UNITED STATES
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
February 8, 1995 (January 31, 1995)
- ---------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
AMERICAN BRANDS, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9076 13-3295276
- ---------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
l700 East Putnam Avenue, Old Greenwich, Connecticut 06870-0811
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 698-5000
----------------------
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets.
- ------ ------------------------------------
(a) On January 31, 1995, Registrant sold all of the issued and
outstanding shares of Common Stock, par value $1.00 per share (the
"Shares"), of American Franklin Company, a Delaware corporation and wholly-
owned subsidiary of Registrant (the "Company"), to American General
Corporation, a Texas corporation ("AGC"). The sale was made pursuant to a
previously reported Stock Purchase Agreement dated as of November 29, 1994
between Registrant and AGC (the "Stock Purchase Agreement").
For the Shares, Registrant received as consideration an aggregate
amount of $1,170,000,000 in cash. The aggregate amount of the
consideration was arrived at by arm's-length negotiation between Registrant
and AGC.
Registrant is not aware of any material relationship between AGC
and Registrant or any of its affiliates, any director or officer of
Registrant or any associate of any such director or officer that existed at
the date of the sale by Registrant of the Shares pursuant to the Stock
Purchase Agreement.
The Stock Purchase Agreement is filed herewith as Exhibit 2 and
is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma
- ------ Financial Information and Exhibits.
----------------------------------
(b) Pro Forma Financial Information.
-------------------------------
The following unaudited pro forma financial information of
Registrant is attached hereto as Appendix A:
(i) Introductory paragraphs;
(ii) Pro Forma Condensed Balance Sheet (Unaudited) at
September 30, 1994;
(iii) Pro Forma Condensed Statement of Income (Unaudited)
for the year ended December 31, 1993;
(iv) Pro Forma Condensed Statement of Income (Unaudited)
for the nine months ended September 30, 1994; and
(v) Notes to Unaudited Pro Forma Condensed Financial
Statements.
<PAGE>
(c) Exhibits.
--------
2. Stock Purchase Agreement dated as of November 29,
1994 between Registrant and American General
Corporation.*
3(ii)a.By-law amendments adopted January 31, 1995 effective
January 31, 1995.
3(ii)b.By-laws of Registrant, as effective January 31,
1995.
- --------------------------
* Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and
schedules to Exhibit 2 are omitted. Exhibit 2 contains a list identifying
the contents of its exhibits and schedules, and Registrant agrees to
furnish supplementally copies of such exhibits and schedules to the
Securities and Exchange Commission upon request.
-2-
<PAGE>
This Current Report shall not be construed as a waiver of the
right to contest the validity or scope of any or all of the provisions of
the Securities Exchange Act of 1934 under the Constitution of the United
States, or the validity of any rule or regulation made or to be made under
such Act.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Current Report to be
signed on its behalf by the undersigned thereunto duly authorized.
AMERICAN BRANDS, INC.
---------------------
(Registrant)
By Robert L. Plancher
--------------------------------
Robert L. Plancher
Senior Vice President and
Chief Accounting Officer
Date: February 8, 1995
<PAGE>
APPENDIX A
AMERICAN BRANDS, INC.
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements are
presented for informational purposes only and do not purport to be
indicative of the financial position which would actually have existed or
the results of operations which would actually have been obtained if the
transactions had occurred in the periods indicated below or which may exist
or be obtained in the future. The ultimate use of the proceeds may differ
from the assumptions used herein.
The following unaudited pro forma condensed statements of income for the
year ended December 31, 1993 and the nine months ended September 30, 1994
give effect to: (i) the elimination of the results of operations of The
American Tobacco Company ("American Tobacco"), a wholly-owned subsidiary of
American Brands, Inc. ("American Brands"), which was sold, as described in
Note (A), (ii) the elimination of the results of operations of American
Franklin Company ("Franklin"), a wholly-owned subsidiary of American
Brands, which was sold, as described in Note (E), and (iii) the related pro
forma adjustments described in the Notes thereto. The pro forma results of
operations are presented as though these disposals occurred on January 1,
1993.
The following unaudited pro forma condensed balance sheet as of September
30, 1994 gives effect to the disposal of American Tobacco and Franklin and
the related pro forma adjustments described in the Notes thereto. Such
balance sheet is presented as though the disposals occurred at September
30, 1994.
These statements should be read in conjunction with the Notes thereto and
with the historical financial statements of American Brands and the notes
thereto.
<PAGE>
<TABLE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET (Unaudited)
SEPTEMBER 30, 1994
(IN MILLIONS)
<CAPTION>
AMERICAN AMERICAN PRO FORMA
BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA
-------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Consumer products and corporate
Cash and cash equivalents $ 92.6 $ 11.2 $ 103.8
Accounts receivable, net 1,334.4 (17.4) 1,317.0
Inventories 1,702.7 (385.5) 1,317.2
Other current assets 279.4 (51.3) 228.1
--------- ------- --------
Total consumer products and
corporate current assets 3,409.1 (443.0) 2,966.1
--------- ------- --------
Property, plant and equipment, net 1,386.3 (163.0) 1,223.3
Intangibles resulting from business
acquisitions, net 3,578.0 3,578.0
Other assets 414.6 (71.8) 342.8
--------- ------- --------
Total consumer products and
corporate assets 8,788.0 (677.8) 8,110.2
--------- ------- --------
Life insurance
Investments 6,238.8 $(6,238.8) -
Cash and cash equivalents 92.7 (92.7) -
Deferred policy acquisition costs 499.3 (499.3) -
Present value of future profits, net 177.2 (177.2) -
Other assets 364.9 (364.9) -
--------- --------- --------
Total life insurance assets 7,372.9 (7,372.9) -
--------- ------- --------- --------
Total assets $16,160.9 $(677.8) $(7,372.9) $8,110.2
========= ======= ========= ========
See Accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED BALANCE SHEET (Unaudited)
SEPTEMBER 30, 1994
(IN MILLIONS)
<CAPTION>
AMERICAN AMERICAN PRO FORMA
BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA
-------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current liabilities
Consumer products and corporate
Notes payable to banks $ 167.7 $(167.7) (A) $ -
Commercial paper 300.8 (300.8) (A) -
Accounts payable and accrued
expenses and other liabilities 1,051.4 $ (1.5) 40.0 (A) 1,089.9
Accrued excise and other taxes 1,077.6 (179.9) 88.5 (A) 986.2
(156.5) (A)
Current portion of long-term debt 303.6 (0.7) (146.4) (E) -
--------- ------- -------- ---------
Total consumer products and
corporate current liabilities 2,901.1 (182.1) (642.9) 2,076.1
--------- ------- -------- ---------
Long-term debt 2,120.5 (648.6) (E) 1,471.9
Deferred income taxes 121.8 (1.1) 120.7
Postretirement and other liabilities 511.3 (159.4) 351.9
--------- ------- -------- ---------
Total consumer products and
corporate liabilities 5,654.7 (342.6) (1,291.5) 4,020.6
--------- ------- -------- ---------
Life insurance
Policy reserves and claims 2,723.8 $(2,723.8) -
Investment-type contract deposits 2,849.1 (2,849.1) -
Other liabilities 447.3 (447.3) -
--------- --------- -------- ---------
Life insurance total liabilities 6,020.2 (6,020.2) -
--------- --------- -------- ---------
3
<PAGE>
Convertible preferred stock
redeemable at Company's option 16.0 16.0
--------- ---------
Common stockholders' equity
Common stock, par value $3.125 per
share, 229.6 shares issued 717.4 717.4
529.7 (A)
Paid-in capital 170.6 (529.7) (845.1) 845.1 (E) 170.6
Unrealized depreciation on
available-for-sale investments (7.0) 7.0 -
Foreign currency adjustments (234.6) (234.6)
(194.5) (A)
536.3 (A)
514.6 (E)
Retained earnings 4,556.3 194.5 (514.6) (189.7) (E) 4,902.9
(375.0) (A)
Treasury stock, at cost (732.7) (375.0) (E) (1,482.7)
--------- ------- --------- -------- ---------
Total Common stockholders' equity 4,470.0 (335.2) (1,352.7) 1,291.5 4,073.6
--------- ------- --------- -------- ---------
Total liabilities and stockholders' equity $16,160.9 $(677.8) $(7,372.9) $ - $ 8,110.2
========= ======= ========= ======== =========
See Accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF INCOME (Unaudited)
YEAR ENDED DECEMBER 31, 1993
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
AMERICAN AMERICAN PRO FORMA
BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA
-------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Consumer products $12,630.5 $(1,501.5) $11,129.0
Life insurance 1,070.9 $(1,070.9) -
--------- --------- --------- ---------
13,701.4 (1,501.5) (1,070.9) 11,129.0
--------- --------- --------- ---------
Operating expenses
Cost of products sold 3,587.6 (345.3) 3,242.3
Excise taxes on products sold 5,413.9 (360.9) 5,053.0
Insurance benefits 654.2 (654.2) -
Advertising, selling and
administrative expenses
Consumer products 2,315.2 (626.1) 1,689.1
Life insurance 188.2 (188.2) -
Amortization of intangibles 103.6 (11.2) 92.4
Restructuring charges 40.8 40.8
--------- --------- --------- ---------
12,303.5 (1,332.3) (853.6) 10,117.6
--------- --------- --------- ---------
Operating income 1,397.9 (169.2) (217.3) 1,011.4
--------- --------- --------- ---------
$ (37.5) (C)
Interest and related charges 244.2 (1.6) (16.6) (47.7) (G) 140.8
Corporate administrative expenses 78.1 78.1
Other (income) expenses, net (0.5) 1.1 0.6
--------- --------- --------- ------- ---------
321.8 (0.5) (16.6) (85.2) 219.5
--------- --------- --------- ------- ---------
Income before income taxes 1,076.1 (168.7) (200.7) 85.2 791.9
13.1 (D)
Income taxes 407.9 (46.6) (73.7) 16.7 (H) 317.4
--------- --------- --------- ------- ---------
Income from continuing operations $ 668.2 $ (122.1) $ (127.0) $ 55.4 $ 474.5
========= ========= ========= ======= =========
5
<PAGE>
Income from continuing operations
Per Common share
Primary $ 3.30 $ 2.60 (I)
========= =========
Fully diluted $ 3.23 $ 2.56 (I)
========= =========
Average number of Common shares
outstanding
Primary 201.8 181.8 (I)
========= =========
Fully diluted 213.7 193.7 (I)
========= =========
See Accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
</TABLE>
6
<PAGE>
<TABLE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF INCOME (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
AMERICAN AMERICAN PRO FORMA
BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA
-------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues
Consumer products $ 9,396.4 $(1,207.4) $8,189.0
Life insurance 785.3 $ (785.3) -
--------- --------- -------- --------
10,181.7 (1,207.4) (785.3) 8,189.0
--------- --------- -------- --------
Operating expenses
Cost of products sold 2,862.7 (283.6) 2,579.1
Excise taxes on products sold 3,825.1 (313.8) 3,511.3
Insurance benefits 540.1 (540.1) -
Advertising, selling and
administrative expenses
Consumer products 1,738.5 (435.8) 1,302.7
Life insurance 139.3 (139.3) -
Amortization of intangibles 80.9 (9.0) 71.9
--------- --------- -------- --------
9,186.6 (1,033.2) (688.4) 7,465.0
--------- --------- -------- --------
Operating income 995.1 (174.2) (96.9) 724.0
--------- --------- -------- --------
$ (28.1) (C)
Interest and related charges 177.9 (1.2) (12.4) (35.8) (G) 100.4
Corporate administrative expenses 52.7 52.7
Other (income) expenses, net 6.4 (0.8) 5.6
--------- --------- -------- ------- --------
237.0 (2.0) (12.4) (63.9) 158.7
--------- --------- -------- ------- --------
Income before income taxes 758.1 (172.2) (84.5) 63.9 565.3
9.8 (D)
Income taxes 293.1 (69.4) (32.6) 12.5 (H) 213.4
--------- --------- -------- ------- --------
Income from continuing operations $ 465.0 $ (102.8) $ (51.9) $ 41.6 $ 351.9
========= ========= ======== ======= ========
7
<PAGE>
Income from continuing operations
Per Common share
Primary $ 2.30 $ 1.93 (I)
========= ========
Fully diluted $ 2.25 $ 1.90 (I)
========= ========
Average number of Common shares
outstanding
Primary 201.6 181.6 (I)
========= ========
Fully diluted 213.6 193.6 (I)
========= ========
See Accompaning Notes to Unaudited Pro Forma Condensed Financial Statements.
</TABLE>
8
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The American Brands column in the pro forma condensed balance sheet at
September 30, 1994 and the pro forma condensed statements of income for the
year ended December 31, 1993 and the nine months ended September 30, 1994
include American Tobacco's and Franklin's results for the full periods.
The American Tobacco and Franklin columns in the pro forma condensed
financial statements reflect their respective amounts which are included in
the American Brands columns.
THE AMERICAN TOBACCO COMPANY
- ----------------------------
(A) On December 22, 1994, American Brands sold American Tobacco to
B.A.T Industries p.l.c. for $1 billion in cash. Such sale is reflected in
the pro forma condensed balance sheet pro forma adjustments column which
assumes a $625 million reduction of short-term debt and a purchase of 10
million shares of American Brands' Common stock, at a cost of $37.50 per
share (closing market price on December 30, 1994), or $375 million. The
share purchase is reflected as an increase in Treasury stock, at cost.
Retained earnings reflects an estimated gain of $536.3 million (net of
estimated accrued expenses of $40 million and $88.5 million of taxes) on
the sale as though the disposal occurred at September 30, 1994. The actual
gain to be recorded as of the closing date will differ from the estimated
pro forma gain assumed in the September 30, 1994 pro forma balance sheet.
9
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (Continued)
(B) The pro forma condensed statements of income pro forma
adjustments columns for the year ended December 31, 1993 and nine months
ended September 30, 1994 reflect the related interest expense adjustment on
the short-term debt reduction as follows:
Year ended Nine Months ended
December 31, 1993 September 30, 1994
----------------- ------------------
(In millions)
(C) Reduction in interest
expense at an assumed average
interest rate of 6%. $ 37.5 $ 28.1
====== ======
(D) Increase in provisions
for income taxes relates to the
reduction in interest expense. $ 13.1 $ 9.8
====== ======
The pro forma condensed statements of income do not reflect the
estimated gain on the sale.
AMERICAN FRANKLIN COMPANY
- -------------------------
(E) On January 31, 1995, American Brands sold Franklin to American
General Corporation for $1.17 billion in cash. The Franklin transaction
represents a disposal of a business segment and will be treated as a
discontinued operation. The Franklin column in the pro forma condensed
statements of income includes an allocation of interest expense from
continuing to discontinued operations based on a normal debt to equity
ratio for a life insurance company. Such sale is reflected in the pro
10
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (Continued)
forma condensed balance sheet pro forma adjustments column which assumes a
$146.4 million reduction of short-term debt, a $648.6 million reduction of
long-term debt and a purchase of 10 million shares of American Brands'
Common stock, at a cost of $37.50 per share (closing market price on
December 30, 1994), or $375 million. The share purchase is reflected as an
increase in Treasury stock, at cost. Retained earnings reflects an
estimated loss of $189.7 million on the sale as though the disposal
occurred at September 30, 1994.
(F) The pro forma condensed statements of income pro forma
adjustments columns for the year ended December 31, 1993 and the nine
months ended September 30, 1994 reflect the related interest expense
adjustment on the short-term and long-term debt reductions as follows:
Year ended Nine Months ended
December 31, 1993 September 30, 1994
----------------- ------------------
(In millions)
(G) Reduction in interest
expense at an assumed average
interest rate of 6%. $ 47.7 $ 35.8
====== ======
(H) Increase in provisions
for income taxes relates to the
reduction in interest expense. $ 16.7 $ 12.5
====== ======
11
<PAGE>
AMERICAN BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (Concluded)
The pro forma condensed statements of income do not include the
estimated loss on the sale. The estimated loss, including provision for
net income during the phase-out period from November 30 through the closing
of the transaction, is expected to be approximately $206.8 million.
(I) Pro forma income from continuing operations per Common share and
Average number of Common shares outstanding also reflect the assumed
purchase of 20 million Common shares.
12
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
- ------- -------------
2. Stock Purchase Agreement dated as of
November 29, 1994 between Registrant
and American General Corporation.*
3(ii)a. By-law amendments adopted January 31,
1995 effective January 31, 1995.
3(ii)b. By-laws of Registrant, as effective
January 31, 1995.
- --------------------------
* Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and
schedules to Exhibit 2 are omitted. Exhibit 2 contains a list identifying
the contents of its exhibits and schedules, and Registrant agrees to
furnish supplementally copies of such exhibits and schedules to the
Securities and Exchange Commission upon request.
EXHIBIT 2
---------
========================================================
STOCK PURCHASE AGREEMENT
between
AMERICAN GENERAL CORPORATION,
("Buyer"),
and
AMERICAN BRANDS, INC.,
("Seller")
Dated November 29, 1994
========================================================
<PAGE>
TABLE OF CONTENTS
-----------------
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ARTICLE I PURCHASE AND SALE OF COMMON
STOCK ............................ 1 1
Section 1.1 Purchase and Sale ........... 1 1
Section 1.2 Closing ..................... 1 1
Section 1.3 Purchase Price .............. 1 1
ARTICLE II REPRESENTATIONS AND WARRANTIES
OF SELLER ........................ 2 2
Section 2.1 Organization ................ 2 2
Section 2.2 No Conflict ................. 2 3
Section 2.3 Financial Statements ........ 3 4
Section 2.4 Undisclosed Liabilities;
Absence of Changes ........ 4 5
Section 2.5 Representations Regarding
Assets .................... 6 8
Section 2.6 Investments ................. 7 10
Section 2.7 Reserves .................... 8 11
Section 2.8 Consents .................... 8 12
Section 2.9 Contracts ................... 8 12
Section 2.10 Litigation .................. 9 14
Section 2.11 Labor Relations; Employees .. 10 14
Section 2.12 Employee Benefit Plans;
ERISA ..................... 11 16
Section 2.13 Intellectual Property ....... 14 20
Section 2.14 Taxes ....................... 14 21
Section 2.15 Environmental Matters ....... 16 24
Section 2.16 Capitalization. ............. 17 25
Section 2.17 Subsidiaries ................ 17 26
Section 2.18 Affiliate Transactions ...... 18 26
Section 2.19 Directors, Officers and
Employees ................. 18 27
Section 2.20 Representation Regarding
Insurance Business ........ 18 27
Section 2.21 Broker-Dealer; Investment
Advisor; Investment
Company ................... 19 29
Section 2.22 Activities of Holding
Company ................... 20 30
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF BUYER ......................... 20 30
Section 3.1 Organization ................ 20 30
Section 3.2 Authority; No Conflict;
Binding Effect ............ 20 31
Section 3.3 Filings and Notices;
Approvals and Consents .... 21 31
<PAGE>
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Section 3.4 Brokers or Finders .......... 21 31
Section 3.5 Investment Intent ........... 21 31
Section 3.6 Actions Pending ............. 21 31
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF SELLER AS TO ITSELF ........... 21 32
Section 4.1 Organization ................ 21 32
Section 4.2 Authority; No Conflict;
Binding Effect ............ 22 32
Section 4.3 Filings and Notices;
Approvals and Consents .... 22 33
Section 4.4 Title to Common Stock ....... 22 33
Section 4.5 Actions Pending ............. 23 34
Section 4.6 Brokers and Finders ......... 23 34
ARTICLE V COVENANTS OF SELLER................ 23 34
Section 5.1 Operation of the Business ... 23 34
Section 5.2 Access ...................... 25 37
Section 5.3 Additional Financial
Statements ................ 25 38
Section 5.4 Filings and Notices;
Approvals and Consents .... 25 38
Section 5.5 Investment Portfolio ........ 26 39
Section 5.6 Reinsurance Agreements ...... 26 39
Section 5.7 Updating of Information ..... 26 40
Section 5.8 Non-solicitation ............ 27 40
Section 5.9 Dividend Approval ........... 27 41
Section 5.10 ERISA Plan Amendments:
Determination Letters ..... 28 42
Section 5.11 Employment Loss ............. 28 42
Section 5.12 Proxy Services .............. 28 43
Section 5.13 Compliance .................. 29 43
ARTICLE VI JOINT COVENANTS AS TO CERTAIN
TAX MATTERS ...................... 29 43
Section 6.1 Pre-1994 Taxes .............. 29 43
Section 6.2 Post-1993 Taxes ............. 29 44
Section 6.3 Certain Consolidated and
Other Taxes ............... 30 46
Section 6.4 Other Taxes ................. 31 46
Section 6.5 Obligations Contingent ...... 31 46
Section 6.6 Tax Sharing Agreements ...... 31 47
Section 6.7 Tax Returns ................. 31 47
Section 6.8 Audits ...................... 31 47
Section 6.9 Carrybacks .................. 31 48
Section 6.10 Tax Cooperation ............. 32 48
Section 6.11 Timing Adjustments .......... 32 48
<PAGE>
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ARTICLE VII COVENANTS OF BUYER................. 32 49
Section 7.1 Filings and Notices;
Approvals and Consents;
Extraordinary Dividend .... 32 49
Section 7.2 Updating of Information ..... 33 50
Section 7.3 Employee Benefit Plans ...... 33 50
Section 7.4 Indemnification of
Directors and Officers .... 33 50
Section 7.5 Post-Closing Access by
Seller .................... 34 51
ARTICLE VIII JOINT COVENANTS WITH RESPECT TO
IAA AND ICA MATTERS .............. 34 52
Section 8.1 Affirmative Consents ........ 34 52
Section 8.2 Proxy Statement ............. 35 53
Section 8.3 Section 15(f) of the ICA .... 36 55
Section 8.4 Subsequent Compliance ....... 37 56
ARTICLE IX CONDITIONS TO OBLIGATIONS OF
BUYER ............................ 37 56
Section 9.1 Representations and
Warranties Correct ........ 37 56
Section 9.2 No Material Adverse Change .. 37 56
Section 9.3 Performance; No Default ..... 37 57
Section 9.4 Absence of Litigation;
Regulatory Compliance ..... 37 57
Section 9.5 Opinions of Counsel to the
Company and Seller ........ 38 57
Section 9.6 Governmental Approvals ...... 38 58
Section 9.7 Consents .................... 38 58
Section 9.8 Intercompany Accounts ....... 38 58
Section 9.9 Resignation of Directors .... 38 58
Section 9.10 Investment Policy Changes ... 39 59
ARTICLE X CONDITIONS TO OBLIGATIONS OF
SELLER ........................... 39 59
Section 10.1 Representations and
Warranties Correct ........ 39 59
Section 10.2 Performance; No Default ..... 39 59
Section 10.3 Absence of Litigation ....... 39 59
Section 10.4 Governmental Approvals ...... 39 60
Section 10.5 Consents .................... 39 60
Section 10.6 Opinions of Counsel to
Buyer ..................... 40 60
Section 10.7 Transfer Taxes .............. 40 60
ARTICLE XI DELIVERIES AT CLOSING.............. 40 60
Section 11.1 Deliveries by Seller ........ 40 61
Section 11.2 Deliveries by Buyer ......... 41 62
<PAGE>
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ARTICLE XII INDEMNIFICATION.................... 41 62
Section 12.1 Indemnification ............. 41 62
Section 12.2 Defense of Third-Party
Claims .................... 42 64
Section 12.3 Direct Claims ............... 44 67
Section 12.4 Purchase Price Adjustment ... 44 67
Section 12.5 Net After-Tax Basis ......... 44 67
ARTICLE XIII MISCELLANEOUS PROVISIONS AND
AGREEMENTS ....................... 45 68
Section 13.1 Confidentiality ............. 45 68
Section 13.2 Expenses .................... 45 68
Section 13.3 Notices ..................... 45 68
Section 13.4 Amendments; Termination ..... 46 70
Section 13.5 Consent to Jurisdiction ..... 47 70
Section 13.6 Negotiations with Third
Parties; Specific
Performance ............... 47 71
Section 13.7 Assignment .................. 47 71
Section 13.8 Entire Agreement ............ 48 72
Section 13.9 Applicable Law .............. 48 72
Section 13.10 Survival .................... 48 72
Section 13.11 Further Assurances .......... 48 72
Section 13.12 Definition of "Knowledge"
of Seller ................. 48 73
ANNEX A A-1 A-1
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of November 29, 1994 (together
with the annexes, exhibits and schedules hereto, this "Agreement"), between
American General Corporation, a Texas corporation ("Buyer"), and American
Brands, Inc., a Delaware corporation ("Seller").
