<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
RELIASTAR FINANCIAL CORP.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6311 41-1620373
<S> <C> <C>
(STATE OR OTHER
JURISDICTION OF
INCORPORATION
OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
20 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55401
(612) 372-5432
(ADDRESS AND TELEPHONE NUMBER
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD R. CROWL
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
RELIASTAR FINANCIAL CORP.
20 WASHINGTON AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55401
(612) 372-5432
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
THOMAS G. MORGAN JOSEPH P. RICHARDSON
FAEGRE & BENSON LLP BRYAN CAVE LLP
2200 NORWEST CENTER TWO NORTH CENTRAL AVENUE
90 SOUTH SEVENTH STREET SUITE 2200
MINNEAPOLIS, MINNESOTA 55402 PHOENIX, ARIZONA 85004
(612) 336-3000 (602) 364-7000
</TABLE>
Approximate date of commencement of proposed sale of the securities to the
public: UPON THE EFFECTIVE TIME OF THE MERGER DESCRIBED HEREIN.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE(3)
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Common Stock, $.01 par
value, including Rights
to Purchase Preferred
Stock (4).............. 2,544,039 shares $62.88 $96,368,178 $ 0
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</TABLE>
(1) Based upon the assumed maximum number of shares of ReliaStar Financial
Corp. common stock that may be issued in the merger described herein, which
is based upon the estimated number of shares of Pilgrim Capital Corporation
common stock that may be outstanding immediately before the merger
(5,088,077 shares) and stock consideration of .50 of a share of ReliaStar
common stock for each such outstanding share of Pilgrim.
(2) Estimated solely for the purpose of calculating the registration fee, under
Rule 457(f)(1) and (3), based upon the average of the reported high and low
sale prices per share of Pilgrim common stock on September 10, 1999 of
$31.44 divided by the exchange ratio of .50, and after subtracting
estimated cash consideration of $63,600,963 payable to Pilgrim
stockholders.
(3) Under Rule 457(b), the fee is after deduction of $35,587 paid with respect
to the transaction pursuant to Section 14(g) of the Securities Exchange Act
of 1934.
(4) Rights to Purchase Preferred Stock are initially attached to and trade with
ReliaStar common stock. Value attributable to the Rights, if any, is
reflected in the market price for ReliaStar common stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PILGRIM CAPITAL CORPORATION
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004
Dear Stockholders:
We will hold a special meeting of stockholders at our headquarters at 40
North Central Avenue, 12th floor, Phoenix, Arizona on October 26, 1999 at 9:00
a.m. local time.
At the meeting, you will be asked to consider and vote on a proposal to
approve a merger agreement with ReliaStar Financial Corp. and its wholly owned
subsidiary Northstar Holding, Inc. pursuant to which Pilgrim will be merged
into Northstar. Upon consummation of the merger, each outstanding share of
Pilgrim common stock will be converted into the right to receive .50 shares of
ReliaStar common stock and cash in the amount of $12.50, subject to possible
adjustments. ReliaStar is a diversified financial services company that
provides a variety of insurance and investment products and services.
The merger will provide you an opportunity for continued equity
participation in a larger, more diversified enterprise with increased aggregate
equity value and improved stockholder liquidity. This transaction will
capitalize on the tremendous value Pilgrim has built since 1995, and at the
same time permit you to continue your investment in Pilgrim's future as part of
a larger, more diverse financial services company with impressive resources and
vision.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY APPROVED
THIS MERGER AND CONCLUDED THAT IT IS IN THE BEST INTERESTS OF PILGRIM AND ITS
STOCKHOLDERS. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE MERGER.
Attached is a notice of special meeting of stockholders and a proxy
statement/prospectus relating to the merger. The proxy statement/prospectus
describes the merger in greater detail, and we encourage you to read it
carefully.
You are cordially invited to attend the meeting. However, whether or not you
plan to attend the meeting, please complete, sign and date the enclosed proxy
and return it to us in the enclosed envelope. If you attend the meeting, you
may vote in person if you wish, even though you have previously returned your
proxy. Your vote is very important.
Sincerely,
Robert W. Stallings
Chairman of the Board
<PAGE>
PILGRIM CAPITAL CORPORATION
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Our Stockholders:
A special meeting of stockholders of Pilgrim Capital Corporation will be
held at our headquarters located at 40 North Central Avenue, 12th floor,
Phoenix, Arizona on October 26, 1999, at 9:00 a.m., local time. The purpose of
the special meeting is to consider and vote on a proposal to approve a merger
agreement with ReliaStar Financial Corp. and its wholly owned subsidiary
Northstar Holding, Inc. that will cause Pilgrim to be merged into Northstar.
No other business will be considered at the meeting.
The proposal is more fully described in the proxy statement/prospectus that
accompanies this notice, which you should read carefully.
We have fixed the close of business on September 17, 1999 as the record date
for the determination of our stockholders entitled to vote at this meeting.
By Order of the Board of Directors
James M. Hennessy
Executive Vice President and
Corporate Secretary
Phoenix, Arizona
September 17, 1999
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOU CAN
REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT OF PILGRIM CAPITAL CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 26, 1999
----------------
PROSPECTUS OF RELIASTAR FINANCIAL CORP.
SHARES OF COMMON STOCK
----------------
The board of directors of Pilgrim Capital Corporation has approved a merger
with ReliaStar Financial Corp. under a merger agreement dated July 22, 1999.
Pilgrim's board of directors has called a special meeting of Pilgrim's
stockholders to vote on a proposal to approve the merger agreement and the
merger.
In the merger, ReliaStar will issue to Pilgrim stockholders $12.50 in cash
and .50 of a share of ReliaStar common stock for each share of Pilgrim common
stock held by them, subject to possible adjustments. On September 13, 1999, the
closing sale price per share for ReliaStar common stock was $43.50. If the
average price of ReliaStar common stock shortly before the completion of the
merger were equal to that price, then the value of the consideration to be
received in exchange for each share of Pilgrim common stock would be $34.25,
assuming no price adjustment. See pages 23-24 for discussion and examples of
the possible adjustments in the merger consideration.
THE BOARD OF DIRECTORS OF PILGRIM HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE MERGER.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF FACTORS YOU
SHOULD CONSIDER IN ANALYZING THE PROPOSAL.
This proxy statement/prospectus is being mailed to Pilgrim's stockholders on
or about September 22, 1999. This document also constitutes the prospectus of
ReliaStar with respect to the shares of ReliaStar common stock to be issued in
the merger, which are listed on the New York Stock Exchange under the symbol
"RLR."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF RELIASTAR COMMON STOCK
OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS SEPTEMBER 17, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Questions and Answers About the Merger................................... 1
Summary.................................................................. 3
The Merger............................................................. 3
The Merger Agreement................................................... 4
Recommendation of the Pilgrim Board and Reasons for the Merger......... 4
Additional Interests of Pilgrim's Officers and Directors in the
Merger................................................................ 5
Fairness Opinion with Respect to the Merger............................ 5
The Companies.......................................................... 5
The Pilgrim Capital Corporation Special Meeting........................ 6
Comparative Per-Share Market Data...................................... 7
Selected Historical Financial Data..................................... 8
Comparative Unaudited Per-Share Data................................... 10
Share Price and Dividend Data.......................................... 11
Risk Factors............................................................. 12
Risks Relating to the Merger........................................... 12
Risks Relating to ReliaStar............................................ 12
General Information...................................................... 14
Background of the Merger................................................. 15
Pilgrim's Reasons for the Merger and Recommendation of the Pilgrim Board
of Directors............................................................ 17
Pilgrim's Reasons for the Merger....................................... 17
Recommendation of Pilgrim's Board of Directors......................... 18
ReliaStar's Reasons for the Merger....................................... 18
Opinion of Pilgrim's Financial Advisor................................... 18
The Merger............................................................... 22
Merger Consideration................................................... 22
Effective Time and Effect of the Merger................................ 24
Exchange of Shares..................................................... 24
Employee Benefit Plans and Stock Options............................... 24
Conditions to Completion of the Merger................................. 25
Representations and Warranties......................................... 26
Conduct of Business Before the Merger.................................. 26
Amendment and Waiver................................................... 26
Termination............................................................ 26
Expenses and Termination Payments...................................... 27
No Solicitation of Alternative Transactions............................ 27
Interests of Certain Persons in the Merger............................. 27
Federal Income Tax Consequences........................................ 28
Business and Management After the Merger............................... 30
Restrictions on Sales of Shares by Affiliates of Pilgrim and
ReliaStar............................................................. 30
Dissenters' Rights....................................................... 31
Share Ownership by Principal Stockholders, Management and Directors of
Pilgrim................................................................. 31
Forward-Looking Information.............................................. 33
Business of ReliaStar.................................................... 33
Business of Pilgrim...................................................... 34
Description of ReliaStar Capital Stock................................... 35
Common Stock........................................................... 35
Preferred Stock........................................................ 35
Dividends.............................................................. 35
</TABLE>
(i)
<PAGE>
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PAGE
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Voting Rights........................................................... 36
Liquidation............................................................. 37
Share Rights Agreement.................................................. 37
Limitations on Change in Control........................................ 38
Limitation on Certain Liability of Directors and Indemnification........ 39
Transfer Agent.......................................................... 39
Comparative Rights of Stockholders of Pilgrim and ReliaStar............... 39
General................................................................. 39
Voting Rights........................................................... 39
Charter Amendments...................................................... 39
Transactions with Interested Shareholders............................... 40
Consideration of Other Constituencies................................... 40
Share Rights Agreement.................................................. 41
Where You Can Find More Information....................................... 41
Legal Matters............................................................. 42
Experts................................................................... 42
Stockholder Proposals..................................................... 42
Independent Auditors...................................................... 43
Exhibit A--Agreement and Plan of Merger................................... A-1
Exhibit B--Opinion of Putnam, Lovell, de Guardiola & Thornton, Inc........ B-1
Exhibit C--Delaware General Corporation Law Section 262................... C-1
</TABLE>
(ii)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q:PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A: You will receive $12.50 in cash and .50 of a share of ReliaStar common stock
for each share of Pilgrim common stock that you hold. ReliaStar will not
issue fractional shares of common stock. Instead, Pilgrim stockholders
entitled to a fractional share will receive cash in the amount of the
fraction times ReliaStar's average share price during a five-day pricing
period shortly before the merger.
Q:ARE THERE ANY POSSIBLE ADJUSTMENTS TO WHAT I WILL RECEIVE IN THE MERGER?
A: Yes, there are two possible adjustments. First, if redemptions of Pilgrim's
mutual fund assets exceed sales of those assets by approximately $780
million between July 22, 1999 and the completion of the merger, then the
merger consideration will be reduced based on a formula discussed in the
main body of this document. This adjustment recognizes the fact that the
advisory fees related to the funds' assets under management are the primary
source of Pilgrim's revenues. From July 22, 1999 through September 10, 1999,
sales exceeded redemptions by approximately $75 million. As a result,
redemptions would have to exceed sales by $855 million after September 10,
1999 before this adjustment would occur. Second, if ReliaStar's average
share price exceeds $42 during the pricing period before closing, ReliaStar
may choose to pay the incremental portion of the higher purchase price in
cash instead of stock. That incremental cash portion is limited, however, in
order to maintain tax-free reorganization treatment for the merger. See
pages 23-24 for discussion and examples of these possible adjustments.
Q: WHAT PERCENTAGE OF RELIASTAR'S STOCK OWNERSHIP WILL FORMER PILGRIM
STOCKHOLDERS HOLD AFTER THE MERGER?
A: Former Pilgrim stockholders will hold approximately 3% of ReliaStar's
outstanding common stock.
Q:WHAT KIND OF PREMIUM TO THE PRICE OF PILGRIM'S STOCK IS IMPLIED BY THE MERGER
CONSIDERATION?
A: The merger consideration represents a premium of 19% over the closing price
of the Pilgrim common stock on the day before the merger agreement was
signed and a premium of 68% over the closing price per share one month
earlier.
Q:WHY DID PILGRIM SEEK A MERGER WITH RELIASTAR?
A. Pilgrim's board believes that the consideration to be received in the merger
maximizes value for Pilgrim's stockholders. The merger will provide you an
opportunity for continued equity participation in a larger, more diversified
enterprise with increased aggregate equity value and improved stockholder
liquidity. This transaction will capitalize on the tremendous value Pilgrim
has built since 1995, and at the same time permit you to continue your
investment in Pilgrim's future as part of a larger, more diverse financial
services company with impressive resources and vision.
Q:WHY DID RELIASTAR SEEK TO ACQUIRE PILGRIM?
A. The acquisition of Pilgrim represents an opportunity to strengthen
ReliaStar's presence in the mutual fund marketplace and expand its product
line. This acquisition will help achieve economies of scale in the mutual
fund business, putting ReliaStar in a stronger position to attract and
retain assets, afford top asset-management talent, reduce unit costs, and
increase profitability from the mutual fund business. ReliaStar views
Pilgrim as an attractive acquisition because of Pilgrim's complementary
funds and distribution, its strong asset managers and product performance,
and its experienced management team.
Q:WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the meeting of Pilgrim's
stockholders.
Q:WHAT DO I DO IF I WANT TO CHANGE MY VOTE LATER?
A: Just send in a later-dated, signed proxy card to Pilgrim's Corporate
Secretary so that it is received before the stockholders' meeting or attend
the meeting in person and vote.
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Q:IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. Please tell your broker how you would like him or her to vote your
shares. If you do not tell your broker how to vote, your shares will not be
voted by your broker, which will have the effect of a vote against the
merger.
Q:SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Norwest Bank Minnesota, National
Association, the exchange agent for the merger, will send you written
instructions for exchanging your stock certificates.
Q:WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect that the approval of Pilgrim's stockholders will be the last
condition to the completion of the merger. The merger should be completed
within three business days after the stockholders' meeting.
Q:WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO PILGRIM'S
STOCKHOLDERS?
A: Generally, you will not recognize a gain or a loss with respect to the
receipt of ReliaStar common stock in exchange for your shares of Pilgrim
common stock. Receipt of the cash portion of the merger consideration
generally would be taxable.
Q:DOES RELIASTAR PAY DIVIDENDS?
A: Yes. Subject to board approval, ReliaStar pays regular quarterly dividends
in February, May, August, and November of each year. ReliaStar's current
annualized dividend rate is $.82 per share.
Q:WHOM SHOULD I CALL WITH QUESTIONS?
A: Pilgrim stockholders should call Pilgrim Investor Relations at 1-800-992-
0180 with any questions about the merger. You may also obtain additional
information about ReliaStar and Pilgrim from documents each company files
with the Securities and Exchange Commission by following the instructions in
the section "Where You Can Find More Information" beginning on page 41.
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<PAGE>
SUMMARY
The following is a summary of material information contained in this proxy
statement/prospectus. For more information, you should refer to the information
in the main body of this proxy statement/prospectus along with the exhibits and
the information incorporated by reference. A copy of the merger agreement is
attached as Exhibit A to this proxy statement/prospectus and incorporated by
reference. You should refer to that agreement for a complete statement of the
terms of the merger, because it is the legal document that governs the merger.
THE MERGER
Structure of the Merger. This proxy statement/prospectus relates to the
proposed merger of Pilgrim with Northstar Holding, Inc., a wholly owned
subsidiary of ReliaStar and the holding company for ReliaStar's mutual fund
operations. Northstar will be the surviving corporation in the merger and will
continue as a wholly owned subsidiary of ReliaStar.
Conversion of Shares. At the completion of the merger, each outstanding
share of Pilgrim common stock, other than shares held by persons who have
properly asserted statutory dissenters' rights under Delaware law, will be
converted into the right to receive $12.50 in cash and .50 of a share of
ReliaStar common stock, subject to possible adjustments discussed in the next
paragraph. ReliaStar will not issue fractional shares of ReliaStar common
stock. Instead, Pilgrim stockholders entitled to a fractional share will be
entitled to receive an amount in cash equal to the fraction times ReliaStar's
average share price during the five-day pricing period before the merger.
Possible Adjustments to Merger Consideration. There are two possible
adjustments to the consideration that you will receive in the merger. First, if
the assets under management for Pilgrim's family of mutual funds total less
than approximately $4.49 billion on the closing date of the merger, then the
merger consideration will be reduced based on a formula discussed in the main
body of this document. This adjustment recognizes the fact that the advisory
fees related to the funds' assets under management are the primary source of
Pilgrim's revenues. As of September 10, 1999, the assets under management
totaled $5.352 billion. Second, if ReliaStar's average share price exceeds $42
during the pricing period before closing, ReliaStar may elect to pay some or
all of the incremental portion of the higher purchase price in cash instead of
stock. That incremental cash portion is limited, however, in order to maintain
tax-free reorganization treatment for the merger. See pages 23-24 for
discussion and examples of these possible adjustments.
Federal Income Tax Consequences. The merger is intended to qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986. That means that Pilgrim stockholders would generally not
recognize gain or loss on the receipt of shares of ReliaStar common stock in
the merger. Payments of the cash portion of the merger consideration and cash
received in lieu of fractional shares generally would be taxable, however. You
are urged to consult with your tax adviser to determine the specific tax
consequences of the merger to you.
Dissenters' Rights in the Merger. Under Delaware law, each holder of shares
of Pilgrim common stock is entitled to object to the merger and to demand
payment for the holder's shares of Pilgrim common stock in cash if the holder
complies with strict statutory procedures. Please see "Dissenters' Rights"
beginning on page 31 for a discussion of these procedures. It is a condition to
completing the merger that holders of not more than 7.5% of Pilgrim's
outstanding common stock shall have asserted dissenters' rights.
Comparative Rights of Pilgrim Stockholders Before and After the Merger. Both
ReliaStar and Pilgrim are Delaware corporations. The rights of Pilgrim
stockholders are currently governed by Pilgrim's certificate of incorporation
and bylaws. After the completion of the merger, Pilgrim stockholders will
become stockholders of ReliaStar and their rights will then be governed by
ReliaStar's certificate of incorporation and bylaws. There
3
<PAGE>
are differences between the rights of Pilgrim stockholders and the rights of
ReliaStar stockholders. These differences include the additional anti-takeover
provisions contained in ReliaStar's certificate of incorporation and the fact
that ReliaStar has adopted a share rights plan whereas Pilgrim has not. Each of
these factors may have the effect of discouraging or delaying a change of
control of ReliaStar that is not approved by ReliaStar's board of directors.
Surrender of Share Certificates. Stockholders of Pilgrim should not
surrender their stock certificates until they receive transmittal materials,
which will be mailed following the completion of the merger.
THE MERGER AGREEMENT
Completion of the Merger. Subject to the conditions contained in the merger
agreement, ReliaStar and Pilgrim expect to complete the merger on or about
October 26, 1999.
Conditions to the Merger. The obligations of ReliaStar and Pilgrim to
complete the merger are subject to a number of conditions, including, among
others, that the merger agreement and the merger shall have been approved by
Pilgrim's stockholders and that the change of control of Pilgrim shall have
been approved by the stockholders of the Pilgrim family of mutual funds and a
limited number of institutional investors for whom Pilgrim acts as collateral
manager. Neither ReliaStar nor Pilgrim is aware of any regulatory approvals
that are necessary to consummate the merger that have not been obtained.
Termination Payments. If the merger agreement is terminated, the companies
have agreed to the following payments:
. If the agreement is terminated because Pilgrim's stockholders do not
approve the merger, or because Pilgrim's board of directors withdraws or
adversely modifies its recommendation of the merger, or because of a
material breach by Pilgrim, then
(1) Pilgrim has agreed to reimburse ReliaStar's expenses incurred in
connection with the merger, up to $2 million; and
(2) if, within one year of the termination date, a third party acquires
Pilgrim or a substantial portion of its stock or assets, then
Pilgrim has agreed to pay ReliaStar an additional $8 million.
. If the agreement is terminated because of a material breach by
ReliaStar, then ReliaStar has agreed to reimburse Pilgrim's expenses
incurred in connection with the merger, up to $2 million.
No Solicitation of Other Offers. In the merger agreement, Pilgrim has agreed
not to solicit or encourage offers for, or provide any confidential information
relating to, any acquisition of Pilgrim or of a substantial portion of its
assets, other than the merger with ReliaStar. However, Pilgrim may supply
information to third parties and cooperate or engage in discussions with third
parties relating to an acquisition transaction, but only if the third-party
offer is likely to be superior to ReliaStar's and the Pilgrim board of
directors is required by its fiduciary duties to take those actions.
Accounting Treatment. The merger will be accounted for under the "purchase"
method of accounting. That means that ReliaStar will record the excess of the
purchase price of Pilgrim over the fair market value of Pilgrim's assets as
goodwill.
RECOMMENDATION OF THE PILGRIM BOARD AND REASONS FOR THE MERGER
AFTER CAREFULLY EVALUATING BOTH POSITIVE AND NEGATIVE FACTORS RELATING TO
THE MERGER, THE BOARD OF DIRECTORS OF PILGRIM DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF PILGRIM AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT PILGRIM STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
4
<PAGE>
THE MERGER. The merger will provide you an opportunity for continued equity
participation in a larger, more diversified enterprise with increased aggregate
equity value and improved stockholder liquidity. This transaction will
capitalize on the tremendous value Pilgrim has built since 1995, and at the
same time permit you to continue your investment in Pilgrim's future as part of
a larger, more diverse financial services company with impressive resources and
vision. In reaching this determination, the Pilgrim board considered that the
price per share implied by the merger consideration, as of the last trading day
prior to the announcement of the merger, represents a premium of more than 19%
over the closing price of Pilgrim common stock that day and a premium of more
than 68% over the closing price on the 30th day before that announcement.
ADDITIONAL INTERESTS OF PILGRIM'S OFFICERS AND DIRECTORS IN THE MERGER
When considering the recommendation of Pilgrim's board, you should be aware
that certain Pilgrim directors and officers have interests in the merger that
are different from, or are in addition to, yours. These interests include:
. Robert W. Stallings, the Chairman and Chief Executive Officer of
Pilgrim, will be President and Chief Executive Officer of the combined
mutual fund organization after the merger.
. The other executive officers of Pilgrim will be executive officers of
the combined mutual fund organization after the merger.
. As of the record date, directors and executive officers of Pilgrim and
their affiliates beneficially own approximately 29.78% of the
outstanding Pilgrim shares.
FAIRNESS OPINION WITH RESPECT TO THE MERGER
In deciding to approve the merger, Pilgrim's board of directors considered
the July 22, 1999 opinion of its financial advisor, Putnam, Lovell, de
Guardiola & Thornton, Inc., that, on that date, the consideration to be paid by
ReliaStar in the merger is fair to the stockholders of Pilgrim, from a
financial point of view.
A COPY OF THE PUTNAM, LOVELL OPINION IS ATTACHED AS EXHIBIT B TO THIS PROXY
STATEMENT/PROSPECTUS. YOU SHOULD READ THE OPINION IN ITS ENTIRETY FOR
INFORMATION ON THE ASSUMPTIONS MADE, AND MATTERS CONSIDERED, BY PUTNAM LOVELL
IN RENDERING ITS OPINION.
THE COMPANIES
ReliaStar. ReliaStar Financial Corp. is a Minneapolis-based holding company
whose subsidiaries offer individuals and institutions life insurance and
annuities, employee benefits products and services, life and health
reinsurance, retirement plans, mutual funds, bank products, and personal
finance education. Based on revenues, ReliaStar is the 8th largest publicly
held life insurance holding company in the United States and at June 30, 1999,
had $24.0 billion in assets under management and life insurance in force of
$307.3 billion. When we refer to "ReliaStar" in this document, we are referring
to ReliaStar Financial Corp. and its subsidiaries as a whole, unless the
context requires otherwise.
ReliaStar's principal executive offices are located at 20 Washington Avenue
South, Minneapolis, Minnesota 55401, and its telephone number is (612) 372-
5432.
Pilgrim. Pilgrim Capital Corporation (formerly Pilgrim America Capital
Corporation) is a Phoenix-based holding company that, through its subsidiaries,
provides investment management and related services for mutual funds and
structured finance products. At June 30, 1999, Pilgrim managed over $5.2
billion in mutual fund assets and over $2.3 billion in structured finance
products. In this document, we use "Pilgrim" to refer to Pilgrim Capital
Corporation and its subsidiaries as a whole, unless the context otherwise
requires.
5
<PAGE>
Pilgrim's executive offices are located at 40 North Central Avenue, 12th
floor, Phoenix, Arizona 85004, and its telephone number is (602) 417-8100.
The Combined Company. ReliaStar is a diversified financial services company
that provides a variety of insurance and investment products and services.
ReliaStar's new mutual fund organization will have a family of 32 mutual funds
representing assets under management of approximately $12 billion and combined
annual sales of $2 billion. The merger presents new cross-selling opportunities
for the combined company such as ReliaStar's use of the Pilgrim family of
mutual funds in ReliaStar's equity-based products, including variable life
insurance, variable annuities, and 401(k) plans, in addition to selling the
funds as stand-alone products. ReliaStar's fixed and variable annuities and
401(k) plans will be marketed through Pilgrim's distribution channels.
THE PILGRIM CAPITAL CORPORATION SPECIAL MEETING
Date, Time, Place and Purpose of Pilgrim's Meeting
The special meeting of stockholders of Pilgrim will be held at 9:00 a.m.,
local time, on October 26, 1999 at Pilgrim's offices located at 40 North
Central Avenue, 12th floor, Phoenix, Arizona. At the meeting, stockholders at
the close of business on the record date of September 17, 1999 will be asked to
approve the merger agreement and the merger. No other business will be
conducted at the meeting.
Record Date and Outstanding Shares
Only holders of record of Pilgrim common stock at the close of business on
the record date are entitled to vote at the meeting. As of that time, there
were 5,088,077 shares of Pilgrim common stock outstanding and entitled to vote,
held of record by approximately 330 stockholders, although Pilgrim believes
that there are more than 2,000 beneficial owners of its common stock. Each
stockholder is entitled to one vote for each share of Pilgrim common stock held
as of the record date.
Quorum
The required quorum for the transaction of business at the meeting is a
majority of the shares of Pilgrim common stock outstanding on the record date.
Vote Required
The affirmative vote of a majority of the outstanding shares of Pilgrim
common stock is required to approve the merger agreement and the merger.
Share Ownership of Management and Certain Stockholders
On the record date, directors, executive officers and affiliates of Pilgrim
as a group beneficially owned 1,797,610 shares of Pilgrim common stock, or
approximately 29.78% of the outstanding shares on that date.
Abstentions; Broker Non-Votes
Abstentions will be included in determining the number of shares present and
voting at the meeting for purposes of a quorum, but will be deemed to be votes
against the merger. Broker non-votes will similarly count as votes against the
merger.
Expenses of Proxy Solicitation
Pilgrim will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Pilgrim and its agents also may solicit proxies by mail,
6
<PAGE>
telephone, telegraph or in person. Following the original mailing of the
proxies and other soliciting materials, Pilgrim will request brokers,
custodians, nominees and other record holders of common stock to forward copies
of the proxy and other soliciting materials to persons for whom they hold
shares of common stock and to request authority for the exercise of proxies.
Upon the request of the record holders, Pilgrim will reimburse them for their
reasonable expenses.
Voting of Proxies
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Pilgrim board of directors for use at the meeting. You are
requested to complete, date and sign the accompanying proxy and promptly return
it in the enclosed envelope or otherwise deliver it to Pilgrim. All properly
signed proxies received by Pilgrim prior to the vote at the meeting that are
not revoked will be voted at the meeting according to the instructions
indicated on the proxies or, if no direction is indicated, to approve the
merger agreement and the merger.
How to Revoke Your Proxy
You may revoke your proxy at any time before it is exercised at the meeting,
by taking any of the following actions:
. delivering to Pilgrim's Corporate Secretary, by any means, including
facsimile, a written notice, bearing a date later than the date of the
proxy, stating that the proxy is revoked,
. signing and delivering a proxy relating to the same shares and bearing a
later date, or
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the meeting, you must bring to
the meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
COMPARATIVE PER-SHARE MARKET DATA
To assist your analysis of the proposed merger, the following table lists
the closing prices per share for ReliaStar common stock and Pilgrim common
stock on July 22, 1999, which was the last trading day before the public
announcement of the merger, and on September 13, 1999. The table also lists for
those dates the equivalent per-share price for Pilgrim common stock, which
equals $12.50 plus the product of the closing share price of ReliaStar common
stock on the relevant date multiplied by .50. Please remember, however, that
the merger consideration is subject to possible adjustments and that the market
price of ReliaStar common stock will fluctuate. You should obtain a current
quote for ReliaStar common stock before voting or if you are considering
changing your vote.
<TABLE>
<CAPTION>
RELIASTAR PILGRIM PILGRIM
COMMON COMMON EQUIVALENT
STOCK STOCK PER-SHARE
--------- ------- ----------
<S> <C> <C> <C>
July 22, 1999...................................... $47.50 $29.94 $36.25
September 13, 1999................................. $43.50 $31.56 $34.25
</TABLE>
7
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
ReliaStar's selected historical financial data presented below as of and for
the five fiscal years ended December 31, 1998 are derived from the financial
statements of ReliaStar Financial Corp. and its subsidiaries. Data as of and
for the six-month periods ended June 30, 1999 and 1998 have been derived from
unaudited financial statements of ReliaStar. Interim operating results are not
necessarily indicative of the results that may be achieved for the entire year.
The following selected financial data should be read in conjunction with
ReliaStar's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q,
which are incorporated by reference in this proxy statement/prospectus.
RELIASTAR FINANCIAL CORP. AND SUBSIDIARIES
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Premiums................ $ 559.4 $ 492.3 $ 1,014.1 $ 887.9 $ 836.9 $ 851.5 $ 726.9
Net Investment Income... 559.6 548.7 1,116.9 1,006.3 929.6 884.3 613.4
Realized Investment
Gains (Losses)......... 1.6 17.5 17.6 11.7 11.2 4.9 (27.4)
Policy and Contract
Charges................ 221.8 202.7 427.6 332.9 245.9 218.5 136.2
Other Income............ 126.6 150.2 272.0 238.8 143.4 114.4 102.4
--------- --------- --------- --------- --------- --------- --------
Total Revenues......... 1,469.0 1,411.4 2,848.2 2,477.6 2,167.0 2,073.6 1,551.5
Benefits and Expenses... 1,246.2 1,187.9 2,447.1 2,122.7 1,866.1 1,816.7 1,391.5
Income Tax Expense...... 80.1 79.5 143.0 125.7 105.0 89.7 56.6
Dividends on Preferred
Securities of
Subsidiaries, Net of
Tax.................... 6.6 6.6 13.2 10.4 5.0 0.0 0.0
--------- --------- --------- --------- --------- --------- --------
Income from Continuing
Operations............. 136.1 137.4 244.9 218.8 190.9 167.2 103.4
Income (Loss) from
Discontinued
Operations,
Net of Tax............. 0.0 (3.4) (7.2) 3.2 2.1 (3.5) 1.7
--------- --------- --------- --------- --------- --------- --------
Net Income............. $ 136.1 $ 134.0 $ 237.7 $ 222.0 $ 193.0 $ 163.7 $ 105.1
========= ========= ========= ========= ========= ========= ========
Net Income Available to
Common Shareholders... $ 136.1 $ 134.0 $ 237.7 $ 222.0 $ 187.8 $ 155.4 $ 96.8
========= ========= ========= ========= ========= ========= ========
EARNINGS PER COMMON
SHARE:
Basic:
Income from Continuing
Operations............ $ 1.54 $ 1.51 $ 2.69 $ 2.55 $ 2.51 $ 2.19 $ 1.60
Income (Loss) from
Discontinued
Operations............ 0.00 (0.04) (0.08) 0.04 0.03 (0.05) 0.03
--------- --------- --------- --------- --------- --------- --------
Net Income............. $ 1.54 $ 1.47 $ 2.61 $ 2.59 $ 2.54 $ 2.14 $ 1.63
========= ========= ========= ========= ========= ========= ========
Diluted:
Income from Continuing
Operations............ $ 1.52 $ 1.48 $ 2.64 $ 2.51 $ 2.35 $ 2.04 $ 1.47
Income (Loss) from
Discontinued
Operations............ 0.00 (0.04) (0.08) 0.04 0.02 (0.05) 0.03
--------- --------- --------- --------- --------- --------- --------
Net Income............. $ 1.52 $ 1.44 $ 2.56 $ 2.55 $ 2.37 $ 1.99 $ 1.50
========= ========= ========= ========= ========= ========= ========
DIVIDENDS PAID PER
COMMON SHARE:.......... $ 0.390 $ 0.340 $ 0.710 $ 0.605 $ 0.545 $ 0.488 $ 0.438
BALANCE SHEET DATA (END
OF PERIOD):
Invested Assets......... $14,581.5 $14,626.4 $14,909.1 $14,420.5 $11,996.3 $11,814.2 $7,918.2
Other Assets............ 8,764.7 7,422.0 7,699.6 6,580.3 4,710.7 3,705.0 2,448.6
--------- --------- --------- --------- --------- --------- --------
Total Assets........... 23,346.2 22,048.4 22,608.7 21,000.8 16,707.0 15,519.2 10,366.8
Notes and Mortgages
Payable................ 615.7 647.9 509.4 593.5 407.5 422.3 194.6
Other Liabilities....... 20,593.0 19,006.1 19,736.8 18,154.4 14,760.9 13,676.8 9,373.7
--------- --------- --------- --------- --------- --------- --------
Total Liabilities...... 21,208.7 19,654.0 20,246.2 18,747.9 15,168.4 14,099.1 9,568.3
Trust-Originated
Preferred Securities... 242.5 242.1 242.3 241.9 120.9 0.0 0.0
Shareholders' Equity
Preferred.............. 0.0 0.0 0.0 0.0 0.0 68.7 67.9
Common................. 1,895.0 2,152.3 2,120.2 2,011.0 1,417.7 1,351.4 730.6
Book Value Per Common
Share.................. 21.91 23.56 23.86 22.24 17.71 17.44 11.35
</TABLE>
8
<PAGE>
Pilgrim's unaudited selected historical financial data as of and for the
five years ended December 31, 1998 and the six-month periods ended June 30,
1999 and 1998 are derived from the financial statements of Pilgrim Capital
Corporation and its subsidiaries. Interim operating results are not necessarily
indicative of the results that may be achieved for the entire year. This
selected financial data should be read in conjunction with Pilgrim's Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q, which are incorporated
by reference in this proxy statement/prospectus. Although Pilgrim uses
September 30 as a fiscal year-end, the following data are presented in
conformity with ReliaStar's December 31 year-end.
