<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 19, 1995
ZENITH NATIONAL INSURANCE CORP.
(Exact name of registrant as specified in its charter)
Delaware 1-9627 95-2702776
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
21255 Califa Street
Woodland Hills, California 91367-5021
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
(818) 713-1000
<PAGE>
Item 5. Other Events.
On September 19, 1995, Zenith National Insurance Corp. ("Zenith") and
Anchor National Life Insurance Company ("Anchor"), a wholly owned subsidiary
of SunAmerica Inc., entered into a Stock Acquisition Agreement (the
"Agreement") pursuant to which Zenith agreed to sell to Anchor, or a
designated affiliate of Anchor, all of the issued and outstanding capital
stock of CalFarm Life Insurance Company ("CalFarm Life"). The purchase price
under the Agreement is $120 million plus, if the closing under the Agreement
(the "Closing") occurs after December 31, 1995, an amount equal to the
earnings of CalFarm Life from January 1, 1996 to the Closing.
At or before the Closing, the Agreement provides for the transfer of
certain assets of CalFarm Life to Zenith or one of its affiliates. These
assets will include CalFarm Life's group health insurance business, its
subsidiary CalFarm Properties, Inc., its shares of common and preferred stock
of Delta Life Corporation and certain real estate, and personal property. In
addition, prior to the Closing, the Agreement provides for the payment by
CalFarm Life of a $500,000 dividend to Zenith.
The Closing is subject to a number of conditions customary for
similar transactions, including regulatory and other approvals and consents.
After the Closing, Zenith will, for a fee, provide administrative
services to CalFarm Life for a period of time not to exceed 6 months. Anchor
will be entitled to indemnification from Zenith after the Closing for certain
tax and other liabilities.
A copy of the Agreement and Zenith's press release, dated September
20, 1995, relating to the transaction, are attached hereto as exhibits and
incorporated herein by reference.
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Item 7. Exhibits.
EXHIBIT NO. DESCRIPTION
2.1 Stock Acquisition Agreement, dated as of September 19, 1995,
between Anchor National Life Insurance Company and Zenith National
Insurance Corp.
99.1 Press Release, dated September 20, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
October 6, 1995 ZENITH NATIONAL INSURANCE CORP.
by: /s/ FREDRICKA TAUBITZ
---------------------------
Fredricka Taubitz
Executive Vice President
and Chief Financial Officer
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_________________________
STOCK ACQUISITION AGREEMENT
DATED AS OF SEPTEMBER 19, 1995
Between
ANCHOR NATIONAL LIFE INSURANCE COMPANY
and
ZENITH NATIONAL INSURANCE CORP.
With Respect to all of the
Outstanding Capital Stock of
CALFARM LIFE INSURANCE COMPANY
_________________________
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TABLE OF CONTENTS
Page
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ARTICLE 1
DEFINITIONS . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
SALE OF SHARES AND CLOSING. . . . . . . . . . . . 1
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . 4
3.1 Organization of Seller. . . . . . . . . . . . . . . . . . . . 4
3.2 Authority of Seller . . . . . . . . . . . . . . . . . . . . . 4
3.3 Organization of the Company . . . . . . . . . . . . . . . . . 4
3.4 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Conflicts or Violations . . . . . . . . . . . . . . . . . . . 5
3.7 Books and Records . . . . . . . . . . . . . . . . . . . . . . 6
3.8 Financial Statements. . . . . . . . . . . . . . . . . . . . . 6
3.9 Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . 8
3.11 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . 10
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 Compliance With Laws. . . . . . . . . . . . . . . . . . . . . 12
3.15 Benefit Plans, ERISA, Employees and Other Employee Matters. . 13
3.16 Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.17 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.18 Insurance Issued by the Company . . . . . . . . . . . . . . . 19
3.19 Threats of Cancellation . . . . . . . . . . . . . . . . . . . 20
3.20 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . 20
3.21 Operations Insurance. . . . . . . . . . . . . . . . . . . . . 20
3.22 Intercompany Liabilities. . . . . . . . . . . . . . . . . . . 21
3.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . 21
(i)
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3.24 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.25 Credit Support. . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . 22
4.1 Organization of Purchaser and the Designated Affiliates . . . 22
4.2 Authority of Purchaser and the Designated Affiliates. . . . . 22
4.3 Conflicts or Violations . . . . . . . . . . . . . . . . . . . 22
4.4 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.5 Purchase for Investment . . . . . . . . . . . . . . . . . . . 23
4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 5
COVENANTS OF SELLER
5.1 Regulatory and Other Approvals. . . . . . . . . . . . . . . . 24
5.2 HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.3 Investigation by the Purchaser. . . . . . . . . . . . . . . . 25
5.4 No Negotiations, etc. . . . . . . . . . . . . . . . . . . . . 25
5.5 Conduct of Business . . . . . . . . . . . . . . . . . . . . . 26
5.6 Financial Statements and Reports. . . . . . . . . . . . . . . 27
5.7 Investments . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8 Services Agreement. . . . . . . . . . . . . . . . . . . . . . 28
5.9 No Charter Amendments . . . . . . . . . . . . . . . . . . . . 28
5.10 No Issuance of Securities . . . . . . . . . . . . . . . . . . 28
5.11 No Dividends. . . . . . . . . . . . . . . . . . . . . . . . . 28
5.12 No Disposal of Property . . . . . . . . . . . . . . . . . . . 29
5.13 No Breach or Default. . . . . . . . . . . . . . . . . . . . . 29
5.14 No Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 29
5.15 No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 29
5.16 Intercompany Liabilities. . . . . . . . . . . . . . . . . . . 29
5.17 Resignations of Directors and Officers. . . . . . . . . . . . 30
5.18 Books and Records . . . . . . . . . . . . . . . . . . . . . . 30
5.19 Non-Solicitation; Non-Churning. . . . . . . . . . . . . . . . 30
5.20 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . 31
5.21 Group Health Business . . . . . . . . . . . . . . . . . . . . 32
5.22 Assignment of Agreements. . . . . . . . . . . . . . . . . . . 32
5.23 Notice and Cure . . . . . . . . . . . . . . . . . . . . . . . 33
5.24 Provision of Agency Contracts . . . . . . . . . . . . . . . . 33
5.25 License Agreement . . . . . . . . . . . . . . . . . . . . . . 33
5.26 Agency Assumption Agreement . . . . . . . . . . . . . . . . . 33
5.27 Post Closing Cooperation. . . . . . . . . . . . . . . . . . . 33
(ii)
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5.28 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 6
COVENANTS OF PURCHASER
6.1 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . 34
6.2 HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Non-Solicitation. . . . . . . . . . . . . . . . . . . . . . . 35
6.4 Notice and Cure . . . . . . . . . . . . . . . . . . . . . . . 35
6.5 Access to Products. . . . . . . . . . . . . . . . . . . . . . 36
6.6 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.7 Provision of Life Benefits. . . . . . . . . . . . . . . . . . 36
6.8 Reimbursement for GAAP Statements . . . . . . . . . . . . . . 36
6.9 Intercompany Liabilities. . . . . . . . . . . . . . . . . . . 36
6.10 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF PURCHASER
7.1 Representations and Warranties. . . . . . . . . . . . . . . . 37
7.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 Officer's Certificates. . . . . . . . . . . . . . . . . . . . 38
7.4 HSR Act Approval. . . . . . . . . . . . . . . . . . . . . . . 38
7.5 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 No Proceeding or Litigation . . . . . . . . . . . . . . . . . 38
7.7 Consents, Authorizations, etc . . . . . . . . . . . . . . . . 39
7.8 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . 39
7.9 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . 39
7.10 Adequacy of Reserves. . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SELLER
8.1 Representations and Warranties. . . . . . . . . . . . . . . . 40
8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.3 Officer's Certificates. . . . . . . . . . . . . . . . . . . . 40
8.4 HSR Act Approval. . . . . . . . . . . . . . . . . . . . . . . 40
8.5 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . 41
8.6 No Proceeding or Litigation . . . . . . . . . . . . . . . . . 41
8.7 Consents, Authorizations, etc . . . . . . . . . . . . . . . . 41
8.8 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . 41
8.9 Parent Guaranty . . . . . . . . . . . . . . . . . . . . . . . 41
(iii)
<PAGE>
ARTICLE 9
SURVIVAL OF PROVISIONS; REMEDIES
9.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Available Remedies. . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 10
INDEMNIFICATION
10.1 Tax Indemnification and Other Tax Matters . . . . . . . . . . 42
10.2 Other Indemnification . . . . . . . . . . . . . . . . . . . . 47
10.3 Method of Asserting Claims. . . . . . . . . . . . . . . . . . 48
10.4 After-Tax Damages; Refunds. . . . . . . . . . . . . . . . . . 49
10.5 Claims Limitation . . . . . . . . . . . . . . . . . . . . . . 50
10.6 Assignment of Indemnification . . . . . . . . . . . . . . . . 50
ARTICLE 11
TERMINATION
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 12
NOTICES
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 13
MISCELLANEOUS
13.1 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 53
13.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13.3 Public Announcements. . . . . . . . . . . . . . . . . . . . . 53
13.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 54
13.5 Further Assurances. . . . . . . . . . . . . . . . . . . . . . 54
13.6 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
13.7 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 55
13.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 55
13.9 No Third Party Beneficiary. . . . . . . . . . . . . . . . . . 55
13.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 55
13.11 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . 55
13.12 Assignment Limited. . . . . . . . . . . . . . . . . . . . . . 55
13.13 Headings, Gender, etc . . . . . . . . . . . . . . . . . . . . 55
(iv)
<PAGE>
13.14 Invalid Provisions. . . . . . . . . . . . . . . . . . . . . . 56
13.15 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . 56
EXHIBIT LIST
Exhibit A Definition of Terms
Exhibit B Transition Services Agreement
Exhibit C Group Health Assumption
Reinsurance Agreement
Exhibit D Assets Transferred
Exhibit E Agreements Assigned
Exhibit F Provision of Life Benefits Under
Group Health Business
Exhibit G Opinions of Seller's Counsel
Exhibit H Opinion of In-House Counsel to
Purchaser
Exhibit I Parent Guaranty
(v)
<PAGE>
STOCK ACQUISITION AGREEMENT
THIS STOCK ACQUISITION AGREEMENT ("AGREEMENT") is made and entered
into as of September 19, 1995 by and between Anchor National Life Insurance
Company, a California corporation (the "PURCHASER"), and Zenith National
Insurance Corp., a Delaware corporation (the "SELLER").
PREAMBLE
WHEREAS, Seller owns all of the issued and outstanding common
stock of CalFarm Life Insurance Company, a California corporation (the
"COMPANY");
WHEREAS, the Seller desires to sell and the Purchaser desires to
purchase, or to cause one or more Designated Affiliates of the Purchaser to
purchase, all of the issued and outstanding shares of common stock of the
Company upon the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The capitalized terms used in this Agreement and not
defined herein shall have the meanings specified in EXHIBIT A. Unless the
context otherwise requires, such capitalized terms shall include the singular
and plural and the conjunctive and disjunctive forms of the terms defined.
ARTICLE 2
SALE OF SHARES AND CLOSING
2.1 PURCHASE AND SALE. The Seller agrees to sell to the Purchaser and/or one
or more Designated Affiliates, and the Purchaser agrees to purchase, or to cause
such Designated Affiliates to purchase, the Shares at the Closing upon the terms
and subject to the conditions set forth in this Agreement.
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2.2 CONSIDERATION.
(a) The consideration for the Shares (the "CONSIDERATION") shall be
the sum of (i) $120,000,000 plus (ii) an amount equal to the Actual Net Income
for the period commencing January 1, 1996 to but not including the Closing Date.
The Consideration (calculated for such purpose by assuming that the Actual Net
Income is equal to the Estimated Net Income) shall be payable by Purchaser at
the Closing by wire transfer in immediately available federal funds to such bank
and account as the Seller may specify by written notice received by the
Purchaser at least three Business Days prior to the Closing Date.
(b) The Consideration shall be adjusted after the Closing Date as
follows: (i) if Actual Net Income exceeds Estimated Net Income, the Purchaser
shall pay the Seller an amount equal to such excess; and (ii) if Estimated Net
Income exceeds Actual Net Income, the Seller shall pay the Purchaser an amount
equal to such excess, in either case, together with interest thereon at an
annual rate of 8% accruing from the Closing Date to and including the date of
payment (the "CONSIDERATION ADJUSTMENT"). Purchaser shall calculate Actual Net
Income and, as soon as reasonably practicable, but in any event no later than
the date (the "FILING DATE") on which the Company first files with the insurance
regulatory authorities in the State of California an Annual Statement or
Quarterly Statement that includes financial statements for a period that
includes the Closing Date, the Purchaser shall deliver to the Seller a statement
(the "CONSIDERATION ADJUSTMENT STATEMENT") setting forth the Actual Net Income
and the difference between Actual Net Income and Estimated Net Income, if any.
After delivery of the Consideration Adjustment Statement, the Purchaser shall,
and shall cause the Company to, provide the Seller with reasonable access to the
Company's Books and Records sufficient to permit the Seller to verify the Actual
Net Income.
(c) In the event the Seller believes that the Purchaser's calculation
of the Actual Net Income or the Consideration Adjustment is incorrect, the
Seller shall have the right to challenge such determination in good faith by
giving notice of its objection in writing to the Purchaser within ten Business
Days following delivery of the Consideration Adjustment Statement, setting forth
in reasonable detail the basis for such objection (the "SELLER'S NOTICE OF
OBJECTION"). In the event the Seller and the Purchaser are unable to agree on
the resolution of such disagreement within ten Business Days following delivery
of the Seller's Notice of Objection to the Purchaser, the Seller and the
Purchaser shall resolve such disagreement in accordance with the following
procedures. The Purchaser and the Seller shall each select an independent
certified public accountant within ten Business Days after delivery of the
Seller's Notice of Objection for the purpose of selecting a third independent
certified public accountant with a regional or national accounting practice in
the life insurance industry (the "MEDIATOR"). Such accountants shall mutually
select the Mediator and give a written notice to the Purchaser and the Seller
identifying the Mediator, including a written acceptance of such appointment
from the Mediator, within twenty Business Days after delivery of the Seller's
Notice of Objection. The Mediator shall not have performed services
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for either the Purchaser or the Seller within the preceding three years and
shall not have testified in any dispute in which either the Purchaser or the
Seller was involved as a party; provided that the Purchaser and the Seller may
waive such restriction in writing if they mutually agree to such waiver. The
Purchaser shall promptly deliver to the Mediator the Consideration Adjustment
Statement, and the Seller shall promptly deliver to the Mediator the Seller's
Notice of Objection. The Mediator shall review the Consideration Adjustment
Statement and the Seller's Notice of Objection, and each party shall submit to
the Mediator all information reasonably requested by the Mediator to enable the
Mediator to independently resolve the issue which is the subject of the
objection by the Seller. The Mediator shall issue a written report of its
determination in reasonable detail and shall deliver a copy of such report to
the Seller and the Purchaser within twenty Business Days following the
Mediator's receipt of the Seller's Notice of Objection. The determination made
by the Mediator shall be final and binding and may be enforced by any court
having jurisdiction. The costs of the Mediator's determination shall be borne
by the parties as determined by the Mediator to be fair, just and equitable.
Each party shall bear all costs associated with its own appointed independent
certified public accountant.
(d) The Consideration Adjustment, if any, shall be payable by
Purchaser or Seller, as the case may be, within 10 Business Days after the final
determination of the Consideration Adjustment as provided above (the
"CONSIDERATION ADJUSTMENT PAYMENT DATE"). Such payment shall be made by wire
transfer in immediately available federal funds to such bank and account as the
party entitled to receive such Consideration Adjustment payment may specify by
written notice received by the party obligated to make such Consideration
Adjustment payment at least three Business Days prior to the Consideration
Adjustment Payment Date.
2.3 CLOSING. Subject to the provisions of this Agreement, the Closing of the
transactions contemplated by this Agreement, including, without limitation, the
consummation of the sale and purchase of the Shares, as provided in SECTION 2.1
hereof and the delivery of the documents and instruments specified in this
SECTION 2.3, will take place at the offices of Skadden, Arps, Slate, Meagher &
Flom, 300 South Grand Avenue, Los Angeles, California, at 10:00 a.m., local
time, on the Closing Date. At the Closing, the Seller will assign and transfer
to the Purchaser or one or more Designated Affiliates, as specified by the
Purchaser, good and valid title, and all other rights and interests, in and to
the Shares, free and clear of all Liens. To effect such assignment and
transfer, the Seller will deliver or cause to be delivered to the Purchaser or
its Designated Affiliates certificates representing all the Shares accompanied
by duly executed blank stock powers or (at the request of the Purchaser)
endorsed in blank for transfer. The Seller will execute and deliver to the
Purchaser or any such Designated Affiliate the Shares and such documents and
instruments as are required of the Seller under the terms and provisions of this
Agreement. All such certificates, stock powers, documents, and instruments will
be in form and content reasonably satisfactory to the Purchaser. The Purchaser
will pay the Consideration and deliver such documents and instruments as are
required of the Purchaser under the terms and provisions of this Agreement. All
such documents and instruments will be in form and content reasonably
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<PAGE>
satisfactory to the Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby represents and warrants to the Purchaser and the
Designated Affiliates as follows:
3.1 ORGANIZATION OF SELLER. The Seller is a corporation duly organized,
validly existing, and in good standing under the laws of Delaware and has the
requisite corporate power and corporate authority to enter into this Agreement
and to perform its obligations under this Agreement. The Seller is duly
licensed, qualified, or admitted to do business and is in good standing in all
jurisdictions in which it is required to be so qualified, licensed or admitted
to do business by the laws thereof.
3.2 AUTHORITY OF SELLER. The execution and delivery of this Agreement by the
Seller and the performance by the Seller of its obligations under this Agreement
have been duly and validly authorized by all necessary corporate action on the
part of the Seller. This Agreement constitutes a valid and binding obligation
of the Seller and is enforceable against the Seller in accordance with its
terms, except to the extent that enforcement thereof may be limited by or
subject to applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws now or hereafter in effect affecting creditors' rights
generally and by general principles of equity (regardless of whether enforcement
is sought in equity or at law).
3.3 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing, and in good standing under the Laws of California.
The Company is duly licensed, qualified, or admitted to do business and is in
good standing in all jurisdictions in which it is required to be so qualified,
licensed or admitted to do business by the laws thereof. The Seller has
furnished to the Purchaser true and complete copies of the articles of
incorporation and the by-laws of the Company, including all amendments thereto.
3.4 CAPITAL STOCK. The authorized capital stock of the Company and the
shares issued therefrom, consist solely of the shares of capital stock so listed
in SECTION 3.4 OF THE DISCLOSURE SCHEDULE. All issued shares of capital stock
are duly authorized, validly issued, outstanding, fully paid, and nonassessable
and all such shares of capital stock are owned beneficially and of record as
described in SECTION 3.4 OF THE DISCLOSURE SCHEDULE, free and clear of all Liens
and Permitted Encumbrances, except for Liens disclosed in SECTION 3.4 OF THE
DISCLOSURE SCHEDULE which Liens shall be released at or prior to the Closing.
Except as disclosed in SECTION 3.4 OF THE DISCLOSURE SCHEDULE, there are no
outstanding securities, obligations, rights, subscriptions, warrants, options,
phantom stock rights, or (except for this Agreement) other contracts of any kind
that give any Person the right to (a) purchase or otherwise receive or be issued
any shares of capital stock of the Company (or any interest
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therein) or any security or liability of any kind convertible into or
exchangeable for any shares of capital stock of the Company (or any interest
therein) or (b) receive any benefits or rights similar to any rights enjoyed by
or accruing to a holder of the Shares, or any rights to participate in the
equity, income, or election of directors or officers of the Company. Except as
disclosed in SECTION 3.4 OF THE DISCLOSURE SCHEDULE, there are no contracts or
obligations to restructure or recapitalize the Company or to purchase or redeem
any capital stock of the Company.
3.5 SUBSIDIARIES. As of the Closing Date, and after giving effect to the
transactions contemplated by SECTION 5.21 (which will have been completed prior
to the Closing), the Company will have no subsidiaries and will not control
(whether directly or indirectly, whether through the ownership of securities or
by contract or proxy, and whether alone or in combination with others) any
corporation, partnership, business organization, or other Person. Other than
the Subsidiary, as of the date hereof, the Company has no subsidiaries and does
not control any corporation, partnership, business organization or other Person.
3.6 CONFLICTS OR VIOLATIONS. The execution and delivery of this Agreement by
the Seller does not, and the performance by the Seller of its obligations under
this Agreement will not:
(a) subject to obtaining the approvals contemplated by SECTIONS 5.1
and 5.2 and SECTIONS 6.1 and 6.2 hereof, violate any material term or provision
of any law or any writ, judgment, decree, injunction, or similar order
applicable to the Seller or the Company;
(b) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, any of the
terms, conditions or provisions of the articles or certificate of incorporation
or by-laws of the Seller or the Company;
(c) result in the creation or imposition of any Lien upon the Seller,
the Company, or any of their respective Assets and Properties;
(d) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give to
any Person any right of termination, cancellation, acceleration, or modification
in or with respect to, any contract to which the Seller or the Company is a
party or by which any of their respective Assets or Properties may be bound; or
(e) require the Seller or the Company to obtain any consent, approval,
or action of, or make any filing with or give any notice to, any Person except
(i) as contemplated in SECTION 5.1 or 5.2 hereof, (ii) as disclosed in SECTION
3.6(e) OF THE DISCLOSURE SCHEDULE, (iii) those approvals, actions or notices
required with respect to software license agreements in order to perform the
Services Agreement, and (iv) those required in connection with transactions
contemplated in SECTIONS 5.21 and 5.22;
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provided, however, that to the extent that the accuracy of the representations
contained in paragraphs (a) and (d) of this SECTION 3.6 is affected by the
decision of the United States Supreme Court in JOHN HANCOCK MUTUAL LIFE
INSURANCE CO. V. HARRIS TRUST AND SAVINGS BANK, 114 S.Ct. 517 (1993), such
representations are made to the knowledge of the Seller.
3.7 BOOKS AND RECORDS. The Seller has furnished to the Purchaser true and
complete copies of the minute books and other similar records of the Company
which contain a true and complete record of all actions taken at all meetings
and by all written consents in lieu of meetings of its stockholder, Board of
Directors, and each committee thereof. The stock record books of the Company
reflect accurately all transactions in its capital stock. The Books and Records
of the Company have been maintained in all material respects in accordance with
all applicable laws and regulations and with good business and bookkeeping
practices.
3.8 FINANCIAL STATEMENTS.
(a) SAP STATEMENTS. The Seller has previously delivered to the
Purchaser true and complete copies of the following SAP Statements:
(1) Annual Statements of the Company for each of the years ended
December 31, 1992, 1993 and 1994 (and the notes, exhibits and schedules relating
thereto and any affirmations and certifications filed therewith);
(2) The audited statements of admitted assets, liabilities, and
capital and surplus (statutory basis) of the Company as of December 31, 1993 and
1994, and the related summaries of operations, statements of capital and surplus
and cash flow (statutory basis) for the years then ended, together with the
notes related thereto; and
(3) Quarterly Statements of the Company for the first and second
quarters of 1995 (and the exhibits and schedules relating thereto).
Each such Annual Statement and Quarterly Statement complied in all material
respects with all applicable laws when so filed and were timely filed with all
required insurance regulatory authorities. No material deficiencies have been
asserted or are otherwise known by Seller with respect thereto. Each such SAP
Statement (and the exhibits and schedules relating thereto), including without
limitation each statement of assets, liabilities, surplus and other funds
(statutory basis) of the Company and each of the summaries of operations,
statements of capital and surplus and cash flow (statutory basis) contained in
the respective SAP Statement, was prepared in accordance with SAP applied on a
consistent basis (except for changes, if any, disclosed therein) and is complete
in all material respects, and each such Annual Statement and Quarterly Statement
fairly presents (in accordance with SAP) the financial condition of the Company
as of the respective dates thereof or its results of operations or cash flows,
as the case may be, for and during the respective periods covered thereby.
There were no material liabilities affecting the Company as of December 31, 1994
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required in accordance with SAP to be reflected or disclosed in the Annual
Statement for the period then ended, or as of June 30, 1995 required in
accordance with SAP to be reflected or disclosed in the Quarterly Statement for
the period then ended, which are not so reflected or disclosed therein.
(b) GAAP STATEMENTS. The Seller has previously delivered to the
Purchaser the following GAAP Statements: the audited balance sheet of the
Company as of December 31, 1991 and the related audited statements of
operations, shareholders' equity, and cash flow for the year then ended,
together with the notes related thereto; and the unaudited balance sheets of the
Company as of December 31, 1992 and 1993 and the unaudited consolidated balance
sheets of the Company as of December 31, 1994 and June 30, 1995 and the related
unaudited statements of income, shareholders' equity, and cash flow for the
periods then ended. Each such GAAP Statement (and, in the case of the audited
GAAP Statements, the notes relating thereto) was prepared in accordance with
GAAP applied on a consistent basis (except for changes, if any, disclosed
therein), and fairly presents (in accordance with GAAP) the financial position
of the Company as of the respective dates thereof or the related results of
operations, shareholder's equity, or cash flow of the Company for and during the
respective periods covered thereby.
3.9 RESERVES.
(a) Except as disclosed in SECTION 3.9(a) OF THE DISCLOSURE SCHEDULE,
all reserves and other liabilities with respect to insurance and annuities and
for claims and benefits incurred but not reported ("RESERVE LIABILITIES"), as
established or reflected in the SAP Statements of the Company, were determined
in accordance with GAAS consistently applied, were fairly stated in accordance
with sound actuarial principles, were based on actuarial assumptions that are in
accordance with those called for by the provisions of the related insurance and
annuity contracts and in the related reinsurance, coinsurance and other similar
contracts, meet the requirements of the insurance laws and regulations of the
State of California, and are at least as great as the minimum aggregate amounts
required for the conduct of business in any other states in which it is
licensed. Adequate provision for all such Reserve Liabilities has been made (in
accordance with SAP). Adequate provision for all Reserve Liabilities has been
made to cover the total amount of all reasonably anticipated matured and
unmatured benefits, claims and other liabilities under all insurance and annuity
contracts (whether by direct contract, reinsurance or coinsurance obligations).
The Company owns assets that qualify as legal reserve assets under applicable
Laws in an amount at least equal to all such Reserve Liabilities.
(b) Except as described in SECTION 3.9(b) OF THE DISCLOSURE SCHEDULE,
all reserves and accrued liabilities for estimated losses, settlements, costs
and expenses from pending suits, actions and proceedings included in each SAP
Statement were determined in accordance with SAP and Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board.
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3.10 ABSENCE OF CHANGES. Since December 31, 1994, except as disclosed in
SECTION 3.10 OF THE DISCLOSURE SCHEDULE or in the Financial Statements delivered
to Purchaser pursuant to SECTION 3.8 hereof, (i) there has not been, occurred,
or arisen any change in, or any event (including without limitation any damage,
destruction, or loss whether or not covered by insurance), condition, or state
of facts of any character that individually or in the aggregate has had or would
reasonably be expected to have a material adverse effect on the Business or
Condition of the Company (other than an Excluded Asset Event), (ii) the Company
has operated only in the ordinary course of business and consistent with past
practice, and (iii) (without limiting the generality of the foregoing) there has
not been, occurred or arisen:
(a) any declaration, setting aside, or payment of any dividend or
other distribution in respect of the capital stock of the Company, other than a
dividend of $500,000 declared and paid after the date hereof and on or
immediately prior to the Closing Date, or any direct or indirect redemption,
purchase or other acquisition by the Company of any such stock or of any
interest in or right to acquire any such stock;
(b) any issuance, sale or disposition by the Company of any debenture,
note, stock or other security issued by the Company, or any material
modification or amendment of any right of the holder of any outstanding
debenture, note, capital stock or other security issued by the Company;
(c) any Lien created on or in any of the Assets and Properties of the
Company (other than an Excluded Asset Event) or assumed by the Company with
respect to any of such Assets and Properties which Lien relates to liabilities
individually or in the aggregate exceeding $100,000;
(d) any prepayment of any liabilities (other than pursuant to any
insurance or annuity contract) individually or in the aggregate exceeding
$100,000;
(e) any liability involving the borrowing of money by the Company
individually or in the aggregate exceeding $100,000;
(f) any damage, destruction or loss (whether or not covered by
insurance) affecting any of the Assets and Properties of the Company (other than
an Excluded Asset Event) which damage, destruction or loss individually or in
the aggregate exceeds $100,000;
(g) any work stoppage, strike, labor difficulty or union
organizational campaign (in process or threatened) at or affecting the Company;
(h) any material change in any underwriting, actuarial, investment,
financial reporting, marketing or accounting practice or policy followed by the
Company, or in any assumption underlying such a practice or policy, or in any
method of calculating any bad debt, contingency, or other reserve for financial
reporting or any other accounting purposes;
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(i) any payment, discharge, or satisfaction by the Company of any
material Lien or liability other than material Liens or liabilities that were
paid, discharged, or satisfied in the ordinary course of business and consistent
with past practice;
(j) except for fair value received, in the ordinary course of business
and consistent with past practice, any cancellation of any material liability
owed to the Company by any other Person;
(k) any sale, transfer, or conveyance of any investments, or any other
Assets and Properties of the Company with an individual book value or with an
aggregate book value in excess of $100,000, except in the ordinary course of
business and consistent with past practice;
(l) any amendment, termination, waiver, disposal or lapse of, or other
failure to preserve, any material license, permit or other form of authorization
of the Company;
(m) any transaction or arrangement under which the Company paid,
loaned or advanced any amount to or in respect of, or sold, transferred, or
leased any of its Assets and Properties or any services to (i) any officer or
director of the Company or of any Affiliate of the Company (except for payments
of salaries and wages in the ordinary course of business, other than bonuses for
any non-Company employee, consistent with past practice), (ii) any Affiliate of
the Company, or (iii) any business or other Person in which the Company, any
such officer or director, or any Affiliate of the Company has any material
interest, except for advances made to, or reimbursements of, officers or
directors of the Company for travel and other business expenses in reasonable
amounts in the ordinary course of business and consistent with past practice;
(n) any amendment of, or any failure to perform all of its obligations
under, or any default under, or any waiver of any right under, or any
termination (other than on the stated expiration date) of, any contract that
involves or reasonably would involve the annual expenditure or receipt by the
Company of more than $100,000 except for actions taken with respect to insurance
policies and annuities in force (including, without limitation, reinsurance
thereon) in the ordinary course of business and consistent with past practice
other than any failure to make payments when due on insurance contracts;
(o) any amendment to the articles or certificate of incorporation or
by-laws of the Company;
(p) any termination, amendment or entering into by the Company as
ceding or assuming insurer of any material reinsurance, coinsurance or other
similar contract or any trust agreement or security agreement related thereto;
(q) any expenditure or commitment for additions to property, plant,
equipment or other tangible or intangible capital assets of the Company which
exceed $100,000 in the
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aggregate;
(r) any introduction by the Company of any insurance or annuity
contract or any amendment thereto except in the ordinary course of business or
otherwise required or desirable to comply with applicable laws;
(s) any contract or agreement, written or oral, to take any of the
actions set forth in paragraphs (a) through (r) of this SECTION 3.10.