Buyer desires to purchase all of the outstanding shares of common
stock of American Franklin Company, a Delaware corporation ("Holding
Company"), and Seller desires to sell such shares to Buyer on the terms and
conditions hereinafter set forth.
The definitions of certain initially capitalized terms used
herein are set forth in Annex A hereto.
In consideration of the premises and of the mutual covenants and
agreements contained herein, Seller and Buyer hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF COMMON STOCK
-----------------------------------
Section 1.1 PURCHASE AND SALE. Upon the terms and subject to
the conditions set forth in this Agreement, Seller will sell, transfer and
convey to Buyer, free of all Liens, and Buyer will purchase from Seller,
1,000 shares of the Common Stock, par value $1.00 per share, of the Holding
Company, representing all of the outstanding equity securities of the
Holding Company (the "Common Stock"), for the Purchase Price (as defined in
Section 1.3).
Section 1.2 CLOSING. Subject to the conditions set forth
herein, the purchase and sale of the Common Stock pursuant to this
Agreement (the "Closing") will take place at the offices of Chadbourne &
Parke at 10:00 A.M., New York time, on the fourth business day following
the satisfaction or waiver of the conditions set forth in Articles IX and
X. The date on which the Closing is to occur is herein referred to as the
"Closing Date". The Closing will be deemed to have occurred as of the
close of business on the Closing Date.
Section 1.3 PURCHASE PRICE. In consideration for the sale,
transfer and conveyance of the Common Stock to Buyer by Seller, Buyer will,
upon the terms and subject to the conditions contained herein, deliver to
Seller, at the Closing, cash in the amount of (a) $1.170 billion or (b) if
all approvals of Governmental Entities in respect of the Extraordinary
Dividend (as defined in Section 5.9) have been obtained and such
Extraordinary Dividend has been paid to Seller, $920 million, payable by
wire transfer in immediately available funds to an account which Seller
shall designate in writing to Buyer no less than two business days prior to
the Closing Date, in lawful money of the United States of America (the
"Purchase Price").
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
-----------------------------------------
Seller hereby represents and warrants to Buyer as follows:
Section 2.1 ORGANIZATION. (a) Each of the Holding Company and
Franklin Financial Services Corporation, a Delaware corporation (the
"Broker-Dealer"), is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware with the corporate
power to own its Assets and carry on the business conducted by it as now
conducted.
(b) Each of the Holding Company and the Broker-Dealer is duly
qualified and is in good standing as a foreign corporation in each
jurisdiction in which such qualification is required, except in any such
jurisdictions in which the failure so to qualify would not have a Material
Adverse Effect.
(c) Each of The Franklin Life Insurance Company, an Illinois
corporation (the "Company"), The American Franklin Life Insurance Company,
an Illinois corporation (the "Illinois Subsidiary"), and The Franklin
United Life Insurance Company, a New York corporation (the "NY Subsidiary")
(each of the NY Subsidiary and the Illinois Subsidiary, an "Insurance
Subsidiary" and, collectively, the "Insurance Subsidiaries"), is (i) a
corporation duly organized and validly existing in good standing under the
laws of its jurisdiction of incorporation with the corporate power to own
its Assets and carry on the business conducted by it as now conducted, (ii)
duly licensed or authorized as an insurance company in its jurisdiction of
incorporation, and (iii) duly licensed or authorized as an insurance
company in each other jurisdiction where it is required to be so licensed
or authorized.
(d) Complete and correct copies of the Certificate of
Incorporation and By-Laws of the Holding Company and each of its
Subsidiaries, as in effect on the date hereof, have been delivered to
Buyer. Except as set forth on Schedule 2.17, the Holding Company has no
Subsidiaries nor owns or controls directly or indirectly, nor has, at any
time since April 1, 1989 owned or controlled, directly or indirectly, any
shares of capital stock or other interest in any other corporation,
partnership, joint venture or any other enterprise (other than Investments
(as defined in Section 2.6)) and has no right or obligation to acquire any
such capital stock or other interest (other than those arising under
venture capital investments).
Section 2.2 NO CONFLICT. Except as set forth on Schedule 2.2,
the execution, delivery and performance of this Agreement by Seller (a) do
not and will not conflict with, result in a breach of, or entitle any party
(with due notice or lapse of time or both) to terminate, accelerate or call
a default with respect to any Company Contract (as defined in Section 2.9),
or result in the creation or imposition of any Lien upon the Common Stock
or any Assets of the Holding Company or its Subsidiaries, and (b) will not
result in any violation of any law, rule or regulation applicable to the
Holding Company or its Assets (including the Subsidiaries of the Holding
Company, their Assets and the Investments); provided, that the
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representation in clause (a) above shall not be deemed to give any
assurances regarding rights of termination based on any decrease in
insurance industry ratings of the Company or its Subsidiaries resulting
from the declaration and/or payment of the Extraordinary Dividend. Other
than as set forth on Schedule 2.2, none of the Holding Company or its
Subsidiaries is a party to, or subject to or bound by, any judgment,
injunction or decree of any court or other Governmental Entity which may
restrict or interfere with the performance of this Agreement by Seller.
Section 2.3 FINANCIAL STATEMENTS.
(a) Seller has previously furnished to Buyer the audited
consolidated balance sheets of the Company as of December 31 in each of the
years 1991 through 1993 (collectively the "Balance Sheets"), and the
related statements of income and cash flows for the fiscal years then ended
(together with the notes thereto) (collectively with the Balance Sheets,
the "Financial Statements"). The Balance Sheets (including the related
notes) fairly present the consolidated financial condition of the Company
as at the dates thereof, and the other related audited year-end statements
included in the Financial Statements (including the related notes) fairly
present the consolidated results of operations of the Company for the
fiscal years then ended; and each of the Financial Statements (including
the related notes) has been prepared in accordance with GAAP (except as
otherwise set forth therein). The consolidated balance sheet of the
Company as of December 31, 1993 is hereinafter referred to as the "1993
Balance Sheet," and the related statements of income and cash flows for the
fiscal year then ended (together with the notes thereto), collectively with
the 1993 Balance Sheet, are hereinafter referred to as the "1993 Financial
Statements."
(b) Seller has previously furnished to Buyer true and complete
copies of the unaudited consolidated balance sheet (the "Recent Balance
Sheet") of the Holding Company as of September 30, 1994 (the "Balance Sheet
Date") and the related statements of income and cash flows for the period
then ended (collectively with the Recent Balance Sheet, the "Unaudited
Financial Statements"). The Recent Balance Sheet fairly presents the
consolidated financial condition of the Holding Company as at the date
thereof, and the other related unaudited statements included in the
Unaudited Financial Statements fairly present the consolidated results of
operations of the Holding Company for the period then ended; and the
Unaudited Financial Statements have been prepared in accodance with GAAP
(except as otherwise set forth therein), subject to normal year-end
adjustments and any other adjustments described therein, and except that
the Unaudited Financial Statements do not contain full footnote disclosures
in accordance with GAAP.
(c) Seller has previously furnished to Buyer true and complete
copies of the annual convention statements and the quarterly convention
statements, including the participating and non-participating balance
sheets, of each of the Company and the Insurance Subsidiaries for the years
ended December 31, 1991, 1992 and 1993 and for the three-month periods
ended March 31, June 30 and September 30, 1994 (collectively, the
_Convention Statements_). The Convention Statements and the statutory
balance sheets and statements of operations included therein fairly present
the admitted assets, liabilities and surplus and results of operations and
changes in surplus of the Company and each of the Insurance Subsidiaries as
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of the dates and for the periods indicated therein and have been prepared
in conformity with applicable statutory accounting practices (the
_Statutory Accounting Principles_) applied on a consistent basis throughout
the periods indicated (except as otherwise set forth therein). The
statutory balance sheets and statements of operations included in the
annual Convention Statements have been audited by Coopers & Lybrand, L.L.P.
Section 2.4 UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES.
(a) Except as and to the extent of the amounts specifically
reflected or reserved against in the 1993 Balance Sheet, at December 31,
1993 the Company and its Subsidiaries had no Liabilities of a nature
required by GAAP to be reflected in a corporate balance sheet or disclosed
in the notes thereto. Except as set forth on Schedule 2.4, neither the
Holding Company nor any of its Subsidiaries has any outstanding
indebtedness for borrowed money to any Person other than intercompany
accounts between any of the Holding Company and its Subsidiaries nor does
it have any Liabilities as guarantor, surety, co-signer, endorser (except
for checks in the ordinary course of business), co-maker or indemnitor
(except for indemnity obligations under Contracts) in respect of the
obligation of any Person.
(b) Except as set forth on Schedule 2.4 and except as and to the
extent of the amounts specifically reflected or reserved against in the
Convention Statements for the year ended December 31, 1993, at December 31,
1993 neither the Company nor any of the Insurance Subsidiaries had any
Liabilities of a nature required by Statutory Accounting Principles to be
reflected in a convention statement or disclosed in the notes thereto.
(c) Except as set forth on Schedule 2.4 or as contemplated by
this Agreement, since the Balance Sheet Date, neither the Holding Company
nor any of its Subsidiaries has:
(i) suffered any change in its working capital, financial
condition, results of operations, policyholders' surplus, assets or
liabilities, or lost, failed to renew or terminated any Contracts, or
experienced any labor difficulty or suffered any casualty loss
(whether or not insured) which change, loss, failure to renew,
termination, experience or casualty loss could reasonably be expected
to, individually or in the aggregate, have a Material Adverse Effect;
(ii) made any change in its business or operations or in the
manner of conducting its business other than changes (including
product development) in the ordinary and usual course of business
consistent with past practice and as contemplated by its Reengineering
Program;
(iii) incurred any Liability, except (A) those under
Contracts entered into in the ordinary course of business, (B) those
disclosed or reflected in this Agreement or the Schedules hereto, (C)
those incurred in the ordinary course of business consistent with past
practice, and (D) those related to Investments that result from
general market conditions, or experienced any material change in any
assumptions underlying or methods of calculating any bad debt,
contingency or other reserves;
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(iv) permitted or allowed any of its Assets to be mortgaged,
pledged or subjected to any Lien, other than Permitted Liens;
(v) written off or determined to write off as uncollectible
any of its notes or accounts receivable or any portion thereof, except
for write-offs in the ordinary course of business consistent with past
practice at a rate no greater than during the twelve months ended
December 31, 1993; provided, that this representation shall not be
deemed to be a guaranty of collectability of accounts receivable;
(vi) cancelled any debts or claims, or waived any material
rights, in any or all such cases having an aggregate value in excess
of $1,000,000;
(vii) sold, transferred or conveyed any of its material
Assets (other than Investments) except in the ordinary course of
business consistent with past practice, and any of its Investments
(other than Foreclosure Property) except at the fair market value
thereof and in the ordinary course of business consistent with past
practice;
(viii) disposed of or permitted to lapse, or otherwise failed
to preserve, any material Intellectual Property or disposed of or
disclosed to any Person, other than authorized representatives of the
Buyer or parties to Contracts to which disclosure is required, any
trade secret or proprietary formula, process or know-how;
(ix) (Y) other than salary increases granted in the
ordinary course of business to officers and employees and other
increases in compensation customarily made on a periodic basis or
required by agreement or understanding, granted or promised any
increase in the compensation of any officer or employee of the Holding
Company or any of its Subsidiaries (including, without limitation, any
increase pursuant to any bonus, pension, profit sharing or other plan
or commitment) or (Z) instituted or adopted any new benefit programs,
plans or other arrangements for any officer or employee of the Holding
Company or its Subsidiaries;
(x) issued, authorized or proposed the issuance of any
shares of its capital stock, of securities convertible into, or
rights, warrants or options to acquire, any such shares or other
convertible securities;
(xi) disposed of, permitted to lapse, terminated, amended
(in a manner materially adverse to the Holding Company or any of its
Subsidiaries) or suffered the termination or amendment (in a manner
materially adverse to the Holding Company or any of its Subsidiaries)
of, or failed to perform in all material respects all of its
obligations or defaulted under, any Contract or Permit that is
material to the business of the Holding Company and its Subsidiaries
or any Insurance License;
(xii) made any material change in its accounting methods or
practices (including, without limitation, any material change with
respect to establishment of reserves for unearned premiums, losses
(including, without limitation, incurred but not reported losses) and
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loss adjustment expenses, or any material change in depreciation or
amortization policies or rates adopted by it);
(xiii) declared, set aside, made or paid any dividend or made
any other distribution in respect of its capital stock; or
(xiv) agreed, whether in writing or otherwise, to take any
action described in this Section 2.4 other than actions expressly
permitted under this Section 2.4.
Section 2.5 REPRESENTATIONS REGARDING ASSETS.
(a) TITLE. Except as set forth on Schedule 2.5(a) hereto, the
Holding Company and each of its Subsidiaries has as of the date hereof, and
on the Closing Date will have, good and valid title to all of its Assets
other than Real Property (as defined below) wherever situated, subject to
no Liens, other than (i) Permitted Liens and (ii) Liens which (x) have
arisen in the ordinary course of business, (y) (individually or in the
aggregate) do not interfere with the conduct of the business of the Holding
Company or its Subsidiaries as now conducted and (z) (individually or in
the aggregate) do not have a Material Adverse Effect. No other Person has
any right to the use or possession of any of such Assets, except as set
forth on Schedule 2.5(a).
(b) REAL PROPERTY. Schedule 2.5(b) hereto contains a list,
which list is accurate and complete in all material respects, of all real
property or any interest therein currently (A) owned in fee by the Holding
Company or any of its Subsidiaries, except Foreclosure Property as defined
below ("Owned Property") and (B) leased by the Holding Company or any of
its Subsidiaries ("Leased Property"), wherever located or owned (the Owned
Property and the Leased Property being collectively referred to herein as
"Real Property"). Except as disclosed on Schedule 2.5(b), each of the
Holding Company and its Subsidiaries has good and valid fee simple title to
its Owned Property, or a valid and binding leasehold interest in its Leased
Property, free and clear of all Liens, except for (A) Permitted Liens, (B)
any state of facts which would be disclosed by a current accurate survey of
the Real Property, (C) zoning, building and other similar restrictions, and
(D) unrecorded Liens, none of which items set forth in clause (A), (B), (C)
or (D), individually or in the aggregate, materially impair the present use
and operation of the property to which they relate. The Real Property is
in good condition and all of the Owned Property conforms in all material
respects with all applicable building, zoning, land use and other laws,
ordinances, codes, orders and regulations. The current use by the Holding
Company and its Subsidiaries of such Real Property conforms in all material
respects with such laws, ordinances, codes, orders and regulations and all
necessary occupancy and other certificates and permits for the lawful use
and occupancy of such Real Property and the equipment thereon have been
issued. Neither the Holding Company nor its Subsidiaries has received any
notices of material violations of law, ordinances, codes, orders or
regulations issued in writing by any federal, state, county, municipal or
local department having jurisdiction against or affecting any of such Real
Property, which violations have not been cured or otherwise resolved.
Except as set forth in Section 2.15 hereto with respect to Environmental
Matters, Seller makes no representations or warranties whatsoever regarding
real property acquired by the Holding Company or any of its Subsidiaries
through foreclosure of mortgages, deeds of trust or other security or like
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instruments held by the Holding Company or any of its Subsidiaries in
connection with Investments ("Foreclosure Property"). Schedule 2.5(b)
contains a list of all Foreclosure Property currently held by the Holding
Company or its Subsidiaries.
(c) INSURANCE. The Assets of the Holding Company and its
Subsidiaries that are of insurable character are insured with reputable
insurance companies against loss or damage by fire and other risks to the
extent and in the manner customary in accordance with the past practices of
Seller. Schedule 2.5 sets forth a description of all insurance programs
covering the Holding Company and its Subsidiaries. All policies which are
a part of such program are in full force and effect and none of the Seller,
the Holding Company and any of its Subsidiaries has received notice of
cancellation with respect thereto.
Section 2.6 INVESTMENTS.
(a) Schedule 2.6 sets forth a list, which list is accurate and
complete in all material respects, of all securities (other than the
capital stock in Subsidiaries), mortgages and other investments
(collectively, the _Investments_) owned by the Holding Company or its
Subsidiaries as of October 31, 1994, and a list of all transactions in
Investments by the Holding Company or its Subsidiaries from such month end
to November 18, 1994, together with the cost basis book or amortized value,
as the case may be, as of October 31, 1994, as well as such information
with respect to transactions in Investments by the Holding Company or its
Subsidiaries from October 31, 1994 to November 18, 1994, of such
Investments.
(b) The Holding Company or its Subsidiaries have good and
marketable title to the Investments listed on Schedule 2.6 or acquired in
the ordinary course of business since October 31, 1994 other than with
respect to those Investments which have been disposed of in the ordinary
course of business or redeemed in accordance with their terms since such
date and other than Permitted Liens.
(c) Schedule 2.6 identifies the Investments listed thereon
which, to the knowledge of Seller, are currently in default in the payment
of principal or interest. The market value of Below Investment Grade
securities does not exceed $200 million in the aggregate.
(d) Except as set forth on Schedule 2.6, there are no Liens on
any of the Investments, other than Permitted Liens, and none of the
Investments consist of securities loaned to third parties.
(e) To the knowledge of Seller, neither the Holding Company nor
any of its Subsidiaries has committed any act or omitted to take any act
which would make any of the Investments not enforceable against the issuer
thereof or the parties thereto in accordance with their terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally or the rights of creditors of
insurance companies generally and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
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(f) Except as set forth on Schedule 2.6, since the Balance
Sheet Date, none of the Holding Company or its Subsidiaries has (i)
purchased or otherwise invested in or committed to purchase or otherwise
invest in any interest in real property (including without limitation any
extension of credit secured by a mortgage or deed of trust), (ii) purchased
or otherwise invested in or committed to purchase or otherwise invest in
securities which are Below Investment Grade at the time of purchase, (iii)
entered into any agreement or commitment with respect to the purchase or
other acquisition, sale or other disposition or allocation of any
Investment with any Affiliate or (iv) entered into any agreement or
commitment with respect to any foreign investments.
Section 2.7 RESERVES. The aggregate loss reserves of the
Company and the Insurance Subsidiaries as recorded in the Convention
Statements have been determined in accordance with generally accepted
actuarial principles consistently applied (except as set forth therein).
Except as set forth on Schedule 2.7, the insurance reserving practices and
policies of the Insurance Subsidiaries have not changed since December 31,
1993 and the results of the application of such practices and policies are
reflected in the Convention Statements. All reserves of each of the
Company and the Insurance Subsidiaries set forth in the Convention
Statements are fairly stated in accordance with sound actuarial principles
and meet the requirements of the insurance laws of the applicable insurance
authority.
Section 2.8 CONSENTS. Except as set forth on Schedule 2.8 and
as contemplated by Article VIII, no consent, approval, authorization or
order of, or registration, qualification or filing with, any Governmental
Entity is required to be obtained or made by the Holding Company or any of
its Subsidiaries in connection with the consummation by Seller of the
transactions contemplated by this Agreement. Except as set forth on
Schedule 2.8 and as contemplated by Article VIII, no consent of any other
party (including, without limitation, any party to any Company Contract) is
required to be obtained by the Holding Company or any of its Subsidiaries
for the execution, delivery and performance by Seller of this Agreement or
the consummation by Seller of the transactions contemplated hereby.
Section 2.9 CONTRACTS. (a) Schedule 2.9 contains a list of
Contracts to which the Holding Company or any of its Subsidiaries is a
party or by which it is bound which:
(i) require the payment by or to the Holding Company or its
Subsidiaries of amounts in excess of $1 million per year, other than
(x) reinsurance and retrocession Contracts, (y) insurance Contracts
and (z) Contracts with insurance agents, and registered
representatives of the Broker-Dealer ("Agent Contracts"), all of which
Contracts referred to in clauses (x), (y) and (z) have been entered
into in the ordinary course of business;
(ii) are Agent Contracts for the top 50 insurance agents of
the Holding Company or any of its Subsidiaries in terms of commission
income plus any other such agents earning $300,000 or more in
commission income during 1993;
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(iii) are reinsurance or retrocession Contracts which require
the payment of premiums by the Holding Company or its Subsidiaries of
amounts in excess of $1 million per year;
(iv) contain covenants limiting the freedom of the Holding
Company or any of its Subsidiaries to engage in any line of business
in any geographic area or to compete with any Person;
(v) are employment or severance Contracts applicable to any
employee of the Holding Company or its Subsidiaries, including without
limitation Contracts to employ executive officers and other Contracts
with officers or directors of the Holding Company or any of its
Subsidiaries, other than Agent Contracts and any such Contract which
by its terms is terminable by the Holding Company or any of its
Subsidiaries on not more than 60 days' notice without material
liability; or
(vi) are other Contracts (except those referred to in
clauses (x), (y) and (z) of subsection 2.9(a)(i) above) which are
material to the business of the Holding Company or any of its
Subsidiaries
(collectively, the "Company Contracts"). Other Contracts not meeting any
of the criteria in clauses (i) through (vi) above have been included on
Schedule 2.9; the term "Company Contracts" as used in this Agreement shall
not encompass such Contracts not meeting such criteria.
(b) With respect to each of the Company Contracts and the Agent
Contracts, to the knowledge of Seller, except as set forth in Schedule 2.9:
(i) such Contract is (assuming due power and authority of,
and due execution and delivery by, the other party or parties thereto)
valid and binding upon each party thereto and is in full force and
effect;
(ii) there is no material default or claim of material
default thereunder and no event has occurred which, with the passage
of time or the giving of notice (or both), would constitute a material
default thereunder, or would permit material modification,
acceleration or termination thereof; and
(iii) the consummation of the transactions contemplated by
this Agreement will not give rise to a right of the other party or
parties thereto to terminate such Contract or impose Liability under
the terms thereof on the Holding Company or any of its Subsidiaries;
provided, that this representation shall not be deemed to give
assurances regarding rights of termination based on any decrease in
insurance industry ratings of the Company or its Subsidiaries
resulting from the declaration and/or payment of the Extraordinary
Dividend.
Section 2.10 LITIGATION. Except as set forth on Schedule 2.10
and Schedule 2.14, there is no action, suit, grievance, arbitration or
proceeding pending or, to the knowledge of Seller, threatened against or
affecting the Holding Company or its Subsidiaries at law or in equity,
before any federal, state, municipal or other governmental court,
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department, commission, board, arbitrator, bureau, agency or
instrumentality. Except as set forth on Schedule 2.10 and Schedule 2.14,
to the knowledge of Seller, the Holding Company and its Subsidiaries have
not received written notice of any pending or threatened investigation,
inquiry or review by any Governmental Entity with respect to the Holding
Company or its Subsidiaries.
Section 2.11 LABOR RELATIONS; EMPLOYEES.