PILGRIM CAPITAL CORPORATION AND SUBSIDIARIES
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE
30, YEAR ENDED DECEMBER 31,
----------- ----------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenues................. $26.0 $22.0 $48.4 $24.2 $15.8 $ 9.7 $ 0.0
Expenses....................... 14.5 14.2 30.0 16.0 15.7 10.8 0.0
Income Tax Expense (Benefit)... 4.7 3.2 7.6 (3.8) (1.8) 0.0 0.0
Income (Loss) from Continuing
Operations.................... 6.8 4.6 10.8 12.0 1.9 (1.1) 0.0
Income (Loss) from Discontinued
Operations.................... 0.0 0.0 0.0 0.4 0.0 (4.4) (11.9)
----- ----- ----- ----- ----- ------ ------
Net Income (Loss)............ $ 6.8 $ 4.6 $10.8 $12.4 $ 1.9 $ (5.5) $(11.9)
===== ===== ===== ===== ===== ====== ======
Net Income (Loss) Available
to Common Shareholders...... $ 6.8 $ 4.6 $10.8 $12.4 $ 1.9 $ (5.5) $(11.9)
===== ===== ===== ===== ===== ====== ======
EARNINGS (LOSS) PER COMMON
SHARE:
Basic:
Income (Loss) from Continuing
Operations.................. $1.30 $0.80 $1.91 $2.07 $0.27 $(0.15) $ 0.00
Income (Loss) from
Discontinued Operations..... 0.00 0.0 0.0 0.07 0.0 (0.60) (1.51)
----- ----- ----- ----- ----- ------ ------
Net Income (Loss)............ $1.30 $0.80 $1.91 $2.14 $0.27 $(0.75) $(1.51)
===== ===== ===== ===== ===== ====== ======
Diluted:
Income (Loss) from Continuing
Operations.................. $1.13 $0.70 $1.67 $1.89 $0.27 $(0.15) $ 0.00
Income (Loss) from
Discontinued Operations..... 0.0 0.0 0.0 0.06 0.0 (0.60) (1.51)
----- ----- ----- ----- ----- ------ ------
Net Income (Loss)............ $1.13 $0.70 $1.67 $1.95 $0.27 $(0.75) $(1.51)
===== ===== ===== ===== ===== ====== ======
DIVIDENDS PAID PER COMMON
SHARE:........................ $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
BALANCE SHEET DATA (END OF
PERIOD):
Total Assets................... $89.4 $72.8 $62.4 $57.3 $43.1 $ 43.8 $ 89.1
Total Liabilities.............. 42.5 26.1 17.1 14.0 12.4 8.3 46.4
Preferred Stock................ 0.0 0.0 0.0 0.0 0.0 0.3 1.0
Shareholders' Equity Common.... 46.9 46.7 45.3 43.3 30.7 35.2 41.7
Book Value Per Common Share.... 8.97 8.12 8.04 7.46 4.44 4.80 5.30
</TABLE>
9
<PAGE>
COMPARATIVE UNAUDITED PER-SHARE DATA
The following tables present historical per-share data of ReliaStar and
Pilgrim and combined per-share data on an unaudited pro-forma basis after
giving effect to the merger. These data should be read in conjunction with the
selected historical financial data and the separate historical financial
statements of ReliaStar and Pilgrim and notes to those statements included
elsewhere or incorporated by reference in this proxy statement/prospectus. The
pro forma information is not necessarily indicative of the operating results or
financial position that would have occurred if the merger had been consummated
as of the beginning of the periods presented, nor is it necessarily indicative
of future operating results or financial position.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
--------------------- -----------------
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS PER
COMMON SHARE:
Basic:
Historical ReliaStar............... $1.54 $2.69
Historical Pilgrim................. 1.30 1.91
Pro Forma Combined................. 1.50 2.59
Pro Forma Equivalent for One Share
of Pilgrim Common Stock........... 1.20 2.07
Diluted:
Historical ReliaStar............... $1.52 $2.64
Historical Pilgrim................. 1.13 1.67
Pro Forma Combined................. 1.48 2.55
Pro Forma Equivalent for One Share
of Pilgrim Common Stock........... 1.18 2.03
Dividends Paid per Common Share:
Historical ReliaStar............... $0.39 $0.71
Historical Pilgrim................. -- --
Pro Forma Combined................. 0.39 0.71
Pro Forma Equivalent for One Share
of Pilgrim Common Stock........... .311 .566
<CAPTION>
BOOK VALUE PER
SHARE OF COMMON STOCK
JUNE 30, 1999
---------------------
<S> <C> <C>
Historical ReliaStar................... $21.91
Historical Pilgrim..................... 8.97
Pro Forma Combined..................... 22.61
Pro Forma Equivalent for One Share of
Pilgrim Common Stock.................. 18.03
</TABLE>
10
<PAGE>
SHARE PRICE AND DIVIDEND DATA
The common stock of each of ReliaStar and Pilgrim is listed and principally
traded on the New York Stock Exchange under the symbol "RLR" for ReliaStar and
"PFX" for Pilgrim.
The following table shows, for the calendar periods indicated, the reported
high and low sale prices on the New York Stock Exchange for ReliaStar common
stock and through January 5, 1999 on the Nasdaq National Market and since
January 6, 1999 on the New York Stock Exchange for Pilgrim common stock. The
table also shows historical dividend information for ReliaStar. Pilgrim has not
paid cash dividends on its common stock during the periods presented.
<TABLE>
<CAPTION>
PILGRIM
RELIASTAR COMMON
COMMON STOCK(1) STOCK(2)
---------------------- -------------
HIGH LOW DIVIDEND HIGH LOW
------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
1997:
First Quarter............................ $32.69 $27.00 $.140 $ 7.08 $ 4.58
Second Quarter........................... 36.75 28.63 .155 10.42 6.00
Third Quarter............................ 40.19 35.66 .155 13.83 9.33
Fourth Quarter........................... 41.56 33.63 .155 16.50 11.33
1998:
First Quarter............................ $48.75 $39.75 $.155 $23.25 $11.67
Second Quarter........................... 49.94 41.75 .185 27.00 14.67
Third Quarter............................ 52.44 36.44 .185 28.38 16.75
Fourth Quarter........................... 48.44 29.00 .185 25.00 12.88
1999:
First Quarter............................ $48.44 $39.56 $.185 $25.75 $19.00
Second Quarter........................... 43.94 34.88 .205 20.88 19.00
Third Quarter (through
September 13)........................... 49.81 41.81 .205 33.81 19.50
</TABLE>
- --------
(1) Adjusted to reflect a 2-for-1 stock split during September 1997.
(2) Adjusted to reflect a 3-for-2 stock split on May 1, 1998.
11
<PAGE>
RISK FACTORS
RISKS RELATING TO THE MERGER
Fixed Exchange Ratio May Limit the Value of ReliaStar Stock Received by
Pilgrim Stockholders
In the merger, each outstanding share of Pilgrim common stock will be
converted into the right to receive $12.50 in cash and 0.50 of a share of
ReliaStar common stock, subject to the possible adjustments discussed in the
next paragraph and elsewhere in this proxy statement/prospectus. There will be
no other adjustments of the exchange ratio based on fluctuations in the market
price of ReliaStar common stock. Consequently, the value of the ReliaStar
common stock that you expect to receive in the merger could vary from the date
that you submit your proxy until the consummation of the merger. You are urged
to obtain a current quotation for ReliaStar common stock before voting or if
you are considering changing your vote.
Because the Merger Consideration is Subject to Adjustment, the Tax
Consequences of the Merger to You May Be Altered and the Consideration You
Expect to Receive May Be Reduced
There are two possible adjustments to the consideration that you will
receive in the merger. The first adjustment is based on ReliaStar's average
share price over a five-day period shortly before the effective time of the
merger. This adjustment may change the allocation of the merger consideration
between cash and stock, which may affect the tax consequences of the merger to
you. The second adjustment is based on the assets under management of the
Pilgrim family of mutual funds as of the closing date of the merger. This
adjustment may reduce, but not increase, the consideration payable by ReliaStar
to you. Although the formula for determining this adjustment is listed in this
proxy statement/prospectus, the amount of any such adjustment will not be known
until after you submit your proxy or vote.
If ReliaStar and Pilgrim Cannot Effectively Integrate Their Operations, Then
Potential Benefits of the Merger May Not Be Realized
ReliaStar and Pilgrim will have to integrate Pilgrim's and Northstar's
mutual fund management teams, operations, distribution channels, and sales and
marketing efforts. If the companies are not successful in this integration,
then ReliaStar's anticipated benefits from this merger may not be realized.
RISKS RELATING TO RELIASTAR
Aggressive Competition in ReliaStar's Industry Could Adversely Affect Its
Earnings and Distribution Channels
Aggressive competition in insurance premiums or other product fees and
commissions could adversely affect ReliaStar's earnings and ability to retain
distributors. ReliaStar competes with the largest financial service companies
in the United States. Many of these companies are much larger and have more
resources than ReliaStar. The products sold by ReliaStar are similar to those
sold by its competitors. ReliaStar must compete to attract and retain customers
and distributors. Innovative products, strong support for distributors, and
excellent customer service are required to successfully compete in these
markets.
Changes in General Market Conditions Affect Sales of ReliaStar's Products and
May Reduce Its Revenues
The products sold by ReliaStar provide value to its customers, in part,
through crediting equity gains and losses and fixed-interest income. Changes in
the strength of the equity and fixed-income markets may make some products
unattractive to ReliaStar's customers and thus adversely affect ReliaStar's
sales. For example, ReliaStar has experienced a decline in new sales of fixed-
income products in the recent low-interest-rate environment.
Increased Levels of Policy Claims May Adversely Affect ReliaStar's Earnings
Many of ReliaStar's products provide customers with benefits in the event of
death or disability. It is not possible to predict with certainty when claims
will occur. If ReliaStar incurs more claims than expected in any
12
<PAGE>
period, its earnings will be adversely affected. ReliaStar maintains
reinsurance and other similar arrangements with many reinsurers in an attempt
to minimize fluctuations related to the incidence of claims.
A Downgrade of ReliaStar's Claims-Paying or Credit Ratings Could Reduce Its
Sales and Increase Its Costs of Borrowing
ReliaStar's insurance products and debt instruments are rated by a number
of public rating agencies. Favorable ratings are necessary to reach certain
customer markets. These ratings also affect ReliaStar's cost of borrowing. A
reduction in one or more ratings could adversely affect ReliaStar's sales or
the cost it pays to borrow. ReliaStar monitors its businesses and financial
condition in an effort to maintain the ratings required to achieve its
business objectives.
Changes in Legislation Regulating Financial Institutions Could Result in
ReliaStar Facing Stronger Competition
The United States Congress is considering legislation that would eliminate
many of the restrictions on affiliations among banks, insurance companies, and
brokers. Enactment of this or similar legislation could result in larger, more
diversified financial service companies that have more resources than
ReliaStar's current competitors, giving them a competitive advantage. The
impact of such legislation, if any, on ReliaStar's financial condition and
prospects cannot be predicted at this time.
The Insolvency of Unrelated Insurance Companies Could Subject ReliaStar to
Additional Costs
Through a system of state associations, the insurance industry maintains
guaranty funds to provide protection to customers if an insurer becomes
insolvent. These associations assess member insurers to provide benefits to
the customers of insolvent insurers. If one or more substantial insurance
companies become insolvent, ReliaStar's required contributions to these
guaranty funds could increase materially.
The Insurance Industry is Subject to Frequent Litigation, Which May Result in
Large Payments by Insurers
ReliaStar frequently is a party to litigation as a routine part of its
insurance business. Some cases seek large amounts of punitive damages or
damages on a class basis. Juries considering similar claims in a number of
jurisdictions have awarded large punitive damage awards against insurers.
Settlement of class actions have resulted in large payments by other insurers.
Although ReliaStar does not believe it will become liable for damages of that
type, the risk that such damages may be imposed is inherent in its business.
The Inability of Computer Systems to be Year 2000 Compliant Could Adversely
Affect ReliaStar's Operations
ReliaStar is dependant on many electronic data processing systems to
administer its business. Since 1995, ReliaStar has been working to ensure that
the arrival of the Year 2000 will not adversely affect its operations.
ReliaStar has modified and successfully tested all of its core business
applications and has determined that they are Year 2000 compliant. ReliaStar
has also made diligent inquiry of suppliers and vendors with which it does
business to assure that these companies are fully prepared. ReliaStar believes
that it and its key suppliers are compliant and does not expect any
interruptions in services or operations. An unanticipated failure of a major
operating system, however, could have a material adverse affect on ReliaStar.
Although ReliaStar has contingency plans in place, it is not reasonably
possible to develop contingency plans that would comprehensively address a
widespread system failure.
13
<PAGE>
GENERAL INFORMATION
Pilgrim is delivering this proxy statement/prospectus to you and other
Pilgrim stockholders in connection with the solicitation of proxies by the
Pilgrim board of directors for use at the special meeting to be held on October
26, 1999, and at any adjournments or postponements of that meeting. The special
meeting has been called for the purpose of voting upon a proposal to approve
the merger agreement and the merger. This proxy statement/prospectus also
constitutes the prospectus of ReliaStar with respect to shares of ReliaStar
common stock to be issued in the merger.
The merger will be accomplished by a merger of Pilgrim with Northstar
Holding, Inc., a wholly owned subsidiary of ReliaStar and the holding company
for ReliaStar's mutual fund operations. Northstar will be the surviving
corporation in the merger and will continue as a wholly owned subsidiary of
ReliaStar. ReliaStar's combined mutual fund organization will have a family of
32 mutual funds representing assets under management of approximately $12
billion and combined annual sales of $2 billion.
In the merger, all the outstanding shares of Pilgrim common stock will be
converted into the right to receive cash and shares of ReliaStar common stock.
ReliaStar stockholders will continue to hold their shares of ReliaStar common
stock, without any change.
Date, Time, Place and Purpose of Pilgrim's Meeting
The special meeting of stockholders of Pilgrim will be held at 9:00 a.m.,
local time, on October 26, 1999 at Pilgrim's offices located at 40 North
Central Avenue, 12th floor, Phoenix, Arizona. At the meeting, stockholders at
the close of business on the record date of September 17, 1999 will be asked to
approve the merger agreement and the merger. No other business will be
conducted at the meeting.
Record Date and Outstanding Shares
Only holders of record of Pilgrim common stock at the close of business on
the record date are entitled to vote at the meeting. As of that time, there
were 5,088,077 shares of Pilgrim common stock outstanding and entitled to vote,
held of record by approximately 330 stockholders, although Pilgrim believes
that there are more than 2,000 beneficial owners of its common stock. Each
stockholder is entitled to one vote for each share of Pilgrim common stock held
as of the record date.
Quorum
The required quorum for the transaction of business at the meeting is a
majority of the shares of Pilgrim common stock outstanding on the record date.
Vote Required
The affirmative vote of a majority of the outstanding shares of Pilgrim
common stock is required to approve the merger agreement and the merger.
Share Ownership of Management and Certain Stockholders
On the record date, directors, executive officers and affiliates of Pilgrim
as a group beneficially owned 1,797,610 shares of Pilgrim common stock, or
approximately 29.78% of the outstanding share on that date.
Abstentions; Broker Non-Votes
Abstentions will be included in determining the number of shares present and
voting at the meeting for purposes of a quorum, but will be deemed to be votes
against the merger. Broker non-votes will similarly count as votes against the
merger.
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Expenses of Proxy Solicitation
Pilgrim will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Pilgrim and its agents also may solicit proxies by mail, telephone,
telegraph or in person. Following the original mailing of the proxies and other
soliciting materials, Pilgrim will request brokers, custodians, nominees and
other record holders of common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of common stock and
to request authority for the exercise of proxies. Upon the request of the
record holders, Pilgrim will reimburse them for their reasonable expenses.
Voting of Proxies
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Pilgrim board of directors for use at the meeting. You are
requested to complete, date and sign the accompanying proxy and promptly return
it in the enclosed envelope or otherwise deliver it to Pilgrim. All properly
signed proxies received by Pilgrim prior to the vote at the meeting that are
not revoked will be voted at the meeting according to the instructions
indicated on the proxies or, if no direction is indicated, to approve the
merger agreement and the merger.
How to Revoke Your Proxy
You may revoke your proxy at any time before it is exercised at the meeting,
by taking any of the following actions:
. delivering to Pilgrim's Corporate Secretary, by any means, including
facsimile, a written notice, bearing a date later than the date of the
proxy, stating that the proxy is revoked,
. signing and delivering a proxy relating to the same shares and bearing a
later date, or
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the meeting, you must bring to
the meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
BACKGROUND OF THE MERGER
Pilgrim began providing investment management and distribution services to
three open-end funds and two closed-end funds in April 1995 when it acquired
assets of Pilgrim Group, Inc., an investment management company that was not
affiliated with Pilgrim. Since that acquisition, in order to maximize long-term
value for its stockholders, Pilgrim has reviewed a variety of strategies to
increase the number of mutual funds it manages and to increase the channels
through which its mutual funds are distributed. Late in 1997, Pilgrim hired
Putnam, Lovell, de Guardiola & Thornton, Inc. to assist Pilgrim in identifying
potential acquisitions of mutual fund management companies and potential
partnerships, alliances or other business combinations that would permit it to
expand the network through which Pilgrim mutual funds are distributed.
During 1998, Putnam Lovell distributed information packages regarding
Pilgrim to a number of third parties, including ReliaStar. None of these
contacts resulted in Pilgrim's receipt of a proposal concerning a transaction.
By the end of December 1998, the term of Pilgrim's engagement of Putnam Lovell
ended until it was reengaged in May 1999.
Near the end of 1998, Putnam Lovell approached Pilgrim with a potential
transaction between Pilgrim and Nicholas-Applegate Capital Management, Inc. In
January 1999, Pilgrim and Nicholas-Applegate entered into an agreement pursuant
to which Pilgrim acquired the rights to manage and distribute 11 open-end
retail Nicholas-Applegate mutual funds with net assets totaling $1.4 billion.
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<PAGE>
In early 1999, ReliaStar advised Pilgrim that it had hired Merrill Lynch &
Co. to evaluate a potential transaction involving Northstar and Pilgrim. During
the week of January 22, 1999, Robert W. Stallings and other officers of Pilgrim
met with Mark Lipson, Chief Executive Officer of Northstar, to explore and
discuss possible transactions between the two companies. On January 29, 1999,
Mr. Stallings advised Mr. Lipson that Pilgrim's board of directors had
authorized Pilgrim to consummate the transaction with Nicholas-Applegate and
that Pilgrim was terminating discussions with ReliaStar.
In late April 1999, Merrill Lynch approached Putnam Lovell to propose a
potential business combination between ReliaStar and Pilgrim. Putnam Lovell
advised Merrill Lynch that Putnam Lovell was not currently engaged by Pilgrim
and was representing Nicholas-Applegate in connection with Pilgrim's
acquisition of the rights to manage and distribute certain Nicholas-Applegate
funds. Shortly after the consummation of the transaction with Nicholas-
Applegate, Pilgrim hired Putnam Lovell to advise it in connection with the
proposal ReliaStar had made through Merrill Lynch.
Putnam Lovell provided Merrill Lynch with confidential information
pertaining to Pilgrim. On June 3, 1999, a meeting was held between senior
management of Pilgrim and ReliaStar to discuss the potential combined
operations of Pilgrim and Northstar. During June 1999, senior management of the
two companies discussed various business, financial, operational and technical
issues involved in combining Pilgrim and Northstar, and Putnam Lovell and
Merrill Lynch discussed financial points of the proposed combination.
Through Merrill Lynch, ReliaStar presented Pilgrim with a written non-
binding indication of terms for the proposed acquisition on June 23. Merrill
Lynch and Putnam Lovell exchanged drafts and negotiated terms on a daily basis
over the following week.
On July 12, 1999, the Pilgrim board met to discuss ReliaStar's proposal to
acquire Pilgrim. On that day, ReliaStar's closing share price was $45.06, and
Pilgrim's was $22.19. Senior management of Pilgrim described ReliaStar's
proposal to the board, and Pilgrim's legal counsel made a presentation covering
the board's legal duties in connection with its consideration of the proposed
merger. Mr. de Guardiola of Putnam Lovell made a presentation to the board
concerning the process undertaken by Pilgrim management and Putnam Lovell to
negotiate the financial terms of the proposed merger. Putnam Lovell informed
the board that the merger consideration proposed by ReliaStar was fair from a
financial point of view, to Pilgrim and its stockholders. Mr. de Guardiola
informed the board that over the prior two years Putnam Lovell had previously
contacted most of the potential acquirors of Pilgrim which Putnam Lovell had
identified. Mr. de Guardiola concluded his discussion by advising the board
that, from a financial point of view, the proposed merger would be in Pilgrim's
and its stockholders' best interest and noted that in addition to cash the
Pilgrim stockholders would receive stock in a larger, better financed, and more
diversified company.
From June 23, 1999, until the announcement of the merger, ReliaStar and its
legal and financial advisors conducted a legal, business and financial due
diligence review of Pilgrim, and Pilgrim and its legal, business and financial
advisors conducted a due diligence review of ReliaStar and its investment
management business. In addition, Pilgrim advised the boards of directors of
the Pilgrim funds of ReliaStar's proposal and arranged for those boards of
directors to engage independent legal counsel to advise the boards in the event
that Pilgrim accepted ReliaStar's merger proposal. On July 16, 1999,
ReliaStar's legal counsel sent Pilgrim's legal counsel a proposed form of
merger agreement. On that date, ReliaStar's closing share price was $49.25, and
Pilgrim's was $24.19. The terms of the merger agreement were negotiated by the
parties from July 16 to July 21, 1999.
On July 21, the Pilgrim board held a special meeting to discuss the status
of negotiations with ReliaStar. At the meeting, Pilgrim's counsel explained to
the board the terms of ReliaStar's proposal. Putnam Lovell presented its
financial analysis of the proposal and orally confirmed to the Pilgrim board
that it was prepared to deliver its opinion as to the fairness of the merger
consideration to be received by Pilgrim's stockholders from a financial point
of view. After discussion, the board adjourned its meeting to the following
day. On July 21, ReliaStar's closing share price was $47.94, and Pilgrim's was
$27.25. On July 22, 1999, the board reconvened and received reports from its
legal and financial advisers regarding the final negotiated terms of the
proposed
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<PAGE>
merger. Putnam Lovell delivered to the Pilgrim board its written opinion that,
based upon the assumptions made, matters considered and limitations on its
review expressed therein, the merger consideration to be paid by ReliaStar in
the merger was fair, from a financial point of view, to the stockholders of
Pilgrim. The Pilgrim board unanimously approved the final terms of the merger
agreement and determined to recommend that the merger agreement be approved and
adopted and the merger be approved by the stockholders of Pilgrim. On July 22,
ReliaStar's closing share price was $47.50, and Pilgrim's was $29.94.
During the afternoon of July 22, 1999, the parties executed the merger
agreement. Immediately thereafter, the companies publicly announced their
agreement to merge.
PILGRIM'S REASONS FOR THE MERGER
AND RECOMMENDATION OF THE PILGRIM BOARD OF DIRECTORS
PILGRIM'S REASONS FOR THE MERGER
Pilgrim's board sought a transaction that would give maximum value to
Pilgrim's stockholders. The board believes that the merger maximizes the value
of Pilgrim's stockholders' investment and is in the best interest of Pilgrim
and its stockholders because the board believes that the long-term value and
liquidity of ReliaStar common stock to be received in the merger will be
superior to Pilgrim common stock as a stand-alone company. The board also
considered that the price per share implied by the merger consideration
represents a premium of 19% to the closing price of the Pilgrim common stock on
the day before the merger agreement was signed and a premium of 68% to the
closing price per share one month earlier. The board's decision to approve the
merger and recommend that Pilgrim's stockholders adopt it was based upon
various additional material factors, including the following:
. the judgment, advice and analyses of Pilgrim's senior management,
including its favorable recommendation of the merger;
. the board's knowledge of Pilgrim's business, operations, financial
condition, results of operations, competitive position and prospects and
the nature of the industry in which Pilgrim operates, both on a
historical and prospective basis, and the influence of current industry,
general economic and market conditions;
. the board's consideration of the increased competition and consolidation
in the investment management industry, and its conclusion that the
combined investment management businesses of Pilgrim and ReliaStar would
produce a much stronger market competitor than Pilgrim on a stand-alone
basis;
. the board's conclusion that the larger combined business enterprise
resulting from the merger, with the experience of both ReliaStar's and
Pilgrim's management teams, would be better able to realize the full
potential of the investment management experience of Pilgrim's
employee's than could be accomplished in a similar time frame with
Pilgrim as a stand-alone entity;
. the board's consideration of its discussion with Putnam Lovell on July
12 and Putnam Lovell's presentations to the board on July 21 and July
22, including Putnam Lovell's opinion delivered to the board on July 22
that, based upon and subject to the various conditions set forth in its
opinion, the merger consideration is fair from a financial point of view
to Pilgrim's stockholders;
. the board's conclusion that the merger would give Pilgrim stockholders
the opportunity to continue to participate as equity owners in a larger,
more diversified enterprise with a market value far greater than
Pilgrim's market value, including increased liquidity compared to that
of Pilgrim common stock;
. the board's understanding based upon information furnished to it that
the merger would likely be accretive to the per share earnings of
ReliaStar in 2000 and later years;
. the impact of the merger on Pilgrim's employees, including the
potentially greater opportunities for its employees in the ReliaStar
enterprise;
17
<PAGE>
. that the merger will be accomplished on a tax-free basis to Pilgrim's
stockholders for United States federal income tax purposes, except for
the cash portion of the merger consideration that they will receive; and
. the ability of Pilgrim and ReliaStar to complete the merger without
significant delay or significant disruption to their respective
investment management businesses during the pendency of the merger.
The Pilgrim board also considered a number of potentially negative factors
in its deliberations concerning the merger, including:
. the risk that the merger might not be consummated;
. the potential loss of revenues and business opportunities for Pilgrim if
independent brokers and dealers cease marketing Pilgrim's funds as a
result of confusion in the marketplace after the announcement of the
merger, and the possible exploitation of such confusion by competitors
of Pilgrim and ReliaStar;
. the possibility of management disruption associated with the merger and
integrating the operations of Pilgrim with those of Northstar, and the
risk that, despite the efforts of the combined company, key management
and technical personnel of Pilgrim might not continue with the combined
company; and
. the risk that the benefits sought to be achieved by the merger will not
be realized.
RECOMMENDATION OF PILGRIM'S BOARD OF DIRECTORS
AFTER CAREFULLY EVALUATING THESE FACTORS, BOTH POSITIVE AND NEGATIVE, THE
BOARD OF DIRECTORS OF PILGRIM HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF PILGRIM AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
PILGRIM STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND OF THE
MERGER.
In considering the recommendation of the Pilgrim board of directors with
respect to the merger, you should be aware that certain directors and officers
of Pilgrim have certain interests in the merger that are different from, or are
in addition to the interests of Pilgrim stockholders generally. Please see the
section entitled "The Merger--Interests of Certain Persons in the Merger"
beginning on page 27 for a discussion of these interests.
RELIASTAR'S REASONS FOR THE MERGER
The acquisition of Pilgrim represents an opportunity to strengthen
ReliaStar's presence in the mutual fund marketplace and expand its product
line. This acquisition will help achieve economies of scale in the mutual fund
business, putting ReliaStar in a stronger position to attract and retain
assets, afford top asset-management talent, reduce unit costs, and increase
profitability from the mutual fund business. ReliaStar views Pilgrim as an
attractive acquisition because of Pilgrim's complementary funds and
distribution, its strong asset managers and product performance, and its
experienced management team.
OPINION OF PILGRIM'S FINANCIAL ADVISOR
Pilgrim retained Putnam Lovell in May 1999 to render financial advisory and
investment banking services to Pilgrim in connection with potential business
combination transactions.
Putnam Lovell is an investment banking firm focused primarily on the
investment management industry and, as part of its business, is continually
engaged in the valuation of investment management businesses and their
securities in connection with mergers and acquisitions, distributions of
securities and similar activities. Putnam Lovell was selected on the basis of
its experience and expertise. Putnam Lovell acted as financial advisor to
Pilgrim in connection with, and participated in certain of the negotiations
leading to, the execution of the merger agreement.
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<PAGE>
On July 21, 1999, Putnam, Lovell, de Guardiola and Thornton, Inc., delivered
its oral opinion to the Pilgrim board, which was subsequently confirmed by its
written opinion dated July 22, 1999, that as of that date and based on and
subject to the assumptions made, matters considered and limitations on the
review set forth in the opinion, the merger consideration to be paid by
ReliaStar in the merger was fair, from a financial point of view, to the
stockholders of Pilgrim. No limitations were imposed by the Pilgrim board on
Putnam Lovell, with respect to the investigations made or procedures followed
by it in furnishing its opinion. The merger consideration was determined
through negotiations between the managements of Pilgrim and ReliaStar. Putnam
Lovell was not requested to, and did not, solicit from third parties proposals
for transactions that would be alternatives to the merger and, as of the date
hereof, no such proposals have been received.
The full text of Putnam Lovell's opinion, which sets forth among other
things, assumptions made, matters considered and limitations on the review
undertaken, is attached as Exhibit B and is incorporated in this
prospectus/proxy statement by reference. Stockholders of Pilgrim are urged to
read Putnam Lovell's opinion in its entirety. Putnam Lovell's opinion was
prepared at the request and for the use of the Pilgrim board in its
consideration of the merger and does not constitute a recommendation to
stockholders of Pilgrim as to how they should vote upon or take any other
action with respect to the merger. Putnam Lovell's opinion is limited to
whether the merger consideration to be paid by ReliaStar in the merger was
fair, from a financial point of view, to the stockholders of Pilgrim.
Putnam Lovell's opinion does not address:
. the value of any employee agreements or other arrangements entered into
in connection with the merger;
. any tax or other consequences that might result from the merger; or
. the price at which the shares of ReliaStar common stock that are issued
in the merger may be traded in the future.
Putnam Lovell's opinion does not address the relative merits of the merger
and any other business combination or strategy that the Pilgrim board has
considered or may be considering or the decision of the Pilgrim board to
proceed with the merger.
In connection with the preparation of its opinion, Putnam Lovell, among
other things:
. reviewed certain publicly available historical audited and unaudited
financial statements and other information regarding Pilgrim and
ReliaStar;
. reviewed pro forma historical financial statements, operating data and
other information regarding Pilgrim and its subsidiaries prepared by the
management of Pilgrim;
. reviewed certain internal financial analyses and projections of Pilgrim
and its subsidiaries and of the investment management business of
ReliaStar prepared by the management of Pilgrim and ReliaStar,
respectively;
. reviewed certain other information furnished by Pilgrim for purposes of
Putnam Lovell's analyses, including cost savings and related expenses
expected to result from this transaction;
. compared the results of operations of Pilgrim with those of certain
public and private companies that Putnam Lovell deemed to be reasonably
comparable to Pilgrim;
. compared the proposed financial terms of the merger with the financial
terms of certain other recent transactions that Putnam Lovell deemed to
be relevant;
. reviewed a draft dated July 20, 1999 of the merger agreement;
. conducted discussions with members of the management of Pilgrim and
ReliaStar to discuss the foregoing, as well as other matters Putnam
Lovell believed relevant to its inquiry; and
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<PAGE>
. performed such other analyses and examinations and considered such other
factors as Putnam Lovell deemed appropriate.
In preparing its opinion, Putnam Lovell assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information supplied or otherwise made available to it from public
sources or by Pilgrim and ReliaStar and did not independently verify such
information. It neither obtained nor performed any independent valuation or
appraisal of Pilgrim's assets or liabilities or ReliaStar's investment
management business. It assumed that the financial projections and forecasts of
Pilgrim and of ReliaStar's investment management business provided to it by
Pilgrim and ReliaStar, respectively, were reasonably prepared and reflected the
best currently available estimates and good faith judgments of the senior
management of Pilgrim and ReliaStar as to the future competitive, operating and
regulatory environments and related financial performance of the investment
management business of ReliaStar and Pilgrim, and that such forecasts will be
realized in the amounts and at the times contemplated thereby. Putnam Lovell
did not undertake any independent analysis to verify the reasonableness of the
assumptions underlying those forecasts. Its opinion was necessarily based on
economic, market and other conditions as in effect on, and the information and
agreements (or drafts of agreements) made available to it as of, the date of
its opinion.
Set forth below is a brief summary of certain of the significant analyses
performed by Putnam Lovell, and presented to the Pilgrim board, in connection
with its opinion that the merger consideration to be paid by ReliaStar in the
merger was fair, from a financial point of view, to the stockholders of
Pilgrim.
COMPARISON WITH SELECTED PUBLIC INVESTMENT MANAGEMENT COMPANIES
Putnam Lovell reviewed and compared certain past and present financial
operating and market statistics of six publicly traded investment managers with
assets under management ("AUM") ranging from approximately $16 billion to $115
billion. The group included Eaton Vance Corp., Federated Investors, Inc.,
Gabelli Asset Management, Inc., The John Nuveen Company, Phoenix Investment
Partners, Ltd., and Waddell & Reed Financial, Inc. These companies were chosen
for purposes of this analysis because they are engaged in businesses
substantially similar to those of Pilgrim. However, all of the companies in
this group are substantially larger than Pilgrim in terms of assets under
management and have a more diversified product mix of mutual fund assets.
Putnam Lovell included Pilgrim in the peer group for comparison purposes. The
following table illustrates a going concern valuation (defined as the sum of
market capitalization, plus short and long-term debt, less excess cash and
investments) comparison based on AUM, net income, and earnings before interest,
taxes, depreciation and amortization ("EBITDA"), latest twelve months data
through March 31, 1999 ("LTM"), and market data as of July 9, 1999.
<TABLE>
<CAPTION>
3/31/99 3/31/99 3/31/99
ENTERPRISE 3/31/99 LTM LTM NET
VALUE AUM EBITDA INCOME
------------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Eaton Vance Corporation (NYSE: EV)...... $1,289 3.5% nm nm
Federated Investors, Inc. (NYSE: FII)... $1,371 1.2% 5.8x 13.9x
Gabelli Asset Management Inc. (NYSE:
GBL)................................... $ 404 2.5% 8.1x 14.0x
Phoenix Investment Partners, Ltd. (NYSE:
PXP)................................... $ 709 1.2% 9.1x 27.1x
The John Nuveen Company (NYSE: JNC)..... $1,154 2.0% 7.6x 13.2x
Waddell & Reed Financial, Inc. (NYSE:
WDR)................................... $1,575 5.6% 11.3x 18.2x
Pilgrim Capital Corp. (NYSE: PFX)....... $ 127 1.6% 5.0x 10.8x
RELIASTAR PROPOSAL*................... $ 263 4.6% 10.3X 21.5X
</TABLE>
- --------
Market data as of July 9, 1999.
*Assumes a ReliaStar share price of $42 per share and approximately $58 million
of Pilgrim debt which includes current debt and an estimate of future debt
based on projected operating cash flow requirements and payments resulting
from consummation of the merger.
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The terms of the merger implied a going concern value for Pilgrim of $263
million, which represents 4.6% of Pilgrim's assets under management at March
31, 1999, 10.3x LTM EBITDA and 21.5x LTM net income.
COMPARISON WITH RECENT ACQUISITIONS OF INVESTMENT MANAGEMENT COMPANIES
Putnam Lovell compared the financial performance of Pilgrim to that of a
group of eight selected investment management companies which were involved in
merger or acquisition transactions since January 1997 and for purposes of this
analysis may be considered similar to Pilgrim. The transactions included
(acquiror/acquiree): Credit Suisse Asset Management/Warburg Pincus Asset
Management; Conning Corporation/High Grade Fixed Income Group of TCW Group;
Phoenix Investment Partners, Ltd./Zweig Funds; AMVESCAP plc/LGT Asset
Management; Mellon Bank Corporation/Founders Asset Management; Phoenix
Investment Partners, Ltd./Roger Engemann & Associates; Phoenix Investment
Partners, Ltd./GMG/Seneca Capital Management; Lincoln National
Corporation/Voyageur Funds. To the extent data were available, Putnam Lovell
compared the acquisition price paid in each of these transactions, and the
multiple of that price represented by assets under management, run-rate
management and administration fees, and run-rate EBITDA for those transactions
and compared the valuations implied by those transactions to corresponding
information for the merger based on run-rate calculations as of June 30, 1999
and going concern valuation of ReliaStar as of July 9, 1999.
The following table shows the valuations implied by the transactions
reviewed by Putnam Lovell and that implied the proposed merger with ReliaStar.
<TABLE>
<CAPTION>
IMPLIED IMPLIED
VALUATION: VALUATION:
OTHER REVIEWED RELIASTAR
MEASUREMENT TRANSACTIONS PROPOSAL
- ----------- ----------------- ----------
HIGH LOW MEDIAN
---- --- ------
<S> <C> <C> <C> <C>
As a percentage of assets under management....... 3.5% 1.6% 2.5% 3.3%
As a multiple of run-rate management and
administration fees............................. 5.6x 2.2x 3.8x 5.2x
As a multiple of run-rate EBITDA................. 11.3x 8.0x 8.8x 8.9x
</TABLE>
While this summary describes the material analyses and factors that Putnam
Lovell considered in rendering its opinion to the Pilgrim board, it is not a
complete description of all analyses and factors considered by Putnam Lovell.
The preparation of a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances. Therefore, such an opinion is not readily susceptible to partial
analysis or summary description. In arriving at its opinion, Putnam Lovell did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Putnam Lovell believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
any of the factors considered by it, without considering all analyses and
factors, could create a misleading or incomplete view of the evaluation process
underlying its opinion. Several analytical methodologies were employed and no
one method of analysis should be regarded as critical to the overall conclusion
reached by Putnam Lovell. Each analytical technique has inherent strengths and
weaknesses, and the nature of the available information may further affect the
value of particular techniques. The conclusion reached by Putnam Lovell is
based on all analyses and factors taken as a whole and also on application of
Putnam Lovell's own experience and judgment. This conclusion may involve
significant elements of subjective judgment and qualitative analysis. Putnam
Lovell therefore gives no opinion as to the value or merit standing alone of
any one or more parts of the analysis it performed.