3.11 NO UNDISCLOSED LIABILITIES. Except to the extent reflected or disclosed
in the statements of assets, liabilities, surplus and other funds (statutory
basis) included in the Financial Statements delivered to Purchaser pursuant to
SECTION 3.8 hereof, and except for liabilities incurred as a result of the
conduct of the business since the date thereof in the ordinary course consistent
with prior practice or as set forth in SECTION 3.11 OF THE DISCLOSURE SCHEDULE,
there are no liabilities or obligations of any kind or nature, absolute, accrued
or contingent, of or otherwise affecting the Company that individually or in the
aggregate are material to the Business or Condition of the Company (other than
an Excluded Asset Event).
3.12 TAXES. Except as disclosed in SECTION 3.12 OF THE DISCLOSURE SCHEDULE
(with paragraph references corresponding to those set forth below):
(a) All Tax Returns required to be filed with respect to the Company
have been duly and timely filed, and all such Tax Returns are true and complete
in all material respects. The Company (i) has duly and timely paid all Taxes
that are due and payable for the periods covered by such Tax Returns and has
made all required estimated payments of Taxes sufficient to avoid any penalties
for underpayment, or (ii) has duly provided for such Taxes in the Financial
Statements. There are no Liens with respect to Taxes (except for Liens with
respect to real property Taxes not yet delinquent) upon any of the Assets and
Properties of the Company (other than the Excluded Assets). All Federal income
taxes owed by the affiliated group referred to in SECTION 3.12(g) of this
Agreement have been paid for each taxable period during which the Company was a
member of such group, other than any unpaid taxes that, if required to be paid,
would not have a material adverse effect on the financial condition of the
Seller.
(b) With respect to any period through June 30, 1995 for which Tax
Returns have not yet been filed, or for which Taxes are not yet due or owing,
the Company has made due and sufficient current accruals for such Taxes in
accordance with SAP and GAAP, and such current accruals through June 30, 1995
are duly and fully provided for in the Financial Statements of the Company for
the period then ended.
(c) The federal income and state premium Tax Returns of the Company
have not been audited or examined by the IRS or relevant state Tax Authority,
and the statute of limitations for the federal income Tax Returns for all
periods through the respective years specified in SECTION 3.12(c) OF THE
DISCLOSURE SCHEDULE has expired. The Company has not
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been required to file any state, local or foreign income or franchise Tax
Returns. There are no outstanding agreements, waivers or arrangements extending
the statutory period of limitation applicable to any claim for, or the period
for the collection or assessment of, Taxes due from the Company for any taxable
period. The Seller has previously delivered to the Purchaser copies, which are
true and complete in all material respects, of each of (i) the most recent audit
reports relating to the federal income and state premium Taxes due from the
Company for the taxable period subsequent to the Seller's acquisition of the
Company and (ii) the federal income and state premium Tax Returns, for each of
the last three taxable years, filed by the Company, and Seller has made
available to the Purchaser for inspection true and correct copies of such
returns, (insofar as such returns relate to the Company) filed by any
affiliated, combined or consolidated group of which the Company was then a
member.
(d) No Audit or other proceeding by any court, governmental or
regulatory authority, or similar Person is pending or, to the knowledge of
Seller, threatened with respect to any Taxes due from the Company or any Tax
Return filed by or relating to the Company. To the knowledge of Seller, no
assessment of Tax has been formally proposed, orally or in writing, against the
Company.
(e) The Company is not a party to, is not bound by, and has no
obligation under, any tax sharing contract and, to the knowledge of Seller, the
Company does not have any liability for indemnification of third parties with
respect to Taxes or liabilities for Taxes as a transferee.
(f) The insurance reserves set forth in (A) the 1994 federal income tax
return of the Company have been, and (B) the federal income tax return of the
Company (i) in respect of the Pre-Closing Straddle Period and (ii) if the
Closing Date occurs in 1996, the Company's 1995 taxable year, will be,
determined in all material respects in accordance with section 807 or 846 of the
Code, as applicable.
(g) The Company is (and will continue to be on the Closing Date) a
member of the affiliated group that files consolidated federal income tax
returns with the Seller.
3.13 LITIGATION. Except as disclosed in SECTION 3.13 OF THE DISCLOSURE
SCHEDULE (with paragraph references corresponding to those set forth below):
(a) There are no actions, suits, investigations or proceedings
pending, or, to the knowledge of Seller, threatened, against the Seller or its
Assets and Properties, at law or in equity, in, before, or by any Person that
individually or in the aggregate have materially impaired or would reasonably be
expected to materially impair the validity or enforceability of this Agreement,
the ability of the Seller to perform its obligations under this Agreement, or
the Business or Condition of the Company.
(b) There are no claims, actions, suits, investigations or proceedings
pending or,
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to the knowledge of Seller, threatened, and no event, fact or circumstance has
arisen or occurred (other than routine claims for benefits under insurance
policies and annuities in force, not including any claims for consequential or
punitive damages) that may reasonably be expected to result in the commencement
of any action, suit, proceeding or investigation, against the Company or to
which any of the Company's Assets and Properties is subject at law or in equity,
in, before, or by any Person that individually or in the aggregate involves a
claim or claims for any injunction or similar relief or for Damages exceeding
$100,000 or an unspecified amount of Damages.
(c) There are no writs, judgments, decrees or similar orders of any
Person outstanding against the Company or the Subsidiary that individually or in
the aggregate exceed $100,000, and there are no injunctions or similar orders of
any Person outstanding against the Company.
3.14 COMPLIANCE WITH LAWS. Except as disclosed in SECTION 3.14 OF THE
DISCLOSURE SCHEDULE, the Company has not been and is not in violation (or with
or without notice or lapse of time or both, would be in violation) of any term
or provision of any law or any writ, judgment, decree, injunction or similar
order applicable to it or any of its Assets and Properties, except for
violations that are barred by an applicable statute of limitations or disclosed
in SECTION 3.14 OF THE DISCLOSURE SCHEDULE. Without limiting the generality of
the foregoing, except as disclosed in SECTION 3.14 OF THE DISCLOSURE SCHEDULE:
(a) Since January 1, 1989, the Company has duly and validly filed or
caused to be so filed all material reports, statements, documents,
registrations, filings or submissions that were required by law to be filed with
any Person; all such filings complied with applicable laws when filed, and no
deficiencies have been asserted by any Person with respect to any such filings.
(b) The Seller has previously delivered to the Purchaser the reports
reflecting the results of the three most recent financial examinations of the
Company issued by any insurance regulatory authority and all material
deficiencies or violations in such reports have been disclosed to Purchaser and
resolved to the satisfaction of all applicable insurance regulatory authorities.
There have not been any market conduct examinations of the Company during the
last six years.
(c) All outstanding insurance and annuity contracts issued, reinsured
or underwritten by the Company are, to the extent required under applicable
laws, on forms approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not objected to by such
authority within the period provided for objection.
(d) (1) SECTION 3.14 OF THE DISCLOSURE SCHEDULE contains a true and
complete list of (i) each master or prototype (as well as any individually
designed) pension, profit sharing, defined benefit, Code Section 401(k), and
other retirement or employee benefit plan or contract (including, but not
limited to, simplified employee pension plans, Code Section
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403(a), (b) and (c) annuities, Keogh plans, and individual retirement accounts
and annuities) offered or sold by the Company to, or maintained or sponsored
for the benefit of any employees of, any other Person, and (ii) each
determination letter relating to the creation or amendment of any such plan or
contract. Each such plan or contract conforms with, and has been offered, sold,
maintained and sponsored in compliance with, all applicable laws.
(2) The Company does not provide administrative or other
contractual services for any plan or contract referenced in SECTION 3.14(d)(1),
including, but not limited to, any third party administrative services for an
employee welfare benefit plan (as defined in Section 3(1) of ERISA).
(3) To the extent that the Company maintains any collective or
commingled funds or accounts which restrict the Persons who may invest therein
to tax-exempt entities or qualified plans, each such fund or account (of which a
true and complete list and description is disclosed in SECTION 3.14 OF THE
DISCLOSURE SCHEDULE) has been established, maintained and operated in compliance
with all applicable laws, and has maintained its tax-exempt status and has no
non-qualified plans or trusts or other taxable entities investing within it.
(4) In addition to the representations and warranties contained
in SECTION 3.13 hereof, there are no claims pending, or, to the knowledge of
Seller, threatened against the Seller, the Company or any of their respective
Assets or Properties, under any fiduciary liability insurance policy issued by
or to any of them.
(e) (i) Neither the Company nor, to the knowledge of Seller, any
other Person has used any of the Real Property for the storage, treatment,
generation, transportation, manufacture, processing, handling, production,
distribution, deposit, burial, use, or disposal of any Hazardous Substance which
has created or might create any liability of owners or occupants of the Real
Property under, or which would require reporting to a government agency pursuant
to, Environmental Laws; (ii) the Company has no liability arising out of or
resulting from a Release of any Hazardous Substance on or from any Real Estate;
(iii) the Company has complied in all material respects with all applicable
Environmental Laws relating to the Assets and Properties of the Company and the
business, activities and processing conducted thereon; (iv) no asbestos or PCB's
are contained in or stored on the Real Property or the improvements thereon;
(v) no radon gas is contained in any of such improvements; and (vi) there are no
storage tanks located in, on or under the Real Property.
3.15 BENEFIT PLANS, ERISA, EMPLOYEES AND OTHER EMPLOYEE MATTERS.
(a) LABOR MATTERS. There is no organized labor strike, dispute, slowdown
or stoppage, or collective bargaining or unfair labor practice claim
(collectively, "LABOR MATTERS"), pending or to the knowledge of Seller
threatened, against or affecting the Company or the Company's Business or
Condition. SECTION 3.15(a) OF THE DISCLOSURE SCHEDULE lists each Labor Matter
that involves a claim or potential claim of aggregate liability in excess of
$100,000 against, or that enjoins or compels or seeks to enjoin or to
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compel any activity by the Company. There is no representation question or
issue respecting employees of the Company.
(b) EMPLOYEE BENEFIT PLANS, COLLECTIVE BARGAINING AND EMPLOYEE
AGREEMENTS, AND SIMILAR ARRANGEMENTS.
(1) SECTION 3.15(b) OF THE DISCLOSURE SCHEDULE lists all Benefit
Plans and, without duplication, all employee benefit plans and collective
bargaining, employment or severance agreements or other similar arrangements to
which the Company is a party or by which it is bound, legally or otherwise,
including without limitation (i) any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting, retirement,
severance, welfare or incentive plan, agreement or arrangement, (ii) any plan,
agreement or arrangement providing for "fringe benefits" or perquisites to
employees, officers, directors or agents, including but not limited to benefits
relating to the Company's automobiles, clubs, vacation, child care, parenting,
sabbatical, sick leave, medical, dental, hospitalization, life insurance and
other types of insurance, (iii) any employment agreement, or (iv) any other
"employee benefit plan" (within the meaning of ERISA).
(2) Seller has delivered to Purchaser true and complete copies
of all current governing documents and summary plan descriptions with respect to
such plans, agreements and arrangements, or summary descriptions of any such
plans, agreements or arrangements not otherwise in writing.
(3) The Company is in compliance with the applicable provisions
of ERISA (as amended through the date of this Agreement), the regulations and
other published regulatory authorities thereunder, and all other Laws applicable
with respect to all Benefit Plans. The Company has performed all of its
obligations under all Benefit Plans. To the knowledge of Seller, there are no
Actions (other than routine claims for benefits) pending or threatened against
such Benefit Plans or their assets, or arising out of such Benefit Plans, and,
to the knowledge of Seller, no facts exist which could give rise to any such
Actions.
(4) Except as specified in SECTION 3.15(b) OF THE DISCLOSURE
SCHEDULE, each of the Benefit Plans can be terminated by the Company within a
period of 30 days following the Closing Date, without payment of any additional
compensation or amount or the additional vesting or acceleration of any of the
benefits payable thereunder.
(c) QUALIFIED PLANS.
(1) SECTION 3.15(c) OF THE DISCLOSURE SCHEDULE identifies all
"employee pension benefit plans" (within the meaning of Section 3(2) of ERISA)
that are listed in SECTION 3.15(b) OF THE DISCLOSURE SCHEDULE which are also
stock bonus, pension or profit-sharing plans within the meaning of
Section 401(a) of the Code.
(2) Each such plan has been duly authorized by the board of
directors of
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the Company. Each such plan is qualified in form and operation under
Section 401(a) of the Code and each trust under each such plan is exempt from
tax under Section 501(a) of the Code. No event has occurred that will or could
give rise to disqualification or loss of tax-exempt status of any such plan or
trust under such sections. No event has occurred that will or could subject any
such plans to tax under Section 511 of the Code. No non-exempt prohibited
transaction (within the meaning of Section 4975 of the Code) or party-in-
interest transaction (within the meaning of Section 406 of ERISA) has occurred
with respect to any of such plans.
(3) Seller has delivered to Purchaser for each such plan copies
of the following documents: (i) the Form 5500 filed in each of the three most
recent plan years, including but not limited to all schedules thereto and
financial statements with attached opinions of independent accountants, (ii)
the most recent determination letter from the IRS, (iii) the consolidated
statement of assets and liabilities of such plan as of its most recent valuation
date, and (iv) the statement of changes in fund balance and in financial
position or the statement of changes in net assets available for benefits under
such plan for the most recently ended plan year. The financial statements so
delivered fairly present the financial condition and the results of operations
of each of such plans as of such dates, in accordance with GAAP.
(d) TITLE IV PLANS.
No plan listed in SECTION 3.15(b) OF THE DISCLOSURE SCHEDULE is a
plan subject to Title IV of ERISA.
(e) MULTIEMPLOYER PLANS.
No plan listed in SECTION 3.15(b) OF THE DISCLOSURE SCHEDULE is a
"multiemployer plan" (within the meaning of Section 3(37) of ERISA). The
Company has not contributed to or had an obligation to contribute to any
multiemployer plan since the Seller acquired the Company.
(f) HEALTH PLANS. All group health plans of the Company and any ERISA
Affiliate have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code to the extent
such requirements are applicable.
(g) FINES AND PENALTIES. There has been no act or omission by the
Company or any ERISA Affiliate that has given rise to or may give rise to
fines, penalties, taxes, or related charges under Section 502(c) or (l) or
Section 4071 of ERISA or Chapter 43 of the Code.
(h) EMPLOYEES. Prior to the execution of this Agreement, the Seller
has delivered to the Purchaser a true and correct list of all of the Company's
employees as of the date hereof, indicating the employees that will be
transferred to the Seller or an Affiliate of the
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Seller prior to the Closing (collectively, "TRANSFERRED EMPLOYEES"). The
remainder of the Company's employees are the "RETAINED EMPLOYEES". The above
list also sets forth a true and complete description, with respect to each
Retained Employee, of such employee's title, annual salary, accrued vacation,
and hire date commencing on the earliest date of continuous service with the
Company (or its predecessor) or Seller (or any Affiliate of Seller).
3.16 PROPERTIES. Except as disclosed in SECTION 3.16 OF THE DISCLOSURE
SCHEDULE (with paragraph references corresponding to those set forth below):
(a) The Company has good and valid title to all debentures, notes,
stocks, securities, and other similar assets that are owned by it, free and
clear of all Liens.
(b) To the knowledge of Seller, (i) none of the mortgage loans held by
the Company as of the date hereof, excluding mortgage loans in securitized pools
of mortgages not held directly by the Company, or other long term invested
assets held by the Company, is or has been at any time since January 1, 1993, in
default for more than 60 days as to any payment of interest or principal due
thereon or has been amended, modified or restructured to avoid a default
thereunder and there is no material impairment of the financial condition of any
other party to such loan or asset; (ii) there is no existing circumstance or
condition with respect to such loan or asset or any property mortgaged or
pledged as collateral for the repayment thereof that would cause such loan or
asset to be subject to imminent default or would reasonably be expected, with
the passage of time to cause a default; and (iii) there is no valid right of
offset, defense or counterclaim to such loan or asset.
(c) The Company owns good and indefeasible title to, or has a valid
leasehold interest in, free and clear of all Liens, all Real Estate (other than
the Excluded Assets) currently used in the conduct of its business, operations,
or affairs or of a type required to be disclosed in Schedule A of an Annual
Statement if owned by the Company. No improvement on any such Real Estate owned
by the Company encroaches upon any real property of any other Person and there
are no material physical, structural or mechanical defects therein. The Company
owns, leases, or has a valid right under contract or otherwise to use adequate
means of ingress and egress to, from, and over all such Real Estate.
(d) Except for the Excluded Assets, the Company owns good and
indefeasible title to, or has a valid leasehold interest in or has a valid right
under contract to use, all tangible personal property that is used in the
conduct of its business, operations, or affairs, or that is carried for value on
its books and records, free and clear of all Liens. All such tangible personal
property is, except for reasonable wear and tear, in good operating condition
and repair and is suitable for its current uses.
(e) Except as set forth in SECTION 3.16(e) OF THE DISCLOSURE SCHEDULE,
the Company has, and immediately after the Closing will have, (i) the exclusive
right to use, after the Closing, free and clear of any royalty or other payment
obligations, claims of infringement or alleged infringement, or other Liens, all
marks, names, trademarks, service marks,
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patents, patent rights, assumed names, logos, trade secrets, copyrights, trade
names, and service marks that are used in the conduct of its business,
operations, or affairs (of which a true and complete list and description is
included in SECTION 3.16(e) OF THE DISCLOSURE SCHEDULE), and (ii) the non-
exclusive right to use, after the Closing, free and clear of any royalty or
payment obligations, claims of infringement or alleged infringement, or other
Liens, the computer software, programs, and similar systems set forth in SECTION
3.16(e) OF THE DISCLOSURE SCHEDULE. The Company is not in conflict with or in
violation or infringement of, nor has the Seller or the Company received any
notice of any conflict with or violation or infringement of or any claimed
conflict with any asserted rights of any other Person with respect to any
intellectual property or any material computer software, programs, or similar
systems, including without limitation any of such items disclosed in SECTION
3.16(e) OF THE DISCLOSURE SCHEDULE.
3.17 CONTRACTS. SECTION 3.17 OF THE DISCLOSURE SCHEDULE (with paragraph
references corresponding to those set forth below) contains a true and complete
list of each of the following contracts or other documents or arrangements (true
and complete copies, or, if none, written descriptions, of which have been
provided to the Purchaser, together with all amendments thereto), to which the
Company is a party, or by which any of the Assets and Properties of the Company
is bound (other than contracts, documents or arrangements relating solely to the
Excluded Assets):
(a) all agency or consultation contracts other than contracts
terminable without penalty or other liability (other than liabilities previously
accrued thereunder) upon 60 days' or less notice;
(b) all contracts with any Person containing any provision or covenant
limiting the ability of the Company to engage in any line of business or to
compete with or to obtain products or services from any Person or, to the
knowledge of Seller, limiting the ability of any Person to compete with or to
provide products or services to the Company;
(c) all partnership, joint venture, profit-sharing, or similar
contracts with any Person;
(d) all contracts relating to the borrowing of money by the Company or
to the direct or indirect guarantee by the Company of any obligation for
borrowed money in excess, individually or in the aggregate, of $100,000 or any
other liability in excess, individually or in the aggregate, of $100,000 in
respect of indebtedness of any other Person, including without limitation any
contract relating to (i) the maintenance of compensating balances that are not
terminable by the Company without penalty or other liability upon not more than
60 calendar days' notice, (ii) any line of credit or similar facility, (iii) the
payment for property, products, or services of any other Person even if such
property, products, or services have not yet been conveyed, delivered, or
rendered, or (iv) the obligation to take-or-pay, keep-well, make-whole, or
maintain surplus or earnings levels or perform other financial ratios or
requirements;
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(e) all leases or subleases of real property used in the business,
operations, or affairs of the Company, and all other leases, subleases, or
rental or use contracts for which the Company is liable;
(f) all contracts relating to the future disposition or acquisition by
the Company of any Assets and Properties of any Person or of any interest in any
business enterprise (other than the disposition or acquisition of investments in
the ordinary course of business and consistent with past practice);
(g) all contracts or arrangements (including without limitation those
relating to allocations of expenses, personnel, services, or facilities) with
the Seller or any Affiliate of the Seller other than the Company;
(h) all assumption reinsurance (as the ceding or assuming company),
reinsurance, coinsurance, or other similar contracts providing for the transfer
or sharing of liabilities with respect to in-force insurance business, and all
trust agreements or other security agreements related thereto, indicating, with
respect to each such contract (by reinsurer or coinsurer) or security agreement,
the information required to be disclosed in Schedule S of an Annual Statement;
(i) all outstanding proxies, powers of attorney, or similar
delegations of authority, except for delegations of authority for the service of
process pursuant to applicable insurance or corporate laws;
(j) all contracts for the provision of administrative, managerial or
other services by or for the Company to or from any other Person;
(k) all contracts for any product, service, equipment, facility, or
similar item (other than insurance and annuity contracts and other than
reinsurance, coinsurance, and other similar contracts) that by their respective
terms do not expire or terminate or are not terminable by the Company, without
penalty or other liability, upon not more than 60 days' or less notice;
(l) all contracts or arrangements pursuant to which any Person
guarantees an obligation of the Company, or pursuant to which the Company
guarantees any obligation of another Person; and
(m) all other contracts (other than insurance and annuity contracts or
contracts described under clause (a) hereof) that involve the payment or
potential payment, pursuant to the terms of such contracts, by or to the Company
of more than $100,000 individually or $200,000 in the aggregate (with respect to
contracts relating to the same general subject matter) or that are otherwise
material to the Business or Condition of the Company.
Each contract disclosed or required to be disclosed in the Disclosure Schedule
pursuant to
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this SECTION 3.17 is in full force and effect and constitutes a valid and
binding obligation of the Company, in accordance with its terms, except to the
extent that enforcement thereof may be limited by or subject to applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in equity or
at law); and neither the Company nor, to the knowledge of Seller, any other
party to such contract, is currently in violation, breach or default under any
such contract or, with or without notice or lapse of time or both, would be in
violation or breach of or default under any such contract. On the date hereof,
the Seller has delivered to the Purchaser true and complete copies of all policy
forms issued by the Company and policy forms for blocks of insurance business
acquired by the Company through assumption reinsurance. All reinsurance
treaties and agreements set forth in SECTION 3.17 OF THE DISCLOSURE SCHEDULE
pursuant to which the Company is the ceding company conform to all applicable
laws and regulations of California.
3.18 INSURANCE ISSUED BY THE COMPANY. Except as disclosed in SECTION 3.18 OF
THE DISCLOSURE SCHEDULE (with paragraph references corresponding to those set
forth below):
(a) All insurance or annuity contract benefits payable by the Company
and, to the knowledge of Seller, by any other Person that is a party to or bound
by any reinsurance, coinsurance, or other similar contract with the Company
have been paid in accordance with the terms of the insurance, annuity, and other
contracts under which they arose, except for such benefits for which there is,
in the reasonable opinion of the Seller or the Company, a reasonable basis to
contest and all such contested benefits have been disclosed in SECTION 3.18(a)
OF THE DISCLOSURE SCHEDULE.
(b) No outstanding insurance or annuity contract issued, reinsured, or
underwritten by the Company entitles the holder thereof or any other Person to
receive dividends, distributions, or other benefits based on the revenues or
earnings of the Company or any other Person.
(c) The underwriting standards utilized and ratings applied by the
Company and, to the knowledge of Seller, by any other Person that is a party to
or bound by any reinsurance, coinsurance, or other similar contract with the
Company conform in all respects to industry accepted practices and to the
standards and ratings required pursuant to the terms of the respective
reinsurance, coinsurance, or other similar contracts.
(d) Neither Seller nor the Company has received any information which
would cause it to believe that there is any material impairment of the financial
condition of any other party to any reinsurance, coinsurance, or other similar
contracts with the Company.
(e) To the knowledge of the Seller (i) each insurance agent, at the
time such agent wrote, sold, or produced business for the Company was duly
licensed as an insurance agent (for the type of business written, sold, or
produced by such insurance agent) in the particular
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jurisdiction in which such agent wrote, sold, or produced such business and (ii)
no such insurance agent violated (or with or without notice or lapse of time or
both, would have violated) any term or provision of any law or any writ,
judgment, decree, injunction, or similar order applicable to the writing, sale,
or production of business for the Company, except for violations which have been
cured, which have been resolved or settled through agreements with applicable
governmental authorities or which are barred by an applicable statute of
limitations.
(f) The treatment under the Code of all currently outstanding
insurance annuity or investment policies, plans or contracts, financial
products, employee benefit plans, individual retirement accounts, individual
retirement annuities, tax-sheltered annuities under Section 403(b) of the Code,
or any similar policy, contract, plan or product issued by the Company prior to
the Closing Date (an "EXISTING PRODUCT"), is no less favorable to the purchaser,
policyholder or intended beneficiaries thereof than the treatment under the Code
for which such Existing Products were intended to qualify at the time of their
issuance, except for any failure to qualify for such treatment that results from
changes to the Code which are effective after the Closing Date.
(g) All insurance policies and annuities issued by the Company prior
to the Closing Date and subsequent to the Seller's acquisition of the Company
comply with and have been administered in accordance with all applicable laws
and regulations.
3.19 THREATS OF CANCELLATION. Except as disclosed in SECTION 3.19 OF THE
DISCLOSURE SCHEDULE, since June 30, 1995, no policyholder, group of policyholder
Affiliates, or Persons writing, selling, or producing, either directly or
through reinsurance assumed, insurance business that individually or in the
aggregate for each such policyholder, group or Person, respectively, accounted
for (i) 5% or more of the premium or annuity income (as determined in accordance
with SAP) or (ii) 1% of reserves of the Company for the quarterly period ended
June 30, 1995, has terminated or, to the knowledge of Seller, threatened to
terminate its relationship with the Company.
3.20 LICENSES AND PERMITS. Except as disclosed in SECTION 3.20 OF THE
DISCLOSURE SCHEDULE (with paragraph references corresponding to those set forth
below) and except with respect to the Excluded Assets:
(a) the Company owns or validly holds, all licenses, franchises,
permits, approvals, authorizations, exemptions, classifications, certificates,
registrations, and similar documents or instruments that are required for its
business, operation, and affairs; and
(b) all such licenses, franchises, permits, approvals, authorizations,
exemptions, classifications, certificates, registrations, and similar documents
or instruments are valid, binding, and in full force and effect.
3.21 OPERATIONS INSURANCE. SECTION 3.21 OF THE DISCLOSURE SCHEDULE contains a
true and
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complete list and description of all casualty, liability, property, workers
compensation, directors and officers liability, and other similar insurance
contracts that insure the business, operations, or affairs of the Company (other
than the Excluded Assets) or affect or relate to the ownership, use, or
operations of any of the Company's Assets and Properties (other than the
Excluded Assets) and (a) that have been issued to the Company (including without
limitation the names and addresses of the insurers and the expiration dates
thereof, and coverage thereof) or (b) that are held by the Seller or by any
Affiliate of the Seller (other than the Company) for the benefit of the Company.
All such insurance is in full force and effect and, to the knowledge of Seller,
is with financially sound and reputable insurers and, in light of the respective
business, operations, and affairs of the Company is in amounts and provides
coverage that are reasonable and customary for Persons in similar businesses.
There have been no claims by the Company pending under such policies as to which
coverage has been denied or disputed by the underwriters of such policies. All
premiums required to be paid thereunder have been paid and no notice of
cancellation or termination has been received with respect to any such policy.
3.22 INTERCOMPANY LIABILITIES. Except as reflected in the Financial
Statements, or disclosed in SECTION 3.22 OF THE DISCLOSURE SCHEDULE, or provided
under SECTION 10.1 of this Agreement, there are no liabilities, contracts or
commitments between the Company on the one hand, and the Seller or any other
Affiliate of the Seller, on the other, except for the Cost Allocation Agreement
and the Tax Sharing Agreement and for liabilities that are incurred on a basis
consistent with past practice. Except as disclosed in SECTION 3.22 OF THE
DISCLOSURE SCHEDULE, since June 30, 1995, no such intercompany liabilities have
been paid, and no settlements of such intercompany liabilities have been made
except intercompany liabilities that have been paid or settled on a basis
consistent with the Company's past practice.
3.23 BANK ACCOUNTS. SECTION 3.23 OF THE DISCLOSURE SCHEDULE contains (a) a
true and complete list of the names and locations of all banks, trust companies,
securities brokers, and other financial institutions at which the Company has an
account or safe deposit box or maintains a banking, custodial, trading, or other
similar relationship and (b) a true and complete list and description of each
such account, box, and relationship, indicating in each case the account number
and the names of the respective employees of the Seller authorized to transact
business with respect thereto.
3.24 BROKERS. Except as disclosed in SECTION 3.24 OF THE DISCLOSURE SCHEDULE,
all negotiations relative to this Agreement and the transactions contemplated
hereby have been carried out by the Seller directly with the Purchaser, without
the intervention of any Person on behalf of the Seller in such manner as to give
rise to any valid claim by any Person against the Purchaser or the Company for a
finder's fee, brokerage commission, or similar payment. Any claims or
obligations with respect to all items set forth or required to be set forth in
SECTION 3.24 of the DISCLOSURE SCHEDULE, are the responsibility of and shall be
paid by Seller.
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3.25 CREDIT SUPPORT. Since January 1, 1991, except as set forth in
SECTION 3.25 OF THE DISCLOSURE SCHEDULE, neither Seller nor any of its
Affiliates have provided any credit support to the Company with respect to
obligations to third parties (excluding the Seller and its Affiliates).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Seller as follows:
4.1 ORGANIZATION OF PURCHASER AND THE DESIGNATED AFFILIATES. The Purchaser
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of California and has the requisite corporate power and
corporate authority to enter into this Agreement and to perform its obligations
under this Agreement. The Purchaser is duly licensed, qualified, or admitted to
do business in all jurisdictions in which the failure to be so licensed,
qualified, or admitted, individually or in the aggregate with other such
failures, has or would reasonably be expected to materially impair the validity
or enforceability of this Agreement or the ability of the Purchaser to perform
its obligations under this Agreement. On the Closing Date, each Designated
Affiliate will be a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and will have all
requisite corporate power and corporate authority to purchase (pursuant to this
Agreement) and own the Shares.
