any member of the WRFI Group in connection with such cooperation.
2.8 Kansas (and Other) State Income Tax.
(a) The parties acknowledge that state income tax returns have been filed
in Kansas on a unitary basis with respect to the WRFI Group for years through
1996, that amended returns claiming refunds have been or will be filed for 1993,
1994, and 1995 on a unitary basis with respect to the combined WRFI Group and
Torchmark, that the return for 1996 has been filed on a unitary basis with
respect to the combined WRFI Group and Torchmark, and that the returns for 1997
and the relevant portion of 1998 shall be filed on a unitary basis with respect
to the combined WRFI Group and Torchmark. Notwithstanding anything to the
contrary herein, in determining Torchmark's and WRFI's respective shares of the
Kansas state income tax liability and refunds (and related interest, if any),
the amount of the aggregate Kansas state income tax liability allocable to WRFI
shall be the amount the WRFI Group would have paid had the taxes been determined
on a unitary basis with respect to the WRFI Group only, and any remaining
liability shall be allocable to Torchmark. Accordingly, Torchmark shall be
entitled to all refunds and amounts attributable to reductions in taxes for a
particular year until the aggregate liability for that year is less than the
amount allocated to WRFI.
(b) The parties acknowledge that state income tax returns have been or will
be filed in other states (in addition to Kansas) on a unitary basis with respect
to the WRFI Group in periods prior to the Offering Date which may be amended or
filed on a unitary basis with respect to the combined WRFI Group and Torchmark.
Notwithstanding anything to the contrary herein, in determining Torchmark's and
WRFI's respective shares of the state income tax liability and
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refunds (and related interest, if any) in each of such states, the parties shall
employ the method outlined in Section 2.8(a).
(c) The federal tax consequences resulting from the allocation of state
taxes set forth herein shall be allocated among the parties in accordance with
this Agreement (and the Existing Tax Allocation Agreement to the extent
applicable under this Agreement).
ARTICLE III
CARRYBACKS
3.1 Retained Group Carrybacks. In its sole discretion Torchmark may file
any Tax Return which carries back any net operating loss, credit, or other Tax
attribute attributable to a member of the Retained Group from a Period After
Offering to a Period Before Offering, provided, however, that without the
written consent of WRFI, Torchmark may not carryback any item to the extent it
would result in a material detriment to any member of the WRFI Group.
3.2 WRFI Group Carrybacks. No member of the WRFI Group shall file any Tax
Return which carries back any net operating loss from a Period After Offering to
a Period Before Offering. Members of the WRFI Group may file, and at WRFI's
request Torchmark shall file or cause to be filed at WRFI's expense, a Tax
Return which carries back any credit or other Tax attribute (other than net
operating losses) attributable to a member of the WRFI Group from a Period After
Offering to a Period Before Offering, and receive a payment related to the
associated tax benefit in accordance with the Existing Tax Allocation Agreement,
unless such carryback would result in a material detriment to any member of the
Torchmark Group (excluding any member of the WRFI Group).
ARTICLE IV
TAX CONTROVERSIES
4.1 General. Except as provided in Section 4.2, each of WRFI and
Torchmark shall have sole responsibility for all audits or other proceedings
with respect to Tax Returns that it is required to file under Section 2.1.
4.2 Notice. Torchmark and WRFI shall use reasonable efforts to keep each
other advised as to the status of Tax audits and other proceedings involving any
issue which relates to any Tax of the other or its Subsidiaries or could give
rise to a Tax liability or a Tax Refund of the other or its Subsidiaries under
this Agreement (a "Liability Issue"). Torchmark and WRFI shall promptly furnish
each other copies of any inquiries, audits or other proceedings, requests for
information, notices, proposed adjustments, proposed deficiencies and reports
from any Taxing Authority or any other administrative, judicial or other
governmental authority concerning or that could concern a Liability Issue of the
other.