In performing its analyses, Putnam Lovell made numerous assumptions with
respect to industry performance, general business and other conditions and
matters which are beyond the control of Pilgrim or Putnam Lovell. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by these analyses. Accordingly, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which these businesses actually may be sold in the
future, and these estimates are inherently subject to uncertainty.
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Pursuant to the terms of Putnam Lovell's engagement, Pilgrim will pay Putnam
Lovell a transaction fee of approximately $2.8 million upon consummation of the
merger. Pilgrim has also agreed to reimburse Putnam Lovell for its out-of-
pocket expenses and to indemnify and hold harmless Putnam Lovell and its
affiliates and any other person, director, employee or agent of Putnam Lovell
or any of its affiliates, or any person controlling Putnam Lovell or its
affiliates, for certain losses, claims, damages, expenses and liabilities
relating to or arising out of services provided by Putnam Lovell as a financial
advisor to Pilgrim, including, without limitation, any liability arising out of
rendering its fairness opinion. The terms of Putnam Lovell's engagement, which
Pilgrim and Putnam Lovell believe are customary in transactions of this nature,
were negotiated at arm's length between Pilgrim and Putnam Lovell. The
executive committee of Pilgrim's board, comprised of four of the six directors,
was aware of the terms of Putnam Lovell's engagement. Putnam Lovell was
retained on the basis of its experience and expertise as a financial advisor in
connection with mergers and acquisitions and in securities valuations
generally, as well as its investment banking relationship and familiarity with
Pilgrim. Putnam Lovell has provided financial advisory and investment banking
services to Pilgrim from time to time since 1997 and has received fees for
those services totaling $150,000 since 1997.
THE MERGER
The following is a summary of the material terms of the merger agreement, a
complete copy of which is attached as Exhibit A to this proxy
statement/prospectus and incorporated by reference. The merger agreement is the
legal document that governs the merger; you are urged to review the agreement
in its entirety.
MERGER CONSIDERATION
General. Upon the completion of the merger, each outstanding share of
Pilgrim common stock will be converted, without any action on the part of the
stockholder, into the right to receive $12.50 in cash and .50 of a share of
ReliaStar common stock, subject to the possible adjustments discussed below.
ReliaStar will pay cash in lieu of the issuance of any fractional shares of
ReliaStar common stock in the amount of the fraction times ReliaStar's average
share price during the pricing period before the merger, rounded to the nearest
cent. The "pricing period" before closing of the merger refers to the period of
five trading days that ends on the fourth trading day before closing.
The following table presents, for certain possible average prices per share
of ReliaStar common stock during the pricing period, the value of the
consideration to be received by Pilgrim stockholders in exchange for each share
of Pilgrim common stock exchanged in the merger. The ReliaStar share prices are
for illustration only; ReliaStar's common stock may trade above or below the
range set forth below. You should obtain a current stock quote for more
accurate information. There is no provision in the merger agreement that would
allow either Pilgrim to terminate the agreement if ReliaStar's average share
price falls below a certain level or ReliaStar to terminate the agreement if
its average share price rises above a certain level. The table assumes that
ReliaStar's stock price as of the consummation of the merger equals the average
price.
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<TABLE>
<CAPTION>
RELIASTAR AVERAGE VALUE OF STOCK VALUE OF TOTAL
SHARE PRICE CASH CONSIDERATION CONSIDERATION CONSIDERATION
----------------- ------------------ -------------- --------------
<S> <C> <C> <C>
$50.00 $16.50* $21.00* $37.50
49.00 16.00* 21.00* 37.00
48.00 15.50* 21.00* 36.50
47.00 15.00* 21.00* 36.00
46.00 14.50* 21.00* 35.50
45.00 14.00* 21.00* 35.00
44.00 13.50* 21.00* 34.50
43.00 13.00* 21.00* 34.00
42.00 12.50 21.00 33.50
41.00 12.50 20.50 33.00
40.00 12.50 20.00 32.50
39.00 12.50 19.50 32.00
38.00 12.50 19.00 31.50
37.00 12.50 18.50 31.00
36.00 12.50 18.00 30.50
</TABLE>
- --------
* As discussed below, if ReliaStar's average per-share closing price during the
pricing period before closing exceeds $42, then ReliaStar may elect to pay
some or all of the incremental portion of the higher purchase price in cash
rather than ReliaStar stock. The presentation in the table assumes that
ReliaStar makes such an election to the full extent.
Possible Adjustments. There are two possible adjustments to the
consideration that you will receive in the merger. Although the formulas for
determining the adjustments are contained in the merger agreement and
summarized in this section, the calculation of the adjustments, if any, will be
made using information that will not be fully available until shortly before or
after the special meeting.
The first possible adjustment is reflected in the table above. If
ReliaStar's average per-share closing price during the pricing period before
closing exceeds $42, then ReliaStar may elect to pay some or all of the
incremental portion of the higher purchase price in cash rather than ReliaStar
stock. Although this adjustment will not affect the total dollar value of the
consideration that you will receive in the merger, it would affect the
allocation of that consideration between cash and stock. Because the receipt of
shares of ReliaStar common stock in the merger will generally be non-taxable,
and because the receipt of cash in the merger will generally be taxable, you
may consider any reallocation important to your financial and tax-planning
situations.
The second possible adjustment could reduce, but not increase, the total
dollar value of the consideration that you receive in the merger. This
adjustment recognizes the fact that the advisory fees generated by the funds'
assets under management are the primary source of Pilgrim's revenues. If the
total of the assets under management for the Pilgrim family of mutual funds at
the completion of the merger is less than 85% of the "base amount" of
$5,277,627,234, excluding any changes in assets under management relating
solely to changes in market value of the funds' portfolio securities, then the
merger consideration will be reduced based on the following formula:
. the merger consideration will be reduced on a one-for-one percentage
basis, to the nearest one-hundredth of one percent, by the amount that
the assets under management are less than 85%, but more than or equal to
75%, of the base amount; and
. the merger consideration will be reduced on a two-for-one percentage
basis, to the nearest one-hundredth of one percent, by the amount that
the assets under management are less than 75%, but more than or equal to
65%, of the base amount; and
. the merger consideration will be reduced on a three-for-one percentage
basis, to the nearest one-hundredth of one percent, by the amount that
the assets under management are less than 65%, but more than or equal to
55%, of the base amount.
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The following table provides examples of the effect of this formula for a
number of hypothetical assets-under-management values, assuming an unadjusted
merger consideration of $36.00 per share of Pilgrim common stock.
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT
AS A PERCENTAGE OF THE REDUCTION TO MERGER ADJUSTED MERGER
BASE AMOUNT CONSIDERATION CONSIDERATION
----------------------- ------------------- ---------------
<S> <C> <C>
80.01% $1.80 $34.20
78.63% 2.29 33.71
70.05% 7.16 28.84
67.52% 8.99 27.01
59.45% 16.79 19.21
55.01% 21.59 14.41
</TABLE>
As of September 10, 1999, the assets under management for Pilgrim's family
of mutual funds, excluding any changes in assets under management relating
solely to changes in market value of the funds' portfolio securities were
101.42% of the base amount.
EFFECTIVE TIME AND EFFECT OF THE MERGER
If the merger agreement and the merger are approved by Pilgrim's
stockholders and all other conditions to the consummation of the merger are
satisfied or waived, the merger will be completed upon the appropriate filing
with the Delaware Secretary of State. The completion of the merger is expected
to occur on or about October 26, 1999.
As of the effective time of the merger, Pilgrim will be merged with
Northstar, which, as the surviving corporation, will continue as a wholly owned
subsidiary of ReliaStar. Northstar will possess Pilgrim's assets and will be
responsible for Pilgrim's liabilities. The separate corporate existence of
Pilgrim will terminate upon consummation of the merger.
EXCHANGE OF SHARES
After the merger is completed, each record holder of one or more
certificates previously representing shares of outstanding Pilgrim common stock
will be entitled, upon the surrender of the certificates to Norwest Bank
Minnesota, National Association, ReliaStar's stock transfer agent and the
exchange agent for the merger, to receive the merger consideration. Until
surrendered, each certificate previously representing shares of Pilgrim common
stock will be deemed for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of whole shares of ReliaStar
common stock into which those shares of Pilgrim capital stock have been
converted.
Detailed instructions and transmittal materials will be mailed to you after
the completion of the merger regarding the method of exchanging certificates
formerly representing shares of Pilgrim common stock for cash and certificates
representing shares of ReliaStar common stock. YOU SHOULD NOT SURRENDER YOUR
CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE APPROPRIATE TRANSMITTAL
MATERIALS.
The stockholders of ReliaStar will continue to hold their shares of common
stock of ReliaStar without any change.
EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS
Pilgrim employees will receive full credit for their service with Pilgrim
for purposes of determining eligibility and levels of benefits in ReliaStar's
employee benefit plans and arrangements, subject to the eligibility and other
participation requirements set forth in those plans and arrangements.
ReliaStar will assume all unexercised stock options and performance-share
awards to purchase Pilgrim common stock. Once assumed, these options and
performance-share awards will be exercisable upon the same
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<PAGE>
terms as under the Pilgrim plan and related agreements under which they were
granted, except that each such option and performance-share award will be
exercisable for the number of shares of ReliaStar common stock equal to the
number of shares of Pilgrim common stock subject to the option or performance-
share award immediately before the completion of the merger multiplied by the
quotient of (1) the per-share merger consideration over (2) ReliaStar's average
share price for the pricing period before closing. The exercise price of the
option or performance-share award will be correspondingly adjusted. As soon as
practicable after the effective time of the merger, ReliaStar has agreed to
file and use its best efforts in obtaining effectiveness of a registration
statement with respect to the shares issuable upon exercise of these assumed
options and performance shares.
As of September 17, 1999, the aggregate number of shares of Pilgrim common
stock subject to outstanding options and performance shares was 1,266,400, at
exercise prices that ranged from $3.83 to $26.25 per share.
CONDITIONS TO COMPLETION OF THE MERGER
Under the merger agreement, ReliaStar has no obligation to complete the
merger if any condition to its obligation to complete the merger is not
satisfied on or before the closing date of the merger, and Pilgrim has no
obligation to complete the merger if any condition to its obligation to
complete the merger is not satisfied on or before the closing date of the
merger. These conditions may be waived or modified either mutually by the
parties or, with respect to certain conditions, by the party that is, or whose
stockholders are, entitled to the benefits of the condition. Neither ReliaStar
nor Pilgrim has any present intention to waive or modify any condition that it
deems material.
The obligations of each of ReliaStar and Pilgrim to complete the merger are
as follows:
. the approval of the merger agreement and the merger by Pilgrim's
stockholders;
. the approval of new advisory and sub-advisory agreements by stockholders
of the Pilgrim family of mutual funds;
. the consent to the change of control of Pilgrim by a limited number of
institutional investors for whom Pilgrim acts as collateral manager;
. the receipt of all governmental permits, consents, and approvals
reasonably necessary for the consummation of the merger;
. the absence of court order, governmental proceeding, legislation, or
regulation making the consummation of the merger illegal; and
. the receipt by ReliaStar and Pilgrim of opinions of their respective
legal counsel that the merger will qualify as a reorganization under
Section 368(a) of the Internal Revenue Code.
Additional conditions to ReliaStar's obligation to complete the merger
include the following:
. the material accuracy, as of the date of the merger agreement and the
closing date of the merger, of the representations and warranties of
Pilgrim, and the material performance of all of the terms of the merger
agreement to be performed by Pilgrim before the completion of the
merger;
. that there shall have been no material adverse change in Pilgrim's
overall business, financial condition, and results of operations, except
those caused by general economic factors;
. that the assets under management of the Pilgrim family of mutual funds
shall be more than approximately $2.9 billion, which is 55% of the base
amount discussed above; and
. that holders of no more than 7.5% of the total outstanding shares of
Pilgrim common stock shall have asserted statutory dissenters' rights of
appraisal.
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<PAGE>
Additional conditions to Pilgrim's obligation to complete the merger include
the following:
. the material accuracy, as of the date of the merger agreement and the
closing date of the merger, of the representations and warranties of
ReliaStar, and the material performance of all of the terms of the
merger agreement to be performed by ReliaStar before the completion of
the merger;
. that there shall have been no material adverse change in ReliaStar's
overall business, financial condition, and results of operations, except
those caused by general economic factors; and
. the listing on the New York Stock Exchange of the shares of ReliaStar
common stock to be issued in the merger.
You should review Article VIII of the merger agreement for a full statement
of the conditions to the obligations of the parties to complete the merger.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, ReliaStar and Pilgrim have made various
representations and warranties relating to, among other things, their and their
affiliates' businesses and financial condition, the accuracy of their various
filings with the Securities and Exchange Commission, the satisfaction of legal
requirements for the merger, and the absence of material litigation. You should
review Articles III, IV, and V of the merger agreement for a full statement of
the representations and warranties of the parties. The representations and
warranties expire upon completion of the merger.
CONDUCT OF BUSINESS BEFORE THE MERGER
The merger agreement provides that, before the completion of the merger,
Pilgrim will conduct its business, and the business of the Pilgrim family of
mutual funds, only in the ordinary course of business and consistent with prior
practice. The agreement also generally provides for restrictions with respect
to Pilgrim on, among other things, the amendment of any stock option agreement,
entering into or amending material contracts and other commitments,
transferring or granting certain rights in its intellectual property, declaring
dividends or other distributions, amending its charter or bylaws, acquiring or
disposing of any business, incurring certain indebtedness, and modifying any
employee benefit plan.
AMENDMENT AND WAIVER
The merger agreement may be amended at any time by written agreement of the
ReliaStar board and the Pilgrim board. After the merger agreement has been
approved by the stockholders of Pilgrim, however, it may be amended only as
permitted by Delaware law. Any provision of the merger agreement may be waived
at any time by the party that is, or whose stockholders are, entitled to the
benefits of the provision.
TERMINATION
The merger agreement may be terminated before the effective time of the
merger, whether before or after approval by Pilgrim's stockholders. The
conditions under which the merger agreement may be terminated include the
following:
. termination by mutual agreement of ReliaStar's and Pilgrim's boards of
directors;
. termination by either ReliaStar or Pilgrim if the merger is not
completed on or before March 31, 2000;
. termination by either ReliaStar or Pilgrim if any of its conditions to
complete the merger become impossible to fulfill for reasons outside of
its control;
. termination by either ReliaStar or Pilgrim if Pilgrim's stockholders do
not approve the merger agreement and the merger at the special meeting;
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<PAGE>
. termination by ReliaStar if Pilgrim's board of directors withdraws or
adversely modifies its recommendation that stockholders vote for the
merger agreement and the merger; and
. termination by either ReliaStar or Pilgrim upon a material breach by the
other that is not cured in a timely manner.
EXPENSES AND TERMINATION PAYMENTS
In general, ReliaStar and Pilgrim will each bear their own expenses incurred
in connection with the merger agreement. If the merger agreement is terminated,
however, the parties have agreed to the following payments:
. If the agreement is terminated because Pilgrim's stockholders do not
approve the merger, or because Pilgrim's board of directors withdraws or
adversely modifies its recommendation of the merger, or because of a
material breach by Pilgrim, then
(1) Pilgrim has agreed to reimburse ReliaStar's expenses incurred in
connection with the merger, up to $2 million; and
(2) if, within one year of the termination date, a third party acquires
Pilgrim or a substantial portion of its stock or assets, then
Pilgrim has agreed to pay ReliaStar an additional $8 million.
. If the agreement is terminated because of a material breach by
ReliaStar, then ReliaStar has agreed to reimburse Pilgrim's expenses
incurred in connection with the merger, up to $2 million.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
In the merger agreement, Pilgrim has agreed not to initiate, solicit,
negotiate, or encourage proposals or offers, or provide any confidential
information relating to any acquisition of all or any substantial portion of
the business or properties of Pilgrim, other than the merger with ReliaStar.
However, Pilgrim may supply information to third parties and cooperate or
assist or engage in discussions or negotiations with third parties relating to
such an acquisition transaction, or modify or withdraw its recommendation of
the merger, but only if the Pilgrim board of directors:
. determines in good faith, upon advice of its legal counsel, that those
actions are necessary for it to comply with its fiduciary duties to
Pilgrim's stockholders under Delaware law;
. receives an executed confidentiality agreement from the third party; and
. determines in good faith, upon advice of its legal counsel and financial
advisor and after analyzing the proposed financing of the third-party
offer, that the offer is more favorable to Pilgrim's stockholders than
the merger with ReliaStar.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the recommendation of Pilgrim's board of directors, you
should be aware that the directors and officers of Pilgrim have interests in
the merger that are different from, or are in addition to, those of Pilgrim
stockholders generally. These include:
Employment. Robert W. Stallings, the Chairman and Chief Executive Officer of
Pilgrim, will be the President and Chief Executive Officer of the combined
mutual fund organization. Mr. Stallings' continued employment following
completion of the merger is of critical importance to ReliaStar. ReliaStar has
advised Mr. Stallings that following completion of the merger it intends to
enter into a new employment agreement with Mr. Stallings to incent him to
achieve the financial objectives ReliaStar relied upon in preparing its merger
proposal. Prior to the merger, Merrill Lynch and Putnam Lovell discussed
possible terms of such a new employment agreement. Subsequent to the signing of
the merger agreement, Mr. Stallings and ReliaStar have had additional
discussions concerning the potential terms of such agreement. The objective of
these discussions was to provide ReliaStar and Mr. Stallings mutual assurances
as to the employment terms necessary to insure his commitment to lead the
combined company.
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<PAGE>
The other executive officers of Pilgrim will be executive officers of the
combined mutual fund organization.
Accelerated Stock Option Vesting. Holders of stock options granted under
Pilgrim stock option plans will have the benefit of accelerated vesting in
connection with the merger. As of July 31, 1999, each of the five outside
directors of Pilgrim each held stock options to purchase 30,000 shares that are
subject to accelerated vesting. As of July 31, 1999, executive officers of
Pilgrim held options to purchase an aggregate of 803,000 shares which will vest
on an accelerated basis due to the merger.
Indemnification. Pilgrim directors have customary rights to continued
indemnification against certain liabilities.
As a result, these directors and officers could be more likely to vote to
approve the merger agreement and the merger than if they did not hold these
interests.
The Pilgrim board of directors was informed of the interests described in
this section before approving the merger agreement and the merger.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes material federal income tax consequences
of the merger to holders of Pilgrim common stock, and to ReliaStar, Northstar,
and Pilgrim. The discussion is based on the current provisions of the Internal
Revenue Code, existing and proposed Treasury Regulations, interpretive rulings
of the Internal Revenue Service, and court decisions, all of which are subject
to change at any time, possibly with retroactive effect. Any such change could
affect the continuing validity of this summary.
Holders of Pilgrim common stock should be aware that this discussion does
not deal with all federal income tax considerations that may be relevant to all
stockholders in light of their particular circumstances or to stockholders who
are subject to special treatment under the Internal Revenue Code; thus, for
example, the discussion may not be applicable to insurance companies, tax-
exempt organizations, financial institutions, nonresident alien individuals, or
foreign entities. Others with special considerations include those who are
subject to the alternative minimum tax provisions of the Internal Revenue Code,
who do not hold their shares of Pilgrim common stock as a capital asset, who
acquired their shares in connection with stock option plans or in other
compensatory transactions, or who hold shares in a hedging transaction or as
part of a straddle or conversion transaction. In addition, the following
discussion does not address the tax consequences of the merger under foreign,
state, or local tax laws or the tax consequences of transactions effectuated
before or after, or concurrently with, the merger, including any transactions
in which shares of Pilgrim common stock are acquired or shares of ReliaStar
common stock are sold, exchanged, or otherwise disposed of. Nor does this
discussion address the tax consequences to the holders of Pilgrim stock options
or performance shares assumed by ReliaStar in the merger. The discussion
assumes that the Pilgrim common stock is a capital asset in the hands of a
holder.
ACCORDINGLY, HOLDERS OF PILGRIM COMMON STOCK, STOCK OPTIONS, OR PERFORMANCE
SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Neither ReliaStar nor Pilgrim will request a ruling from the Internal
Revenue Service in connection with the merger. The merger agreement provides
that the obligations of ReliaStar and Pilgrim to complete the merger are
subject to the receipt of written opinions from their respective counsel that
the merger will constitute a reorganization under Section 368(a) of the
Internal Revenue Code. The condition regarding the receipt of the tax opinion
may be waived by ReliaStar or Pilgrim, although neither company has any current
intention to waive this condition. The Pilgrim board of directors will re-
solicit the vote of Pilgrim's stockholders if either company waives this
condition. Pilgrim stockholders should be aware that these tax
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<PAGE>
opinions will not bind the IRS or any court, and that the IRS may assert a
contrary position. These tax opinions will be made subject to assumptions and
qualifications, including the truth and accuracy of representations made by
Pilgrim, ReliaStar, and Northstar, including representations in certificates to
be delivered to counsel by the respective managements of Pilgrim, ReliaStar,
and Northstar.
Subject to the limitations and qualifications referred to in this section,
and assuming that the merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, the merger will
generally result in the following federal income tax consequences to the
holders of Pilgrim common stock who hold such stock as a capital asset and to
ReliaStar, Northstar, and Pilgrim:
1. In addition to any gain or loss described in paragraph 5 below, a holder
of Pilgrim common stock will recognize gain, but not loss, equal to the
lesser of (1) the gain realized, or (2) the cash portion of the
consideration (other than cash received in lieu of a fractional share)
received in the merger. The gain realized will equal the fair market
value of the total consideration received in the merger minus the
adjusted tax basis of the holder's Pilgrim common stock exchanged
therefor.
2. Gain recognized by a holder of Pilgrim common stock will generally be
capital gain, except as provided in paragraph 9.
3. The tax basis of the ReliaStar common stock to be received by a holder
of Pilgrim common stock, including fractional shares that are deemed to
be issued, as discussed in paragraph 5, will be equal to the tax basis
of the Pilgrim common stock surrendered in the merger decreased by the
cash received in the merger and increased by the amount of gain
recognized as a result of the merger.
4. The holding period of the ReliaStar common stock received by a holder of
Pilgrim common stock, including fractional shares that are deemed to be
issued, as discussed in paragraph 5, will include the holding period for
the Pilgrim common stock exchanged therefor.
5. A holder of Pilgrim common stock who receives cash in lieu of a
fractional share of ReliaStar common stock will be treated as having
received a fractional share in the merger and then having received the
cash in exchange for the fractional share in a redemption described in
Section 302(a) of the Internal Revenue Code. As a result, the holder
will generally recognize capital gain or loss, measured by the
difference, if any, between the amount of cash received in lieu of the
fractional share and the holder's tax basis in the fractional share
treated as having been redeemed.
6. A holder of Pilgrim common stock who exercises dissenters' rights and
receives a cash payment for his or her stock generally should recognize
capital gain or loss measured by the difference between the holder's tax
basis in the stock and the amount of cash received.
7. Certain noncorporate holders of Pilgrim common stock may be subject to
backup withholding at a 31% rate on cash payments received in exchange
for Pilgrim common stock, including any amount received in lieu of
fractional shares, or received by a noncorporate holder who exercises
his or her dissenters' rights. Backup withholding will not apply,
however, to a holder who furnishes a correct taxpayer identification
number and certifies under penalties of perjury that he or she is not
subject to backup withholding on the substitute Form W-9 included in the
letter of transmittal to be delivered to holders of Pilgrim common stock
after the merger, or is otherwise exempt from backup withholding.
8. Gain or loss will generally not be recognized by ReliaStar, Northstar,
or Pilgrim as a result of the merger.
9. Although gain recognized by a holder of Pilgrim common stock who
exchanges such stock for ReliaStar common stock and cash in the merger
will generally be capital gain, there are circumstances, generally
involving a holder of Pilgrim common stock who is also a substantial
holder of ReliaStar common stock immediately prior to the merger, in
which all or part of the gain
29
<PAGE>
recognized by such holder would be treated as a dividend rather than
capital gain. Because the application of dividend treatment depends upon
each holder's particular circumstances, including the application of
certain constructive ownership rules, holders should consult their own
tax advisors regarding the tax consequences of the merger to them.
If the merger failed to qualify as a reorganization under Section 368(a) of
the Internal Revenue Code, then Pilgrim stockholders would recognize taxable
gain or loss with respect to each share of Pilgrim common stock surrendered
equal to the difference between the stockholder's basis in the share and the
sum of the cash and the fair market value, as of the effective time of the
merger, of the ReliaStar common stock received in exchange for the share.
I.R.C. (S) 1001(a). In such an event, a stockholder's aggregate basis in the
ReliaStar common stock so received would equal its fair market value and the
stockholder's holding period for that stock would begin on the day after the
effective time of the merger. In addition, Pilgrim would be treated as if it
made a taxable sale or exchange of its assets.
Each holder of Pilgrim common stock who participates in the merger will be
required to incorporate in the holder's federal income tax return for the
taxable year that includes the effective time of the merger a complete
statement of facts relating to the merger and to retain permanent records
showing the holder's tax basis in the Pilgrim common stock exchanged in the
merger and the amount of ReliaStar common stock and cash received therefor.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. HOLDERS OF
PILGRIM COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER
TAX LAWS, AND THE EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
BUSINESS AND MANAGEMENT AFTER THE MERGER
Following the completion of the merger, a large portion of Northstar's
operations will be integrated into Pilgrim's headquarters in Phoenix. Robert W.
Stallings, Chairman and Chief Executive Officer of Pilgrim, will be President
and Chief Executive Officer of the combined mutual fund organization. Twenty-
plus investment professionals, wholesalers, and employees from Northstar will
remain with the new combined organization.
ReliaStar's combined mutual fund organization will have a family of 32
mutual funds representing assets under management of approximately $12 billion
and combined annual sales of $2 billion. ReliaStar expects that the funds will
be unified under a common name and is currently conducting research to
determine what that name will be.
ReliaStar will incorporate Pilgrim funds into ReliaStar equity-based
products, including variable life insurance, variable annuities, and 401(k)
plans, in addition to selling the funds as stand-alone products through
ReliaStar's broker/dealer, in the worksite, and through its bank marketing
operation. Pilgrim plans to distribute ReliaStar's fixed and variable annuities
and 401(k) plans through its distribution channels. In addition to offering
mutual funds, Pilgrim will continue to offer structured finance products.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF PILGRIM AND RELIASTAR
The shares of ReliaStar common stock to be issued in the merger will be
registered under the Securities Act of 1933. The shares will be freely
transferable under the Securities Act, except for shares of ReliaStar common
stock issued to any person who is an affiliate of either ReliaStar or Pilgrim.
Persons who may be deemed to be affiliates include individuals or entities that
control, are controlled by, or are under common control of either ReliaStar or
Pilgrim and may include some of the companies' officers and directors, as well
as the companies' principal stockholders. Affiliates may not sell their shares
of ReliaStar common stock acquired in the merger except pursuant to the
following:
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<PAGE>
. an effective registration statement under the Securities Act covering
the resale of those shares,
. an exemption under paragraph (d) of Rule 145 under the Securities Act,
or
. any other applicable exemption under the Securities Act.
DISSENTERS' RIGHTS
You have the right to have your Pilgrim common stock appraised by the
Delaware Court of Chancery and to receive the appraisal value of your Pilgrim
common stock instead of the cash and ReliaStar common stock you would receive
in the merger. You must comply with Section 262 of the Delaware General
Corporation Law in order to have this right. THE STATUTORY RIGHT OF APPRAISAL
GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES SET FORTH
IN THAT STATUTE. FAILURE TO FOLLOW ANY OF THOSE PROCEDURES MAY RESULT IN A
TERMINATION OR WAIVER OF THE APPRAISAL RIGHTS. The full text of Section 262 is
attached to this proxy statement/prospectus as Exhibit C.
You should note that ReliaStar's obligation to complete the merger is
conditioned on holders of not more than 7.5% of Pilgrim's outstanding shares
exercising these dissenters' rights.
A holder of Pilgrim common stock electing to exercise appraisal rights under
Section 262 must strictly comply with the requirements of that statute,
including the following:
. delivery of a written demand for appraisal to Pilgrim before the vote on
the approval of the merger agreement and the merger;
. holding the shares until after the completion of the merger;
. not voting in favor of the merger;
. not exchanging the holder's shares; and
. filing a petition with the Delaware Court of Chancery.
Pilgrim stockholders who wish to seek appraisal of their shares should
initiate all necessary action with respect to their appraisal rights within the
time periods and in the manner prescribed in Section 262. The written demand
called for by Section 262 should be delivered to Pilgrim Capital Corporation,
40 North Central Avenue, 12th Floor, Phoenix Arizona 85004, Attention: James M.
Hennessy, Secretary.
Pilgrim stockholders considering seeking appraisal should be aware that the
fair value of their shares of Pilgrim common stock determined under Section 262
could be more, the same, or less than the value of the consideration to be
received under the merger agreement.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER OF PILGRIM WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD
CONSULT HIS OR HER LEGAL ADVISER.
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS,
MANAGEMENT AND DIRECTORS OF PILGRIM
The following table gives information concerning the beneficial ownership of
Pilgrim common stock for the following:
. each person or entity known by Pilgrim to beneficially own more than 5%
of the outstanding shares of Pilgrim's common stock;
. each of Pilgrim's current directors;
. the chief executive officer and the four other most highly compensated
executive officers of Pilgrim during its most recent complete fiscal
year, which ended September 30, 1998; and
. all directors and executive officers of Pilgrim as a group.
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The pre-merger percentage ownership is based on 5,088,077 shares of Pilgrim
common stock outstanding as of September 17, 1999. The post-merger percentage
ownership assumes that a total of 2,544,038 shares of ReliaStar common stock
will be issued to Pilgrim stockholders in the merger. None of the listed
persons will own 1% or more of ReliaStar's outstanding common stock following
the merger. All shares subject to options exercisable within 60 days after
September 17, 1999 are deemed to be beneficially owned by the person or entity
holding that option and to be outstanding solely for calculating that person's
or entity's percentage ownership.
Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
owned, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER*
---------------------- ----------------
NUMBER OF NUMBER OF
NAME(1) PILGRIM SHARES PERCENT RELIASTAR SHARES
------- -------------- ------- ----------------
<S> <C> <C> <C>
Robert W. Stallings (2)............... 543,914 9.94% 386,689
John C. Cotton (3).................... 311,215 6.08% 164,536
Roy A. Herberger, Jr.................. 49,650 .97% 33,754
John M. Holliman, III (4)............. 52,227 1.02% 35,042
Stephen A McConnell................... 91,531 1.79% 54,964
Paul J. Renze......................... 81,105 1.58% 49,481
Robert J. Boulware.................... 138,810 2.70% 88,006
James R. Reis......................... 267,395 5.09% 182,060
James M. Hennessy..................... 142,153 2.73% 104,558
Howard Tiffen......................... 82,110 1.60% 52,216
Stanley D. Vyner...................... 37,500 .73% 29,911
Cramer Rosenthal McGlynn, Inc. (5).... 724,161 14.23% 362,080
Dimensional Fund Advisors (6)......... 359,950 7.07% 179,975
George E. Morris (7).................. 310,803 6.11% 155,401
Goff Moore Strategic Partners, L.P.
(8).................................. 306,075 6.02% 153,037
All directors and executive officers
as a group (11 persons).............. 1,797,610 29.78% 1,180,945
</TABLE>
- --------
* Assumes a ReliaStar stock price of $42 per share and the exercise of all
outstanding Pilgrim stock options held by the named stockholders.
(1) Except as otherwise noted, the addresses for the persons named in the table
is 40 North Central Avenue, 12th floor, Phoenix, Arizona 85004.
(2) Includes 25,097 shares owned by his wife.
(3) Includes 87,964 shares beneficially owned by the Cotton Family Limited
Partnership, a limited partnership of which Mr. Cotton is a general
partner, and 8,700 shares owned by his wife.
(4) Includes 3,825 shares owned by AGP Management LP, of which Mr. Holliman is
a general partner.
(5) Information with respect to Cramer Rosenthal McGlynn, Inc. is provided in
reliance upon information included in a Schedule 13G dated March 11, 1999
filed by the stockholder. Cramer Rosenthal is a registered investment
adviser, and states in its Schedule 13G that none of its investment
advisory clients is known to own more than five percent of the common
stock. Its address is 707 Westchester Avenue, White Plains, New York 10604.
(6) Information with respect to Dimensional Fund Advisors is provided in
reliance upon information included in Schedule 13G dated February 11, 1999
filed by the stockholder. Dimensional Fund Advisors is a registered
investment adviser, and states in its Schedule 13G that none of its
investment advisory clients is known to own more than five percent of the
common stock. Dimensional Fund Advisors' address is 1299 Ocean Avenue, 11th
floor, Santa Monica, California 90401.
(7) Information with respect to George E. Morris is provided in reliance upon
information included in a Schedule 13G dated March 5, 1999 filed by the
stockholder. Mr. Morris's address is 5750 NE Island Cove Way, Stuart,
Florida 34996
(8) Information with respect to Goff Moore Strategic Partners, L.P. is provided
in reliance upon information included in a Schedule 13G dated March 5, 1999
filed by the stockholder. Goff Moore's address is 777 Main Street, Suite
2250, Fort Worth, Texas 76102.
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FORWARD-LOOKING INFORMATION
This proxy statement/prospectus contains forward-looking information,
including information provided in "Risk Factors" and "Comparative Unaudited Per
Share Data." The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking information to encourage companies to provide
prospective information about themselves without fear of litigation so long as
such information is identified as forward-looking and is accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the information.
Forward-looking information is indicated by the use of such words as
"anticipates," "expects," "believes," "should," "could," "intends,"
"estimates," and "may," or other comparable language. ReliaStar and Pilgrim
identify the following important factors that could cause ReliaStar's and
Pilgrim's actual results to differ materially from any results that might be
projected by ReliaStar or Pilgrim in forward-looking information. All of these
factors are difficult to predict, and many are beyond the control of the
companies. Accordingly, although ReliaStar and Pilgrim believe that the
assumptions underlying the forward-looking information are reasonable, there
can be no assurances that those assumptions will approximate actual experience.
The important factors include the following:
. general economic conditions, including prevailing interest rates and the
performance of the stock market;
. the market value of the companies' investments;
. the lapse rate and profitability of the insurance policies issued by
ReliaStar;
. mortality and morbidity factors in ReliaStar's insurance business;
. the companies', and the combined company's, ability to achieve
anticipated cost savings and efficiencies;
. changes in federal tax laws, which could adversely affect the tax
advantages of certain of the companies' products;
. legislative or regulatory changes affecting financial institutions;
. industry consolidation and competition;
. the integration of the combined company's sales and distribution
channels in a timely manner; and
. retention of key employees.
You should also consider other risks and uncertainties discussed in
documents filed by ReliaStar and Pilgrim with the Securities and Exchange
Commission that are incorporated by reference into this proxy
statement/prospectus. Neither ReliaStar nor Pilgrim has any obligation to
update forward-looking information.
BUSINESS OF RELIASTAR
ReliaStar is a Minneapolis-based holding company whose subsidiaries offer
individuals and institutions life insurance and annuities, employee benefits
products and services, life and health reinsurance, retirement plans, mutual
funds, bank products, and personal finance education. Based on revenues,
ReliaStar is the 8th largest publicly held life insurance holding company in
the United States and at June 30, 1999, had $24.0 billion in assets under
management and life insurance in force of $307.3 billion.
ReliaStar's strategy is to offer, principally through education-based
marketing, a wide variety of products and services designed to address
customers' need for financial security. ReliaStar currently operates in four
business segments: Personal Financial Services, Worksite Financial Services,
Tax-Sheltered and Fixed Annuities, and Reinsurance.
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Personal Financial Services. The Personal Financial Services segment serves
individual customers who prefer to purchase insurance and investment products
from a personal financial adviser. This segment principally targets middle- and
upper-income families with niches including military personnel and small-
business owners. Personal Financial Services provides a wide range of products,
including universal life, variable universal life, and term life, as well as
fixed and variable annuities, through a nationwide network of independent
agents, financial professionals, and brokerage general agencies. Washington
Square Securities, Inc. provides broker/dealer services to distributors.