4.2 AUTHORITY OF PURCHASER AND THE DESIGNATED AFFILIATES. The execution and
delivery of this Agreement by the Purchaser and the performance by the Purchaser
of its obligations under this Agreement have been duly and validly authorized by
all necessary corporate action on the part of the Purchaser. This Agreement
constitutes a valid and binding obligation of the Purchaser and the Designated
Affiliates, if any, and is enforceable against the Purchaser and the Designated
Affiliates, if any, in accordance with its terms, except to the extent that
enforcement may be limited by or subject to applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws now or hereafter in effect
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in equity or at law). On the
Closing Date, the assumption of all liabilities and obligations of the Purchaser
hereunder, and the purchase of the Shares, by each Designated Affiliate will
have been duly and validly authorized by all necessary corporate action on the
part of such Designated Affiliate.
4.3 CONFLICTS OR VIOLATIONS. The execution and delivery of this Agreement by
the Purchaser do not, and the performance by the Purchaser and the Designated
Affiliates of their respective obligations under this Agreement will not:
(a) subject to obtaining the approvals contemplated by SECTIONS 5.1
and 5.2 and
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SECTIONS 6.1 and 6.2 hereof, violate any material term or provision of any law
or any writ, judgment, decree, injunction, or similar order applicable to the
Purchaser or any Designated Affiliate;
(b) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, any of the
terms, conditions, or provisions of the articles or certificate of
incorporation, by-laws or other organizational documents of the Purchaser or the
articles or certificate of incorporation, by-laws or other organizational
documents of any Designated Affiliate;
(c) result in the creation or imposition of any Lien upon the
Purchaser or any Designated Affiliate or any of their respective Assets and
Properties that individually or in the aggregate with any other Liens has or
would reasonably be expected to materially impair the validity or enforceability
of this Agreement or the ability of the Purchaser or any Designated Affiliate to
perform its obligations under SECTION 2.2 hereof or to perform, in any material
respect, its other obligations under this Agreement;
(d) conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under, or give to
any Person any right of termination, cancellation, acceleration, or modification
in or with respect to, any contract to which the Purchaser or any Designated
Affiliate is a party or by which any of their respective Assets and Properties
may be bound and as to which any such conflicts, violations, breaches, defaults,
or rights individually or in the aggregate have or would reasonably be expected
to materially impair the validity or enforceability of this Agreement or the
ability of the Purchaser to perform, in any material respect, its other
obligations under this Agreement; or
(e) require the Purchaser or any Designated Affiliate to obtain any
consent, approval, or action of, or make any filing with or give any notice to,
any Person except as contemplated in SECTION 6.1 or 6.2 hereof;
provided, however, that to the extent that the accuracy of the representations
contained in paragraphs (a) and (d) of this SECTION 4.3 is affected by the
decision of the United States Supreme Court in JOHN HANCOCK MUTUAL LIFE
INSURANCE CO. V. HARRIS TRUST AND SAVINGS BANK, 114 S.Ct. 517 (1993), such
representations are made to the knowledge of the Purchaser.
4.4 LITIGATION. There are no actions, suits, investigations, or proceedings
pending against the Purchaser or any of the Designated Affiliates, or, to the
knowledge of Purchaser, threatened, and, to the knowledge of Purchaser, no
event, fact or circumstance has arisen or occurred that may reasonably be
expected to result in any action, suit, investigation or proceeding, against the
Purchaser or any Designated Affiliate at law or in equity, in, before, or by any
Person, that individually or in the aggregate have materially impaired, or would
reasonably be expected to materially impair the validity or enforceability of
this Agreement
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or the ability of the Purchaser to perform its obligations under this Agreement.
4.5 PURCHASE FOR INVESTMENT. The Shares to be acquired under the terms of
this Agreement will be acquired by the Purchaser and/or each Designated
Affiliate for its own account for the purpose of investment and not for the
purpose of a distribution. The Purchaser will, and will cause each Designated
Affiliate to, refrain from transferring or otherwise disposing of any of the
Shares acquired by it, or any interest therein, in such manner as to violate any
registration provision of the Securities Act of 1933, as amended, or of any
applicable state securities law regulating the disposition thereof. The
Purchaser agrees that the certificates representing the Shares may bear legends
to the effect that the Shares have not been registered under the Securities Act
of 1933, as amended, or such other state securities Laws and that no interest
therein may be transferred or otherwise disposed of in violation of the
provisions thereof.
4.6 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Purchaser directly
with the Seller, without the intervention of any Person on behalf of the
Purchaser in such manner as to give rise to any valid claim by any Person
against the Seller, the Company or any of the Subsidiaries for a finder's fee,
brokerage commission, or similar payment.
ARTICLE 5
COVENANTS OF SELLER
The Seller covenants and agrees with the Purchaser that, at all
times before the Closing, the Seller will comply, and will cause the Company to
comply, with all covenants and provisions of this ARTICLE 5, and the Seller will
comply with those covenants and provisions of this ARTICLE 5 applicable after
the Closing Date for the respective periods therein specified, except to the
extent the Purchaser may otherwise consent in writing.
5.1 REGULATORY AND OTHER APPROVALS. The Seller will, and will cause the
Company to, (a) take all commercially reasonable steps necessary or desirable,
and proceed diligently and in good faith and use all commercially reasonable
efforts to obtain, as promptly as practicable, all approvals required by any
applicable contract of the Seller or the Company to consummate the transactions
contemplated hereby, (b) take all reasonable steps necessary or desirable, and
proceed diligently and in good faith and use all reasonable efforts to obtain,
as promptly as practicable, all approvals, authorizations, and clearances of
governmental and regulatory authorities required of the Seller or the Company to
permit the Seller to consummate the transactions contemplated hereby, (c)
provide such other information and communications to such governmental and
regulatory authorities as the Purchaser or such authorities may reasonably
request, and (d) cooperate with the Purchaser and each Designated Affiliate in
obtaining, as promptly as practicable, all approvals, authorizations, and
clearances of governmental or regulatory authorities and others required of the
Purchaser
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or any Designated Affiliate to consummate the transactions contemplated hereby,
including without limitation any required approvals of the insurance regulatory
authorities in California, but shall, in each case, be under no obligation with
respect to costs or conditions thereof that, individually or in the aggregate,
are materially burdensome. Seller will, and will cause the Company to,
cooperate with the Purchaser in Purchaser's efforts to obtain any required
authorizations or approvals of the insurance regulatory authorities in Arizona,
provided that all costs thereof shall be paid by the Purchaser.
5.2 HSR FILINGS. The Seller will (a) take promptly all actions necessary to
make the filings required of the Seller or its Affiliates under the HSR Act, (b)
comply at the earliest practicable date with any request for additional
information received by the Seller or its Affiliates from the Federal Trade
Commission or Antitrust Division of the Department of Justice pursuant to the
HSR Act, (c) cooperate with the Purchaser in connection with the Purchaser's
filings under the HSR Act, and (d) request early termination of the applicable
waiting period.
5.3 INVESTIGATION BY THE PURCHASER. The Seller will provide, and will cause
the Company to provide, (a) the Purchaser, its lenders, and their respective
counsel, accountants, actuaries, and other representatives with access, upon
reasonable notice and during normal business hours, to all facilities, employees
of the Seller, accountants, actuaries, Assets and Properties, and Books and
Records of the Company and will furnish the Purchaser and such other Persons
during such period with all such information and data (including without
limitation copies of contracts, Benefit Plans, and other Books and Records)
concerning the business, operations, and affairs of the Company as the Purchaser
or any of such other Persons reasonably may request except to the extent that
the disclosure of any such information could result in the waiver of any
attorney-client privilege, in which event the Seller shall so advise the
Purchaser, and (b) the Purchaser with notice of and full access to all meetings
(and all actions by written consent in lieu thereof) of the boards of directors
and stockholders of the Company or the Subsidiary involving matters which are
not in the ordinary course of business or consistent with past practice of the
Company, except such meetings as involve only matters related to the
consummation of the transactions contemplated herein.
5.4 NO NEGOTIATIONS, ETC. The Seller will not take, will not permit the
Company or any other Affiliate of the Seller to take, and will use commercially
reasonable efforts to prevent any other Person acting for or on behalf of any of
them, from taking directly or indirectly, any action (a) to seek or encourage
any offer or proposal from any Person to acquire any shares of capital stock or
any other securities of the Company or, except pursuant to the transfer of the
Excluded Assets under SECTION 5.21 hereof, any interests therein or Assets and
Properties thereof or interests therein (other than as permitted under
Section 5.12), (b) to merge, consolidate, or combine, or to permit any other
Person to merge, consolidate or combine, with the Company, (c) to liquidate,
dissolve, or reorganize the Company, (d) to acquire or transfer any Assets and
Properties of the Company or any interests therein, except as contemplated by
the terms of this Agreement (including SECTION 5.12), (e) to reach any
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agreement or understanding (whether or not such agreement or understanding is
absolute, revocable, contingent, or conditional) for, or otherwise to attempt to
consummate, any such acquisition, transfer, merger, consolidation, combination,
or reorganization, or (f) to furnish or cause to be furnished any information
with respect to the Company to any Person (other than the Purchaser or any
Designated Affiliate or as provided in SECTION 5.3) that the Seller or the
Company knows is in the process of attempting or considering any such
acquisition, transfer, merger, consolidation, combination, liquidation,
dissolution, or reorganization. If the Seller, the Company or any other
Affiliate of the Seller receives from any Person (other than the Purchaser or
any Designated Affiliate) any offer, proposal or informational request that is
subject to this SECTION 5.4, the Seller will promptly advise such Person, by
written notice, of the terms of this SECTION 5.4 and will promptly deliver a
copy of such notice to the Purchaser.
5.5 CONDUCT OF BUSINESS. The Seller will cause the Company to conduct its
business only in the ordinary course and consistent with past practice, except
as otherwise provided in this Agreement or except as may be consented to in
writing by the Purchaser. Without limiting the generality of the foregoing, the
Seller will or will cause the Company to:
(a) use all commercially reasonable efforts to (i) preserve intact its
present business organization, reputation, and policyholder or customer
relations, (ii) keep available the services of its key officers, directors,
employees engaged in the Company's business, agents, consultants, and other
similar representatives, (iii) maintain all licenses, qualifications, and
authorizations to do business in each jurisdiction in which it is so licensed,
qualified, or authorized, (iv) maintain in full force and effect all material
contracts, documents, and arrangements set forth in SECTION 3.17 OF THE
DISCLOSURE SCHEDULE hereof, (v) maintain all of its Assets and Properties in
good working order and condition, ordinary wear and tear excepted, (vi) continue
all current marketing and selling activities relating to its business,
operations, or affairs in accordance with its current marketing plan, and (vii)
with respect to the Company, maintain at least an "A" rating classification, or
its equivalent, assigned by A. M. Best Company, Inc.
(b) cause the Books and Records of the Company to be maintained in the
usual manner and consistent with past practice and not permit a material change
in any material underwriting, investment, actuarial, financial reporting, or
accounting practice or policy of the Company or in any assumption underlying
such a practice or policy, or in any method of calculating any bad debt,
contingency, or other reserve for financial reporting purposes or for other
accounting purposes (including without limitation any practice, policy,
assumption, or method relating to or affecting the determination of insurance or
annuities in force, premium or investment income, Reserve Liabilities, or
operating ratios with respect to expenses, losses, or lapses).
(c) (i) prepare and file all Tax Returns required to be filed prior
to or on the Closing Date and (ii) pay all Taxes indicated on such Tax Returns
or otherwise due and payable prior to or on the Closing Date, unless such Taxes
are being contested in good faith
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and adequate reserves have been established on the Books and Records.
(d) (i) cause all Reserve Liabilities with respect to insurance and
annuity contracts established or reflected in the Books and Records of the
Company to be (A) established and reflected on a basis consistent with those
Reserve Liabilities and reserving methods followed by the Company in the
preparation of the December 31, 1994 Annual Statement and (B) adequate (under
GAAS consistently applied) to cover the total amount of all reasonably
anticipated matured and unmatured benefits, dividends, losses, claims, expenses,
and other liabilities of the Company under all insurance and annuity contracts
pursuant to which the Company has or will have any liability (including without
limitation any liability arising under or as a result of any reinsurance,
coinsurance, or other similar contract); and (ii) cause the Company to continue
to own assets that qualify as legal reserve assets under all applicable
insurance laws in an amount at least equal to its Reserve Liabilities.
(e) use all commercially reasonable efforts to maintain in full force
and effect until the Closing substantially the same levels of coverage as the
insurance afforded under the contracts listed in SECTION 3.21 OF THE DISCLOSURE
SCHEDULE. Any and all benefits under such contracts paid or payable prior to
the Closing with respect to the business, operations, affairs, or Assets and
Properties of the Company shall be paid or payable to it.
(f) cause the Company to continue to comply with all laws applicable
to its business, operations, or affairs.
5.6 FINANCIAL STATEMENTS AND REPORTS.
(a) As promptly as practicable after each calendar quarter and year
ending between the date hereof and the Closing Date, the Seller will deliver to
the Purchaser true and complete copies of the Annual Statement and Quarterly
Statement filed by the Company for each year or quarter then ended.
(b) As promptly as practicable after each calendar quarter and year
ending between the date hereof and the Closing Date, the Seller will deliver to
the Purchaser the following GAAP Statements: the unaudited balance sheet of the
Company as of the end of such period, and the related unaudited statements of
income, shareholders' equity, and cash flows for the period then ended.
(c) At the written request of the Purchaser and as promptly as
practicable prior to the Closing Date, the Seller will deliver to the Purchaser
the following GAAP Statements: audited balance sheets of the Company as of
December 31, 1992, 1993 and 1994, and the related audited statements of income,
shareholders' equity, and cash flows for the years then ended, together with the
notes and supplementary schedules related thereto, all in form as would be
required for filing in accordance with Regulation S-X of the Securities and
Exchange Commission.
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(d) The Seller shall continue to prepare in the ordinary course and
shall deliver, as soon as available, to the Purchaser, true and complete copies
of such other financial statements (including, but not limited to, quarterly
financial statements prepared in accordance with GAAP), reports, or analyses as
may be prepared or received by the Seller or any other Affiliate of the Seller
and as relate to any of the business, operations, or affairs of the Company,
including without limitation normal internal reports which the Company prepares
(such as those reflecting monthly net production, cash flow, surrenders, assets
under administration, operations expense, head count and claims) and special
reports (such as those of financial consultants) but excluding any statements,
reports or analyses prepared in connection with any analysis of the transactions
contemplated in this Agreement.
5.7 INVESTMENTS. The Company will continue to invest its current and future
cash assets in accordance with its policies and guidelines in force on the date
hereof. Without limiting the foregoing, the Company will invest its current and
future cash assets including any cash from matured and maturing investments, any
cash interest payments received, any cash proceeds from the sale of its Assets
and Properties, and any other cash funds received by it together with any cash
funds currently held by it, exclusively in (i) publicly traded, freely and
readily marketable, U.S. government, agency and corporate debt securities rated
equal to or better than BBB by Standard & Poor's Corporation or Baa2 by Moody's
Investors Service, Inc., having a remaining maturity of not less than five (5)
or more than ten (10) years, and (ii) publicly traded, freely and readily
marketable, U.S. government, agency or corporate debt securities rated equal to
or better than BBB by Standard & Poor's Corporation or Baa2 by Moody's Investors
Service, Inc., having a remaining maturity of one (1) year or less; provided
that the aggregate book value of all such securities referred to in clause (ii)
above held by the Company shall, at no time, be greater than $50,000,000 except
(x) as otherwise required by law, or (y) as required to provide cash (in the
ordinary course of business and consistent with past practice) to meet its
reasonably anticipated current obligations. The Company will provide the
Purchaser with weekly reports showing the above investments in the form prepared
by the Company in the ordinary course of its business.
5.8 SERVICES AGREEMENT. At or before the Closing, the Seller or an Affiliate
designated therein and approved by Purchaser will enter into a Transition
Services Agreement, substantially in the form of EXHIBIT B hereto (the "SERVICES
AGREEMENT"), with the Company and will deliver the Services Agreement to the
Purchaser at Closing.
5.9 NO CHARTER AMENDMENTS. The Seller will cause the Company to refrain from
amending its articles of incorporation or by-laws and from taking any action
with respect to any such amendment.
5.10 NO ISSUANCE OF SECURITIES. The Seller will cause the Company to refrain
from authorizing or issuing any shares of its capital stock or other equity
securities or entering into any contract or granting any option, warrant, or
right calling for the authorization or issuance of any such shares or other
equity securities, or creating or issuing any securities directly or
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indirectly convertible into or exchangeable for any such shares or other equity
securities, or issuing any options, warrants, or rights to purchase any such
convertible securities.
5.11 NO DIVIDENDS. The Seller will cause the Company to refrain from
declaring, setting aside, or paying any dividend or other distribution in
respect of its capital stock and from directly or indirectly redeeming,
purchasing, or otherwise acquiring any of its capital stock or any interest in
or right to acquire any such stock, except that the Company may declare and pay
a dividend prior to the Closing in an amount of $500,000.
5.12 NO DISPOSAL OF PROPERTY. Except pursuant to SECTIONS 5.21, 5.22 and 5.25
hereof, the Seller will cause the Company to refrain from (a) disposing of any
of its Assets and Properties and from permitting any of its Assets and
Properties from becoming subject to any Liens, except to the extent any such
disposition or any such Lien is made or incurred in the ordinary course of the
business and consistent with past practice, (b) selling any part of the
Company's in-force insurance business, operations, or other business to any
third party (other than sales of insurance products in the ordinary course of
business consistent with past practice), (c) entering into any contracts
obligating it to administer the insurance operations of any other Person and (d)
entering into any contracts permitting any other Person to administer the
Company's insurance operations.
5.13 NO BREACH OR DEFAULT. The Seller will cause the Company to refrain from
violating, breaching, or defaulting, and from taking or failing to take any
action that (with or without notice or lapse of time or both) would constitute a
violation, breach, or default, in any way under any material term or provision
of any material contract to which it is a party or by which any of its Assets
and Properties is or may be bound (other than an Excluded Asset Event).
5.14 NO INDEBTEDNESS. Except for intercompany liabilities that are incurred
and paid in the ordinary course of business consistent with past practice, the
Seller will cause the Company to refrain from creating, incurring, assuming,
guaranteeing, or otherwise becoming liable for, and from canceling, paying,
agreeing to cancel or pay, or otherwise providing for a complete or partial
discharge in advance of a scheduled payment date with respect to, any
indebtedness in excess of $100,000, and from waiving any right to receive any
direct or indirect payment or other benefit under any indebtedness owing to it.
5.15 NO ACQUISITIONS. The Seller will cause the Company to refrain from (a)
merging, consolidating, or otherwise combining or agreeing to merge,
consolidate, or otherwise combine with any other Person, (b) acquiring or
agreeing to acquire blocks of business or all or substantially all of the Assets
and Properties or capital stock or other equity securities of any other Person,
or (c) otherwise acquiring or agreeing to acquire control of any other Person.
5.16 INTERCOMPANY LIABILITIES. At least five (5) Business Days prior to the
Closing, the Seller will deliver to the Purchaser a complete list and
description in reasonable detail
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(including a good faith estimate of dollar amounts as of the Closing Date) of
all liabilities owed by the Company to Seller or any Affiliate of Seller (the
"INTERCOMPANY LIABILITY STATEMENT") which shall have been incurred by the
Company in the ordinary course of business on a basis consistent with past
practice except that Seller shall not allocate to the Company any portion of any
bonuses for any Person that is not an employee of the Company. Within 30
calendar days after the Closing, the Seller will deliver to Purchaser a revised
Intercompany Liability Statement with actual dollar amounts as of the Closing
Date. Within 30 calendar days of receipt of such revised Intercompany Liability
Statement, the Purchaser shall pay, or cause the Company to pay, the amount set
forth thereon except as otherwise provided under SECTION 10.1 of this Agreement.
Except as provided under this Agreement or disclosed in SECTION 5.16 OF THE
DISCLOSURE SCHEDULE, the Company will not enter into any contract or, except as
required by any contract disclosed in SECTION 3.17(g) OF THE DISCLOSURE
SCHEDULE, engage in any transaction with the Seller or any other Affiliate of
the Seller; provided, that Seller shall continue to provide services for the
Company consistent with past practice. Except as otherwise specifically
provided herein, in a notice from Purchaser to Seller prior to the Closing Date
or in SECTION 5.16 OF THE DISCLOSURE SCHEDULE, on the Closing Date the Seller
will terminate and will cause its Affiliates to terminate each contract between
the Company and the Seller or any other Affiliate of the Seller, including
without limitation each contract disclosed in SECTION 3.17(g) OF THE DISCLOSURE
SCHEDULE.
5.17 RESIGNATIONS OF DIRECTORS AND OFFICERS; EMPLOYMENT CONTRACTS.
(a) The Seller will cause all members of the Boards of Directors and
all officers of the Company to tender, effective at the Closing, their
resignations from such Boards of Directors or from such offices.
(b) From the date hereof through the Closing Date, unless the
Purchaser consents otherwise in writing, the Seller will not enter into or
modify any employment contract or grant any material wage or salary increase or
grant any "stay-on bonus" or special severance agreement to any employee of the
Company.
5.18 BOOKS AND RECORDS. On the Closing Date, the Seller will deliver to the
Purchaser or will make available to the Purchaser all Books and Records of the
Company at its offices, and, if (at any time after the Closing) the Seller
discovers in its possession or under its control any other Books and Records of
the Company will forthwith deliver such Books and Records to the Purchaser.
5.19 NON-SOLICITATION; NON-CHURNING. The Seller will refrain and will cause
its present and future Affiliates (other than the Company) to refrain from
causing or attempting to cause or influence (or assisting any other Person in
causing or attempting to cause or influence) (i) any policyholder or customer to
replace or terminate any insurance or annuity contract or other investment or
financial product issued, reinsured, underwritten, or sold by the Company
(except the Group Health Business and related products and contracts) in whole
or in part, with products of any other Person at any time, (ii) any reinsurer to
terminate or
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reduce any reinsurance, coinsurance, or other similar contract, or sever a
relationship, with the Company at any time, or (iii) subject to the last
sentence of SECTION 5.20(a), any agent (including without limitation any
insurance agent), consultant, or other similar representative of the Company to
resign or sever or reduce a relationship with the Company at any time; provided,
however, that any future sales of insurance or annuity products that are (x)
issued by any insurance company affiliated with the Purchaser or (y) currently
offered by an agent of the Company (provided that Seller does not induce or
encourage such agents to sell such products to the detriment of the Company)
shall not be deemed to violate the foregoing clause (iii).
5.20 NON-COMPETITION.
(a) Seller agrees that, after the Closing, the Purchaser and any
Designated Affiliate shall be entitled to protect and preserve the goodwill of
the Business and Condition of the Company to the maximum extent permitted by
law. For these and other reasons and as an inducement to the Purchaser to enter
into this Agreement, Seller agrees that neither Seller nor any of its Affiliates
subject to its Control shall, directly or indirectly, for its own benefit or as
agent for another, for a period of three (3) years after the Closing Date,
(except with respect to the life insurance component of the Single Point
product) (i) carry on or participate in the ownership, management or control of
any present or future business enterprise engaged in the life insurance or
annuity business, in any county or city in which the Company's business has been
carried on and in which the Purchaser or any Designated Affiliate conducts a
similar business after the Closing Date or (ii) offer or sell, or cause to be
offered or sold, life insurance or annuity products through Western World
Marketing Services, Inc. or its agents or Affiliates or CalFarm Insurance
Company or CalFarm Insurance Agency (including its subsidiary Cal-Ag Insurance
Services, Inc.) (collectively, the "RESTRICTED ENTITIES"), excluding, with
respect to clause (ii), insurance and annuity products that (x) are issued by
the Company or any life insurance or annuity company affiliated with the
Purchaser or (y) are currently offered by the Restricted Entities (provided that
Seller does not induce or encourage the sale of such products to the detriment
of the Company). Notwithstanding the foregoing and the terms of clause (iii) of
SECTION 5.19, with respect solely to CalFarm Insurance Agency (including its
subsidiary, Cal-Ag Insurance Services, Inc.), the prohibition set forth in
clause (ii) of the immediately preceding sentence concerning the offer and sale
of life insurance products (specifically excluding annuity products) shall not
apply if the Company fails to offer life insurance products similar to those
currently offered or there has been a material decline in the Company's level of
support and services afforded to agents of CalFarm Insurance Agency or their
policyholders from the level thereof prior to the Closing, and if after written
notice provided by the Seller to the Purchaser describing in sufficient detail
the deficiency involved, the Purchaser fails to take reasonable steps within 30
days to cure such deficiency.
(b) The provisions of paragraph (a) shall not limit the right of
Seller or any of its Affiliates to (i) hold for investment securities of any
corporation or limited partnership that is registered on a national securities
exchange or admitted to trading privileges thereon or
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actively traded in a generally recognized over-the-counter market, provided the
aggregate holdings therein of Seller and its Affiliates does not exceed 5% of
the outstanding shares or interests therein, or (ii) invest in, own, control or
manage Delta Life Corporation; provided that Delta Life Corporation does not
offer or sell, or cause to be offered or sold, life insurance or annuity
products through any of the Restricted Entities. Notwithstanding the provisions
of paragraph (a), if any Person shall merge, consolidate or combine with, or
acquire all or substantially all of the assets of, the Seller or if any Person
has control of the Seller or any of its Affiliates, such Person may carry on or
participate in the ownership, management or control of any present or future
business enterprise engaged in the life insurance or annuity business; provided
that such Person does not offer or sell, or cause to be offered or sold, life
insurance or annuity products through any of the Restricted Entities, except to
the extent otherwise permitted under paragraph (a).
(c) Seller recognizes and agrees that a breach by Seller, or any of
its Affiliates subject to its Control, of paragraph (a) above could cause
irreparable harm to the Purchaser, that the Purchaser's remedies at law in the
event of such breach or threatened breach could be inadequate, and that,
accordingly, in the event of such breach or threatened breach, a restraining
order or injunction or both may be issued against Seller or any such Affiliate
in addition to any other rights and remedies which are available to the
Purchaser.
(d) If the provisions of this Section are more restrictive, as to
duration, geographic limitations or scope, than permitted by the laws of any
jurisdiction in which the Purchaser or any Designated Affiliate seeks
enforcement hereof, it shall be limited to the extent required to permit
enforcement under such laws. In particular, the parties intend that the
covenants contained in this Section shall be construed as a series of separate
and divisible covenants, one for each county and city in which the Company's
business has been carried on and in which the Purchaser or any Designated
Affiliate conducts a similar business after the Closing Date including, for
purposes of the State of California, the counties set forth in SECTION 5.20 OF
THE DISCLOSURE SCHEDULE. Except for geographic coverage, each such separate
covenant shall be deemed identical in all respects. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants deemed
included in this Section, then such unenforceable covenant shall be deemed
reformed or eliminated for the purpose of those proceedings to the extent
necessary to permit the remaining separate covenants to be enforced.
5.21 GROUP HEALTH BUSINESS. Immediately prior to the Closing (but in no event
prior to the Business Day preceding the Closing Date), the Seller will cause the
Group Health Business of the Company to be transferred to the Seller or an
Affiliate of Seller (the "Reinsurer") agreed to by Purchaser pursuant to an
assumption reinsurance agreement substantially in the form of EXHIBIT C under
which the Reinsurer assumes all liabilities relating to or arising from the
Group Health Business and the Company transfers to the Reinsurer (i) the
securities, real estate interests, computer equipment, office furniture and
fixtures and the cash surrender value of life insurance policies and other
assets described in EXHIBIT D hereto, and (ii) cash and/or commercial paper
equal to the difference between (x)
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the liabilities of the Group Health Business as of the date of transfer and (y)
the aggregate value of the assets set forth on EXHIBIT D (determined as set
forth in Exhibit D), shall be paid in cash or commercial paper to the Reinsurer.
5.22 ASSIGNMENT OF AGREEMENTS. Prior to the Closing, the Company will assign
to the Seller or CalFarm Insurance Company the agreements and memberships in
trade associations set forth on EXHIBIT E hereto and any other contracts and
agreements relating to the assets described in EXHIBIT D hereto and such Person
shall assume and hold harmless the Company from all liabilities and obligations
arising from such agreements and memberships.
5.23 NOTICE AND CURE. The Seller will notify the Purchaser promptly in
writing of, and contemporaneously will provide the Purchaser with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any event,
transaction, or circumstance occurring after the date of this Agreement that
causes or will cause any covenant or agreement of the Seller under this
Agreement to be breached, or that renders or will render untrue any
representation or warranty of the Seller contained in this Agreement as if the
same were made on or as of the date of such event, transaction, or circumstance.
The Seller also will use all commercially reasonable efforts to cure, before the
Closing, any violation or breach of any representation, warranty, covenant, or
agreement made by it in this Agreement.
5.24 PROVISION OF AGENCY CONTRACTS. Not later than 10 Business Days prior to
the Closing, the Seller shall provide to the Purchaser all agency contracts of
the Company.
5.25 LICENSE AGREEMENT. On or prior to the Closing, the Seller or one of its
Affiliates shall enter into an agreement with the Company that is acceptable to
the Purchaser and provides for (a) the transfer of all of the Company's rights
in and to the name "CalFarm" to the Seller or an Affiliate of the Seller, and
(b) the grant by the Seller, or such Affiliate of the Seller, to the Purchaser
and the Company of a worldwide, perpetual, exclusive, royalty-free right to use
the name "CalFarm" and all related names, marks, logos and designs in connection
with the life insurance and annuity business.
5.26 AGENCY ASSUMPTION AGREEMENT. On or prior to the Closing, the Seller
shall cause the Company to enter into an agreement with CalFarm Insurance Agency
that is acceptable to the Purchaser, relating to the payment of commissions to
agents.
5.27 POST CLOSING COOPERATION. After the Closing, the Seller will provide
such commercially reasonable cooperation as the Purchaser may request in
connection with any proceeding, investigation, examination, audit, action or
other similar matter relating to the Company, its business and operations,
including but not limited to, making available to the Purchaser such resources
as are within the control of or available to the Seller provided that the
Purchaser agrees to reimburse the Seller for any out-of-pocket expenses incurred
in connection therewith.
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5.28 EMPLOYEE MATTERS.
(a) Effective as of the Closing, the Company shall cease to be a
participating employer under any of the plans identified (or required to be
identified) in SECTION 3.15(b) of the Disclosure Schedule under the heading
"Employee Benefit Plans" (the "SELLER EMPLOYEE BENEFIT PLANS"), in accordance
with the terms of such plans, and the Seller shall take all such action as is
necessary, on its part, to effect such cessation of participation and accrual.
