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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of earliest event reported: December 17, 1999
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ARM Financial Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-67268 61C1244251
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) file number) Identification No.)
515 West Market Street
Louisville, Kentucky 40202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 582-7900
<PAGE>
Item 5. Other Events.
On December 17, 1999, ARM Financial Group, Inc. (the "Company") entered
into a Purchase Agreement (the "Purchase Agreement") among The Western and
Southern Life Insurance Company ("W&S"), the Company, and Integrity Holdings,
Inc. whereby W&S will acquire the Company's insurance subsidiaries, Integrity
Life Insurance Company and National Integrity Life Insurance Company, by
purchasing from the Company the stock of its wholly owned subsidiary, Integrity
Holdings, Inc. Pursuant to the Purchase Agreement, W&S will also acquire certain
of the Company's other assets related to the Company's insurance business. A
copy of the Purchase Agreement is attached as Exhibit 10.1 and incorporated
herein by reference. A copy of the Company's press release dated December 17,
1999 announcing the execution of the Purchase Agreement is attached as Exhibit
99.1 and incorporate herein by reference.
In connection with the Purchase Agreement, the Company entered into the
following settlement agreements (the "Settlement Agreements"): (1) Settlement
Agreement dated as of December 1, 1999, among GenAmerica Corporation, General
American Life Insurance Company, the Company, Integrity Life Insurance Company
National Integrity Life Insurance Company, Integrity Holdings, Inc.,
Metropolitan Life Insurance Company, The Equitable Life Assurance Society of the
United States and W&S, and (2) Settlement Agreement, dated as of December 1,
1999, among Bank One, NA (formerly known as The First National Bank of Chicago),
the Company, Integrity Life Insurance Company and International Securization
Corporation. Copies of the Settlement Agreements are attached as Exhibit 10.2
and Exhibit 10.3 and are incorporated herein by reference.
This Current Report on Form 8-K contains or incorporates by reference
forward-looking statements that involve risks and uncertainties. These
statements may differ materially from actual future events or results. Readers
are referenced to the documents filed by the Company with the Securities and
Exchange Commission, which identify important risk factors that could cause
actual results to differ from those contained in any forward-looking statements.
<PAGE>
Item 7 (c) Exhibits Filed.
The following exhibits are filed as part of this report on Form 8-K:
Exhibit
Number Description
- ------- -----------
10.1 Purchase Agreement, dated as of December 17, 1999, among The Western
and Southern Life Insurance Company, ARM Financial Group, Inc., and
Integrity Holdings, Inc., which includes the Form of Escrow Agreement
as Exhibit B. Any exhibits or schedules to the Purchase Agreement
which are filed in the Bankruptcy court will be available in the same
form upon request made to the Company.
10.2 Settlement Agreement, dated as of December 1, 1999, among GenAmerica
Corporation, General American Life Insurance Company, ARM Financial
Group, Inc., Integrity Life Insurance Company, National Integrity
Life Insurance Company, Integrity Holdings, Inc., Metropolitan Life
Insurance Company, The Equitable Life Assurance Society of the United
States and The Western and Southern Life Insurance Company.
10.3 Settlement Agreement, dated as of December 1, 1999, Bank One, NA
(formerly known as The First National Bank of Chicago), ARM Financial
Group, Inc., Integrity Life Insurance Company and International
Securization Corporation.
99.1 Press release by the Company, dated December 17, 1999, announcing the
execution of the Purchase Agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized, on December 17, 1999.
ARM FINANCIAL GROUP, INC.
(Registrant)
By: /s/ John R. McGeeney
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John R. McGeeney
Executive Vice President and
General Counsel
By: /s/ Edward L. Zeman
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Edward L. Zeman
Executive Vice President and
Chief Financial Officer
Exhibit 10.1
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PURCHASE AGREEMENT
among
ARM FINANCIAL GROUP, INC.,
INTEGRITY HOLDINGS, INC.