(a) Except as set forth in Schedule 2.11 hereto, (i) none of the
employees of the Holding Company or its Subsidiaries are represented by any
labor organization and, to the knowledge of Seller, no union claims to
represent these employees and there have been no union organizing
activities with respect to employees of the Holding Company or its
Subsidiaries within the past five years, (ii) none of the Holding Company
or its Subsidiaries is a party to any agreements (including, without
limitation collective bargaining agreements, work rules or practices) with
and, to the knowledge of Seller, there are no pending petitions for
recognition of, a labor union or employee association as the exclusive
bargaining agent for any or all of the employees of the Holding Company or
its Subsidiaries, and no such petitions have been pending with the Holding
Company or any of its Subsidiaries within the past five years, (iii)
Schedule 2.11 sets forth a list, which list is accurate and complete in all
material respects, of all written personnel policies, rules or procedures
applicable to employees of the Holding Company or its Subsidiaries, true
and complete copies of which have heretofore been delivered to Buyer, (iv)
to the knowledge of Seller, the Holding Company and each of its
Subsidiaries has been for the last three years and is in compliance in all
material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of
work and occupational safety and health, and is not and has not been
engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable law, ordinance or regulation, (v) there
is no unfair labor practice charge or complaint, grievance or arbitration
under any collective bargaining agreement, discrimination or equal
employment opportunity charge or complaint, or other complaint or
proceeding pending, or to the knowledge of Seller, threatened by or on
behalf of any present or former employee of the Holding Company or any of
its Subsidiaries or applicant for employment by the Holding Company or any
of its Subsidiaries, (vi) there is no labor strike, dispute, lock-out,
slowdown or stoppage pending or, to the knowledge of the Seller, threatened
against the Holding Company or any of its Subsidiaries, nor has there been
any such activity within the past five years, (vii) there are no pending
collective bargaining negotiations relating to the employees of the Holding
Company or its Subsidiaries and (viii) no Governmental Entity has given
written notice to the Holding Company or its Subsidiaries of its intention
to conduct or, to the knowledge of Seller, intends to conduct, any
investigation of employment conditions or practices of the Holding Company
or any of its Subsidiaries. The relationship of management of the Holding
Company and its Subsidiaries with the employees of the Holding Company and
its Subsidiaries is good.
(b) The Company and its Subsidiaries have not during the past
two years effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Holding Company or
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any of its Subsidiaries or (ii) a "mass layoff" (as defined in the WARN
Act) affecting any site of employment or facility of the Holding Company or
any of its Subsidiaries; nor has the Holding Company or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law. None of the employees of the Holding Company
or its Subsidiaries has suffered an "employment loss" (as defined in the
WARN Act) within the 90-day period prior to the date hereof or is
anticipated to suffer an "employment loss" within the 90-day period prior
to the Closing Date. All employees of the Holding Company and its
Subsidiaries have been hired in compliance with the Immigration Reform and
Control Act of 1986.
Section 2.12 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Schedule 2.12 contains a list, which is complete and
accurate in all material respects, of each bonus, deferred compensation,
incentive compensation, stock purchase, stock option, equity-based award,
severance or termination pay, hospitalization or other medical, accident,
disability, life or other insurance, supplemental unemployment benefits,
fringe and other welfare benefit, profit-sharing, pension, or retirement
plan, program, agreement or arrangement, and each other employee benefit
plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by the Holding Company or
its Subsidiaries or by any trade or business, whether or not incorporated,
that together with the Holding Company would be deemed a "single employer"
within the meaning of section 4001 of ERISA, or considered as being members
of a controlled group of corporations, under common control, or members of
an affiliated service group within the meaning of subsections 414(b), (c),
(m) or (o) of the Code or Section 4001(a)(14) of ERISA (each such
Subsidiary, trade, business or member an "ERISA Affiliate"), in each case
for the benefit of any employee or terminated employee of the Holding
Company or any of its Subsidiaries (the "Plans"). Schedule 2.12 hereto
identifies each of the Plans that is an "employee benefit plan," as that
term is defined in section 3(3) of ERISA (the "ERISA Plans").
(b) With respect to each Plan listed on Schedule 2.12, except as
set forth in such Schedule, the Seller has heretofore delivered or has
caused to be delivered to Buyer true and complete copies of each of the
following documents:
(i) a copy of each written Plan;
(ii) a copy of the most recent annual report on Form 5500
and actuarial report, if required under ERISA, and to the extent they
have been prepared by the Company or its ERISA Affiliates, the most
recent report prepared with respect thereto in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 87,
Employer's Accounting for Pensions, SFAS No. 106, Employer's
Accounting for Post-Retirement Benefits other than Pensions, or SFAS
No. 112, Employer's Accounting for Post-Employment Benefits, as the
case may be;
(iii) a copy of the most recent Summary Plan Description
required under ERISA with respect thereto;
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(iv) if the Plan is funded through a trust or any third
party funding vehicle, a copy of the trust or other funding agreement
and the latest financial statements thereof; and
(v) the most recent determination letter received from the
Internal Revenue Service with respect to each Plan intended to qualify
under section 401 of the Code.
(c) No liability under Title IV of ERISA has been incurred by
the Holding Company or any ERISA Affiliate that has not been satisfied in
full, and to the knowledge of Seller, no condition exists that presents a
risk to the Holding Company or any ERISA Affiliate of incurring a liability
under such Title, other than liability for premiums due the Pension Benefit
Guaranty Corporation ("PBGC") (which premiums have been paid when due). To
the extent this representation applies to sections 4064, 4069 or 4204 of
Title IV of ERISA, it is made not only with respect to each ERISA Plan but
also with respect to any employee benefit plan, program, agreement or
arrangement subject to Title IV of ERISA to which the Holding Company or
any ERISA Affiliate made, or was required to make, contributions during the
five (5)-year period ending on the Closing Date.
(d) With respect to each ERISA Plan which is subject to Title IV
of ERISA, the present value of accrued benefits under such plan, based upon
the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such plan's actuary with respect to such plan
did not exceed, as of its latest valuation date, the then current value of
the assets of such plan allocable to such accrued benefits.
(e) Except as set forth on Schedule 2.12, none of the Holding
Company, any ERISA Affiliate, any ERISA Plan, and, to the knowledge of
Seller, any trust created thereunder and any trustee or administrator
thereof, has engaged in a transaction in connection with which the Holding
Company or any ERISA Affiliate, any ERISA Plan, any such trust, or any
trustee or administrator thereof, or any party dealing with any ERISA Plan
or any such trust could be subject to either a material civil penalty
assessed pursuant to section 409 or 502(i) of ERISA or a material tax
imposed pursuant to sections 4971, 4972, 4975, 4976, 4977, 4979 or 4980 of
the Code.
(f) No ERISA Plan or any trust established thereunder that is
subject to section 302 of ERISA and section 412 of the Code has incurred
any "accumulated funding deficiency" (as defined in section 302 of ERISA
and section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each ERISA Plan ended prior to the Closing
Date; and all contributions required to be made with respect thereto
(whether pursuant to the terms of any ERISA Plan or otherwise) on or prior
to the Closing Date have been timely made.
(g) With respect to each ERISA Plan which is subject to Title IV
of ERISA, during the five (5)-year period ending on the Closing Date: (1)
there has been no event or condition which presents the material risk of
plan termination; (2) to the knowledge of Seller, no reportable event
within the meaning of section 4043 of ERISA has occurred; (3) no notice of
intent to terminate such plans has been given under section 4041 of ERISA;
and (4) no proceeding has been instituted under section 4042 of ERISA to
terminate such plans.
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(h) Except as set forth on Schedule 2.12, there is no matter
pending (other than routine qualification determination filings, copies of
which have been furnished to Buyer, or will be promptly furnished to Buyer
when made) with respect to any of the Plans before the IRS, Department of
Labor, or PBGC.
(i) Each of the Holding Company and its ERISA Affiliates has
complied with the notice and continuation requirements of section 4980B of
the Code and Part 6 of Subtitle B of Title I of ERISA.
(j) No ERISA Plan is a "multiemployer pension plan," as defined
in section 3(37) of ERISA, nor is any ERISA Plan a plan described in
Section 4063(a) of ERISA.
(k) Except as set forth on Schedule 2.12, to the knowledge of
Seller, each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(l) The only ERISA Plans that are intended to be qualified under
section 401(a) of the Code are The Franklin Life Employees' Retirement Plan
(the "Pension Plan") and The Franklin Life Insurance Company Employees'
401(k) Retirement Plan (the "401(k) Plan"). The Pension Plan has been the
subject of a determination letter from the IRS to the effect that the
Pension Plan is qualified under section 401(a) of the Code; no such
determination letter has been revoked, and, to the knowledge of Seller,
revocation has not been threatened; and the Pension Plan has not been
amended since the effective date of its most recent determination letter in
any respect that might adversely affect its qualification. The 401(k) Plan
has not yet been submitted to the IRS for a determination that it is
qualified under section 401(a) of the Code, but the terms of the 401(k)
Plan and the trust established thereunder will not preclude the issuance of
a determination letter that the 401(k) Plan and trust are qualified and
exempt, respectively, under sections 401(a) and 501(a) of the Code, or the
401(k) Plan and trust may be amended without material cost in order that
such determination may be received.
(m) Except as set forth on Schedule 2.12, no Plan provides
benefits, including without limitation death or medical benefits, with
respect to current or former employees of the Holding Company or any of its
Subsidiaries beyond their retirement or other termination of service (other
than (i) coverage mandated by applicable law or (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is
defined in section 3(2) of ERISA).
(n) Except as set forth on Schedule 2.12, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any
current or former employee, director or officer of the Holding Company or
any of its Subsidiaries to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee, director or officer.
(o) Except as set forth on Schedule 2.12, there are no pending
or, to the knowledge of Seller, threatened or anticipated actions, suits or
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claims by or on behalf of any Plan, by any employee or beneficiary covered
under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits).
Section 2.13 INTELLECTUAL PROPERTY. (a) Neither the Company
nor any of its Subsidiaries owns any Intellectual Property for which
applications for registration have been made to or registration has been
obtained from the U.S. Copyright Office, the U.S. Patent and Trademark
Office or similar offices in other jurisdictions.
(b) Except as set forth on Schedule 2.13, to the knowledge of
Seller, neither the Holding Company nor any of its Subsidiaries has
received written notice of any claim that it has violated or infringed any
third party's rights in any patent, trademark, service mark, trade name,
trade secret or copyright or any license, authorization or permit held by
it.
(c) Except as set forth on Schedule 2.13 hereto, neither the
Holding Company nor its Subsidiaries has granted any licenses or other
rights and has no obligations to grant licenses or other rights to any of
the Intellectual Property. Neither the Holding Company nor its
Subsidiaries has made any claim of any violation or infringement by others
of its rights to or in connection with the Intellectual Property and the
Seller knows of no basis for the making of any such claim. None of the
Holding Company or any of its Subsidiaries has received notice from any
other Person pertaining to or challenging the right of the Holding Company
or its Subsidiaries to use the Intellectual Property or any rights
thereunder.
(d) To the knowledge of Seller, neither the Holding Company nor
its Subsidiaries is in material default under any license or similar
agreements under which the Holding Company or any of its Subsidiaries has
obtained rights to use or permit its customers or agents to use any
Intellectual Property owned by others and neither the Holding Company nor
any of its Subsidiaries has made a claim that the other party thereto is in
default.
(e) To the knowledge of Seller, the consummation of the
transactions contemplated by this Agreement will not alter or impair any
material rights of the Holding Company or its Subsidiaries referred to in
this Section 2.13.
Section 2.14 TAXES.
(a) Each of Seller and its Subsidiaries (including each of the
Holding Company and its Subsidiaries) has duly filed (or has had filed on
its behalf) all federal, state, local and foreign income Tax Returns and
all other material Tax Returns required to be filed by it, and has duly
paid (or has had paid on its behalf) all Taxes and other charges shown as
due on such Tax Returns. Each of the Holding Company and its Subsidiaries
has established in accordance with generally accepted accounting principles
and past practice (or has had so established on its behalf) reserves for
the payment of all Taxes with respect to any period or portion thereof
ending prior to or on the date hereof, and such reserves will continue to
be so established with respect to periods ending prior to or on the Closing
Date, and such reserves for such Taxes are or will be adequate. Neither
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the Holding Company nor any of its Subsidiaries is delinquent in the
payment of any amount of Taxes and there are no Tax Liens upon any of the
Assets or Real Property except for Permitted Liens. The Holding Company
and its Subsidiaries were first included in the federal consolidated income
Tax Return with Seller for the year 1990; such Tax Returns for the year
1990 and thereafter have not been examined by the IRS. The Holding Company
filed federal consolidated income Tax Returns with Seller for the years
ended 1987 through 1989. Seller's federal consolidated income Tax Returns
for the years ended 1988 and 1989 are currently being examined by the IRS.
No issue has been raised by the IRS in connection with such examination
which relates to the Holding Company or its Subsidiaries. The Broker-
Dealer filed separate federal income Tax Returns for the years ended 1987
through 1989; such Tax Returns have not been examined by the IRS. The
Company and the Insurance Subsidiaries filed federal income Tax Returns as
a life group for the years 1987 through 1989, which Tax Returns have been
examined by the IRS as set forth on Schedule 2.14 hereto. All deficiencies
which have been asserted as a result of such examinations have been paid,
finally settled or adequately reserved against to the extent there is a
reasonable possibility that the IRS position will be sustained, and to the
knowledge of Seller, no issue has been raised by the IRS in any such
examination which, by application of the same or similar principles,
reasonably could be expected to result in a material proposed deficiency
for any other period not so examined. To the knowledge of Seller, no state
of facts exists or has existed which would constitute grounds for the
assessment of any material Tax liability with respect to the Holding
Company or its Subsidiaries for the periods which have not been audited by
the IRS. Seller has delivered to Buyer true, correct and complete copies
of federal income Tax Returns that include the Holding Company or its
Subsidiaries for the years 1989 through 1993. Except to the extent set
forth on Schedule 2.14, there are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any Tax Return
that includes the Holding Company or any of its Subsidiaries for any
period. Neither Seller, the Holding Company nor its Subsidiaries has filed
a consent to the application of section 341(f)(2) of the Code.
(b) Neither the Holding Company nor its Subsidiaries is a party
to any "safe harbor lease" within the meaning of section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, as in effect prior to amendment
by the Tax Equity and Fiscal Responsibility Act of 1982.
(c) Except as disclosed on Schedule 2.14, neither the Holding
Company nor its Subsidiaries has entered into any compensatory agreements
with respect to the performance of services for which payment thereunder
would result in a nondeductible expense to the Holding Company or its
Subsidiaries pursuant to section 162(m) or 280G of the Code.
(d) Neither the Holding Company nor its Subsidiaries has agreed,
nor is it required, to make any adjustment under section 481(a) of the Code
by reason of a change in accounting method or otherwise.
(e) All Tax sharing agreements or similar arrangements with
respect to or including the Holding Company or its Subsidiaries are set
forth on Schedule 2.14.
(f) The Holding Company and its Subsidiaries currently file Tax
Returns (or have Tax Returns filed on their behalf) in the states,
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political subdivisions thereof and foreign countries set forth on Schedule
2.14.
(g) All material elections with respect to Taxes affecting the
Holding Company or its Subsidiaries are set forth on Schedule 2.14.
(h) Except as set forth on Schedule 2.14, there is no power of
attorney given by or binding upon the Holding Company or its Subsidiaries
with respect to Taxes for any period for which the statute of limitations
(including any waivers or extensions) has not yet expired.
(i) There are no outstanding balances of deferred gain or loss
accounts related to any deferred intercompany transactions to which the
Holding Company or any of its Subsidiaries was a party.
(j) Neither the Holding Company nor any of its Subsidiaries is a
party to or otherwise subject to any arrangement entered into in
anticipation of the Closing, not in accordance with past practice and not
required by this Agreement, (i) having the effect of or giving rise to the
recognition of a deduction or loss before the Closing Date, and a
corresponding recognition of taxable income or gain after the Closing Date,
or (ii) that would reasonably be expected to have the effect of or give
rise to the recognition of taxable income or gain by the Holding Company or
any of its Subsidiaries after the Closing Date without the receipt of or
entitlement to a corresponding amount of cash.
(k) Schedule 2.14 sets forth the amount of any existing
policyholders surplus account and shareholders surplus account with respect
to the Holding Company and its Subsidiaries within the meaning of Section
815 of the Code.
(l) Schedule 2.14 sets forth the states, political subdivisions
thereof and foreign countries in which the Holding Company or its
Subsidiaries file or join in filing any consolidated, unitary, combined or
similar Tax Returns (or have such Tax Returns filed on their behalf).
Except for federal income Tax Returns, the Holding Company and its
Subsidiaries do not file or join in filing any consolidated, unitary,
combined or similar Tax Returns with any corporation other than the Holding
Company and its Subsidiaries.
(m) Seller and the nonlife members of Seller's consolidated
group for federal income Tax purposes did not recognize on a cumulative
basis a net nonlife capital loss in 1993 and do not expect to recognize on
a cumulative basis a net nonlife capital loss in 1994 or 1995 that exceeds
the cumulative nonlife capital gain in 1993. Neither Seller nor any other
nonlife member of the Seller's consolidated group recognized nonlife
capital losses in taxable years prior to 1993 that are available to be
carried forward to 1993, 1994 or 1995.
Section 2.15 ENVIRONMENTAL MATTERS.
(a) Except as set forth on Schedule 2.15, (i) each of the
Holding Company and its Subsidiaries is and has been in compliance with
and, except for ongoing compliance obligations, including current
activities to remove asbestos and future activities to remove asbestos in
connection with rehabilitation of facilities, has no existing Liabilities
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under, and (ii) there are no written claims or notices by any Person
received by Seller, the Holding Company or any of its Subsidiaries that any
of the Holding Company or its Subsidiaries has not been in compliance with
or has any existing Liabilities under, all applicable laws, rules,
regulations, common law, ordinances, decrees, orders and other binding
legal requirements relating to pollution, the preservation of the
environment, and the exposure to materials in the environment or the work
place ("Environmental Laws") with respect to Owned Property, except for
Foreclosure Property, which in the aggregate would reasonably be expected
to result in Liability to the Holding Company and its Subsidiaries in
excess of $1,000,000. Neither the Holding Company nor any of its
Subsidiaries is subject to any decrees, orders, decisions of arbitrators or
Contracts (other than general indemnity provisions, under which no claims
are outstanding, relating to purchases, sales and leases of property and
commercial transactions) which contain limitations or penalty provisions
relating to matters arising under Environmental Laws.
(b) Except as set forth on Schedule 2.15, with respect to
currently owned Foreclosure Property and all real property formerly owned,
leased or operated by the Holding Company or any of its Subsidiaries,
including Foreclosure Property, to the knowledge of Seller, (i) there are
no past or present actions, conditions or occurrences that could form the
basis of any outstanding claim under Environmental Laws against, or
Liability under such laws of, the Holding Company or any of its
Subsidiaries, except for those which in the aggregate would not reasonably
be expected to result in a loss to the Holding Company and its Subsidiaries
in excess of $1,000,000; and (ii) no property was known by Seller, the
Holding Company or any of its Subsidiaries, at the time it was owned,
leased or operated by the Holding Company or any of its Subsidiaries, to
have been used by any other Person for the treatment, storage or disposal
of solid waste.
Section 2.16 CAPITALIZATION. The Common Stock represents all of
the issued and outstanding equity securities of the Holding Company. The
Common Stock has been duly authorized by the Holding Company, has been
validly issued and is fully paid, non-assessable and free of preemptive or
similar rights, is subject to no Liens and is owned beneficially and of
record by Seller. There is no option, warrant, call, registration right,
convertible security, arrangement, agreement or commitment of any
character, whether oral or written, relating to any security of, or phantom
security interest in, the Holding Company and there are no voting trusts or
other agreements or understandings with respect to the voting of the
capital stock of the Holding Company.
Section 2.17 SUBSIDIARIES. Schedule 2.17 hereto sets forth a
complete and accurate list of all of the Holding Company's Subsidiaries.
Schedule 2.17 hereto also contains the jurisdiction of incorporation or
formation of each such Subsidiary, each jurisdiction in which such
Subsidiary is qualified or otherwise authorized to do business, the number
of shares of capital stock of any Subsidiary which is a corporation issued
and outstanding and the percentage ownership interest of the Holding
Company or the Company in each Subsidiary. All outstanding shares of
capital stock of such Subsidiary have been duly and validly authorized, are
fully paid and, except to the extent that the shares of common stock of the
Company and of the Illinois Subsidiary are subject to a call by the Board
of Directors of the Company or the Illinois Subsidiary, respectively, in
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the manner and to the extent provided by Section 34 of the Illinois
Insurance Code, nonassessable and are owned by the Holding Company and/or
one or more of its Subsidiaries free and clear of any Liens (other than the
call right of the Board of Directors as aforesaid, which right is not
presently exercisable), including, without limitation, any agreement,
understanding or restriction affecting the voting rights or other incidents
of record or beneficial ownership pertaining to such shares. There are no
subscriptions, options, warrants, calls, registration rights, commitments,
agreements, arrangements, preemptive rights or other rights of any kind
outstanding for the purchase of, nor any securities convertible or
exchangeable for, any equity interests of any of such Subsidiaries. Except
as set forth on Schedule 2.17, there are no Contracts pursuant to which the
Holding Company or any Subsidiary is obligated or required, under any
circumstance, to make contributions to the capital of any of its
Subsidiaries.
Section 2.18 AFFILIATE TRANSACTIONS. Schedule 2.18 discloses a
brief description of each transaction within the last year (except dividend
payments) and each current Contract between Seller or any Seller's
Affiliate (other than the Holding Company or its Subsidiaries), on the one
hand, and the Holding Company or its Subsidiaries, on the other hand (the
"Affiliate Transactions").
Section 2.19 DIRECTORS, OFFICERS AND EMPLOYEES. The Seller has
provided to the Buyer a complete and accurate list of the names, titles and
rates of compensation (whether in the form of salaries, bonuses,
commissions or other supplemental compensation now or hereafter payable) of
all directors, officers and employees of the Holding Company and its
Subsidiaries whose total compensation for the calendar year 1994 will be or
is reasonably anticipated to be $50,000 or more.
Section 2.20 REPRESENTATION REGARDING INSURANCE BUSINESS.
(a) INSURANCE PRACTICES. Except as set forth on Schedule 2.20,
to the knowledge of Seller, the business of the Holding Company and its
Subsidiaries (including, without limitation, their reserving, home office
marketing, investment, financial, claims, premium collection and refunding
and other practices) is being conducted in compliance in all material
respects with all applicable laws (other than laws relating to employee
benefit matters, Taxes and Environmental Laws, which are addressed in
Sections 2.12, 2.14 and 2.15, respectively) including, without limitation,
all insurance laws, ordinances, rules, regulations, decrees and orders of
any court or other Governmental Entity and all notices, reports, documents
and other information required to be filed thereunder within the last three
years were properly filed in all material respects and were in compliance
in all material respects with applicable laws.
(b) PERMITS AND INSURANCE LICENSES. Each of the Holding Company
and its Subsidiaries has all Permits and Insurance Licenses the use and
exercise of which are necessary for the conduct of the business of the
Holding Company and its Subsidiaries as now conducted, other than such
Permits and Insurance Licenses the absence of which would not, individually
or in the aggregate, be reasonably expected to have a Material Adverse
Effect, and such Permits and Insurance Licenses are all in full force and
effect and are listed, described (including specification of those Permits
which are Insurance Licenses) and categorized (by the company holding such
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Permit or Insurance License) in Schedule 2.20. To the knowledge of Seller,
the business of the Holding Company and its Subsidiaries has been and is
being conducted in compliance, in all material respects, with all such
Permits and Insurance Licenses. To the knowledge of Seller, there is no
proceeding or investigation pending or threatened which would reasonably be
expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of any such Permit or Insurance
License.
(c) REINSURANCE CONTRACTS. To the knowledge of Seller, all
insurance and reinsurance Contracts issued by the Company or any of the
Insurance Subsidiaries are, as of the date of this Agreement, to the extent
required under applicable law, on forms approved by the insurance
regulatory authority of the jurisdiction where issued.