Except as otherwise provided in SECTION 6.10, the Seller shall assume or retain,
as the case may be, all liabilities under the Seller Employee Benefit Plans,
including benefits accrued by employees and former employees of the Company
prior to the Closing Date. The Seller shall honor or cause its insurance
carriers to honor all claims for benefits by an employee of the Company under
any of the Seller Employee Benefit Plans that is an Employee Welfare Benefit
Plan with respect to claims incurred prior to the Closing. For purposes of
clarification, the parties acknowledge and agree that nothing provided in this
paragraph (a) shall be deemed to result in the Seller assuming any obligation of
the Company under any of the contracts or arrangements identified in SECTION
3.15(b) of the Disclosure Schedule under the headings "Individual Agreements"
and "Employment Contract" (collectively, the "INDIVIDUAL EMPLOYEE BENEFIT
ARRANGEMENTS").
(b) The Seller shall assume or retain, as the case may be, all
liabilities and obligations whatsoever in connection with, and shall indemnify
and hold harmless the Purchaser with respect to, claims made by or on behalf of
Transferred Employees relating to severance pay, salary continuation, group
health care continuation coverage and similar obligations relating to any
termination or alleged termination of employment or coverage on or after the
Closing Date, whether by reason of the consummation of the transactions
contemplated in this Agreement or otherwise.
ARTICLE 6
COVENANTS OF PURCHASER
The Purchaser covenants and agrees with the Seller that, at all
times before the Closing, the Purchaser will comply with all covenants and
provisions of this ARTICLE 6 and SECTION 10.1, and the Purchaser will comply
with the covenants and provisions of this ARTICLE 6 applicable after the Closing
Date for the periods therein specified except to the extent the Seller may
otherwise consent in writing.
6.1 REGULATORY APPROVALS. The Purchaser will, or will cause each Designated
Affiliate to, (a) take all reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all reasonable efforts to obtain, as
promptly as practicable, all approvals, authorizations, and clearances of
governmental and regulatory authorities required of the Purchaser or such
Designated Affiliate to consummate the transactions contemplated hereby,
including without limitation any required approvals of the insurance regulatory
authorities in
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California and Arizona, (b) provide such other information and communications to
such governmental and regulatory authorities as the Seller or such authorities
may reasonably request, and (c) cooperate with the Seller and the Company in
obtaining, as promptly as practicable, all approvals, authorizations, and
clearances of governmental or regulatory authorities required of the Seller and
the Company to consummate the transactions contemplated hereby, but shall, in
each case, be under no obligation with respect to materially burdensome costs or
conditions thereof.
6.2 HSR FILINGS. The Purchaser will (a) take promptly all actions necessary
to make the filings required of the Purchaser or its Affiliates under the HSR
Act, (b) comply at the earliest practicable date with any request for additional
information received by the Purchaser or its Affiliates from the Federal Trade
Commission or Antitrust Division of the Department of Justice pursuant to the
HSR Act, (c) cooperate with the Seller in connection with the Seller's filings
under the HSR Act, and (d) request early termination of the applicable waiting
period.
6.3 NON-SOLICITATION. Prior to the Closing Date and for a period of two
years after any termination of this Agreement prior to Closing, and, with
respect to paragraph (a) below in the event the Closing occurs, for a period of
two years after the Closing Date, the Purchaser will refrain and will cause its
present and future Affiliates to refrain from directly or indirectly:
(a) soliciting (other than by means of a general solicitation through
any form of mass advertising) any Person who is then an employee of the Seller
or any of its Affiliates (other than employees of the Company after the Closing)
to become an employee of the Purchaser or one of its Affiliates unless such
employee is terminated by the Seller or such Affiliate of the Seller after the
Closing Date or resigns voluntarily (without any solicitation from the Purchaser
or any of its Affiliates), in which case Purchaser will not solicit any such
Person (other than by means of a general solicitation through any form of mass
advertising) for a period of one year after the date of such voluntary
resignation; and
(b) utilizing or attempting to utilize any information obtained from
Seller or the Company in connection with the transactions contemplated by this
Agreement and not otherwise in the possession of Purchaser or the public
regarding the Company's policyholders or customers for the purposes of causing
or attempting to cause (i) any policyholder or customer to replace or terminate
an insurance or annuity contract or other investment or financial product
issued, reinsured, underwritten or sold by the Company or any of its
subsidiaries in whole or in part, with products of any other Person at any time,
(ii) any reinsurer to terminate any reinsurance, coinsurance, or other similar
contract, or sever a relationship, with the Company at any time, or (iii) any
agent (including without limitation any insurance agent), consultant, or other
similar representative of the Company or any of its subsidiaries to resign or
sever a relationship with the Company or any of its subsidiaries at any time.
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6.4 NOTICE AND CURE. The Purchaser will notify the Seller promptly in
writing of, and contemporaneously will provide the Seller with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any event,
transaction, or circumstance occurring after the date of this Agreement that
causes or will cause any covenant or agreement of the Purchaser under this
Agreement to be breached, or that renders or will render untrue any
representation or warranty of the Purchaser contained in this Agreement as if
the same were made on or as of the date of such event, transaction, or
circumstance. The Purchaser also will use all commercially reasonable efforts
to cure, before the Closing, any violation or breach of any representation,
warranty, covenant, or agreement made by it in this Agreement, whether occurring
or arising before or after the date of this Agreement.
6.5 ACCESS TO PRODUCTS. Effective with the Closing, Purchaser agrees to
grant to the independent agents of the Company the opportunity for such agents
to become licensed to sell the insurance products offered by the Purchaser or
certain of its Affiliates through independent agency networks on the same basis
and subject to the same standards and qualification requirements as are
applicable to other independent agents of the Purchaser or such Affiliates.
6.6 ASSIGNMENT. Notwithstanding any assignment of this Agreement, the
Purchaser shall remain liable to perform all obligations required to be
performed hereunder and the Designated Affiliate shall specifically agree to be
similarly bound.
6.7 PROVISION OF LIFE BENEFITS. After the Closing, the Purchaser shall cause
the Company to provide life insurance benefits under insurance plans and
policies that comprise the Group Health Business for a period of at least three
years after the Closing Date, subject to the satisfaction of any applicable
legal requirements, in accordance with the terms and provisions set forth on
Exhibit F hereto. The Seller shall cooperate with the Purchaser and the Company
in providing information with respect to losses affecting the Group Health
Business to the extent such information may relate to the life insurance
benefits provided thereunder by the Company. The Seller shall be under no
obligation to obtain such life insurance benefits from the Purchaser.
6.8 REIMBURSEMENT FOR GAAP STATEMENTS. The Purchaser shall reimburse the
Seller for all costs and expenses incurred after the date hereof in connection
with the preparation of audited GAAP Statements if requested by the Purchaser in
accordance with SECTION 5.6(c) hereof.
6.9 INTERCOMPANY LIABILITIES. Within 30 calendar days of receipt of the
revised Intercompany Liability Statement, the Purchaser shall pay, or cause the
Company to pay, all Intercompany Liabilities reflected thereon except as
otherwise provided under SECTION 10.1 of this Agreement.
6.10 EMPLOYEES.
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(a) Effective as of the Closing, the Company shall cease to be a
participating employer under any of the Seller Employee Benefit Plans, in
accordance with the terms thereof, and the Purchaser shall, and shall cause the
Company to, cooperate with the Seller and take all actions as are reasonably
requested by the Seller to effect such cessation of participation.
(b) The Purchaser shall take and cause the Company to take, all such
actions as are necessary to cause the Retained Employees to be covered as of the
Closing under the Purchaser's employee benefit plans, programs, policies and
arrangements maintained by the Purchaser for the benefit of similarly situated
employees of the Purchaser (the "PURCHASER EMPLOYEE BENEFIT PLANS"); provided
that the Purchaser shall use commercially reasonable efforts to provide that any
otherwise applicable waiting periods or time or service-based eligibility
requirements or exclusions shall be waived with respect to such coverage.
(c) The Purchaser shall indemnify and hold harmless the Seller with
respect to all liabilities and obligations whatsoever in connection with claims
made by or on behalf of the Retained Employees relating to the failure of the
Company to make payments pursuant to the terms of the Individual Employee
Benefit Arrangements and claims made by or on behalf of the Retained Employees
relating to severance pay, salary continuation, group health care continuation
coverage and similar obligations relating to any termination or alleged
termination of employment or coverage on or after the Closing Date, whether by
reason of the consummation of the transactions contemplated in this Agreement or
otherwise.
(d) The Purchaser agrees to assume responsibility for giving, or
causing the Company to give, all notices required by the U.S. Worker Adjustment
and Retraining Notification Act of 1988, as amended ("WARN Act"), or any similar
state law or regulation, to assume liability for any alleged failure to give any
such notice, and to indemnify and hold harmless the Seller and its Affiliates
with respect to any and all claims asserted under the WARN Act or any similar
state law or regulation because of a "plant closing" or "mass layoff" with
respect to the Company occurring on or after the Closing Date. For purposes of
this Agreement, the Closing Date shall be the "effective date" for purposes of
the WARN Act.
6.11 POST CLOSING COOPERATION. After the Closing, the Purchaser will provide
such commercially reasonable cooperation as the Seller may request in connection
with any proceeding, investigation, examination, audit, action or other similar
matter relating to the Company, its business and operations, including but not
limited to, making available to the Seller such resources as are within the
control of or available to the Purchaser provided that the Seller agrees to
reimburse the Purchaser for any out-of-pocket expenses incurred in connection
therewith.
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ARTICLE 7
CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of the Purchaser hereunder are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by the Purchaser).
7.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing Date, and
giving effect to the transactions described in SECTIONS 5.12, 5.21, 5.22, 5.25
and 5.26 hereof (which will have been consummated prior to the Closing), the
representations and warranties made by the Seller in this Agreement, shall be
true as if made on and as of the Closing Date, except to the extent any breach
thereof, individually or when aggregated with all such breaches, has not and
would not reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement, the ability of Seller to perform
its obligations under this Agreement or on the Business or Condition of the
Company.
7.2 PERFORMANCE. The Seller shall have performed or complied in all material
respects with all agreements, covenants, obligations, and conditions required by
this Agreement to be so performed or complied with by the Seller at or before
the Closing, including those specifically referred to elsewhere in this
ARTICLE 7.
7.3 OFFICER'S CERTIFICATES. The Seller shall have delivered to the Purchaser
a certificate, dated the Closing Date in form reasonably acceptable to Purchaser
and executed by the chief executive officer or chief financial officer of the
Seller, certifying (with respect to the Seller and, as appropriate, the Company)
that the representations and warranties made by Seller in this Agreement are
true as if made on and as of the Closing Date (except for any breach thereof
resulting solely from the consummation of the transactions contemplated by and
in accordance with the terms of this Agreement) and as to the fulfillment of the
conditions set forth in SECTIONS 7.1, 7.2, 7.4, 7.5, 7.6 and 7.8 hereof and
setting forth the amount of Estimated Net Income. In addition, the Seller shall
have delivered to the Purchaser a certificate, dated the Closing Date and
executed by the secretary or any assistant secretary of the Seller, certifying
that the Seller has duly and validly taken all corporate action necessary to
authorize its execution and delivery of this Agreement and its performance of
its obligations under this Agreement, and that the resolutions (true and
complete copies of which shall be attached to the certificate) of the Board of
Directors of the Seller with respect to this Agreement and the transactions
contemplated hereby have been duly and validly adopted and are in full force and
effect.
7.4 HSR ACT APPROVAL. All waiting periods applicable to this Agreement and
the transactions contemplated hereby under the HSR Act shall have expired or
been waived.
7.5 NO INJUNCTION. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree, or similar order of any court or similar
Person restraining, enjoining, or
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otherwise preventing consummation of any of the transactions contemplated by
this Agreement.
7.6 NO PROCEEDING OR LITIGATION. There shall not be instituted, pending or,
to the knowledge of Purchaser or to the knowledge of Seller, threatened, any
action, suit, investigation, or other proceeding in, before, or by any court,
governmental or regulatory authority, or other Person to restrain, enjoin, or
otherwise prevent consummation of any of the transactions contemplated by this
Agreement or to recover any Damages or obtain other relief as a result of this
Agreement or any of the transactions contemplated hereby or as a result of any
contract entered into in connection with or as a condition precedent to the
consummation hereof, which action, suit, investigation, or other proceeding
would, in the reasonable opinion of the Purchaser, result in a decision, ruling,
or finding that individually or in the aggregate has or would reasonably be
expected to have a material adverse effect on the validity or enforceability of
this Agreement, on the ability of the Seller or the Purchaser to perform its
obligations under this Agreement, or on the Business or Condition of the Seller
or the Company (other than an Excluded Asset Event). There shall not be in
effect on the Closing Date any voluntary or involuntary bankruptcy,
receivership, conservatorship, or similar proceeding with respect to any one or
more of the Seller or any of its Affiliates, including the Company.
7.7 CONSENTS, AUTHORIZATIONS, ETC. All material orders, consents, permits,
authorizations, approvals, and waivers of every Person necessary to permit the
Purchaser to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby and to permit the Purchaser and/or a Designated
Affiliate to acquire the Shares pursuant to this Agreement and to preserve the
rights, benefits and privileges of the Company in its Assets and Properties
(other than the Excluded Assets) (including without limitation any requisite
action of the insurance regulatory authorities in California and Arizona, and
any other insurance regulatory authorities which have jurisdiction over the
transactions contemplated hereby, in each case without the material abrogation
or diminishment of the authority or license of the Company or the imposition of
material restrictions upon or conditions to the transactions contemplated hereby
or on Purchaser or any Designated Subsidiary) shall have been obtained and shall
be in full force and effect.
7.8 NO ADVERSE CHANGE. Since the date of the most recent Financial
Statements, except as disclosed in SECTION 3.10 OF THE DISCLOSURE SCHEDULE,
there shall not have been, occurred, or arisen any change, event (including
without limitation any damage, destruction, or loss whether or not covered by
insurance), condition, or state of facts of any character that individually or
in the aggregate has or would reasonably be expected to have a material adverse
effect on the validity or enforceability of this Agreement, the ability of
Seller to perform its obligations under this Agreement or the Business or
Condition of the Company (other than the Excluded Assets).
7.9 OPINIONS OF COUNSEL. The Seller shall have delivered to the Purchaser
the opinions, in form and substance reasonably acceptable to the following
counsels and the Purchaser's
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counsel, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom,
special counsel to the Seller and John J. Tickner, Senior Vice President of the
Seller as to the matters set forth in EXHIBIT G hereto.
7.10 ADEQUACY OF RESERVES. The aggregate amount of Life & Annuity Reserves as
of the Closing Date shall not be less than 98% of the aggregate amount of Life &
Annuity Reserves shown on the Company's unaudited balance sheet, as of June 30,
1995, prepared in accordance with GAAP (each calculated on a consistent basis),
and the Seller's chief financial officer shall have delivered to the Purchaser a
certificate confirming the foregoing.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of the Seller hereunder are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by the Seller).
8.1 REPRESENTATIONS AND WARRANTIES. On and as of the Closing Date, the
representations and warranties made by the Purchaser in this Agreement, shall be
true as if made on and as of the Closing Date, except to the extent any breach
thereof, individually or when aggregated with all such breaches has not and
would not reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement or on the ability of Purchaser to
perform its obligations under this Agreement.
8.2 PERFORMANCE. The Purchaser shall have performed or complied in all
material respects with all agreements, covenants, obligations, and conditions
required by this Agreement to be so performed or complied with by the Purchaser
at or before the Closing.
8.3 OFFICER'S CERTIFICATES. The Purchaser shall have delivered to the Seller
a certificate, dated the Closing Date in form reasonably acceptable to Seller
and executed by the chief executive officer, executive vice president or other
senior officer of the Purchaser, certifying (with respect to the Purchaser and,
as appropriate, each Designated Affiliate) that the representations and
warranties made by the Purchaser in this Agreement are true and correct as if
made on and as of the Closing Date (except for any breach thereof resulting
solely from consummation of the transactions contemplated by and in accordance
with the terms of this Agreement), and as to the fulfillment of the conditions
set forth in SECTIONS 8.1, 8.2, 8.4, 8.5 and 8.6 hereof. In addition, the
Purchaser shall have delivered to the Seller a certificate, dated the Closing
Date and executed by the secretary or any assistant secretary of the Purchaser
and each Designated Affiliate, respectively, certifying (as appropriate) that
the Purchaser has duly and validly taken all corporate action necessary to
authorize its execution and delivery of this Agreement and its performance of
its obligations under this Agreement, that each Designated Affiliate has duly
and validly taken all corporate action necessary to
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authorize the assumption of rights, obligations and liabilities of the Purchaser
hereunder and the acquisition of the Shares, and that any required resolutions
(true and complete copies of which shall be attached to the certificate) of the
respective board of directors of the Purchaser or each Designated Affiliate with
respect to this Agreement and the transactions contemplated hereby have been
duly and validly adopted and are in full force and effect.
8.4 HSR ACT APPROVAL. All waiting periods applicable to this Agreement and
the transactions contemplated hereby under the HSR Act shall have expired or
been waived.
8.5 NO INJUNCTION. There shall not be in effect on the Closing Date any
writ, judgment, injunction, decree, or similar order of any court or similar
Person restraining, enjoining, or otherwise preventing consummation of any of
the transactions contemplated by this Agreement.
8.6 NO PROCEEDING OR LITIGATION. There shall not be instituted, pending or,
to the knowledge of Purchaser or knowledge of Seller, threatened, any action,
suit, investigation, or other proceeding in, before, or by any court,
governmental or regulatory authority, or other Person to restrain, enjoin, or
otherwise prevent consummation of any of the transactions contemplated by this
Agreement or to recover any Damages or obtain other relief as a result of this
Agreement or any of the transactions contemplated hereby or as a result of any
contract entered into in connection with or as a condition precedent to the
consummation hereof, which action, suit, investigation, or other proceeding
may, in the reasonable opinion of the Seller, result in a decision, ruling, or
finding that individually or in the aggregate has or would reasonably be
expected to have a material adverse effect on the validity or enforceability of
this Agreement, on the ability of the Purchaser or the Seller to perform its
obligations under this Agreement, or on the Business or Condition of the Seller
or the Company (other than the Excluded Assets). There shall not be in effect
on the Closing Date any voluntary or involuntary bankruptcy, receivership,
conservatorship, or similar proceeding with respect to the Purchaser or any
Designated Subsidiary.
8.7 CONSENTS, AUTHORIZATIONS, ETC. All orders, consents, permits,
authorizations, approvals and waivers of every Person necessary to permit the
Seller to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby shall have been obtained and shall be in full
force and effect.
8.8 OPINION OF COUNSEL. The Purchaser shall have delivered to the Seller the
opinion, in form and substance reasonably acceptable to such counsel and the
Seller's counsel, dated the Closing Date, of Lorin M. Fife, Senior Vice
President and General Counsel of the Purchaser, as to the matters set forth in
EXHIBIT H hereto.
8.9 PARENT GUARANTY. The Guaranty shall be in full force and effect without
modification.
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ARTICLE 9
SURVIVAL OF PROVISIONS; REMEDIES
9.1 SURVIVAL. The representations, warranties, covenants, and agreements
made by the Seller and the Purchaser in this Agreement, or in any certificate
delivered by the Seller or the Purchaser pursuant to SECTION 7.3 or SECTION 8.3
hereof, respectively, will survive the Closing:
(a) until the expiration of all applicable statutes of limitations
(including all periods of extension, whether automatic or permissive) in the
case of (i) the representations and warranties of the Seller set forth in
SECTIONS 3.1 THROUGH 3.4, INCLUSIVE, 3.6, 3.12, 3.14, 3.15, 3.20, and 3.24
hereof, or in any certificate delivered pursuant to SECTION 7.3 hereof (to the
extent such certificate refers to such Sections), (ii) the representations and
warranties of the Purchaser set forth in ARTICLE 4 hereof, or in any certificate
delivered pursuant to SECTION 8.3 hereof, (iii) the covenants of the Seller and
Purchaser set forth in SECTIONS 5.18, 5.19, 5.20 and 10.1 and ARTICLES 6 and 13
hereof, and (iv) the indemnification provisions set forth in ARTICLE 10 hereof;
and
(b) until the eighteenth month after the Closing Date in the case of
all other representations and warranties of the Seller not specified in SECTION
9.1(a) above.
If a Claim Notice or an Indemnity Notice is given in accordance with SECTION
10.3 hereof before expiration of the applicable time period referenced above,
then (notwithstanding such time period) the representation, warranty, covenant,
or agreement applicable to such claim shall survive until, but only for purposes
of, resolution of such claim.
9.2 AVAILABLE REMEDIES. The rights and remedies provided for in this
Agreement are cumulative and are not exclusive of any rights or remedies that
any party may otherwise have at law or in equity. The rights and remedies of
any party based upon, arising out of or otherwise in respect of any breach of
any representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such breach is based may also
be the subject matter of any other representation, warranty, covenant or
agreement contained in this Agreement (or in any other agreement between the
parties) as to which there is no breach.
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ARTICLE 10
INDEMNIFICATION
10.1 TAX INDEMNIFICATION AND OTHER TAX MATTERS. Subject to the provisions of
ARTICLE 9 hereof:
(a) The Seller shall be liable for, shall pay to the appropriate Tax
Authorities, and shall hold the Company and the Purchaser harmless against, (i)
all Taxes that relate to the Pre-Closing Straddle Period or any other period
ending on or before the Closing Date, and (ii) any Tax liability arising under
Treasury Regulation section 1.1502-6 or equivalent state law provision as a
result of the Company being included in a consolidated, combined or unitary
federal or state income or franchise tax return prior to the Closing Date.
(b) The Purchaser and the Company shall be liable for, shall pay to
the appropriate Tax Authorities, and shall hold the Seller harmless against, all
Taxes that relate to the Post-Closing Straddle Period or any taxable period that
begins after the Closing Date other than any Tax liability referred to in
SECTION 10.1(a)(ii) hereof or for which Seller is responsible pursuant to
SECTION 10.2 hereof.
(c) Prior to and on the Closing Date, the Company shall continue to
make payments of Taxes to the Seller for the Pre-Closing Straddle Period in
amounts determined in a manner consistent with the Tax Sharing Agreement. The
computation of such Tax payments shall not take into account (and Seller shall
indemnify Company against) any Taxes resulting from (i) the transfer of the
Excluded Assets, (ii) the section 338(h)(10) election to be made pursuant to
SECTION 10.1(g) of this Agreement, (iii) the Company ceasing to be a member of
the affiliated group of the Seller for purposes of section 1504 of the Code, and
(iv) transactions undertaken by the Company in violation of SECTION 5.5 of this
Agreement.
(d) Prior to the due date for any Tax Returns filed with respect to
the Pre-Closing Straddle Period, which are to be prepared and filed (or caused
to be prepared and filed) by the Seller pursuant to SECTION 10.1(f) of this
Agreement, the Seller shall deliver (or cause to be delivered) to the Purchaser
a schedule (the "TRUE-UP SCHEDULE") showing (x) the amount of Tax to be reported
on such Tax Returns which is attributable to the Company and determined in a
manner consistent with the Tax Sharing Agreement, exclusive of (A) any Taxes
resulting from (i) the transfer of the Excluded Assets, (ii) the section
338(h)(10) election made pursuant to SECTION 10.1(g) of this Agreement, (iii)
the Company ceasing to be a member of the affiliated group of the Seller for
purposes of section 1504 of the Code, and (iv) transactions undertaken by the
Company in violation of SECTION 5.5 of this Agreement, and (B) in the event
Seller breaches a representation, warranty or covenant under this Agreement, any
Taxes that would not have been payable had there been no such breach, but only
to the extent such Taxes have not been excluded pursuant to clause (A)(i) - (iv)
of this SECTION 10.1(d), and (y) the amount of Tax payments previously paid by
the Company in respect of the Tax period covered by such Tax Returns (in the
case of any particular Tax
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Return, the difference between the amount referred to in (x) and (y) immediately
above is hereinafter referred to as the "TRUE-UP AMOUNT"). Within 10 Business
Days after the delivery of the True-up Schedule, (i) the Purchaser shall pay (or
cause the Company to pay) to the Seller the True-up Amount in respect of any
underpayment of Tax by the Company and (ii) Seller shall pay to the Purchaser or
the Company, the True-up Amount in respect of any overpayment of Tax by the
Company. Any such payment shall also include interest, if any, for the period
commencing on the date that payment is due under this SECTION 10.1(d) through
the date of payment at an annual rate of 8%. The Tax Sharing Agreement, to the
extent that such agreement runs between the Seller on the one hand and the
Company on the other, shall be terminated on the Closing Date effective as of
the date hereof and the only payment obligations running between such parties
with respect to Taxes attributable to the Pre-Closing Straddle Period, or any
other taxable period ending on or prior to the Closing Date, shall be as set
forth in this SECTIONS 10.1 and 10.2.
Notwithstanding the foregoing, if the Closing Date occurs after
December 31, 1995, no payment of the True-up Amount shall be required pursuant
to the preceding paragraph of this Section 10.1(d) with respect to Taxes
attributable to the period January 1, 1996 through the Closing Date. Instead,
the difference between (A) the amount of federal and state Taxes taken into
account in computing Actual Net Income (other than Taxes not governed by the Tax
Sharing Agreement), and (B) the amount of payments previously paid by the
Company to Seller pursuant to Section 10.1(c) in respect of such Taxes, shall be
calculated once the computation of Actual Net Income has been finalized pursuant
to Section 2.2 of the Agreement. On the Consideration Adjustment Payment Date,
(i) the Purchaser shall pay (or cause the Company to pay) to the Seller the
amount by which (A) exceeds (B), or (ii) Seller shall pay to the Purchaser or
the Company the amount by which (B) exceeds (A). Any such payment shall also
include interest, if any, for the period commencing on the date that payment is
due under this paragraph through the date of payment at an annual rate of 8%.
(e) In the event that the Seller or the Company is or becomes entitled
to or receives any refund of Taxes attributable to the Company in respect of the
Pre-Closing Straddle Period or any other taxable period ending on or prior to
the Closing Date, (i) the Purchaser, the Company and the Seller shall cooperate
with each other and take all reasonable actions necessary to obtain such refund
and (ii) the amount thereof, plus any interest related thereto shall be (A) the
property of (and paid over to) the Seller if it relates to a Tax period ending
prior to January 1, 1995, (B) shall be shared equally by the Seller and the
Company (or the Purchaser), and paid over to the respective parties, if (x) the
Closing Date occurs prior to January 1, 1996 and the refund relates to the Pre-
Closing Straddle Period, or (y) the Closing Date occurs after December 31, 1995
and the refund relates to the Tax period ending December 31, 1995, and (C) in
the event the Closing Date occurs after December 31, 1995, the property of (and
paid over to) the Seller to the extent that it relates to the Pre-Closing
Straddle Period commencing January 1, 1996. Notwithstanding the foregoing, any
refund of Taxes shall be the property of (and paid over to) the Company if it is
reflected in the Financial Statements for periods through June 30, 1995 or if it
increases Actual Net Income.
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(f) The Seller shall be responsible for, prepare, and have ultimate
discretion with respect to, all Tax Returns required or permitted by applicable
law to be filed by the Company (or by the Seller on its behalf) with respect to
periods ending on or before the Closing Date and the Purchaser and the Company
shall (i) cooperate with the Seller for the purpose of making any election under
applicable law to permit the Company to file any short period Tax Return for the
taxable period ending on the Closing Date and (ii) provide access to all
relevant Books and Records for purposes of preparing such Tax Returns. Unless
otherwise required by applicable law and disclosed in writing to the Purchaser
by the Seller in advance of the filing of the relevant Tax Return, any Tax
Return to be prepared by Seller pursuant to this SECTION 10.1(f) shall be
prepared on a basis consistent with past practice and shall not be prepared in a
manner calculated to accelerate or defer any income or deductions into any
taxable period in order to achieve a result favorable to Seller and detrimental
to Purchaser as a result of the transactions contemplated by this Agreement.
The Purchaser shall be given the opportunity to review any such Tax Return prior
to the filing of such return with the relevant Tax Authority and the Seller
shall consult with the Purchaser in good faith with respect to any issues that
the Purchaser may have regarding such Tax Return; provided that the Seller's
obligation to consult with the Purchaser pursuant to this SECTION 10.1(f) with
respect to Tax Returns for periods ending on or prior to December 31, 1994 shall
only apply in the event that such return is reasonably expected to increase
materially the Tax liability of the Company for any taxable period beginning on
or after January 1, 1995. Notwithstanding anything to the contrary in this
SECTION 10.1(f), the Seller shall have the sole and absolute discretion with
respect to the manner in which the implementation of the actuarial guideline
referred to in SECTION 3.9(a) of the Disclosure Schedule is reported in the Tax
Returns referred to in this SECTION 10.1(f).
(g) The Purchaser will make, in a timely manner, the election pursuant
to section 338(g) of the Code and the Purchaser and Seller will jointly make, in
a timely manner, the election pursuant to section 338(h)(10) of the Code (and
treat such election as having been made for California tax purposes) with
respect to the purchase and sale of Shares contemplated by this Agreement. For
purposes of determining the purchase price under this SECTION 10.1(g), the
liabilities of the Company shall be equal to the amount of such liabilities for
Federal income tax purposes as of the Closing Date. The Purchaser shall have
the initial responsibility for the timely preparation of IRS Form 8023, and all
supporting statements, schedules, and required information applicable thereto
(including an allocation of the purchase price to the Assets and Properties of
the Company), and such Form 8023, statements, schedules, and information (the
"FORM 8023 PACKAGE") shall be submitted to the Seller for its review no later
than 60 Business Days following the Closing Date. Within 30 Business Days after
the receipt by the Seller of the Form 8023 Package, the Seller shall notify the
Purchaser of any objections or proposed changes. If the Seller has no
objections or proposed changes or if the Purchaser and the Seller agree on the
resolution of all objections or proposed changes, the Purchaser and Seller shall
promptly file Form 8023 and the relevant attachments with the IRS via certified
mail with return receipt requested. As soon as practicable thereafter, the
Purchaser and Seller shall furnish to each other a photocopy of such certificate
of mailing and return receipt. If the Seller and the Purchaser
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shall fail to reach an agreement with respect to any objection or proposed
change within 120 Business Days following the Closing Date, then any disputed
objection(s) or proposed change(s) shall be submitted for resolution to an
impartial certified public accounting firm of national reputation reasonably
acceptable to the Purchaser and the Seller (the "RESOLUTION ACCOUNTANT"). The
Purchaser and the Seller shall use reasonable efforts to cause a report of the
Resolution Accountant to be rendered within 10 Business Days of its appointment,
and the Resolution Accountant's determination as to the appropriateness and
extent of changes (if any) to the Form 8023 Package shall be final and binding.