and
THE WESTERN AND SOUTHERN LIFE INSURANCE COMPANY
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December 17, 1999
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<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE 1 DEFINITIONS.............................................2
ARTICLE 2 SALE AND PURCHASE......................................12
2.1 Acquired Assets........................................12
2.2 Contract Assumption....................................13
2.3 Assumed and Excluded Liabilities.......................13
2.4 Purchase Price.........................................13
2.5 Payment of Purchase Price..............................13
2.6 Ancillary Agreements...................................13
2.7 Closing Deliveries.....................................13
2.8 Closing; Closing Date..................................14
2.9 Adjusted Purchase Price................................14
2.10 Surplus Adjustment.....................................15
2.11 Asset Liquidation Adjustment...........................18
2.12 Indemnification Adjustment.............................21
2.13 Distributions from Escrow on Final Accounting..........24
2.14 Distribution From Escrow on Escrow Termination Date....25
2.15 Intercompany Adjustment................................25
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER...............25
3.1 Organization...........................................25
3.2 Capitalization.........................................26
3.3 Authorization; Binding Agreement.......................26
3.4 Noncontravention.......................................27
3.5 Governmental Approvals.................................27
3.6 Insurance Statements...................................28
3.7 No Undisclosed Liabilities.............................28
3.8 Litigation, Judgments, No Default, Etc.................28
3.9 Tax Matters............................................29
3.10 Employee Benefit Plans.................................31
3.11 Finders and Investment Bankers.........................32
3.12 Collective Bargaining Agreements.......................32
3.13 Insurance..............................................32
3.14 Intellectual Property..................................32
3.15 Compliance with Law....................................33
3.16 Licenses and Permits...................................33
3.17 Value of Securities....................................34
3.18 Contracts..............................................34
3.19 Title to Assets........................................34
3.20 Transactions with Certain Persons......................35
3.21 Reinsurance and Retrocessions..........................35
3.22 Environmental Laws.....................................35
3.23 No Material Adverse Change.............................36
3.24 Insurance Business.....................................36
3.25 Title to Assets; Sufficiency...........................38
3.26 Government Regulation - Investment Advisers............39
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Page
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3.27 Government Regulation - Investment Company.............39
3.28 Government Regulation - Broker-Dealer..................41
3.29 Government Regulation - Reports........................41
3.30 Government Regulation - Commodities and Futures........41
3.31 Code of Ethics.........................................42
3.32 Separate Accounts......................................42
3.33 Materiality............................................42
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
PURCHASER..............................................42
4.1 Organization...........................................42
4.2 Authorization; Binding Agreement.......................43
4.3 Noncontravention.......................................43
4.4 Governmental Approvals.................................43
4.5 Finders and Investment Bankers.........................44
4.6 Financing..............................................44
ARTICLE 5 COVENANTS .............................................44
5.1 Conduct of Business of the Insurance Subsidiaries......44
5.2 Access and Information.................................46
5.3 Reasonable Best Efforts; Additional Actions............46
5.4 Overbid Procedures.....................................48
5.5 Bankruptcy Actions.....................................50
5.6 Public Announcements...................................50
5.7 Certain Employee Matters...............................51
5.8 Tax - 338(h)(10).......................................52
5.9 Escrow As Sole Remedy..................................52
5.10 Unfair burden..........................................52
ARTICLE 6 CONDITIONS.............................................52
6.1 Conditions to Each Party's Obligations.................52
6.2 Conditions to Obligation of Purchaser..................53
6.3 Conditions to Obligation of Seller.....................54
6.4 Frustration of Closing Conditions......................54
ARTICLE 7 TERMINATION............................................55
7.1 Termination............................................55
7.2 Procedure for and Effect of Termination................56
7.3 Termination Fee; Expense Reimbursement.................56
ARTICLE 8 MISCELLANEOUS..........................................58
8.1 Amendment and Modification.............................58
8.2 Waiver of Compliance; Consents.........................58
8.3 Survival...............................................58
8.4 Notices................................................59
8.5 Assignment.............................................59
8.6 Expenses...............................................60
8.7 Governing Law..........................................60
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Page
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8.8 SUBMISSION TO JURISDICTION, VENUE; WAIVER OF
JURY TRIAL.............................................60
8.9 Counterparts...........................................60
8.10 Interpretation.........................................60
8.11 Entire Agreement.......................................60
8.12 No Third Party Beneficiaries...........................61
8.13 Schedules..............................................61
8.14 No Implied Representations.............................61
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<PAGE>
SCHEDULES
Schedule 2.1 - Acquired Assets
Schedule 2.2 - Assumed Contracts
Schedule 2.11(a) - CBO Equity
Schedule 2.3 - Assumed Liabilities
Schedule 3.1 - Organization
Schedule 3.2 - Capitalization
Schedule 3.4 - Consents
Schedule 3.5 - Government Approvals
Schedule 3.6 - Insurance Statements
Schedule 3.7 - No Undisclosed Liabilities
Schedule 3.8 - Pending Company Litigation
Schedule 3.9 - Tax Matters
Schedule 3.10(a) - Employee Benefit Plans
Schedule 3.10(c) - Plan Compliance
Schedule 3.10(d) - Post-Employment Benefits
Schedule 3.13 - Insurance Claims
Schedule 3.14 - Intellectual Property
Schedule 3.15 - Compliance With Laws
Schedule 3.16 - Required Licenses
Schedule 3.18 - Contracts
Schedule 3.19 - Title to Assets
Schedule 3.20 - Transactions with Certain Persons
Schedule 3.21 - Reinsurance and Retrocessions
Schedule 3.22 - Environmental Laws
Schedule 3.23 - No Material Adverse Change
Schedule 3.26 - Government Regulation-- Investment Advisors
Schedule 3.27 - Government Regulation-- Investment Company
Schedule 3.28 - Government Regulation-- Broker-Dealer
Schedule 3.29 - Government Regulation-- Transfer Agent
Schedule 3.32 - Government Regulation-- Code of Ethics
Schedule 5.1 - Conduct of Business
Schedule 6.2(g) - Closing Condition Employment Agreements
Exhibit A - Form of Section 363/365 Order
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Transitional Services Agreement
Exhibit D - Asset List
Exhibit E - Insurance Subsidiary Release
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<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of December 17, 1999 (the "Agreement"),
among The Western and Southern Life Insurance Company, a mutual insurance
company domiciled in Ohio (the "Purchaser"), ARM FINANCIAL GROUP, INC., a
Delaware corporation ("ARM"), and INTEGRITY HOLDINGS, INC., a Delaware
corporation and a wholly-owned subsidiary of ARM, (the "Insurance Holdco" and,
together with ARM, the "Seller").