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4.3 Contest Provisions. Subject to the cooperation provisions in Section
4.2 and Article V hereof and to this Section 4.3, Torchmark shall have full
responsibility and discretion in the handling of any Tax controversy with
respect to any Tax Return which Torchmark is required to file or cause to be
filed hereunder, including, without limitation, an audit, a protest to the
Appeals Division of the IRS, other administrative appeals, and litigation in Tax
Court or any other court of competent jurisdiction (a "Tax Controversy"). In
the event a Tax Controversy involves items that could give rise to a payment of
Tax for which WRFI would be liable hereunder or otherwise or a refund of Tax for
which WRFI would be entitled hereunder or otherwise (a "WRFI Item") and also
involves items that could give rise to a payment of Tax for which Torchmark
would be liable or a refund of Tax for which Torchmark would be entitled
hereunder or otherwise (a "Torchmark Item"), then Torchmark shall advise and
consult with WRFI with respect to such Tax Controversy and any proposed
settlement thereof which affects the WRFI Items, and shall not settle any WRFI
Item without WRFI's consent (which consent may not be unreasonably withheld).
WRFI and its representatives, at WRFI's expense, shall be entitled to
participate in all conferences, meetings, or proceedings with any Tax Authority,
the subject matter of which includes or affects any WRFI Item, and shall be
entitled to participate in all appearances before any court, the subject matter
of which includes or affects any WRFI Item. The right of WRFI to participate
shall include, without limitation, discretion to control the content of
documentation, protests, memoranda of fact and law and briefs, the conduct of
oral arguments or presentations, the selection of witnesses, and the negotiation
of stipulations of fact with respect to the WRFI Items. In the event a Tax
Controversy involves only WRFI Items, and has no affect on Torchmark Items, then
upon request by WRFI, WRFI shall have full responsibility and discretion in the
handling, at WRFI's expense, of such Tax Controversy with Torchmark's
cooperation as set forth in Section 4.2 and Article V hereof.
4.4 Payment of Audit Assessments. The obligation for payment or
entitlement to refund resulting from a Tax Controversy shall be limited to the
net increase or net decrease in Tax liability resulting (for all past and future
periods) from a change in Tax treatment required by a Final Determination. The
obligation or entitlement shall be determined for each taxable year or period
affected by the Final Determination and paid by or to a party at the same time
the additional Tax or Tax refund with respect to that year is due or received.
If Torchmark and WRFI agree, instead of making or receiving annual payments to
settle the payments due from a Final Determination, a one-time settlement
payment could be made at the time of the Final Determination, adjusted to
reflect the present value of the increase and/or decrease in future tax
liabilities resulting from the change in Tax treatment using, with respect to
tax periods prior to the date of such Final Determination, the highest marginal
tax rate of the applicable taxing jurisdiction known to be applicable to the
entities, tax periods and items involved, and with respect to tax periods
thereafter, using the highest marginal tax rate of the applicable taxing
jurisdiction in effect as of the date of such Final Determination with respect
to the entities and items involved, and using a discount rate equal to the
Underpayment Rate in effect as of the date of such Final Determination.
ARTICLE V
COOPERATION
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Torchmark and WRFI shall (and shall cause the members of the Retained Group
and the WRFI Group, as the case may be to) cooperate with each other in the
filing of any Tax Returns and the conduct of any audit or other proceeding and
each shall execute and deliver such powers of attorney and make available such
other documents and employees as are necessary to carry out the intent of this
Agreement. Each party agrees to notify the other party of any audit adjustments
which do not result in Tax liability but can be reasonably expected to affect
Tax Returns of the other party, or any of its Subsidiaries, for a Period After
Offering.