The costs of the Resolution Accountant's determination shall be borne equally by
the Seller and the Purchaser. Immediately after such determination, the
Purchaser and Seller shall promptly file Form 8023 and the relevant attachments
with the IRS in accordance with the procedure described above. The Purchaser
and the Seller agree to file their respective tax returns, reports, and forms,
including IRS Form 8023, in a manner consistent with the finalized Form 8023
Package.
(h) The Purchaser or the Company shall promptly (i) notify the Seller
of the commencement of any claim, audit, examination, or other proposed change
or adjustment by any Tax Authority concerning any Tax for which the Seller may
be responsible under SECTION 10.1(a) of this Agreement (a "TAX CLAIM") and (ii)
furnish the Seller with copies of any correspondence received from any Tax
Authority in connection with such Tax Claim. The Seller shall promptly (i)
notify the Purchaser or the Company of the commencement of any claim, Audit,
examination, or other proposed change or adjustment by any Tax Authority
concerning any Tax for which the Purchaser or the Company may be responsible
under SECTION 10.1(b) of this Agreement and (ii) furnish the Purchaser or the
Company with copies of any correspondence received from any Tax Authority in
connection with such claim.
(i) At its election, the Seller may contest or settle any Tax Claim in
any legally permissible manner at its sole cost and expense and, upon the
Seller's payment of such Taxes to the relevant Tax Authority, may sue for a
refund thereof. The Seller shall control all correspondence, responses, and
proceedings related to any such contest or refund suit, and may pursue or forego
any administrative proceedings, appeals, or litigation in respect of such Tax
Claim. The Purchaser and the Company, as appropriate, will cooperate fully,
provide access to all Books and Records, and will take all lawful action in
connection with such contest or refund suit as the Seller may reasonably
request. The Seller shall keep the Purchaser and the Company, as appropriate,
regularly apprised of the progress of any such contest or refund suit. In the
event that such contest or refund suit may reasonably be expected to increase
materially the liability of the Company for Taxes described in SECTION 10.1(b)
hereof, or increase the Company's obligation to make payments pursuant to
SECTION 10.1(c) or (d) hereof, the Seller shall consult with the Purchaser in
good faith as to any considerations that the Purchaser may have regarding such
contest or refund suit. If, during the course of an Audit, the IRS proposes an
adjustment to the purchase price allocation reflected in the Form 8023 Package
as ultimately approved by the Seller or determined by the Resolution Accountant
pursuant to SECTION 10.1(g) hereof, the Seller shall (i) use its reasonable best
efforts to defend in good faith such purchase price allocation in the course of
the Audit, (ii) keep the Purchaser apprised of the progress of the Audit,
(iii) give the Pur-
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chaser and the Company an opportunity to participate, at its own expense, in
contesting the proposed adjustment to the purchase price allocation as long as
such participation does not unreasonably interfere with any other aspect of the
Audit, and (iv) obtain the Purchaser's approval of any proposed settlement of
the issues which approval shall not be unreasonably withheld.
(j) In the event that the Seller does not elect to contest a Tax Claim
pursuant to SECTION 10.1(i) of this Agreement, the Purchaser or the Company may
(but shall not be required to) contest such claim for the account of the Seller,
in which case (i) the Seller shall have the right to review and approve in
advance any correspondence or responses sent to any Tax Authority by or on
behalf of the Company with respect to any Tax Claim and to participate in any
subsequent administrative proceedings, appeals, and litigation, if any, and
(ii) the Purchaser and the Company, as appropriate, shall provide access to all
relevant Books and Records. The Purchaser and the Company, as appropriate,
shall keep the Seller regularly apprised of the progress of any such contest,
proceedings, appeals, or litigation. In the event that the Purchaser or the
Company elects to contest such claim, the Purchaser and the Company shall
indemnify and hold harmless the Seller for any Tax liability in excess of the
amount of the Tax liability that would have arisen under the settlement that the
Seller was willing to accept and which the Seller has disclosed to the Purchaser
and the Company in writing in advance of such election.
10.2 OTHER INDEMNIFICATION.
(a) Subject to the provisions of ARTICLE 9 and SECTIONS 10.4 and 10.5
hereof, the Seller agrees to indemnify the Company, the Purchaser, and the
Designated Affiliates in respect of, and hold each of them harmless against:
(i) any and all Damages (other than, except as set forth in
clauses (ii) and (v) of this SECTION 10.2(a) below, Damages for Tax Claims,
which shall be governed solely by SECTION 10.1 hereof) resulting from or
relating to (A) any misrepresentation, breach of warranty, or any certificate
delivered by or for the Seller pursuant to SECTION 7.3 hereof or (B) failure to
perform any covenant or agreement on the part of the Seller made as a part of
or contained in this Agreement; and
(ii) any and all Damages resulting from a failure on the part
of the Seller to comply with the covenants or undertakings set forth in
SECTION 10.1 of this Agreement, including the Seller's covenant to join in
making the section 338(h)(10) election pursuant to SECTION 10.1(g) of this
Agreement, provided that such failure does not result from any act or omission
on the part of the Purchaser or, after the Closing Date, the Company;
(iii) any and all Damages resulting from or relating to: any
use before the Closing of any Real Estate for the storage, treatment,
generation, transportation, manufacture, processing, handling, production,
distribution, deposit, burial, use, or disposal of any Hazardous Substance; any
Release before the Closing of any Hazardous Substance on
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or from any Real Estate; any failure before the Closing of any Person to comply
with all Environmental Laws relating to any Real Estate or the business,
activities, or processing respectively conducted thereon; any failure whether
before or after the Closing to undertake and pursue any investigative,
containment, removal, clean up, and other remedial actions ordered by a
governmental entity or court of competent jurisdiction in accordance with
applicable Laws with respect to any Hazardous Substance on or from any Real
Estate before the Closing; or any human exposure whether before or after the
Closing to any Hazardous Substance existing on any Real Estate at or before the
Closing;
(iv) any and all Damages resulting from or relating to the
matters disclosed in SECTION 3.13 OF THE DISCLOSURE SCHEDULE;
(v) any and all (A) costs and losses incurred by policyholders
or beneficiaries of Existing Products, or payments made by the Company to any
Tax Authority or policyholders or beneficiaries of Existing Products in respect
of such costs or losses, and (B) increased Taxes of the Company, in either case,
as a result of an Existing Product Item; provided that the Seller shall have no
obligation to indemnify or hold harmless to the extent that any such costs,
losses or increased Taxes arise as a result of an amendment or modification of
an Existing Product effected after the Closing by the Company, the Purchaser or
a Designated Affiliate without the prior written consent of the Seller which
consent shall not be unreasonably withheld; and
(vi) any and all Damages resulting from or relating to claims
under any School District Hold Harmless Agreements entered into by the Company
prior to the Closing Date arising from actions or omissions by the Company prior
to the Closing Date.
(b) Subject to the provisions of ARTICLE 9 and SECTIONS 10.4 and 10.5
hereof, the Purchaser agrees to indemnify the Seller in respect of, and hold
the Seller harmless against, any and all Damages resulting from or relating to
any misrepresentation, breach of warranty, or nonfulfillment of or failure to
perform any covenant or agreement on the part of the Purchaser made as a part of
or contained in this Agreement or any certificate delivered by or for the
Purchaser pursuant to SECTION 8.3 hereof.
10.3 METHOD OF ASSERTING CLAIMS. All claims for indemnification by an
Indemnified Party under SECTION 10.2 hereof will be asserted and resolved as
follows:
(a) THIRD PARTY CLAIMS. If any claim or demand, or any investigation
or proceeding is commenced, for which an Indemnifying Party would be liable for
Damages to an Indemnified Party is asserted against or sought to be collected
from such Indemnified Party by a Person other than a party hereto or any
Affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified Party will deliver a
Claim Notice within 30 days of receipt by Purchaser or the Company of a written
notice of claim or demand that constitutes a Third Party Claim and with
reasonable promptness with respect to any other Third Party Claim; provided,
however, no failure or delay in giving any such Claim Notice shall relieve the
Indemnifying Party of
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its obligations except, and only to the extent, that it is prejudiced thereby.
The Indemnifying Party shall give notice to the Indemnified Party within 30 days
of receipt of a Claim Notice setting forth whether the Indemnifying Party
disputes its liability with respect to matters covered by such Claim Notice and
whether the Indemnifying Party, at the sole cost and expense of the Indemnifying
Party, desires to assume the defense of the matters set forth in such Claim
Notice. The Indemnified Party may take any action it deems necessary to
preserve its rights prior to receipt of such response from the Indemnifying
Party but shall not settle or proceed to final judgment with respect to such
Third Party Claim prior to the expiration of such 30 day period.
(b) DEFENSE. The Indemnifying Party shall have the right to direct,
through counsel of its own choosing, the defense or settlement of any action or
proceeding brought against the Indemnified Party in respect of Third Party
Claims; provided, however, that the Indemnifying Party shall not settle any
matter without obtaining the Indemnified Party's prior consent thereto if such
settlement provides for any remedy other than the payment of money damages or
that does not provide for a full release of the Indemnified Party or, regardless
of the terms of such settlement, if the Indemnifying Party disputes its
liability with respect to the Third Party Claim. If the Indemnifying Party
elects to assume the defense of any such claim or proceeding, the Indemnified
Party may participate in such defense at its own expense. If the Indemnifying
Party fails to defend or if after commencing or undertaking any such defense
fails to prosecute or withdraws from such defense other than as a result of a
settlement, the Indemnified Party shall have the right to direct, at the
Indemnifying Party's sole cost and expense, through counsel of its own choosing,
the defense or settlement of any such action or proceeding; provided, however,
that if the Indemnified Party assumes the defense of any such claim or
proceeding pursuant to this SECTION 10.3 and proposes to settle such claim or
proceeding prior to a final judgment thereon or to forego appeal with respect
thereto, then the Indemnified Party shall give the Indemnifying Party prompt
written notice thereof and the Indemnifying Party shall have the right to
participate in and consent (which consent shall not be unreasonably withheld) to
the settlement or assume or reassume the defense of such claim or proceeding.
Notwithstanding the foregoing provisions of this SECTION 10.3(b), if the
Indemnifying Party disputes its liability to the Indemnified Party and if such
dispute is resolved in favor of the Indemnifying Party by final, nonappealable
order of a court of competent jurisdiction, the Indemnifying Party will not be
required to bear the costs and expenses of the Indemnified Party's defense
pursuant to this SECTION 10.3(b), and the Indemnified Party shall reimburse the
Indemnifying Party in full for all costs and expenses incurred by the
Indemnifying Party in connection with such Third Party Claim. The party
directing the defense shall pursue such defense diligently and promptly. The
parties shall cooperate in the defense of all Third Party Claims. In connection
with the defense of any Third Party Claim, each party shall make available to
the party controlling such defense any books, records, or other documents within
its control that are reasonably requested in the course of or necessary or
appropriate for such defense.
(c) CLAIMS BETWEEN THE PARTIES AND THEIR AFFILIATES. If the
Indemnified Party has a claim against the Indemnifying Party that does not
involve a Third Party Claim (an "INTER-
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PARTY CLAIM"), the Indemnified Party will notify the Indemnifying Party with
reasonable promptness of such claim, specifying the nature, estimated amount and
the specific basis for such claim. The Indemnifying Party shall respond within
30 days of receipt of such notice of an Inter-Party Claim. If the Indemnifying
Party fails to so respond the estimated amount of such claim specified by the
Indemnifying Party shall be conclusively deemed a liability of the Indemnifying
Party. If the Indemnifying Party timely disputes such claim, the Indemnified
Party and the Indemnifying Party shall negotiate in good faith to resolve such
dispute, and if not so resolved, either party may pursue whatever remedies it
may have.
10.4 AFTER-TAX DAMAGES; REFUNDS. With respect to the indemnification
agreements set forth in this ARTICLE 10, the Seller and the Purchaser agree that
the amount of any payment will be adjusted downward by the tax benefit actually
recognized in the year of payment or succeeding year and upward by the tax cost
actually incurred in the year of payment or succeeding year by the party to be
indemnified and such payment will be (i) promptly paid to the Indemnifying Party
or offset against indemnification payments then owed to the Indemnifying Party
or (ii) in the case of any payment due under SECTION 10.1, payable by either
party 30 days after the "final determination" within the meaning of section 1313
of the Code. Any payment (other than interest thereon) made under this
Agreement by the Seller to (or at the direction of) the Purchaser or the Company
or by the Purchaser or the Company to (or at the direction of) the Seller shall
be treated by all parties hereto for all purposes as an adjustment to the
purchase price set forth under SECTION 2.2 of this Agreement.
10.5 CLAIMS LIMITATION. Notwithstanding the foregoing provisions of this
ARTICLE 10, neither party shall have any liability for any Damages under
SECTIONS 10.2(a)(i)(A), 10.2(a)(v) or 10.2(a)(vi) hereof, except for any
misrepresentation or breach of warranty contained in SECTIONS 3.2, 3.4, 3.12, or
3.14(e) hereof, until and unless the cumulative total of such Damages exceeds in
the aggregate $1,000,000, it being understood that after such Damages exceed in
the aggregate $1,000,000, the Indemnifying Party shall be liable to the
Indemnified Party only for Damages in excess of $750,000, provided, however,
that the limitations of this SECTION 10.5 shall not apply to any Damages
resulting from either party's intentional, willful or reckless
misrepresentations or breaches of warranties or agreements made as a part of or
contained in this Agreement.
10.6 ASSIGNMENT OF INDEMNIFICATION. Each of the Purchaser and each Designated
Affiliate may assign its rights to indemnification under this ARTICLE 10 to any
lender or investor who provides financing to the Purchaser or any Designated
Affiliate in connection with the transactions contemplated by this Agreement, or
to any direct or indirect assignee of any such lender or investor, and each such
lender, investor or assignee shall have the same rights to indemnification under
this ARTICLE 10 as the Purchaser and the Designated Affiliates. Notice of any
assignment pursuant to this Section shall be given to Seller pursuant to SECTION
12.1 hereof, but the failure to give such notice shall not affect the validity
of such assignment.
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ARTICLE 11
TERMINATION
11.1 TERMINATION. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned, upon notice by the terminating party to
the other party:
(a) at any time before the Closing, by mutual written agreement of the
Seller and the Purchaser; or
(b) at any time by the Seller in the event of any breach of any
representation, warranty, covenant or agreement on the part of the Purchaser or
if any representation of the Purchaser shall have become untrue, in either case,
such that the conditions set forth in Article 8 are incapable of being satisfied
by March 31, 1996;
(c) at any time by the Purchaser in the event of any breach of any
representation, warranty, covenant or agreement on the part of the Seller or if
any representation of the Seller shall have become untrue, in either case, such
that the conditions set forth in ARTICLE 7 are incapable of being satisfied by
March 31, 1996; and
(d) at any time after March 31, 1996, by the Seller or the Purchaser,
if the transactions contemplated by this Agreement have not been consummated on
or before such date and such failure to consummate is not caused by a breach of
this Agreement (or any representation, warranty, covenant, or agreement included
herein) by the party electing to terminate pursuant to this clause (d).
11.2 EFFECT OF TERMINATION. If this Agreement is validly terminated pursuant
to SECTION 11.1 hereof, this Agreement will thereupon become null and void, and
there will be no liability on the part of the Seller or the Purchaser (or any of
their respective employees, consultants, or other representatives), except that
(a) the provisions of SECTION 6.8 and the provisions relating to confidentiality
in SECTION 13.4 hereof will continue to apply following any such termination and
(b) any such termination shall be without prejudice to any claim which either
party may have against the other for breach of this Agreement (or any
representation, warranty, covenant, or agreement included herein). All
reasonable out-of-pocket expenses incurred in connection with this Agreement and
the transactions contemplated hereby by a non-breaching party who terminates
this Agreement pursuant to SECTION 11.1(b) or (c), respectively, will be
reimbursed promptly by the breaching party.
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ARTICLE 12
NOTICES
12.1 NOTICES. All notices and other communications under this Agreement must
be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first-class
postage prepaid, to the parties at the following addresses:
If to the Seller, to:
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367-5021
Attention: Stanley R. Zax, Chairman and President
Telephone: (818) 713-1000
Telecopy: (818) 713-0177
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Jerome L. Coben
Telephone: (213) 687-5000
Telecopy: (213) 687-5600
If to the Purchaser or the Designated Subsidiary, to:
Anchor National Life Insurance Company
1999 Avenue of the Stars, Suite 3700
Los Angeles, California 90067
Attention: Jay Wintrob, Executive Vice President
Telephone: (310) 772-6514
Telecopy: (310) 772-6604
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with copies to:
Anchor National Life Insurance Company
1999 Avenue of the Stars, Suite 3700
Los Angeles, California 90067
Attention: Lorin M. Fife,
Senior Vice President and General Counsel
Telephone: (310) 772-6544
Telecopy: (310) 772-6574
and
O'Melveny & Myers
1999 Avenue of the Stars, Suite 700
Los Angeles, California 90067
Attention: Marc Gamsin, Esq.
Telephone: (310) 246-6810
Telecopy: (310) 246-6779
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this ARTICLE 12 will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third Business Day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
ARTICLE 13
MISCELLANEOUS
13.1 ENTIRE AGREEMENT. Except for documents executed by the Seller and the
Purchaser pursuant hereto, this Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement (including the exhibits hereto, the Disclosure
Schedule, and other contracts and documents delivered in connection herewith)
contains the sole and entire agreement between the parties hereto with respect
to the subject matter hereof.
13.2 EXPENSES. Except as otherwise expressly provided in this Agreement
(including without limitation as provided in ARTICLE 10 and SECTION 11.2
hereof), each of the Seller and the Purchaser will pay its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby. In addition, if the Closing occurs, the Seller shall pay all
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unpaid costs and expenses incurred by the Company in connection with any
divestiture (whether or not consummated) of any of its Assets and Properties
occurring prior to the Closing and all unpaid costs and expenses associated with
any efforts by the Seller or the Company to sell the Company or any of their
respective Assets and Properties to any Person other than the Purchaser.
13.3 PUBLIC ANNOUNCEMENTS. At all times at or before the Closing, the Seller
and the Purchaser will each consult with the other before issuing or making any
reports, statements, or releases to the public with respect to this Agreement or
the transactions contemplated hereby and will use good faith efforts to agree on
the text of a joint public report, statement, or release or will use good faith
efforts to obtain the other party's approval of the text of any public report,
statement, or release to be made solely on behalf of a party. If the Seller and
the Purchaser are unable to agree on or approve any such public report,
statement, or release and such report, statement, or release is, in the opinion
of legal counsel to a party, required by Law or may be appropriate in order to
discharge such party's disclosure obligations, then such party may make or issue
the legally required report, statement, or release. Any such report, statement,
or release approved or permitted to be made pursuant to this SECTION 13.3 may be
disclosed or otherwise provided by the Seller or the Purchaser to any Person,
including without limitation to any employee or customer of either party hereto
and to any governmental or regulatory authority.
13.4 CONFIDENTIALITY. Each of the Seller and the Purchaser will hold, and
will cause its respective Affiliates and their respective employees,
consultants, and other representatives to hold, in strict confidence, unless
compelled to disclose by judicial or administrative process (including without
limitation in connection with obtaining the necessary approval of insurance
regulatory authorities) or by other requirements of law, all documents and
confidential or proprietary information concerning the other party furnished to
it by the other party or such other party's employees, consultants, or
representatives in connection with this Agreement or the transactions
contemplated hereby, except to the extent that such documents or information can
be shown to have been (a) previously lawfully known by the party receiving such
documents or information, (b) in the public domain through no fault of such
receiving party, or (c) later acquired by the receiving party from other sources
not themselves bound by, and in breach of, a confidentiality agreement. Except
as provided in SECTIONS 5.1, 5.2, 6.1 and 6.2 hereof, no party hereto will
disclose or otherwise provide any such documents or confidential or proprietary
information to any other Person, except to the Purchaser's lenders and investors
and to either party's respective auditors, actuaries, attorneys, financial
advisors, and other consultants and advisors who need such documents or
information in connection with this Agreement, and the parties hereto agree to
cause each of the foregoing to be subject to and bound by the confidentiality
provisions hereof.
13.5 FURTHER ASSURANCES. The Seller and the Purchaser agree that, from time
to time after the Closing, upon the reasonable request of the other, they will
cooperate and will cause their respective Affiliates to cooperate with each
other to effect the orderly transition of the business, operations, and affairs
of the Company. Without limiting the generality of
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the foregoing, (a) the Seller will give and will cause its Affiliates to give
representatives of the Purchaser reasonable access to all Books and Records of
the Seller and its Affiliates reasonably requested by the Purchaser in the
preparation of any post-Closing financial statements, reports, or Tax Returns
of the Company or necessary for the Seller to make any required filings or to
respond to any audit or inquiry of any governmental or regulatory body; and (b)
the Purchaser will give and will cause the Designated Affiliates to give
representatives of the Seller reasonable access to all pre-Closing Books and
Records of the Company reasonably requested by the Seller in the preparation of
any post-Closing financial statements, reports, or Tax Returns of the Seller or
necessary for the Seller to make any required filings or to respond to any audit
or inquiry of any governmental or regulatory body.
13.6 WAIVER. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof; such waiver must be
in writing and must be executed by the chief executive officer, president,
executive vice president or other senior officer of such party. A waiver on one
occasion will not be deemed to be a waiver of the same or any other breach on a
future occasion. All remedies, either under this Agreement, or by law or
otherwise afforded, will be cumulative and not alternative.
13.7 AMENDMENT. This Agreement may be modified or amended only by a writing
duly executed by or on behalf of all parties hereto.
13.8 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original, but all of
which will constitute one and the same instrument.
13.9 NO THIRD PARTY BENEFICIARY. The terms and provisions of this Agreement
are intended solely for the benefit of the parties hereto, and their respective
successors or assigns, and it is not the intention of the parties to confer
third-party beneficiary rights upon any other Person.
13.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of California applicable to a contract
executed and performable in such state.
13.11 BINDING EFFECT. This Agreement is binding upon and will inure to the
benefit of the parties and their respective successors and assignees.
13.12 ASSIGNMENT LIMITED. Except as otherwise provided herein (including
without limitation as provided in SECTION 10.6 hereof), this Agreement or any
right hereunder or part hereof may not be assigned by any party hereto without
the prior written consent of the other party hereto. Purchaser may assign its
interest in this Agreement to any Designated Affiliate and may assign a security
interest in this Agreement to lenders to finance the purchase of the Shares,
provided that, notwithstanding any such assignment, the Purchaser shall remain
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liable to perform all obligations required to be performed hereunder and each
Designated Affiliate shall specifically agree to be bound by the terms of this
Agreement as if such Designated Affiliate was the Purchaser and assume, on a
joint and several basis with the Purchaser and all other Designated Affiliates,
all liabilities and obligations of the Purchaser hereunder.
13.13 HEADINGS, GENDER, ETC. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; and (e) all references to "dollars" or "$" refer
to currency of the United States of America.
13.14 INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future Law, and if the
rights or obligations of the Seller or the Purchaser under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable; (b) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom; and (d) in lieu of such illegal,
invalid, or unenforceable provision, there will be added automatically as a part
of this Agreement a legal, valid, and enforceable provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible.
13.15 ATTORNEYS' FEES. If any litigation or other adversarial proceedings are
commenced (including without limitation any proceedings in a bankruptcy court)
between the parties hereto or their representatives concerning any provision of
this Agreement or the rights and duties of any person or entity hereunder, the
party or parties prevailing in such proceedings will be entitled to the
reasonable attorneys' fees and expenses of counsel and court costs incurred by
reason of such proceedings.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the Seller and Purchaser, effective as of the
date first written above.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By:________________________________
Name: Jay S. Wintrob
Title: Executive Vice President
ZENITH NATIONAL INSURANCE CORP.
By:________________________________
Name: Stanley R. Zax
Title: Chairman of the Board
and President
S-1
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EXHIBIT A
DEFINITIONS OF TERMS
"ACTION" shall mean any action, complaint, petition, investigation, suit
or other proceeding, whether civil or criminal, in law or in equity, or before
any arbitrator or Governmental Authority.
"ACTUAL NET INCOME" shall mean an amount equal to (A) the excess of (i)
the Company's actual net income for the period from January 1, 1996 to but not
including the Closing Date, based on a closing of the books as of the close of
business on the day immediately preceding the Closing Date and calculated on the
same basis as the amount which would appear on page 4, line 33 of a hypothetical
Annual Statement for the Company covering such period, over (ii) any payments
made or required to be made by the Company in connection with Taxes attributable
to the period January 1, 1996 to but not including the Closing Date, but only to
the extent the Taxes to which such payments related have not already been taken
into account as a deduction in computing actual net income pursuant to clause
(i) herein, plus (B) the amount of any "stay-on" bonuses paid by the Company
(with the consent and at the direction of the Purchaser) after December 31,
1995; provided, however, the computation of Actual Net Income shall not take
into account (x) any income and deductions attributable to the items referred
to in SECTION 10.1(c)(i) - (iv), and (y) the excluded Taxes referred to in the
second sentence of SECTION 10.1(c).
"ADMINISTRATOR" shall have the meaning ascribed to such term in
EXHIBIT G.
"AFFILIATE" shall mean any Person that directly, or indirectly through
one or more intermediaries, Controls, is Controlled by, or is under common
Control with the Person specified.
"AGREEMENT" shall mean this Stock Acquisition Agreement, together with
the exhibits attached hereto, the Disclosure Schedule, and the contracts and
other documents to be executed and delivered respectively by Seller pursuant
hereto.
"ANNUAL STATEMENT" shall mean any annual statement of the Company filed
with or submitted to the insurance regulatory authority in the state in which it
is domiciled on forms prescribed or permitted by such authority.
"ASSETS AND PROPERTIES" shall mean all assets and properties of every
kind, nature, character, and description (whether real, personal, or mixed,
whether tangible or intangible, whether absolute, accrued, contingent, fixed, or
otherwise, and wherever situated) as now operated, owned, or leased by a
specified Person, including without limitation cash, cash equivalents,
securities, accounts and notes receivable, real estate, equipment, furniture,
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fixtures, insurance or annuities in force, goodwill, and going-concern value.
"AUDIT" shall mean any audit, assessment of Taxes, other examination by
any Tax Authority, proceeding or appeal of such proceeding relating to Taxes.
"BENEFIT PLANS" shall mean all Employee Pension Benefit Plans, all
Employee Welfare Benefit Plans, all stock bonus, stock ownership, stock option,
stock purchase, stock appreciation rights, phantom stock, and other stock plans
(whether qualified or non-qualified), and all other pension, welfare, severance,
retirement, bonus, deferred compensation, incentive compensation, insurance
(whether life, accident and health, or other and whether key man, group, workers
compensation, or other), profit sharing, disability, thrift, day care, legal
services, leave of absence, layoff, and supplemental or excess benefit plans,
and all other benefit contracts (including employment agreements), arrangements,
or procedures having the effect of a plan, under which the Company is obligated
in any manner as an employer or with respect to its officers, directors or
agents (including without limitation obligations to make contributions or other
payments).
"BOOKS AND RECORDS" shall mean all accounting, financial reporting, Tax,
business, marketing, corporate, and other files, documents, instruments, papers,
books, and records of a specified Person, including without limitation, ledgers,
journals, deeds, titles, policies, manuals, minute books, stock certificates and
books, stock transfer ledgers, contracts, franchises, permits, agency lists,
policyholder lists, supplier lists, reports, computer files, operating data or
plans, and environmental studies or plans.
"BUSINESS DAY" shall mean a day other than Saturday, Sunday, or any day
on which the principal commercial banks located in California are authorized or
obligated to close under the Laws of California.
"BUSINESS OR CONDITION" shall mean the organization, existence,
authority, capitalization, business, licenses, condition (financial or
otherwise), cash flow, management, sales force, solvency, results of operations,
insurance or annuities in force, capital and surplus reserves, liabilities,
Assets and Properties, or prospects of a specified Person.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act.
"CLAIM NOTICE" shall mean written notification of a Third Party Claim by
an Indemnified Party to an Indemnifying Party pursuant to SECTION 10.3(a)
hereof, enclosing a copy of all papers served, if any.
"CLOSING" shall mean the closing of the transactions contemplated by this
Agreement as provided in SECTION 2.3 hereof.
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"CLOSING DATE" shall mean the last Business Day of the month which
includes the date upon which the last of the orders or approvals described in
SECTIONS 5.1, 5.2, 6.1, and 6.2 hereof has been obtained, including without
limitation the approvals under all applicable insurance holding company laws, or
(b) such other date as the Purchaser and Seller may mutually agree upon in
writing.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMMERCIALLY REASONABLE EFFORTS" or "COMMERCIALLY REASONABLE STEPS,"
when used with respect to any party, shall mean the reasonable efforts of a
party without the requirement that such party incur any unanticipated (as of the
date hereof) out-of-pocket expenses, including the making of any capital
contribution, or incur any other unanticipated (as of the date hereof) burden or
commence or pursue litigation in any action, suit or proceeding, whether
administrative, civil or criminal.
"COMPANY" shall have the meaning ascribed to it in the preamble of this
Agreement.
"CONSIDERATION" shall have the meaning ascribed to it in Section 2.2.
"CONSIDERATION ADJUSTMENT" shall have the meaning ascribed to it in
Section 2.2.
"CONSIDERATION ADJUSTMENT PAYMENT DATE" shall have the meaning ascribed
to it in Section 2.2.
"CONTROL" (and its derivative terms "CONTROLLED," "CONTROLS," etc.) shall
mean the power and right to direct the management and policies of another
Person, whether by ownership of voting securities, the ability to elect a
majority of the board of directors or other managing board or committee,
management contract, or otherwise.
"COST ALLOCATION AGREEMENT" shall mean the Cost Allocation Agreement,
dated 1/1/91, between Zenith National Insurance Corp., Zenith Insurance Company,
ZNAT Insurance Company, CalFarm Insurance Company, CalFarm Life Insurance
Company, CalFarm Insurance Agency and Zenith Star Insurance Company and
amendment thereto dated 12/28/93.
"DAMAGES" shall mean any and all costs, damages, liabilities, fines,
fees, penalties, interest obligations, deficiencies, losses, and expenses
(including without limitation punitive, treble, or other exemplary or extra-
contractual damages, amounts paid in settlement, interest, court costs, costs of
investigation, reasonable fees and expenses of attorneys, accountants,
actuaries, and other experts, and other reasonable expenses of litigation or of
any claim, default, or assessment).