The Insurance Holdco is the beneficial and record owner of all of
the issued and outstanding shares of capital stock of Integrity Life Insurance
Company, an Ohio stock life insurance company ("Integrity"). Integrity is the
beneficial and record owner of all of the issued and outstanding capital stock
of National Integrity Life Insurance Company, a New York stock life insurance
company ("National" and, together with Integrity, the "Insurance Subsidiaries").
The Insurance Subsidiaries are engaged in the asset accumulation
business, including the retail marketing of retirement savings and investment
products (which include a variety of fixed, indexed and variable annuities sold
through various distribution channels, including independent broker-dealers,
agents, stockbrokers and financial institutions) (collectively, the "Acquired
Business").
Each of ARM and the Insurance Holdco intends to file a voluntary
petition (collectively, the "Petitions") for relief under chapter 11 of Title 11
of the United States Code (the "Bankruptcy Code"), commencing a case (the
"Chapter 11 Case") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court").
Purchaser wishes to purchase from the Insurance Holdco, and the
Insurance Holdco wishes to sell to Purchaser, all of the issued and outstanding
shares of capital stock of Integrity (collectively, the "Shares"), all in the
manner and subject to the terms and conditions set forth herein and in
accordance with, among other provisions, section 363 of the Bankruptcy Code.
Purchaser also wishes to purchase certain other assets of Seller
that are utilized by the Insurance Subsidiaries in the Acquired Business and to
assume certain related liabilities from Seller, all in the manner and subject to
the terms and conditions set forth herein and in accordance with, among other
provisions, sections 363 and 365 of the Bankruptcy Code.
The Shares and such other related assets will be sold pursuant
to an order of the Bankruptcy Court approving such sale under section 363 of the
Bankruptcy Code, and such sale will include the assumption and assignment of
certain executory contracts
<PAGE>
and unexpired leases and liabilities thereunder under section 365 of the
Bankruptcy Code, and otherwise in accordance herewith. A copy of such proposed
order is attached hereto as Exhibit A.
Accordingly, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
Definitions shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed to be
references to Articles and Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require. All Exhibits and Schedules
attached hereto shall be deemed incorporated herein as if set forth in full
herein and, unless otherwise defined therein, all terms used in any Exhibit or
Schedule shall have the meaning ascribed to such term in this Agreement. The
words "include," "includes" and "including" shall be deemed to be followed by
the phrase "without limitation." The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise expressly provided herein, any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. For the purposes of this Agreement, the
following terms have the following meanings:
"Affiliate" means, with respect to any Person, any other Person who
directly or indirectly controls, is controlled by or is under common control
with such Person (the term "control," for purposes of this definition, meaning
the power to direct or cause the direction of the management or policies of the
controlled Person).
"Appraisal Firm" means an appraisal firm mutually selected by Seller
and Purchaser or, if Seller and Purchaser cannot agree on such selection, a
nationally recognized appraisal firm that is not an Affiliate of Seller or
Purchaser.
"Bankruptcy Rules" means the rules and regulations promulgated under
the Bankruptcy Code or otherwise applicable in the Bankruptcy Court.
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"Business Day" means every day other than a Saturday or Sunday or
upon which banks in New York, New York are authorized or required by law to
close. Any reference herein to "hours" shall mean normal business hours in a
Business Day.
"Carrying Value" means, with respect to any Security as of any date,
the value of such Security as would be required to be reported under SAP in
statutory financial statements prepared as of such date, which in the case of
any general account assets is the amortized book value of such Security and in
the case of any separate account assets is the Fair Value of such Security, in
each case as adjusted from time to time pursuant to Section 2.11(a).