ARTICLE VI
RETENTION OF RECORDS; ACCESS
The Retained Group and the WRFI Group shall (a) until the expiration of the
relevant statute of limitations, retain records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns in respect of Taxes of the Retained Group or the WRFI
Group or for the audit of such Tax Returns; and (b) give to the other party
reasonable access to such records, documents, accounting data and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for the purpose of the review or audit of such
returns to the extent relevant to an obligation or liability of a party under
this Agreement. Within thirty days following the filing of each of Torchmark's
final consolidated, combined or unitary Tax Returns for Periods Before
Distribution, Torchmark shall furnish WRFI with (i) copies of the relevant
portion of such Tax Returns that relate to the WRFI Group and (ii) to the extent
in Torchmark's possession, information concerning (a) the tax basis of the
assets of the WRFI Group as of the Offering Date, (b) the earnings and profits
of each member of the WRFI Group as of the Offering Date, (c) WRFI's and its
Subsidiaries' tax basis in their respective Subsidiaries as of the Offering
Date, (d) the net operating loss carryover, investment tax credit carryover,
alternative minimum tax carryover and capital loss carryover, if any, available
to the WRFI Group as of the Offering Date and (e) all elections with respect to
Taxes in effect for the WRFI Group. Prior to destroying any records, documents,
data or other information in accordance with this Article, the party wishing to
destroy such items will give the other party a reasonable opportunity to obtain
such items (at such other party's expense).
ARTICLE VII
DISPUTES
7.1 Calculation Disputes. If the parties disagree as to the calculation
of any Tax or the amount of (but not liability for) any payment to be made under
this Agreement, the parties shall cooperate in good faith to resolve any such
dispute, and any agreed-upon amount shall be paid to the appropriate party. If
the parties are unable to resolve any such dispute within 15 days thereafter,
such dispute shall be resolved by a nationally recognized accounting firm
acceptable to both Torchmark and WRFI. The decision of such firm shall be final
and binding. The fees and expenses incurred in connection with such decision
shall be borne equally by Torchmark and WRFI. Following the decision of such
accounting firm, the parties shall each take (or cause to be
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taken) any action that is necessary or appropriate to implement such decision,
including, without limitation, the prompt payment of underpayments or
overpayments, with interest calculated on such overpayments and underpayments at
the Underpayment Rate from the date such payment was due (the due date of
payments governed by Section 2.5 of this Agreement shall be the date a payment
is due thereunder assuming the party does not dispute the amount owed) through
the date such underpayment or overpayment is paid or refunded.
7.2 Other Disputes. All disputes not covered by the provisions of Section
7.1 hereof will be resolved through the provisions of Article IX of the
Separation Agreement.
ARTICLE VIII
TERMINATION OF LIABILITIES
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall not terminate any earlier than the
expiration of the applicable statute of limitation for such liability. All
other representations, warranties and covenants under this Agreement shall
survive indefinitely.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Notices and Governing Law. All notices required or permitted to be
given pursuant to this Agreement shall be given, and the applicable law
governing the interpretation of this Agreement shall be determined, by the
applicable provisions of the Separation Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any payments
made pursuant to the terms of this Agreement as a capital transaction for all
tax purposes, except to the extent such payments represent interest paid
pursuant to Section 2.6.
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns. Torchmark and WRFI hereby
guarantee the performance of all actions, agreements and obligations provided
for under this Agreement of each member of the Retained Group and the WRFI
Group, respectively. Torchmark and WRFI shall, upon the written request of the
other, cause any of their respective Subsidiaries to execute this Agreement.
Torchmark or WRFI shall not assign any of its rights or delegate any of its
duties under this Agreement without the prior written consent of the other
party. No person (including, without limitation, any employee of a party or any
stockholder of a party) shall be, or shall be deemed to be, a third party
beneficiary of this Agreement.
9.4 Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and supersedes all
prior agreements, whether
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or not written, concerning such subject matter. This Agreement may not be
amended except by an agreement in writing, signed by the parties.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
9.6 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to perform its agreements and covenants hereunder will
cause irreparable injury to the other parties for which damages, even if
available, will not be an adequate remedy. Accordingly, to compel performance
of each party's obligations hereunder, the parties shall be entitled to the
issuance of injunctive relief and the granting of specific performance, in
addition to any other remedy at law or equity.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
TORCHMARK CORPORATION
By:____________________________________________
Name:
Title:
WADDELL & REED FINANCIAL, INC.
By:____________________________________________
Name:
Title:
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Waddell & Reed Financial, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 27, 1998