Worksite Financial Services. This segment targets the sale of employee-
benefits and financial-service products to medium-to-large corporate employers
and affinity groups. Building on these relationships, Worksite Financial
Services also focuses on the sale of individual and payroll-deduction insurance
products to employees of our corporate clients. Principal products include
group and individual life insurance, non-medical group insurance products, and
401(k) retirement plans.
Tax-Sheltered and Fixed Annuities. This segment, through Northern Life
Insurance Company, focuses on the retirement security needs of K-12 public and
private school teachers. Northern's sale force is comprised of agents who
specialize in the tax-sheltered 403(b) market, providing both fixed and
variable annuities.
Reinsurance. The Reinsurance segment provides specialized life and health
reinsurance, including group and special-risk reinsurance products, in the
United States and internationally. Target customers of the Reinsurance segment
are medium and large life insurance and selected non-life insurance companies
such as worker's compensation insurers and managed care and healthcare provider
organizations. This segment also offers specialty group insurance products on a
direct basis and value-added services, like catastrophic medical case
management. The Reinsurance segment's international offices are located in
Amsterdam, Copenhagen, London, and Mexico City.
Supplementing these four business segments are other business units. Through
Northstar and its subsidiaries, ReliaStar is active in the management of 13
fixed-income and equity mutual funds with $4.4 billion of assets under
management as of June 30, 1999. Upon completion of the merger, ReliaStar
expects that the combined mutual fund organization will generate 11% of
ReliaStar's total business unit operating earnings. Additional business units
include Washington Square Securities, Inc., a broker/dealer; PrimeVest
Financial Services, Inc., which targets the sale of financial products and
services by marketing through unaffiliated banks; Successful Money Management
Seminars, Inc., a producer of financial-education seminar systems; and
ReliaStar Bank, a federal savings bank, which offers a variety of consumer
credit and deposit products.
BUSINESS OF PILGRIM
Pilgrim is a Phoenix-based holding company that through its subsidiaries
provides investment management and related services for 19 open-end mutual
funds, one closed-end mutual fund and six structured finance products. At June
30, 1999, Pilgrim managed over $3.5 billion in mutual fund assets in its open-
end funds and $1.7 billion in its closed-end fund, as well as $2.3 billion in
structured finance products for institutional investors. Pilgrim began its
investment management operations in April 1995 when it acquired the right to
manage five mutual funds from an unaffiliated investment management company.
Pilgrim provides investment advisory, distribution and administrative
services for the Pilgrim funds under agreements with each fund. Under an
investment management agreement with each fund, Pilgrim provides investment
advisory agreements subject to the authority of each fund's board of directors
or trustees and its fundamental investment objectives, policies and
restrictions. Investment management agreements must be approved annually by
each fund's board of directors, including a majority of each fund's independent
directors, and these agreements generally may be terminated by the fund or
Pilgrim upon 60 days' notice without penalty. Assets of Pilgrim funds are
managed by portfolio managers employed by Pilgrim or by sub-advisers. At
June 30, 1999, Pilgrim had 153 employees. Pilgrim distributes its open-end
funds through independent financial
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<PAGE>
professionals, national and regional brokerage firms, and other financial
institutions pursuant to selling agreements. The selling agreements are
generally terminable by either party without penalty and do not obligate the
other parties to sell any specific amount of Pilgrim's investment products.
Shares of Pilgrim's closed-end fund, Pilgrim Prime Rate Trust, are traded on
the New York Stock Exchange. Structured finance products are loan and bond
funds that Pilgrim manages for institutional investors.
Prior to entering the investment management business in April 1995, Pilgrim
was engaged, primarily through its subsidiary Express America Mortgage
Corporation, in the mortgage banking business, including the origination and
servicing of mortgage loans.
DESCRIPTION OF RELIASTAR CAPITAL STOCK
The following is a summary of the material provisions of ReliaStar's
certificate of incorporation, bylaws, and rights agreement. Copies of these
documents are incorporated by reference as exhibits to the registration
statement of which this proxy statement/prospectus is a part. You should refer
to those documents for further information.
ReliaStar's certificate of incorporation authorizes the issuance of 200
million shares of common stock, of which approximately 86 million shares were
issued and outstanding as of July 30, 1999, and seven million shares of
preferred stock, none of which are outstanding.
COMMON STOCK
The shares of ReliaStar common stock offered in connection with the merger
will be fully paid and nonassessable. Subject to any prior rights of any
preferred stock then outstanding, holders of ReliaStar common stock are
entitled to receive proportionately those dividends that may be declared by
ReliaStar's board of directors.
PREFERRED STOCK
ReliaStar's board of directors may issue from time to time preferred stock
in one or more series. The board is authorized to determine the designation of
and number of shares in each series and to fix the rights of the series. Shares
of preferred stock may be issued that have one or more of the following
characteristics:
. disproportionately high voting rights;
. class-voting rights;
. convertibility into shares of ReliaStar common stock; and
. seniority to ReliaStar common stock for payment of dividends and upon
liquidation.
Although the issuance of preferred stock may have an adverse effect on the
rights of holders of common stock, the consent of holders of common stock is
not required for any such issuance.
DIVIDENDS
Under Delaware Law, and subject to restrictions discussed below, dividends
may be declared or paid out of surplus of ReliaStar or, if there is no surplus,
out of net profits for the fiscal year in which the dividend is declared, for
the preceding fiscal year, or both.
ReliaStar's certificate of incorporation provides that, so long as there are
outstanding any shares of ReliaStar's preferred stock entitled to cumulative
dividends, no dividends, other than stock dividends, may be paid or declared,
nor may any distribution be made, on shares of ReliaStar common stock. Nor may
any shares of ReliaStar common stock be purchased, redeemed, or otherwise
acquired for value by ReliaStar if ReliaStar is
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<PAGE>
in default with respect to any dividend payable on, or obligation to redeem or
to maintain a purchase, retirement, or sinking fund with respect to, shares of
ReliaStar preferred stock. There are currently no shares of ReliaStar preferred
stock outstanding.
ReliaStar is primarily a holding company owning, directly or indirectly, the
capital stock of ReliaStar Life Insurance Company and its other subsidiaries.
There are legal limitations on the extent to which ReliaStar Life Insurance
Company and ReliaStar's other insurance company subsidiaries may pay dividends
or otherwise supply funds to ReliaStar.
The payment of future dividends by ReliaStar will be largely dependent upon
the ability of ReliaStar Life Insurance Company to pay dividends to ReliaStar.
Under Minnesota's insurance laws, any such payments must be in an amount deemed
prudent by ReliaStar Life Insurance Company's board of directors, and, unless
otherwise approved by the Commissioner of the Minnesota Department of Commerce,
must be paid solely from the adjusted earned surplus of ReliaStar Life
Insurance Company. "Adjusted earned surplus" means the earned surplus, as
determined in accordance with statutory accounting principles, less 25% of the
amount of earned surplus that is attributable to unrealized capital gains.
Moreover, without approval of the Commissioner, ReliaStar Life Insurance
Company may not pay in any calendar year any dividend that, when combined with
other dividends paid within the preceding calendar year, exceeds the greater
of:
. 10% of ReliaStar Life Insurance Company's statutory surplus at the prior
year end; or
. 100% of ReliaStar Life Insurance Company's statutory net gain from
operations, not including realized capital gains, for the prior calendar
year.
The payment of future dividends by ReliaStar may be affected by the
foregoing limitations, any additional restrictions resulting from statutory or
regulatory changes, and by such other factors as ReliaStar's board or directors
deems relevant.
VOTING RIGHTS
ReliaStar's certificate of incorporation provides that, except as otherwise
provided by law or the certificate of incorporation itself, holders of shares
of ReliaStar common stock are entitled to one vote per share. Holders of shares
of ReliaStar common stock do not have any cumulative voting rights.
Except as otherwise provided by law or by the resolutions providing for
issuance of the shares, holders of shares of ReliaStar preferred stock have no
voting rights.
ReliaStar's certificate of incorporation requires the affirmative vote of
75% of ReliaStar's outstanding capital stock entitled to vote, voting as a
single class to take the following actions:
. to approve "business combinations" involving an "interested
shareholder," unless the transaction is approved by a majority of
ReliaStar's "continuing directors," as each of those terms is defined in
the certificate of incorporation;
. to remove directors, with or without cause;
. to amend ReliaStar's certificate of incorporation to modify a number of
protective provisions; and
. for the stockholders of ReliaStar to amend its bylaws.
As used in ReliStar's certificate of incorporation, the following terms have
the following meanings:
. the term "business combination" includes the following transactions:
(1) mergers, consolidations, and share exchanges;
(2) sales, leases, mortgages, or other dispositions of 10% or more of
ReliaStar's assets;
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(3) acquisitions of 10% or more of the assets of another entity;
(4) certain transfers of ReliaStar's securities;
(5) the dissolution, liquidation, or winding-up of ReliaStar; and
(6) any transaction that would have the effect of increasing the
interested shareholder's ownership stake;
. the term "interested shareholder" includes, subject to certain
exceptions, the following:
(1) any person or entity that is the beneficial owner of 20% or more of
ReliaStar's outstanding voting stock;
(2) any affiliate or associate of ReliaStar that at any time in the
prior two years was the beneficial owner of 20% or more of
ReliaStar's outstanding voting stock;
(3) any person or entity that acquired shares that were held by an
interested shareholder within the prior two years; and
. ""continuing directors" include members of ReliaStar's board of
directors
(1) who were members of the ReliaStar board before there was an
interested shareholder; or
(2) whose nomination or election was supported by a majority of the
continuing directors.
These provisions of ReliaStar's certificate of incorporation could have the
effect of discouraging or delaying a change in control of ReliaStar that is not
approved by ReliaStar's board of directors.
LIQUIDATION
Subject to preferential rights of shares of ReliaStar preferred stock, if
any, upon a liquidation of ReliaStar holders of ReliaStar common stock are
entitled to share proportionately in the assets remaining after discharge of
all obligations and liabilities of ReliaStar.
SHARE RIGHTS AGREEMENT
ReliaStar is party to an Amended and Restated Share Rights Agreement dated
as of February 11, 1999. Under the rights agreement, each share of ReliaStar
common stock has attached one preferred-share-purchase right. Each right
entitles the registered holder to purchase from ReliaStar one-twentieth of a
share of Series A Junior Participating Preferred Stock of ReliaStar for $100,
subject to adjustment to prevent dilution.
Initially, the rights attach to all certificates representing ReliaStar
common stock and no separate rights certificates are distributed. The rights
will separate from the common stock and a distribution date for the rights will
occur, however, upon the earlier of the following events:
. the close of business on the fifteenth day following a public
announcement that a person or group of affiliated or associated persons
has become an "acquiring person," defined as the beneficial owner of 20%
or more of ReliaStar's outstanding common stock; or
. the close of business on the fifteenth day following the commencement or
public announcement of a tender offer or exchange offer, if the
consummation of the offer would result in a person or group becoming the
beneficial owner of 20% or more of ReliaStar's outstanding common stock.
Until a distribution date occurs:
. the rights will be evidenced only by ReliaStar common stock certificates
and will be transferred only with the common stock;
. newly issued common stock will contain a notation incorporating the
rights agreement by reference; and
. the transfer of any common stock certificate will also transfer the
rights associated with that certificate.
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As promptly as practicable following a distribution date, separate
certificates evidencing the rights will be mailed to record holders of
ReliaStar common stock as of the close of business on the distribution date.
The rights are not exercisable until the distribution date. The rights will
expire on September 8, 2004, unless extended or earlier redeemed or exchanged
by ReliaStar.
If any person or group becomes an acquiring person, then each holder of a
right, other than rights beneficially owned by the acquiring person, will
thereafter have the right to receive upon exercise a number of shares of
ReliaStar common stock having a market value of two times the exercise price of
the right.
If, after the distribution date or within 15 days before that date,
ReliaStar is acquired or 50% or more of ReliaStar's assets or earning power is
sold, then each holder of a right, other than rights beneficially owned by the
acquiring person, will have the right to receive a number of common shares of
the acquiring company having a market value of two times the exercise price of
the right. The foregoing does not apply, however, to a transaction for at least
the same per-share consideration with a person who acquired ReliaStar common
stock through a tender offer or exchange offer for all outstanding shares
approved by ReliaStar's board of directors.
At any time before the close of business on the twentieth day after a public
announcement that a person or group of affiliated or associated persons has
become an acquiring person, ReliaStar's board of directors may redeem the
rights in whole at a price of $.005 per right.
Until a right is exercised, the holder of the right, as such, has no rights
as a stockholder of ReliaStar, including the right to vote or to receive
dividends.
LIMITATIONS ON CHANGE IN CONTROL
ReliaStar's certificate of incorporation and bylaws provide that ReliaStar's
board of directors will be divided into three classes serving staggered terms,
with one class of directors to be elected for a three-year term at each annual
meeting of stockholders. As a result, at least two meetings of ReliaStar
stockholders will generally be required to effect a change in control of
ReliaStar's board of directors. ReliaStar's bylaws provide that advance notice
of nominations for the election of directors to be made at, and business to be
brought before, an annual meeting of stockholders by a stockholder must be
received by ReliaStar's Corporate Secretary at least 60 days in advance of the
meeting. ReliaStar's certificate of incorporation and bylaws also provide that
stockholder action may be taken only at annual or special meetings of
stockholders, and may not be taken by stockholder consent, and that
stockholders are not permitted to call, or to require ReliaStar's board of
directors to call, special meetings of stockholders.
ReliaStar's certificate of incorporation provides that, when considering a
merger, consolidation, sale of assets, business combination, or other similar
transaction, ReliaStar's directors and officers may, in considering the best
interests of ReliaStar and its stockholders, consider the interests of
employees, customers, and suppliers of ReliaStar and its subsidiaries and the
interests of the communities in which ReliaStar and its subsidiaries are
located or do business.
ReliaStar has entered into agreements with a number of its executive
employees for financial arrangements that ReliaStar will provide upon
termination of employment under certain circumstances following a change in
control of ReliaStar. In addition, a number of retirement and other employee
benefit arrangements provide for accelerated vesting of benefits and allocation
to participants of surplus retirement plan benefits upon a change in control of
ReliaStar.
The foregoing provisions and agreements could have the effect of
discouraging or delaying an attempt to gain control of ReliaStar or to change
its management.
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LIMITATION ON CERTAIN LIABILITY OF DIRECTORS AND INDEMNIFICATION
ReliaStar's certificate of incorporation and bylaws limit the liability of
directors for monetary damages to ReliaStar and its stockholders for breach of
fiduciary duty of care to ReliaStar and authorize the indemnification of
directors, officers, and employees to the fullest extent permitted by Delaware
law. ReliaStar maintains a directors' and officers' liability insurance policy.
TRANSFER AGENT
The Transfer Agent for ReliaStar common stock is Norwest Bank Minnesota,
National Association.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF PILGRIM AND RELIASTAR
As a result of the merger, you will no longer be a stockholder of Pilgrim.
Instead, you will become a stockholder of ReliaStar, and your rights will be
governed by ReliaStar's certificate of incorporation and bylaws. Your rights
under ReliaStar's certificate of incorporation and bylaws will differ from your
existing rights as stockholders of Pilgrim under Pilgrim's certificate of
incorporation and bylaws. We describe the material differences in this section.
You might regard as important other differences that we do not include here.
You should refer to the documents we mention in this section if you want more
information.
GENERAL
Both ReliaStar and Pilgrim were incorporated in Delaware and thus are
governed by the provisions of the Delaware General Corporation Law. Although
Delaware law provides a general system of rules governing a corporation and its
directors, officers, and stockholders, a number of the default rules may be
changed in a corporation's certificate of incorporation or bylaws.
VOTING RIGHTS
As discussed above under "Description of ReliaStar Capital Stock--Voting
Rights," ReliaStar's certificate of incorporation requires the affirmative vote
of 75% of ReliaStar's outstanding capital stock entitled to vote, voting as a
single class, to take a number of actions. Pilgrim's certificate of
incorporation has no similar super-majority voting requirements and instead
requires a simple majority vote to take any such actions.
CHARTER AMENDMENTS
The provisions of the ReliaStar certificate of incorporation that may be
amended only by a 75% super-majority vote are the following:
. the amount of authorized capital stock and the authority of the board of
directors, without a vote of stockholders, to issue shares of stock and
to fix the terms of any series of preferred stock;
. classification of the board of directors;
. removal of the directors by stockholders, with or without cause, only by
super-majority vote;
. the limitation on personal monetary liability of directors for breach of
the fiduciary duty of care;
. the authority of the board of directors to adopt or amend ReliaStar's
bylaws;
. the requirement that at least 75% of the outstanding shares of voting
stock approve any stockholder-proposed amendment to ReliaStar's bylaws;
. the authority the board of directors to consider the interests of other
constituencies when considering a merger, sale of assets, business
combination, or similar transaction;
. the authority of the board to determine matters with respect to
stockholder inspections of books and records;
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. the prohibition on stockholders from taking action by written consent;
. the "fair price" provisions discussed below; and
. the requirement of a super-majority vote to amend any of the foregoing.
The requirement of a super-majority stockholder vote is designed to prevent
a stockholder who controls a majority of the voting power of ReliaStar from
avoiding the requirements of those provisions by simply amending or replacing
them. The requirement also makes it more difficult for a stockholder to
circumvent other provisions contained in ReliaStar's certificate of
incorporation, such as the classification of the board of directors, by
adopting bylaws restricting the power of the board or directors or the ability
of ReliaStar to operate its business in the interests of all of its
stockholders. These provisions, however, will also make it more difficult for
stockholders to amend ReliaStar's certificate of incorporation or bylaws even
if a majority of the stockholders deem the amendment to be in their best
interests. Pilgrim's certificate of incorporation contains no super-majority
voting requirements.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS
The "fair price" provision in ReliaStar's certificate of incorporation
requires the approval of "business combinations" involving "interested
shareholders" by a vote of the holders of at least 75% of ReliaStar's
outstanding capital stock entitled to vote, unless either the transaction is
approved by a majority of ReliaStar's "continuing directors" or the transaction
meets specified fair price and procedural requirements. Pilgrim's certificate
of incorporation contains no counterpart to this provision.
The purpose of this provision is to prevent an interested shareholder from
taking advantage of its position as a substantial, if not controlling,
stockholder and from engaging in "self-dealing" transactions with ReliaStar
that may not be fair to other stockholders and to give greater assurance to the
holders of ReliaStar capital stock that they will receive fair and equitable
treatment in any business combination involving the interested shareholder.
This is accomplished by requiring business combinations to meet specified fair
price and procedural requirements or to be approved either by a majority of the
continuing directors or 75% of the outstanding shares entitled to vote on the
matter, voting as a single class.
This provision, however, makes more difficult and may discourage a takeover
of ReliaStar or the acquisition of control of ReliaStar and thus the removal of
incumbent management. In addition, to the extent that these provisions
discourage a takeover that would result in a change of ReliaStar management,
those changes may be less likely to occur.
CONSIDERATION OF OTHER CONSTITUENCIES
ReliaStar's certificate of incorporation provides that, when considering a
merger, consolidation, sale of assets, business combination, or similar
transaction, ReliaStar's directors and officers may, in considering the best
interests of ReliaStar and its stockholders, consider the interests of the
employees, customers, and suppliers of ReliaStar and its subsidiaries and the
communities in which ReliaStar and its subsidiaries are located or do business.
This provision will not make a business combination or other transaction
regarded by ReliaStar's board or directors as being in the interests of
ReliaStar and its stockholders more difficult to accomplish, but it would
permit the board of directors to determine that a transaction is not in the
best interests of ReliaStar or its stockholders--and thus oppose it--on the
basis of various factors deemed relevant. In some cases, this opposition might
have the effect of maintaining the position of incumbent management.
Neither Pilgrim's certificate of incorporation nor its bylaws contains a
similar provision regarding the consideration of other constituencies by the
Pilgrim board of directors in making a decision whether to proceed with a
business combination or other transaction.
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SHARE RIGHTS AGREEMENT
As discussed above, ReliaStar is party to a share rights agreement. Under
the rights agreement, each share of ReliaStar common stock has attached one
preferred share purchase right. The rights agreement provides for the
distribution of the rights upon the occurrence of certain events that may
constitute an attempt to effect a change in control of ReliaStar. The rights
agreement could have the effect of discouraging or delaying a change in control
of ReliaStar that is not approved by ReliaStar's board of directors. Pilgrim
does not have any similar rights agreement. See "Description of ReliaStar
Capital Stock--Share Rights Agreement" for a more detailed discussion of the
rights agreement. Pilgrim has not entered into a share rights agreement.
WHERE YOU CAN FIND MORE INFORMATION
Both ReliaStar and Pilgrim file periodic reports, proxy statements, and
other information with the Securities and Exchange Commission. These SEC
filings are available to the public over the Internet at the SEC's web site
(www.sec.gov). You may also read and copy any document that either company
files with the SEC at the SEC's public reference facilities at 450 Fifth
Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of its public reference facilities.
Both ReliaStar and Pilgrim "incorporate by reference" into this proxy
statement/prospectus the information in documents they file with the SEC, which
means that they can disclose important information to you by referring you to
those documents. The information incorporated by reference is an important part
of this proxy statement/prospectus, and information that they file subsequently
with the SEC will automatically update this proxy statement/prospectus. The
companies incorporate by reference the documents listed below and any filings
they make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 after the filing of this proxy
statement/prospectus and before the merger is consummated.
FOR RELIASTAR:
. Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
including information incorporated by reference into that report from
ReliaStar's 1998 Annual Report to Stockholders and portions of its
definitive proxy statement for ReliaStar's 1999 Annual Meeting of
Stockholders;
. Quarterly Reports on Form 10-Q for the quarters ended March 31 and June
30, 1999;
. Current Report on Form 8-K filed July 28, 1999; and
. the description of ReliaStar's common stock and related rights to
purchase preferred stock contained in ReliaStar's Form 8-K/A dated May
20, 1993 to its Current Report on Form 8-K dated January 17, 1989 and
its Registration Statement on Form 8-A/A dated February 26, 1999.
You may request a copy of these filings, other than an exhibit to a filing
unless the exhibit is specifically incorporated by reference into the filing,
at no cost by contacting ReliaStar at the following address:
Corporate Secretary
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, Minnesota 55401
(612) 372-5432
FOR PILGRIM:
. Annual Report on Form 10-K, as amended, for the fiscal year ended
September 30, 1998, including information incorporated by reference into
that report from Pilgrim's definitive proxy statement for its 1999
Annual Meeting of Stockholders;
41
<PAGE>
. Quarterly Reports on Form 10-Q for the quarters ended December 31, 1998,
March 31, 1999, and June 30, 1999;
. Current Reports on Form 8-K filed on June 28 and July 28, 1999; and
. the description of Pilgrim's common stock contained in Pilgrim's
registration statement on Form S-1 dated March 17, 1992 (No. 33-45038).
You may request a copy of these filings, other than an exhibit to a filing
unless the exhibit is specifically incorporated by reference into the filing,
at no cost by contacting Pilgrim at:
Corporate Secretary
Pilgrim Capital Corporation
40 North Central Avenue, 12th floor
Phoenix, Arizona 85004
(602) 417-8115
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST COPIES OF RELIASTAR'S
OR PILGRIM'S SEC FILINGS NO LATER THAN OCTOBER 19, 1999.
You should rely only on the information delivered with, or stated or
incorporated by reference in, this proxy statement/prospectus. Neither
ReliaStar nor Pilgrim has authorized anyone else to provide you with different
information. You should not assume that the information in this proxy
statement/prospectus is accurate as of any date other than the date on the
front of this document.
LEGAL MATTERS
The validity of the shares of ReliaStar common stock to be issued in the
merger will be passed upon for ReliaStar by Faegre & Benson LLP, Minneapolis,
Minnesota. Tax consequences of the merger will be passed upon for ReliaStar by
Faegre & Benson LLP and for Pilgrim by Dechert Price & Rhoads, Philadelphia,
Pennsylvania.
EXPERTS
The consolidated financial statements of ReliaStar and related financial
statement schedules as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, incorporated in this proxy
statement/prospectus by reference from ReliaStar's Annual Report on Form 10-K
for the year ended December 31, 1998, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference and have been so incorporated in reliance upon the reports
of that firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Pilgrim and related financial
statement schedules as of September 30, 1998 and 1997 and for each of the three
years in the three-year period ended September 30, 1998, incorporated in this
proxy statement/prospectus by reference to Pilgrim's Annual Report on Form 10-K
for the year ended September 30, 1998, have been audited by KPMG LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference and have been so incorporated in reliance upon the reports of that
firm given upon their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
If the merger is not completed, Pilgrim would hold its 2000 Annual Meeting
of Stockholders during the month of February 2000. Any stockholder proposal
that is intended to be presented at that meeting and included in Pilgrim's
proxy materials relating to that meeting must be received by Pilgrim at its
executive offices no later than November 28, 1999.
42
<PAGE>
INDEPENDENT AUDITORS
Representatives of KPMG LLP, Pilgrim's independent auditors, are expected to
be present at the special meeting and will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
43
<PAGE>
EXHIBIT A
[CONFORMED COPY]
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
RELIASTAR FINANCIAL CORP.,
NORTHSTAR HOLDING, INC.,
AND
PILGRIM CAPITAL CORPORATION
- --------------------------------------------------------------------------------
DATED AS OF JULY 22, 1999
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I The Merger.................................................... A-8
1.1 Effective Time of the Merger...................................... A-8
1.2 Closing........................................................... A-9
1.3 Effects of the Merger............................................. A-9
1.4 Certificate of Incorporation and Bylaws of the Surviving
Corporation...................................................... A-9
ARTICLE II Conversion of Securities..................................... A-9
2.1 Effect on Capital Stock........................................... A-9
(a) Capital Stock of Northstar.................................... A-9
(b) Pilgrim Common Stock.......................................... A-9
(c) Adjustment to Merger Consideration Based Upon Pilgrim Mutual
Fund Assets Under Management.................................. A-10
(d) Adjustment in Consideration Based Upon ReliaStar Average Share
Price......................................................... A-10
(e) Fractional Shares............................................. A-11
(f) ReliaStar Stock............................................... A-11
(g) Pilgrim Stock Options......................................... A-11
(h) Dissenters' Rights............................................ A-11
(i) Adjustments................................................... A-11
2.2 Exchange of Certificates.......................................... A-12
ARTICLE III Representations and Warranties of Pilgrim................... A-13
3.1 General........................................................... A-13
3.2 Representations and Warranties.................................... A-14
(a) Organization, Standing, Qualification......................... A-14
(b) Capitalization................................................ A-14
(c) Authorization and Execution................................... A-14
(d) No Conflicts.................................................. A-15
(e) SEC Reports and Financial Statements.......................... A-15
(f) Proxy Statement/Prospectus.................................... A-16
(g) Absence of Certain Changes or Events.......................... A-16
(h) Tax Matters................................................... A-17
(i) Properties.................................................... A-18
(j) Material Contracts............................................ A-18
(k) Intellectual Property......................................... A-19
(l) Litigation.................................................... A-19
(m) Permits; Compliance with Laws................................. A-19
(n) No Brokers or Finders......................................... A-19
(o) Retirement and Benefit Plans; Employees....................... A-19
(p) Environmental Matters......................................... A-21
(q) Labor Matters................................................. A-21
(r) Vote Required................................................. A-21
(s) Anti-Takeover Provisions...................................... A-21
(t) Year 2000 Compliance.......................................... A-21
(u) Insurance Coverage............................................ A-21
(v) Management Agreements......................................... A-22
ARTICLE IV Representations and Warranties Relating to the Pilgrim
Funds.................................................................. A-22
4.1 General........................................................... A-22
4.2 Representations and Warranties.................................... A-22
(a) No Prohibitions............................................... A-22
(b) No Unfair Burden.............................................. A-22
(c) Organization of the Funds..................................... A-22
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
(d) Capitalization of the Pilgrim Funds........................... A-23
(e) Financial Statements of the Pilgrim Funds..................... A-23
(f) Accuracy of Financial Statements.............................. A-23
(g) Compliance With Applicable Law................................ A-23
(h) No Conflicts.................................................. A-24
(i) Adherence to Investment Policies and Restrictions............. A-24
(j) Litigation.................................................... A-24
(k) Required Reports.............................................. A-24
(l) Taxes......................................................... A-24
(m) Contracts..................................................... A-25
(n) No Material Adverse Changes................................... A-25
(o) Books......................................................... A-25
(p) Absence of Undisclosed Liabilities............................ A-25
(q) No Pending Transaction........................................ A-25
(r) Proxy Statements/Prospectuses................................. A-25
(s) Code of Ethics................................................ A-25
(t) No Disqualification........................................... A-26
(u) Insurance..................................................... A-26
ARTICLE V Representations and Warranties of ReliaStar and Northstar..... A-26
5.1 General........................................................... A-26
5.2 Representations and Warranties.................................... A-26
(a) Organization, Standing, Qualification......................... A-26
(b) Capitalization................................................ A-26
(c) Authorization and Execution................................... A-27
(d) No Conflicts.................................................. A-27
(e) SEC Reports and Financial Statements.......................... A-28
(f) Proxy Statement/Prospectus.................................... A-28
(g) Litigation.................................................... A-28
(h) Permits; Compliance with Laws................................. A-28
(i) No Brokers or Finders......................................... A-28
(j) Absence of Certain Changes or Events.......................... A-28
(k) No Material Adverse Effect.................................... A-29
(l) Year 2000 Compliance.......................................... A-29
ARTICLE VI Covenants Relating to the Pilgrim Funds...................... A-29
6.1 Requisite Approvals Concerning the Pilgrim Funds.................. A-29
6.2 Termination of Existing Advisory, Sub-Advisory, and Distribution
Arrangements..................................................... A-29
6.3 Information Regarding the Pilgrim Funds........................... A-29
6.4 Access to Information Regarding the Pilgrim Funds................. A-29
6.5 The Registrants' Registration Statements.......................... A-30
6.6 Operations of the Pilgrim Funds................................... A-30
6.7 Undertakings Related to Section 15(f) of the 1940 Act............. A-30
6.8 Continued Qualification........................................... A-30
ARTICLE VII Covenants Relating to the Parties........................... A-31
7.1 Business Operations of Pilgrim.................................... A-31
7.2 Cooperation....................................................... A-32
7.3 Access to Information............................................. A-32
7.4 No Solicitation................................................... A-33
7.5 Proxy Statement/Prospectus; Board Recommendation.................. A-34
7.6 Stockholders' Meetings of Pilgrim and the Pilgrim Funds; Consents
for Pools........................................................ A-34
7.7 Legal Conditions to Merger........................................ A-34
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.8 Tax-Free Reorganization......................................... A-35
7.9 NYSE Listing.................................................... A-35
7.10 Stock Plans and Options......................................... A-35
7.11 Consents........................................................ A-36
7.12 Pilgrim Mutual Fund Assets Under Management..................... A-36
7.13 Additional Agreements; Reasonable Efforts....................... A-36
7.14 Confidentiality Agreement....................................... A-36
ARTICLE VIII Conditions Precedent....................................... A-36
8.1 Conditions to the Parties' Obligation to Effect the Merger...... A-36
(a) Stockholder Approval........................................ A-36
(b) HSR Act..................................................... A-36
(c) Approvals................................................... A-36
(d) No Injunctions or Restraints; Illegality.................... A-36
(e) Tax Opinions................................................ A-36
(f) Proxy Statement/Prospectus.................................. A-37
8.2 Additional Conditions to the Obligations of ReliaStar and
Northstar...................................................... A-37
(a) Representations and Warranties.............................. A-37
(b) Performance of Obligations of Pilgrim....................... A-37
(c) No Material Adverse Change.................................. A-37
(d) Officers' Certificate....................................... A-37
(e) Pilgrim Mutual Fund Assets Under Management................. A-37
(f) Legal Opinions.............................................. A-37
(g) Comfort Letter.............................................. A-37
(h) Dissenters' Rights.......................................... A-38
(i) Certain Consents............................................ A-38
8.3 Additional Conditions to the Obligation of Pilgrim.............. A-38
(a) Representations and Warranties.............................. A-38
(b) Performance of Obligations of ReliaStar and Northstar....... A-38
(c) No Material Adverse Change.................................. A-38
(d) Officers' Certificate....................................... A-38
(e) NYSE........................................................ A-38
(f) Legal Opinion............................................... A-38
(g) Comfort Letter.............................................. A-38
ARTICLE IX Conduct and Transactions After the Effective Time............ A-39
9.1 Employee Matters................................................ A-39
9.2 Indemnification................................................. A-39
9.3 Directors and Officers Liability Insurance...................... A-39
ARTICLE X Termination................................................... A-40
10.1 Generally....................................................... A-40
10.2 Procedure and Effect of Termination............................. A-40
10.3 Expenses; Termination Fee....................................... A-40
ARTICLE XI Miscellaneous Provisions..................................... A-41
11.1 Termination of Representations and Warranties................... A-41
11.2 Amendment and Modification...................................... A-41
11.3 Waiver of Compliance; Consents.................................. A-41
11.4 Press Releases and Public Announcements......................... A-42
11.5 Notices......................................................... A-42
11.6 Assignment...................................................... A-42
11.7 Interpretation.................................................. A-43
11.8 Governing Law................................................... A-43
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
11.9 Counterparts...................................................... A-43
11.10 Headings; Internal References..................................... A-43
11.11 Entire Agreement.................................................. A-43
11.12 Severability...................................................... A-43
11.13 Equitable Remedies................................................ A-43
11.14 Disclosure Schedule............................................... A-43
</TABLE>
EXHIBITS
A Form of Opinions of Special Counsel to Pilgrim
B Form of Opinion of Faegre & Benson LLP
A-5
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM LOCATION
- ---- ----------------
<S> <C>
1940 Act....................................................... Recitals
accumulated funding deficiency................................. (S) 3.2(o)(3)
Acquisition Proposal........................................... (S) 7.4(a)(1)
Advisers Act .................................................. (S) 3.2(a)(2)
affiliate...................................................... (S) 11.7(c)
Aggregate Percentage Reduction................................. (S) 2.1(c)(1)
Agreement...................................................... Preamble
Applicable Law................................................. (S) 4.2(g)
Assets Under Management Percentage............................. (S) 2.1(c)
Base Amount.................................................... (S) 2.1(c)
Benefit Plan................................................... (S) 3.2(o)(1)
Board.......................................................... (S) 6.1
business day................................................... (S) 11.7(d)
Cash Consideration............................................. (S) 2.1(b)
CBOs........................................................... Recitals
Certificate of Merger.......................................... (S) 1.1
Certificates................................................... (S) 2.1(f)
CLOs........................................................... Recitals
Closing........................................................ (S) 1.2
Closing Date................................................... (S) 1.2
Code........................................................... Recitals
Constituent Corporations....................................... (S) 1.3(a)
Delaware Law................................................... (S) 1.1
Dissenting Shares.............................................. (S) 2.1(h)(l)
Dollar Denominated Consideration............................... (S) 2.1(b)
Effective Time................................................. (S) 1.1
Environmental Law.............................................. (S) 3.2(p)(1)(A)
ERISA.......................................................... (S) 3.2(o)(1)
ERISA Affiliates............................................... (S) 3.2(o)(9)
Exchange Act................................................... (S) 3.2(e)(1)
Exchange Agent................................................. (S) 2.2(a)
Exchange Fund.................................................. (S) 2.2(a)
GAAP........................................................... (S) 3.2(e)(3)
Governmental Authority......................................... (S) 3.2(d)(2)
Hazardous Substance............................................ (S) 3.2(p)(1)(B)
HSR Act........................................................ (S) 3.2(d)(2)
Northstar...................................................... Preamble
including...................................................... (S) 11.7(a)
Management Agreements.......................................... (S) 3.2(v)
Material Adverse Effect........................................ (S) 3.1
Material Contracts............................................. (S) 3.2(j)
Merger......................................................... Preamble
Merger Consideration........................................... (S) 2.1(b)
NASD........................................................... (S) 3.2(d)(2)
Northstar...................................................... Preamble
NYSE........................................................... (S) 2.1(b)
Option Ratio................................................... (S) 7.10(c)
Pension Plan................................................... (S) 3.2(o)(1)
person......................................................... (S) 11.7(b)
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C>
Pilgrim........................................................... Preamble
Pilgrim Assets Mutual Fund Under Management....................... (S) 2.1(c)
Pilgrim Common Stock.............................................. Recitals
Pilgrim Consolidated Group........................................ (S) 3.2(h)(4)
Pilgrim Disclosure Schedule....................................... (S) 3.1
Pilgrim Employee Plan(s).......................................... (S) 3.2(o)(1)
Pilgrim Fund Family............................................... (S) 4.2(c)
Pilgrim Funds..................................................... Recitals
Pilgrim Option Plans.............................................. (S) 2.1(g)
Pilgrim Options................................................... (S) 2.1(g)
Pilgrim Securities................................................ Recitals
Pilgrim SEC Reports............................................... (S) 3.2(e)(1)
Pools............................................................. Recitals
Proprietary Rights................................................ (S) 3.2(k)
Proxy Statement/Prospectus........................................ (S) 7.5
Registrant........................................................ (S) 4.2(c)
ReliaStar......................................................... Preamble
ReliaStar Average Share Price..................................... (S) 2.1(b)
ReliaStar Common Stock............................................ Recitals
ReliaStar Disclosure Schedule..................................... (S) 5.1
ReliaStar Rights.................................................. (S) 5.2(b)
ReliaStar Rights Agreement........................................ (S) 5.2(b)
ReliaStar SEC Reports............................................. (S) 5.2(e)(1)
Reorganization.................................................... (S) 7.8(a)
reportable event.................................................. (S) 3.2(o)(3)
Reports........................................................... (S) 4.2(k)
SEC............................................................... (S) 3.2(d)(2)
Securities Act.................................................... (S) 3.2(e)(1)
Share Consideration............................................... (S) 2.1(b)
subsidiary........................................................ (S) 11.7(g)
Superior Proposal................................................. (S) 7.4(d)
Surviving Corporation............................................. (S) 1.3(a)
Tax Returns....................................................... (S) 3.2(h)(1)
Taxes............................................................. (S) 3.2(h)(1)
Third Party....................................................... (S) 10.3(d)
Third-Party Transaction........................................... (S) 10.3(d)
to the knowledge of a party....................................... (S) 11.7(f)
Welfare Plan...................................................... (S) 3.2(o)(1)
</TABLE>
A-7
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of July 22,
1999, is made among ReliaStar Financial Corp., a Delaware corporation
("ReliaStar"), Northstar Holding, Inc., a Delaware corporation and a wholly
owned subsidiary of ReliaStar ("Northstar"), and Pilgrim Capital Corporation, a
Delaware corporation ("Pilgrim").