"Environmental Laws" means any applicable law which relates to or
otherwise imposes liability or standards of conduct concerning environmental
protection, health and safety of persons, discharges, emissions, releases or
threatened releases of any noises, odors or Hazardous Materials into ambient
air, water or land, or otherwise relating to the manufacture, processing,
generation, distribution, use, treatment, storage, disposal, cleanup, transport
or handling of Hazardous Materials, including the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act, as amended, the Occupational Safety and Health Act, as
amended, the Resource Conversation and Recovery Act, as amended, the Toxic
Substance Control Act, as amended, the Federal Water Pollution Control Act, as
amended, the Clean Water Act, as amended, any so-called "Superlien" law, and any
other similar federal, state or local law.
"Environmental Permits" means all permits, approvals, identification
numbers, licenses and other authorizations required under any Environmental Law.
"Equitable" means The Equitable Life Assurance Society of the United
States.
"Equitable Contribution" means all Liabilities of Seller undertaken
in the GenAm/Equitable Settlement Agreement in consideration for the payment of
$2,000,000 by Equitable at Closing pursuant to, and in accordance with, the
GenAm/Equitable Settlement Agreement.
"Escrow Parties" means Seller, Purchaser, the Insurance
Subsidiaries, GenAm, Equitable and the Escrow Agent.
"Escrow Rate" means, as of any date, the average return on
investment of the Escrow Account from the Closing Date through such date, as
determined in good faith by the Escrow Agent.
"Escrow Termination Date" means the date that is the earliest of (a)
the date on which all funds in the Escrow Account have been distributed in
accordance with
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the Escrow Agreement and no funds remain in the Escrow Account; (b) the date
that is the 18 month anniversary of the Closing Date, if there are no Pending
Indemnity Claims as of such date; or (c) the first date following such 18 month
anniversary on which there are no Pending Indemnification Claims.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Items" means, with respect to the preparation of the
Preliminary Balance Sheet and the calculation of Final Statutory Surplus in
accordance with Section 2.10, the following items, but only to the extent any
such item would, but for its exclusion in accordance herewith, impact the
calculation of the Purchase Price adjustment under Section 2.9(a):
(a) the capital contribution of Seller referred to in Section
6.2(d);
(b) the consummation of the transactions contemplated by the
Settlement Agreements referred to in Section 6.1(c);
(c) the assignment and assumption of the Assumed Contracts in
accordance with Section 2.2;
(d) the assumption of the Assumed Plans pursuant to clause
(i)-(iii) of Section 5.7(b);and
(e) any payments prior to Closing made in respect of the
Stay-Pay Incentive Arrangement referred to in Section 5.7(b)(ii).
"Fair Value" means, with respect to any Security as of any date, the
price at which such Security is likely to be sold in an arm's-length transaction
between a willing and able purchaser and willing and able seller, neither of
which is an Affiliate of the other and neither of which is under any compulsion
to enter into such transaction, based on the market conditions prevailing as of
such date.
"Final Balance Sheet" shall mean the Preliminary Final Balance
Sheet, as agreed to under Section 2.10(b) and as may be adjusted in the dispute
resolution process under Section 2.10(c).
"Final Indemnity Order" means, with respect to any Indemnity
Dispute, a Final Order in respect of such Indemnity Dispute.
"Final Order" means an order or a judgment of a court of competent
jurisdiction which has not been reversed or stayed and as to which (i) the time
to appeal or
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seek review, rehearing or certiorari has expired and (ii) no appeal or petition
for review, rehearing or certiorari is pending.
"Final Statutory Surplus" means the Statutory Surplus of the
Insurance Subsidiaries plus the Asset Valuation Reserves of the Insurance
Subsidiaries, in each case as reflected in the Final Balance Sheet, which shall
exclude the Excluded Items.
"Fully-Satisfied" means, with respect to any Indemnity Claim set
forth in a Claims Notice as of any date, that all amounts required hereunder to
be paid in respect thereof have been paid in full in accordance herewith and
that any Indemnity Dispute in respect of such Indemnity Claim has been resolved
as of such date, as evidenced by an Indemnity Settlement Notice or an Indemnity
Judgment Notice delivered in connection with any such Indemnity Dispute.
"GAAP" means generally accepted accounting principles in the United
States.
"GenAm" means, collectively, Gen America Corporation, a Missouri
corporation, and General American Life Insurance Company, a stock insurance
company domiciled in Missouri.
"GenAm Contribution" means all Liabilities of Seller undertaken in
the GenAm/Equitable Settlement Agreement in consideration for the release,
settlement and discharge of the Swap Claim (as defined in the GenAm/Equitable
Settlement Agreement) and the payment of $2,000,000 by GenAm at Closing pursuant
to, and in accordance with, the GenAm/Equitable Settlement Agreement.