(d) ISSUED INSURANCE CONTRACTS. Seller has provided to Buyer
all forms of major insurance products in use by the Company and any of the
Insurance Subsidiaries as of the date of this Agreement.
(e) PAYMENT OF BENEFITS. All benefits payable by the Company or
any Insurance Subsidiary under insurance Contracts have in all material
respects been paid (or provision for payment thereof has been made) in
accordance with the terms of the Contracts under which they arose, such
payments were not delinquent and were paid (or if provision has been made
will be paid) without fines or penalties, except for such benefits for
which the Company or the relevant Insurance Subsidiary reasonably believes
there is a reasonable basis to contest payment and is taking appropriate
action with respect thereto.
(f) CONFORMITY WITH UNDERWRITING STANDARDS. All outstanding
insurance Contracts of the Company and the Insurance Subsidiaries were
issued in conformity in all material respects with the Company's
underwriting standards and, with respect to such Contracts reinsured in
whole or in part, conform in all material respects to the standards agreed
to with reinsurers in the related reinsurance, coinsurance or other similar
Contracts.
Section 2.21 BROKER-DEALER; INVESTMENT ADVISOR; INVESTMENT
COMPANY. (a) The Broker-Dealer is a broker-dealer registered with the
Securities and Exchange Commission, under applicable state laws and with
each other Governmental Entity with which it is required to register in
order to conduct its business as now being conducted, and is in compliance
in all material respects with all applicable laws thereunder. The Broker-
Dealer is a member organization in good standing in such organizations in
which its membership is required to conduct its business as now conducted.
(b) Neither the Holding Company nor any of its Subsidiaries or
Affiliates conducts activities of "an investment adviser" as such term is
defined in Section 2(a)(20) of the Investment Company Act of 1940, as
amended ("ICA"), whether or not registered under the Investment Advisers
Act of 1940, as amended ("IAA"), except that the Company is a registered
investment adviser under the IAA and acts as investment adviser to Franklin
Life Variable Annuity Fund A ("Fund A"), Franklin Life Variable Annuity
Fund B ("Fund B") and Franklin Life Money Market Variable Annuity Fund C
("Fund C", and together with Fund A and Fund B, the "Variable Annuity
Funds"), separate accounts of the Company which are registered open-end
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management investment companies under the ICA. Neither the Holding Company
nor any of its Subsidiaries or Affiliates is an "investment company" as
defined under the ICA, and neither the Holding Company nor any of its
Subsidiaries or Affiliates sponsors any Person that is such an investment
company, except that the Variable Annuity Funds are registered under the
ICA as open-end management investment companies and the Company may be
deemed the sponsor of such open-end management investment companies, and
two separate accounts of the Illinois Subsidiary, Separate Account VUL
("VUL") and Separate Account VUL-2 ("VUL-2"), are registered under the ICA
as unit investment trusts and the Illinois Subsidiary is the depositor of
such unit investment trusts.
Section 2.22 ACTIVITIES OF HOLDING COMPANY. Other than as set
forth in Schedule 2.22 hereto, the Holding Company does not engage and has
not engaged in any business or activity of any nature other than the
ownership and holding of the common stock, par value $2.00 per share, of
the Company and has no Liabilities, in the aggregate, in excess of
$100,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
-----------------------------------------
Buyer hereby represents and warrants to Seller that:
Section 3.1 ORGANIZATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
state of Texas with the corporate power to own the Common Stock and carry
on the business conducted by it as now conducted.
Section 3.2 AUTHORITY; NO CONFLICT; BINDING EFFECT. Buyer has
the corporate power and authority to execute, deliver and perform its
obligations under this Agreement. Such execution, delivery and performance
have been duly authorized by all necessary action on the part of Buyer and
do not and will not contravene the organizational documents of Buyer or
conflict with, result in a breach of, or entitle any party (with due notice
or lapse of time or both) to terminate, accelerate or call a default with
respect to, any agreement or instrument to which Buyer is a party or by
which Buyer or its Assets are bound. Subject only to the requirement to
obtain the consent of investment advisory clients as provided in Section
8.1 and the consent of contractowners as provided in Section 8.2, the
execution, delivery and performance by Buyer of this Agreement will not
result in any violation by Buyer of any law, rule or regulation applicable
to Buyer. Buyer is not a party to, nor subject to or bound by, any
judgment, injunction or decree of any court or other Governmental Entity
which may restrict or interfere with the performance of this Agreement by
Buyer. This Agreement is a valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally or the rights of creditors of insurance
companies generally and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the
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discretion of the court before which any proceeding therefor may be
brought.
Section 3.3 FILINGS AND NOTICES; APPROVALS AND CONSENTS. No
consent, waiver, approval, authorization or order of, or registration,
qualification or filing with, any court or other Governmental Entity is
required for the execution, delivery and performance by Buyer of this
Agreement and the consummation by Buyer of the transactions contemplated
hereby, other than (i) the filing by Buyer of applications with, and the
obtaining of approvals of Buyer's acquisition of control by, the Director
of Insurance of the State of Illinois and the Superintendent of Insurance
of the State of New York, and the delivery of notices and consents to
jurisdiction to certain other state insurance departments, (ii) the filing
of an acquiring person's notification and report form pursuant to the Hart-
Scott-Rodino Antitrust Improvement Act of 1976 and expiration of the
waiting period thereunder and (iii) the consents referred to in Article
VIII. No consent or waiver of any party to any Contract to which Buyer is
a party or by which it is bound is required for the execution, delivery and
performance by Buyer of this Agreement.
Section 3.4 BROKERS OR FINDERS. Except for Insurance Investment
Associates and Lazard Freres & Co., the fees of which shall be paid by
Buyer, neither Buyer nor its Affiliates has retained any agent, broker,
investment banker, financial advisor or other firm or person that is or
will be entitled to any brokers' or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement.
Section 3.5 INVESTMENT INTENT. Buyer is acquiring the Common
Stock hereunder for its own account for investment and not with a view to
the distribution thereof, and Buyer shall not offer to sell or otherwise
dispose of any of the shares of Common Stock so acquired by it in violation
of the registration requirements of the Securities Act or applicable state
securities laws.
Section 3.6 ACTIONS PENDING. There is no action, suit,
investigation or proceeding pending or, to the knowledge of Buyer,
threatened against Buyer or any of its properties or rights by or before
any court, arbitrator or administrative body or Governmental Entity which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto which could reasonably be expected to impair or restrict
Buyer's ability to perform its obligations hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AS TO ITSELF
-----------------------------------------------------
Seller hereby represents and warrants to Buyer that:
Section 4.1 ORGANIZATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of Delaware
and has all requisite power and authority to own the Common Stock and to
carry on the business conducted by it as now conducted.
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Section 4.2 AUTHORITY; NO CONFLICT; BINDING EFFECT. Seller has
the corporate power and authority to execute, deliver and perform its
obligations under this Agreement. Such execution, delivery and performance
have been duly authorized by all necessary action on the part of Seller and
do not and will not contravene the organizational documents of Seller or
conflict with, result in a breach of, or entitle any party (with due notice
or lapse of time or both) to terminate, accelerate or call a default with
respect to, any agreement or instrument to which Seller is a party or by
which Seller or its Assets are bound. The approval of the shareholders of
Seller is not required in connection with the execution, delivery and
performance by Seller of this Agreement or the consummation by Seller of
the transactions contemplated hereby. Subject only to the requirement to
obtain the consent of investment advisory clients as provided in Section
8.1 and the consent of contract owners as provided in Section 8.2, the
execution, delivery and performance by Seller of this Agreement will not
result in any violation by Seller of any law, rule or regulation applicable
to Seller. Seller is not a party to, nor subject to or bound by, any
judgment, injunction or decree of any court or other Governmental Entity
which may restrict or interfere with the performance of this Agreement by
Seller. This Agreement is a valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally or the rights of creditors of insurance
companies generally and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought.
Section 4.3 FILINGS AND NOTICES; APPROVALS AND CONSENTS. No
consent, waiver, approval, authorization or order of, or registration,
qualification or filing with, any court or other Governmental Entity is
required for the execution, delivery and performance by Seller of this
Agreement and the consummation by Seller of the transactions contemplated
hereby, other than (i) the delivery of notices to certain state insurance
departments, (ii) the filing of an acquired person's notification and
report form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and expiration of the waiting period thereunder and (iii) the consents
referred to in Article VIII. No consent or waiver of any party to any
Contract to which Seller is a party or by which it is bound is required for
the execution, delivery and performance by Seller of this Agreement.
Section 4.4 TITLE TO COMMON STOCK. Seller is the record and
beneficial owner of, and has good and valid title to, the Common Stock free
and clear of all Liens. Other than as contemplated by this Agreement,
Seller is not a party to, or bound by, any agreement, instrument, proxy,
understanding or commitment restricting the transfer of the Common Stock.
No Person other than Seller is the record or beneficial owner of any shares
of Common Stock. Assuming Buyer has the requisite power and authority to
be the lawful owner of the Common Stock and is a "bona fide purchaser" (as
defined in Article 8 of the New York Uniform Commercial Code), upon
delivery to Buyer at the Closing of certificates representing shares of the
Common Stock, duly endorsed by Seller for transfer to Buyer or with stock
powers attached, and upon Seller's receipt of the Purchase Price, good and
valid title will pass to Buyer, free and clear of all Liens, other than
those arising from acts of Buyer or its Affiliates.
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Section 4.5 ACTIONS PENDING. There is no action, suit,
investigation or proceeding pending or, to the knowledge of Seller,
threatened against Seller or any of its properties or rights by or before
any court, arbitrator or administrative body or Governmental Entity which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto which could reasonably be expected to have a Material
Adverse Effect or impair or restrict Seller's ability to perform its
obligations hereunder.
Section 4.6 BROKERS AND FINDERS. Except for Morgan Stanley &
Co. Incorporated, the fee of which shall be paid by Seller, neither Seller
nor its Affiliates has retained any agent, broker, investment banker,
financial advisor or other firm or person that is or will be entitled to
any broker's or finder's fee or any other commission or similar fee in
connection with any of the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF SELLER
-------------------
Section 5.1 OPERATION OF THE BUSINESS. Seller will cause the
Holding Company and each of its Subsidiaries to conduct its business in the
ordinary course and substantially in the same manner as heretofore
conducted and in accordance with applicable law. Without limiting the
foregoing:
(a) Neither the Holding Company nor any of its Subsidiaries will
make any material expenditures, provided that the Holding Company and
its Subsidiaries collectively, may, without Buyer's written consent,
make expenditures in the ordinary course of business (including
without limitation for payroll, and in connection with Investments),
expenditures required or contemplated under Contracts and expenditures
which, in the aggregate, do not exceed the amount of capital
expenditures set forth in the current capital budget, a copy of which
is attached hereto as Schedule 5.1(a).
(b) Neither the Holding Company nor any of its Subsidiaries will
amend, alter or modify any material provision of any Company Contracts
or the Plans except as may be disclosed in Schedule 2.12 hereto or as
may be deemed necessary to maintain compliance with applicable laws,
rules or regulations.
(c) Seller will give prompt notice to Buyer of (i) any breach or
default (or notice thereof) of any of the Company Contracts or (ii)
any event that could reasonably be expected to have a Material Adverse
Effect.
(d) The Holding Company will not, and will not permit any of its
Subsidiaries to, increase in any manner the rate of compensation of
any of its directors, officers or other employees (other than
increases in the ordinary course of business consistent with past
practice and other increases in compensation customary on a periodic
basis or required by agreement or understanding, and other than
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increases in connection with promotion of non-officer employees and
promotion of two employees into and within the officer ranks as
previously disclosed to Buyer, such increases to be in accordance with
past practice in connection with promotions at these levels) or,
except as set forth on Schedule 2.12, increase the rate or terms of
any bonus, insurance, pension or other employee benefit plan, payment
or arrangement made to, for or with any such directors, officers or
employees.
(e) Other than the issue, grant or sale of (x) variable
annuities and variable life insurance products and (y) portfolio
securities in the ordinary and usual course of business consistent
with past practice, the Holding Company will not, and will not permit
any of its Subsidiaries to, (i) issue, grant or sell any shares of its
capital stock or any equity security, (ii) issue, grant or sell any
security, option, warrant, call, subscription or other right of any
kind, fixed or contingent, that directly or indirectly calls for the
issuance, sale, pledge or other disposition of any shares of its
capital stock or any equity security.
(f) The Holding Company will not, and will not permit any of its
Subsidiaries to, split, combine or reclassify its outstanding capital
stock or declare, set aside, make or pay any dividend or make any
other distribution, other than the Extraordinary Dividend, in respect
of any of its capital stock.
(g) Except as required or contemplated by the Contracts listed
in Schedule 2.18, the Holding Company will not, and will not permit
any of its Subsidiaries to, make any loan, advance or capital
contribution to or for the benefit of, or make any guaranty for the
benefit of or investment in or sell, lease, transfer or otherwise
dispose of any of its Assets to or for the benefit of, or purchase or
lease any Assets from, or enter into or amend any Contract with or for
the benefit of, any of its Affiliates (other than the Holding Company
and its Subsidiaries).
(h) The Holding Company will not, and will not permit any of its
Subsidiaries to, make any material change in accounting methods or
practices by the Holding Company or any of its Subsidiaries
(including, without limitation, any change with respect to
establishment of reserves for unearned premiums, losses (including
without limitation incurred but not reported losses) and loss
adjustment expenses, or any change in depreciation or amortization
policies or rates adopted by it), except as required by law, GAAP or
Statutory Accounting Principles.
(i) The Holding Company will not permit the Company or any of
the Insurance Subsidiaries to make or propose to make any material
change in its dividend, underwriting, investment and other insurance
practices, other than as may be required with respect to the
Extraordinary Dividend, without prior consultation with Buyer.
(j) Neither the Holding Company nor any of its Subsidiaries will
enter into any Contract to do any of the foregoing.
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Section 5.2 ACCESS. (a) Seller will cause the Holding Company
and each of its Subsidiaries to permit Buyer and its authorized
representatives at all reasonable times, without unreasonable disruption of
the normal operations of the Holding Company and its Subsidiaries, to have
access to and to examine all premises, properties, files, books, documents,
records, financial information (including working papers and data in the
possession of the Company's independent public accountants, internal audit
reports, and "management letters" from such accountants with respect to the
Company's systems of internal control) and other information of the Holding
Company and its Subsidiaries (including the right to make extracts
therefrom or copies thereof), and will cooperate with Buyer in its
investigation of the Holding Company and its Subsidiaries. Seller will
cause the Holding Company and each of its Subsidiaries to permit
representatives of Buyer, to the extent necessary or desirable, to consult
with (i) the Chairman of the Board of Seller, (ii) personnel holding the
offices set forth in Section 13.12 with prior notice to Seller, and (iii)
other personnel with prior notice to and consent by Seller, which consent
shall not be unreasonably withheld, concerning all financial and
operational matters relating to the Holding Company and its Subsidiaries.
Seller may take such steps as are reasonably appropriate in the
circumstances to protect the confidentiality of information that does not
relate to the Holding Company or any of its Subsidiaries that is contained
in books and records that include information relating to the Holding
Company or any of its Subsidiaries.
(b) Prior to the Closing Date, Buyer may, at its own expense,
conduct a phase I environmental assessment of the Real Property or any
parcels thereof at such time or times as Seller shall consent to, such
consent not to be unreasonably withheld. Seller shall, and shall cause the
Holding Company and its Subsidiaries to, cooperate fully in such
assessment. In the event that Buyer, after conducting the phase I
assessment, concludes that additional environmental testing is required of
any of the Real Property, Buyer shall so notify Seller and the parties
shall agree in good faith on appropriate further investigation which Buyer
shall conduct at its own expense.
Section 5.3 ADDITIONAL FINANCIAL STATEMENTS. As soon as
reasonably practicable after they become available, Seller shall furnish to
Buyer (a) the quarterly convention statements of the Company and its
Subsidiaries for all interim quarterly periods subsequent to September 30,
1994, which shall have been prepared on a basis consistent with the
Convention Statements and, with respect to the financial statements
included therein, in accordance with Statutory Accounting Principles, (b)
the quarterly financial statements of the Holding Company and its
Subsidiaries for all quarterly periods subsequent to September 30, 1994,
which shall have been prepared in accordance with GAAP (except as set forth
therein) and on a basis consistent with the 1993 Financial Statements,
subject to normal year-end adjustments and the absence of footnote
disclosure and (c) all monthly financial statements or reports of the
Company and its Subsidiaries (for months subsequent to September, 1994),
which shall have been prepared in a manner consistent with past practice.
Section 5.4 FILINGS AND NOTICES; APPROVALS AND CONSENTS.
(a) Seller will, as promptly as practicable after the execution
and delivery of this Agreement, make and give, or cause the Holding Company
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and its Subsidiaries to make and give, all governmental filings and
governmental and third-party notices required to be made or given by
Seller, the Holding Company or its Subsidiaries, including those referred
to in Sections 2.8 and 4.3, in order for Seller to consummate the
transactions contemplated by this Agreement, except that the matters
covered by Article VIII shall be handled as therein stated. Any such
filing, and any supplemental information requested by the relevant
governmental authority in connection therewith, shall be in substantial
compliance with the requirements of such governmental authority. Seller
will keep Buyer apprised of the status of the governmental approval process
and of any communications with, and any inquiries or requests for
additional information from, the relevant governmental authority, and
Seller will, or will cause the Holding Company and its Subsidiaries to,
comply promptly with any such inquiry or request. Seller will use its
reasonable best efforts to obtain all such governmental approvals and
third-party consents.
(b) Seller will furnish to Buyer such necessary information and
reasonable assistance as Buyer may request in connection with its
preparation of any filing or submission to be made by Buyer in accordance
with Sections 3.3 and 7.1.
Section 5.5 INVESTMENT PORTFOLIO. Schedule 5.5 includes a
written statement of the current investment policies of the Company and the
Insurance Subsidiaries. Seller will, and will cause the Company and the
Insurance Subsidiaries to, consult with Buyer concerning any change in the
investment policies of the Company and such Insurance Subsidiaries utilized
in the management of their investment portfolios or with respect to ongoing
purchases and sales of Investments and take into consideration Buyer's
requests with respect thereto; provided, however, that the control of the
investment portfolio shall remain with the Board of Directors of the
Company or the relevant Insurance Subsidiary and the requirements of
applicable insurance laws shall continue to be observed. Between the date
hereof and the Closing Date, Seller shall cause the Company and its
Subsidiaries not to purchase or otherwise acquire any Investments which
are, or which are comprised of, securities which are Below Investment Grade
at the time of purchase.
Section 5.6 REINSURANCE AGREEMENTS. Seller shall cause the
Company and each Insurance Subsidiary not to, without the prior written
approval of Buyer, (i) enter into or commit to enter into any commutation,
loss portfolio transfer or other similar transaction, agreement or
arrangement or series of related transactions, agreements or arrangements
involving any assumed or ceded reinsurance of the Company or such Insurance
Subsidiary that involves payments to or from the Insurance Subsidiary in an
amount in excess of $1,000,000 or (ii) enter into or commit to enter into
any new reinsurance contract (other than under treaties or arrangements in
effect on the date hereof), treaty or other arrangement or series of such
contracts, treaties or other arrangements that create any Liability in
excess of $5,000,000.
Section 5.7 UPDATING OF INFORMATION. (a) Seller will promptly
inform Buyer in writing of Seller's knowledge of the occurrence or failure
to occur of any action or event which would violate its representations and
warranties hereunder or render them inaccurate as of the date hereof, or
that would constitute a breach of any covenant of Seller hereunder or a
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failure of any condition to the obligations of either Seller or Buyer
hereunder.
(b) Through December 7, 1994, Seller may supplement (x) Schedule
2.9 with Contracts in existence on the date of execution and delivery of
this Agreement, (y) to the extent of such supplements to Schedule 2.9, any
other Schedule that is affected by such supplements and (z) Schedule 2.15
with disclosure of matters covered thereby in existence on the date of
execution and delivery of this Agreement, and all such supplements,
provided that they do not disclose or contain subject matter that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, shall be deemed for all purposes to have been
attached to this Agreement at the date of execution and delivery hereof.
As so supplemented, all such Schedules will be accurate and complete in all
material respects.
Section 5.8 NON-SOLICITATION. For a period of five years
following the Closing Date, Seller agrees that, without the prior written
consent of Buyer, neither Seller nor its Affiliates will hire or solicit to
hire any insurance agents, officers, directors (other than those officers
who are also employees of Seller and directors who provide their
resignations to Buyer pursuant to Section 11.1(f)) or other employees of
the Holding Company or its Subsidiaries.
Section 5.9 DIVIDEND APPROVAL. (a) Within 15 days after the
date hereof (and in any event prior to the Closing Date), Seller shall
cause the Company to declare a dividend to the Holding Company, and the
Holding Company to declare a dividend to Seller, each such dividend to be
in the amount of $250 million and paid prior to the Closing Date to the
respective stockholders of record as of such declaration date (such
dividends are collectively referred to as the "Extraordinary Dividend").
Seller agrees for all purposes to treat and report, and to cause its
Subsidiaries to treat and report, the Extraordinary Dividend as occurring
prior to the Closing Date.
The payment of such declared dividend by the Company shall be
contingent upon necessary approvals of all Governmental Entities.
(b) Seller agrees that
(i) buyer may include, in its application for approval by the
Director of Insurance of the State of Illinois of the acquisition by
Buyer of control of the Company, or
(ii) if inclusion thereof with such application is not acceptable
to the Director of Insurance of the State of Illinois or Seller and
Buyer agree that such inclusion is not desirable, Seller will cause
the Company, at Buyer's expense, separately to submit to such
Director, a request for approval of the Extraordinary Dividend,
(c) (i) Buyer shall indemnify and hold Seller, the Holding
Company and its Subsidiaries harmless from any (x) Indemnifiable Losses
other than Indemnifiable Losses resulting from or related to any loss of
business (except Indemnifiable Losses resulting from Third Party Claims
based on any such loss of business) by the Company and its Subsidiaries
arising out of any decrease in insurance industry ratings of the Company or
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its Subsidiaries resulting from the declaration and/or payment of the
Extraordinary Dividend and (y) any net increase in Taxes imposed on Seller
or its Subsidiaries resulting from payment of the Extraordinary Dividend.
(ii) The provisions of Sections 12.2 and 12.3 shall apply
to the indemnity set forth in subsection 5.9(c)(i) above to the same extent
as if set forth herein.
(d) Notwithstanding anything herein contained, at Buyer's
request, Seller shall cause the Company to rescind and/or cease all actions
relating to the declaration, or cease all actions relating to the payment,
of the Extraordinary Dividend and to use its reasonable best efforts to
mitigate all Indemnifiable Losses, if any, pursuant to subsection 5.9(c)(i)
above.
(e) Any consequence of the declaration and/or payment of the
Extraordinary Dividend, and any action taken by Seller, in its good faith
judgment and with the consent of Buyer (to the extent Buyer's consent is
otherwise required), in response to such consequence, shall not be deemed
to be a breach of any representation, warranty or covenant of Seller
hereunder or to have a Material Adverse Effect. Seller will promptly
notify Buyer of any such material action proposed to be taken.
Section 5.10 ERISA PLAN AMENDMENTS: DETERMINATION LETTERS.
Seller will cause the Holding Company or its Subsidiaries to make any plan
amendments that Seller reasonably deems are required pursuant to the Tax
Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, the
Omnibus Budget Reconciliation Act of 1987, the Technical and Miscellaneous
Revenue Act of 1988, the Omnibus Budget Reconciliation Act of 1989, the
Unemployment Compensation Amendments of 1992, and the Omnibus Budget
Reconciliation Act of 1993, with respect to the Pension Plan and the 401(k)
Plan. The Seller will file with the IRS by the Closing Date applications
requesting a determination letter regarding the tax-qualified status of
Pension Plan and 401(k) Plan as those plans have been amended pursuant to
the preceding sentence.