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"DESIGNATED AFFILIATE" shall mean any corporation directly or indirectly
majority owned or Controlled by the Purchaser or under common ownership or
Control with Purchaser that is designated by the Purchaser, in writing delivered
to Seller at or before the Closing, to purchase all or any portion of the Shares
pursuant to this Agreement.
"DISCLOSURE SCHEDULE" shall mean the Disclosure Schedule dated and
delivered to Purchaser as of the date of this Agreement, furnished by Seller to
the Purchaser, and containing all lists, descriptions, exceptions, and other
information and materials as are required to be included therein pursuant to
this Agreement.
"EMPLOYEE PENSION BENEFIT PLAN" shall mean each employee pension benefit
plan (whether or not insured), as defined in Section 3(2) of ERISA, to which the
Company is obligated in any manner as an employer.
"EMPLOYEE WELFARE BENEFIT PLAN" shall mean each employee welfare benefit
plan (whether or not insured), as defined in Section 3(1) of ERISA, to which the
Company is obligated in any manner as an employer.
"ENVIRONMENTAL LAWS" shall mean any federal, state or local law, statute,
ordinance or regulation pertaining to health, industrial hygiene or the
environmental condition on or under any property including, without limitation,
CERCLA and the Toxic Substance Control Act, and the rules and regulations
thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended (including without limitation any successor act), and the rules and
regulations promulgated thereunder.
"ERISA AFFILIATE" shall mean any Person under common control (as defined
in Section 414 of the Code) with the Seller or the Company.
"ESTIMATED NET INCOME" shall mean an amount equal to the Seller's good
faith estimate, as certified by Seller's Chief Financial Officer on the Closing
Date, of the Company's Actual Net Income.
"EXCLUDED ASSETS" shall mean the Group Health Business and the Assets and
Properties set forth in EXHIBIT E hereto and the agreements set forth in
EXHIBIT F hereto.
"EXCLUDED ASSET EVENT" shall mean any fact, condition or event that
affects one or more Excluded Assets but which does not and would not be
reasonably expected to adversely affect the Company's Business or Condition
(assuming for such purpose that the transactions contemplated in this Agreement
have been consummated in accordance with the terms of this Agreement) or result
in any liability or obligation of the Company.
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"EXISTING PRODUCT" shall have the meaning set forth in SECTION 3.18(f) of
this Agreement.
"EXISTING PRODUCT ITEM" shall mean any failure of an Existing Product to
be accorded treatment under the Code that is no less favorable than the
treatment for which such Existing Product was intended to qualify at the time of
its issuance by the Company, other than as a result of any change to the Code
that is effective after the Closing Date.
"FINANCIAL STATEMENTS" shall mean both the SAP Statements and the GAAP
Statements.
"GAAP" shall mean generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"GAAP STATEMENTS" shall mean the financial statements of the Company and
the Subsidiaries delivered to the Purchaser pursuant to either or both of
SECTIONS 3.8(b) and 5.6(b) hereof.
"GAAS" shall mean generally accepted actuarial standards as adopted by
the Actuarial Standards Board and the National Association of Insurance
Commissioners, including but not limited to Actuarial Guidelines as found in the
Financial Condition Examiners Handbook.
"GOVERNMENTAL AUTHORITY" shall mean any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"GROUP HEALTH BUSINESS" or "HEALTH BUSINESS" shall mean the Company's
master group health policies including those numbered GH1000, GH1002, GH1150,
GH1200, GH2000, GH3001 and GH3003, together with all renewals thereof, and all
issued certificates of insurance which evidence coverage thereunder.
"GUARANTY" or "PARENT GUARANTY" shall mean the Guaranty dated as of the
date hereof, executed by SunAmerica, Inc. with respect to the Purchaser's
obligations under this Agreement in the form of EXHIBIT I hereto.
"HAZARDOUS SUBSTANCE" shall mean (i) any and all substances defined as
"hazardous substances," "extremely hazardous substances," "toxic substances,"
"hazardous waste," "hazardous materials" or "infectious waste" for purposes of
CERCLA or any other Environmental Law and (ii) any petroleum or petroleum-based
products.
"HSR ACT" shall mean Section 7A of the Clayton Act (Title II of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976), as amended (including without
limitation any successor act), and the rules and regulations promulgated
thereunder.
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"INDEMNIFIED PARTY" shall mean a Person claiming indemnification under
ARTICLE 10 hereof.
"INDEMNIFYING PARTY" shall mean a Person against whom claims of
indemnification are being asserted under ARTICLE 10 hereof.
"INDEMNITY NOTICE" shall have the meaning ascribed to it in SECTION 10.3
hereof.
"INTERCOMPANY LIABILITY STATEMENT" shall have the meaning ascribed to it
in SECTION 5.16 hereof.
"IRS" shall mean the United States Internal Revenue Service or any
successor agency.
"LABOR MATTERS" shall have the meaning ascribed to it in Section 3.15
hereof.
"LIEN" shall mean any mortgage, pledge, assessment, security interest,
lease, sublease, lien, adverse claim, levy, charge, option, rights of others or
restrictions (whether on voting, sale, transfer, disposition or otherwise) or
other encumbrance of any kind, whether imposed by agreement, understanding, law
or equity, or any conditional sale contract, title retention contract, or other
contract to give or to refrain from giving any of the foregoing other than
Permitted Encumbrances.
"LIFE & ANNUITY RESERVES" shall mean, as of any date, the total amount of
future policy benefits for life insurance contracts and deposits on universal
life and deferred annuity contracts, as reflected on a balance sheet prepared in
accordance with GAAP.
"MEDIATOR" shall have the meaning ascribed to it in SECTION 2.2 hereof.
"NOTICE PERIOD" shall have the meaning ascribed to it in SECTION 10.3
hereof.
"ORDER" shall mean any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERMITTED ENCUMBRANCES" shall mean the following: (i) Liens for Taxes
or assessments or other governmental charges or levies (a) that are not yet
delinquent, or (b) that are being contested in good faith and have been
adequately reserved for; (ii) pledges or deposits of the type reflected in the
Company's 1994 Annual Statement on the Schedule of Special Deposits;
(iii) workers', mechanics', suppliers', carriers', warehousemen's or other
similar liens arising in the ordinary course of business and securing
indebtedness aggregating not in excess of $100,000 at any time outstanding, not
yet due and payable; and (iv) zoning restrictions, easements, licenses, or other
restrictions on the use of real property or other minor irregularities in title
(including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such real property, leases or
leasehold
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estates.
"PERSON" shall mean any natural person, corporation, general partnership,
limited partnership, proprietorship, trust, union, association, court, tribunal,
agency, government, department, commission, self-regulatory organization,
arbitrator, board, bureau, instrumentality, or other entity, enterprise,
authority, or business organization.
"POST-CLOSING STRADDLE PERIOD" shall mean with respect to any taxable
period that commences prior to the Closing Date, but ends after the Closing
Date, the portion of the taxable period that commences on the first day after
the Closing Date and continues up to and including the last day of such taxable
period.
"PRE-CLOSING STRADDLE PERIOD" shall mean with respect to any taxable
period that commences prior to the Closing Date, but ends on or after the
Closing Date, the portion of the taxable period that commences on the first day
of such taxable period and continues up to and including the Closing Date.
"PRIME RATE" shall mean the highest prime or base rate of interest
publicly announced by any of Citibank, N.A., Chemical Bank, N.A., or Continental
Bank, N.A.
"PURCHASER" shall have the meaning ascribed to it in the preamble of this
Agreement.
"QUARTERLY STATEMENT" shall mean any quarterly statement of the Company
filed with or submitted to the insurance regulatory authority in the state in
which it is domiciled on forms prescribed or permitted by such authority.
"REAL ESTATE" or "REAL PROPERTY" means all real property and interests
therein, including without limitation leasehold interests, owned or held, at any
time since the Seller acquired the Company, by the Company or the Subsidiary.
"RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, migrating, dumping or
other disposal in any amount into or onto the air, ground or surface water,
land, or other parts of the environment, however caused, not permitted by or in
compliance with Environmental Laws.
"RESERVE LIABILITIES" shall have the meaning ascribed to it in
SECTION 3.9 hereof.
"RESOLUTION ACCOUNTANT" shall have the meaning ascribed to it in
SECTION 10.1(g) hereof.
"RETAINED EMPLOYEES" shall have the meaning ascribed to it in
SECTION 3.15(h) hereof.
"SAP" shall mean the accounting practices required or permitted by the
National
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Association of Insurance Commissioners and the insurance regulatory authority in
the state in which the Company is domiciled, as the case may be, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"SAP STATEMENTS" shall mean the Annual Statements, Quarterly Statements,
and other financial statements and presentations of the Company delivered to the
Purchaser pursuant to either or both of SECTIONS 3.8(a) and 5.6(a) hereof.
"SCHOOL DISTRICT HOLD HARMLESS AGREEMENTS" shall mean any agreement of or
binding on the Company pursuant to which the Company indemnifies or holds
harmless any school district or any other Person which is similar to those set
forth in item 8 of SECTION 3.17(m) OF THE DISCLOSURE SCHEDULE.
"SELLER" shall have the meaning ascribed to it in the first paragraph of
this Agreement.
"SERVICES AGREEMENT" shall have the meaning set forth in SECTION 5.8
hereof.
"SHARES" shall mean all issued and outstanding shares of capital stock of
the Company.
"SUBSIDIARY" shall mean CalFarm Properties, Inc., a California
corporation.
"SUBSIDIARY" shall mean each of those Persons, regardless of jurisdiction
of organization, of which another Person, directly or indirectly through one or
more subsidiaries, Controls securities having more than 50% of the voting power
of such Person (without giving effect to any contingent voting rights).
"TAXES" shall mean all taxes, charges, fees, levies, or other similar
assessments, including, without limitation, income, gross receipts, ad valorem,
premium, excise, real property, personal property, windfall profit, sales, use,
transfer, licensing, withholding, employment, payroll, and franchise taxes
imposed by the United States of America or any state, local or foreign
government,or any subdivision, agency, or other similar Person of the United
States or any such government; and such term shall include any interest (through
the date of payment), penalties, assessments, or additions to tax resulting
from, attributable to, or incurred in connection with any such tax or any
contest or dispute thereof.
"TAX AUTHORITY" shall mean the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the administration of
any Taxes.
"TAX CLAIM" shall have the meaning ascribed to it in SECTION 10.1(h)
hereof.
"TAX RETURNS" shall mean returns, declarations, statements, reports,
schedules, forms and information returns and any amended Tax Return required to
be supplied to a taxing
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authority in respect of or relating to Taxes.
"TAX SHARING AGREEMENT" shall mean the Amended and Restated Tax Sharing
Agreement, dated January 1, 1991, between Zenith National Insurance Corp.,
Zenith Insurance Company, CalRehab Services, Inc., CalFarm Insurance Company,
CalFarm Insurance Agency, Cal-Ag Insurance Services, Inc., CalFarm Annuity
Services Company, ZNAT Insurance Company, CalFarm Life Insurance Company, Zenith
Star Insurance Company, and Perma-Bilt, a Nevada corporation.
"THIRD PARTY CLAIM" shall have the meaning ascribed to it in
SECTION 10.3(a) hereof.
"TRANSFERRED EMPLOYEES" shall have the meaning ascribed to it in
SECTION 3.15(h) hereof.
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<PAGE>
EXHIBIT B
TRANSITION SERVICES AGREEMENT
<PAGE>
TRANSITION SERVICES AGREEMENT
BY AND BETWEEN
CALFARM LIFE INSURANCE COMPANY
AND
CALFARM INSURANCE COMPANY
DATED AS OF
-------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
1 ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . . . . . B1
2 PERFORMANCE STANDARDS . . . . . . . . . . . . . . . . . . . . . . . . B2
3 TRANSITION ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . B3
4 COST OF SERVICES AND EXPENSES . . . . . . . . . . . . . . . . . . . . B4
5 RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . B4
6 REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B5
7 RECORD RETENTION AND MAINTENANCE . . . . . . . . . . . . . . . . . . . B5
8 ACCESS TO PREMISES, BOOKS AND RECORDS . . . . . . . . . . . . . . . . B5
9 BANKING ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . B6
10 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . B7
11 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . B8
12 BREACHES AND OTHER DEFAULTS . . . . . . . . . . . . . . . . . . . . . B8
13 DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . B9
14 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . B9
i
<PAGE>
SCHEDULES
Schedule 1.1 SERVICES
Schedule 3.2 SYSTEMS
Schedule 6.1 FORM OF TIME SERVICE REPORTS
Schedule 9.3 AUTHORIZED EMPLOYEES
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<PAGE>
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this "AGREEMENT"), dated as of
________________ [the Closing Date] (the "EXECUTION DATE"), by and between
CALFARM LIFE INSURANCE COMPANY, a California corporation ("COMPANY"), and
CALFARM INSURANCE COMPANY, a California corporation (the "SERVICER").
RECITALS
WHEREAS, pursuant to that certain Stock Acquisition Agreement, dated
as of September 19, 1995 (the "ACQUISITION AGREEMENT"), by and between Anchor
National Life Insurance Company, a California corporation (the "PURCHASER"), and
Zenith National Insurance Corp., a Delaware corporation ("ZENITH"), the
Purchaser or a Designated Affiliate will acquire all of the outstanding capital
stock of the Company (the "ACQUISITION") (all capitalized terms used herein
without definition have the meanings set forth in the Acquisition Agreement);
WHEREAS, in connection with the Acquisition, the Purchaser has
requested that the Servicer provide the Company with certain services during a
transitional period following the Acquisition relating to the policies issued by
the Company (excluding policies issued in connection with the Group Health
Business) along with any new policies under contract forms for such policies in
effect on the Closing Date issued by the Company after the execution of this
Agreement (collectively, the "INSURANCE POLICIES"); and
WHEREAS, the Servicer and the Company wish to set forth in this
Agreement their respective obligations in connection with the administration,
data processing, servicing, claims payment, policy management and support of the
Insurance Policies.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto agree as follows:
1 ADMINISTRATIVE SERVICES
1.1. TRANSITION PERIOD SERVICES.
(a) The Servicer shall provide the Services (as defined below)
to the Company in accordance with this Agreement for a period (the "TRANSITION
PERIOD") beginning on the Closing Date and ending on the earliest of (i) the
date which is 180 days immediately following the Closing Date, (ii) the last day
of the month ending at least 30 days after the date on which the Company
provides written notice to the Servicer notifying the Servicer of the Company's
termination of this Agreement, or (iii) a date specified by mutual written
consent of the parties hereto. These services shall be the services summarized
in SCHEDULE 1.1, and such modified or additional services as may be agreed upon
by the Company and the Servicer from
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time to time and set forth in written amendments to the Agreement (collectively,
the "SERVICES"). Upon at least fourteen (14) days' notice to Servicer, Company
may direct Servicer to cease performing a specified function or functions or the
Services performed by identified personnel.
(b) The Servicer shall as soon as practicable forward to the
Company at an address or telephone line specified by the Company from time to
time in writing, any premiums, correspondence, claims inquiries, telephone calls
or other matters received by it after the Transition Period which relate to the
Insurance Policies.
(c) The Servicer shall not, without the Company's prior written
consent, enter into any settlement with respect to, or compromise, on behalf of
the Company, any indemnification, claim, demand, cost, liability or expense
against the Company arising out of or relating to any Insurance Policy (other
than on terms expressly provided for in any such Insurance Policy), all such
settlements being reserved to the Company's exclusive jurisdiction.
(d) The Services shall be provided by Servicer, either directly
or by agreement with certain of its Affiliates, subject in all events to the
provisions of this Agreement.
2 PERFORMANCE STANDARDS
2.1. PERFORMANCE AND QUALITY. The Servicer shall perform the Services
in conformity with existing practices and procedures used by the Company and the
Servicer, and of the same quality as provided by the Servicer and its
Affiliates, prior to the Execution Date. The Servicer shall, to the extent
feasible, modify such practices and procedures for compliance with changes in
such laws and regulations as are applicable to the Services which become
effective during the Transition Period, at the Company's cost. The Servicer may
conclusively rely on advice of counsel provided by the Company. In the event
the Servicer considers it necessary as the result of one or more employee
resignations to retain any independent contractor or new employee to provide all
or any part of the Services hereunder, it will obtain the Company's and the
Purchaser's prior written consent to such arrangement, and if such consents are
not given, Servicer shall have no obligation to provide the Services to have
been performed by such new employee or contractor.
2.2. UNCONTROLLABLE EVENT. During the Transition Period, the Servicer
shall use commercially reasonable efforts to minimize the likelihood of any
damage, loss of data, delays or errors resulting from an uncontrollable event,
and should such damages, loss of data, delays or errors occur, the Servicer
shall use commercially reasonable efforts to mitigate the effects of such
occurrence.
2.3 RELIANCE ON COMPANY EMPLOYEES. The Company agrees that to the
extent the Servicer's performance of the Services is dependent on the
performance of functions and provision of accurate information by the Retained
Employees, the Servicer shall have no obligation to perform such Services (or
have any liability to the Company with respect thereto,
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including but not limited to liabilities under SECTION 10.2 hereof) unless and
until the applicable Retained Employees perform such functions and provide such
information.
3 TRANSITION ASSISTANCE
3.1. TRANSFER OF ADMINISTRATION. During the Transition Period, the
Servicer shall cooperate with the Company and use commercially reasonable
efforts to effect an orderly transfer of administration as rapidly and smoothly
as possible at the business locations specified by the Company. The Company
shall reimburse the Servicer for all travel costs associated therewith which
have been approved in writing in advance by the Company.
3.2. SYSTEMS TRANSFER. The Company acknowledges that the Services may
require the Servicer to use computer systems and software which are subject to
proprietary licensing and confidentiality agreements. A list of such computer
systems and software is set forth on SCHEDULE 3.2 (the "SYSTEMS"). The Servicer
and the Company agree to use their respective commercially reasonable efforts to
obtain all consents and licenses with respect to the software owned by each of
them respectively, necessary or desirable for the Servicer to perform the
Services or other obligations hereunder; provided, that the Company pays the
commercially reasonable expense of obtaining any such consents and licenses. In
connection with the Services and the transfer or conversion of the Insurance
Policies data from such Systems, the Company agrees to sign the nondisclosure
agreements with the Servicer's licensors listed on SCHEDULE 3.2, if any, which
are necessary to transfer data to the Company during or at the end of the
Transition Period.
3.3. TRANSITION PERIOD.
(a) During the Transition Period, Company shall make available to
Servicer and its Affiliates solely to enable them to perform Services under this
Agreement the use of space under lease by the Company at 1601 Response Road,
Suite 200, Sacramento, California 95815, at no cost to Servicer.
(b) During the Transition Period, the Servicer shall leave in place
and make available to the Company at no charge (other than the Servicer's out-
of-pocket expenses with respect thereto) such of the fixed assets transferred to
the Servicer pursuant to the Assumption Reinsurance Agreement as are necessary
for the Retained Employees to continue to perform the functions performed by
them prior to the Execution Date.
4 COST OF SERVICES AND EXPENSES
4.1. FEES.
(a) The Company shall pay to the Servicer the fees described below
(the "SERVICE FEES") for Services provided under this Agreement during the
Transition Period, following receipt of appropriate documentation evidencing the
provision of such Services by the Servicer to the Company acceptable in form and
substance to the Company. Notwithstanding
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any prior allocation of costs between Servicer and the Company, the fees paid
under this Agreement shall be calculated to equal the direct cost to the
Servicer of providing the Services to the Company under this Agreement,
excluding any allocation of overhead from any Affiliates of the Servicer, any
allocation for bonuses and any allocation of costs with respect to any assets
transferred by the Company to the Servicer or an Affiliate of the Servicer prior
to the Closing Date. In addition to the Service Fees, the Company shall pay the
Servicer for the direct cost to Servicer of providing assistance in connection
with the conversion of the systems and information used in the Company's
business to the systems of the Purchaser to the extent any such assistance is
not already provided as Services hereunder.
(b) Except for amounts due pursuant to Sections 3.1, 4.1(a) and 10.1,
this Agreement does not create any obligation on the part of the Company to pay
any amounts to the Servicer or its Affiliates. In no event shall Company be
responsible for the cost of severance payments required in connection with the
termination of any employees or independent contractors of the Servicer or its
Affiliates.
4.2. TAXES. The Company shall be responsible for payment of Taxes
applicable to the Insurance Policies which accrue during the Transition Period,
including without limitation any premium taxes on the Insurance Policies that
accrue during the Transition Period; provided that the Servicer shall be
responsible for remitting funds provided by the Company with respect to
applicable federal, state and local withholding taxes to the appropriate Tax
Authority on a timely basis for the account of the Company.
5 RELATIONSHIP OF THE PARTIES
Nothing contained in this Agreement shall be construed to create any
relationship of partnership or joint venture between the Servicer and the
Company, and neither the Company nor the Servicer shall represent to any third
party that any relationship other than as described in this Agreement exists or
relates to the arrangements under the Acquisition Agreement; provided, however,
that the parties agree that in acting pursuant to this Agreement, the Servicer
is acting as the agent of the Company, but only with respect to actions
undertaken by the Servicer in accordance with the terms of this Agreement on
behalf of the Company and only such actions shall be deemed to be the acts of
the Company.
6 REPORTS
Every month during the Transition Period and through the date of
delivery of a final report for the period ending on the date of termination or
expiration of this Agreement, by the tenth day of the month, the Servicer shall
furnish to the Company monthly time service and performance reports concerning
the Services which shall be in a form presently maintained by the Servicer and
attached hereto as SCHEDULE 6.1 for the period ended on the last day of the
immediately preceding month. In addition, the Servicer shall provide the
Company more
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frequent reports concerning the Services to the extent produced by the Servicer
in the ordinary course.
7 RECORD RETENTION AND MAINTENANCE
7.1. RECORD RETENTION AND MAINTENANCE. On and after the Execution
Date and for the duration of the Transition Period, the Servicer shall hold,
maintain and safeguard the Books and Records and all other records and data and
support materials of the Company or pertaining to the performance of the
Services including without limitation files, input materials, reports and forms,
that are received, computed, developed or used pursuant to this Agreement, with
the same standard of care that the Servicer holds, maintains and safeguards its
other records.
8 ACCESS TO PREMISES, BOOKS AND RECORDS
8.1. ACCESS. At any time during regular business hours, upon
reasonable notice, the Company and its representatives and Affiliates shall have
full access to the Books and Records of the Company in the possession or under
the control of Servicer and all other support materials for the Insurance
Policies and the Services and to the Servicer's premises; provided that such
access does not materially disrupt the Servicer's operations. Upon reasonable
notice, the Servicer shall also make available all such information and
materials to any insurance regulators or other governmental authorities and
shall provide such insurance regulators and governmental authorities with access
to the Servicer's premises upon the Company's request at any time during regular
business hours, provided that such access does not materially disrupt Servicer's
operations.
8.2. INSPECTIONS AND AUDITS. At any time during regular business
hours, the Company and its representatives and Affiliates shall have the full
right to inspect and audit the Servicer's operations and its maintenance of
Books and Records of the Company in the possession or under the control of
Servicer and other support materials pertaining to the provision of the
Services; provided that such access does not materially disrupt the Servicer's
operations. Such inspections and audits may be performed by either the
Company's internal audit staff or by outside auditors retained by the Company.
9 BANKING ARRANGEMENTS
9.1. DEPOSIT AND DISBURSEMENT ACCOUNTS. During the Transition Period,
the Servicer shall utilize the deposit and disbursement accounts of the Company
in accordance with the written instructions of the Company.
9.2. DEPOSITS AND DISBURSEMENTS. All funds collected by the Servicer
in connection with the Insurance Policies during the Transition Period shall be
promptly deposited
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in the appropriate accounts as the Servicer receives said funds. The Servicer
shall furnish on a daily basis to the Company a list of such amounts deposited
in the Company's accounts and a list of checks issued from any of the Company's
accounts.
9.3. APPROVED DISBURSEMENTS. During the Transition Period, the
Company shall authorize the employees of the Servicer set forth on SCHEDULE 9.3
and, from time to time in the Company's sole discretion additional designated
employees of the Servicer, to make the following disbursements relating to the
Insurance Policies from the Company's accounts in a timely manner pursuant to
the terms and conditions of this Agreement: all benefits, claims, loans, cash
surrenders, premium refunds, and any other contractual benefits, claims or
obligations, and insurance agent compensation required to be paid by the Company
and pursuant to the Servicer's obligations in this Agreement, commercially
reasonable out-of-pocket expenses incurred by the Servicer in connection with
the payment of such benefits and claims, amounts approved by the Company payable
for reinsurance and such other expenses, in each case as hereafter may be
mutually agreed by the parties (collectively, the "APPROVED DISBURSEMENTS").
The Servicer agrees that payment of such benefits, claims and other liabilities
relating to the Insurance Policies and commissions thereon made pursuant to and
in accordance with this Agreement are for the account of the Company. No
employee of the Servicer shall be authorized to or shall make any disbursements
relating to the Service Fees.
9.4. INSUFFICIENT FUNDS. In the event that at anytime the amounts in
the applicable Company accounts are insufficient to cover the Approved
Disbursements the Company shall, promptly upon receipt of written notice from
the Servicer, by means of a wire transfer of immediately available funds, pay
into the appropriate Disbursement Accounts such amounts as may be necessary to
provide appropriate amounts therein.
9.5. ACCOUNT OWNERSHIP AND EARNINGS. The Company and the Servicer
acknowledge and agree that the balances in all of the Company's accounts and the
income derived therefrom, shall be owned solely by the Company, and the Company
and the Servicer agree that interest earned on moneys in such accounts shall be
credited to such accounts.
10 INDEMNIFICATION
10.1. INDEMNIFICATION BY THE COMPANY. The Company shall indemnify
and hold the Servicer or any Affiliate thereof, their officers, directors,
employees, agents and sub-agents, harmless against any losses, claims, damages,
demands, costs, judgments, liabilities or expenses (including without limitation
reasonable counsel fees and expenses) resulting from: (i) any action taken by
the Servicer, its officers, directors or employees, agents or sub-agents (or the
officers, directors or employees of any Affiliate of the Servicer) in good faith
and with due diligence in compliance with the terms of this Agreement; (ii) any
situations which arise out of the gross negligence, wilful or wanton misconduct
or bad faith on the part of Company or its Affiliates or agents; and (iii) any
act done or suffered by the Servicer in connection with its performance under
this Agreement in reliance upon any instruction, order or other instrument given
or executed by the Company. In the event of any demand for any indemnification,
loss,
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<PAGE>
claim, damages, demands, costs, judgments, liabilities or expenses under
this Section, the Company shall have the right, in its sole discretion and at
its sole cost and expense, to undertake and direct the defense of the Servicer,
its Affiliates, officers, directors, employees, agents or sub-agents with
respect to such matters. In the event the Servicer is served or presented with
such demand or claim, the Servicer shall provide the Company with prompt written
notice of such demand or claim.
10.2. INDEMNIFICATION BY THE SERVICER. The Servicer shall
indemnify and hold the Company (or any Affiliate thereof), its officers,
directors, employees, agents and sub-agents, harmless against any losses,
claims, damages, demands, costs, judgments, liabilities or expenses (including
without limitation reasonable counsel fees and expenses) resulting from: (i)
Servicer's wilful refusal or failure to comply with the terms of this Agreement,
or which arise out of Servicer's gross negligence or wilful misconduct,
provided, however, the Servicer shall be without liability to the Company if
such act, error, omission or conduct was in accordance with express instructions
from the Company received by the Servicer or as provided in SECTION 2.3 hereof;
and (ii) the termination of any employee of the Servicer or its Affiliates. In
the event of any demand for any indemnification, loss, claim, damages, demands,
costs, judgments, liabilities or expenses under this Section, the Servicer shall
have the right, in its sole discretion and at its sole cost and expense, to
undertake and direct the defense of the Company, its Affiliates, officers,
directors, employees, agents or sub-agents with respect to such matters. In
the event the Company is served or presented with such demand or claim, the
Company shall provide the Servicer with prompt written notice of such demand
or claim.
10.3 SURVIVAL OF INDEMNIFICATION PROVISIONS. The obligations under
Section 10.1 and 10.2 of this Agreement shall survive for a period of eighteen
(18) months from the date of termination or expiration of this Agreement.
11 CONFIDENTIALITY
11.1. CONFIDENTIALITY. Each party hereto will safeguard and
protect the confidentiality of all Books and Records, Systems and other support
materials relating to the Insurance Policies, including without limitation
policyholder information, actuarial data, management reports, government
reports, and other proprietary information with respect to the Insurance
Policies. The Servicer, on behalf of itself and its employees, agrees to keep
confidential any proprietary information received from the Company and any
personal information respecting the Company's policyholders. The Company, on
behalf of itself and its employees, agrees to treat all proprietary information
with respect to the Servicer's business, including its Systems and operations,
as confidential. However, if either party is required to produce any such
proprietary information by order or demand of any governmental agency or other
regulatory body, it may release the required information upon not less than
fifteen (15) days' prior written notice to the other party, unless compelled by
such order to release the information sooner. In the event either party is
served with any such order, the receiving party will provide the other party
with prompt written notice of such order so that the other party may seek
appropriate protective relief if it so desires.
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11.2. TRANSACTION. Each of the Servicer and the Company will
hold, and will cause its respective Affiliates and their respective employees,
consultants, and other agents and representatives to hold, in strict confidence,
unless compelled to disclose by judicial or administrative process or any other
requirements of applicable law, all documents and confidential or proprietary
information concerning the other party furnished to it by the other party or
such other party's employees, consultants, agents or representatives in
connection with this Agreement or the transactions contemplated hereby, except
to the extent that such documents or information can be shown to have been (a)
previously lawfully known by the party receiving such documents or information,
or (b) previously in the public domain or obtained from a source not bound by
the terms of this Agreement. No party hereto will disclose or otherwise provide
any such documents or confidential or proprietary information to any other
Person, except to either party's respective auditors, actuaries, attorneys,
financial advisors and other consultants and advisors who need such documents or
information in connection with this Agreement or the Acquisition Agreement and
the transactions contemplated thereby, and the parties hereto agree to cause
each of the foregoing to be subject to and bound by the confidentiality
provisions hereof.
12 BREACHES AND OTHER DEFAULTS
12.1. BREACHES AND OTHER DEFAULTS. In the event of a breach of
this Agreement or other default hereunder, the provisions of Section 9.2 of the
Acquisition Agreement, shall apply to the extent they are not inconsistent with
the terms of this Agreement.