"GenAm Option Agreement" means the Option Agreement, to be dated as
of the Closing Date between Purchaser and GenAm, as contemplated by the
GenAm/Equitable Settlement Agreement and in a form reasonably acceptable to such
parties.
"GenAm/Equitable Settlement Agreement" means the Settlement
Agreement, dated as of December 1, 1999, among Purchaser, Seller, Integrity,
National Integrity, GenAm, Metropolitan Life Insurance Company and Equitable.
"Hazardous Material" means any (i) hazardous substance, toxic
substance, hazardous waste or pollutant (as such terms are defined by or within
the meaning of any Environmental Law), (ii) material or substance which is
regulated or controlled as a hazardous substance, toxic substance, pollutant or
other regulated or controlled material, substance or matter pursuant to any
Environmental Law (iii) petroleum, crude oil or fraction thereof, (iv)
asbestos-containing material, (v) polychlorinated biphenyls, (vi) lead-based
paint or (vii) radioactive material.
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"Historical Statutory Surplus" means an amount equal to the
Statutory Surplus of the Insurance Subsidiaries plus the Asset Valuation
Reserves of the Insurance Subsidiaries in each case as reflected in the
September 30 Insurance Statements; provided, that, for purposes of Section
2.10(d), such amount shall be increased by $2,200,000.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, and the rules and regulations promulgated thereunder.
"Institutional Business" means the institutional business
arrangements of the Insurance Subsidiaries as described in the SEC Filings.
"Institutional Liabilities" means any Liabilities of the Insurance
Subsidiaries incurred in respect of the Institutional Business.
"Intercompany Payables" means any Liabilities owed to Seller or any
of its Affiliates (other than the Insurance Subsidiaries) by either of the
Insurance Subsidiaries in the ordinary course of business (other than
Liabilities in respect of this Agreement or the transactions contemplated
hereby).
"Intercompany Receivables" means any Liabilities owed to either
Insurance Subsidiary by Seller or any of its Affiliates (other than the
Insurance Subsidiaries) in the ordinary course of business (other than
Liabilities in respect of this Agreement or the transactions contemplated
hereby).
"Investment Advisers Act" means the Investment Advisers Act of 1940,
as amended.
"Investment Company Act" means the Investment Company Act of 1940,
as amended.
"Knowledge of Seller" means the actual knowledge of Dennis L. Carr,
John R. Lindholm, John R. McGeeney, William H. Panning or Edward L. Zeman.
"Liabilities" means, with respect to any Person as of any time, any
direct or indirect indebtedness, liability, claim, loss, damage, deficiency,
obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated
or unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise, of a kind that if known would be required to be set forth on a
balance sheet of such Person as at such time prepared in accordance with SAP or
individually, collectively, specifically or generally to be included in the
notes to such balance sheet.
"Lien" means any lien, pledge, mortgage, security interest, claim,
lease, charge, option, right of first refusal, easement, servitude, transfer
restriction under any stockholder or similar agreement or any similar lien or
encumbrance.
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"Material Adverse Effect" means a material adverse effect on (a) the
business, financial condition or results of operations of the Insurance
Subsidiaries taken as a whole, other than any such effect resulting directly
from (i) the transactions contemplated hereby (including, without limitation,
the Chapter 11 Case), the Ohio Department of Insurance order of supervision, or
the public announcement of either of such events, including any reductions in
the workforce, any increases in the amount or rate of retail lapses, surrenders
or withdrawals, any declines in the amount or rate of retail sales, or losses of
state insurance licenses to do business that can reasonably be restored within a
six month period, which in each case are primarily attributable to or primarily
result from such transaction, order or announcement thereof, (ii) any change in
economic conditions affecting the life insurance or financial services
industries in the United States generally (including interest rates) or the
fixed income securities markets generally (including any effects on the
Insurance Subsidiaries' fixed income securities portfolio, equity, statutory
surplus, earnings or earnings expectations attributable to or resulting from any
such change), (iii) any act or omission of Seller or any of the Insurance
Subsidiaries taken with the prior consent of Purchaser pursuant to Article 5,
(iv) any action taken by, or omission of, Seller or any of the Insurance
Subsidiaries at the specific request of Purchaser, (v) any liquidation by the
Insurance Subsidiaries of investment securities or other assets for the purpose
of satisfying liquidity needs or as contemplated hereby, (vi) with respect to
the Insurance Subsidiaries, any downgrade, modification, qualification or
lowering of, or any "watch" effected with respect to, any rating assigned to the
Insurance Subsidiaries or their securities or financial condition by any rating
organization or agency, (vii) any effect, event, occurrence, circumstance,
change or development described in any SEC Filing or any of the Insurance
Statements filed prior to the date hereof, or (viii) any change in the value,
liquidity or condition of the Securities, or (b) the ability of Seller to
consummate the transactions contemplated hereby. The parties agree that solely
for purposes of Section 6.2(f), a Material Adverse Effect shall be deemed to
have occurred if the Statutory Surplus of the Insurance Subsidiaries as of the
month-end immediately prior to Closing (calculated in all material respects in
the manner contemplated hereunder for the calculation of Final Statutory
Surplus) is less than Historical Statutory Surplus by more than $10,000,000
other than as a result of any matter described in clauses (i) - (viii) above or
as a result of an increase in credit risk or defaults of any issuers of any
assets in the portfolio of the Insurance Subsidiaries.