RECITALS
Pilgrim (or one or more of its subsidiaries) acts as investment adviser for
five open-end and one closed-end investment companies (collectively, the
"Pilgrim Funds") registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
Pilgrim Securities, Inc., a Delaware corporation and an indirect wholly
owned subsidiary of Pilgrim ("Pilgrim Securities"), acts as the broker-dealer
for the investment companies advised by Pilgrim or its subsidiaries.
Pilgrim (or one or more of its subsidiaries) is a collateral manager to
certain special purpose corporations that issue collateralized loan obligations
("CLOs"), collateralized bond obligations ("CBOs"), and collateralized pools of
mixed bonds and loans (which, together with CLOs and CBOs are collectively
referred to as the "Pools").
Northstar (or one or more of its subsidiaries) acts as investment adviser
for a number of open-end investment companies registered under the 1940 Act.
The Boards of Directors of ReliaStar, Northstar, and Pilgrim deem it
advisable and in the best interests of each corporation and its respective
stockholders that Northstar and Pilgrim combine in order to advance the long-
term business interests of ReliaStar, Northstar, and Pilgrim.
The strategic combination of Northstar and Pilgrim shall be effected by the
terms of this Agreement through a transaction in which Pilgrim will merge with
and into Northstar and the stockholders of Pilgrim will become stockholders of
ReliaStar (the "Merger").
In furtherance of the Merger, and upon the terms of this Agreement, each
share of Pilgrim's common stock, $.01 par value per share ("Pilgrim Common
Stock"), issued and outstanding at the Effective Time (as defined in Section
1.1), shall be converted into a fraction of a share of common stock, $.01 par
value per share, of ReliaStar ("ReliaStar Common Stock") and cash.
For federal income tax purposes, it is intended that the Merger qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
AGREEMENT
Now, therefore, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the terms of this Agreement, a
certificate of merger (the "Certificate of Merger") shall be duly executed and
acknowledged by the Constituent Corporations (as defined in Section 1.3) and
delivered to the office of the Delaware Secretary of State for filing, as
provided in Section 251 of the Delaware General Corporation Law (the "Delaware
Law"), as soon as practicable on or after the Closing Date (as defined in
Section 1.2). The Merger shall become effective at the time at which the
Certificate
A-8
<PAGE>
of Merger shall have been filed with the Delaware Secretary of State or at
such time thereafter as is provided in the Certificate of Merger (the
"Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
11:00 a.m., Minneapolis time, on a date to be specified by ReliaStar and
Pilgrim, which shall be no later than the third business day after
satisfaction or waiver (to the extent waivable under Article VIII) of all
conditions to the consummation of the Merger set forth in Article VIII of this
Agreement (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions), at the offices of Faegre & Benson LLP, Minneapolis, Minnesota,
unless another date or place is agreed to by ReliaStar and Pilgrim. The date
on which the Closing occurs is referred to as the "Closing Date." All actions
taken at the Closing shall be deemed to have been taken simultaneously at the
time the last of any such actions is taken or completed.
1.3 Effects of the Merger.
(a) At the Effective Time, in accordance with this Agreement and the
Delaware Law, (1) Pilgrim shall be merged with and into Northstar, (2) the
separate corporate existence of Pilgrim shall cease, and (3) Northstar
shall be the surviving corporation and shall continue to be governed by the
Delaware Law (Northstar and Pilgrim are sometimes referred to in this
Agreement as the "Constituent Corporations," and Northstar is sometimes
referred to in this Agreement as the "Surviving Corporation").
(b) The Merger shall have the other effects set forth in Sections 259
and 261 of the Delaware Law.
1.4 Certificate of Incorporation and Bylaws of the Surviving Corporation.
(a) The Certificate of Incorporation of Northstar as in effect
immediately before the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and of the Delaware Law.
(b) The Bylaws of Northstar in effect immediately before the Effective
Time shall be the Bylaws of the Surviving Corporation, until duly amended
in accordance with their terms, the Certificate of Incorporation of the
Surviving Corporation, and the Delaware Law.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Effect on Capital Stock. Subject to the other provisions of this
Article II, at the Effective Time, by virtue of the Merger and without any
action on the part of ReliaStar, Pilgrim, Northstar, or the holder of any
shares of the following securities:
(a) Capital Stock of Northstar. Each issued and outstanding share of the
capital stock of Northstar shall remain outstanding as one share of capital
stock of the Surviving Corporation and shall not be converted into any
other securities or cash in the Merger. The certificates for such shares
shall not be surrendered or in any way modified by reason of the Merger. No
stock of Northstar will be issued in the Merger.
(b) Pilgrim Common Stock. Subject to adjustment as provided in Sections
2.1(c) and 2.1(d), each issued and outstanding share of Pilgrim Common
Stock (other than shares of Pilgrim Common Stock held of record by
ReliaStar, Northstar, or Pilgrim or any other direct or indirect subsidiary
of ReliaStar or Pilgrim immediately before the Effective Time unless such
shares are held in the ordinary course of the corporation's investment
business, and other than shares of Pilgrim Common Stock as to which
dissenters' rights of appraisal have been exercised as contemplated by
Section 2.1(h)) shall be automatically converted into and become the right
to receive (1) .50 shares of ReliaStar Common Stock (the "Share
Consideration"), and (2) cash in the amount of $12.50 (the "Cash
Consideration" and, together with the Share Consideration, the "Merger
Consideration"). Subject to adjustment as provided in Section 2.1(c),
A-9
<PAGE>
the sum of (A) the average per-share closing price of ReliaStar Common
Stock on the New York Stock Exchange (the "NYSE") for the five trading days
immediately preceding the date that is three days before the Closing Date
(the "ReliaStar Average Share Price") multiplied by .50 and (B) $12.50 is
called the "Dollar Denominated Consideration." At the Effective Time, each
share of Pilgrim Common Stock held of record by ReliaStar, Northstar, or
Pilgrim or any direct or indirect subsidiary of ReliaStar or Pilgrim
(unless such shares are held in the ordinary course of the corporation's
investment business) shall be canceled and cease to exist, and no payment
shall be made with respect to those shares.
(c) Adjustment to Merger Consideration Based Upon Pilgrim Mutual Fund
Assets Under Management. If Pilgrim Mutual Fund Assets Under Management (as
defined in this Section below) are less than 85% of $5,277,627,234 (the
"Base Amount"), then the Dollar Denominated Consideration, Share
Consideration, and Cash Consideration shall be adjusted as follows, based
upon Pilgrim Mutual Fund Assets Under Management as a percentage (rounded
to the nearest one hundredth of one percent) of the Base Amount (the
"Assets Under Management Percentage"):
(1) the Dollar Denominated Consideration shall be reduced (A) by a
percentage (rounded to the nearest one hundredth of one percent) equal
to the excess of 85% over the greater of 75% or the Assets Under
Management Percentage (e.g., if the Pilgrim Mutual Fund Assets Under
Management equals $4,222,629,500, which rounded to the nearest one
hundredth of one percent equals 80.01% of the Base Amount, then the
Dollar Denominated Consideration shall be reduced a total of 4.99%),
(B) by an additional percentage (rounded to the nearest one hundredth
of one percent) equal to two times the excess, if any, of 75% over the
greater of 65% or the Assets Under Management Percentage (e.g., if the
Pilgrim Mutual Fund Assets Under Management equals $3,696,977,877,
which rounded to the nearest one hundredth of one percent equals 70.05%
of the Base Amount, then the Dollar Denominated Consideration shall be
reduced a total of 19.9%), and (C) by an additional percentage (rounded
to the nearest one hundredth of one percent) equal to three times the
excess, if any, of 65% over the greater of 55% or the Assets Under
Management Percentage (e.g., if the Pilgrim Mutual Fund Assets Under
Management equals $3,137,549,391, which rounded to the nearest one
hundredth of one percent equals 59.45% of the Base Amount, then the
Dollar Denominated Consideration shall be reduced a total of 46.65%)
(the aggregate reduction in Dollar Denominated Consideration pursuant
to the foregoing clauses (A) through (C), expressed as an aggregate
percentage, is called the "Aggregate Percentage Reduction");
(2) the Share Consideration shall be reduced to a decimal number of
shares of ReliaStar Common Stock equal to (A) 100% less the Aggregate
Percentage Reduction, multiplied by (B) .50; and
(3) the Cash Consideration shall be reduced to an amount equal to
(A) 100% less the Aggregate Percentage Reduction, multiplied by (B)
$12.50.
For purposes of this Agreement, "Pilgrim Mutual Fund Assets Under
Management" means the aggregate of the net assets of the open-end and
closed-end Pilgrim Funds (including assets acquired with borrowings by the
closed-end Pilgrim Fund), as adjusted to eliminate increases or decreases
attributable exclusively to positive or negative changes in the market
value of portfolio assets since the calculation of the Base Amount.
(d) Adjustment in Consideration Based Upon ReliaStar Average Share
Price. If the ReliaStar Average Share Price exceeds $42.00, then ReliaStar
may elect, by written notice to Pilgrim on or prior to the Closing Date, to
adjust the Cash Consideration and the Share Consideration (after giving
effect to any adjustment to each required by Section 2.1(c)), as follows:
(1) The Cash Consideration shall be increased to an amount specified
by ReliaStar in such notice, not to exceed the lesser of (A) (i) $12.50
(or, if applicable, the amount to which the Cash Consideration shall
have been adjusted pursuant to Section 2.1(c)) per share, plus (ii) .50
(or, if applicable, the decimal number to which the Share Consideration
shall have been adjusted pursuant to
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Section 2.1(c)) multiplied by the excess of the ReliaStar Average Share
Price over $42.00, or (B) 50% of the Dollar Denominated Consideration
(determined after giving effect to any adjustment thereto required by
Section 2.1(c)); and
(2) The Share Consideration shall be reduced from .50 (or, if
applicable, the decimal to which the Share Consideration shall have
been adjusted pursuant to Section 2.1(c)) shares of ReliaStar Common
Stock to a decimal number of shares of ReliaStar Common Stock equal to
(A) the excess of the Dollar Denominated Consideration (determined
after giving effect to any adjustment thereto required by Section
2.1(c)) over the Cash Consideration, as adjusted pursuant to the
foregoing clause (1), divided by (B) the ReliaStar Average Share Price.
(e) Fractional Shares. No scrip or fractional shares of ReliaStar Common
Stock shall be issued in the Merger. Each fractional share of ReliaStar
Common Stock that a holder of Pilgrim Common Stock would otherwise be
entitled to receive (after aggregating all shares of ReliaStar Common Stock
to be received by that holder) shall be automatically converted into the
right to receive, at the Effective Time from ReliaStar, an amount in cash
in lieu of the fractional share of ReliaStar Common Stock equal to the
product of the fraction multiplied by the ReliaStar Average Share Price
(rounded up or down to the nearest $.01). ReliaStar will make available to
the Exchange Agent (as defined in Section 2.2) the cash necessary for the
purpose of paying for fractional shares.
(f) ReliaStar Stock. All shares of ReliaStar Common Stock into which the
shares of Pilgrim Common Stock are converted shall be validly issued, fully
paid and nonassessable and will have ReliaStar Rights attached thereto in
accordance with the ReliaStar Rights Agreement (as such terms are defined
in Section 5.2(b)). All shares of Pilgrim Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and
shall cease to exist, and holders of certificates that immediately before
the Effective Time represented shares of Pilgrim Common Stock (the
"Certificates") shall cease to have any rights with respect thereto, except
the right to receive the shares of ReliaStar Common Stock and any cash to
be issued or paid in consideration therefor upon the surrender of the
Certificates in accordance with Section 2.2, without interest.
(g) Pilgrim Stock Options. At the Effective Time, all outstanding
options to purchase Pilgrim Common Stock (the "Pilgrim Options") and
Pilgrim performance shares under the Pilgrim Stock Option Plan, the Pilgrim
Performance Share Plan, and the Pilgrim 1998 Directors' Stock Option Plan
(collectively, the "Pilgrim Option Plans") will become options or
performance shares, as the case may be, to purchase ReliaStar Common Stock
in accordance with Section 7.10.
(h) Dissenters' Rights.
(1) Notwithstanding any provision of this Agreement to the contrary,
any shares of Pilgrim Common Stock held by a holder who has properly
asserted his right, if any, for appraisal of such shares in accordance
with the Delaware Law and who, as of the Effective Time, has not
effectively lost such right to appraisal (the "Dissenting Shares"),
shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.1(b), but the holder thereof shall
only be entitled to such rights as are granted by the Delaware Law.
(2) Notwithstanding the provision of Section 2.1(h)(l), if any
holder of shares of Pilgrim Common Stock who asserts his rights, if
any, for appraisal or demands payment for such shares under the
Delaware Law shall effectively lose his right to appraisal, then, as of
the later of the Effective Time or the occurrence of such event, such
holder's shares of Pilgrim Common Stock shall automatically be
converted into and represent only the right to receive the Merger
Consideration as provided in Section 2.1(b), upon surrender of the
Certificates representing such shares.
(i) Adjustments. The Share Consideration and Cash Consideration shall be
appropriately adjusted to reflect any stock split, reverse stock split,
stock dividend, recapitalization, exchange, subdivision, combination of, or
other similar change (including the exercise of any ReliaStar Rights under
the ReliaStar
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Rights Agreement) in ReliaStar Common Stock or Pilgrim Common Stock after
the date of this Agreement.
2.2 Exchange of Certificates.
(a) The transfer agent for ReliaStar Common Stock shall serve as
exchange agent hereunder (the "Exchange Agent"). Promptly after the
Effective Time, ReliaStar shall deposit in trust with the Exchange Agent
certificates representing the number of whole shares of ReliaStar Common
Stock to which the holders of Pilgrim Common Stock are entitled under this
Article II, together with cash sufficient to cover the aggregate Cash
Consideration to be paid to holders of Pilgrim Common Stock and to pay for
fractional shares then known to ReliaStar (such cash amounts and
certificates being referred to as the "Exchange Fund"). The Exchange Agent
shall, under irrevocable instructions received from ReliaStar, deliver the
number of shares of ReliaStar Common Stock and pay the amounts of cash
provided for in this Article II out of the Exchange Fund. Additional
amounts of cash, if any, needed from time to time by the Exchange Agent
shall be provided by ReliaStar and shall become part of the Exchange Fund.
The Exchange Fund shall not be used for any other purpose, except as
provided in this Agreement, or as otherwise agreed to by ReliaStar and
Pilgrim before the Effective Time.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each record holder of Pilgrim Common Stock (except as
provided in the first parenthetical in Section 2.1(b)) who, as of the
Effective Time was a holder of a Certificate, a letter of transmittal
(reasonably satisfactory in form and substance to Pilgrim and ReliaStar)
and instructions for its use in effecting the surrender of the Certificate
for payment therefor and conversion thereof. Delivery shall be effected,
and risk of loss and title to the Certificate shall pass, only upon proper
delivery of the Certificate to the Exchange Agent and the letter of
transmittal shall so reflect. Upon surrender to the Exchange Agent of a
Certificate, together with a letter of transmittal duly executed and
properly completed, the holder of the Certificate shall be entitled to
receive in exchange therefor (1) shares of ReliaStar Common Stock and cash
to which that holder of Pilgrim Common Stock is entitled pursuant to the
terms of this Agreement (with the cash amount being rounded up or down to
the nearest $.01) and (2) as to any fractional share, a check representing
the cash amount to which the holder is entitled under Section 2.1, and the
Certificate so surrendered shall be marked "Cancelled." No interest will be
paid or accrued on any Cash Consideration or any cash in lieu of fractional
shares payable upon surrender of the Certificate.
(c) ReliaStar shall pay any transfer or other taxes required by reason
of the issuance of a certificate representing shares of ReliaStar Common
Stock if the certificate is issued in the name of the person in whose name
the Certificate surrendered in exchange therefor is registered; provided,
however, that ReliaStar shall not pay any transfer or other tax if the
obligation to pay the tax under applicable law is solely that of the
stockholder or if payment of any such tax by ReliaStar otherwise would
cause the Merger to fail to qualify as a tax-free reorganization under the
Code. If any portion of the consideration to be received under this Article
II upon exchange of a Certificate is to be issued or paid to a person other
than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition of such issuance and
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
exchange shall pay in advance any transfer or other taxes required by
reason of the issuance of a certificate representing shares of ReliaStar
Common Stock or a check representing the Cash Consideration or any cash for
a fractional share to such other person, or establish to the satisfaction
of the Exchange Agent that such tax has been paid or that no such tax is
applicable.
(d) From the Effective Time until surrender in accordance with this
Section 2.2, each Certificate (other than Certificates representing shares
held by ReliaStar, Northstar, or Pilgrim or any direct or indirect
subsidiary of ReliaStar or Pilgrim, unless such shares are held in the
ordinary course of the corporation's investment business) shall be deemed,
for all corporate purposes other than the payment of dividends or other
distributions, to evidence only the right to receive the cash and ReliaStar
Common Stock into which such shares of Pilgrim Common Stock shall have been
so converted or, in the case of
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Dissenting Shares, to evidence only such rights as are granted by the
Delaware Law. No dividends that are otherwise payable on ReliaStar Common
Stock will be paid to persons entitled to receive ReliaStar Common Stock
until such persons surrender their Certificates. After surrender, there
shall be paid to the person in whose name the ReliaStar Common Stock shall
be issued any dividends on ReliaStar Common Stock that shall have a record
date and payment date on or after the Effective Time and before surrender.
If the payment date for any such dividend is after the date of surrender,
payment shall be made on the payment date. Persons entitled to receive such
dividends are not entitled to receive interest on those dividends. All
payments in respect of shares of Pilgrim Common Stock that are made in
accordance with the terms hereof shall be deemed to have been made in full
satisfaction of all rights pertaining to those securities.
(e) In case of any lost, stolen, or destroyed Certificate, the holder
thereof may be required, as a condition precedent to the delivery to the
holder of the consideration described in Section 2.1, and in accordance
with Section 167 of the Delaware Law, to deliver to ReliaStar a bond in
such reasonable sum as ReliaStar may direct as indemnity against any claim
that may be made against the Exchange Agent, ReliaStar, or the Surviving
Corporation with respect to the Certificate alleged to have been lost,
stolen, or destroyed.
(f) After the Effective Time, there shall be no transfers on the books
of the Surviving Corporation of the shares of Pilgrim Common Stock that
were outstanding immediately before the Effective Time. If, after the
Effective Time, Certificates are presented to Surviving Corporation for
transfer, they shall be canceled and exchanged for the consideration
described in Section 2.1. After the Effective Time, the shares of Pilgrim
Common Stock shall be delisted from the NYSE.
(g) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Pilgrim for one year after the Effective Time shall be
returned to ReliaStar, upon demand, and any holder of Pilgrim Common Stock
who has not theretofore complied with this Section 2.2 shall thereafter
look only to ReliaStar for issuance of the Merger Consideration to which
the holder has become entitled under Section 2.1; provided, however, that
neither the Exchange Agent nor any party to this Agreement shall be liable
to a holder of shares of Pilgrim Common Stock for any amount required to be
paid to a public official under any applicable abandoned-property, escheat,
or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PILGRIM
3.1 General. Pilgrim represents and warrants to ReliaStar and Northstar that
the statements contained in this Article III are true and correct, except as
set forth in the disclosure schedule delivered by Pilgrim to ReliaStar on or
before the date of this Agreement (the "Pilgrim Disclosure Schedule"). As used
with respect to any person, the term "Material Adverse Effect" means any change
or effect that, individually or when taken together with all changes or effects
that have occurred before the determination of the occurrence of the Material
Adverse Effect, has had or is reasonably likely to have a material adverse
effect on the business financial condition, or results of operations of the
person and its subsidiaries taken as a whole; provided, however, that Material
Adverse Effect with respect to any person shall not include any change in or
effect upon the business, financial condition, or results of operations of such
person or any of its subsidiaries directly or indirectly arising out of or
attributable to (a) conditions, events, or circumstances generally affecting
the economy as a whole, (b) conditions, events, or circumstances generally
affecting the mutual fund industry as a whole (including regulatory and legal),
or (c) any decreases in Pilgrim Mutual Fund Assets Under Management. It is
further understood that any decrease in the market price of shares of ReliaStar
Common Stock in the case of parent or Pilgrim Common Stock in the case of
Pilgrim shall not be relevant to a determination of whether a Material Adverse
Effect has occurred.
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3.2 Representations and Warranties.
(a) Organization, Standing, Qualification.
(1) Each of Pilgrim and its subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of the
state of its organization and has the requisite power and authority to
own, lease, and operate its properties and assets and to carry on its
business as it is now being conducted. Each of Pilgrim and its
subsidiaries is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the
character of the properties owned, operated, or leased by it, or the
nature of its business, makes such qualification or licensing
necessary, except for those jurisdictions where the failure to be so
qualified or licensed or in good standing would not have a Material
Adverse Effect on Pilgrim. The Pilgrim Disclosure Schedule sets forth a
list of all of Pilgrim's subsidiaries and their state of incorporation;
except as so set forth and except for securities held solely for
investment purposes, Pilgrim does not directly or indirectly own any
capital stock of, or other equity interest in, any person. Copies of
the charter and bylaws (or similar organizational documents) of Pilgrim
and each subsidiary of Pilgrim have been made available to ReliaStar
and are complete and correct as of the date hereof.
(2) Pilgrim Investments, Inc. is and has been duly registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and under applicable state statutes. The
Pilgrim Disclosure Schedule lists the jurisdictions in which Pilgrim
Investments, Inc. is registered as an investment adviser. Each such
registration is in full force and effect. Other than the jurisdictions
set forth in the Pilgrim Disclosure Schedule for Pilgrim Investments,
Inc., neither Pilgrim nor its subsidiaries is required to be registered
as an investment adviser in any jurisdiction.
(3) Pilgrim Securities is and has been duly registered as a broker-
dealer under Applicable Law (as defined in Section 4.2(g)). The Pilgrim
Disclosure Schedule lists the jurisdictions in which Pilgrim Securities
is required to be registered as a broker-dealer. Each such registration
is in full force and effect. Other than the jurisdictions set forth in
the Pilgrim Disclosure Schedule, Pilgrim Securities is not required to
be registered as a broker-dealer in any other jurisdiction. Pilgrim
Securities is a member in good standing and has all licenses and
authorizations in self-regulatory or trade organizations or registered
clearing agencies, required to permit the operation of its business as
presently conducted, except where such failure would not have a
Material Adverse Effect on Pilgrim.
(b) Capitalization. The authorized capital stock of Pilgrim consists of
10 million shares of Pilgrim Common Stock, of which, as of the close of
business on July 20, 1999, 5,084,477 shares were issued and outstanding,
and 100,000 shares of preferred stock, none of which are outstanding. All
of the issued and outstanding shares of capital stock of Pilgrim and each
of its subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable, and were not granted in violation of any statutory
preemptive rights. There are no outstanding subscriptions, options,
warrants, calls, or other agreements or commitments under which Pilgrim or
any subsidiary is or may become obligated to issue, sell, transfer, or
otherwise dispose of, or purchase, redeem, or otherwise acquire, any shares
of capital stock of, or other equity interests in, Pilgrim or any
subsidiary, and there are no outstanding securities convertible into or
exchangeable for any such capital stock or other equity interests, except
for options to purchase up to an aggregate of 1,270,000 shares of Pilgrim
Common Stock, as of the close of business on July 20, 1999 and as set forth
in the Pilgrim Disclosure Schedule. There are no stock appreciation rights,
phantom stock rights, or performance shares outstanding issued by Pilgrim
with respect to Pilgrim or any of its subsidiaries. Pilgrim owns, directly
or indirectly, all of the issued and outstanding shares of each class of
capital stock of each of its subsidiaries, free and clear of all liens,
security interests, pledges, charges, and other encumbrances. There are no
agreements or understandings to which Pilgrim or any of its subsidiaries is
a party with respect to the capital stock of Pilgrim or its subsidiaries.
(c) Authorization and Execution. Pilgrim has the corporate power and
authority to execute and deliver this Agreement and, subject to approval by
the stockholders of a majority of the outstanding shares of Pilgrim Common
Stock to consummate the transactions contemplated hereby. The execution,
delivery, and
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performance of this Agreement by Pilgrim have been duly authorized by the
Board of Directors of Pilgrim, and no further corporate action of Pilgrim,
other than the approval of its stockholders, is necessary to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Pilgrim and, assuming the accuracy of the representations and
warranties of ReliaStar set forth in Section 5.2(c), this Agreement
constitutes the legal, valid, and binding obligation of Pilgrim,
enforceable against Pilgrim in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally, and subject, to general principles of equity.
(d) No Conflicts. Neither the execution and delivery of this Agreement
by Pilgrim, nor the consummation by Pilgrim of the transactions
contemplated hereby will:
(1) conflict with or result in a breach of the charter, bylaws, or
similar organizational documents, as currently in effect, of Pilgrim or
any of its subsidiaries;
(2) require any filing with, or consent or approval of, any
government, state, or political subdivision thereof, entity exercising
executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government, including the Securities and
Exchange Commission (the "SEC") and any other government authority,
agency, department, board, commission, or instrumentality of the United
States, any State of the United States, or any political subdivision
thereof, any court, tribunal, or arbitrator of competent jurisdiction,
or any governmental or non-governmental self-regulatory organization,
agency, or authority (including the NYSE and the National Association
of Securities Dealers, Inc. (the "NASD")) (each, a "Governmental
Authority") having jurisdiction over any of the businesses or assets of
Pilgrim or any of its subsidiaries, except for (A) compliance with the
requirements under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (B) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate documents
reflecting the occurrence of the Merger with the relevant authorities
of the other states in which Pilgrim is licensed or qualified to do
business; (C) the consents, approvals, filings, and notices required
under the 1940 Act and the Advisers Act; (D) any consents, approvals,
filings, or notices required with the NASD or any industry self-
regulatory organizations; (E) the filing with the SEC of the Proxy
Statement/Prospectus (as defined in Section 7.5) and compliance with
any other applicable requirements of the Exchange Act; (F) such filings
and approvals as are required to be made or obtained under the
securities or "blue sky" laws of various states; and (G) such other
filings, consents, or approvals the failure of which to make or obtain
would not reasonably be expected to prevent consummation of the Merger
or to have a Material Adverse Effect on Pilgrim;
(3) subject to the exceptions contained in, and assuming compliance
with, clauses (A) through (G) of subsection (d)(2) above, violate any
Applicable Law applicable to Pilgrim or any of its subsidiaries; or
(4) result in a material breach of, or constitute a material default
or an event that, with the passage of time or the giving of notice, or
both, would constitute a material default, give rise to a right of
termination, cancellation, or acceleration, create any entitlement of
any third party to any material payment or benefit, require the consent
of any third party, or result in the creation of any material lien on
the assets of Pilgrim or any of its subsidiaries under, any Material
Contract (as defined in Section 3.2(j)).
(e) SEC Reports and Financial Statements.
(1) Since September 30, 1997, Pilgrim has filed all reports,
registration statements, and other filings, together with any
amendments required to be made with respect thereto, that it has been
required to file with any relevant Governmental Authority under federal
and state securities laws, including the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Advisers Act. All reports,
registration
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statements, and other filings (including all exhibits, notes, and
schedules thereto and all documents incorporated by reference therein)
filed by Pilgrim with the SEC on or after October 1, 1997, together
with any amendments thereto, are collectively referred to as the
"Pilgrim SEC Reports." Pilgrim has previously delivered or made
available to ReliaStar one set of true and complete copies of all of
the Pilgrim SEC Reports that have been filed with the SEC before the
date of this Agreement. As of (A) with respect to all of the Pilgrim
SEC Reports other than registration statements filed under the
Securities Act, the respective dates of their filing with the SEC, and
(B) with respect to all registration statements filed under the
Securities Act, their respective effective dates, the Pilgrim SEC
Reports complied in all material respects with the rules and
regulations of the SEC and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein not
misleading.
(2) The consolidated financial statements (including any related
notes or schedules) included in Pilgrim's most recent Annual Report on
Form 10-K, as filed with the SEC, were prepared in accordance with
generally accepted accounting principles, consistently applied
("GAAP"), except as may be noted therein or in the notes or schedules
thereto, and fairly present in all material respects the consolidated
financial position of Pilgrim and its subsidiaries as of September 30,
1997 and 1998 and the consolidated results of their operations and cash
flows for each of the three years in the three-year period ended
September 30, 1998.
(f) Proxy Statement/Prospectus. The information supplied by Pilgrim for
inclusion in the Proxy Statement/Prospectus, as of the date of the Proxy
Statement/Prospectus and as of the date of the meeting of Pilgrim's
stockholders to consider this Agreement and the Merger, will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(g) Absence of Certain Changes or Events. Except as disclosed in any
Pilgrim SEC Report, from September 30, 1998 to the date of this Agreement,
Pilgrim and its subsidiaries have conducted their respective businesses and
operations in the ordinary course consistent with past practices, and
neither Pilgrim nor any of its subsidiaries has:
(1) split, combined, or reclassified any shares of its capital stock
or made any other changes in its equity capital structure;
(2) purchased, redeemed, or otherwise acquired, directly or
indirectly, any shares of its capital stock or any options, rights, or
warrants to purchase capital stock or any securities convertible into
or exchangeable for capital stock;
(3) declared or paid any dividends on or made any other
distributions (whether in cash, stock, or property) in respect of
shares of its capital stock, or split, combined, or reclassified any of
its capital stock, or issued or authorized the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of
capital stock of such entity;
(4) issued, delivered, or sold any shares of its capital stock or
securities convertible into shares of its capital stock, or
subscriptions, rights, warrants, or options to acquire, or other
agreements or commitments of any character obligating it to issue, any
such shares or other convertible securities (other than the grant of
options to employees in a manner consistent with past practices under
the Pilgrim Stock Option Plans, and the issuance of shares upon the
exercise of such options);
(5) incurred, assumed, or guaranteed any indebtedness for money
borrowed, other than intercompany indebtedness, other than that
incurred under currently existing debt instruments;
(6) changed or modified in any material respect any existing
accounting method, principle, or practice, other than as required by
GAAP;
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(7) suffered any business interruption, damage to or destruction of
its properties, or other incident, occurrence, or event (other than
changes in general industry, economic, or market conditions), which
would have a Material Adverse Effect on Pilgrim; or
(8) except for this Agreement, entered into any commitment to do any
of the foregoing.
(h) Tax Matters.
(1) Pilgrim and its subsidiaries have timely filed (or received
appropriate extensions for) all material federal, state, local, and
foreign tax returns ("Tax Returns") required to be filed by them with
respect to income, gross receipts, withholding, social security,
unemployment, payroll, franchise, property, excise, sales, use,
premium, and other taxes of whatever kind ("Taxes"), and have paid all
Taxes shown on those Tax Returns to the extent they have become due.
Pilgrim's Tax Returns are accurate and complete in all material
respects.
(2) No Tax Returns filed by Pilgrim or any of its subsidiaries are
the subject of pending audits. Neither Pilgrim nor any of its
subsidiaries has received, before the date of this Agreement, a notice
of deficiency or assessment of additional material Taxes that remains
unresolved. Neither Pilgrim nor any of its subsidiaries has extended
the period for assessment or payment of any Tax, which extension has
not since expired.
(3) Pilgrim and its subsidiaries have withheld and paid over to the
appropriate Governmental Authorities all Taxes required by law to have
been withheld and paid in connection with amounts paid or owing to any
employee, except for any such Taxes that are immaterial in amount.
(4) Neither Pilgrim nor any of its subsidiaries has been a member of
an affiliated group (as defined in Section 1504 of the Code) filing a
consolidated federal income tax return for any tax year since January
1, 1992 other than a group the common parent of which was Pilgrim (the
"Pilgrim Consolidated Group").
(5) Neither Pilgrim nor any of its subsidiaries has filed a consent
under Code Section 341(f) concerning collapsible corporations.
(6) Neither Pilgrim nor any of its subsidiaries has been a United
States real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code
Section 897(c)(1)(A)(ii).
(7) Neither Pilgrim nor any of its subsidiaries is a party to any
Tax allocation or sharing agreement, except among members of the
Pilgrim Consolidated Group.
(8) Neither Pilgrim nor any of its subsidiaries is subject to a Tax
lien on any of its property or assets, except for current liens for
Taxes not yet due.
(9) Pilgrim has delivered or made available to ReliaStar true and
complete copies of all requested federal, state, local, and foreign
income tax returns with respect to Pilgrim and its subsidiaries.
(10) Neither Pilgrim nor any of its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payment that is not
deductible under Code Section 280G;
(11) The reserve for Taxes set forth on the financial statements of
Pilgrim contained in Pilgrim's most recent Annual Report on Form 10-K
is adequate for the payment of all material Taxes through the date
thereof and no material Taxes have been incurred after September 30,
1998 that were not incurred in the ordinary course of business;
(12) Pilgrim has not redeemed any Pilgrim capital stock or made
distributions with respect to Pilgrim capital stock in a manner that
would cause the Merger to violate the continuity-of-stockholder-
interest requirement set forth in Treasury Regulation (S) 1.368-1(e).
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(i) Properties.
(1) The Pilgrim Disclosure Schedule sets forth a true and complete
list of all real property owned or leased by Pilgrim or any of its
subsidiaries, and, in the case of leased real property, the name of the
lessor, the date of the lease, and each amendment thereto and the
aggregate annual rental or other fee payable under the lease. All such
leases are enforceable in accordance with their respective terms, and
there is not, under any such lease, any existing material default or
event of default (or event which with notice or lapse of time, or both,
would constitute a default and in respect of which Pilgrim has not
taken adequate steps to prevent the default from occurring).