Section 5.11 EMPLOYMENT LOSS. Seller will not take any action
within the 90-day period prior to the Closing Date which would result in an
"employment loss" (as defined in the Warn Act) in respect of employees of
the Holding Company or its Subsidiaries.
Section 5.12 PROXY SERVICES. Seller will, promptly after the
Closing, terminate the Service Agreement dated May 1, 1986 between the
Company and Seller; provided, however, that Buyer will cause the Company to
provide for Seller proxy mailing services in connection with Seller's 1995
annual meeting and dividend payment services with respect to the payment of
Seller's first quarter 1995 dividend (collectively, the "Services"). The
Services shall be provided on substantially identical terms and conditions
as previously provided to Seller by the Company. Seller shall indemnify
the Company and its Affiliates for all Indemnifiable Losses arising from
the performance by the Company of the Services other than such
Indemnifiable Losses arising from the gross negligence or willful
misconduct by any officer, director, employee or authorized agent of the
Company.
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Section 5.13 COMPLIANCE. After the date hereof, if Seller
deems, in good faith, that the Company is not in compliance in all material
respects with all laws, rules and regulations applicable to government
contractors of the United States, Seller will cause the Company to take
such action as is reasonably required for future compliance.
ARTICLE VI
JOINT COVENANTS AS TO CERTAIN TAX MATTERS
-----------------------------------------
Section 6.1 PRE-1994 TAXES. Seller shall pay or cause to be
paid all Taxes that may be imposed, assessed or asserted against the
Holding Company or its Subsidiaries or the assets, businesses or operations
of the Holding Company or its Subsidiaries with respect to any taxable year
or period ending on or before, or attributable to any period through and
including, December 31, 1993 and shall be entitled to all refunds and
credits for all overpayments in respect of such years or periods.
Section 6.2 POST-1993 TAXES.
(a) 1994 AND 1995 CONSOLIDATED TAXES. After the date of this
Agreement, Seller may be required to make estimated income Tax payments for
the 1994 calendar year and 1995 calendar year with respect to Consolidated
Taxes (as defined in the next sentence) that are attributable to the
Holding Company and its Subsidiaries (the "Holding Company Group").
"Consolidated Taxes" means federal, state, local or foreign Taxes that are
paid on a consolidated, unitary, combined or similar basis and the Tax
Returns for which include the Holding Company or any of its Subsidiaries
and any corporation(s) other than the Holding Company or its Subsidiaries.
The Company and the Insurance Subsidiaries shall promptly provide funds to
Seller consistent with past practices for that portion of such estimated
Tax payments that relates to the Company and the Insurance Subsidiaries
(determined in a manner consistent with the Tax Sharing Agreement dated as
of April 29, 1992 between the Company and the Insurance Subsidiaries, on
the one hand, and Seller, on the other hand (the "Tax Sharing Agreement")).
The Holding Company and the Broker-Dealer shall promptly provide funds to
Seller consistent with past practices for that portion of such estimated
income Tax payments that relates to the Holding Company and the Broker-
Dealer (determined in a manner consistent with the principles of the Tax
Sharing Agreement) (the aggregate amount of such funds provided by the
Holding Company Group for a period or portion thereof is referred to as the
"Holding Company Estimated Tax Payments" with respect to a Consolidated
Tax). If, with respect to a Consolidated Tax, the Holding Company Separate
Tax (as defined below) for the 1994 calendar year or portion of the 1995
calendar year through the Closing Date exceeds the Holding Company
Estimated Tax Payments for such calendar year or such portion thereof,
Buyer shall promptly pay to Seller an amount equal to such excess. If,
with respect to a Consolidated Tax, the Holding Company Estimated Tax
Payments for the 1994 calendar year or portion of the 1995 calendar year
through the Closing Date exceed the Holding Company Separate Tax for such
calendar year or such portion thereof, Seller shall promptly pay to Buyer
an amount equal to such excess. "Holding Company Separate Tax" means, with
respect to the 1994 calendar year and the portion of the 1995 calendar year
through the Closing Date, the sum of the applicable hypothetical federal,
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state, local or foreign Tax liability that the Holding Company Group would
have for such taxable period determined as if the Holding Company Group had
filed its own applicable separate consolidated, unitary, combined or
similar Tax Return (the "Group Tax Return") for such taxable period,
calculated in a manner consistent with the principles of the Tax Sharing
Agreement. Buyer shall determine the Holding Company Separate Tax, which
determination shall be subject to the reasonable and prompt approval of
Seller. In the event of a final determination (which shall include the
execution of a Form 870-AD or successor form) that results in an adjustment
with respect to the portion of any Consolidated Taxes for the 1994 calendar
year that relates to the Holding Company Group, any resulting refund of
such 1994 Consolidated Taxes shall be allocated 75% to Seller and 25% to
Buyer and any resulting obligation to pay such additional 1994 Consolidated
Taxes shall be promptly paid 75% by Seller and 25% by Buyer. In the event
of a final determination (which shall include the execution of Form 870-AD
or successor form) that results in an adjustment with respect to the
portion of any Consolidated Taxes that relates to the Holding Company Group
for the portion of the 1995 calendar year through the Closing Date, any
resulting refund of such 1995 Consolidated Taxes shall be allocated 100% to
the Holding Company and any resulting obligation to pay such additional
1995 Consolidated Taxes shall be promptly paid 100% by the Holding Company.
(b) 1994 NON-CONSOLIDATED TAXES. In the event of a final
determination (which shall include the execution of a Form 870-AD or
successor form) that results in an adjustment (the "Adjustment") with
respect to Taxes (other than Consolidated Taxes) of the Holding Company or
its Subsidiaries for the 1994 calendar year, any resulting refund of such
1994 non-Consolidated Taxes or obligations to pay such additional 1994 non-
Consolidated Taxes shall be apportioned in the following manner:
(i) 100% of any Adjustment with respect to such Taxes (other
than income Taxes) that are clearly attributable to the portion of the
1994 calendar year that ends on or before the Balance Sheet Date shall
be allocated to or promptly paid by Seller (as the case may be);
(ii) 100% of any Adjustment with respect to such Taxes (other
than income Taxes) that are clearly attributable to the portion of the
1994 calendar year that begins after the Balance Sheet Date shall be
allocated to or promptly paid (or caused to be paid) by Buyer (as the
case may be); and
(iii) Any Adjustment with respect to such 1994 Taxes (other than
income Taxes) that are not clearly attributable to periods before or
after the Balance Sheet Date and with respect to 1994 income Taxes
(other than Consolidated Taxes or Taxes for which Seller is
indemnified pursuant to Section 5.9) shall be allocated 75% to Seller
and 25% to Buyer or promptly paid 75% by Seller and 25% by Buyer (as
the case may be).
Section 6.3 CERTAIN CONSOLIDATED AND OTHER TAXES. Seller shall
pay any Consolidated Taxes for which the Holding Company or any of its
Subsidiaries may be held liable as members of any consolidated group on or
before the Closing Date pursuant to Treasury Regulation Section 1.1502-6(a)
(other than Consolidated Taxes for which the Holding Company and its
Subsidiaries are responsible pursuant to Section 6.2) or as members of any
consolidated, unitary, combined or similar group of which Seller or any of
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its Subsidiaries is or was a member pursuant to any similar provision of
any state, local or foreign law with respect to Taxes.
Section 6.4 OTHER TAXES. The Holding Company and its
Subsidiaries shall pay or cause to be paid any Taxes (other than Taxes
described in or addressed by Section 6.1, 6.2, or 6.3) owed by the Holding
Company or its Subsidiaries to a Governmental Authority, whether due
before, on or after the Closing Date.
Section 6.5 OBLIGATIONS CONTINGENT. Notwithstanding anything
expressed or implied in this Agreement to the contrary, neither Seller nor
Buyer shall have any obligation under Section 6.1, 6.2, 6.3 or 6.4 unless
and until the Closing shall occur.
Section 6.6 TAX SHARING AGREEMENTS. On the Closing Date, the
Tax Sharing Agreement and any other Tax sharing agreements or other similar
arrangements to which the Holding Company or any of its Subsidiaries is a
party shall be terminated and have no further effect for any taxable year
or period (whether a past, present or future year or period), and no
additional payments shall be made thereunder on or after the Closing Date
in respect of redetermination of tax liabilities or otherwise.
Section 6.7 TAX RETURNS. Seller and its Subsidiaries (other
than the Holding Company and its Subsidiaries) shall file, or cause to be
filed, all Tax Returns that include the Holding Company or its Subsidiaries
and that are due (i) on or prior to the Closing Date or (ii) after the
Closing Date for any taxable year or period ending on or prior to the
Closing Date. Seller shall allow Buyer an opportunity to review and
comment upon such Tax Returns (including any amended Tax Returns) to the
extent that they relate to the Holding Company or its Subsidiaries. Seller
shall take no position on such Tax Returns that relate to the Holding
Company or its Subsidiaries that would adversely effect the Holding Company
or its Subsidiaries after the Balance Sheet Date. All such Tax Returns
shall be prepared in a manner consistent with the prior years' Tax Returns,
using, to the extent permitted by law, methods, conventions and elections
consistent with those previously used by Seller and its Subsidiaries
(including the Holding Company and its Subsidiaries). Neither Buyer nor
the Holding Company nor its Subsidiaries shall file amended Tax Returns
that result in an obligation to pay additional Taxes for which Seller would
be responsible under this Article VI without the prior written consent of
Seller, which consent shall not be unreasonably withheld.
Section 6.8 AUDITS. Seller shall give prompt written notice of,
and allow the Holding Company and each of its Subsidiaries to retain at its
own expense separate counsel to participate in, any audit or other
proceeding that could reasonably be expected to adversely affect the Tax
liability of the Holding Company and its Subsidiaries for which Buyer is
not indemnified pursuant to this Agreement. Seller shall not settle any
such audit or other proceeding in a manner that would adversely affect the
Company and its Subsidiaries with respect to periods after the Balance
Sheet Date without the prior written consent of Buyer, which consent shall
not be unreasonably withheld.
Section 6.9 CARRYBACKS. Seller shall immediately pay to Buyer
or its designee any Tax refund (or reduction in Tax liability) resulting
from a carryback of a post-acquisition Tax attribute of the Holding Company
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or any of its Subsidiaries into Seller's consolidated, unitary, combined or
similar Tax Return, when such refund or reduction is realized by Seller or
any consolidated, unitary, combined or similar group of which Seller is a
member; provided that Seller shall be liable to Buyer only for any amount
of refund or reduction that would not have been realized but for the
carryback of the Tax attribute. Seller shall cooperate with the Holding
Company and its Subsidiaries in obtaining any such refund (or reduction in
Tax liability), including through the filing of amended Tax Returns or
refund claims. Buyer agrees to indemnify Seller for any Taxes resulting
from the disallowance of such post-acquisition Tax attribute on audit or
otherwise, any Taxes excluded by the proviso of the first sentence of this
Section 6.9 and any other Tax cost and all costs and expenses (including
but not limited to, reasonable attorneys' fees) of Seller or a member of
Seller's Group resulting from the carryback of the Tax attribute.
Section 6.10 TAX COOPERATION. Each of Buyer and Seller shall
provide the other party with such information and records and make such of
its officers, directors, employees and agents available as may reasonably
be requested by such other party in connection with the preparation of any
Tax Return, Tax audit or Tax judicial proceeding that relates to the
Holding Company or its Subsidiaries. Buyer will endeavor to cause the
Holding Company to provide, by June 30, 1995 (to the extent practicable in
view of, among other things, the date of the Closing Date), information to
Seller that will allow Seller to include the Holding Company and its
Subsidiaries in the consolidated federal income Tax Return of which Seller
is a member.
Section 6.11 TIMING ADJUSTMENTS. In the event that a final
determination (which shall include the execution of a Form 870-AD or
successor form) results in a timing difference (e.g., an acceleration of
income or delay of deductions) that would increase Seller's liability for
Taxes pursuant to this Article VI, Buyer shall promptly make payments to
Seller as and when Buyer actually realizes any Tax benefits as a result of
such timing difference (such Tax benefits to be determined on a "with and
without" basis to Buyer) or under such other method for determining the
present value of any such anticipated Tax benefits as agreed to by the
parties. In the event that a final determination (which shall include the
execution of a Form 870-AD or successor form) results in a timing
difference (e.g., an acceleration of deductions or delay of income) that
would increase Buyer's liability for Taxes pursuant to Article VI, Seller
shall promptly make payments to Buyer as and when Seller actually realizes
any Tax benefits as a result of such timing difference (such Tax benefits
to be determined on a "with and without" basis to Seller) or under such
other method for determining the present value of any such anticipated Tax
benefits as agreed to by the parties.
ARTICLE VII
COVENANTS OF BUYER
------------------
Section 7.1 FILINGS AND NOTICES; APPROVALS AND CONSENTS;
EXTRAORDINARY DIVIDEND. (a) Buyer will, as promptly as practicable after
the execution and delivery of this Agreement, make all governmental filings
and give all governmental and third-party notices required to be made and
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given by Buyer, including those referred to in Section 3.3, in order for
Buyer to consummate the transactions contemplated by this Agreement, except
that the matters covered by Article VIII shall be handled as therein
stated. Any such filing, and any supplemental information requested by the
relevant governmental authority in connection therewith, shall be in
substantial compliance with the requirements of such governmental
authority. Buyer will keep Seller apprised of the status of the
governmental approval process and of any communications with, and any
inquiries or requests for additional information from, the relevant
governmental authority, and Buyer will comply promptly with any such
inquiry or request. Buyer will use its reasonable best efforts to obtain
all such governmental approvals and third-party consents.
(b) Buyer will furnish to Seller such necessary information and
reasonable assistance as Seller may request in connection with its
preparation of any such filing or submission to be made by Seller in
accordance with Sections 4.3 and 5.4.
Section 7.2 UPDATING OF INFORMATION. Buyer will promptly inform
Seller in writing of any fact or circumstance known to Buyer that would
constitute a breach of either party's representations or warranties or
would cause any of the conditions to either party's obligations to
consummate the transactions contemplated under this Agreement not to be
fulfilled.
Section 7.3 EMPLOYEE BENEFIT PLANS. Buyer shall maintain or
cause its affiliates (including, after the Closing, the Holding Company and
its Subsidiaries) to maintain, until December 31, 1995, compensation and
employee benefit plans (other than any plans based on equity securities of
Seller) for employees of the Holding Company and its Subsidiaries that are
substantially comparable in the aggregate to those provided under the Plans
(as defined in Section 2.12(a)) and set forth in Schedule 2.12 in
accordance with their terms as in effect on the date of this Agreement and
at a cost to Buyer or its affiliates that is not greater than the cost, as
of the Closing Date, to the Company or ERISA Affiliate sponsoring,
maintaining, contributing to, or required to be contributing to, such
Plans. This Section 7.3 shall not be deemed to be an authorization for
Buyer to terminate or cause the termination of any such Plan which by its
terms does not terminate until after December 31, 1995 or to modify any
Plan which requires the consent of the employee or former employee thereto.
Section 7.4 INDEMNIFICATION OF DIRECTORS AND OFFICERS. Buyer
will maintain, or cause to be maintained, for a period of not less than
five years following the Closing Date, the directors' and officers'
indemnification policies set forth in the By-Laws of the Holding Company
and each of its Subsidiaries on the date of this Agreement, or generally
comparable indemnification policies, for all persons who were directors and
officers of the Holding Company and its Subsidiaries on the date of this
Agreement and former directors and officers of the Holding Company and its
Subsidiaries, in each case with respect to claims made, or that may be
made, relating to the period prior to the Closing Date. In addition, Buyer
will maintain, or cause to be maintained, for a period of not less than
five years following the Closing Date, directors' and officers' insurance
and indemnification policies providing coverage for events occurring prior
to the Closing Date (the "D&O Insurance") for all persons who are directors
and officers of the Holding Company and its Subsidiaries on the date of
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this Agreement. The D&O Insurance shall be substantially similar in all
material respects to the directors' and officers' insurance and
indemnification policies provided, from time to time, for directors and
officers of the Buyer's Subsidiaries.
Section 7.5 POST-CLOSING ACCESS BY SELLER. Buyer shall cause
the Holding Company and its Subsidiaries to cooperate with Seller to make
available to Seller financial, tax and other information (including
reasonable access to books and records of the Holding Company and its
Subsidiaries) reasonably required by Seller in connection with (i) any
audit or other investigation by any taxing authority or any required
reports or submissions to governmental bodies with respect to the Holding
Company and its Subsidiaries related to periods prior to the Closing Date
or (ii) Third Party Claims (as defined in Section 12.2) and investigations
and insurance relating thereto. Buyer shall cause the Holding Company and
its Subsidiaries to preserve such information, books and records for at
least the period during which Buyer may make a claim against Seller for
Indemnifiable Losses (as defined in Section 12.1) hereunder and thereafter,
if such a claim against Seller is pending hereunder, to dispose of the same
only after it shall have given Seller 90 days' prior notice of such
disposition and the opportunity (at Seller's expense) to remove and retain
such information, books and records.
ARTICLE VIII
JOINT COVENANTS WITH RESPECT TO IAA AND ICA MATTERS
---------------------------------------------------
Section 8.1 AFFIRMATIVE CONSENTS. Seller and Buyer shall
cooperate with one another, and Seller shall cause the Company to
cooperate, in securing the affirmative consents of the investment advisory
clients of the Company to the assignment of the investment advisory
clients' investment advisory agreements or the execution by such investment
advisory clients of new investment advisory agreements on substantially
identical terms (as may be necessary under the IAA) with the Company;
provided, however, that Section 8.3 shall apply with respect to obtaining
the approval of the contractowners of each Variable Annuity Fund to the
execution of a new investment management agreement between the Company and
each Variable Annuity Fund; and provided, further, that the obtaining of
any such consent or the execution of any such new investment advisory
agreement shall not be a condition to the obligations of either Buyer or
Seller to consummate the transactions contemplated hereby. In connection
with this Section 8.1, Seller and Buyer shall take, and shall cause the
Company to take, the following actions:
(a) Part II of the Form ADV, as amended to reflect the
transactions contemplated hereby (or any brochure permissible in lieu
thereof), of the Company will be supplied to each such investment
advisory client to the extent required by law;
(b) the Company shall promptly after the date hereof and in any
event not less than 45 days prior to the Closing Date, inform each
such investment advisory client, by means of a notice in a form
reasonably acceptable to Buyer and Seller, of the transactions
contemplated by this Agreement and the anticipated Closing Date, and
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shall request such client's written consent to the assignment of its
investment advisory agreement in connection with the transactions
contemplated hereby; and
(c) the Company shall inform each investment advisory client
that if the client has not given affirmative notice of termination of
its investment advisory agreement and continued to accept advisory
services, the Company will consider consent to have been given and
will continue to provide investment advisory services pursuant to such
agreement.
Section 8.2 PROXY STATEMENT.
(a) Seller and Buyer shall cooperate with one another, and shall
cause the Company to cooperate, to obtain approval from the Board of
Managers and contractowners of each of the Variable Annuity Funds of a new
investment management agreement between each Variable Annuity Fund and the
Company on identical terms to the current investment management agreement.
Seller and Buyer agree to use all reasonable efforts, and to cause the
Company to use all reasonable efforts, to cause to be added to the agenda
of the scheduled annual meetings on April 17, 1995 of the Board of Managers
and the contractowners of each Variable Annuity Fund, and at any
adjournment thereof, a proposal to consider and approve the entry by such
Variable Annuity Fund into a new investment management agreement, complying
with the ICA, with the Company on identical terms (except the term thereof,
which shall be two years from the Closing Date) as the current investment
management agreement with such Variable Annuity Fund.
(b) Upon obtaining approval of such new investment management
agreements from the Board of Managers, Seller and Buyer shall, and shall
cause the Company, to assist each of the Variable Annuity Funds to
(i) prepare and file with the SEC as soon as is reasonably practicable a
preliminary proxy statement, together with a form of proxy to be used in
connection with the scheduled annual meetings of the contractowners of each
Variable Annuity Fund, and at any adjournment thereof, for the purposes of
(A) obtaining the approval of a new investment management agreement between
each Variable Annuity Fund and the Company and (B) electing a Board of
Managers that is composed of members who satisfy the requirements of clause
(i) of Section 8.3(b), and (ii) as promptly as practicable thereafter,
subject to compliance with the rules and regulations of the SEC, file with
the SEC and mail to the contractowners of each Variable Annuity Fund a
definitive proxy statement with respect to each such meeting. The term
"Proxy Statement" shall mean, with respect to each Variable Annuity Fund,
each proxy statement and related proxy at the time such documents are
initially mailed to such Variable Annuity Fund's contractowners and all
amendments or supplements thereto, if any, similarly filed and mailed.
None of the information provided and to be provided by Seller or Buyer for
use in any Proxy Statement shall, on the date the Proxy Statement is first
mailed to each such Variable Annuity Fund's contractowners and on the date
of the meeting called to consider such matter, be false or misleading with
respect to any material fact or omit to state any material fact required to
be stated therein, or necessary to make the statements therein that are
based upon information supplied by Seller or Buyer (as the case may be) in
light of the circumstances in which they are made, not misleading, and each
of Seller and Buyer agrees to correct at its sole expense any information
provided by it that is or becomes false or misleading in any material
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respect. The Proxy Statements shall comply as to form in all material
respects with all applicable requirements of federal securities laws and
the rules and regulations of the SEC. Seller and Buyer shall cause the
Company to assist in the solicitation of proxies for the meetings referred
to herein and to use all reasonable efforts, consistent with applicable
law, to obtain approval from the contractowners and the Boards of Managers
of the Variable Annuity Funds of the matters referred to herein.
(c) The obtaining of the approval by the Variable Annuity Funds'
contractowners of such new investment management agreements shall not be a
condition to the obligations of either Buyer or Seller to consummate the
transactions contemplated hereby. If the approval of the contractowners
has not been obtained prior to satisfaction of all conditions to the
Closing, Seller and Buyer shall cooperate with one another, and shall cause
the Company to cooperate, to take all such actions as may be necessary to
permit the Company to continue as investment adviser to the Variable
Annuity Funds from and after the Closing until the approval of
contractowners of new investment management agreements is obtained without
adversely affecting the interests of contractowners.
Section 8.3 SECTION 15(F) OF THE ICA.
(a) Seller and Buyer intend to structure and complete the
transactions contemplated by this Agreement and thereafter to conduct their
dealings with the Variable Annuity Funds, and to use all reasonable efforts
to encourage and assist the Variable Annuity Funds to conduct their
affairs, in such a manner as to obtain the benefits and protections of
Section 15(f) of the ICA ("Section 15(f)").
(b) Buyer acknowledges that Seller has entered into this
Agreement in reliance upon the benefits and protections provided by
Section 15(f), and Buyer covenants that from and after the Closing it will
conduct the dealings of Buyer, the Company and each Subsidiary and
Affiliate of Buyer, on the one hand, with each of the Variable Annuity
Funds, on the other hand, and that it will, and will cause each of its
Subsidiaries and Affiliates, to use all reasonable efforts to encourage
each Variable Annuity Fund to conduct its affairs, so as to assure that:
(i) for a period of three years after the Closing Date, at least
75% of the members of the Board of Managers (or any persons performing
an equivalent function) of each Variable Annuity Fund are not (A)
"interested persons" (as defined in the ICA) of Buyer, any Subsidiary
or Affiliate of Buyer, Seller, any Subsidiary or Affiliate of Seller,
or the Company; and
(ii) there is not imposed on any Variable Annuity Fund an "unfair
burden," within the meaning of Section 15(f), as a result of the
transactions contemplated by this Agreement, or any express or implied
terms or conditions, or understandings applicable thereto.