"Net Intercompany Balance" means the Intercompany Receivables less
the Intercompany Payables as of the Closing Date, in each case as reflected in
the Final Balance Sheet.
"Net Realized Loss Balance" means, as of any date, an amount equal
to the Carrying Value, as reflected on the Asset List as adjusted from time to
time in accordance with Section 2.11(a), of all Securities sold (or deemed to
have been sold pursuant to Section 2.11) by the Advisor on or prior to such
date, less the sum of (a) the aggregate Net Sale Proceeds of any such Securities
on or prior to such date, as reflected in each Interim Accounting and Final
Accounting required to be submitted by the Advisor
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pursuant to Section 2.11 on or prior to the second Business Day following such
date, (b) the aggregate Net Sale Proceeds with respect to any such Securities
that are deemed to have been sold on or prior to such date pursuant to Section
2.11, and (c) any Loss Payment previously paid to Purchaser pursuant to Section
2.11 on or prior to such date.
"Net Sale Proceeds" means, with respect to any Securities, the sum
of (i) the actual sale price of any such Security or the price at which such
Security is deemed sold pursuant to Section 2.11, plus (ii) any prepayments
prior to any such sale or deemed sale of the principal amount of such Security,
minus (iii) the Advisor's fee on the sale of such Security, and minus (iv) any
portion of the sales or deemed sales price of such Security attributable to
accrued interest on such Security that is not reflected in the Carrying Value of
such Security (as calculated pursuant to Section 2.11(a)).
"Pending Indemnity Claim" means, as of any date, any Indemnity Claim
that has not been Fully-Satisfied on or prior to such date.
"Person" means an individual, corporation, joint venture,
partnership, trust, unincorporated association, government or any department or
agency thereof or other entity.
"Petition Date" means the date on which the Petitions are filed with
the Bankruptcy Court.
"Purchaser Material Adverse Effect" means an effect that materially
and adversely affects (a) the assets, Liabilities, business, financial condition
or results of operations of Purchaser and its Subsidiaries taken as a whole or
(b) the ability of Purchaser to consummate the transactions contemplated hereby.
"Ratable Share" means, with respect to GenAm, 94.6959% and, with
respect to Equitable, 5.3041%.
"SEC Filings" means any and all filings made by Seller with the
Securities and Exchange Commission on or prior to the date hereof, including,
without limitation, Seller's Annual Report on Form 10-K for the year ended
December 31, 1998, proxy statements relating to all meetings of Seller's
stockholders (whether annual or special) and all other reports, statements and
registration statements (including Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K).
"Section 363/365 Motion" means the motion to be filed by Seller in
the Chapter 11 Case seeking entry of the Section 363/365 Order.
"Section 363/365 Order" means an order of the Bankruptcy Court, in
substantially the form attached hereto as Exhibit A.
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"Selection Procedures" shall mean, in connection with any
determination to be made by an Appraisal Firm hereunder, an Appraisal Firm
selected by Purchaser and Seller or, if Purchaser and Seller do not agree on
such selection, the selection of an Appraisal Firm by two other Appraisal Firms,
one selected by Seller and the other selected by Purchaser, in each case as
specified in a written notice to the other party; provided, that each of Seller
and Purchaser instruct the Appraisal Firm selected by it to select the third
Appraisal Firm on or prior to the third Business Day that is prior to the date
upon which the Appraisal Firm must be selected and engaged in accordance with
Section 2.11; provided, further, that if either Seller or Purchaser fails to
notify the other of its selection of an Appraisal Firm within ten Business Days
following receipt of written notice of the other party's selection, the
determination shall be rendered by the Appraisal Firm named by such other party
in such notice.