13 DISPUTE RESOLUTION
13.1. BINDING ARBITRATION. The Company and the Servicer shall
cooperate in good faith with each other in resolving all controversies, claims
or disputes between the parties arising out of or relating to this Agreement or
its alleged breach. If any controversy, claim or dispute cannot be resolved by
the parties, then such matter shall be submitted to arbitration. Said
arbitration shall be presided over by a panel of three arbitrators: one
arbitrator to be designated by each party and one arbitrator to be designated by
the two arbitrators selected by the parties. If either the Company or the
Servicer shall decline to designate an arbitrator, or if the two arbitrators
selected by the parties shall decline or be unable to designate a third
arbitrator, then the designation of such arbitrator(s) shall be made in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The decision of any two arbitrators regarding any controversy,
claim or dispute submitted to them by the parties hereto shall be final and
binding upon the parties hereto, and may be entered as a final judgment in any
court of competent jurisdiction.
13.2. RULES AND FORUM. Any arbitration proceeding shall, to the
extent not inconsistent with the provisions of this Article 13, be held in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Any arbitration proceeding under this Agreement shall be held in
Los Angeles, California.
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13.3. PREVAILING PARTY'S EXPENSES. The prevailing party in any
arbitration proceeding shall be entitled to recover from the losing party the
prevailing party's reasonable expenses, including, but not limited to, costs of
investigation, attorneys' fees and arbitration costs, which were incurred by the
prevailing party as a result of such controversy, claim or dispute. In the
event the amount awarded to a party is less than the amount it claimed in such
dispute, such prevailing party's recovery of costs shall be reduced in direct
proportion to the amount by which the original amounts claimed by such party
were reduced to the final award.
13.4. SURVIVAL OF ARBITRATION REQUIREMENT. The duty to arbitrate
any controversy, claim or dispute under this Agreement shall survive the
termination or expiration of this Agreement.
14 MISCELLANEOUS PROVISIONS
14.1. NOTICES. All notices and requests in connection with this
Agreement shall be given or made upon the respective parties in writing and
shall be deemed to have been duly given if delivered, telecopied or mailed by
certified mail, return receipt requested, first-class postage prepaid, to the
parties at the following addresses:
If to the Company to: CalFarm Life Insurance Company
1601 Exposition Boulevard
Sacramento, CA 95815
Attn:
Telephone:
Telecopier:
With a copy to: SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attn: Jay S. Wintrob,
Vice Chairman
Telephone: (310) 772-6514
Telecopier: (310) 772-6574
If to the Servicer to: CalFarm Insurance Company
1601 Exposition Boulevard
Sacramento, CA 95815
Attn: Philip M. Joffe
Telephone: (916) 924-4475
Telecopier: (916) 927-1121
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<PAGE>
With a copy to: Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, CA 91367
Attn: Stanley R. Zax,
Chairman and President
Telephone: (818) 713-1000
Telecopier: (818) 713-0177
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this SECTION 14.1 will, if delivered
personally, be deemed given upon delivery, will, if delivered by telecopy, be
deemed delivered when confirmed and will, if delivered by mail in the manner
described above, be deemed given on the third Business Day after the day it is
deposited in a regular depository of the United States mail. Any party from
time to time may change its address for the purposes of notices to that party by
giving a similar notice specifying a new address, but no such notice will be
deemed to have been given until it is actually received by the party sought to
be charged with the contents thereof.
14.2. CHOICE OF LAW. This Agreement and performance hereunder
shall be construed in accordance with and governed by the laws of the State of
California applicable to contracts executed and performable in such state
without reference to principles of conflicts of laws.
14.3. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under any present or future Law,
and if the rights or obligations of the Company or the Servicer under this
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof, and (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected or impaired by the
illegal, invalid, or unenforceable provision or by its severance herefrom, but
shall be construed to give effect to the terms of such illegal, invalid or
unenforceable provision to the maximum extent possible to effectuate the intent
of the original provisions of this Agreement.
14.4. WAIVER AND REMEDIES. Any term or condition of this
Agreement may be waived at any time by the party that is entitled to the benefit
thereof. Such waiver must be in writing and must be executed by a duly
authorized executive officer of such party. A waiver on one occasion will not
be deemed to be a waiver of the same or any other breach on a future occasion.
All remedies, either under this Agreement, or by law or otherwise afforded, will
be cumulative and not alternative. The failure of either party to exercise in
any respect any right provided for herein shall not be deemed a waiver of such
right or of any other right hereunder.
14.5. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable by either party hereto except upon prior
written consent of the other party and any attempted assignment without such
consent shall be void.
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14.6. AMENDMENTS. This Agreement may be modified or amended only
by a written instrument duly executed by each of the parties hereto.
14.7. CAPITALIZED TERMS. Capitalized terms not otherwise defined
herein and the term "commercially reasonable efforts" shall have the respective
meanings assigned to them in the Acquisition Agreement.
14.8. ENTIRE AGREEMENT. This Agreement supersedes all prior
discussions and agreements between the parties with respect to the subject
matter of this Agreement, and this Agreement (including the Schedules hereto)
contains the sole and entire agreement between the parties hereto with respect
to the subject matter hereof.
14.9. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which will be deemed an original, but all
of which will constitute one and the same instrument.
14.10. THIRD PARTY BENEFICIARIES. The terms and provisions of this
Agreement are intended solely for the benefit of the parties hereto, the
Purchaser and Zenith, and their respective successors and permitted assigns, and
it is not the intention of the parties to confer third party beneficiary rights
upon any other Person, except as expressly provided herein.
14.11. BINDING EFFECT. This Agreement is binding upon and will
inure to the benefit of the parties and their respective successors and
permitted assignees.
14.12. HEADING, GENDER, ETC.. The headings used in this Agreement
have been inserted for convenience and do not constitute matter to be construed
or interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include
other genders, (b) words using the singular or plural number also include the
plural or singular number, respectively, (c) the terms "hereof", "herein",
"hereby", "hereto", and derivative or similar words refer to this entire
Agreement, (d) the term "Section" refers to the specified Section of this
Agreement, (e) the term "Schedule" refers to the specified Schedule attached to
this Agreement, and (f) all references to "dollars" or "$" refer to currency of
the United States of America.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
written above.
CALFARM LIFE INSURANCE COMPANY
(the "Company")
By:
-------------------------------------
Title:
----------------------------------
CALFARM INSURANCE COMPANY
(the "Servicer")
By:
----------------------------------
Title:
----------------------------------
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<PAGE>
SCHEDULE 1.1
SERVICES
During the Transition Period, the Servicer shall perform all services
currently performed by it and by the Transferred Employees (excluding the Group
Health Business employees), to the extent the Retained Employees are currently
not providing such functions, including without limitation the following:
1. Maintenance of agent and policyholder electronic data processing
records consistent with existing practices to support the administration of the
Insurance Policies, subject to obtaining necessary consents and licenses from
the Company's and the Servicer's licensors identified on Schedule 3.2.
2. Maintenance of proper accounting systems, including the general
ledger to balance policyholder and corporate accounts, and to effect the banking
and reinsurance activities consistent with existing practices to support the
policies being administered. During the Transition Period the Servicer will not
be responsible for any cash management, investment management, trading and
related accounting for the Company except as otherwise provided in the
Agreement.
3. Provision of statutory financial reporting information no later
than the 40th day following the end of each calendar quarter, and provision of
assistance in the preparation of the Company's 1995 Annual Statement and 1996
Quarterly Statements and the calculation of tax reserves for the year ended
December 31, 1995.
4. Servicer will use its commercially reasonable efforts to provide
the following financial information (in accordance with GAAP): (1) financial
information as of the end of each calendar quarter not later than the 15th
calendar day following the end of such calendar quarter, and (2) estimated
earnings for each calendar month not later than the 10th calendar day following
the end of such month.
5. Administration and disbursement of insurance agent compensation
and maintenance of records of insurance agent earnings and debit balances.
6. Provision of information, in the form currently maintained by the
Servicer with respect to, and the filing of, any state, city, county or federal
tax form, report or statement.
7. In addition to the foregoing and subject to the provisions of
this Agreement, the Servicer shall provide the Company with the following
Services supporting conduct of the business of the Company:
a. POLICY ADMINISTRATION
1.1-1
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- 1099 processing for tax year 1995, excluding 1099R's
b. FINANCIAL SERVICES
- Cashiering function
- Accounts Payable function
- Remittance of federal, state and local withholding
taxes on a timely basis
- Maintenance of General Ledger
c. ADMINISTRATIVE SERVICES
- Mailroom
- Forms administration and storage
- Use of copy center
- Security
- Janitorial and general maintenance
d. UTILIZE SERVICER'S COMPENSATION SYSTEM FOR ADMINISTRATION
AND DISBURSEMENT OF AGENT COMMISSIONS.
e. INFORMATION SERVICES
- Telephone operations
- Use of Computer Hardware and Software in accordance
with current practices
- Computer Operations and Processing
- Report Generation
- Archiving
- Disaster recovery
- Technical Support-System software maintenance and
support
- Help desk Support
- Transition and Conversion Support, including without
limitation:
1.1-2
<PAGE>
- Remote access to mainframe by the Purchaser
- Mainframe to mainframe connection
- Job schedule changes
- Supply copies of all relevant information (e.g.
databases, files, programs, job streams, etc.)
from time to time as acquired by the Company in
machine readable form (i.e. tape, transmissions,
etc.)
1.1-3
<PAGE>
SCHEDULE 3.2
SYSTEMS
3.2-1
<PAGE>
SCHEDULE 6.1
FORM OF TIME SERVICE REPORTS
6.1-1
<PAGE>
SCHEDULE 9.3
AUTHORIZED EMPLOYEES
9.3-1
<PAGE>
EXHIBIT C
GROUP HEALTH ASSUMPTION
REINSURANCE AGREEMENT
<PAGE>
ASSUMPTION REINSURANCE AGREEMENT
THIS ASSUMPTION REINSURANCE AGREEMENT (the "AGREEMENT") is entered into
between CALFARM LIFE INSURANCE COMPANY, a California life insurance company (the
"CEDING COMPANY"), and CALFARM INSURANCE COMPANY, a California property and
casualty insurance company (the "REINSURER"), dated , 199
[immediately prior to Closing].
WHEREAS, the Ceding Company wishes to cede, assign and transfer, and the
Reinsurer wishes to assume directly, all Policies (as defined in Article I
below), all Policy Liabilities (as defined in Article II below) and certain
related liabilities of the Ceding Company upon the terms and conditions set
forth in this Agreement;
WHEREAS, the parties intend that, subject to the terms and conditions of
this Agreement and receipt of all necessary regulatory approvals and all
necessary Policyholder (as defined in Article III below) approvals, the
assumption of the Policies and Policy Liabilities by, and the transfer of assets
to, the Reinsurer pursuant to this Agreement shall be deemed in all respects to
become legally effective as of 12:01 A.M. on (the "Effective Date
and Time");
NOW, THEREFORE, in consideration of the mutual covenants and promises, and
upon the terms and conditions set forth in this Agreement, the parties agree as
follows:
ARTICLE I
As of the Effective Date and Time of this Agreement, and subject to the
terms and conditions set forth in this Agreement, the Ceding Company hereby
cedes, assigns and transfers to the Reinsurer, and the Reinsurer hereby directly
assumes, all of the Ceding Company's risks and liabilities under, rights to,
interest in and benefits to be derived from the accident and health insurance
policies issued through the Effective Date and Time by the Ceding Company under
the policies and contracts listed on, and the reinsurance agreements described
in, ANNEX A hereto and in effect on the Effective Date and Time of this
Agreement (collectively, the "POLICIES"). The Policies comprise all of the
individual, group and other accident and health insurance policies and contracts
issued directly or assumed by the Ceding Company since the Ceding Company's
incorporation. In the event the Reinsurer is unable for any reason to assume
any Policy on an assumption reinsurance basis as of the Effective Date and Time,
the Reinsurer shall reinsure such Policy on a 100% indemnity reinsurance basis
until such time as the Reinsurer can assume such Policy on an assumption
reinsurance basis at which time it shall immediately assume such Policy on an
assumption reinsurance basis.
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ARTICLE II
On and after the Effective Date and Time, the Reinsurer shall carry out and
perform all of the Ceding Company's obligations under the Policies subject to
all of the terms and conditions thereof, including without limitation the
collection of premiums, the administration of claims, the maintenance of prior
reinsurance treaties, the payment of premium refunds in accordance with the
provisions of the Policies, and the payment of commissions due agents and
brokers of the Ceding Companies on the Policies after the Effective Date and
Time. The Reinsurer shall also have the benefit of all rights granted to the
Ceding Company specified in the Policies.
As used herein, "POLICY LIABILITIES" means the gross liability of the
Ceding Company for any and all known or unknown claims or payments to be made
under the terms of the Policies, any non-contractual liabilities arising in
connection with the marketing, issuance, offer, sale, cancellation or
administration of any of the Policies by or on behalf of the Ceding Company or
in connection with the handling of any claim under such Policies by or on behalf
of the Ceding Company or its affiliates, and any and all taxes of the Ceding
Company or its affiliates relating to the Policies, including without limitation
any premium taxes.
The Reinsurer reserves the right and shall be authorized to make any
defense at law or in equity to any action or claim instituted or made under any
Policy assumed under this Agreement, which defense might or could have been made
by the Ceding Company had this Agreement not been executed and whether such
action or claim is now known or is hereafter discovered. All of the provisions,
limitations and conditions contained in the Policies assumed under this
Agreement shall remain in effect and be applicable in accordance with the terms
of such Policies, and all such defenses, setoffs and counterclaims under such
Policies shall be assigned to the Reinsurer on the Effective Date and Time
hereof.
The Ceding Company hereby agrees to transfer, assign and convey to the
Reinsurer all underwriting, claim, agency, accounting and other files relating
to the Policies and Policy Liabilities. In addition, the Ceding Company hereby
agrees to use reasonable efforts to transfer the computer systems and software
which service the Policies (the "SYSTEMS") to the Reinsurer. A list of the
Systems which are subject to proprietary licensing and confidentiality
agreements is set forth on ANNEX B. In connection with the transfer of the
Systems to the Reinsurer, the Reinsurer agrees to sign the licensing and
confidentiality agreements and such other documents as are necessary to transfer
the Systems to the Reinsurer and to utilize its best efforts to assist the
Ceding Company in connection with such transfer.
ARTICLE III
On and after the Effective Date and Time of this Agreement, the Policies
assumed under this Agreement shall become direct obligations of the Reinsurer
and the Reinsurer shall be liable as if named in the place of the Ceding Company
with respect thereto, shall act as if it were the original issuer of such
Policies in respect of the Policy Liabilities and shall indemnify and hold
harmless the Ceding Company in respect of such Policy Liabilities and in respect
of any action of a policyholder or other party under the Policies (a
"POLICYHOLDER") with respect thereto. On
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and after the Effective Date and Time, the Ceding Company shall use its best
efforts to ensure that lists of Policyholders shall not be sold or released by
it to third parties. In addition, the Reinsurer shall assume and indemnify and
hold harmless the Ceding Company with respect to the liabilities set forth in
items 3 through 9 of ARTICLE VII.
ARTICLE IV
On and after the Effective Date and Time of this Agreement, the rights of
any Policyholder under any Policies assumed hereunder shall be limited to and
consist of such rights as are set forth in such Policies. No Policyholder shall
have the right to receive any greater amount under any Policy assumed than it
would have had the right to receive in the absence of this Agreement. On and
after the Effective Date and Time of this Agreement (i) the Policyholders shall
have the right to file claims in respect of the Policy Liabilities directly with
the Reinsurer; (ii) the Policyholders shall have a direct right of action
against the Reinsurer; (iii) the Reinsurer hereby consents to be subject to
direct action properly taken by any Policyholder; and (iv) in no event shall a
Policyholder have any right of action against the Ceding Company with respect to
events occurring on or after the Effective Date and Time.
ARTICLE V
Promptly after the execution of this Agreement, the parties will make all
required filings with the appropriate regulatory authorities. The parties agree
that they will use all reasonable efforts to obtain such consents and all other
regulatory consents or approvals (whether through positive notification of
approval or non-objection) and all Policyholder consents or approvals, if any,
that are necessary or advisable in connection with the consummation of the
transactions contemplated by this Agreement. Such filings, consents and
approvals are required in the jurisdictions identified in ANNEX C. The
Reinsurer shall bear all expenses in connection with filings required under this
Agreement.
ARTICLE VI
As soon as practicable after the Effective Date and Time of this Agreement,
the Reinsurer shall issue an assumption certificate to each Policyholder of a
Policy assumed under this Agreement. Such assumption certificates shall be in
substantially the form of ANNEX D and shall be mailed, postage prepaid, to the
address of each such Policyholder as shown by the records of the Ceding Company.
The preparation and mailing of such assumption certificates, as well as any
required filing and approval of same, shall be done by the Reinsurer at its sole
expense, and the mailing of such assumption certificates shall be completed
within 30 days after such approvals are obtained.
ARTICLE VII
In addition to other good and reasonable consideration, the receipt of
which is acknowledged by the Reinsurer, the Ceding Company hereby agrees to pay
the Reinsurer a reinsurance premium (the "REINSURANCE PREMIUM"), consisting of
(i) the assets described on
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Annex F hereto (the "TRANSFERRED ASSETS") and (ii) cash or commercial paper in
an amount (the "Cash Amount") equal to the difference between (A) the Value of
the Policy Liabilities (determined as set forth below) and (B) the aggregate
value of the Transferred Assets (determined as set forth on Annex F hereto).
The Value of the Policy Liabilities shall be equal to the sum of the following
(without duplication):
1. The aggregate reserves for Policies and Policy Liabilities as of the
Effective Date and Time (calculated in a manner consistent with the manner
in which reserves for the Policies and Policy Liabilities were calculated
for the Ceding Company's Annual Statement for the period ended December 31,
1994 filed with the California Department of Insurance), plus
2. All premiums on Policies received in advance of the Effective Date and
Time, but not accounted for in clause (1) of this Article, plus
3. The liability to agents or regional managers for commissions and
bonuses on Policies, net of advance commissions and any other amounts
advanced to such persons in connection with the Policies, plus
4. The liability for checks with respect to the Policies issued by the
Ceding Company on or prior to the Effective Date and Time that have not
been paid by the bank from the Ceding Company's accounts as of the
Effective Date and Time (the "OUTSTANDING CHECKS"), together with the
liability for funds relating to the Policies which are escheatable to the
State of California, plus
5. The loss fluctuation reserve relating to the Policies to the extent
such reserve is not accounted for in clause (1) of this Article, plus (or
minus)
6. The net amount payable to (or recoverable from) reinsurers of the
Policies, plus
7. The liability for excess surcharges due the California Life and Health
Insurance Guaranty Association with respect to the Policies, plus or minus
8. Vacation and sick pay of the Transferred Employees (as defined in the
Stock Acquisition Agreement) (valued for purposes of the Reinsurance
Premium as the respective amounts accrued therefor on the books of the
Ceding Company in accordance with GAAP), plus
9. All other liabilities which at the date of Closing are directly
attributable to the Policies (valued for purposes of the Reinsurance
Premium at the respective amounts accrued therefor on the books of the
Ceding Company in accordance with GAAP as of the Effective Date and Time).
The Reinsurance Premium shall be payable as follows:
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<PAGE>
(a) On the Effective Date and Time, the Ceding Company shall transfer the
Transferred Assets to the Reinsurer;
(b) On the Effective Date and Time, the Ceding Company shall pay to the
Reinsurer an amount in cash (or commercial paper with a value) equal
to the Ceding Company's good faith estimate of the Cash Amount;
(c) Within 30 calendar days after the Effective Date and Time, the Ceding
Company shall deliver to the Reinsurer a true and complete list and
description in reasonable detail, including without limitation the
dollar amount, of all Policy Liabilities assumed hereunder, as of the
Effective Date and Time, setting forth its estimate of the Value of
the Policy Liabilities (the "Policy Liability Statement") and the Cash
Amount. If such estimate of the Cash Amount is higher than that paid
at the Effective Date and Time, the Ceding Company shall pay the
Reinsurer the difference concurrently with its delivery of the Policy
Liability Statement. If such estimate of the Cash Amount is lower
than that paid at the Effective Date and Time, the Reinsurer shall pay
the Ceding Company the difference within 30 calendar days of its
receipt of the Policy Liability Statement. The Ceding Company hereby
agrees to provide the Reinsurer with reasonable access to its Books
and Records in order to permit the Reinsurer to satisfy itself as to
the accuracy of the Ceding Company's estimate of the Value of the
Policy Liabilities and the Cash Amount.
The Reinsurer agrees to use its best efforts to cause all Outstanding
Checks to be satisfied out of funds of the Reinsurer and not from the Ceding
Company's accounts and agrees to promptly reimburse the Ceding Company for the
amount of any Outstanding Checks that are satisfied from the Ceding Company's
accounts.
The Reinsurer agrees that the value of the Transferred Assets as set
forth on ANNEX F hereto is solely for purposes of determining the amount of cash
and commercial paper to be paid by the Ceding Company in connection with the
Reinsurance Premium, without reference to their actual fair market value or
condition. The Reinsurer assumes any and all risks (without effecting the terms
or enforceability of this Agreement) with respect to any variation of the
Transferred Assets from the descriptions thereof described in ANNEX F hereto.
The Reinsurer further agrees that the Transferred Assets are
transferred to Reinsurer on an as-is basis and that the Ceding Company makes no
representations or warranties whatsoever, express, implied or statutory,
concerning the Transferred Assets, including but not limited to any
representation or warranty as to the Ceding Company's title therein or as to
their respective value, quality, quantity, condition, merchantability,
compliance with law, validity or enforceability. The Reinsurer further agrees
not to assert any claim (whether affirmatively or as a defense or set off to any
claim by the Ceding Company or the Purchaser), and waives any right to bring any
such claim, against the Ceding Company or the Purchaser with respect to the
Transferred Assets.
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ARTICLE VIII
As of the Effective Date and Time (i) the Ceding Company transfers to the
Reinsurer all of the Ceding Company's rights to collect and receive all premiums
and consideration on the Policies assumed and (ii) the Reinsurer is fully
subrogated to all of the rights, remedies, claims and causes of action of the
Ceding Company with respect to the Policies. The Reinsurer is entitled to 100%
of all premiums and other consideration due and payable on and after the
Effective Date and Time under the Policies assumed. If, after the Effective
Date and Time of this Agreement, the Ceding Company receives any such premiums
and other consideration, it shall promptly remit such premiums and other
consideration to the Reinsurer, along with pertinent information such as the
nature of the payment, the source of funds, the Policy number, the period to
which the remittance relates and any special rates or instructions to the extent
such information is available to the Ceding Company without incurring any
expense therefor. The Ceding Company shall use, at the Reinsurer's expense, its
best efforts to assist in arranging for the Policyholders to pay all such
premiums directly to the Reinsurer on and after the Effective Date and Time.
All commissions and fees earned and expenses incurred on the Policies on and
after the Effective Date and Time of this Agreement shall be the obligations of
the Reinsurer.
ARTICLE IX
On and after the Effective Date and Time of this Agreement, the
administration of the Policies and the supervision, investigation, defense
against and payment of all claims or payments incurred on or after the date
hereof with respect to the Policy Liabilities shall be conducted by the
Reinsurer, and the expenses of such supervision, investigation, defense and
payment shall be borne by it. If process is served upon the Ceding Company with
respect to any Policy Liability, the Ceding Company shall give prompt notice
thereof to the Reinsurer, and the Reinsurer then, in its own name and at its own
cost and expense, shall be responsible for conducting such action and may
interpose any defense in, or may settle, compromise or otherwise dispose of,
such action at the Reinsurer's discretion. Any correspondence or inquiries or
requests relative to the Policies shall promptly be forwarded by the Ceding
Company to the Reinsurer.
ARTICLE X
The Ceding Company shall, as soon as possible after the Effective Date and
Time of this Agreement, turn over to the Reinsurer all records, correspondence,
papers, and documents relating to all of the Policies and Policy Liabilities.
Prior to the time such books and records are turned over to the Reinsurer, all
of the books and records of the Ceding Company relating to the Policies and
Policy Liabilities shall be subject to the inspection of the Reinsurer at any
and all reasonable times.
ARTICLE XI
It is expressly understood and agreed that if failure to comply with any
condition of this Agreement is shown to be unintentional and is a result of
misunderstanding, oversight, or
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<PAGE>
clerical error on the part of either the Ceding Company or the Reinsurer, then
appropriate adjustments shall be made so that both the Ceding Company and the
Reinsurer shall be restored to the position they would have occupied had no such
error, misunderstanding or oversight occurred.
ARTICLE XII
All notices and requests in connection with this Agreement shall be given
or made upon the respective parties in writing and shall be deemed to have been
duly given if delivered, telecopied or mailed by certified mail, return receipt
requested, first-class postage prepaid, to the parties at the following
addresses:
If to the Ceding Company to:
CalFarm Life Insurance Company
1601 Exposition Boulevard
Sacramento, CA 95815
Attn:
Telephone:
Telecopier:
With a copy to: SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, CA 90067-6022
Attn: Jay S. Wintrob,
Vice Chairman
Telephone: (310) 772-6514
Telecopier: (310) 772-6604
If to the Reinsurer to: CalFarm Insurance Company
1601 Exposition Boulevard
Sacramento, CA 95815
Attn: Philip M. Joffe
Telephone: (916) 924-4475
Telecopier: (916) 927-1121
C-7
<PAGE>
With a copy to: Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, CA 91367
Attn: Stanley R. Zax,
Chairman and President
Telephone: (818) 713-1000
Telecopier: (818) 713-0177
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Article will, if delivered
personally, be deemed given upon delivery, will, if delivered by telecopy, be
deemed delivered when confirmed and will, if delivered by mail in the manner
described above, be deemed given on the third business day after the day it is
deposited in a regular depository of the United States mail. Any party from
time to time may change its address for the purposes of notices to that party by
giving a similar notice specifying a new address, but no such notice will be
deemed to have been given until it is actually received by the party sought to
be charged with the contents thereof.
ARTICLE XIII
The provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns. Neither party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the consent of the other party. The terms and provisions of this Agreement are
intended solely for the benefit of the parties hereto, Policyholders and their
respective successors and permitted assigns, and it is not the intention of the
parties to confer third party beneficiary rights upon any other person, except
as expressly provided herein.
ARTICLE XIV
This Agreement shall be effective as of the Effective Date and Time.
ARTICLE XV
The Ceding Company is hereby released from all Policy Liabilities and all
other obligations relating to the Policies and any liabilities that may accrue
in connection with the transfer of the Systems to the Reinsurer as of the
Effective Date and Time and shall be indemnified and held harmless by the
Reinsurer in connection therewith. In addition, the Reinsurer shall indemnify
and hold the Ceding Company, its affiliates, officers, directors, employees,
agents and sub-agents, harmless against any losses, claims, damages, litigation
or other adversarial proceedings, demands, costs, judgments, liabilities or
expenses (including without limitation reasonable counsel fees and expenses)
relating to or resulting from the Policies and the Policy Liabilities. In the
event of any demand for any indemnification under this Section, the Reinsurer
shall have the right, in its sole discretion and at its sole cost and expense,
to undertake and direct the defense of the Ceding Company, its affiliates,
officers, directors, employees, agents or sub-agents with respect to such
matters. In the event the Reinsurer fails
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<PAGE>
to assume such defense, it shall advance all costs of such expense on a bi-
weekly basis to the Ceding Company. In the event the Ceding Company is served
or presented with any demand or claim for which it expects to be indemnified
hereunder, the Ceding Company shall provide the Reinsurer with prompt written
notice of such demand or claim.
A detailed listing of all known litigation and other adversarial
proceedings relating to the Policies and the Policy Liabilities is set forth in
ANNEX E.
ARTICLE XVI
The Ceding Company and the Reinsurer shall cooperate in good faith with
each other in resolving all controversies, claims or disputes between the
parties arising out of or relating to this Agreement or its alleged breach. If
any controversy, claim or dispute cannot be resolved by the parties, then such
matter shall be submitted to binding arbitration. Said arbitration shall be
presided over by a panel of three arbitrators: one arbitrator to be designated
by each party and one arbitrator to be designated by the two arbitrators
selected by the parties. If either the Ceding Company or the Reinsurer shall
decline to designate an arbitrator, or if the two arbitrators selected by the
parties shall decline or be unable to designate a third arbitrator, then the
designation of such arbitrator(s) shall be made in accordance with the
Commercial Arbitration Rules of the American Arbitration Association. The
decision of any two arbitrators regarding any controversy, claim or dispute
submitted to them by the parties hereto shall be final and binding upon the
parties hereto, and may be entered as a final judgment in any court of competent
jurisdiction.
Any arbitration proceeding shall, to the extent not inconsistent with the
provisions of this Article, be held in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Any arbitration
proceeding shall be held in Los Angeles, California.
The prevailing party in any arbitration proceeding shall be entitled to
recover from the losing party the prevailing party's reasonable expenses,
including, but not limited to, costs of investigation, attorneys' fees and
arbitration costs, which were incurred by the prevailing party as a result of
such controversy, claim or dispute. In the event the amount awarded to a party
is less than the amount it claimed in such dispute, such prevailing party's
recovery of costs shall be reduced in direct proportion to the amount by which
the original amounts claimed by such party were reduced to the final award.
The duty to arbitrate any controversy, claim or dispute under this
Agreement shall survive the termination or expiration of this Agreement.
ARTICLE XVII
This Agreement and performance hereunder shall be construed in accordance
with and governed by the laws of the State of California applicable to contracts
executed and performable in such state without reference to principles of
conflicts of laws.
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<PAGE>
ARTICLE XVIII
The Reinsurer hereby represents and warrants that it is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, has the legal, regulatory and corporate power and authority and
all necessary licenses to carry on its business as it is now being conducted and
as it proposes to conduct its business after the Effective Date and Time as
contemplated by this Agreement and to perform its obligations under this
Agreement. The Reinsurer hereby further represents and warrants that this
Agreement has been duly authorized, executed and delivered by the Reinsurer and
constitutes the legal, valid and binding obligation of the Reinsurer,
enforceable in accordance with its terms.
If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under any present or future law, and if the rights or obligations
of the Ceding Company or the Reinsurer under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof, and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected or impaired by the illegal, invalid, or unenforceable
provision or by its severance herefrom, but shall be construed to give effect to
the terms of such illegal, invalid or unenforceable provision to the maximum
extent possible to effectuate the intent of the original provisions of this
Agreement.
ARTICLE XIX
Any term or condition of this Agreement may be waived at any time by the
party that is entitled to the benefit thereof. Such waiver must be in writing
and must be executed by a duly authorized executive officer of such party. A
waiver on one occasion will not be deemed to be a waiver of the same or any
other breach on a future occasion. All remedies, either under this Agreement,
or by law or otherwise afforded, will be cumulative and not alternative. The
failure of either party to exercise in any respect any right provided for herein
shall not be deemed a waiver of such right or of any other right hereunder.