(2) Pilgrim has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal, and mixed, used in its
business, free and clear of any mortgages, liens, pledges, charges,
restrictions, encroachments, rights of third parties, or other
encumbrances of any kind, except for (A) liens for current Taxes not
yet due and payable, (B) inchoate mechanic's, warehousemen's,
materialmen's, or similar liens or rights arising in the ordinary
course of business, (C) liens, encumbrances, restrictions,
encroachments, and easements, all with respect to tangible properties
that were not incurred with the borrowing of money or the obtaining of
advances or credit and that do not materially detract the value of or
materially interfere with the present use of the property subject
thereto or effected thereby, or otherwise materially impair present
business operations at such properties, and (D) existing mortgages,
liens, and encumbrances disclosed in the Pilgrim SEC Reports.
(j) Material Contracts. Except as disclosed in any Pilgrim SEC Report,
as of the date hereof, neither Pilgrim nor any of its subsidiaries is a
party to or bound by any written or oral contract:
(1) with respect to the employment of any directors, officers, or
employees, other than non-competition and confidentiality agreements
with such persons and contracts terminable by Pilgrim upon no more than
30 days' notice without penalty;
(2) that, upon the consummation or stockholder approval of the
transactions contemplated by this Agreement will (either alone or upon
the occurrence of any additional acts or events) result in any payments
(whether of severance pay or otherwise) in excess of $4 million in the
aggregate becoming due from Pilgrim, the Surviving Corporation, or any
of their respective subsidiaries to any officer or employee thereof;
(3) that is a "material contract" (as is defined in Item 601(b)(10)
of Regulation S-K of the SEC) to be performed after the date of this
Agreement;
(4) that, after the Effective Time, will materially restrict the
conduct of any line of business by Pilgrim or its subsidiaries or upon
consummation of the Merger will materially restrict the ability of the
Surviving Corporation to engage in any line of business in which it may
lawfully engage;
(5) with a labor union (including any collective bargaining
agreement); or
(6) except as required by the Pilgrim Option Plans (including any
stock option plan, stock appreciation rights plan, restricted stock
plan, or stock purchase plan), any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any stockholder approval or the consummation of
any of the transactions contemplated by this Agreement, or the value of
any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
All of the foregoing are collectively called "Material Contracts." To
the extent Material Contracts are evidenced by documents, true and complete
copies thereof have been delivered or made available to ReliaStar. The
Pilgrim Disclosure Schedule sets forth a true and complete description of
the material terms of each Material Contract that has not been reduced to
writing. Each Material Contract is in full force and effect. Neither
Pilgrim nor any of its subsidiaries nor, to the knowledge of Pilgrim, any
other party is in material breach of or in material default under any of
the Material Contracts.
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(k) Intellectual Property. Pilgrim and its subsidiaries own or possess
adequate licenses or other valid rights to use (without the making of any
payment to others, other than licenses for commercially available software
and payments under agreements disclosed in the Pilgrim Disclosure Schedule,
or the obligation to grant rights to others in exchange) all of the
material patents, trademarks, trade names, service marks, domain names, and
copyrights, and all registrations and applications for any of the foregoing
(collectively, "Proprietary Rights") necessary to the conduct of its
business in the manner in which it is presently being conducted. As of the
date of this Agreement, neither Pilgrim nor any of its subsidiaries has
received any written notice that any Proprietary Rights have been declared
unenforceable or otherwise invalid by any court or Governmental Authority.
There is, to the knowledge of Pilgrim, no material existing infringement,
misuse, or misappropriation of any Proprietary Rights by others. From
January 1, 1996 to the date of this Agreement, neither Pilgrim nor any of
its subsidiaries has received any written notice alleging that the
operation of the business of Pilgrim or any of its subsidiaries infringes
in any material respect upon the intellectual property rights of others.
The consummation of the Merger and the other transactions contemplated by
this Agreement will not result in the loss by Pilgrim of any rights to use
computer and telecommunications software including source and object code
and documentation and any other media (including manuals, journals, and
reference books) that is material to the operation of its business
substantially as currently conducted.
(l) Litigation. No litigation, arbitration, or administrative proceeding
(1) is pending or, to the knowledge of Pilgrim, threatened against Pilgrim
or any of its subsidiaries as of the date of this Agreement that, if
decided adversely to Pilgrim or such subsidiary, would have a Material
Adverse Effect on Pilgrim, or (2) is pending or, to the knowledge of
Pilgrim, threatened against Pilgrim or any of its subsidiaries as of the
date of this Agreement that seeks to enjoin or otherwise challenges the
consummation of the transactions contemplated by this Agreement. As of the
date of this Agreement, neither Pilgrim nor any of its subsidiaries is
specifically identified as a party subject to any material restrictions or
limitations under any injunction, writ, judgment, order, or decree of any
Governmental Authority.
(m) Permits; Compliance with Laws. Each of Pilgrim and its subsidiaries
has all material licenses, franchises, permits, and other authorizations of
Governmental Authorities necessary to conduct its business, and neither
Pilgrim nor any of its subsidiaries is in violation of any such license,
franchise, permit, or other authorization of a Governmental Authority or
any Applicable Law, except where such failure or violation would have a
Material Adverse Effect on Pilgrim.
(n) No Brokers or Finders. Except for Putnam, Lovell, de Guardiola &
Thornton Inc., Pilgrim has not engaged any investment banker, broker, or
finder in connection with the transactions contemplated hereby.
(o) Retirement and Benefit Plans; Employees.
(1) Each employee pension benefit plan ("Pension Plan"), as defined
in Section 3 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), each employee welfare benefit plan ("Welfare Plan"),
as defined in Section 3 of ERISA, and each deferred compensation,
bonus, incentive, stock incentive, option, stock purchase, severance,
or other employee benefit plan, agreement, commitment, or arrangement
("Benefit Plan"), that is currently maintained by Pilgrim or any of its
ERISA Affiliates (as defined in clause (9) below) or to which Pilgrim
or any of its ERISA Affiliates currently contributes or is under any
current obligation to contribute (collectively, the "Pilgrim Employee
Plans" and individually, an "Pilgrim Employee Plan") is listed in the
Pilgrim Disclosure Schedule and, to the extent any Pilgrim Employee
Plan is evidenced by documents, insurance policies, or manuals, true
and complete copies thereof have been delivered to ReliaStar, including
copies of any trust agreement or other funding contract with respect to
any Pilgrim Employee Plan. In addition, copies of the most recent
determination letter issued by the Internal Revenue Service with
respect to each Pension Plan, copies of the most recent actuarial
report for each Pension Plan, where applicable, and copies of the
annual report (Form 5500 Series) required to be
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filed with any Governmental Authority with respect to each Pension Plan
and each Welfare Plan, for the three most recent plan years of such
plan for which reports have been filed, have been delivered to
ReliaStar. In addition, copies of all material employee communications
(including summary plan descriptions and employee manuals) with respect
to each Pilgrim Employee Plan have been delivered to ReliaStar.
(2) Each of Pilgrim and its ERISA Affiliates has made on a timely
basis all contributions or payments required to be made by it under the
terms of the Pilgrim Employee Plans, ERISA, the Code, or other
applicable laws.
(3) No Pilgrim Employee Plan is a Pension Plan subject to Section
412 of the Code or Title IV of ERISA.
(4) Neither Pilgrim nor any of its ERISA Affiliates has maintained,
contributed to or otherwise had any obligation with respect to any
"multiemployer plan" (as defined in Section 3 of ERISA) within the past
six years.
(5) Each Pilgrim Employee Plan (and any related trust or other
funding instrument) is being administered in all material respects in
compliance with its terms, and in both form and operation, is in
compliance in all material respects with the applicable provisions of
ERISA, the Code, and other laws and regulations (other than adoption of
any plan amendments for which the deadline has not yet expired), and
all reports required to be filed with any Governmental Authority with
respect to each Pension Plan and each Welfare Plan required to be
listed on the Pilgrim Disclosure Schedule have in all material respects
been timely filed.
(6) There is no litigation, arbitration, or administrative
proceeding pending or, to the knowledge of Pilgrim, threatened against
Pilgrim or any of its ERISA Affiliates or, to the knowledge of Pilgrim,
any plan fiduciary by the Internal Revenue Service, the U.S. Department
of Labor, the PBGC, or any participant or beneficiary with respect to
any Pilgrim Employee Plan. Neither Pilgrim nor any of its ERISA
Affiliates nor, to the knowledge of Pilgrim, any plan fiduciary of any
Pension Plan or Welfare Plan required to be listed on the Disclosure
Schedule has engaged in any transaction in violation of Section 406(a)
or (b) of ERISA for which no exemption exists under Section 408 of
ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1)
of the Code) for which no exemption exists under Section 4975(c)(2) or
4975(d) of the Code, or is subject to any material excise tax imposed
by the Code or ERISA with respect to any Pilgrim Employee Plan.
(7) Pilgrim or its ERISA Affiliates have the right to terminate or
amend any Pilgrim Employee Plan (including any group health plan
covering retirees or other former employees) or discontinue
contributions to any Pilgrim Employee Plan without incurring any
liability other than a benefit liability accrued under such plan
immediate before termination, amendment, or discontinuance of
contributions.
(8) No Pilgrim Employee Plan is maintained outside the United
States.
(9) For purposes of this Section 3.2(o), the term "ERISA Affiliates"
includes (A) any trade or business with which Pilgrim is under common
control within the meaning of Section 4001(b) of ERISA, (B) any
corporation with which Pilgrim is a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code, (C) any
entity with which Pilgrim is under common control within the meaning of
Section 414(c) of the Code, (D) any entity with which Pilgrim is a
member of an affiliated service group within the meaning of Section
414(m) of the Code, and (E) any entity with which Pilgrim is aggregated
under Section 414(o) of the Code.
(10) Neither the execution and delivery of this Agreement nor the
consummation of the Merger will (either alone or in conjunction with
any other event) (A) result in any payment (including severance,
unemployment compensation, excess parachute payment (within the meaning
of Section 280G of the Code), forgiveness of indebtedness, or
otherwise) becoming due to any director or any
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employee of Pilgrim or any ERISA Affiliate from Pilgrim or any ERISA
Affiliate under any Pilgrim Employee Plans or otherwise, (B) increase
any benefits otherwise payable under any Pilgrim Employee Plan, or (C)
result in any acceleration of the time of payment or vesting of any
such benefits.
(p) Environmental Matters.
(1) For purposes of this Section 3.2(p):
(A) "Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act, 32 U.S.C. (S) 9601 et
seq., the Resource Conservation and Recovery Act, 32 U.S.C. (S) 6901
et seq., the Federal Water Pollution Control Act, 33 U.S.C. (S) 1201
et seq., the Clean Water Act, 33 U.S.C. (S) 1321 et seq., the Clean
Air Act, 32 U.S.C. (S) 7301 et seq., and any other federal, state,
local or other governmental statute, regulation, law or ordinance
dealing with the protection of human health, natural resources, or
the environment; and
(B) "Hazardous Substance" means any pollutant, contaminant,
hazardous substance or waste, solid waste, petroleum or any fraction
thereof, or any other chemical, substance, or material listed or
identified in or regulated by any Environmental Law.
(2) No Hazardous Substances have been spilled, discharged, leaked,
emitted, injected, disposed of, dumped, or released by Pilgrim or any
of its subsidiaries or, to the knowledge of Pilgrim, any other person
on, beneath, above, or into the environment surrounding any of the real
property currently or formerly owned or leased by Pilgrim or any of its
subsidiaries in such a way as to create any unpaid liability of Pilgrim
or any of its subsidiaries under any applicable Environmental Law, that
would have a Material Adverse Effect on Pilgrim.
(3) No underground storage tanks are located on any of the real
property currently owned or leased by Pilgrim or any of its
subsidiaries that contain or previously contained any Hazardous
Substances.
(q) Labor Matters. Pilgrim has no knowledge, as of the date of this
Agreement, of any activities or proceedings of any labor union to organize
any of its or its subsidiaries' employees.
(r) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Pilgrim Common Stock is the only vote of the
holders of any class or series of capital stock of Pilgrim necessary to
approve this Agreement and the Merger.
(s) Anti-Takeover Provisions. No restrictive provision of any "fair
price," "moratorium," "control share acquisition," "interested
stockholder," or other anti-takeover statute or regulation or any
restrictive effect of any applicable anti-takeover provision in Pilgrim's
Certificate of Incorporation or Bylaws is, or at the Effective Time will
be, applicable to the Merger or the other transactions contemplated hereby.
(t) Year 2000 Compliance. The software and hardware operated by Pilgrim
and its subsidiaries are capable of providing uninterrupted millennium
functionality to record, store, process, and present calendar dates falling
on or after January 1, 2000 and date-dependent data in substantially the
same manner and with the same functionality as that software and hardware
records, stores, processes, and presents such calendar dates and date-
dependent data as of the date hereof, except where such failure would not
have a Material Adverse Effect on Pilgrim. Any inability of that software
and hardware to process date-dependent data before, on, or after January 1,
2000 will not have a Material Adverse Effect on the Surviving Corporation.
(u) Insurance Coverage. Pilgrim and its subsidiaries have in effect
insurance coverage with reputable insurers or are self-insured, which in
respect of amounts, premiums, types, and risks insured, constitutes
reasonably adequate coverage against all risks customarily insured by
companies and their subsidiaries comparable in size and industry to Pilgrim
and its subsidiaries. All of the insurance policies and bonds of
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Pilgrim and its subsidiaries are listed in the Pilgrim Disclosure Schedule.
Each such insurance policy or bond in full force and effect and none of
Pilgrim or any of its subsidiaries has received notice or any other
indication from any insurer or agent of any intent to cancel any such
insurance policy or bond.
(v) Management Agreements. The Pilgrim Disclosure Schedule sets forth a
true and complete list of each of the collateral management agreements,
portfolio management agreements, investment management agreements, and
collateral administration agreements (collectively, the "Management
Agreements") related to Pilgrim's (or a subsidiary's) role as collateral
manager for the Pools.
(1) Each such Management Agreement is currently in full force and
effect and has been performed by the relevant entity in accordance with
all Applicable Laws. No material default or condition or event that,
after notice or lapse of time or both, would constitute a material
default on the part of Pilgrim or any of its subsidiaries or, to the
knowledge of Pilgrim, on the part of the other parties to such
Management Agreements, exists under any of those agreements.
(2) Each such Management Agreement together with the applicable
trust indenture are the only agreements that govern the role and
responsibilities of Pilgrim or its subsidiary with regard to the
certain collateralized loan pools, collateralized bond pool, and
collateralized pools of mixed loans and bonds.
(3) Each report prepared by, or prepared using data supplied by,
Pilgrim or its subsidiaries to trustees or any other party required
under a Management Agreement or indenture under which a Pool is
organized, to any rating agency, or to any noteholder under such
indenture, including any note-valuation report or noteholder report, is
complete and correct in all material respects as of its date and does
not contain any material misstatement or omission.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE PILGRIM FUNDS
4.1 General. Pilgrim represents and warrants to ReliaStar and Northstar that
the statements contained in this Article IV are true and correct, except as set
forth in the Pilgrim Disclosure Schedule.
4.2 Representations and Warranties.
(a) No Prohibitions. Neither Pilgrim or any of its subsidiaries nor any
person associated (as such term is construed under Section 9(18) of the
Exchange Act or Section 202(a)(17) of the Advisers Act) with those
companies has committed any act (1) enumerated in, or that may subject it
to the provisions of, Section 15(b)(4) of the Exchange Act, Section 203(e)
of the Advisers Act or Rule 206(4)-4(b) promulgated thereunder, or Section
9 of the 1940 Act, or (2) that would result in a "yes" answer to any
question contained in Item 22 of Form U-4 (Uniform Application for
Securities Industry Registration or Transfer) or the equivalent item of any
successor form or of any non-uniform state form, to the extent that such
act would affect ReliaStar's or Northstar's ability to materially benefit
from this Agreement or any agreement between the parties contemplated
hereby.
(b) No Unfair Burden. In connection with the transactions contemplated
by this Agreement, neither Pilgrim nor any of its subsidiaries nor any
"Interested Person" (as defined in the 1940 Act) of Pilgrim or any of its
subsidiaries has imposed, and none intend to impose, an unfair burden on
the Pilgrim Funds as a result of such transactions, or as a result of any
express or implied terms, conditions, or understanding applicable to such
transactions within the meaning of Section 15(f) of the 1940 Act.
(c) Organization of the Funds. Each of the Pilgrim Funds (sometimes
collectively referred to as the "Pilgrim Fund Family") is a registered
investment company (a "Registrant"), or a series of a Registrant, organized
as a Maryland or a California corporation, a Delaware business trust, or a
Massachusetts business trust, duly formed and validly existing and in good
standing under the law of its jurisdiction of organization. The Pilgrim
Disclosure Schedule sets forth a true, complete, and correct list, as of
the date
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hereof, of each of the Registrants and any series thereof, and whether any
of Pilgrim, Pilgrim Securities, or any other subsidiary of Pilgrim acts as
investment adviser, sub-adviser, broker-dealer, or sponsor for the
Registrant. Each Pilgrim Fund for which any affiliate of Pilgrim will act
in such capacities after the Effective Time is so indicated in the Pilgrim
Disclosure Schedule. Each Pilgrim Fund has the requisite power and
authority to carry on its business as it is now being conducted.
(d) Capitalization of the Pilgrim Funds. All issued and outstanding
shares of common stock and shares or units of beneficial interest of each
Pilgrim Fund (collectively, "shares") are, and at the Effective Time will
be, and all of the authorized but unissued shares of each Pilgrim Fund will
be, when issued for the consideration described in the current registration
statement relating to that Pilgrim Fund, duly and legally issued and
outstanding, fully paid, and non-assessable by the Pilgrim Fund. All of the
issued and outstanding shares of each Pilgrim Fund will, at the Effective
Time, be held of record by the persons and in the names and amounts set
forth in the records of DST Systems, Inc., the transfer agent of the
Pilgrim Funds. No Pilgrim Fund has outstanding any options, warrants, or
other rights to subscribe for or purchase any of its shares, nor is there
outstanding any security convertible into shares of any Pilgrim Fund.
(e) Financial Statements of the Pilgrim Funds. Pilgrim has furnished to
ReliaStar true and complete copies of the audited statements of assets and
liabilities (including the notes thereto) of each Pilgrim Fund as of the
two most recent fiscal/calendar years, the related audited statements of
operations and changes in net assets for the three most recent
fiscal/calendar years, and the related audited schedules of portfolio
investments for the two most recent fiscal/calendar years. Pilgrim also has
furnished to ReliaStar true and complete copies of the unaudited statement
of assets and liabilities (including the notes thereto) of each Pilgrim
Fund as of the most recent semi-annual period (June 30, 1999 for the
Pilgrim Funds using a calendar year), and the related unaudited statements
of operations and changes in net assets for such semi-annual period.
(f) Accuracy of Financial Statements. The audited and unaudited
financial statements of each Pilgrim Fund referred to in Section 4.2(e)
present in all material respects the financial position and results of
operations of the Pilgrim Fund at the dates and for the periods to which
they relate and have been prepared in accordance with GAAP subject, in the
case of the unaudited financial statements, to normal year-end audit
adjustments and the absence of footnotes. The audited financial statements
of each Pilgrim Fund have been certified by that Pilgrim Fund's independent
accounting firm.
(g) Compliance With Applicable Law. Each Pilgrim Fund is an open- or
closed-end diversified management investment company registered under the
1940 Act. Each Pilgrim Fund is in compliance, and at all times since a
Pilgrim subsidiary has served as investment adviser has been in compliance,
in all material respects with each federal or state statute, law,
ordinance, rule, administrative interpretation, regulation, order, writ,
injunction, directive, judgment, decree, policy, guideline, or other
requirement (including those of the NYSE or the NASD) promulgated by a
Governmental Authority (collectively, "Applicable Law") applicable to any
Pilgrim Fund, except, in each case, for any failure to so comply that would
have a Material Adverse Effect on the applicable Pilgrim Fund. The shares
of each Pilgrim Fund are registered in each jurisdiction in the United
States where such registration is required due to the offer or sale of such
shares in the jurisdiction, and those registrations have not been revoked,
withdrawn, or suspended in any way. The sale of shares in each Pilgrim Fund
is currently authorized in each of the United States and the District of
Columbia. Pilgrim has furnished to ReliaStar copies of each Registrant's
current post-effective amendment to its registration statement as most
recently filed with the SEC together with copies of each Registrant's
charter, bylaws, and trust instruments, as the case may be. The current
prospectus and related registration statement, including the current
statement of additional information, for each of the Registrants (copies of
which have been delivered to ReliaStar) conform in all material respects to
the applicable requirements of the Securities Act, the 1940 Act, and the
rules and regulations of the SEC thereunder, as well as the applicable
requirements of the various state securities laws, and do not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
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(h) No Conflicts. Neither the execution and delivery of this Agreement
by Pilgrim, nor the consummation by Pilgrim of the transactions
contemplated hereby will:
(1) conflict with or result in a breach of the charter, bylaws, or
similar organizational documents, as currently in effect, of any of the
Registrants;
(2) require any filing with, or consent or approval of, any
Governmental Authority having jurisdiction over any of the businesses
or assets of any of the Registrants, except for the consents,
approvals, filings, and notices required under the 1940 Act;
(3) violate any statute, law, ordinance, rule, or regulation
applicable to a Registrant or any injunction, judgment, order, writ, or
decree to which a Registrant has been specifically identified as
subject that would have a Material Adverse Effect on such Pilgrim Fund;
or
(4) result in a breach of, or constitute a default or an event that,
with the passage of time or the giving of notice, or both, would
constitute a default, give rise to a right of termination,
cancellation, or acceleration, create any entitlement of any third
party to any material payment or benefit, require the consent of any
third party, or result in the creation of any lien on the assets of a
Registrant under, any contract of the type referred to in Section
4.2(m), except such breaches, defaults, terminations, cancellations,
accelerations, entitlements, absences of consents, or liens that would
not have a Material Adverse Effect on such Pilgrim Fund.
(i) Adherence to Investment Policies and Restrictions. Investments held
by each of the Pilgrim Funds are, and for so long as each Pilgrim Fund has
been advised by a Pilgrim subsidiary have been, consistent with the
investment policies and restrictions applicable to the applicable Pilgrim
Fund. The value of each Pilgrim Fund's net assets is determined using
portfolio-valuation methods that comply in all material respects with the
1940 Act.
(j) Litigation. There are no legal or governmental actions or
proceedings pending or, to the knowledge of Pilgrim, threatened against any
of the Pilgrim Funds; nor, to the knowledge of Pilgrim, are there any legal
or governmental investigations pending or threatened against any of the
Pilgrim Funds that would in any such case have a Material Adverse Effect on
any such Pilgrim Fund; nor is there any judgment, decree, injunction, rule,
order (or, to the knowledge of Pilgrim, any investigation) of any
Governmental Authority outstanding against any of the Pilgrim Funds.
Neither the SEC, the NASD, nor any other regulatory agency has identified
any material issue in any deficiency letter or other similar inquiry
relating to a Pilgrim Fund or its operations, nor is there any unresolved
violation, criticism, or exception by any such regulatory agency or
authority therewith that would in any such case have a Material Adverse
Effect on any such Pilgrim Fund.
(k) Required Reports. For so long as a Pilgrim subsidiary has served as
investment adviser, each of the Pilgrim Funds has filed all prospectuses,
annual information forms, financial statements, other forms, reports, sales
literature, and advertising, and any other documents required to be filed
with applicable Governmental Authorities, and any amendments thereto (the
"Reports"), the failure to file of which would have a Material Adverse
Effect on the applicable Pilgrim Fund. The Reports have been prepared in
accordance with the requirements of Applicable Law in all material
respects.
(l) Taxes. Each Pilgrim Fund has elected to qualify and, for all taxable
years that a Pilgrim subsidiary served as investment adviser and with
respect to which the applicable statute of limitations (including any
extensions) has not expired ("open taxable years"), has continuously
qualified to be treated as a "regulated investment company" under
Subchapter M of the Code and has continuously been eligible to compute, and
has for each such taxable year computed, its federal income tax under
Section 852 of the Code and has no earnings and profits accumulated in any
taxable year that is not an open taxable year. At the Effective Time, all
Tax Returns with respect to any taxable period for which the applicable
statute of limitations (including any extensions) has not expired and
during which a Pilgrim subsidiary has served as investment adviser that
were or are required to be filed on or before such date by or on behalf of
an Pilgrim Fund were or shall have been timely filed and were or shall be
complete and correct and all
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federal and other Taxes, including interest, penalties, and additions to
tax, shown or required to be shown as due on such returns, shall have been
paid or provided for. No such Tax Return or other filing is currently under
audit, no assessment has been asserted with respect to such Tax Returns or
other filings, and no requests for waivers of the time to make any such
assessment are pending. None of the Pilgrim Funds is delinquent in the
payment of any material Tax, assessment, or governmental charge.
(m) Contracts. The Pilgrim Disclosure Schedule lists all material
contracts, including all agreements and arrangements for the distribution
of shares, to which a Pilgrim Fund is a party or by which a Pilgrim Fund or
its property is bound, other than contracts for the purchase or sale of
portfolio securities entered into in the ordinary course of business. Each
contract subject to Section 12(b) or 15 of the 1940 Act has been duly
approved at all times in compliance in all material respects with Section
12(b) or 15 of the 1940 Act and all other Applicable Laws. Each such
contract is currently in full force and effect and has been performed by
the relevant entity in accordance with the 1940 Act and all other
Applicable Laws. No material default or condition or event that, after
notice or lapse of time or both, would constitute a material default on the
part of Pilgrim or any of its subsidiaries or, to the knowledge of Pilgrim,
on the part of the other parties to such advisory and sub-advisory
agreements, exists under any of those material contracts. Copies of all
such material contracts have been delivered or made available for
inspection by ReliaStar and are true and complete.
(n) No Material Adverse Changes. Since December 31, 1998 no Material
Adverse Effect has occurred with respect to any Pilgrim Fund or the status
of any Pilgrim Fund as a regulated investment company under the Code.
(o) Books. The books and records of each Pilgrim Fund reflecting, among
other things, the investment transactions undertaken on behalf of each
Pilgrim Fund, the purchase and sale of shares of that Pilgrim Fund by its
holders of common stock or shares or units of beneficial interests
(collectively, "stockholders"), the number of issued and outstanding
Pilgrim Fund shares owned by each stockholder, and the state or other
jurisdiction in which those shares were offered and sold, are, to the
knowledge of Pilgrim, complete and accurate in all material respects.
(p) Absence of Undisclosed Liabilities. Each Pilgrim Fund has, to the
knowledge of Pilgrim, no material debts, obligations, or liabilities,
whether due or to become due, absolute, contingent, or otherwise, that are
required to be reflected in that Pilgrim Fund's financial statements in
accordance with GAAP that are not so reflected, except for debts,
obligations, or liabilities incurred in the ordinary course of business
since the date of the Pilgrim Fund's most recent audited or unaudited
financial statements or that would not be material to the applicable
Pilgrim Fund.
(q) No Pending Transaction. No Pilgrim Fund is a party to or bound by
any agreement, undertaking, or commitment (1) to merge or consolidate with,
or acquire all or substantially all of the property and assets of, any
other person, (2) to sell, lease, or exchange all or substantially all of
its property and assets to any other person, or (3) to enter into any
investment advisory agreement or distribution agreement.
(r) Proxy Statements/Prospectuses. All proxy statements/prospectuses to
be prepared for use by the Pilgrim Funds in connection with the
transactions contemplated by this Agreement will, with respect to
information provided by Pilgrim, any of its subsidiaries, or a Pilgrim
Fund, not contain any untrue statement of a material fact, or omit to state
any material fact required to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(s) Code of Ethics. A Pilgrim subsidiary has adopted a formal code of
ethics and a written policy regarding personal trading for Pilgrim
Investments, Inc. and for each of the Pilgrim Funds. Such code and policy
comply in all materials respects and during which a Pilgrim subsidiary has
served as investment adviser with Section 17(j) of the 1940 Act, Rule 17j-1
thereunder, and Section 204A of the Advisers Act. To the knowledge of
Pilgrim, there has been no violation of its code of ethics and personal
trading policy that would constitute a fraud upon any of the Pilgrim Funds.
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(t) No Disqualification. To the knowledge of Pilgrim, no person
"associated" (as defined under the Advisers Act) with Pilgrim Investments,
Inc. has, for a period of five years before the date hereof, been convicted
of any crime or is or has been subject to any disqualification that would
be a basis for denial, suspension, or revocation of registration of an
investment adviser under Section 203(e) of the Advisers Act or Rule 206(4)-
4(b) thereunder or of a broker-dealer under Section 15 of the Exchange Act.
To the knowledge of Pilgrim Investments, Inc., no "affiliated person" (as
defined under the 1940 Act) of Pilgrim Investments, Inc. has during a
period of five years before the date hereof been convicted of any crime or
is or has been subject to any disqualification that would be a basis for
disqualification as an investment adviser for any investment company under
Section 9(a) of the 1940 Act, and there is no basis for, or proceeding or
investigation that is reasonably likely to become the basis for, any such
disqualification, denial, suspension, or revocation.
(u) Insurance. Each Registrant has in full force and effect such
insurance as is required by the 1940 Act and has directors' and officers'
and errors and omissions insurance policies issued in amounts reasonably
believed to be adequate and appropriate by the Registrant's Board. No
Registrant is in default under any such insurance policy. Complete and
correct copies of all insurance policies of the Registrants have been made
available to ReliaStar. All premiums that are due and payable under such
policies have been paid.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RELIASTAR AND NORTHSTAR
5.1 General. ReliaStar and Northstar jointly and severally represent and
warrant to Pilgrim that the statements contained in this Article V are true and
correct, except as set forth in the disclosure schedule delivered by ReliaStar
to Pilgrim on or before the date of this Agreement (the "ReliaStar Disclosure
Schedule").
5.2 Representations and Warranties.
(a) Organization, Standing, Qualification. Each of ReliaStar and
Northstar is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware and has the requisite
power and authority to own, lease, and operate its properties and assets
and to carry on its business as it is now being conducted. Each of
ReliaStar and Northstar is duly qualified or licensed as a foreign entity
to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, operated, or leased by it, or the nature
of its business, makes such qualification or licensing necessary, except
for those jurisdictions where the failure to be so qualified or licensed or
in good standing would not have a Material Adverse Effect on ReliaStar.
Copies of the certificate of incorporation and bylaws of ReliaStar and
Northstar have been made available to Pilgrim and are complete and correct
as of the date hereof.
(b) Capitalization. The authorized capital stock of ReliaStar consists
of 200 million shares of ReliaStar Common Stock, of which, as of the close
of business on June 30, 1999, 86,492,186 shares were issued and
outstanding, and seven million shares of preferred stock, none of which are
outstanding. As of June 30, 1999, ReliaStar has reserved for issuance six
million shares of Series A Junior Participating Preferred Stock issuable
under the Amended and Restated Rights Agreement, dated as of February 11,
1999, between ReliaStar and Norwest Bank Minnesota, National Association
(the "ReliaStar Rights Agreement"). Under the ReliaStar Rights Agreement,
each outstanding share of ReliaStar Common Stock has attached to it certain
rights ("ReliaStar Rights"), including rights to purchase, under certain
circumstances, one-twentieth of a share of Series A Junior Participating
Preferred Stock of ReliaStar for $100, subject to adjustment. The
authorized capital stock of Northstar consists of 5,166,667 shares of
common stock, and 1,750 shares of preferred stock, all of which are
outstanding and held by ReliaStar. All of the issued and outstanding shares
of ReliaStar Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable, and were not granted in violation of any
statutory preemptive
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rights. There are no outstanding subscriptions, options, warrants, calls,
or other agreements or commitments under which ReliaStar or Northstar is or
may become obligated to issue, sell, transfer, or otherwise dispose of, or
purchase, redeem, or otherwise acquire, any shares of capital stock of, or
other equity interests in, ReliaStar or Northstar, and there are no
outstanding securities issued by ReliaStar convertible into or exchangeable
for any ReliaStar Common Stock, except for options to purchase up to an
aggregate of 6,744,224 shares of ReliaStar Common Stock, as of July 21,
1999. There are no stock appreciation rights, phantom stock rights, or
performance shares outstanding with respect to ReliaStar or Northstar.
ReliaStar owns, directly or indirectly, all of the issued and outstanding
shares of each class of capital stock of each of its subsidiaries, free and
clear of all liens, security interests, pledges, charges, and other
encumbrances.
(c) Authorization and Execution. Each of ReliaStar and Northstar has the
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery,
and performance of this Agreement by ReliaStar and Northstar have been duly
authorized by the Boards of Directors of ReliaStar and Northstar, and no
further corporate action of either ReliaStar or Northstar is necessary to
consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by ReliaStar and Northstar and, assuming the
accuracy of the representations and warranties of Pilgrim set forth in
Section 3.1(c), this Agreement constitutes the legal, valid, and binding
obligation of ReliaStar and Northstar, enforceable against them in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally, and subject to general
principles of equity.
(d) No Conflicts. Neither the execution and delivery of this Agreement
by ReliaStar and Northstar, nor the consummation by them of the
transactions contemplated hereby will:
(1) conflict with or result in a breach of the certificate of
incorporation or bylaws, as currently in effect, of ReliaStar or
Northstar;
(2) require any filing with, or consent or approval of, any
Governmental Authority having jurisdiction over any of the businesses
or assets of ReliaStar, Northstar, or any of their subsidiaries, except
for (A) compliance with the filing requirements under the HSR Act; (B)
the filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate documents reflecting the occurrence of the Merger
with the relevant authorities of other states in which ReliaStar or
Northstar is licensed or qualified to do business; (C) the consents,
approvals, filings, and notices required under the 1940 Act and the
Advisers Act; (D) any consents, approvals, filings, or notices required
with the NASD or any industry self-regulatory organizations; (E) the
filing of the Proxy Statement/Prospectus and any other compliance with
the applicable requirements of the Exchange Act; and (F) such filings
and approvals as are required to be made or obtained under the
securities or "blue sky" laws of various states and (G) such other
filings, consents or, approvals the failure to make or obtain would not
reasonably be expected to prevent consummation of the Merger or have a
Material Adverse Effect on ReliaStar;
(3) subject to the exceptions of and assuming compliance with,
clauses (A) through (G) of subsection (d)(2) above, violate any
Applicable Law applicable to ReliaStar or Northstar; or
(4) result in a material breach of, or constitute a material default
or an event that, with the passage of time or the giving of notice, or
both, would constitute a material default, give rise to a right of
termination, cancellation, or acceleration, create any entitlement of
any third party to any material payment or benefit, require the consent
of any third party, or result in the creation of any material lien on
the assets of ReliaStar or Northstar under, any contract that is a
"material contract" (as is defined in Item 601(b)(10) of Regulation S-K
of the SEC) to be performed after the date of this Agreement.
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(e) SEC Reports and Financial Statements.
(1) Since December 31, 1997, ReliaStar has filed all reports,
registration statements, and other filings, together with any
amendments required to be made with respect thereto, that it has been
required to file with the SEC under the Securities Act and Exchange
Act. All reports, registration statements, and other filings (including
all exhibits, notes, and schedules thereto and documents incorporated
by reference therein) filed by ReliaStar with the SEC on or after
January 1, 1998, together with any amendments thereto are collectively
referred to as the "ReliaStar SEC Reports." ReliaStar has previously
delivered or made available to Pilgrim one set of true and complete
copies of all of the ReliaStar SEC Reports that have been filed with
the SEC before the date of this Agreement. As of (A) with respect to
all of the ReliaStar SEC Reports other than registration statements
filed under the Securities Act, the respective dates of their filing
with the SEC, and (B) with respect to all registration statements filed
under the Securities Act, their respective effective dates, the
ReliaStar SEC Reports complied in all material respects with the rules
and regulations of the SEC and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein not
misleading.
(2) The consolidated financial statements (including any related
notes or schedules) included in ReliaStar's 1998 Annual Report on Form
10-K, as filed with the SEC, were prepared in accordance with GAAP
(except as may be noted therein or in the notes or schedules thereto)
and fairly present in all material respects the consolidated financial
position of ReliaStar and its subsidiaries as of December 31, 1997 and
1998 and the consolidated results of their operations and cash flows
for each of the three years in the three-year period ended December 31,
1998.