(c) In order to carry out the provisions of clause (i) of
Section 8.3(b), Buyer and Seller agree, and agree to cause the Company, to
use all reasonable efforts to encourage and assist the Board of Managers of
each Variable Annuity Fund to obtain, prior to the Closing, a Board of
Managers that is composed at least 75% of members who satisfy the
requirements of clause (i) of Section 8.3(b) hereof and who are nominated
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and elected, to the extent their election is required in order to satisfy
the provision of Section 15(f), in compliance with Section 16(b) of the
ICA.
(d) Buyer further covenants that it will use all reasonable
efforts to encourage and assist each Variable Annuity Fund and the Board of
Managers (or any persons performing an equivalent function) of each
Variable Annuity Fund to conduct the business of each Variable Annuity Fund
in accordance with Section 8.4 hereof.
Section 8.4 SUBSEQUENT COMPLIANCE. Buyer covenants that for a
period of three years from the Closing Date neither it nor any of its
Subsidiaries or Affiliates will voluntarily engage in any transactions
which would constitute an assignment of any investment management agreement
with a Variable Annuity Fund to which Buyer or any Subsidiary or Affiliate
of Buyer is a party without first obtaining a covenant in all material
respects the same as that contained in Section 8.3 for the balance of such
three-year period.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF BUYER
----------------------------------
The obligation of Buyer to purchase the Common Stock at the
Closing is subject to the satisfaction or waiver by Buyer of the following
conditions on or before the Closing Date:
Section 9.1 REPRESENTATIONS AND WARRANTIES CORRECT. All
representations and warranties of Seller made in this Agreement shall be
true and correct in all material respects as of the date made, and Buyer
shall have received from appropriate officers of Seller a certificate or
certificates to such effect, in form and substance reasonably satisfactory
to Buyer.
Section 9.2 NO MATERIAL ADVERSE CHANGE. Since September 30,
1994, no change, event, development or combination of developments shall
have occurred which, individually or in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect.
Section 9.3 PERFORMANCE; NO DEFAULT. Seller shall have
performed and complied in all material respects with all the obligations,
agreements and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing, and Buyer shall have
received from appropriate officers of Seller, a certificate or certificates
to such effect, in form and substance reasonably satisfactory to Buyer.
Section 9.4 ABSENCE OF LITIGATION; REGULATORY COMPLIANCE. (a)
There shall be no suit, action or other proceeding pending or, in the case
of a Governmental Entity, threatened before any court or other Governmental
Entity which Buyer believes, in good faith and based on an opinion of
counsel, could reasonably be expected to result in the restraint,
prohibition, set-aside or invalidation of the consummation of this
Agreement or the transactions contemplated hereby or could reasonably be
expected to result in substantial damages in connection therewith.
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(b) The Holding Company and its Subsidiaries shall not have
received any notification that (i) any Permit or Insurance License material
to the business of the Holding Company and its Subsidiaries, taken as a
whole, has been suspended, revoked or not renewed or that there are any
pending or threatened suits, actions or proceedings seeking such
suspension, revocation or non-renewal, or (ii) any Insurance License has
been suspended, revoked or not renewed or that there are any pending or
threatened suits, actions or proceedings seeking such suspension,
revocation or non-renewal which Buyer believes, in good faith and based
upon an opinion of counsel, is based upon such facts and circumstances as
could reasonably be expected to result in the suspension, revocation or
non-renewal of any other Insurance Licenses that, individually or in the
aggregate, are material to the business of the Holding Company and its
Subsidiaries, taken as a whole, and Buyer shall have received from
appropriate officers of Seller a certificate or certificates to such
effect.
Section 9.5 OPINIONS OF COUNSEL TO THE COMPANY AND SELLER.
Seller shall have delivered to Buyer opinions of Stephen P. Horvat, Jr.,
General Counsel of the Company, and Chadbourne & Parke, substantially in
the forms of Exhibits A-1 and A-2 hereto, dated the Closing Date.
Section 9.6 GOVERNMENTAL APPROVALS. All required governmental
filings shall have been made, all applicable waiting periods including
those under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall
have run, and all requisite approvals of Governmental Entities for the
consummation of the transactions contemplated hereby shall have been
granted, except as agreed to in Article VIII.
Section 9.7 CONSENTS. Seller, Buyer, the Holding Company and
its Subsidiaries shall have received all approvals and consents required
pursuant to Sections 5.4 and 7.1 hereof and such approvals and consents
shall be in full force and effect, and no such approval or consent shall
impose any conditions which could reasonably be expected to adversely
impair in any material respect the ability of Buyer or its Affiliates or
the Holding Company or its Subsidiaries to conduct their respective
businesses in the future. The failure to obtain approval of the
Extraordinary Dividend shall not affect Buyer's obligation to consummate
the transactions contemplated by this Agreement.
Section 9.8 INTERCOMPANY ACCOUNTS. All intercompany receivables
and payables (other than those under reinsurance contracts and
arrangements) between the Holding Company or its Subsidiaries, on the one
hand, and Seller or any of its Affiliates (other than the Holding Company
and its Subsidiaries), on the other hand, shall have been settled at the
value set forth on the books of the Holding Company, or its Subsidiaries,
as the case may be, or if not so set forth, on a basis no less favorable to
the Holding Company or the relevant Subsidiary, as the case may be, than
arm's length. All intercompany reinsurance agreements shall remain in
effect and shall be settled in the ordinary course of business of the
Insurance Subsidiaries.
Section 9.9 RESIGNATION OF DIRECTORS. All Persons who are
directors of the Holding Company and/or any of its Subsidiaries who are
requested to do so by Buyer in a notice delivered to Seller at least ten
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(10) days prior to the Closing Date, shall have resigned such
directorships.
Section 9.10 INVESTMENT POLICY CHANGES. There shall not have
occurred any material change in the investment policies of the Company and
the Insurance Subsidiaries not consented to by Buyer.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF SELLER
-----------------------------------
The obligation of Seller to sell the Common Stock owned by it on
the Closing Date is subject to the satisfaction or waiver by Seller of the
following conditions, on or before the Closing Date:
Section 10.1 REPRESENTATIONS AND WARRANTIES CORRECT. All
representations and warranties of Buyer made in this Agreement shall be
true and correct in all material respects as of the date made, and Seller
shall have received from appropriate officers of Buyer a certificate or
certificates to such effect, in form and substance reasonably satisfactory
to Seller.
Section 10.2 PERFORMANCE; NO DEFAULT. Buyer shall have
performed, observed and complied in all material respects with all the
obligations and conditions required by this Agreement to be performed,
observed or complied with by it at or prior to the Closing, and Seller
shall have received from appropriate officers of Buyer a certificate to
such effect, in form and substance reasonably satisfactory to Seller.
Section 10.3 ABSENCE OF LITIGATION. There shall be no suit,
action or other proceeding pending or, in the case of a Governmental
Entity, threatened, before any court or other Governmental Entity which
Seller believes, in good faith and based upon an opinion of counsel, could
reasonably be expected to result in the restraint, prohibition, set-aside
or invalidation of the consummation of this Agreement or the transactions
contemplated hereby or could reasonably be expected to result in
substantial damages in connection therewith.
Section 10.4 GOVERNMENTAL APPROVALS. All required governmental
filings shall have been made, all applicable waiting periods including
those under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall
have run, and all requisite approvals of Governmental Entities for the
consummation of the transactions contemplated hereby, shall have been
granted, except as agreed to in Article VIII.
Section 10.5 CONSENTS. Buyer, Seller, the Holding Company and
its Subsidiaries shall have received all approvals and consents required
pursuant to Sections 5.4 and 7.1 hereof and such approvals and consents
shall be in full force and effect, and no such approval or consent shall
impose any conditions which could reasonably be expected to adversely
impair the ability of Seller or its Affiliates to conduct their respective
businesses in the future.
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Section 10.6 OPINIONS OF COUNSEL TO BUYER. Buyer shall have
delivered to Seller opinions of Jon P. Newton, Senior Vice President and
General Counsel of Buyer, and Skadden, Arps, Slate, Meagher & Flom,
substantially in the forms of Exhibits B-1 and B-2 hereto, dated the
Closing Date.
Section 10.7 TRANSFER TAXES. Buyer shall have paid, or caused
to be paid, all stock transfer and other transfer taxes required to be paid
in connection with the sale and delivery to Buyer of the Common Stock, and
shall have caused all appropriate stock transfer tax stamps to be affixed
to the certificate or certificates representing the Common Stock so sold
and delivered.
ARTICLE XI
DELIVERIES AT CLOSING
----------------------
At the Closing, the parties will deliver the following documents
or such documents in substitution therefor as are satisfactory to the
recipient:
Section 11.1 DELIVERIES BY SELLER. Seller will deliver to
Buyer:
(a) Certificates representing all of the Common Stock,
accompanied by stock powers duly executed in blank or duly executed
instruments of transfer and any other documents that are necessary to
transfer to Buyer good title to all the Common Stock free and clear of
all Liens.
(b) The minute books, stock transfer books and corporate seals
of the Holding Company and its Subsidiaries.
(c) Certified copies of the resolutions, duly adopted by the
Board of Directors or the Executive Committee of the Board of
Directors of Seller, that will be in full force and effect at the time
of delivery, authorizing the execution, delivery and performance of
this Agreement.
(d) The certificates executed by officers of Seller provided for
in Sections 9.1, 9.3 and 9.4(b).
(e) The opinions of counsel referred to in Section 9.5.
(f) The resignation of directors referred to in Section 9.9.
(g) Insurance good standing or similar certificates for each of
the Company and the Insurance Subsidiaries, dated a date reasonably
contemporaneous with the Closing Date and certified by the appropriate
Governmental Entity, for each of the states in which the Company and
such Insurance Subsidiaries are licensed to conduct insurance
business, and "bring down" certificates of good standing, certified by
the appropriate Governmental Entity, for the Company and its Insurance
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Subsidiaries, dated the Closing Date, from the state of such company's
insurance domicile.
(h) Such other instruments and documents as may be reasonably
requested by, and in form and substance reasonably satisfactory to,
Buyer.
Section 11.2 DELIVERIES BY BUYER. Buyer will deliver to Seller:
(a) The Purchase Price.
(b) Certified copies of resolutions, duly adopted by the Board
of Directors of Buyer that will be in full force and effect at the
time of delivery, authorizing the execution, delivery and performance
of this Agreement.
(c) The certificates executed by officers of Buyer provided for
in Sections 10.1 and 10.2.
(d) Evidence, reasonably satisfactory in form and substance to
Seller, of final unappealable approvals of the Insurance Commissioner
of Illinois and the Superintendent of Insurance of the State of New
York, of the acquisition of control by Buyer as contemplated by this
Agreement.
(e) The opinions of counsel referred to in Section 10.6.
(f) All required stock transfer and other documentary stamps.
(g) Such other instruments and documents as may be reasonably
requested by, and in form and substance reasonably satisfactory to,
Seller.
ARTICLE XII
INDEMNIFICATION
---------------
Section 12.1 INDEMNIFICATION.
(a) Seller will indemnify, defend and hold harmless Buyer,
Persons controlling, controlled by, and under common control with Buyer,
the Holding Company and its Subsidiaries (from and after the Closing Date),
and the respective directors, officers and employees of each of the
foregoing Persons and entities, from and against any and all claims,
demands, actions, proceedings or suits (by any Person, entity or group,
including, without limitation, any Governmental Entity), losses,
liabilities, damages, obligations, payments, costs and expenses, paid or
incurred, whether or not relating to, resulting from or arising out of any
Third Party Claim (as defined in Section 12.2 hereof) (including, without
limitation, the reasonable costs and expenses of any and all actions,
suits, proceedings, demands, assessments, judgments, settlements and
compromises arising out of Third Party Claims and, if Seller has received a
final, unappealable judgment in its favor, Direct Claims (as defined in
Section 12.3) and reasonable attorneys' fees in connection therewith)
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(individually and collectively "Indemnifiable Losses") relating to,
resulting from or arising out of any breach of any of the representations
warranties, covenants or agreements of Seller contained in this Agreement;
provided, however, that Seller shall not have any liability for such
indemnification unless the aggregate of all Indemnifiable Losses (net of
any insurance proceeds and calculated as provided in Section 12.5) for
which Seller would, but for this proviso, be liable exceeds on a cumulative
basis an amount equal to $10 million, in which case Seller's liability
shall be only for such excess and, provided further, that such limitation
shall not apply to the breach of any representation warranty, covenant or
agreement contained in Sections 2.14 or 2.22 or Article VI.
(b) Buyer will indemnify, defend and hold harmless Seller,
Persons controlling, controlled by, and under common control with Seller,
the Holding Company and its Subsidiaries (prior to the Closing Date), and
the respective directors, officers and employees of each of the foregoing
Persons, from and against any and all Indemnifiable Losses relating to,
resulting from or arising out of any breach of any of the representations,
warranties, covenants or agreements of Buyer contained in this Agreement.
(c) For purposes of this Agreement, "Indemnity Payment" will
mean any amounts of Indemnifiable Losses required to be paid pursuant to
this Section 12.1.
(d) For purposes of this Agreement, "Indemnitee" will mean any
Person entitled to indemnification under this Agreement.
(e) For purposes of this Agreement, "Indemnifying Party" will
mean any Person required to provide indemnification under this Agreement.
(f) For the purposes of this Agreement, all statements contained
herein or in any Schedule hereto, or in any certificate delivered at the
Closing, will be deemed representations and warranties within the meaning
of this Article XII.
(g) No claim for Indemnifiable Losses made hereunder may be made
after expiration of the survival period relating thereto set forth in
Section 13.10.
Section 12.2 DEFENSE OF THIRD PARTY CLAIMS.
(a) If an Indemnitee receives notice of the assertion or
commencement, as the case may be, of any claim, demand, action, proceeding
or suit by any Person (including, without limitation, any Governmental
Entity) who is not a party to this Agreement or who is not an Indemnitee
hereunder against such Indemnitee, with respect to which any Indemnifying
Party is obligated to provide indemnification under Section 12.1 of this
Agreement (a "Third Party Claim"), the Indemnitee will give the
Indemnifying Party prompt written notice thereof. Such notice will
describe the Third Party Claim in reasonable detail, will be accompanied by
all notices and documents (including court papers) received by the
Indemnitee with respect thereto and will indicate the estimated amount, if
practicable, of the Indemnifiable Loss that has been or may be sustained by
the Indemnitee. The Indemnifying Party will have the right to participate
in or, by giving written notice to the Indemnitee, to elect to assume, the
defense of any Third Party Claim at Indemnifying Party's own expense and by
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the Indemnifying Party's own counsel (which counsel will be reasonably
satisfactory to the Indemnitee) and the Indemnitee will, to the extent
requested, cooperate in good faith in such defense; provided, however, that
the Indemnitee may at its own expense retain separate counsel to
participate in such defense, it being understood, however, that if the
Indemnitee so chooses to participate in the defense, the Indemnifying Party
nevertheless shall control the defense if the Indemnifying Party so elects.
The cooperation referred to in the preceding sentence shall include the
retention and (upon the Indemnifying Party's reasonable request) the
provision to the Indemnifying Party of records and information which are
reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder and for testimony.
(b) If an Indemnitee is given written notice from the
Indemnifying Party that such Indemnifying Party has elected to assume the
defense of any Third Party Claim, the Indemnifying Party will not be liable
for any legal expenses incurred by the Indemnitee after such notice is
given in connection with the defense thereof and the assumption of such
defense by the Indemnified Party; provided, however, that if the
Indemnifying Party fails to assume the defense of such Third Party Claim
within 30 calendar days after receiving notice from the Indemnitee that the
Indemnitee believes the Indemnifying Party has failed to take such steps,
the Indemnitee may assume its own defense, and the Indemnifying Party will
be liable for any reasonable expenses therefor. Notwithstanding anything
contained herein to the contrary, the Indemnitee will have the right to
employ separate counsel at the Indemnifying Party's expense and to control
its own defense of such action or proceeding if the named parties to any
such suit, action or proceeding include both the Indemnifying Party and the
Indemnitee and if representation of both parties by the same counsel would
be inappropriate because, in the reasonable opinion of counsel to the
Indemnitee, (i) there are or may be legal defenses available to the
Indemnitee that are different from or additional to those available to the
Indemnifying Party, or (ii) a conflict or potential conflict exists between
the Indemnifying Party and the Indemnitee; provided, however, that the
Indemnifying Party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses of more than one separate counsel (in
addition to any local counsel) for all such Indemnitees.
In the event that any Indemnifying Party does not elect to assume
the defense of any Third Party Claim in accordance with this Section 12.2,
such Indemnifying Party will be obligated as provided in this Section 12.2
for all costs of defense of the Indemnitee.
The Indemnitee shall not knowingly or intentionally admit any
liability with respect to, or settle, compromise or discharge any Third
Party Claim prior to expiration of the 30-day period provided in the first
paragraph of this Section 12.2(b). If the Indemnifying Party shall elect
not to assume the defense of a Third Party Claim, the Indemnitee
nevertheless will not enter into a settlement, compromise or discharge of
such claim without the consent of the Indemnifying Party, which consent
will not be unreasonably withheld. Without obtaining a complete and
unconditional release of the Indemnitee from any further liability in
respect of a Third Party Claim, the Indemnifying Party will not enter into
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any settlement, compromise or discharge of such Claim without the consent
of the Indemnitee, which consent will not be unreasonably withheld.
(c) A failure to give timely notice as provided in this Section
12.2 will not affect the rights or obligations of any party hereunder
except as provided in Section 12.1(g) and except and only to the extent
that, as a result of such failure, any party which was entitled to receive
such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was adversely affected in its ability to
defend a claim or there was an increase in the amount of the Indemnifiable
Losses which such party is obligated to pay hereunder or such party was
otherwise actually prejudiced as a result of such failure.
(d) Upon making any Indemnity Payment, the Indemnifying Party
will, to the extent of such Indemnity Payment, be subrogated to all rights
of the Indemnitee against any third party in respect of the Indemnifiable
Loss to which the Indemnity Payment relates; provided, however, that until
the Indemnitee recovers full payment of its Indemnifiable Loss, any and all
claims of the Indemnifying Party against any such third party on account of
said Indemnity Payment are hereby made expressly subordinated and subjected
in right of payment to the Indemnitee's rights against such third party.
Without limiting the generality of any other provision hereof, each such
Indemnitee and Indemnifying Party will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above-
described subrogation and subordination rights.
Section 12.3 DIRECT CLAIMS. Any claim by an Indemnitee on
account of an Indemnifiable Loss which does not result from a Third Party
Claim (a "Direct Claim") shall be asserted by giving the Indemnifying Party
prompt written notice thereof and in any event within the time period
referred to in Section 12.1(g), and the Indemnifying Party will have a
period of 30 calendar days within which to respond to such Direct Claim.
If the Indemnifying Party does not so respond within such 30 calendar day
period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnitee will be free to pursue such remedies as may
be available to the Indemnitee under any applicable laws, subject to the
terms of this Agreement, including, without limitation, the enforcement of
the Indemnitee's rights under this Agreement.
Section 12.4 PURCHASE PRICE ADJUSTMENT. Buyer and Seller each
agrees to treat any indemnification payments made pursuant to Article XIII
as a reduction or increase (as the case may be) of the Purchase Price
unless such party receives a written opinion from a nationally recognized
law firm (which opinion and law firm shall be reasonably acceptable to the
other party) that no substantial authority (within the meaning of Section
6662(d)(2)(B)(i) of the Code) exists for such position.
Section 12.5 NET AFTER-TAX BASIS. The amount of any
Indemnifiable Loss under this Agreement shall be calculated on a net after-
Tax basis, taking into account any net Tax benefit to be realized by the
Indemnitee arising from the deductions (including through depreciation or
amortization) or other benefits with respect to any amounts associated with
the Third Party claim or the Direct Claim and any net Tax detriment
realized by the Indemnitee if the Indemnity Payment is not treated as a
Purchase Price adjustment.
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ARTICLE XIII
MISCELLANEOUS PROVISIONS AND AGREEMENTS
---------------------------------------
Section 13.1 CONFIDENTIALITY. The terms of the Confidentiality
Agreement, dated October 5, 1994, between Seller and Buyer are incorporated
herein by reference as if set forth herein in full, and the terms of such
agreement shall remain in full force and effect and shall not be superseded
by the terms hereof. Seller and Buyer agree that each of them will consult
with the other before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated hereby.
Section 13.2 EXPENSES. Seller will bear its own expenses,
including the fees of any attorneys, accountants, investment bankers or
others engaged by Seller, in connection with this Agreement and the
transactions contemplated hereby, except as otherwise expressly provided
herein. Buyer will bear its own expenses, including the fees of any
attorneys, accountants, investment bankers or others engaged by Buyer in
connection with this Agreement and the transactions contemplated hereby,
except as otherwise expressly provided herein.
Section 13.3 NOTICES. All notices, requests, demands and other
communications made hereunder will be in writing and will be deemed duly
given if delivered or sent by telex, facsimile or registered, certified or
express mail, postage prepaid, or reputable overnight courier as follows,
or to such other address or Person as any party may designate by notice to
the other parties hereunder:
If to Seller:
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Attention: Mr. Arnold Henson
Telephone: (203) 698-5000
Fax: (203) 698-0184
With copies to:
Gilbert L. Klemann, II, Esq.
Senior Vice President and General Counsel
American Brands, Inc.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
Telephone: (203) 698-5000
Fax: (203) 698-5172
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and
Edward P. Smith, Esq.
Chadbourne & Parke
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-5100
Fax: (212) 541-5369
If to Buyer:
Robert M. Devlin
Vice Chairman
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Telephone: (713) 522-1111
Fax: (713) 831-1300
With copies to:
Jon P. Newton
Senior Vice President and General Counsel
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Telephone: (713) 522-1111
Fax: (713) 831-1266
and
Morris J. Kramer
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Fax: (212) 735-2000
Section 13.4 AMENDMENTS; TERMINATION. This Agreement cannot be
changed or terminated orally and no waiver of compliance with any provision
or condition hereof and no consent provided for herein will be effective
unless evidenced by an instrument in writing duly executed by the proper
party. This Agreement (except for the provisions of Sections 3.4, 4.6,
13.1 and 13.2 which will continue in effect) and the transactions
contemplated hereby may be terminated and abandoned at any time prior to
the Closing Date (i) by mutual written agreement of Buyer and Seller, (ii)
by Buyer or Seller upon written notice given to the other after entry of a
restraining order or injunction restraining or prohibiting the sale or
purchase of the Common Stock and the expiration or unfavorable disposition
of all appeals related thereto, or (iii) by Buyer or Seller upon written
notice to the other if the Closing will not have taken place by June 30,
1995 other than by reason of a matter within the control of the party
asserting such termination. In the event of any termination permitted by
the preceding sentence, the parties hereto will have no liabilities
pursuant to this Agreement to the other party hereto, except for
liabilities arising under Sections 3.4, 4.6, 13.1 and 13.2. Without
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prejudice to any other rights or remedies which it may have, either party
may, prior to the Closing, forthwith abandon the transactions contemplated
hereby by written notice to the other party if any of the conditions to the
obligations of such party to close the transactions contemplated hereby
have become incapable of fulfillment prior to June 30, 1995 and shall not
have been waived.