"Settlement Agreements" means, collectively, (i) the GenAm/Equitable
Settlement Agreement, (ii) the Settlement Agreement, dated as of December 1,
1999, among Seller, Integrity, Bank One, NA (formerly known as The First
National Bank of Chicago) and International Securitization Corporation and (iii)
that certain confidential settlement agreement with another former institutional
client of the Insurance Subsidiaries pursuant to which the principal owed by
Integrity to such client shall be reduced from $16.4 million to $12 million in
certain circumstances (it being understood that the settlement agreement
referred to in clause (iii) shall not be deemed consummated hereunder unless
such principal reduction occurs on or prior to Closing).
"Statutory Surplus of the Insurance Subsidiaries" means the
statutory capital and surplus, as determined under SAP, of Integrity (including
its equity in National).
"Subsidiary" means, with respect to any Person, each entity as to
which such Person directly or indirectly owns beneficially or has the power to
vote, or to exercise a controlling influence with respect to, 50% or more of the
voting securities or of any class of such entity the holders of which are
ordinarily entitled to vote for the election of directors (or Persons performing
similar functions) of such entity.
"Tax" or "Taxes" means all taxes, fees, levies, duties, tariffs,
imports and other charges of any kind, including, without limitation, those on
or measured by or referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, value added, property or windfall profits taxes,
capital stock, payroll, employment social security, workers' compensation, net
worth, excise, withholding, stamp transfer, gains, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
governmental or taxing authority, domestic or foreign.
"Tax Authority" means the Internal Revenue Service and any other
Governmental Entity responsible for the administration of any Tax.
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"Tax Return" means any return, report or statement required to be
filed with any governmental authority with respect to Taxes.
CROSS-REFERENCES
Each of the following terms shall have the meanings ascribed to them
in the Section set forth opposite such term.
Acquired Assets......................................................2.1
Acquired Business...............................................Recitals
Advisor..............................................................2.9
Affiliated Group.....................................................3.9
Aggregate Reserve Amount............................................2.12
Agreement.......................................................Recitals
Alternative Transaction..............................................7.3
Appraisal...........................................................2.11
Appraised Price.....................................................2.11
Appraised Securities................................................2.11
Approved Indemnity Amount...........................................2.12
Approved Indemnity Payment Notice...................................2.12
ARM.............................................................Recitals
Asset Sale Closing..................................................2.11
Asserted Third Party Liability......................................2.12
Asset List...........................................................2.9
Asset Sale Notice...................................................2.11
Associated Person...................................................3.30
Assumed Contracts....................................................2.2
Assumed Liabilities..................................................2.3
Assumed Plans........................................................5.7
Bankers.............................................................3.11
Bankruptcy Code.................................................Recitals
Bankruptcy Court................................................Recitals
Broker Dealer...................................................Recitals
CBO Equity.......................................................2.11(a)
Chapter 11 Case.................................................Recitals
Claimed Amount......................................................2.12
Claims Notice.......................................................2.12
Closing..............................................................2.8
Closing Date.........................................................2.8
Code.................................................................3.9
Confidentiality Agreement............................................5.2
Contracts...........................................................3.18
Contracts and Other Agreements.......................................3.4
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Conveyance Documents.................................................2.8
CPA-Determined Differences..........................................2.10
CPA Firm............................................................2.10
CPA Reserve Determination...........................................2.12
Disputed Securities.................................................2.11
Election ............................................................5.8
Employees............................................................5.7
Ending Loss Balance.................................................2.11
Equitable Limit.....................................................2.13
ERISA...............................................................3.10
ERISA Affiliate.....................................................3.10
Escrow Account.......................................................2.6
Escrow Agent.........................................................2.6
Escrow Agreement.....................................................2.6
Expenses.............................................................7.3
Final Accounting....................................................2.11
Final Accounting Date...............................................2.11
Final Accounting Payment Date.......................................2.11
Final Liquidation Adjustment........................................2.11
Final Liquidation Adjustment Payment Date...........................2.11
First Equitable Payment Amount......................................2.13
First GenAm Payment Amount..........................................2.13
Funds...............................................................3.29
GenAm Limit.........................................................2.13
GenAm Swap Claim....................................................2.13
Good Faith Deposit...................................................2.6
Governmental Entity..................................................3.5
Increased Surplus Adjustment........................................2.10
Indemnified Parties..................................................7.2
Indemnifiable Loss..................................................2.12
Indemnity Claim.....................................................2.12
Indemnity Dispute...................................................2.12
Indemnity Judgment Notice...........................................2.12
Indemnity Settlement Amount.........................................2.12