(f) Proxy Statement/Prospectus. The information supplied by ReliaStar
and Northstar for inclusion in the Proxy Statement/Prospectus, as of the
date of the Proxy Statement/Prospectus and as of the date of the meeting of
Pilgrim's stockholders to consider this Agreement and the Merger, will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Litigation. No litigation, arbitration, or administrative proceeding
(1) is pending or, to the knowledge of ReliaStar, threatened against
ReliaStar, its subsidiaries or Northstar as of the date of this Agreement
that, if decided adversely to ReliaStar, its subsidiaries or Northstar,
would have a Material Adverse Effect on ReliaStar, or (2) is pending or, to
the knowledge of ReliaStar, threatened against ReliaStar, its subsidiaries,
or Northstar as of the date of this Agreement that seeks to enjoin or
otherwise challenges the consummation of the transactions contemplated by
this Agreement. As of the date of this Agreement, neither ReliaStar, its
subsidiaries, nor Northstar is specifically identified as a party subject
to any material restrictions or limitations under any injunction, writ,
judgment, order, or decree of any Governmental Authority.
(h) Permits; Compliance with Laws. Each of ReliaStar and Northstar has
all material licenses, franchises, permits, and other authorizations of
Governmental Authorities necessary to conduct its business, and neither
ReliaStar nor Northstar is in violation of any such license, franchise,
permit, or other authorization of a Governmental Authority, or any statute,
law, ordinance, rule, or regulation applicable to it or any of its
properties, except where such failure would have a Material Adverse Effect
on ReliaStar.
(i) No Brokers or Finders. Except for Merrill Lynch, Pierce, Fenner &
Smith Incorporated, neither ReliaStar nor Northstar has engaged any
investment banker, broker, or finder in connection with the transactions
contemplated hereby.
(j) Absence of Certain Changes or Events. Except as disclosed in the
ReliaStar SEC Reports, from December 31, 1998 to the date of this
Agreement, ReliaStar and its subsidiaries have conducted their respective
businesses and operations in the ordinary course consistent with past
practices.
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(k) No Material Adverse Effect. From December 31, 1998 to the date of
this Agreement, there has been no Material Adverse Effect on ReliaStar.
(l) Year 2000 Compliance. The software and hardware operated by
ReliaStar and its subsidiaries are capable of providing uninterrupted
millennium functionality to record, store, process, and present calendar
dates falling on or after January 1, 2000 and date-dependent data in
substantially the same manner and with the same functionality as that
software and hardware records, stores, processes, and presents such
calendar dates and date-dependent data as of the date hereof, except where
such failure would not have a Material Adverse Effect on ReliaStar. Any
inability of that software and hardware to process date-dependent data
before, on, or after January 1, 2000 will not have a Material Adverse
Effect on the Surviving Corporation.
ARTICLE VI
COVENANTS RELATING TO THE PILGRIM FUNDS
6.1 Requisite Approvals Concerning the Pilgrim Funds. With respect to each
Pilgrim Fund, and pursuant to the provisions of Section 15 of the 1940 Act,
Section 12 of the 1940 Act and Rule 12b-1 thereunder, and each Registrant's
charter, bylaws, and/or trust instruments, each of Pilgrim and its
subsidiaries, ReliaStar, and Northstar will use its respective reasonable best
efforts in good faith to obtain (and cooperate with one another in obtaining),
as promptly as practicable, the approval of the Registrant's Board of
Directors, if the Registrant is a corporation, or Board of Trustees, if the
Registrant is a business trust (as used in this Agreement, the term "Board,"
when used with respect to a Registrant, means the Board of Directors or the
Board of Trustees, as the case may be) of each Registrant in the Pilgrim Fund
Family and of the stockholders, as required by Section 15 or, to the extent
necessary, Rule 12b-1, of new investment advisory, sub-advisory, and
distribution agreements and plans for each Pilgrim Fund identical in all
respects to those in effect immediately before the Effective Time which will be
effective immediately after the Effective Time, except for any changes approved
by ReliaStar and approved by the applicable Board.
6.2 Termination of Existing Advisory, Sub-Advisory, and Distribution
Arrangements. Each of Pilgrim and its subsidiaries and ReliaStar and Northstar
shall use its respective reasonable best efforts to cause the Board of each
Registrant to take, and Pilgrim and its subsidiaries will take, all necessary
and appropriate actions to provide written notice of termination in connection
with the change in control and resulting assignment, as of the Effective Time,
pursuant to the requirements of each existing advisory, sub-advisory, and
distribution agreement applicable to each such Fund, each such termination to
be effective as of the Effective Time, except for any changes approved by
ReliaStar and approved by the applicable Board.
6.3 Information Regarding the Pilgrim Funds. With respect to each
Registrant, ReliaStar shall provide as promptly as practicable to the Board of
each Registrant, with copies to Pilgrim, all information as the Board shall
request, in accordance with its responsibilities under Sections 15 and 36 of
the 1940 Act, to evaluate the terms of the proposed advisory and any sub-
advisory agreements relating to the Pilgrim Funds. Further, with respect to
each Registrant, ReliaStar also shall provide to the respective Board, with
copies to Pilgrim, all information requested to approve the terms of the
distribution agreement and to permit preparation of proxy materials or
prospectuses, as the case may be, to be sent to the stockholders of each
Registrant for the special meeting of stockholders referred in Section 7.6(b).
6.4 Access to Information Regarding the Pilgrim Funds. Upon reasonable
notice, Pilgrim shall (and shall cause its subsidiaries and the Pilgrim Funds
to) afford to the officers, employees, accountants, counsel, and other
representatives of ReliaStar, reasonable access, during normal business hours,
to all its properties, books, contracts, commitments, and records and will
cause its, its subsidiaries', and the Pilgrim Funds' employees, counsel,
financial advisers, and auditors to cooperate with ReliaStar and its
representatives in its investigation of the business of the Pilgrim Funds.
Pilgrim shall (and shall cause its subsidiaries and the Pilgrim Funds to)
furnish promptly to ReliaStar a copy of each report, schedule, registration
statement, and other document filed
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or received by it during such period under the requirements of securities laws
and all other information concerning its business, properties, and personnel as
ReliaStar or its representatives may reasonably request. ReliaStar's
investigations shall be conducted in a manner as not to unreasonably interfere
with the operations of the Pilgrim Funds, and ReliaStar will take reasonable
precautions to protect the confidentiality of any information of the Pilgrim
Funds disclosed to such persons during the investigation. No information or
knowledge obtained in any investigation under this Section 6.4 shall be deemed
to modify a representation or warranty contained in this Agreement or the
conditions to the obligation of ReliaStar to consummate the Merger.
6.5 The Registrants' Registration Statements. Pilgrim and ReliaStar will
cooperate with each other and each will endeavor in good faith to cause each
Registrant to file a post-effective amendment to that Registrant's registration
statement on Form N-1A at least 60 days before the Closing, which amendment
shall reflect all changes in that Registrant's affairs as a consequence of the
transactions contemplated by this Agreement, and shall cooperate with one
another in causing each Registrant to make any other filing necessary to
satisfy disclosure requirements to enable the public distribution of the shares
of beneficial interest of that Registrant to continue unabated after the
Closing.
6.6 Operations of the Pilgrim Funds. Pilgrim shall, or shall cause its
applicable subsidiaries to, (a) inform ReliaStar weekly of purchases and sales
transactions of each Pilgrim Fund and provide weekly summaries of portfolio
positions (no earlier than five business days from those transactions); (b)
supply to ReliaStar unaudited financial statements of each Pilgrim Fund
monthly; (c) otherwise conduct its activities as investment adviser to each
Pilgrim Fund in the ordinary course of business consistent with past practice,
including the use of leverage by the closed-end Pilgrim Fund; and (d) provide
ReliaStar with weekly sales and redemption reports.
6.7 Undertakings Related to Section 15(f) of the 1940 Act. ReliaStar and
Pilgrim agree that neither of them nor any of their affiliates has any express
or implied understanding or arrangement that would impose an "unfair burden"
(as defined in section 15(f)(2)(B) of the 1940 Act) on any of the Pilgrim Funds
or would in any way violate section 15(f) of the 1940 Act as a result of the
transactions contemplated by this Agreement. The parties agree to use their
respective reasonable best efforts to comply and to cause the respective Boards
to comply with the provisions of section 15(f) of the 1940 Act. Compliance with
section 15(f) shall include the following requirements for the minimum time
periods specified in that section:
(a) for a period of three years after the Effective Time, at least 75%
of the members of the Board of each Registrant involved, or any successor
Board by reorganization or otherwise, shall not be "interested persons" (as
defined in the 1940 Act) of the predecessor or new investment adviser or
sub-adviser;
(b) for a period of two years after the Effective Time, no unfair burden
shall be imposed on a Pilgrim Fund (or any successor thereto by any
reorganization or otherwise) or its stockholders; provided that it is
understood that any payments or amounts received by Pilgrim or its
affiliates in connection with the transaction contemplated hereunder and as
specified hereunder shall not be deemed to violate ReliaStar's and its
affiliates' compliance with the unfair-burden provisions of Section 15(f);
and
(c) all vacancies on the Board of each Pilgrim Fund (other than
vacancies created by the death, disqualification, or resignation of any
Board member interested in ReliaStar, Pilgrim, or any of its affiliates)
shall be filled by a person who is not an interested person and who has
been selected and proposed for election by a majority of the Board members
who are not interested persons.
6.8 Continued Qualification. Pilgrim shall use its reasonable best efforts
to ensure that no Registrant takes any action that (a) would prevent any
Pilgrim Fund from qualifying as a "regulated investment company" under Section
851 of the Code or (b) would be inconsistent with each Pilgrim Fund's
prospectus and other offering, advertising, and marketing materials.
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ARTICLE VII
COVENANTS RELATING TO THE PARTIES
7.1 Business Operations of Pilgrim. Pilgrim agrees as to itself and its
subsidiaries (except to the extent that ReliaStar otherwise consents (not be
unreasonably withheld or delayed) in writing or as contemplated by this
Agreement), to carry on its business in the usual and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due subject to good faith disputes over those debts or taxes, to pay
or perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, to keep
available the services of its present officers and key employees and preserve
its material relationships with clients, customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, and
generally to preserve its goodwill and ongoing businesses. Except as expressly
stated in this Agreement, Pilgrim may not (and may not permit any of its
subsidiaries to), without the prior written consent of ReliaStar (not to be
unreasonably withheld or delayed):
(a) accelerate, amend, or change the period of exercisability of
options, performance shares, or restricted stock granted under any stock
plan or authorize cash payments in exchange for any awards granted under
any of those plans, except as required by the terms of those plans or any
related agreements or other arrangements in effect as of the date hereof;
(b) transfer or license to any person or entity or otherwise extend,
amend, or modify any of its Proprietary Rights;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock, or property) in respect of shares of its capital
stock, or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of, or in
substitution for shares of capital stock, or purchase, redeem, or otherwise
acquire, or propose to purchase, redeem, or otherwise acquire, directly or
indirectly, any shares of its capital stock or any options, rights, or
warrants to purchase any capital stock or any securities convertible into
or exchangeable for capital stock;
(d) issue, deliver, or sell or authorize or propose the issuance,
delivery, or sale of any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants, or options to acquire, or other agreements or commitments of any
character obligating it to issue, any such shares or other convertible
securities (other than the grant of options to employees in a manner
consistent with past practices and under the Pilgrim Stock Option Plans,
and the issuance of shares upon the exercise of options that were either
outstanding as of the date hereof or were granted after the date hereof in
compliance with this Section 7.1(d));
(e) acquire (whether by merger, consolidation, acquisition of stock or
assets, or otherwise) any corporation, partnership, or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets that are material, individually or in the aggregate, to the
business of Pilgrim and its subsidiaries, taken as a whole;
(f) sell, lease, license, or otherwise dispose of any of its properties
or assets that are material, individually or in the aggregate, to the
business of Pilgrim and its subsidiaries, taken as a whole;
(g) (1) increase the compensation or benefits payable or to become
payable to its directors, officers, or employees, except for increases for
non-executive-level employees in the ordinary course of business; (2) enter
into any employment or severance agreements with any person; (3) grant any
severance or termination pay to, except under agreements or policies
disclosed in the Pilgrim Disclosure Schedule, or enter into any employment
or severance agreement with, any employee, except severance agreements in
accordance with the policies disclosed in the Pilgrim Disclosure Schedule;
(4) enter into any collective bargaining agreement; (5) establish or,
except as required by applicable law, amend any bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance, or other plan,
trust, fund, policy, or arrangement for the benefit of
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any directors, officers, employees, or consultants; or (6) establish any
new executive-officer employee position;
(h) (1) revalue any of its assets, other than revaluations that are
required in accordance with GAAP or in the ordinary course of business; or
(2) change or modify in any material respect any existing accounting
method, principle, or practice, other than as required by GAAP;
(i) incur any indebtedness for borrowed money or guarantee or assume any
such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of Pilgrim or any of its subsidiaries
or guarantee any debt securities of others, or voluntarily prepay any
outstanding indebtedness (provided that this Section 7.1(i) does not
preclude intercompany indebtedness, guaranties, or assumptions), except for
borrowings in the ordinary course consistent with Pilgrim's past practices
under the revolving credit facility described in the Pilgrim Disclosure
Schedule if, after giving effect thereto, the outstanding principal balance
of all borrowings under such revolving credit facility does not exceed $15
million;
(j) amend or propose to amend its charter, bylaws, or similar
organizational documents;
(k) make any capital expenditure or commitment for which it is not
contractually bound at the date hereof, except for capital expenditures and
commitments not to exceed $100,000 in total;
(l) enter into any new Material Contract (other than in the ordinary
course of business), or modify in any respect materially adverse to Pilgrim
or any of its subsidiaries any existing Material Contract;
(m) engage in the business of selling any products or services
materially different from existing products and services, or enter into new
lines of business;
(n) enter into, terminate, or amend (1) any agreement under which it
agrees to indemnify any party on behalf of its business or under which it
agrees to refrain from competing with any party with respect to its
business or (2) any investment advisory, sub-advisory, management,
distribution, marketing, custody, or other service agreements relating to
the Pilgrim Funds, except for selling agreements; or
(o) agree to take any of the actions described in subsections (a)
through (n) above, or take or agree to take any action that is reasonably
likely to make any of Pilgrim's representations or warranties contained in
this Agreement untrue or incorrect in any material respect as of the
Effective Time.
7.2 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, ReliaStar, Northstar, and Pilgrim shall confer
on a regular and frequent basis with one or more representatives of the other
parties to report operational matters of materiality and the general status of
ongoing operations and shall promptly provide the other parties and their
counsel with copies of all filings made by the party with any Governmental
Authority in connection with this Agreement, the Merger, and the transactions
contemplated hereby.
7.3 Access to Information. Upon reasonable notice, Pilgrim shall (and shall
cause its subsidiaries to) afford to the officers, employees, accountants,
counsel, and other representatives of ReliaStar, reasonable access, during
normal business hours, to all its properties, books, contracts, commitments,
and records and will instruct its, and its subsidiaries', employees, counsel,
financial advisers, and auditors to cooperate with ReliaStar and its
representatives in its investigation of the business of Pilgrim and its
subsidiaries. Pilgrim shall (and shall cause its subsidiaries to) furnish
promptly to ReliaStar (a) a copy of each report, schedule, registration
statement, and other document filed or received by it during such period under
the requirements of securities laws and (b) all other information concerning
its business, properties, and personnel as ReliaStar or its representatives may
reasonably request. ReliaStar's investigations shall be conducted in a manner
as not to unreasonably interfere with the operations of Pilgrim and its
subsidiaries, and ReliaStar will take reasonable precautions to protect the
confidentiality of any information of Pilgrim and its subsidiaries disclosed to
such persons during the investigation. No information or knowledge obtained in
any investigation under this Section 7.3 shall be deemed to modify a
representation or warranty contained in this Agreement or the conditions to the
obligation of ReliaStar to consummate the Merger.
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7.4 No Solicitation.
(a) Pilgrim may not, directly or indirectly, through any officer,
director, employee, representative, or agent of Pilgrim, any of its
subsidiaries, or the Pilgrim Funds:
(1) seek, encourage, initiate, or solicit any inquiries, proposals,
or offers from any person or group to acquire any shares of capital
stock (including by way of a tender offer, but nothing shall prohibit
customary calls with analysts consistent with past practice in respect
of Pilgrim results) of it, any of its subsidiaries, or any of the
Pilgrim Funds, to merge or consolidate with it, any of its
subsidiaries, or any Pilgrim Fund, or to otherwise acquire any
significant portion of the assets of it, any of its subsidiaries, or
the Pilgrim Funds, or similar transaction involving Pilgrim, any of its
subsidiaries, or the Pilgrim Funds, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries,
proposals, or offers being an "Acquisition Proposal");
(2) engage in negotiations or discussions concerning an Acquisition
Proposal with any person or group or disclose or provide any non-public
information relating to the business of Pilgrim, any of its
subsidiaries, or any Pilgrim Fund, or afford access to the properties,
books, or records of Pilgrim, any of its subsidiaries, or any Pilgrim
Fund to any person or group that the party has reason to believe may be
considering an Acquisition Proposal; or
(3) agree to, approve, or recommend any Acquisition Proposal.
(b) Any violation of the restrictions set forth in Section 7.4(a) by any
director or officer of Pilgrim or any of its subsidiaries or any of Pilgrim
or its subsidiaries' financial advisers, attorneys, accountants, or other
representatives, whether or not acting on behalf of Pilgrim or its
subsidiaries, shall be deemed a violation of Section 7.4(a) by Pilgrim.
(c) Nothing contained in Section 7.4(a), however, prevents Pilgrim from
(1) authorizing any of its officers, financial advisers, attorneys,
accountants, or other representatives to furnish non-public information or
access to, or to enter into discussions or negotiations with, any person in
connection with a bona fide Acquisition Proposal by such person that has
not been solicited after the date hereof, or recommending to its
stockholders a bona fide written Acquisition Proposal that has not been
solicited after the date hereof, if, and only to the extent that, (A) the
Board of Directors of Pilgrim determines in good faith after advice from
outside legal counsel that such action is necessary for it to comply with
its fiduciary duties to stockholders under Delaware law, (B) before
furnishing such non-public information to, or entering into discussions or
negotiations with, such person, the Board of Directors receives from such
person an executed confidentiality agreement on terms no less favorable to
Pilgrim than those contained in the Confidentiality Agreement discussed in
Section 7.14, (C) the Board of Directors determines in good faith that such
Acquisition Proposal is reasonably likely to lead to a Superior Proposal
(as defined in Section 7.4(d)), and (D) the Acquisition Proposal did not
result from a breach of Section 7.4(a), or (2) complying with Rule 14e-2 or
Rule 14d-9 promulgated under the Exchange Act with regard to an Acquisition
Proposal; provided, however, that the foregoing clause (2) shall not alter
the covenants of Pilgrim set forth in clause (3) of Section 7.4(a).
(d) For purposes of this Agreement, "Superior Proposal" means an
Acquisition Proposal that the Board of Directors of Pilgrim determines in
its good faith judgment, based upon advice of its outside legal counsel and
financial adviser, to be more favorable to its stockholders than the Merger
and for which financing, to the extent required, is committed or, in the
good faith judgment of the Board of Directors, is reasonably capable of
being obtained by the third party.
(e) Pilgrim shall immediately cease and cause to be terminated any
activities, discussions, or negotiations, existing on the date hereof, with
any person with respect to any Acquisition Proposal, and will promptly
request that each such person return or destroy all confidential
information previously produced to that person by Pilgrim or its
subsidiaries.
(f) Pilgrim shall immediately notify ReliaStar upon receipt by it or its
advisers of any Acquisition Proposal or any request for non-public
information in connection with an Acquisition Proposal or for
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access to the properties, books, or records thereof by any person that
informs Pilgrim that it is considering making, or has made, an Acquisition
Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the terms and conditions of the proposal,
inquiry, or contact, but need not disclose the identity of the person
making the Acquisition Proposal or the request. If ReliaStar is notified by
Pilgrim of a Superior Proposal, then ReliaStar shall have five business
days to make a counter proposal; provided, however, that neither the
submission nor the failure to submit such a counter proposal shall affect
ReliaStar's right to be paid a termination fee under Section 10.3.
7.5 Proxy Statement/Prospectus; Board Recommendation. As promptly as
practicable after the execution hereof, ReliaStar and Pilgrim shall jointly
prepare a proxy statement/prospectus (the "Proxy Statement/Prospectus"), which
shall be sent to the stockholders of Pilgrim in connection with the special
meeting of Pilgrim's stockholders to consider the approval of this Agreement
and the Merger and the receipt of ReliaStar Common Stock in the Merger. The
Proxy Statement/Prospectus shall include the recommendation of the Board of
Directors of Pilgrim in favor of this Agreement and the Merger; provided that
the Board of Directors of Pilgrim may withdraw such recommendation if it
determines that there exists a Superior Proposal and its Board of Directors
determines that the withdrawal of the recommendation is necessary for the Board
of Directors to comply with its fiduciary duties under the Delaware law. The
parties shall use their respective reasonable best efforts to cause the Proxy
Statement/Prospectus to become effective under the Securities Act.
7.6 Stockholders' Meetings of Pilgrim and the Pilgrim Funds; Consents for
Pools.
(a) Pilgrim shall call a meeting of its stockholders to be held as
promptly as practicable for the purpose of voting upon the approval of this
Agreement and the Merger. The special meeting of Pilgrim's stockholders
shall be held to vote on the approval of this Agreement and the Merger
whether or not the Board of Directors of Pilgrim determines at any time
after the date of this Agreement that this Agreement and the Merger are no
longer advisable and recommends that Pilgrim stockholders reject this
Agreement and the Merger. Subject to Section 7.5, Pilgrim shall, through
its Board of Directors, recommend to its stockholders approval of this
Agreement and the Merger and use its best efforts to solicit from its
stockholders proxies in favor of approval of this Agreement and the Merger.
(b) Pilgrim will use and will cause its subsidiaries to use their best
efforts to obtain, as promptly as reasonably practicable, the agreement of
the Board of each Registrant to call a special meeting of stockholders to
be held as promptly as reasonably practicable for the purpose of voting
upon the approval of the advisory and any sub-advisory agreements and the
amended Rule 12b-1 distribution plan, if required by the 1940 Act and, to
the extent consistent with its fiduciary duties under the 1940 Act, to
recommend that shareholders approve such proposed advisory and any sub-
advisory agreements and any such distribution plan.
(c) With respect to each Pool, Pilgrim and its subsidiaries, and
ReliaStar and Northstar will each use its reasonable best efforts in good
faith to obtain (and cooperate with one another in obtaining), as promptly
as practicable, any consent required of each other party or of other
required persons under any Management Agreement to the assignment, if any,
of such Management Agreements before the Closing.
7.7 Legal Conditions to Merger. Each of ReliaStar, Northstar, and Pilgrim
shall take all reasonable actions necessary to comply promptly with all legal
requirements that may be imposed on it with respect to the Merger (including
furnishing all information required under the HSR Act and in connection with
approvals of or filings with any other Governmental Authorities) and will
promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon any of them or any of their
subsidiaries in connection with the Merger. Each of ReliaStar and Pilgrim
shall, and shall cause its subsidiaries to, take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order, or approval of, or any exemption by, any
Governmental Authority or other public third party, required to be obtained or
made by ReliaStar, Pilgrim, or any of their subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
Nothing in this Section 7.7, however, shall require ReliaStar or any of its
subsidiaries, in connection with the receipt of any regulatory
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approval, to agree (a) to sell, discontinue, or limit, before or after the
Effective Time, any assets, businesses, or interest in any assets or businesses
of it or any of its affiliates, or (b) to any conditions relating to, or
changes or restriction in, the operations of any such assets or businesses that
is reasonably likely to materially and adversely impact the economic or
business benefits to ReliaStar and Northstar of transactions contemplated
hereby.
7.8 Tax-Free Reorganization.
(a) ReliaStar and Pilgrim shall each use all reasonable best efforts to
cause the Merger to be treated as a reorganization within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code (a
"Reorganization"), including any mutually agreeable re-allocation of the
Merger Consideration between the Share Consideration and the Cash
Consideration that is reasonably necessary to obtain such treatment.
(b) To the extent permitted under applicable tax laws, the Merger shall
be reported as a Reorganization in all federal, state, and local Tax
Returns filed after the Effective Time.
(c) At the Effective Time, ReliaStar, Pilgrim, and Northstar will use
all reasonable best efforts so that none will be an investment company, as
defined in Section 368(a)(2)(F) of the Code, unless it is a regulated
investment company or a corporation that meets the requirements of Code
Section 368(a)(2)(F)(ii).
7.9 NYSE Listing. ReliaStar shall cause the shares of ReliaStar Common Stock
to be issued in the Merger to be approved for listing on the NYSE, subject to
official notice of issuance, before the Closing Date.
7.10 Stock Plans and Options.
(a) At the Effective Time, the Pilgrim Options shall be assumed by
ReliaStar. Each Pilgrim Option so assumed by ReliaStar under this Agreement
shall continue to have, and be subject to, substantially the same terms and
conditions as were applicable under the Pilgrim Option Plans and the
documents governing the Pilgrim Options immediately before the Effective
Time, except that each Pilgrim Option will be exercisable for that number
of whole shares of ReliaStar Common Stock equal to the product of the
number of shares of Pilgrim Common Stock that were issuable upon exercise
of the option immediately before the Effective Time multiplied by the
Option Ratio (as defined in Section 7.10(d)) and rounded to the nearest
whole number of shares of ReliaStar Common Stock, and the per-share
exercise price for the shares of ReliaStar Common Stock issuable upon
exercise of such assumed Pilgrim Option will be equal to the quotient
determined by dividing the exercise price per share of Pilgrim Common Stock
at which the option was exercisable immediately before the Effective Time
by the Option Ratio, rounded to the nearest whole cent. It is the intention
of the parties that the Pilgrim Options so assumed by ReliaStar qualify
following the Effective Time as "incentive stock options," as defined in
Section 422 of the Code, to the extent such options qualified as incentive
stock options immediately before the Effective Time.
(b) ReliaStar shall also assume Pilgrim's obligations under its 1996
Performance Share Plan. Each Performance Share granted under that plan on
or before the date of this Agreement shall be converted into ReliaStar
Performance Shares by multiplying the number of shares of Pilgrim Common
Stock that could be issued pursuant to all such Performance Shares by the
Option Ratio, and rounding the result to the nearest whole number of shares
of ReliaStar Common Stock, and the per-share exercise price for each such
Parent Performance Share will be equal to the quotient determined by
dividing the exercise price at which such Performance Share was exercisable
immediately before the Effective Time by the Option Ratio, rounded to the
nearest whole cent. The resulting number will equal the number of ReliaStar
Performance Shares, so that each ReliaStar Performance Share will represent
the right to receive one share of ReliaStar Common Stock.
(c) ReliaStar shall take all corporate actions necessary to reserve for
issuance a sufficient number of shares of ReliaStar Common Stock for
delivery upon exercise of all Pilgrim Options and Performance
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Shares assumed in accordance with this Section 7.10. As soon as practicable
after the Effective Time, ReliaStar shall file a registration statement on
Form S-8 (or other applicable form) with respect to the shares of ReliaStar
Common Stock subject to those options and performance shares and shall use
its best efforts to maintain the effectiveness of the registration
statement for so long as those options remain outstanding.
(d) For purposes of this Agreement, the "Option Ratio" shall equal the
quotient obtained by dividing (1) the Dollar Denominated Consideration by
(2) the ReliaStar Average Share Price.
7.11 Consents. Pilgrim shall use all reasonable efforts to obtain all
necessary third-party consents, waivers, and approvals under any of Pilgrim's
material agreements, contracts, licenses, or leases to consummate the Merger
and the transactions contemplated thereby.
7.12 Pilgrim Mutual Fund Assets Under Management. Not less than one trading
day prior to the Closing Date, Pilgrim shall deliver to ReliaStar a schedule
setting forth the amount of Pilgrim Mutual Fund Assets Under Management and the
dollar value of the Pools.
7.13 Additional Agreements; Reasonable Efforts. Subject to the terms hereof,
including Section 7.5, each of the parties shall use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper, or advisable under Applicable Law to consummate and
make effective the transactions contemplated by this Agreement.
7.14 Confidentiality Agreement. The Confidentiality Agreement between
ReliaStar and Pilgrim dated April 15, 1998 shall remain in full force and
effect until the Effective Time. Until the Effective Time, the parties shall
comply with the terms of the Confidentiality Agreement.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to the Parties' Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger are subject to the
satisfaction before the Closing of the following conditions, any of which may
be waived, to the extent legally allowed, in writing, by mutual written consent
of the parties:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved by the requisite vote of the stockholders of Pilgrim, as required
by the Delaware Law and by any applicable provisions of Pilgrim's
Certificate of Incorporation and Bylaws. The proposals to be acted upon at
the special meetings of stockholders of the Registrants discussed in
Section 7.6(b) shall have received affirmative votes sufficient for their
adoption. The consents required under Section 7.6(c), if any, shall have
been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired or
been terminated.
(c) Approvals. There shall have been obtained all permits, consents, and
approvals of all Governmental Authorities of the type referred to in
clauses (A), (B), (D), (E), and (G) of Section 3.2(d)(2).
(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction, or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall have been
issued, nor shall any proceeding brought by a Governmental Authority
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation, or order enacted, entered,
enforced, or deemed applicable to the Merger which makes the consummation
of the Merger illegal.
(e) Tax Opinions. ReliaStar shall have received the opinion of Faegre &
Benson LLP, and Pilgrim shall have received the opinion of Dechert Price &
Rhoads, each to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a)(1)(A)
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and Section 368(a)(2)(D) of the Code. The opinions shall be dated on or
about the date the Proxy Statement/Prospectus is first mailed to the
stockholders of Pilgrim and shall be updated as of the Effective Time. In
connection with the giving of the tax opinions, counsel shall be entitled
to rely upon tax certificates of Pilgrim, ReliaStar, Northstar, and other
applicable persons in such form and substance as is customary in the giving
of such opinions.
(f) Proxy Statement/Prospectus. The SEC shall have declared the
registration statement containing the Proxy Statement/Prospectus effective
under the Securities Act, and no stop order or similar order suspending the
effectiveness of that registration statement shall be pending before or
threatened by the SEC or any state securities administrator.
8.2 Additional Conditions to the Obligations of ReliaStar and Northstar. The
obligations of ReliaStar and Northstar to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing by ReliaStar and Northstar:
(a) Representations and Warranties. The representations and warranties
of Pilgrim contained in Articles III and IV hereof shall,
(1) with respect to representations and warranties qualified by
Material Adverse Effect language, be true and correct in all respects
as of the date hereof,
(2) with respect to representations and warranties not so qualified,
be true and correct in all material respects as of the date hereof, and
(3) with respect to all such representations and warranties, be true
and correct in all respects immediately before the Effective Time, with
the same force and effect as if made as of the Effective Time, except
where the failure of the representations and warranties in the
aggregate to be true and correct would not have a Material Adverse
Effect on Pilgrim or any Pilgrim Fund (provided that, solely for
purposes of this Section 8.2(a)(3), any representation or warranty in
Article III or IV that is qualified by any materiality qualification
shall be read as if that language were not present in the applicable
Sections of Articles III and IV), and except that the accuracy of
representations and warranties that by their terms speak as of the date
of this Agreement or some other date will be determined as of that
date.
(b) Performance of Obligations of Pilgrim. Pilgrim shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or before the Closing Date.
(c) No Material Adverse Change. Since the date hereof, no Material
Adverse Effect with respect to Pilgrim or any of the Pilgrim Funds shall
have occurred.
(d) Officers' Certificate. ReliaStar shall have received a certificate
signed on behalf of Pilgrim by the Chief Executive and Chief Financial
Officers of Pilgrim confirming the satisfaction of subsections (a), (b),
and (c) of this Section 8.2.
(e) Pilgrim Mutual Fund Assets Under Management. Pilgrim Mutual Fund
Assets Under Management shall not be less than 55% of the Base Amount.
(f) Legal Opinions. ReliaStar shall have received an opinion of Bryan
Cave LLP, Dechert Price & Rhoads, and White & Case (or such other outside
legal counsel selected by Pilgrim and reasonably acceptable to ReliaStar),
each, special legal counsel to Pilgrim and/or the Pilgrim Funds, dated the
Closing Date and in substantially the forms contained in Exhibit A.
(g) Comfort Letter. ReliaStar shall have received from KPMG Peat Marwick
LLP a letter, dated the date of the Information Statement, with respect to
certain financial information regarding Pilgrim and its subsidiaries
included in the Proxy Statement/Prospectus, which shall be in form and
substance reasonably satisfactory to ReliaStar and customary in scope and
substance for letters delivered by independent public accountants in
connection with statements similar to the Proxy Statement/Prospectus.
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(h) Dissenters' Rights. The number of Dissenting Shares shall not
equal more than 7.5% of the total of the outstanding shares of Pilgrim
Common Stock.
(i) Certain Consents. Pilgrim shall have obtained in writing all
consents, waivers, or approvals, necessary to provide that consummation of
the Merger does not constitute a default under, or effect or give rise to a
right of termination of, each of the Material Contracts identified by an
asterisk in Part 3.2(d)(4) of the Pilgrim Disclosure Schedule.
8.3 Additional Conditions to the Obligation of Pilgrim. The obligation of
Pilgrim to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived in writing by Pilgrim:
(a) Representations and Warranties. The representations and warranties
of ReliaStar and Northstar contained in Article V hereof shall,
(1) with respect to representations and warranties qualified by
Material Adverse Effect language, be true and correct in all respects
as of the date hereof,
(2) with respect to representations and warranties not so qualified,
be true and correct in all material respects as of the date hereof, and
(3) with respect to all such representations and warranties, be true
and correct in all respects immediately before the Effective Time, with
the same force and effect as if made as of the Effective Time, except
where the failure of the representations and warranties in the
aggregate to be true and correct would not have a Material Adverse
Effect on ReliaStar and Northstar or (provided that, solely for
purposes of this Section 8.3(a)(3), any representation or warranty in
Article V that is qualified by any materiality qualification shall be
read as if that language were not present in the applicable Sections of
Article V), and except that the accuracy of representations and
warranties that by their terms speak as of the date of this Agreement
or some other date will be determined as of that date.
(b) Performance of Obligations of ReliaStar and Northstar. ReliaStar and
Northstar shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or before the
Closing Date.
(c) No Material Adverse Change. Since the date hereof, no Material
Adverse Effect shall have occurred with respect to ReliaStar.
(d) Officers' Certificate. Pilgrim shall have received a certificate
signed on behalf of ReliaStar by a Senior Vice President of ReliaStar, and
on behalf of Northstar by the President or any Vice President of Northstar,
confirming the satisfaction of subsections (a), (b) and (c) of this Section
8.3.
(e) NYSE. The shares of ReliaStar Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE.
(f) Legal Opinion. Pilgrim shall have received an opinion of Faegre &
Benson LLP, special legal counsel to ReliaStar, and of Richard R. Crowl,
General Counsel of ReliaStar, each dated the Closing Date and in
substantially the form contained in Exhibit B.
(g) Comfort Letter. Pilgrim shall have received from Deloitte & Touche
LLP a letter, dated the date of the Proxy Statement/Prospectus, with
respect to certain financial information regarding ReliaStar included in
the Proxy Statement/Prospectus, which shall be in form and substance
reasonable satisfactory to Pilgrim and customary in scope and substance for
letters delivered by independent public accountants in connection with
statements similar to the Proxy Statement/Prospectus.