Section 13.5 CONSENT TO JURISDICTION. Each of Buyer and Seller
irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court
of the State of New York, New York County, and (b) the United States
District Court for the Southern District of New York, for the purposes of
any suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. Each of Seller and Buyer agrees to
commence any action, suit or proceeding relating hereto either in the
United States District Court for the Southern District of New York or, if
such suit, action or proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New
York County. Buyer further agrees that service of process, summons, notice
or document by hand delivery or U.S. registered mail in care of CT
Corporation, 1633 Broadway, New York, New York 10019, shall be effective
service of process for any action, suit or proceeding brought against Buyer
in any such court. Seller further agrees that service of process, summons,
notice of document by hand delivery or registered mail in care of
Chadbourne & Parke, 30 Rockefeller Plaza, New York, New York 10012,
Attention of Managing Clerk, shall be effective service of process for any
action, suit or proceeding brought against Seller in any such court. Each
of Buyer and Seller irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in (i) the Supreme Court
of the State of New York, New York County, or (ii) the United States
District Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 13.6 NEGOTIATIONS WITH THIRD PARTIES; SPECIFIC
PERFORMANCE. Seller and its Affiliates will not and shall cause the
Holding Company and its Affiliates not to, without the prior consent of
Buyer, initiate, continue, encourage or participate in discussions or
negotiations with third parties relating to, or otherwise approve, any
merger, sale or other disposition of all or any part of the business of the
Holding Company or any of its Subsidiaries nor, without such consent,
cooperate with, or participate in discussions or negotiations relating to,
any unsolicited offers by third parties concerning any such merger, sale or
disposition. Seller acknowledges and agrees that the Holding Company and
each of its Subsidiaries, the Assets and the business of the Holding
Company and each of its Subsidiaries are unique and not available on the
open market and that Buyer will have, in addition to all other legal
remedies available to it, the right to enforce the terms of this Agreement,
by a decree of specific performance.
Section 13.7 ASSIGNMENT. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective
permitted successors, legal representatives and assigns, but this Agreement
may not be assigned by either party without the written consent of the
other party; provided, however, that Buyer may assign all or any portion of
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its respective rights hereunder without the prior written consent of Seller
to an Affiliate of Buyer provided that such assignment shall not release
Buyer from, or in any manner limit, Buyer's obligations hereunder.
Section 13.8 ENTIRE AGREEMENT. This Agreement, the Schedules
attached hereto and the Confidentiality Agreement referred to in Section
13.1 contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby and supersede all previous written or
oral negotiations, commitments and writings. The Section headings of this
Agreement are for convenience of reference only and do not form a part
hereof and do not in any way modify, interpret or construe the intentions
of the parties. This Agreement may be executed in two or more
counterparts, and all such counterparts will constitute one and the same
instrument.
Section 13.9 APPLICABLE LAW. This Agreement will be governed by
and construed and enforced in accordance with the internal laws of the
State of New York applicable to agreements made and to be performed
entirely within such State, without regard to the conflicts of law
principles of such State.
Section 13.10 SURVIVAL. The representations, warranties,
covenants and agreements in this Agreement and in any certificate delivered
at the Closing shall survive the Closing and shall terminate at the close
of business 90 days after delivery of audited financial statements for the
fiscal year ending December 31, 1995; provided, however, that the
representations and warranties set forth in Sections 2.1, 2.2, 2.14, 2.15,
2.22, 3.1, 3.2, 3.4, 3.5, 4.2, 4.4 and 4.6 and the covenants set forth in
Article VI shall survive until the expiration of the relevant statute of
limitations (including, with respect to Section 2.14 and Article VI, any
extensions or waivers thereof).
Section 13.11 FURTHER ASSURANCES. Each of Seller and Buyer will
use its reasonable best efforts to do or cause to be done all things
necessary, proper or advisable to consummate the transactions contemplated
by this Agreement and the Ancillary Agreements.
Section 13.12 DEFINITION OF "KNOWLEDGE" OF SELLER. In each case
in this Agreement or in any Schedule hereto or in any certificate delivered
pursuant hereto in which Seller makes a representation or warranty based on
the "knowledge" of Seller or on what is "known" to Seller, Seller
represents and warrants only as to Seller's actual knowledge and further
that Seller has made reasonable inquiry as to the subject matter covered by
such representation or warranty of, and has received confirmation of the
accuracy of such representation or warranty from, each of the following
officers of (i) the Company: the Chairman of the Board, President and
Chief Executive Officer; the Executive Vice President and Chief Operating
Officer; the Senior Vice President and Chief Financial Officer; the Senior
Vice President and General Counsel; Senior Vice President-Actuarial; the
Senior Vice President-Investment and Chief Investment Officer; the Senior
Vice President-Marketing; the Division Vice President-Information Services;
the Vice President-Underwriting and the Vice President-Human Resources (ii)
the Broker-Dealer: the Chairman of the Board and the President, (iii) the
Illinois Subsidiary: Chairman of the Board and President and (iv) the New
York Subsidiary: the Chairman of the Board and the President.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective officers thereunto duly authorized,
as of the day and year first above written.
AMERICAN GENERAL CORPORATION
By: /s/ Robert M. Devlin
----------------------------
Robert M. Devlin
Vice Chairman
AMERICAN BRANDS, INC.
By: /s/ Arnold Henson
----------------------------
Arnold Henson
Executive Vice President
and Chief Financial Officer
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ANNEX A
Definitions
"Affiliate" means with respect to any specified Person, a Person
that directly or indirectly through one or more intermediaries, controls or
is controlled by, or is under common control with, the Person specified.
"Affiliate Transaction" is defined in Section 2.18.
"Assets" shall mean all rights, titles, franchises and interests
in and to every species of property, real, personal and mixed, tangible and
intangible, and things in action hereunto belonging, including, without
limitation, cash and cash equivalents, securities (including, without
limitation, exempted securities under the Securities Act), receivables,
recoverables (from reinsurance and otherwise), deposits and advances,
loans, agent balances, real property (together with buildings, structures
and the improvements thereon, fixtures contained therein and appurtenances
thereto and easements and other rights relating thereto), machinery,
equipment, furniture, fixtures, leasehold improvements, vehicles and other
assets or property, leases, Permits, Insurance Licenses, Contracts, policy
forms, training materials, underwriting manuals, lists of policyholders and
agents, processes, trade secrets, know-how, computer software, computer
programs and source codes, protected formulae, all other Intellectual
Property, research, goodwill, prepaid expenses, books of account, records,
files, invoices, data, rights, claims and privileges and any other assets
whatsoever.
"Balance Sheets" is defined in Section 2.3(a).
"Below Investment Grade" means, with respect to bonds, notes,
debentures or other evidence of indebtedness rated by Moody's Investors
Service Inc., Standard & Poor's Corporation or the National Association of
Insurance Commissions Securities Valuation Office, having a rating lower
than Baa3 by Moody's Investors Service Inc., BBB- by Standard & Poor's
Corporation or Category 2 by the National Association of Insurance
Commissions Securities Valuation Office.
"Broker-Dealer" is defined in Section 2.1(a)
"Business Day" means any day (other than a Saturday or Sunday) on
which banks are permitted to be open and transact business in the City of
New York.
"Closing" is defined in Section 1.2.
"Closing Date" is defined in Section 1.2.
"Code" means the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
"Common Stock" is defined in Section 1.1.
"Company" is defined in Section 2.3.
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"Consolidated Taxes" is defined in Section 6.2.
"Contracts" means all agreements or understandings, whether
written or oral, including, without limitation, all mortgages, indentures,
notes, guarantees, leases, purchase agreements and sale agreements.
"Environmental Laws" is defined in Section 2.15.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.
"ERISA Plans" is defined in Section 2.12(a).
"ERISA Affiliate" is defined in Section 2.12(a).
"Excluded Amounts" means Taxes imposed because of the
reclassification of insurance agents treated as independent contractors by
the Holding Company or its Subsidiaries as employees of the Holding Company
or its Subsidiaries.
"Extraordinary Dividend" is defined in Section 5.9.
"Financial Statements" is defined in Section 2.3(a).
"GAAP" means generally accepted accounting principles
consistently applied.
"Governmental Entity" means any agency, administrative division
or department (or administrative subdivision), commission, regulatory
authority, taxing or administrative authority, court or other judicial
body, legislature, audit group or procuring office of the government of the
United States or of any state, city, municipality, county or town thereof,
or of any foreign jurisdiction, including the employees or agents of any
thereof.
"Indemnifiable Losses" is defined in Section 12.1.
"Indemnifying Party" is defined in Section 12.1.
"Indemnitee" is defined in Section 12.1.
"Indemnity Payment" is defined in Section 11.1.
"Insurance Subsidiary" is defined in Section 2.1(c).
"Insurance License" means any license, certificate of authority,
Permit or other authorization granted by a Governmental Entity to transact
an insurance or reinsurance business.
"Intellectual Property" means all patents and trademarks, service
marks, trade names, jingles, assumed names, trade secrets and other
proprietary information, copyrights, licenses, permits and other similar
intangible property rights and interests applied for, issued to or
presently owned or used by the Company or its Subsidiaries or under which
the Company or its Subsidiaries is licensed or franchised.
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"Investments" is defined in Section 2.6.
"IRS" means the Internal Revenue Service.
"Liability means any indebtedness, liability, claim, loss,
damage, deficiency, obligation or responsibility, fixed or unfixed, choate
or inchoate, liquidated or unliquidated, secured or unsecured, due or to
become due, accrued, absolute, contingent or otherwise.
"Liens" means all mortgages, pledges, security interests, liens,
charges, options, conditional sales agreements, claims, restrictions,
covenants, easements, rights of way, title defects or other encumbrances of
any nature whatsoever.
"Material Adverse Effect" means a material adverse effect on the
business, property, financial condition or operations of the Holding
Company and its Subsidiaries, taken as a whole, or on the ability of Seller
to perform its obligations under this Agreement or to consummate the
transactions contemplated hereby.
"1993 Balance Sheet" is defined in Section 2.3(a).
"1993 Financial Statements" is defined in Section 2.3(a).
"Permits" means all permits, filings, licenses, approvals,
franchises, grants, easements, consents, certificates, orders and other
authorizations issued or granted by a Governmental Entity.
"Permitted Liens" means (i) Liens for water and sewer charges and
current taxes not yet due and payable or being contested in good faith and
for which adequate reserves have been taken, (ii) mechanics', carriers',
workers', repairers', materialmens', warehousemens' and other similar Liens
arising or incurred in the ordinary course of business, (iii) all Liens
approved in writing by the other party hereto, (iv) immaterial
imperfections of title, or other defects, easements, restrictions,
covenants, rights of way, liens, mortgages, pledges, encumbrances or
charges, if any, which do not materially impair the continued use and
operation of the Assets or Real Property or otherwise materially adversely
affect the ability of the Holding Company or any of its Subsidiaries to
conduct business as it is now conducted, (v) with respect to Investments,
restrictions on transfer under securities laws or as set forth in
agreements and instruments governing mortgage, partnership and venture
capital Investments and loan participation Investments, and rights of set-
off under banking and other agreements, (vi) Asset reserve and trust fund
requirements and Asset maintenance obligations under reinsurance and
retrocession contracts and (vii) Liens on partnership or venture capital
Investments to secure obligations of such partnerships and venture capital
entities.
"Person" means any corporation, individual, joint stock company,
joint venture, partnership, unincorporated association, governmental
regulatory entity, country, state or political subdivision thereof, trust
or other entity.
"Plans" is defined in Section 2.12(a).
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"Purchase Price" is defined in Section 1.3.
"Real Property" is defined in Section 2.5(b).
"Recent Balance Sheet" is defined in Section 2.3(b).
"Securities Act" means the Securities Act of 1933, as amended, as
in effect on the date hereof, together with the rules and regulations
promulgated thereunder.
"Seller" is defined in the recital.
"Statutory Accounting Principles" is defined in Section 2.3(c).
"Subsidiary" means, with respect to any Person, any corporation,
partnership, joint venture or other legal entity of which such Person
(either alone or through or together with any other Subsidiary) owns,
directly or indirectly, more than 50% of the outstanding stock or other
equity interest the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity.
"Tax" or "Taxes" means all taxes, charges, duties, fees, levies
or other assessments, including but not limited to, income, excise,
property, sales, transfer, use, stamp, franchise, withholding, gross
receipts, value added, registration, environmental, estimated, social
security, workers compensation and unemployment taxes, imposed by the
United States, any possession thereof, any state, county, local or foreign
government, or any subdivision or agency of any of the foregoing, and any
interest, penalties or additions to tax relating to such taxes, charges,
duties, fees, levies or other assessments, but not including Excluded
Amounts.
"Tax Return" means any return, report, information return, or
other document (including any related or supporting information) filed or
required to be filed with any federal, state, local, or foreign
governmental entity or other authority in connection with the
determination, assessment or collection of any Tax (whether or not such Tax
is imposed on any Seller or the Company) or the administration of any laws,
regulations or administrative requirements relating to any Tax.
"Unaudited Financial Statements" is defined in Section 2.3(b).
"WARN Act" means the Worker Adjustment and Retraining
Notification Act.
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List of Exhibits and Schedules
Omitted from Exhibit 2 to
Current Report on Form 8-K
dated February 8, 1995 of
American Brands, Inc.
STOCK PURCHASE AGREEMENT
- ------------------------
Exhibit A-1 Form of Opinion of General Counsel to the Company
Exhibit A-2 Form of Opinion of Counsel to Seller
Exhibit B-1 Form of Opinion of General Counsel to Buyer
Exhibit B-2 Form of Opinion of Counsel to Buyer
Schedule 2.2 No Conflict
Schedule 2.4 Undisclosed Liabilities; Absence of Changes
Schedule 2.5(a) Representations Regarding Assets
Schedule 2.5(b) Real Property
Schedule 2.5(c) Insurance
Schedule 2.6 Investments
Schedule 2.7 Reserves
Schedule 2.8 Consents
Schedule 2.9 Contracts
Schedule 2.10 Litigation; Compliance with Law
Schedule 2.11 Labor Relations; Employees
Schedule 2.12 Employee Benefit Plans; ERISA
Schedule 2.13 Intellectual Property
Schedule 2.14 Taxes
Schedule 2.15 Environmental
Schedule 2.17 Subsidiaries
Schedule 2.18 Affiliate Transactions
Schedule 2.19 Directors, Officers and Employees
Schedule 2.20 Insurance Practices; Conduct of Agents
Schedule 2.22 Activities of Holding Company
Schedule 5.1(a) Operation of the Business
Schedule 5.5 Investment Portfolio
EXHIBIT 3(ii)a
--------------
AMERICAN BRANDS, INC.
BY-LAW AMENDMENT
ADOPTED ON JANUARY 31, 1995
EFFECTIVE JANUARY 31, 1995
Article I, Section 1 was amended to read in its entirety as follows:
Section 1. The number of directors constituting the entire Board of
Directors of the Company shall be fixed at eleven. The number of the
directors may be altered by amendment of these By-laws, which amendment may
be adopted at any regular or special meeting of the Board of Directors by
the affirmative vote of at least two-thirds of all the directors then in
office.
Article IV, Section 1 was amended to read in its entirety as follows:
Section 1. The Board of Directors shall annually choose from amongst
its members a Chairman of the Board. The Board shall also annually choose a
President, an Executive Vice President (if any), one or more Senior Vice
Presidents (if any), a principal financial officer, such other Vice
Presidents (if any) as it shall determine, a Secretary, a Treasurer and a
Controller, who need not be directors.
Article IV, Section 8 was amended to read in its entirety as follows:
Section 8. At the request of the Chairman of the Board, or in case of
his absence or disability, the President shall perform the duties of the
Chairman of the Board, subject to the control of the Board of Directors,
and the President shall have such other powers and perform such other
duties as shall at any time be delegated to him by the Board of Directors.
The Executive Vice President (if any) and the Senior Vice Presidents (if
any) and such other Vice Presidents as shall have been chosen shall have
such powers and perform such duties as shall at any time be delegated to
them by the Board of Directors.
EXHIBIT 3(ii)b
--------------
BY-LAWS
of
AMERICAN BRANDS, INC.
(As Amended)
ARTICLE I
Directors
Section 1. The number of directors constituting the entire Board of
Directors of the Company shall be fixed at eleven. The number of the
directors may be altered by amendment of these By-laws, which amendment may
be adopted at any regular or special meeting of the Board of Directors by
the affirmative vote of at least two-thirds of all the directors then in
office.
Section 2. Each director shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Any
director of the Company may resign at any time upon written notice to the
Company. Except as otherwise provided for, or fixed by, or pursuant to the
provisions of Article IV of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a
preference over the
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Common Stock, newly created directorships resulting from any increase in
the number of directors or any vacancy on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled solely by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining director.
Section 3. In order to qualify to hold office as a director of the
Company, a person must hold at least one share of stock of the Company.
Section 4. The directors may hold their meetings and have an office
and keep the books of the Company in Old Greenwich, Connecticut, or
elsewhere outside of the State of Delaware.
Section 5. The Board of Directors, by resolution adopted by a
majority of the entire Board, may appoint from among its members an
Executive Committee which shall have at least three members. To the extent
provided in such resolution, such committee shall have and may exercise all
the powers and authority of the Board, including the power to authorize the
seal of the Company to be affixed to all papers that require it, except
that such
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committee shall not have such power and authority in reference to
(1) amending the Certificate of Incorporation (except that such
committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any
other class or classes or any other series of the same or any other
class or classes of stock of the Company or fix the number of shares
of any series of stock or authorize the increase or decrease of the
shares of any series);
(2) adopting an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of Delaware;
(3) recommending to the stockholders any action that requires
stockholders' approval;
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(4) making, amending or repealing any By-law of the Company;
(5) electing or appointing any director, or removing any officer
or director;
(6) amending or repealing any resolution theretofore adopted by
the Board of Directors;
(7) fixing compensation of the directors for serving on the
Board of Directors or on any committee; or
(8) unless the resolution shall expressly so provide, declaring
a dividend, authorizing the issuance of stock or adopting a
certificate of ownership and merger pursuant to Section 253 of
the General Corporation Law of Delaware.
Actions taken at a meeting of such committee shall be reported to the
Board of Directors at its next meeting following such committee meeting;
except that, when the meeting of the Board is held within two days after
the committee meeting, such report shall be made to the Board at either its
first or second meeting following such committee meeting.
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ARTICLE II
Meetings of Stockholders
Section l. The annual meeting of the stockholders of the Company for
the election of directors, and such other business as may properly come
before the meeting, shall be held at such place as may from time to time be
designated by the directors, on the first Wednesday of May, at ten o'clock
in the forenoon, or at such other hour as the directors may designate, or
on such other day and at such hour as the directors may designate. If the
day fixed for the meeting is a legal holiday, the meeting shall be held at
the same hour on the next business day which is not a legal holiday.
Section 2. Special meetings of the stockholders, to be held at such
place as may from time to time be designated by the directors, may be
called only by the Chairman of the Board, the President or the Board of
Directors, by resolution adopted by a majority of the entire Board, for
such purposes as shall be specified in the call.
Section 3. Except as otherwise provided by law, due notice of each
annual meeting of the stockholders shall be given by a written or printed
notice signed by the Secretary
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or an Assistant Secretary of the Company and mailed, postage prepaid, at
least ten days prior to such meeting to each stockholder of record entitled
to vote thereat appearing on the books of the Company at the address given
thereon.
Due notice of each special meeting shall be given also in the manner
above provided. The notice shall state the object of the special meeting,
and no other business shall be transacted at such meeting.
Section 4. The holders of a majority in voting power of the
outstanding shares of capital stock entitled to vote, present in person or
represented by proxy, shall constitute a quorum at a meeting of
stockholders. Except as otherwise required by law or the Certificate of
Incorporation, the affirmative vote of shares representing a majority in
voting power of the shares present in person or represented by proxy at a
meeting at which a quorum is present and entitled to vote on the subject
matter shall be the act of the stockholders, and except that directors
shall be elected by a plurality of votes cast at an election. The
stockholders present at a duly convened meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
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Section 5. Each meeting of the stockholders, whether annual or
special, shall be presided over by the Chairman of the Board if present,
and if he is not present by the President if present. If neither officer
specified in the preceding sentence is present, the meeting shall be
presided over by the person designated in writing by the Chairman of the
Board, or if the Chairman of the Board has made no designation, by the
person designated by the President, or if the President has made no
designation, by the person designated by the Board of Directors. If
neither officer specified in the first sentence of this section is present,
and no one designated by the Chairman of the Board or the President or the
Board of Directors is present, the meeting may elect any stockholder of
record who is entitled to vote for directors, or any person present holding
a proxy for such a stockholder, to preside. The Secretary of the Company
(or in his absence any Assistant Secretary) shall be the Secretary of any
such meeting; in the absence of the Secretary and Assistant Secretaries,
any person may be elected by the meeting to act as Secretary of the
meeting.
Section 6. Any voting proxy given by a stockholder must be in
writing, executed by the stockholder, or, in lieu thereof, to the extent
permitted by law, may be transmitted in a telegram, cablegram or other
means of
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electronic transmission setting forth or submitted with information from
which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. A copy, facsimile
transmission or other reliable reproduction of a written or electronically-
transmitted proxy authorized by this Section 6 may be substituted for or
used in lieu of the original writing or electronic transmission to the
extent permitted by law.
Section 7. Any previously scheduled annual or special meeting of
stockholders may, by resolution of the Board of Directors, be postponed
upon public announcement made prior to the date previously scheduled for
such meeting of stockholders. For purposes of this Article II, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the Company with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities
Exchange Act of 1934, as amended. The person presiding over any meeting of
stockholders, or a majority of the voting power of the shares entitled to
vote, present in person or represented by proxy, even if less than a
quorum, may adjourn the meeting from time to time. No notice of the time
and
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place of adjourned meetings need be given except as required by law.
Section 8. The directors shall appoint one or more inspectors of
election and of the vote at any time prior to the date of any meeting of
stockholders at which an election is to be held or a vote is to be taken.
In the event any inspector so appointed is absent from such meeting or for
any other reason fails to act as such at the meeting, the person presiding
pursuant to these By-laws may appoint a substitute who shall have all the
powers and duties of such inspector. The inspector or inspectors so
appointed shall act at such meeting, make such reports thereof and take
such other action as shall be provided by law and as may be directed by the
person presiding over the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the best
of his ability.
Section 9. The directors may, at any time prior to any annual or
special meeting of the stockholders, adopt an order of business for such
meeting which shall be the order of business to be followed at such
meeting. The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at
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such meeting shall be announced at such meeting by the person presiding
over such meeting.
Section l0. At any meeting of stockholders a stock vote shall be
taken on any resolution or other matter presented to the meeting for action
if so ordered by the person presiding over the meeting or on the demand of
any stockholder of record entitled to vote at the meeting or any person
present holding a proxy for such a stockholder. Such order or demand for a
stock vote may be made either before or after a vote has been taken on such
resolution or other matter in a manner other than by stock vote and before
or after the result of the vote taken otherwise than by stock vote has been
announced. The result of a stock vote taken in accordance with this By-law
shall supersede the result of any vote previously taken in any manner other
than by stock vote.
Section 11. (A) Nominations of persons for election to the Board of
Directors of the Company may be made as provided in the Certificate of
Incorporation. The proposal of other business to be considered by the
stockholders may be made at an annual meeting of stockholders (1) pursuant
to the Company's notice of meeting, (2) by or at the direction of the Board
of Directors or (3) by any stockholder of the Company who was a stockholder
of record at the time of giving of the notice provided for
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in this Section 11, who is entitled to vote thereon at the meeting and who
complies with the notice procedures set forth in this Section 11.
(B) For business (other than the nomination of persons for election
to the Board of Directors) to be properly brought before an annual meeting
by a stockholder pursuant to clause (3) of paragraph (A) of this
Section 11, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's
notice shall be delivered, either by personal delivery or by United States
mail, postage prepaid, to the Secretary not later than one hundred twenty
(120) days in advance of such meeting. Such stockholder's notice shall set
forth (1) a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made and (2) as
to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the proposal is made (a) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial
owner and (b) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner.
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(C) The person presiding over an annual meeting of stockholders shall
have the power and duty to determine whether any business proposed by any
stockholder to be brought before the meeting was made in accordance with
the procedures set forth in this Section 11 and, if any proposed business
is not in compliance with this Section 11, to declare that such defective
proposal shall be disregarded.