ARTICLE XX
This Agreement and the rights and duties hereunder shall not be assignable
by either party hereto except upon prior written consent of the other party and
any attempted assignment without such consent shall be void.
ARTICLE XXI
This Agreement may be modified or amended only by a written instrument duly
executed by each of the parties hereto.
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ARTICLE XXII
This Agreement supersedes all prior discussions and agreements between the
parties with respect to the subject matter of this Agreement, and this Agreement
(including the Annexes hereto) contains the sole and entire agreement between
the parties hereto with respect to the subject matter hereof.
ARTICLE XXIII
This Agreement may be executed simultaneously in any number of
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument.
ARTICLE XXIV
The headings used in this Agreement have been inserted for convenience and
are not to be construed or interpreted in connection with this Agreement.
Unless the context of this Agreement otherwise requires, (a) words of any gender
are deemed to include each other gender, (b) words using the singular or plural
number also include the plural or singular number, respectively, (c) the terms
"hereof", "herein", "hereby", "hereto", and derivative or similar words refer to
this entire Agreement, (d) the term "Section" refers to the specified Section of
this Agreement and (e) all references to "dollars" or "$" refer to currency of
the United States of America.
ARTICLE XXV
Capitalized terms not otherwise defined herein shall have the respective
meanings assigned to them in that certain Stock Acquisition Agreement, dated as
of September 15, 1995, by and between Anchor National Life Insurance Company and
Zenith National Insurance Corp.
ARTICLE XXVI
With respect to any Policy which is reinsured by the Reinsurer on an
indemnity reinsurance basis hereunder, in the event of the insolvency of the
Ceding Company and to the extent required by any applicable statute, the
indemnity reinsurance provided by the Reinsurer hereunder shall be payable
directly to the Ceding Company (on demand) or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the Ceding
Company without diminution because of the insolvency of the Ceding Company or
because the liquidator, receiver, conservator or statutory successor of the
Ceding Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor of
the Ceding Company shall give written notice to the Reinsurer of the pendency of
a claim against the Ceding Company indicating the Policy with respect to which
such claim would involve a possible liability on the part of the Reinsurer
within a reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership,
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<PAGE>
and that during the pendency of such claim the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceedings where such claim is
to be adjudicated any defense or defenses that it may deem available to the
Ceding Company or its liquidator, receiver, conservator or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Ceding Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Ceding Company solely as a result of the defense
undertaken by the Reinsurer. The liability for the indemnity reinsurance and
assumption reinsurance contemplated by this Agreement is assumed by the
Reinsurer as of the Effective Date and Time of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
written above.
CALFARM LIFE INSURANCE COMPANY
(the "Ceding Company")
By:
---------------------------
Title:
------------------------
CALFARM INSURANCE COMPANY
(the "Reinsurer")
By:
---------------------------
Title:
------------------------
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<PAGE>
ANNEX A
ASSUMPTION AGREEMENT
--------------------
PLANS WITH CURRENT INSUREDS
POLICY NO. POLICYHOLDER
- ---------- ------------
GH-1000 CALIFORNIA FARM BUREAU FEDERATION
(excluding life insurance component)
(MEMBERS' PLAN A, F, L, P, & BB*)
*Medicare Supplement
GH-1200 CALIFORNIA FARM BUREAU FEDERATION
(PLANS A, F, & J)
(Medicare Supplement)
GH-2000 CALIFORNIA LIFE INSURANCE COMPANY
(PLANS A & B)
(Medicare Conversion)
GH-1300 CALIFORNIA FARM BUREAU FEDERATION
(Dental Insurance)
SINGLEPOINT APPROVED GROUP FORMS (as of 09/10/95)
FORM NO. DESCRIPTION
- --------- -------------
GPH 11305 MASTER POLICY (HEALTH)
GPH 11307 AMENDMENT ($500 ACCIDENT)
GPH 11308 AMENDMENT ($1,000 ACCIDENT)
GPH 11309 AMENDMENT (PRESCRIPTION DRUGS)
GPH 11326 AMENDMENT (100% BENEFIT/ +50)
GPH 11332 MASTER POLICY (DENTAL)
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<PAGE>
ANNEX B
SYSTEMS
C-14
<PAGE>
ANNEX C
REQUIRED FILINGS, CONSENTS AND APPROVALS
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<PAGE>
ANNEX D
CERTIFICATE OF ASSUMPTION
This is to certify that CalFarm Insurance Company, pursuant to an
assumption reinsurance agreement with CalFarm Life Insurance Company providing
for the assumption by CalFarm Insurance Company of the liabilities and
obligations of CalFarm Life Insurance Company under the policies described in
the agreement [including Policy Numbers ], has assumed effective as of
, all of the obligations and liabilities under this policy of
insurance.
THIS CERTIFICATE OF ASSUMPTION FORMS A PART OF YOUR POLICY AND SHOULD BE
ATTACHED TO IT.
All premiums or annuity considerations now or hereafter due on this policy
are payable to CalFarm Insurance Company at ,
Attention: or its duly authorized agents.
IN WITNESS WHEREOF CalFarm Insurance Company has caused this Certificate of
Assumption to be executed as of .
CALFARM INSURANCE COMPANY
By:
-----------------------
President
By:
----------------------
Secretary
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<PAGE>
ANNEX E
LITIGATION AND OTHER ADVERSARIAL PROCEEDINGS
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<PAGE>
ANNEX F
TRANSFERRED ASSETS
(Statutory Book Values as of June 30, 1995)
1. The following assets shall be transferred by the Ceding Company pursuant to
SECTION 5.21 of the Stock Acquisition Agreement and their value shall be
deemed to be their respective book value as of June 30, 1995 less normal
depreciation and amortization in accordance with the Ceding Company's past
practice, from June 30, 1995 to the date of transfer:
a. An undivided 1/4 (one-quarter) interest in and to land and building
(included building improvements) located at 1601 Exposition Boulevard,
Sacramento, California 95815 ($3,114,145).
b. Leasehold improvements, other than 1601 Response Road ($29,365).
c. All electronic data processing equipment held by the Ceding Company
($459,820).
d. All furniture and equipment and other tangible assets (excluding Books
and Records that do not relate solely to the Group Health Business)
held by the Ceding Company ($83,977).
e. All rights in and to the ERISCO groupfacts and claimfacts software
($249,322).
2. The following assets shall be transferred by the Ceding Company pursuant to
SECTION 5.21 of the Stock Acquisition Agreement and their value shall be
deemed to be their respective book value as of June 30, 1995.
a. All outstanding shares of stock issued by CalFarm Properties, Inc., a
California corporation ($30,000).
b. 75,000 shares of Preferred Stock of Delta Life Corporation
($3,750,000).
c. 75,000 shares of Common Stock of Delta Life Corporation ($3,750,000).
3. The following assets shall be transferred by the Ceding Company pursuant to
SECTION 5.21 of the Stock Acquisition Agreement and their value shall be
deemed to be their respective book value as of the date of transfer:
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<PAGE>
a. Cash surrender value of split-dollar life insurance policies of Ceding
Company executives ($42,192).
b. Receivable from Single Point ($15,623).
c. Prepaid policy assessments ($39,554).
4. All insurance proceeds received by the Ceding Company prior to the Closing
Date, and all rights of the Ceding Company to receive any insurance
proceeds after the Closing Date, with respect to any loss or damage
affecting the Transferred Assets, shall be paid or assigned by the Ceding
Company pursuant to SECTION 5.21 of the Agreement and the value of such
proceeds shall be deemed to be $0.
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<PAGE>
EXHIBIT D
ASSETS TRANSFERRED
(Statutory Book Values as of June 30, 1995)
1. The following assets shall be transferred by the Company pursuant to
SECTION 5.21 of the Agreement and their value shall be deemed to be their
respective book value as of June 30, 1995 less normal depreciation and
amortization in accordance with the Company's past practice, from June 30,
1995 to the date of transfer:
a. An undivided 1/4 (one-quarter) interest in and to land and building
(included building improvements) located at 1601 Exposition Boulevard,
Sacramento, California 95815 ($3,114,145).
b. Leasehold improvements, other than 1601 Response Road ($29,365).
c. All electronic data processing equipment held by the Company
($459,820).
d. All furniture and equipment and other tangible assets (excluding Books
and Records that do not relate solely to the Group Health Business)
held by the Company ($83,977).
e. All rights in and to the ERISCO groupfacts and claimfacts software
($249,322).
2. The following assets shall be transferred by the Company pursuant to
SECTION 5.21 of the Agreement and their value shall be deemed to be their
respective book value as of June 30, 1995.
a. All outstanding shares of stock issued by CalFarm Properties, Inc., a
California corporation ($30,000).
b. 75,000 shares of Preferred Stock of Delta Life Corporation
($3,750,000).
c. 75,000 shares of Common Stock of Delta Life Corporation ($3,750,000).
3. The following assets shall be transferred by the Company pursuant to
SECTION 5.21 of the Agreement and their value shall be deemed to be their
respective book value as of the date of transfer:
a. Cash surrender value of split-dollar life insurance policies of
Company executives ($42,192).
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<PAGE>
b. Receivable from Single Point ($15,623).
c. Prepaid policy assessments ($39,554).
4. All insurance proceeds received by the Company prior to the Closing Date,
and all rights of the Company to receive any insurance proceeds after the
Closing Date, with respect to any loss or damage affecting the Excluded
Assets, shall be paid or assigned by the Company pursuant to SECTION 5.21
of the Agreement and the value of such proceeds shall be deemed to be $0.
D-2
<PAGE>
EXHIBIT E
AGREEMENTS TO BE ASSIGNED
1. Lease Agreement, dated 2/15/87, between California Farm Bureau Federation
(as lessee) and CalFarm Insurance Company and the Company (as lessors) (re
building located at 1601 Exposition Boulevard), as amended 12/1/89 and
12/28/90.
2. License Agreement, dated 6/4/85, between CalFarm Insurance Company, CalFarm
Life Insurance Company, CalFarm Insurance Agency and Zenith National
Insurance Corp. and California Farm Bureau Federation for use of the Farm
Bureau name, logo and membership lists.
3. ClaimFacts TPA Perpetual License Agreement, dated 9/26/89, between ERISCO,
Inc. and the Company.
4. Agreement of Amendment, dated 8/29/90, between ERISCO, Inc. and the Compa-
ny.
5. Amendment to ClaimFacts TPA Perpetual License Agreement dated 9/29/94
between ERISCO and the Company for GroupFacts.
6. Retention Agreement, dated as of 7/1/93, between California Farm Bureau
Federation and the Company.
7. Amendment to Retention Agreement effective 11/1/94 between California Farm
Bureau and the Company.
8. Second Amendment to Retention Agreement between California Farm Bureau and
the Company effective 5/1/95.
9. Approval of California Farm Bureau Federation with respect to the
assumption of the Health Business by CalFarm Insurance Company.
10. License Agreement, dated 2/3/92, between Medical Data Research, a division
of Medicode, Inc. and the Company for data base lease (Anesthesia Payment
Guide).
11. Agreement between Medical Data Research, a division of Medicode, Inc. and
the Company for data base (Workers Compensation).
12. Agreement, dated 6/7/92, between Medical Data Research, a division of
Medicode, Inc. and the Company for data base (Medical or Dental UCR Payment
System).
13. Confidentiality Agreement, effective 1/13/88, between Community Care Net-
work and
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the Company.
14. Payor Agreement, dated 2/1/88, between Community Care Network and the
Company.
15. Participation and Indemnification Agreement, dated 3/19/93, executed by the
Company (re NHCAA).
16. Agreement Regarding Adherence to Procedure Guidelines Governing
Participation of NHCAA Corporate Members in NHCAA Information Disclosure
Program, dated 2/24/93, executed by the Company.
17. Subscription Agreement for Life/Health Companies, dated 9/9/92, between
Index System and the Company.
18. Lazer Ventures Medical & Dental Training Software Maintenance Agreement,
dated 8/27/93, executed by the Company.
19. Agreement, dated 7/26/92, between CDB Infotek and the Company for
subscriber application and service.
20. Agreement dated 5/9/85 between D & B Computing Services and the Company.
21. Premium Administration Agreement effective May 1, 1995 between California
Farm Bureau and the Company.
22. Agreement dated September 1, 1985, as amended June 1, 1995 between PCS
Health Systems, Inc. and the Company.
23. Addendum dated January 1, 1995 to agreement between PCS Health Systems,
Inc. and the Company for managed mail.
24. PCS Recap System Underwriter Agreement, effective 9/1/91, between PCS
Health Systems Inc. and the Company (PCS RECAP SYSTEM).
25. Supplemental Recap System Agreement effective 11/13/89 between PCS, Inc.
and the Company (administration of Prescription Drug: RECAP SYSTEM).
26. SinglePoint Agreements:
a. Master Agreement effective May 1, 1995 among UNUM, Zenith Insurance
Company, and Company
b. Marketing and Administration Agreement effective May 1, 1995 among
UNUM,
E-2
<PAGE>
Zenith Insurance Company, SP Administrator and Company
c. Marketing and Administration Agreement effective May 1, 1995 among
UNUM, Zenith Insurance Company, Sharp and the Company
d. Service Mark License Agreement effective May 11, 1995, among
SinglePoint, LLC; SP Administrator, LLC; UNUM; Zenith Insurance
Company; and the Company
e. Agreement dated 7/6/95 between Harden and Company and the Company for
Underwriting Services
f. Confidentiality Agreement dated 6/23/95 between Anchor Pacific
Underwriting, Inc., and the Company
g. Group Medical Reinsurance Agreement effective 5/1/95 between UNUM and
the Company
h. Group LTD Reinsurance Agreement, effective 5/1/95, between UNUM and
the Company
i. Letter of Intent dated 9/8/95 between OMNI Health Care; Zenith
Insurance Company; UNUM; SP Administrator, LLC; and the Company
27. Group Dental Reinsurance Agreement dated April 17, 1995 between Ameritas
Life and the Company
28. Medical Excess Loss Reinsurance Treaty effective May 1, 1995, between
American Accident Reinsurance Group (Duncanson & Holt) and the Company
29. Excess Major Medical Reinsurance Agreement, effective 1/1/93 between
Employers Reinsurance Corporation and the Company, and all amendments
thereto (active for new business)
30. Excess Major Medical Reinsurance Agreement, effective 3/1/83, between
Employers Reinsurance Corporation and the Company, and all amendments
thereto
31. Excess Major Medical Reinsurance Agreement, effective 1/1/85, between
Employers Reinsurance Corporation and the Company, and all amendments
thereto
32. Federal Service Mark Application for the Mark SINGLEPOINT dated November 8,
1994 under serial number 74/595,791.
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<PAGE>
33. Federal Service Mark Application for the Mark SINGLEPOINT and design dated
February 6, 1995 under serial number 74/630,030.
34. Membership in ClaimFacts users group.
35. Cost Allocation Agreement, dated 1/1/91, between Zenith National Insurance
Corp., Zenith Insurance Company, ZNAT Insurance Company, CalFarm Insurance
Company, CalFarm Life Insurance Company, CalFarm Insurance Agency and
Zenith Star Insurance Company and amendment thereto dated 12/28/93.
E-4
<PAGE>
EXHIBIT F
PROVISION OF LIFE BENEFITS
UNDER GROUP HEALTH BUSINESS
The Purchaser agrees to cause the Company to provide automatic life insurance
coverage with respect to group health policies GH1000 and GH1150 upon the
following terms:
<TABLE>
<CAPTION>
GH1000* GH1150
------- ------
<S> <C> <C>
Monthly Life Premium $3.00 $6.00
BENEFITS:
Primary Insured 5,000 10,000
Spouse 2,500 5,000
Each Child over 6 Months -0- 2,000
Each Child 14 days to
6 months -0- 500
- ------------------
* Policy GH 1000 has three insureds, who converted from an older plan, that have
supplemental coverage of $20,000 to 30,000 for which they pay an extra premium.
</TABLE>
The Seller or one of its Affiliates shall act as a third party
administrator (the "ADMINISTRATOR") for the life business. The premiums will be
collected by the master policyholder under the policies and paid to the
Administrator as part of the normal process of collecting the health premiums.
The Administrator will remit the premiums to the Company (or its designee) net
of actual commissions paid and an expense allowance of 5% of earned premium.
The expense allowance would cover the cost of royalty and billing fees paid to
the master policyholder under the policies and the Administrator's internal
expenses. The Company will be responsible for claims payment, other administra-
tion, reinsurance, taxes, licenses and fees, its own internal expenses and
federal income tax.
F-1
<PAGE>
EXHIBIT G
OPINIONS OF SELLER'S COUNSEL
Skadden, Arps, Slate, Meagher & Flom will deliver an opinion, which shall be in
the form generally utilized by such counsel, subject to customary assumptions,
exceptions and conditions, and in reliance on certificates or advice of
governmental authorities, representatives of the Company, the Seller and others,
covering the matters set forth in paragraphs 1 through 7 below:
1. The Seller (i) is a corporation validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the
corporate power to own its properties and conduct its business as
conducted at the Closing Date, and (ii) is duly qualified or licensed
to do business as a foreign corporation and is in good standing under
the laws of the State of California.
2. The Seller has the corporate power and corporate authority to execute
and deliver the Agreement and perform its obligations thereunder. The
execution and delivery of the Agreement by Seller, and the
consummation by Seller of the transactions contemplated thereby, have
been duly authorized by all necessary corporate action by the Seller.
The Agreement has been duly executed and delivered by Seller.
3. The Agreement constitutes the valid and binding obligation of Seller
enforceable against Seller in accordance with its terms (subject to
typical bankruptcy exceptions).
4. Neither the execution and delivery of the Agreement by Seller, nor the
consummation of the transactions contemplated thereby, will violate,
conflict with or constitute a breach by the Seller or the Company of
(i) their respective Certificate or Articles of Incorporation or
Bylaws, (ii) enumerated material agreements to which any of them is a
party (subject to the obtaining of necessary consents, as specified),
or (iii) laws of specified jurisdictions which, in the experience of
such counsel, are normally applicable to transactions of the type
contemplated by the Agreement.
5. The authorized capital stock of the Company is as set forth in
Schedule 3.5 of the Disclosure Schedule.
6. Upon payment for and delivery of the Shares with all necessary
endorsements in accordance with the terms of the Agreement, and
assuming the Purchaser is acquiring the Shares in good faith without
notice of any adverse claim, the
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Purchaser will be the owner of the Shares, free and clear of any
adverse claim.
7. No consents, approvals, authorizations, registrations, declarations or
filings with any Governmental Authority (as defined) which, in the
experience of such counsel, have jurisdiction over transactions of the
type contemplated by the Agreement, are required in connection with
the execution, delivery and performance of the Agreement by the
Seller, other than such as have been obtained, given or made.
Such counsel's opinions shall be limited to the laws of the States of
Delaware and California and the federal laws of the United States of
America to the extent specifically referred to in such opinion.
In addition, John Tickner, Esq., General Counsel to the Seller and the
Company, will deliver an opinion, subject to customary assumptions,
exceptions and conditions, and in reliance on certificates or advice
of governmental authorities, representatives of the Company, the
Seller and others, covering the matters set forth in paragraphs 8
through 12 below:
8. The Company is a corporation validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the
corporate power to own its properties and conduct its business as
conducted at the Closing Date. The Company is duly qualified or
licensed to do business as a foreign corporation and is in good
standing under the laws of [the four jurisdictions other than
California in which it conducts business as of the Closing Date].
9. Neither the execution and delivery of the Agreement by the Seller, nor
the consummation thereof, will violate, conflict with or constitute a
breach by the Seller or the Company, of (i) certain enumerated
material agreements of any of them, (ii) any law which in the
experience of such counsel, is normally applicable to transactions of
the type contemplated by the Agreement, or (iii) any judgment, decree
or award known to such counsel by which the Seller or the Company or
any of their respective assets, is bound, or (iv) result in the
imposition of any Lien against any asset of the Company.
10. The authorized capital stock of the Company is as set forth in
Schedule 3.5 of the Disclosure Schedule. All such shares are duly
authorized, validly issued, fully paid and nonassessable and are owned
of record, and, to the knowledge of such counsel, beneficially as set
forth in Schedule 3.5 of the Disclosure Schedule. To the knowledge of
such counsel, there are no outstanding securities, obligations,
rights, subscriptions, warrants, options, phantom stock rights, or
other contracts of any kind that give any Person the right to (a)
purchase or otherwise receive or be issued any shares of capital stock
of the Company (or any interest therein) or
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any security convertible into or exchangeable for any shares of
capital stock of the Company (or any interest therein) or (b) receive
any benefits or rights similar to any rights enjoyed by or accruing to
a holder of the Shares, or any rights to participate in the equity,
income or election of directors or officers of the Company.
11. There is no action, suit, investigation or proceeding pending or, to
our knowledge, threatened against either Company or any of its
property or rights, at law or in equity, by or before any court,
arbitrator or administrative or governmental body, except as set forth
in Section 3.13 of the Disclosure Schedule.
12. Except as set forth in Section 3.14 of the Disclosure Schedule, the
Company has not been and is not in material violation (or with or
without notice or lapse of time or both, would be in material
violation) of any term or provision of any law or any writ, judgment,
decree, injunction or similar order applicable to either of them or
any of its Assets and Properties, except for violations that are
barred by an applicable statute of limitations.
Such counsel's opinion shall be limited to the laws of the State of
California and the federal laws of the United States of America.
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EXHIBIT H
OPINION OF IN-HOUSE COUNSEL TO PURCHASER
In-house counsel to the Purchaser will deliver an opinion, subject to customary
assumptions, exceptions and conditions covering the matters set forth below:
1. Each of the Purchaser and the Designated Affiliates is a corporation duly
organized, validly existing and in good standing under the laws of its
state of domicile. Each of the Purchaser and the Designated Affiliates has
all requisite corporate power and corporate authority to execute and
deliver the Agreement and the assumption of obligations and liabilities
under the Agreement by the Designated Affiliates (the "Assumption"), and to
perform its obligations thereunder.
2. The execution and delivery by Purchaser of the Agreement and the assumption
by the Designated Affiliates and the consummation by the Purchaser and the
Designated Affiliates of the transactions contemplated by the Agreement and
the Assumption, have been duly authorized by all necessary corporate action
by Purchaser and the Designated Affiliates. The Agreement has been duly
executed and delivered by Purchaser. The Assumption has been duly executed
and delivered to the Purchaser and the Designated Affiliates. The Guaranty
has been duly executed and delivered by Parent.
3. The Agreement constitutes the legally valid and binding obligation of
Purchaser, the Agreement and the Assumption constitute the legally valid
and binding obligations of the Designated Affiliates, and the Guaranty
constitutes the legally valid and binding obligation of Parent, enforceable
against each of them in accordance with their respective terms (subject to
typical bankruptcy-type exceptions).
4. Neither the execution and delivery by Purchaser of the Agreement, by Parent
of the Guaranty or by the Designated Affiliates of the Assumption nor the
consummation thereof, will violate, conflict with or constitute a breach by
Purchaser, Parent or the Designated Affiliates of the charter, Bylaws or
other organizational document of Purchaser, Parent or the Designated
Affiliates or any judgment, award or decree by which Purchaser, Parent or
the Designated Affiliates is bound.
5. No consents, approvals, authorizations, registrations, declarations or
filings with any Governmental Authority or any other Person are required by
Purchaser, Parent or the Designated Affiliates in connection with the due
execution, delivery and performance by Purchaser of the Agreement by Parent
of the Guaranty or by the Designated Affiliates of the Assumption or the
Agreement, except for such as have been obtained given or made.
6. There is no action, suit, investigation or proceeding pending or, to my
knowledge, threatened against Purchaser, Parent or the Designated
Affiliates or any property or
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rights of Purchaser, Parent or the Designated Affiliates by or before any
court, arbitrator or administrative or governmental body that has had or
would reasonably be expected to have a material adverse effect on the
validity, binding effect or enforceability of the Agreement, the Guaranty
or the Assumption or the ability of Purchaser, Parent or the Designated
Affiliates to perform its respective obligations under the Agreement, the
Guaranty or the Assumption.
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EXHIBIT I
PARENT GUARANTY
<PAGE>
GUARANTY
THIS GUARANTY is made and given as of September 19, 1995 by SunAmerica
Inc. (the "GUARANTOR"), for the benefit of Zenith National Insurance Corp. (the
"SELLER").
A. Anchor National Life Insurance Company, a subsidiary of Guarantor
("PURCHASER"), has entered into a Stock Acquisition Agreement (the "STOCK
ACQUISITION AGREEMENT") of even date herewith with the Seller, pursuant to which
the Purchaser has agreed, subject to the terms and conditions thereof, to
purchase all of the capital stock of CalFarm Life Insurance Company, a
subsidiary of Seller;
B. The Guarantor has agreed to guaranty the Purchaser's obligations
under the Stock Acquisition Agreement as provided herein.
The Guarantor agrees as follows:
1. Subject to the terms hereof, the Guarantor hereby irrevocably and
unconditionally guaranties, as primary obligor and not as surety, the
performance of and the due and punctual payment in full of all Guarantied
Obligations (as defined below) when the same shall become due. The term
"GUARANTIED OBLIGATIONS" means any and all obligations of the Purchaser arising
under the Stock Acquisition Agreement in accordance with the terms thereof.
2. The Guarantor agrees that, except to the extent set forth herein,
its obligations under this Guaranty are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which constitutes a
legal or equitable discharge of a guarantor or surety other than payment and
performance in full of the Guarantied Obligations.
3. The Guarantor hereby waives any requirement or duty on the part
of the Seller to exhaust remedies against the Purchaser before proceeding
against this Guaranty or to pursue any other remedy in the power of the Seller.
The Seller may proceed immediately against this Guaranty following non-payment
or non-performance of any Guarantied Obligation by the Purchaser, provided
Seller delivers written demand for such payment or performance to the Purchaser
with a copy to the Guarantor.
4. To the fullest extent permitted by law and except as expressly
provided in this Guaranty, the Guarantor waives (i) notices, demands,
presentments, protests, notices of protest, notices of dishonor and notices of
any action or inaction, including acceptance of this Guaranty, notices of any
renewal, extension or modification of the Guarantied Obligations or any
agreement related thereto and any right to consent to any thereof, and (ii) any
defenses or benefits that may be derived from or afforded by law which limit the
liability
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of or exonerate guarantors or sureties, or which may conflict with the terms of
this Guaranty.
5. Notwithstanding anything herein to the contrary, if the Purchaser
contests in good faith any of the Guarantied Obligations, Guarantor shall
nonetheless pay to the Seller the non-disputed portion of such Guarantied
Obligations not paid by the Purchaser. The Seller may not enforce this Guaranty
against the Guarantor with respect to the disputed amount of such Guarantied
Obligations unless and until:
(i) a final, non-appealable order, award or judgment binding on
the Purchaser (an "ADJUDICATION") has been made with respect
to such contested Guarantied Obligations; and
(ii) such Adjudication requires the Purchaser to pay any of such
contested Guarantied Obligations to or for the benefit of
Seller;
in which event the Guarantor shall, unless the same is paid by the Purchaser
when due in accordance with such Adjudication, pay upon demand all amounts owed
by the Purchaser under such Adjudication (including without limitation, all
damages, awarded interest, legal costs, and attorneys' fees).
6. Upon the payment of any amounts payable by the Purchaser, the
Guarantor shall be subrogated to the rights of the Seller in respect of any such
payment.
7. Nothing contained herein, express or implied, is intended to, or
shall be deemed to, obligate the Guarantor to pay or perform any Guarantied
Obligation if and to the extent that the Purchaser would not have been obligated
to pay or perform such Guarantied Obligation, under the Stock Acquisition
Agreement or otherwise, by reason of any defense, claim, cause of action,
counterclaim, right of set-off or similar right.
8. Without the prior written consent of the Seller, the Guarantor
shall make no assignment of its obligations under this Guaranty.
9. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not validate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the Guarantor
hereby waives any provision of law that renders any provisions hereof prohibited
or unenforceable in any respect.
10. The terms of this Guaranty shall be binding upon the Guarantor
and its successors and assigns, and shall inure to the benefit of the Seller and
its successors and assigns.
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11. If the Seller brings an action against the Guarantor to enforce
the Guaranty, attorney's fees for the prevailing party in the action shall be
paid by the other party to the action.
12. This Guaranty shall be governed by and construed in accordance
with the laws of the State of California without regard to conflicts of law
doctrines.
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty by its duly
authorized officer as of the day and year first above written.
GUARANTOR:
SUNAMERICA INC.
By:
--------------------------------
Name: Jay S. Wintrob
Title: Vice Chairman
<PAGE>
OMITTED SCHEDULE
The Disclosure Schedule, setting out the items required by, or
constituing exceptions to, the representations and warranties contained in
the Stock Acquistion Agreement, has been omitted. The Registrant agrees to
furnish a copy of the Disclosure Schedule supplementally to the Securities and
Exchange Commission upon request.
<PAGE>
THE ZENITH
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, CA 91367-5021
Reply to: P.O. Box 9055
Van Nuys, CA 91409-9055
PRESS RELEASE Telephone 818/713-1000
- --------------------------------------------------------------------------------
BUSINESS & FINANCIAL EDITORS FREDRICKA TAUBITZ
Executive Vice President
FOR IMMEDIATE RELEASE & Chief Financial Officer
WOODLAND HILLS, CA, September 20, 1995....Zenith National Insurance Corp.
(ZNT) announced that it signed a definitive agreement to sell CalFarm Life
Insurance Company to Anchor National Life Insurance Company, a wholly-owned
subsidiary of SunAmerica Inc., for approximately $120 million in cash.
Consummation of the agreement, which is subject to customary regulatory
approvals, is expected to be completed by year-end 1995. Zenith expects to
report a book loss, after tax, approximating $19 million, from
discontinuing these operations during the third quarter. The actual amount
of such loss will be impacted by closing and certain other transaction
adjustments.
Sacramento-based CalFarm Life Insurance Company provides fixed annuities to
both qualified and non-qualified markets, life insurance, and group health
insurance products. Under today's agreement, CalFarm's group health
business will be retained by Zenith.
Stanley R. Zax, Zenith's Chairman and President, said "the decision to sell
CalFarm Life, a quality, niche company, will allow Zenith to focus on the
geographic expansion of its successful core business, workers'
compensation, and its recently announced strategic alliance with U.S.
Healthcare and UNUM Life Insurance Company of America to deliver innovative
new products that fully integrate 24-Hour managed health care, workers'
compensation and disability coverages."
Mr. Zax also added "Zenith will repay outstanding bank debt and continue
its previously announced common stock repurchase program."