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ARTICLE IX
CONDUCT AND TRANSACTIONS AFTER THE EFFECTIVE TIME
9.1 Employee Matters.
(a) From and after the Effective Time, the employee pension benefit
plans, as defined in Section 3(2) of ERISA, and welfare and other benefit
plans, programs, and arrangements in effect as of the Effective Time shall,
subject to applicable law, the terms of this Agreement, and the terms of
such plans, programs, and arrangements, remain in effect with respect to
the employees of Pilgrim and its subsidiaries until such time as the
Surviving Corporation shall adopt new employee benefit plans and
arrangements with respect to employees of the Surviving Corporation and its
subsidiaries; provided, however, that for employees on Pilgrim's or its
subsidiaries' payroll as of the Closing Date, such benefit plans and
arrangements shall (1) contain no pre-existing condition exclusions and (2)
not be less favorable, in the aggregate, than the benefit plans and
arrangements provided to similarly situated employees of ReliaStar.
(b) From and after the Effective Time, for purposes of determining
eligibility, vesting, and entitlement to vacation and severance benefits
for employees employed by Pilgrim or any of its subsidiaries immediately
before the Effective Time under any compensation, severance, welfare,
pension, benefit, or savings plan of the Surviving Corporation or any of
its affiliates in which such employees of Pilgrim and its subsidiaries
were, or could reasonably expect to become, eligible to participate,
service with Pilgrim or any of its subsidiaries shall be credited as if
such service had been rendered to the Surviving Corporation or such
affiliate; provided, however, that such service credit shall not operate to
duplicate any benefit or the funding thereof.
9.2 Indemnification. All rights to indemnification, expense advancement, and
exculpation existing in favor of any present or former director, officer,
employee, or agent of Pilgrim or any of its subsidiaries as provided in the
charter, bylaws, or similar organizational documents of Pilgrim or any of its
subsidiaries or by law as in effect on the date hereof shall survive the Merger
and continue in full force and effect without amendment thereto for a period of
at least six years after the Effective Time (or, if any relevant claim is
asserted or made within that six-year period, until final disposition of the
claim) with respect to matters occurring at or before the Effective Time, and
no action taken during that period shall be deemed to diminish the obligations
set forth in this Section 9.2. Further, the Surviving Corporation, by virtue of
the Merger and without further action, shall assume as of the Effective Time
all indemnification agreements of Pilgrim in effect as of the date hereof.
ReliaStar hereby guarantees the performance of the covenants set forth in this
Section 9.2. The provisions of this Section 9.2 are intended for the benefit
of, and shall be enforceable by, directors, officers, and others entitled to
indemnification hereunder and their respective heirs and personal
representatives.
9.3 Directors and Officers Liability Insurance. For a period of at least six
years after the Effective Time, ReliaStar shall maintain in effect either (a)
policies of directors' and officers' liability insurance providing at least the
same coverage and amounts and containing terms and conditions that are no less
advantageous in any material respect to the insured parties under such policies
maintained by Pilgrim as of the date hereof with respect to claims arising from
facts or events that occurred at or before the Effective Time (including
consummation of the transactions contemplated by this Agreement), or (b) a run-
off (that is, a "tail") policy or endorsement with respect to the current
policy of directors' and officers' liability insurance covering claims asserted
within six years after the Effective Time arising from facts or events that
occurred at or before the Effective Time (including consummation of the
transactions contemplated by this Agreement); and such policies or endorsements
shall name as insureds thereunder all present and former directors and officers
of Pilgrim or any of its subsidiaries.
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ARTICLE X
TERMINATION
10.1 Generally. This Agreement may be terminated at any time before the
Effective Time, whether before or after approval by the stockholders of
Pilgrim:
(a) by mutual written consent of ReliaStar, Northstar, and Pilgrim;
(b) by ReliaStar and Northstar or by Pilgrim if the transactions
contemplated hereby have not been consummated on or before March 31, 2000
(which date may be extended by mutual agreement of ReliaStar, Northstar,
and Pilgrim), provided that such failure is not due to the failure of the
party seeking to terminate this Agreement to comply in all material
respects with its obligations under this Agreement;
(c) by ReliaStar and Northstar, if (1) any of the conditions set forth
in Sections 8.1 or 8.2 shall become impossible to fulfill other than for
reasons within the control of ReliaStar or Northstar, and such conditions
shall not have been waived under Article VIII, or (2) the stockholders of
Pilgrim fail to approve this Agreement and the Merger by the vote required
by the Delaware Law and Pilgrim's Certificate of Incorporation and Bylaws
at the first stockholders' meeting called for that purpose, including any
adjournments thereof;
(d) by Pilgrim, if (1) any of the conditions set forth in Sections 8.1
or 8.3 shall become impossible to fulfill other than for reasons within the
control of Pilgrim, and such conditions shall not have been waived under
Article VIII, or (2) the stockholders of Pilgrim fail to approve this
Agreement and the Merger by the vote required by the Delaware Law and
Pilgrim's Certificate of Incorporation and Bylaws at the first
stockholders' meeting called for that purpose, including any adjournments
thereof;
(e) by ReliaStar and Northstar, if the Pilgrim Board of Directors
withdraws or adversely modifies its recommendation to its stockholders of
this Agreement and the Merger;
(f) by ReliaStar and Northstar, if Pilgrim shall have (1) failed to
observe or perform in any material respect any of its covenants set forth
in this Agreement that cannot be or has not been cured within 30 days of
the giving of written notice to Pilgrim of such failure or, (2) breached a
representation or warranty contained in Article III or IV hereof, and such
breach cannot be or has not been cured within 30 days of the giving of
written notice to Pilgrim of such breach, and the condition set forth in
Section 8.2(a) cannot be satisfied;
(g) by Pilgrim, if ReliaStar or Northstar shall have (1) failed to
observe or perform in any material respect any of its covenants set forth
in this Agreement that cannot be or has not been cured within 30 days of
the giving of written notice to ReliaStar of such failure or, (2) breached
a representation or warranty contained in Article V hereof, and such breach
cannot be or has not been cured within 30 days of the giving of written
notice to ReliaStar of such breach, and the condition set forth in Section
8.3(a) cannot be satisfied.
10.2 Procedure and Effect of Termination. Upon termination of this Agreement
by Pilgrim or by ReliaStar and Northstar under Section 10.1, written notice
thereof shall forthwith be given to the other parties and this Agreement shall
terminate and the Merger shall be abandoned without further action by any of
the parties. If this Agreement is terminated as provided herein, no party shall
have any liability or further obligation to any other party to this Agreement,
except as provided in Section 10.3 or to the extent the termination is the
direct result of a willful and material breach by the party of a
representation, warranty, or covenant contained in this Agreement.
10.3 Expenses; Termination Fee.
(a) All expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the
party incurring the expenses.
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(b) If this Agreement is terminated by ReliaStar under Section
10.1(c)(2), (e), or (f), or by Pilgrim under Section 10.1(d)(2),
(1) then Pilgrim shall, within five business days of termination,
pay to ReliaStar an amount, not to exceed $2 million, equal to all
reasonable out-of-pocket expenses (including fees and costs of
attorneys and accountants) incurred by ReliaStar or Northstar in
connection with the transactions contemplated by this Agreement; and
(2) if, on or before the date that is one year after the date of
termination, a Third-Party Transaction (as defined in subsection (d)
below) is consummated, then Pilgrim shall, within five business days
after the consummation of such Third-Party Transaction, pay to
ReliaStar an additional $8 million.
(c) If this Agreement is terminated by Pilgrim under Section 10.1(g),
then ReliaStar shall, within five business days of termination, pay to
Pilgrim an amount, not to exceed $2 million, equal to all reasonable out-
of-pocket expenses (including fees and costs of attorneys and accountants)
incurred by Pilgrim in connection with the transactions contemplated by
this Agreement.
(d) As used in Section 10.3(b), "Third-Party Transaction" means the
occurrence of any of the following events: (1) the acquisition of Pilgrim
by merger, consolidation, statutory share exchange, or other business
combination transaction by any person other than ReliaStar or any affiliate
thereof (a "Third Party"), in which the holders of shares of Pilgrim Common
Stock do not, immediately after the transaction, directly or indirectly own
more than 50% of the voting power of the capital stock of Pilgrim or the
surviving corporation in substantially the same proportion as before the
transaction; (2) the acquisition by any Third Party of 50% or more (in book
value or market value) of the total assets of Pilgrim and its subsidiaries,
taken as a whole; or (3) the acquisition by a Third Party of 50% or more of
the outstanding shares of Pilgrim Common Stock, whether by tender offer,
exchange offer, or otherwise.
(e) This Section 10.3 shall survive termination of this Agreement for
any reason for a period of 13 months thereafter.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Termination of Representations and Warranties. The representations and
warranties set forth in this Agreement (including those set forth in the
Pilgrim Disclosure Schedule and the ReliaStar Disclosure Schedule) or in any
certificate furnished under this Agreement shall not survive the Effective
Time. This Section 11.1 shall not limit any covenant or agreement of the
parties that, by its terms contemplates performance after the Effective Time.
11.2 Amendment and Modification. To the extent permitted by applicable law,
this Agreement may be amended, modified, or supplemented only by written
agreement of the parties at any time before the Effective Time with respect to
any of the terms contained herein, except that after the special meeting of
Pilgrim's stockholders to approve this Agreement and the Merger, the amount and
form of the consideration payable in the Merger may not be altered without the
approval of the stockholders of Pilgrim.
11.3 Waiver of Compliance; Consents. Any failure of a party to comply with
any obligation, covenant, agreement, or condition herein, to the extent legally
allowed, may be waived in writing by the other, but any such waiver or failure
to insist upon strict compliance with the obligation, covenant, agreement, or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, the consent shall be given in
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in this Section 11.3.
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11.4 Press Releases and Public Announcements. No party may issue any press
release or make any public announcement relating to the subject matter hereof
without the prior written approval of the other parties, which may not be
unreasonably withheld; provided, however, that each party may make any public
disclosure it believes in good faith is required by applicable law, SEC
regulations, or any listing or trading agreement concerning its publicly traded
securities (in which case the disclosing party will use its reasonable best
efforts to consult with and advise the other parties regarding the form and
content of the disclosure before making the disclosure).
11.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, effective when
delivered, or if delivered by express delivery service or facsimile, effective
when delivered, or if mailed by registered or certified mail (return receipt
requested), effective three business days after mailing, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to ReliaStar or Northstar:
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Attention: General Counsel
Facsimile: (612) 342-3160
with a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Thomas G. Morgan
Facsimile: (612) 336-3026
(b) If to Pilgrim:
Pilgrim America Capital Corporation
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
Attention: James M. Hennessy
Facsimile: (602) 417-8301
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: Christopher G. Karras
Facsimile: (215) 994-2222
11.6 Assignment. This Agreement and all of its provisions shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder may be assigned or delegated by any
party without the prior written consent of the other parties. This Agreement is
not intended to confer upon any other person except the parties any rights or
remedies hereunder.
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11.7 Interpretation. As used in this Agreement, unless otherwise defined
herein:
(a) "including" means "including without limitation";
(b) "person" means an individual, a partnership, a limited liability
company, a joint venture, a corporation, a trust, an incorporated
organization, or a government or any department or agency thereof;
(c) "affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act;
(d) "business day" means any day other than a Saturday, Sunday, or a day
that is a statutory holiday under the laws of the United States or the
States of Minnesota or Arizona;
(e) all dollar amounts are expressed in United States funds;
(f) "to the knowledge of a party" or any similar phrase means the actual
knowledge of one or more of the executive officers of the party; and
(g) "subsidiary" of any specified corporation means any corporation of
which the outstanding securities having ordinary voting power to elect a
majority of the board of directors are directly or indirectly owned by the
corporation.
11.8 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to choice-of-law principles.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10 Headings; Internal References. The Article and Section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties, and shall not affect the interpretation
hereof.
11.11 Entire Agreement. This Agreement, including the schedules and exhibits
hereto, the Pilgrim Disclosure Schedule, the ReliaStar Disclosure Schedule, and
the Confidentiality Agreement, embody the entire agreement and understanding of
the parties in respect of the subject matter contained herein and supersede all
prior agreements and understandings among the parties with respect to that
subject matter. There are no restrictions, promises, representations,
warranties (express or implied), covenants, or undertakings of the parties,
other than those expressly set forth or referred to in this Agreement.
11.12 Severability. If any provision hereof is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remainder of the
provisions hereof shall continue in full force and effect and will in no way be
affected or invalidated.
11.13 Equitable Remedies. The parties agree that money damages or other
remedy at law would not be a sufficient or adequate remedy for any breach or
violation of, or default under, this Agreement by them and that in addition to
all other remedies available to them, each of them shall be entitled, to the
fullest extent permitted by law, to an injunction restraining such breach,
violation, or default or threatened breach, violation, or default and to any
other equitable relief, including specific performance, without bond or other
security being required.
11.14 Disclosure Schedules. The Pilgrim Disclosure Schedule and the
ReliaStar Disclosure Schedule have been arranged in a manner that corresponds
to the Sections of this Agreement; provided that a disclosure made in any
section of the Pilgrim Disclosure Schedule or the ReliaStar Disclosure Schedule
that is sufficient to reasonably inform the recipient of information required
to be disclosed in another section of the applicable disclosure schedule to
avoid a misrepresentation under a Section of this Agreement shall be deemed,
for all purposes of this Agreement, to have been made under the other section
of the applicable disclosure schedule. The mere listing in the Pilgrim
Disclosure Schedule or the ReliaStar Disclosure Schedule, however, of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty
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made in this Agreement (unless the representation or warranty has to do with
the existence of the document or other item itself or the mere listing of the
document or item in the applicable disclosure schedule otherwise reasonably
informs the recipient of an exception to the representation or warranty). It is
understood and agreed by the parties that the disclosure of any events or
circumstances contained in the disclosure schedules provided herewith shall
not, in any event, be deemed to constitute any party's representation or belief
that any such event or circumstance constitutes, or otherwise may result in, a
Material Adverse Effect.
In witness whereof, ReliaStar, Northstar, and Pilgrim have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
RELIASTAR FINANCIAL CORP.
/s/ John G. Turner
By _____________________________________
Its Chairman and Chief Executive
Officer
NORTHSTAR HOLDING, INC.
/s/ Richard R. Crowl
By _____________________________________
Its Vice President
PILGRIM CAPITAL CORPORATION
/s/ Robert W. Stallings
By _____________________________________
Its Chairman, President and Chief
Executive Officer
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EXHIBIT B
Putnam, Lovell, de Guardiola & Thornton, Inc.
Board of Directors
Pilgrim Capital Corporation
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004-4424
July 22, 1999
Gentlemen:
We understand that Pilgrim Capital Corporation, a Delaware corporation (the
"Company"), ReliaStar Financial Corporation, a Delaware corporation
("ReliaStar"), and Northstar Holding, Inc., a Delaware corporation and a
wholly-owned subsidiary of ReliaStar ("Holding"), have entered into an
Agreement and Plan of Merger dated July 22, 1999 (the "Transaction Agreement"),
pursuant to which, among other things, the Company will be merged with and into
Holding (the "Merger") and each issued and outstanding share of the common
stock of the Company, $.01 par value per share, will be converted into the
right to receive (1) .50 shares of the common stock of ReliaStar, $.01 par
value per share (the "Share Consideration"), and (2) cash in the amount of
$12.50 (the "Cash Consideration" and, together with the Share Consideration,
the "Merger Consideration"). In certain circumstances, the Merger Consideration
is subject to adjustment as provided in the Transaction Agreement.
You have asked for our opinion as to whether the Merger Consideration to be
paid by ReliaStar in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
In connection with rendering our opinion, we have, among other things:
I. reviewed certain publicly available historical audited and unaudited
financial statements and other information regarding the Company and
ReliaStar;
II. reviewed pro forma historical financial statements, operating data and
other information regarding the Company and its subsidiaries prepared by
the management of the Company;
III. reviewed certain internal financial analyses and projections of the
Company and its subsidiaries and of the investment management business of
ReliaStar prepared by the management of the Company and ReliaStar,
respectively;
IV. reviewed certain other information furnished to us by the Company for
purposes of our analyses, including cost savings and related expenses
expected to result from this transaction;
V. compared the results of operations of the Company with those of certain
public and private companies that we deemed to be reasonably comparable to
the Company;
VI. compared the proposed financial terms of the Merger with the financial
terms of certain other recent transactions that we deemed to be relevant;
VII. reviewed a draft dated July 20, 1999 of the Transaction Agreement;
VIII. conducted discussions with members of the management of the Company and
ReliaStar to discuss the foregoing, as well as other matters we believe
relevant to our inquiry; and
IX. performed such other analyses and examinations and considered such other
factors as we have deemed appropriate.
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Board of Directors
July 22, 1999
Page 2
In preparing our opinion, we have, with your consent, also assumed and relied,
without independent verification, upon the accuracy and completeness of the
financial and other information supplied or otherwise made available to us from
public sources or by the Company and ReliaStar and have not independently
verified such information. We have neither obtained nor performed any
independent valuation or appraisal of the assets or liabilities of the Company
or the investment management business of ReliaStar. With respect to the
financial projections and forecasts of the Company and the investment
management business of ReliaStar provided to us by the Company and ReliaStar,
respectively, we have assumed that such financial projections and forecasts
have been reasonably prepared and reflect the best currently available
estimates and good faith judgments of the senior management of the Company and
ReliaStar as to the future competitive, operating and regulatory environments
and related financial performance of the investment management business of
ReliaStar and the Company and that such forecasts will be realized in the
amounts and at the times contemplated thereby. We have not undertaken any
independent analysis to verify the reasonableness of the assumptions underlying
such forecasts. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information and agreements (or drafts
thereof) made available to us as of, the date hereof.
Putnam, Lovell, de Guardiola & Thornton Inc. is an investment banking firm
focused primarily on the investment management industry and is continually
engaged in the valuation of investment management businesses and their
securities in connection with mergers and acquisitions, distributions of
securities and similar activities. We have acted as financial advisor to the
Board of Directors of the Company in connection with the Merger and will
receive a fee from the Company for our services, a portion of which is
contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement,
including, without limitation, any liabilities arising out of the rendering of
this opinion. As you may be aware, Putnam, Lovell, de Guardiola & Thornton and
its principals have in the past provided financial advisory services to
ReliaStar and its subsidiary, Holding, and have received customary fees in
consideration for rendering such services. As we have previously informed you,
Putnam, Lovell, de Guardiola & Thornton represented Nicholas-Applegate Capital
Management in connection with the sale of the Nicholas-Applegate retail mutual
funds to the Company, and upon consummation of the Merger, we will receive from
Nicholas-Applegate Capital Management a portion of our fees for services
provided in that engagement. Roberto de Guardiola owns 15,000 shares of the
common stock of the Company.
Based upon and subject to the foregoing, it is our opinion on the date hereof
that the Merger Consideration to be paid by ReliaStar in the Merger is fair,
from a financial point of view, to the stockholders of the Company.
Our advisory services and the opinion expressed herein are provided for the use
of the Board of Directors of the Company in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Merger. This opinion may be reproduced in full in any proxy or information
statement mailed to stockholders of the Company but may not be used for any
other purpose, or reproduced, disclose publicly, referred to or communicate by
you in any manner at any time, in whole or in part, without our prior written
consent.
Very truly yours,
PUTNAM, LOVELL, DE GUARDIOLA & THORNTON INC.
By: /s/ Roberto de Guardiola
---------------------
Roberto de Guardiola
Managing Director
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EXHIBIT C
DELAWARE GENERAL CORPORATION LAW
(S) 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of a nonstock corporation; and the words "depository receipt"
mean a receipt or other instrument issued by a depository representing an
interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to Section
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include
in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to
all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and
if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the
merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation
or (ii) the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than
20 days following the second of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in
advance, a record date that shall not be more than 10 days
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prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation,
the record date shall be such effective date. If no record date is
fixed and the notice is given prior to the effective date, the record
date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
forgoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his written
request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
P A R T II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 145 of the Delaware General Corporation Law,
which provides for indemnification of directors and officers in certain
circumstances.
Article VIII of ReliaStar's Bylaws provides for broad indemnification of its
directors and officers. See Exhibit 3(b) to this registration statement.
ReliaStar also maintains director and officer liability insurance policies.
In addition, Section 7 of Article Sixth of ReliaStar's Certificate of
Incorporation contains broad provisions limiting the liability of directors for
monetary damages for breach of fiduciary duty as a director. See Exhibit 3(a)
to this registration statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- ------------------------------------------------------------------
<C> <S>
2 Agreement and Plan of Merger, dated as of July 22, 1999, among
ReliaStar Financial Corp., Northstar Holding, Inc., and Pilgrim
Capital Corporation (included in the proxy statement/prospectus as
Exhibit A).
3(a) Certificate of Incorporation, as amended, of ReliaStar
(incorporated by reference to Exhibit 4(a) to ReliaStar's
Registration Statement on Form S-8, Registration No. 333-42125).
3(b) Bylaws, as amended, of ReliaStar (incorporated by reference to
Exhibit 3 to ReliaStar's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 1-10640).
4 Amended and Restated Rights Agreement dated as of February 11,
1999 between ReliaStar and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated by reference to Exhibit
1 to Amendment to Registration Statement on Form 8-A/A dated
February 26, 1999).
5 Opinion of Faegre & Benson LLP.
8(a) Opinion of Faegre & Benson LLP regarding tax matters.
8(b) Opinion of Dechert Price & Rhoads regarding tax matters.
23(a) Consent of Deloitte & Touche LLP, relating to financial statements
of ReliaStar.
23(b) Consent of KPMG LLP, relating to financial statements of Pilgrim.
23(c) Consent of Faegre & Benson LLP (included in Exhibits 5 and 8(a)).
23(d) Consent of Dechert Price & Rhoads (included in Exhibit 8(b)).
24 Powers of Attorney of directors and officers of ReliaStar.
99(a) Form of Proxy of Pilgrim.
99(b) Opinion of Putnam, Lovell, de Guardiola & Thornton, Inc. (included
in the proxy statement/prospectus as Exhibit B).
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report*
Schedule I -- Summary of Investments--Other than Investments in Related
Parties*
Schedule II -- Condensed Financial Information of Registrant*
II-1
<PAGE>
Schedule III -- Supplementary Insurance Information*
Schedule IV -- Reinsurance*
Schedule V -- Valuation and Qualifying Accounts*
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
to those statements.
- --------
* Incorporated by reference to ReliaStar's Annual Report on Form 10-K for
the year ended December 31, 1998.
(C) REPORTS, OPINIONS OR APPRAISALS
Information requested hereunder is furnished as Exhibit 99(b) to this
registration statement and as Exhibit B to the proxy statement/prospectus.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement provided, however, that paragraphs (1)(i) and
(1)(ii) do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports
filed by Pilgrim pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that before any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
II-2
<PAGE>
The undersigned registrant undertakes that every prospectus: (i) that is
filed pursuant to the immediately preceding paragraph, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to this registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed after the effective date of this registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on the 10th day of September, 1999.
RELIASTAR FINANCIAL CORP.
By /s/ John G. Turner*
-----------------------------------
John G. Turner, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on the 10th day of September, 1999, by
the following persons in the capacities indicated:
<TABLE>
<S> <C>
/s/ John G. Turner* Chairman and Chief Executive Officer
______________________________________ (Principal Executive Officer)
John G. Turner
/s/ James R. Miller* Senior Vice President, Chief Financial Officer and
______________________________________ Treasurer (Principal Financial Officer)
James R. Miller
/s/ Chris D. Schreier* Vice President and Controller
______________________________________ (Principal Accounting Officer)
Chris D. Schreier
</TABLE>
<TABLE>
<S> <C>
Carolyn H. Baldwin
David C. Cox
Richard U. De Schutter
John H. Flittie
Luella G. Goldberg
William A. Hodder
James J. Howard A majority of the board of directors*
Randy C. James
Richard L. Knowlton
David A. Koch
James J. Renier
Robert C. Salipante
John G. Turner
</TABLE>
* Richard R. Crowl, by signing his name hereto, hereby signs this document
on behalf of each of the other above-named officers or directors of the
registrant pursuant to powers of attorney duly executed by such persons.
By /s/ Richard R. Crowl
-----------------------------------
Richard R. Crowl
Attorney-in-fact
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT MANNER OF FILING
------- ------------------------------------------- -------------------------
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of
July 22, 1999, among ReliaStar Financial
Corp., Northstar Holding, Inc., and Pilgrim
Capital Corporation (included in the proxy
statement/prospectus as Exhibit A)......... Filed Electronically
3(a) Certificate of Incorporation, as amended,
of ReliaStar (incorporated by reference to
Exhibit 4(a) to ReliaStar's Registration
Statement on Form S-8, Registration No.
333-42125)................................. Incorporated by Reference
3(b) Bylaws, as amended, of ReliaStar
(incorporated by reference to Exhibit 3 to
ReliaStar's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, File
No. 1-10640)............................... Incorporated by Reference
4 Amended and Restated Rights Agreement dated
as of February 11, 1999 between ReliaStar
and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated
by reference to Exhibit 1 to Amendment to
Registration Statement on Form 8-A/A dated
February 26, 1999)......................... Incorporated by Reference
5 Opinion of Faegre & Benson LLP............. Filed Electronically
8(a) Opinion of Faegre & Benson LLP regarding
tax matters................................ Filed Electronically
8(b) Opinion of Dechert Price & Rhoads regarding
tax matters................................ Filed Electronically
23(a) Consent of Deloitte & Touche LLP, relating
to financial statements of ReliaStar....... Filed Electronically
23(b) Consent of KPMG LLP, relating to financial
statements of Pilgrim...................... Filed Electronically
23(c) Consent of Faegre & Benson LLP (included in
Exhibits 5 and 8(a))....................... Filed Electronically
23(d) Consent of Dechert Price & Rhoads (included
in Exhibit 8(b))........................... Filed Electronically
24 Powers of Attorney of directors and
officers of ReliaStar...................... Filed Electronically
99(a) Form of Proxy of Pilgrim................... Filed Electronically
99(b) Opinion of Putnam, Lovell, de Guardiola &
Thornton, Inc. (included in the proxy
statement/prospectus as Exhibit B)......... Filed Electronically
</TABLE>
<PAGE>
EXHIBIT 5
[Faegre & Benson Letterhead]
September 14, 1999
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Re: Registration on Form S-4 of 2,544,039 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to ReliaStar Financial Corp., a Delaware
corporation, in connection with the registration by ReliaStar under the
Securities Act of 1933, as amended, of 2,544,039 shares of its common stock,
$.01 par value (the "Shares"). The Shares are being registered pursuant to a
Registration Statement on Form S-4 (as amended or supplemented, the
"Registration Statement") to be filed with the Securities and Exchange
Commission. The Shares are being issued pursuant to the Agreement and Plan of
Merger, dated as of July 22, 1999 (the "Merger Agreement"), among ReliaStar,
Northstar Holding, Inc., a Delaware corporation and wholly owned subsidiary of
ReliaStar, and Pilgrim Capital Corporation, a Delaware corporation.
We have examined such documents, records, and matters of law as we have
deemed necessary for the purposes of this opinion, and based thereupon, we are
of the opinion that the Shares to be issued upon the merger of Pilgrim with and
into Northstar are duly authorized and, upon the filings intended to effect the
merger of Pilgrim with and into Northstar in accordance with the Merger
Agreement, will be validly issued, fully paid, and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ Faegre & Benson LLP
FAEGRE & BENSON LLP
<PAGE>
EXHIBIT 8(a)
[Faegre & Benson Letterhead]
September 14, 1999
ReliaStar Financial Corporation
20 Washington Avenue South
Minneapolis, Minnesota 55401
Northstar Holding, Inc.
20 Washington Avenue South
Minneapolis, Minnesota 55401
Ladies and Gentlemen:
We have acted as counsel to ReliaStar Financial Corp., a Delaware
corporation ("ReliaStar"), and Northstar Holding, Inc., a Delaware corporation
and a wholly owned subsidiary of ReliaStar ("Northstar"), in connection with the
transactions described in the Agreement and Plan of Merger dated as of July 22,
1999 (the "Merger Agreement") among ReliaStar, Northstar, and Pilgrim Capital
Corporation, a Delaware corporation ("Pilgrim"). Pursuant to the Merger
Agreement, at the Effective Time, as defined in the Merger Agreement, Pilgrim
shall be merged with and into Northstar (the "Merger"), with Northstar being the
surviving corporation.
ReliaStar has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), a registration
statement on Form S-4 (the "Registration Statement") with respect to the common
stock of ReliaStar to be issued to the Pilgrim shareholders in the Merger in
exchange for their common stock in Pilgrim (the "Pilgrim Common Stock"). In
addition, Pilgrim and ReliaStar have prepared a Proxy Statement/Prospectus dated
September 17, 1999 (the "Proxy Statement/Prospectus"), which is contained in and
made a part of the Registration Statement.
In rendering the opinion set forth below, we have reviewed the Merger
Agreement, and have also reviewed and relied upon the accuracy of the facts
stated in the Proxy Statement/Prospectus (including Exhibits thereto) and such
other materials as we have deemed necessary or appropriate as a basis for our
opinion.
<PAGE>
September 14, 1999
Page 2
Based upon and subject to the foregoing, and to the receipt of the
certificate of ReliaStar and Northstar and the certificate of Pilgrim, as
described in the Proxy Statement/Prospectus, each containing appropriate
representations, we confirm to you that the discussion of the material United
States federal income tax consequences under the caption "Federal Income Tax
Consequences" (the "Tax Section") reflects our opinion regarding the material
federal income tax consequences of the Merger to the holders of Pilgrim Common
Stock, as well as to ReliaStar, Northstar, and Pilgrim.
Our opinion is subject to the qualifications, assumptions and limitations
set forth in the Proxy Statement/Prospectus, and no opinion is expressed
regarding matters not referred to therein.
This opinion is being furnished in connection with the Proxy
Statement/Prospectus. It is expressed solely for the benefit of ReliaStar and
Northstar and may not be relied upon in any manner or for any purpose by any
other person.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to this firm in the Tax Section. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Faegre & Benson LLP
Faegre & Benson LLP
<PAGE>
EXHIBIT 8(b)
[Letterhead of Dechert Price & Rhoads]
September 14, 1999
Pilgrim Capital Corporation
Two Renaissance Square
40 North Central Avenue
Suite 1280
Phoenix, AZ 85004-4424
Ladies and Gentlemen:
We have acted as counsel to Pilgrim Capital Corporation, a Delaware
corporation ("Pilgrim"), in connection with the transactions described in the
Agreement and Plan of Merger dated as of July 22, 1999 (the "Merger Agreement")
among ReliaStar Financial Corp., a Delaware corporation ("ReliaStar"), Northstar
Holding, Inc., a Delaware corporation ("Northstar"), and Pilgrim. Pursuant to
the Merger Agreement, at the Effective Time, as defined in the Merger Agreement,
Pilgrim shall be merged with and into Northstar (the "Merger"), with Northstar
being the surviving corporation.
ReliaStar has filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), a registration
statement on Form S-4 (the "Registration Statement") with respect to the common
stock of ReliaStar to be issued to the Pilgrim shareholders in the Merger in
exchange for their common stock in Pilgrim (the "Pilgrim Common Stock"). In
addition, Pilgrim and ReliaStar have prepared a Proxy Statement/Prospectus dated
September 17, 1999 (the "Proxy Statement/Prospectus"), which is contained in and
made a part of the Registration Statement.
In rendering the opinion set forth below, we have reviewed the Merger
Agreement, and have also reviewed and relied upon the accuracy of the facts
stated in the Proxy
<PAGE>
Statement/Prospectus (including Exhibits thereto) and such other materials as we
have deemed necessary or appropriate as a basis for our opinion.
Based upon and subject to the foregoing, and to the receipt of the
certificate of ReliaStar and Northstar and the certificate of Pilgrim, as
described in the Proxy Statement/Prospectus, each containing appropriate
representations, we confirm to you that the discussion of the material United
States federal income tax consequences under the caption "Federal Income Tax
Consequences" (the "Tax Section') reflects our opinion regarding the material
federal income tax consequences of the Merger to the holders of Pilgrim Common
Stock, as well as to ReliaStar, Northstar, and Pilgrim.
Our opinion is subject to the qualifications, assumptions and limitations
set forth in the Proxy Statement/Prospectus, and no opinion is expressed
regarding matters not referred to therein.
This opinion is being furnished in connection with the Proxy
Statement/Prospectus. It is expressed solely for the benefit of Pilgrim and may
not be relied upon in any manner or for any purpose by any other person.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to this firm in the Tax Section. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Dechert Price & Rhoads
DECHERT PRICE & RHOADS
<PAGE>
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of ReliaStar Financial Corp. and Subsidiaries of our reports dated
February 4, 1999, appearing in and incorporated by reference in the Annual
Report on Form 10-K of ReliaStar Financial Corp. and Subsidiaries for the year
ended December 31, 1998 and to the reference to us under the heading "Experts"
in the Proxy Statement/Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
September 10, 1999
<PAGE>
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
The Boards of Directors
Pilgrim Capital Corporation:
In connection with the registration statement on Form S-4 filed by ReliaStar
Financial Corp., we consent to the use of our reports incorporated herein by
reference on the consolidated financial statements and related financial
statement schedules of Pilgrim America Capital Corporation (subsequently renamed
Pilgrim Capital Corporation) as of September 30, 1998 and 1997 and for each of
the years in the three-year period ended September 30, 1998 and to the
references to our firm under the headings "Experts" and "Independent Auditors"
in the proxy statement/prospectus.
/s/ KPMG LLP
KPMG LLP
Los Angeles, California
September 13, 1999
<PAGE>
EXHIBIT 24
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ Robert C. Salipante
-----------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ James J. Renier
-------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ David A. Koch
-----------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ Richard L. Knowlton
-----------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ Randy C. James
------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ James J. Howard
-------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ William A. Hodder
---------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ Luella G. Goldberg
----------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ John H. Flittie
-------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ Richard U. DeSchutter
-------------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ David C. Cox
----------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ Carolyn H. Baldwin
----------------------
<PAGE>
RELIASTAR FINANCIAL CORP.
Power of Attorney
of Director and Officer
The undersigned director and/or officer of ReliaStar Financial Corp.,
a Delaware corporation, hereby appoints John G. Turner, Robert C. Salipante,
Wayne R. Huneke, James R. Miller and Richard R. Crowl, and each or any one of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of the Company to a Registration Statement or Registration Statements, on Form
S-4 or other applicable form, and all amendments, including post-effective
amendments, thereto, to be filed by the Company with the Securities and Exchange
Commission in connection with the registration under the Securities Act of 1933,
as amended, of shares of Common Stock or other securities proposed to be issued
or sold by the Company, and to file the same with the Commission, granting unto
the attorneys-in-fact, and each of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 8th day of July, 1999.
/s/ John G. Turner
------------------
<PAGE>
EXHIBIT 99(a)
PILGRIM CAPITAL CORPORATION
PROXY SOLICITED ON BEHALF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints ROBERT W. STALLINGS, JAMES R.
REIS AND JAMES M. HENNESSY, or any of them acting in absence of the others, with
full power of substitution, the true and lawful attorneys and proxies of the
undersigned, to attend the special meeting of the stockholders of PILGRIM
CAPITAL CORPORATION ("Pilgrim") to be held on October 26, 1999, and at any
adjournment or postponement thereof. This proxy, when properly executed and
returned in a timely manner, will be voted at this special meeting and any
adjournment or postponement thereof in the manner described herein. If no
contrary indication is made, the proxy will be voted FOR the Proposal and in
accordance with the judgment of the persons named as proxies herein.
PLEASE PROMPTLY SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
(continued and to be signed on the reverse side)
PILGRIM CAPITAL CORPORATION
PLEASE MARK YOUR VOTE IN THE OVAL
USING DARK INK ONLY.
Proposal: To consider and vote upon a proposal to approve and adopt a merger
agreement with ReliaStar Financial Corp. and its subsidiary Northstar Holding,
Inc. that will cause Pilgrim Capital Corporation to be merged with and into
Northstar.
VOTE: FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Dated: ________________________, 1999
_______________________________________
(Signature)
_______________________________________
(Signature)
<PAGE>
This Proxy must be signed exactly as your name appears hereon. When shares are
held by joint tenants, both should sign. Attorneys, executors, administrators,
trustees and guardians should indicate their capacities. If the signer is a
corporation, please print full corporate name and indicate capacity of the duly
authorized officer executing on behalf of the corporation. If the signer is a
partnership, please print full partnership name and indicate capacity of duly
authorized officer executing on behalf of the partnership.
FOLD AND DETACH HERE