(D) In addition to the foregoing provisions of this Section 11, a
stockholder shall comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
with respect to the matters set forth in this Section 11. Nothing in this
Section 11 shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Company's proxy statement pursuant to Rule
l4a-8 under such Act.
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ARTICLE III
Meetings of Directors
Section 1. Regular meetings of the Board of Directors shall be held
at the office of the Company in Old Greenwich, Connecticut, or at such
other place as may from time to time be designated by the directors, the
Chairman of the Board or the President, at ten o'clock in the forenoon on
the last Tuesday of each month other than March, May, June, August and
December and at three o'clock in the afternoon on the day on which the
annual meeting of stockholders is held. If any such day shall be a holiday,
the meeting scheduled for that day shall be held on the next business day.
Special meetings may be held as determined by the Board of Directors, and
may be called by the Chairman of the Board at any time and shall be called
by him on the request of three directors, or, if the Chairman of the Board
fails to call such meeting when so requested, the same may be called by any
three directors.
Section 2. No notice need be given of regular meetings of the
directors, except that at least one day's notice shall be given of any
place other than the office of the Company in Old Greenwich, Connecticut at
which any
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such meeting is to be held, but such notice need not be given to any
director who signs a written waiver of notice before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice
of such meeting, except when the director attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or convened.
Section 3. At any meeting six directors shall constitute a quorum
unless otherwise provided for in these By-laws or in the Certificate of
Incorporation or in any applicable statute, but in no case less than one-
third of all the directors then in office.
Section 4. Members of the Board of Directors or of any Committee
thereof may participate in meetings of the Board of Directors or of such
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and such participation shall constitute presence in person
at such meeting.
Section 5. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of such
committee,
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as the case may be, consent thereto in writing and the writing or writings
are filed with the minutes of proceedings of the Board of Directors or of
such committee.
ARTICLE IV
Officers
Section 1. The Board of Directors shall annually choose from amongst
its members a Chairman of the Board. The Board shall also annually choose a
President, an Executive Vice President (if any), one or more Senior Vice
Presidents (if any), a principal financial officer, such other Vice
Presidents (if any) as it shall determine, a Secretary, a Treasurer and a
Controller, who need not be directors.
Section 2. The Board of Directors may elect other officers and define
their powers and duties.
Section 3. Any two offices not inconsistent with each other may be
held by the same person.
Section 4. All officers elected by the Board of Directors shall hold
office, subject to removal by the Board, until their successors are chosen
and qualified. The affirmative vote of at least two-thirds of all of the
directors
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then in office shall be required to remove or reduce the salary of any
officer elected by the Board of Directors.
Section 5. All agents and employees shall be appointed and may be
removed by the Chairman of the Board, subject to the control of the Board
of Directors.
Section 6. Vacancies among officers of the Company shall be filled
as, and to the extent that, the Board of Directors shall determine by vote
of a majority of the directors present at any regular or special meeting at
which not less than a majority of all the directors then in office are
present.
Section 7. The Chairman of the Board shall be the Chief Executive
Officer of the Company and shall have general direction of its business
affairs, subject, however, to the control of the Board of Directors. He
shall, if present, preside at all meetings of the Board of Directors and
shall perform such other duties and have such responsibilities as the Board
may from time to time determine.
Section 8. At the request of the Chairman of the Board, or in case of
his absence or disability, the President shall perform the duties of the
Chairman of the Board, subject to the control of the Board of Directors,
and the President shall have such other powers and
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perform such other duties as shall at any time be delegated to him by the
Board of Directors. The Executive Vice President (if any) and the Senior
Vice Presidents (if any) and such other Vice Presidents as shall have been
chosen shall have such powers and perform such duties as shall at any time
be delegated to them by the Board of Directors.
Section 9. The Secretary shall give the requisite notice of meetings
of stockholders and directors and shall record the proceedings of such
meetings, shall have the custody of the seal of the Company and shall affix
it or cause it to be affixed to such instruments as require the seal and
attest it and, besides his powers and duties prescribed by law, shall have
such other powers and perform such other duties as shall at any time be
required of him by the Board of Directors.
Section 10. The Assistant Secretaries shall assist the Secretary in
the discharge of his duties and shall have such powers and perform such
other duties as shall at any time be delegated to them by the Board of
Directors, and in the absence or disability of the Secretary, shall perform
the duties of his office, subject to the control of the Board.
Section 11. The Treasurer shall have charge of the funds and
securities of the Company and shall have such
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powers and perform such duties as shall at any time be delegated to him by
the Board of Directors.
Section 12. The Assistant Treasurers shall assist the Treasurer in
the discharge of his duties and shall have such powers and perform such
other duties as shall at any time be delegated to them by the Board of
Directors, and in the absence or disability of the Treasurer, shall perform
the duties of his office subject to the control of the Board.
Section 13. Any other officer, agent or employee of the Company may
be required to give such security for the faithful performance of his
duties as shall be determined by the Board of Directors, who shall also
determine the custody of any security given.
ARTICLE V
Salaries
Section 1. The salaries of all officers elected by the Board of
Directors who hold offices of a rank of Vice President or above shall be
fixed by the Compensation and Stock Option Committee.
Section 2. Salaries of all other officers elected by the Board and
all other agents and employees shall be fixed by or in the manner
determined by the Board.
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Section 3. The Board of Directors, by the affirmative vote of a
majority of directors in office and irrespective of any personal interest
of any directors, shall have authority to establish reasonable compensation
of directors for services to the Company as directors, officers or
otherwise, except that the Compensation and Stock Option Committee, by the
affirmative vote of a majority of Committee members in office and
irrespective of any personal interest of any Committee members or other
directors, shall have authority to establish such compensation of directors
who also are officers elected by the Board and hold offices of a rank of
Vice President or above.
ARTICLE VI
Seal
Section 1. The Seal of the Company shall be in such form as the Board
of Directors may from time to time prescribe and it may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
ARTICLE VII
Signatures on Commercial
Instruments and Contracts
Section 1. All checks or bank drafts shall be signed
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by any two of the following named officers: Chairman of the Board,
President, the principal financial officer, the principal accounting
officer, any Vice President, Secretary, any Assistant Secretary, Treasurer,
any Assistant Treasurer, Controller, any Assistant Controller; and in such
other manner as the Board of Directors may from time to time designate.
Section 2. All notes or other obligations or contracts shall be
signed by the Chairman of the Board, the President, the principal financial
officer, the principal accounting officer, or any Vice President and also
by one of the following officers: the Secretary, an Assistant Secretary,
the Treasurer, an Assistant Treasurer, the Controller, or an Assistant
Controller (provided that no individual shall sign the same instrument in
two capacities), or shall be signed by the Chairman of the Board, the
President, the principal financial officer, the principal accounting
officer, or any Vice President, with the corporate seal or a facsimile
thereof affixed thereto or imprinted thereon, attested by the Secretary or
an Assistant Secretary; or such notes, obligations or contracts shall
be signed in such manner and by one or more of such officers or other
persons on behalf of the Company as the Board of Directors may from time to
time authorize or direct. When and as authorized or directed by the Board
of Directors, the signatures of such officers or
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other persons or any of them signing on behalf of the Company may be
facsimiles.
ARTICLE VIII
Capital Stock
Section 1. Certificates of the capital stock of the Company shall be
issued for shares duly numbered and registered in the order of their issue,
and shall be in the form the directors shall prescribe.
Section 2. The capital stock shall be transferable on the transfer
books of the Company, subject to these By-laws, by the owner in person, or
by attorney or legal representative, written evidence of whose authority
shall be filed with the Company.
Section 3. No transfer of capital stock can be required except upon
surrender and cancellation of the certificate representing the same.
Section 4. The Board of Directors may at any time, in its discretion,
appoint one or more transfer agents or registrars of the shares of stock of
the Company and terminate the appointment of any transfer agent or
registrar. The Board of Directors may also designate the Company to
perform such functions alone or in conjunction with one or more other
transfer agents or registrars.
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Section 5. (A) For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or for the purpose of determining stockholders
entitled to receive payment of any dividend or allotment of any right, or
for the purpose of any other action, the Board of Directors may fix, in
advance, a date as the record date for any such determination of
stockholders. Such date shall be not more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action.
(B) When a determination of stockholders of record entitled to notice
of or to vote at any meeting of stockholders has been made as provided in
this Section 5, such determination shall apply to any adjournment thereof,
unless the Board of Directors fixes a new record date under this Section 5
for the adjourned meeting.
ARTICLE IX
Committee on Conflicts of Interests
Section 1. The Board of Directors, by resolution adopted by a
majority of the entire Board, shall appoint a Committee on Conflicts of
Interests which shall have at
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least three members. To the extent provided by resolution of the Board,
such committee shall have the power to interpret, administer and apply the
policies of the Company as established by the Board from time to time with
respect to conflicts of interests.
ARTICLE X
Dividends
Section 1. Dividends on the Preferred Stock and the Common Stock of
the Company may be declared by the Board of Directors, at any regular or
special meeting, as provided by law and the Certificate of Incorporation.
ARTICLE XI
Amendments
Section 1. The Board of Directors shall, except as otherwise provided
in these By-laws or the Certificate of Incorporation, have the power to
alter, amend or repeal these By-laws at any meeting by the affirmative vote
of two-thirds of the directors then in office, provided notice of the
proposed alteration, amendment or repeal be given in writing to each of the
directors, and provided also that
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no alteration, amendment or repeal of a specification in any section of
these By-laws of a stated fraction of directors as the minimum number whose
presence or vote is requisite for action under such section may be made
without the presence or vote or both, as the case may be, of the minimum
number so specified.
ARTICLE XII
Incentive Compensation
Section 1. (A) As soon as practicable after the end of the year 1994
and of each year thereafter, if a cash dividend on the Common Stock shall
have been paid in such year, there shall be made available for allotment,
as hereinafter provided, an amount equal to one-half of 1% of adjusted
income from continuing operations (as defined in Section 5 hereof).
(B) Of such amount made available for allotment under this Article,
18% shall be allotted to the person or persons who during such year held
the office of Chairman of the Board, subject to reduction of any person's
share as permitted by Section 3(A) hereof, as incentive compensation, in
addition to the fixed salary of such person or persons for such year. If
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such office shall have been vacant at any time during the year, the amount
to be allotted to the incumbent or incumbents of such office for such year
shall be reduced proportionately. If such office shall have had more than
one incumbent during the year, the amount to be allotted in respect of such
office shall be divided among the different incumbents in the proportion of
their respective periods of incumbency during the year. Nothing herein
contained shall give any incumbent of such office any right to claim to
continue therein, or any other right except as herein specifically
expressed.
(C) Of such amount made available for allotment under this Article,
the amount not allottable pursuant to Section 1(B) hereof by reason of a
vacancy at any time during such year in the office of the Chairman of the
Board shall be available for allotment to other key employees, as provided
in Section 2 hereof, in addition to the fixed salary of each of such
persons for such year.
Section 2. (A) The amount available for allotment pursuant to this
Section 2 for each year shall be allotted among the members of a Management
Group consisting of all persons elected to the office of Vice President of
the Company or any office senior thereto (except the
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Chairman of the Board and any officer covered by an incentive compensation
plan of any subsidiary of the Company). A person who during part of such
year has held an office in the Management Group shall participate in such
allotment on a proportional basis reflecting the portion of the year during
which he holds such office. A person who during part of such year has held
the office of Chairman of the Board shall be included in the Management
Group for the portion of the year during which he held an office in the
Management Group and did not hold the office of Chairman of the Board, and
the allotment to such person as a member of the Management Group shall be
in addition to the allotment to which he is entitled under Section 1(B)
hereof.
(B) Within 60 days after receipt from the independent accountants of
the certificate to be furnished pursuant to Section 6 hereof showing the
amount made available for allotment under this Article, the amount to be
allotted pursuant to this Section 2 shall then be allottable among the
members of such Management Group as follows:
(1) Of such amount made available for allotment under this
Article, 30% shall be allotted to all members of such Group pro rata,
subject to reduction of any member's share as permitted by Section
3(A) hereof, according to the proportion
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which the fixed salary of each member of said Group for periods of
membership during such year bears to the total of such fixed salaries
of all members of the Group for such periods. For purposes of this
allotment, (a) the fixed salary of each member of said Group whose
compensation is not subject to the limitation on deductibility under
Section 162(m) of the Internal Revenue Code, as amended, or any
successor provision (the _Section 162(m) Limitation_) for such year
shall be at a rate equal to the highest fixed salary rate of such
member during any period of membership in said Group during such year
and (b) the fixed salary of each member of said Group whose
compensation is subject to the Section 162(m) Limitation for such year
shall be at the rate in effect at the beginning of such year, or if
later the beginning of such member's first period of membership in the
Group during such year.
(2) So much of the remaining amount made available for allotment
under this Article as the Committee (as defined in Section 3(C) of
this Article) determines, in its sole discretion, shall be allotted
among the members of such Management Group to such individuals in said
Group, and in such amounts as to individuals as the Committee, in its
sole discretion, shall determine, except as otherwise provided in
Section 2(D) hereof.
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(C) In addition to the foregoing, there shall also be allottable to
such Management Group within the 60-day period specified in Section 2(B)
hereof any amount which is not allotted in such year to the Chairman of the
Board pursuant to Section 1(B) hereof by reason of vacancy at any time
during such year in such office. Except as otherwise provided in Section
2(D) hereof, so much of such additional amount as the Committee determines,
in its sole discretion, shall be allotted among the members of such
Management Group to such individuals in said Group, and in such amounts as
to individuals, as the Committee, in its sole discretion, shall determine.
(D) In any case where a Chairman of the Board is a person to whom an
allotment may be made as a member of such Management Group pursuant to
paragraph (2) of Section 2(B) hereof or pursuant to both said paragraph (2)
and Section 2(C) hereof, there shall be allotted to him within the 60-day
period specified in Section 2(B) hereof (subject to reduction as permitted
by Section 3(A) hereof), from the total of the amount allottable among the
members of the Management Group by the Committee under said paragraph (2)
and of any additional amount so allottable under said Section 2(C), a sum
which shall be the same percentage (adjusted proportionately on the basis
of the period of the year for which the allotment
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is being made in which he was a member of the Management Group but did not
hold the office of Chairman of the Board) of such total as the allotment
made to him for the next preceding year under said paragraph (2) and said
Section 2(C) was of the total amount allottable for such preceding year
under said paragraph (2) and said Section 2(C).
Section 3. (A) The Committee shall have authority to reduce the
amount of any allotment to the Chairman of the Board pursuant to Section
1(B) hereof or the amount of any allotment to a member of the Management
Group pursuant to Section 2 (B)(1) or Section 2(D) hereof if and to the
extent that the Committee deems it appropriate. No part of any such
reduction in any allotment shall be available for allotment to any other
person under this Article.
(B) No part of the amount made available for allotment under this
Article as shall not have been allotted, under Sections 1 and 2 hereof,
within such 60-day period, for any year may be carried forward for
subsequent allotment.
(C) As used in this Article the word _Committee_ shall mean the
Compensation and Stock Option Committee. All decisions of the Committee
pursuant to the provisions of this Article shall be binding and conclusive
on all interested parties.
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Section 4. Payment to the Chairman of the Board of the amounts
payable to him under Section 1(B) hereof, and to each of the allottees of
the Management Group of the amount of his total allotment under Sections
2(B), 2(C) and 2(D) hereof, with respect to any year shall be made in cash
as soon as practicable.
Section 5. For the purpose of this Article, the term _adjusted income
from continuing operations_ for any year is defined as the income from
continuing operations, before income taxes, as reflected in the
consolidated financial statements set forth in the annual report for such
year of the Company to the stockholders, but adjusted by the independent
accountants who have audited the Company's consolidated financial
statements to (i) exclude the deduction for Article XII incentive
compensation, (ii) exclude unrealized gains and losses on securities, and
adjust realized gains and losses on trading securities to reflect cost,
(iii) exclude restructuring charges or credits, and charges for impaired
assets other than those sold in the ordinary course of business, (iv)
include the results of operations for such year from businesses classified
as _discontinued operations_ prior to the disposition dates, and (v) to the
extent not adjusted pursuant to items (ii), (iii) or (iv) above, exclude
gains or losses included in continuing operations resulting from
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the sale or writedown of intangible assets, land or buildings, investments
in business units and securities resulting from the sale of business units.
Section 6. At the time of rendering their report with respect to the
financial statements of the Company and its consolidated subsidiaries for
any year, such independent accountants shall also furnish to the Company
their written certificate stating the amount of the _adjusted income from
continuing operations_ for such year as defined in Section 5(A) hereof, the
amount made available for allotment under this Article for such year, and
the amounts thereof to be allotted to the Chairman of the Board, and the
amount thereof available for allotment to the Management Group, which
certificate as to the amounts available and payable hereunder shall be
binding and conclusive on all interested parties, and no one claiming
hereunder shall have a right to question the same, or to any examination of
the books or accounts of the Company or subsidiaries.
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Section 7. This Article may be repealed only by the action of the
stockholders of the Company, and not by the directors. Upon the unanimous
recommendation of the Committee, this Article may be amended or modified by
the directors in accordance with Article XI, except that, without the
approval of the stockholders of the Company, no such amendment or
modification shall be made which increases the amount made available for
allotment as specified in Section 1(A) hereof or increases to higher than
18% of such amount the amount to be allotted hereunder to the Chairman of
the Board.
ARTICLE XIII
Indemnification
Section 1. (A) Each person (an _indemnitee_) who was or is made or
threatened to be made a party to or was or is involved (as a witness or
otherwise) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a _proceeding_), by reason of
the fact that he or she or a person of whom
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he or she is the legal representative was or is a director, officer or
employee of the Company or was or is serving at the request of the Company
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such
proceeding was or is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held
harmless by the Company to the fullest extent permitted by the General
Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees and retainers therefor, judgments, fines, excise taxes or
penalties under the Employee Retirement Income Security Act of 1974, as
amended, and amounts paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to
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the benefit of his or her heirs, executors and administrators; provided,
however, that except as provided in Section 3 of this Article XIII with
respect to proceedings seeking to enforce rights to indemnification, the
Company shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Company.
(B) The right to indemnification conferred in this Article XIII is
and shall be a contract right. The right to indemnification conferred in
this Article XIII shall include the right to be paid by the Company the
expenses (including attorneys' fees and retainers therefor) reasonably
incurred in connection with any such proceeding in advance of its final
disposition, such advances to be paid by the Company within 20 days after
the receipt by the Company of a statement or statements from the indemnitee
requesting such advance or advances from time to time; provided, however,
that if the General Corporation Law of the State of Delaware requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without
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limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Company of an undertaking by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this
Article XIII or otherwise.
Section 2. (A) To obtain indemnification under this Article XIII, an
indemnitee shall submit to the Company a written request, including therein
or therewith such documentation and information as is reasonably available
to the indemnitee and is reasonably necessary to determine whether and to
what extent the indemnitee is entitled to indemnification. Upon written
request by an indemnitee for indemnification pursuant to the first sentence
of this Section 2(A), a determination, if required by applicable law, with
respect to the indemnitee's entitlement thereto shall be made as follows:
(1) if requested by the indemnitee, by Independent Counsel (as hereinafter
defined), or (2) if no request is made by the indemnitee for a
determination by Independent Counsel, (a) by the Board of Directors by a
majority vote of a quorum consisting of Disinterested Directors (as
hereinafter defined), or (b) if a quorum of the Board of Directors
consisting of Disinterested Directors is not
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obtainable or, even if obtainable, such quorum of Disinterested Directors
so directs, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to the indemnitee, or (c) by
the stockholders of the Company. In the event the determination of
entitlement to indemnification is to be made by Independent Counsel at the
request of the indemnitee, the Independent Counsel shall be selected by the
indemnitee unless the indemnitee shall request that such selection be made
by the Board of Directors, in which event the Independent Counsel shall be
selected by the Board of Directors. If it is so determined that the
indemnitee is entitled to indemnification, payment to the indemnitee shall
be made within 10 days after such determination.
(B) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that the indemnitee is entitled to
indemnification under this Article XIII, and the Company shall have the
burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.
Section 3. (A) If a claim under Section 1 of this Article XIII is
not paid in full by the Company within
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30 days after a written claim pursuant to Section 2(A) of this Article XIII
has been received by the Company, or if an advance is not made within 20
days after a request therefor pursuant to Section 1(B) of this Article XIII
has been received by the Company, the indemnitee may at any time thereafter
bring suit (or, at the indemnitee's option, an arbitration proceeding
before a single arbitrator pursuant to the rules of the American
Arbitration Association) against the Company to recover the unpaid amount
of the claim or the advance and, if successful in whole or in part, the
indemnitee shall be entitled to be paid also the expense of prosecuting
such claim. It shall be a defense to any such suit or proceeding (other
than a suit or proceeding brought to enforce a claim for expenses incurred
in connection with any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Company) that the indemnitee has not met the standards of conduct which
make it permissible under the General Corporation Law of the State of
Delaware for the Company to indemnify the indemnitee for the amount claimed
or that such indemnification otherwise is not permitted under the General
Corporation Law of the State of Delaware, but the burden of proving such
defense shall be on the Company.
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(B) Neither the failure of the Company (including its Board of
Directors, Independent Counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the indemnitee is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in the General Corporation Law
of the State of Delaware, nor an actual determination by the Company
(including its Board of Directors, Independent Counsel or stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
be a defense to the action or create a presumption that the indemnitee has
not met the applicable standard of conduct.
(C) If a determination shall have been made pursuant to Section 2(A)
of this Article XIII that the indemnitee is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding
or arbitration commenced pursuant to paragraph (A) of this Section 3.
(D) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to paragraph (A) of this
Section 3 that the procedures and presumptions of this Article XIII are not
valid, binding and enforceable and shall stipulate in any
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such court or before any such arbitrator that the Company is bound by all
the provisions of this Article XIII.
Section 4. The right to indemnification and the payment of expenses
incurred in connection with a proceeding in advance of its final
disposition conferred in this Article XIII shall not be exclusive of any
other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-laws, agreement,
vote of stockholders or Disinterested Directors or otherwise.
Section 5. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company
or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of
Delaware. To the extent that the Company maintains any policy or policies
providing such insurance, each such director, officer or employee, and each
such agent to which rights to indemnification have been granted as provided
in Section 6 of this Article XIII, shall be covered by such policy or
policies in accordance with its or their terms to the
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maximum extent of the coverage thereunder for any such director, officer,
employee or agent.
Section 6. The Company may, to the extent authorized from time to
time by the Board of Directors, grant rights to indemnification, and rights
to be paid by the Company the expenses incurred in connection with any
proceeding in advance of its final disposition, to any agent of the Company
to the fullest extent of the provisions of this Article XIII with respect
to the indemnification and advancement of expenses of directors, officers
and employees of the Company.
Section 7. If any provision or provisions of this Article XIII shall
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(A) the validity, legality and enforceability of the remaining provisions
of this Article XIII (including without limitation, each portion of any
Section of this Article XIII containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
(B) to the fullest extent possible, the provisions of this Article XIII
(including, without limitation, each portion of any Section of this Article
XIII containing any such provision held to be invalid, illegal or
unenforceable) shall be
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construed so as to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
Section 8. For purposes of this Article XIII:
(A) "Disinterested Director" means a director of the Company who is
not and was not a party to the matter in respect of which indemnification
is sought by the indemnitee.
(B) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent:
(1) the Company or the indemnitee in any matter material to either such
party, or (2) any other party to the matter giving rise to a claim for
indemnification. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards
of professional conduct then prevailing, would have a conflict of interest
in representing either the Company or the indemnitee in an action to
determine the indemnitee's rights under this Article XIII.
Section 9. Any notice, request or other communication required or
permitted to be given to the Company under this Article XIII shall be in
writing and either
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delivered in person or sent by telecopy, telex, telegram or certified or
registered mail, postage prepaid, return receipt requested, to the
Secretary of the Company and shall be effective only upon receipt by the
Secretary.