Indemnity Settlement Notice.........................................2.12
Insurance Holdco................................................Recitals
Insurance Products..................................................3.26
Insurance Statements.................................................3.6
Insurance Subsidiaries..........................................Recitals
Insurance Subsidiary Employees.......................................5.7
Integrity.......................................................Recitals
Intellectual Property...............................................3.14
Interim Accounting..................................................2.11
Investment Company Act..............................................3.29
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IRS.................................................................3.10
Legal Requirements...................................................3.4
Liquidation Adjustment Certificate..................................2.11
Loss Payment........................................................2.11
Loss Payment Notice.................................................2.11
Loss Payment Reimbursement..........................................2.11
Losses...............................................................2.9
Minimum Price.......................................................2.11
National........................................................Recitals
New Fund Agreements.................................................3.35
Offer Price.........................................................2.11
Offered Security....................................................2.11
Orders...............................................................3.8
Overbid..............................................................5.4
Overbid Event........................................................7.3
Overbid Procedures Order.............................................5.4
PBGC................................................................3.10
Pending Claim Reserve Amount........................................2.12
Person Associated with an Investment Advisor........................3.28
Petition........................................................Recitals
Plans...............................................................3.10
Preliminary Final Balance Sheet.....................................2.10
Purchase Price.......................................................2.4
Purchaser.......................................................Recitals
Purchaser Indemnified Party..........................................2.9
Purchaser Notice....................................................2.11
Reduced Surplus Adjustment..........................................2.10
Reserve Certificate.................................................2.12
Response Notice.....................................................2.12
Required Licenses...................................................3.16
Requisite Regulatory Approvals.......................................6.1
Resolved Surplus Objections.........................................2.10
Retention Option....................................................2.11
SAP..................................................................3.6
Section 363/365 Hearing..............................................5.4
Securities...........................................................2.9
Seller..........................................................Recitals
Sell-Off Period.....................................................2.11
Separate Accounts...................................................3.32
September 30 Insurance Statements....................................3.6
Surplus Adjustment Certificate......................................2.10
Surplus Adjustment Notice...........................................2.10
Surplus Adjustment Payment Date.....................................2.10
Surplus Differences.................................................2.10
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Surplus Disagreement Notice.........................................2.10
Surplus Review Period...............................................2.10
Shares..........................................................Recitals
Termination Fee......................................................7.3
Third Party.........................................................2.11
Third Party Claims Notice...........................................2.12
Transitional Services Agreement......................................2.6
Transferred Employees................................................5.7
Value Confidentiality Agreement.....................................2.11
ARTICLE 2
SALE AND PURCHASE
2.1 Acquired Assets. On the terms and subject to the conditions set
forth in this Agreement and the Section 363/365 Order, at the Closing, Seller
shall sell, assign, transfer, convey, and deliver to Purchaser, and Purchaser
shall purchase and accept from Seller, all of Seller's rights, title, and
interests in, to and under all of the Acquired Assets, wherever located, whether
tangible or intangible, as the same shall exist on the Closing Date, such sale
being free and clear of all Liens, claims and interests as set forth in the
363/365 Order. For purposes hereto, "Acquired Assets" means, collectively, the
Shares and the assets, rights and claims of Seller and the Insurance
Subsidiaries described on Schedule 2.1.
2.2 Contract Assumption. On the terms and subject to the conditions
set forth in this Agreement and the Section 363/365 Order, all of Seller's
executory contracts and unexpired leases described on Schedule 2.2 (the "Assumed
Contracts") shall be assumed by Seller and shall be assigned by Seller to, and
assumed by, the Insurance Subsidiaries effective as of the date of the entry of
the Section 363/365 Order; provided that the Assumed Contracts listed on Annex A
to Schedule 2.2 shall be assigned by ARM Securities Corp. to, and assumed by, a
Subsidiary of Purchaser that is a "broker-dealer" within the meaning of the
Exchange Act.
2.3 Assumed and Excluded Liabilities. On the terms and subject to
the conditions set forth in this Agreement, at the Closing, the Insurance
Subsidiaries shall assume from Seller and thereafter pay, perform, or discharge
in accordance with their terms, all of the liabilities and obligations of Seller
described on Schedule 2.3, including under the Assumed Contracts, as the same
shall exist on the Closing Date (whether known or unknown, asserted or
unasserted, absolute or contingent and whenever arising) (collectively, the
"Assumed Liabilities").
2.4 Purchase Price. At the Closing, Purchaser shall pay to Seller,
as provided in Section 2.5, an aggregate amount equal to $119,300,000 (the
"Purchase
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Price"). The Purchase Price is subject to adjustment following the Closing as
provided in Section 2.9.
2.5 Payment of Purchase Price. The Purchase Price shall be paid by
Purchaser at the Closing in cash by wire transfer of immediately available
funds, to the Escrow Account provided for in Section 2.6.
2.6 Ancillary Agreements.
(a) At the Closing, Purchaser and Seller will enter into an
Escrow Agreement substantially in the form of Exhibit B with such modifications
thereto as the Escrow Agent may reasonably request (the "Escrow Agreement"),
which shall provide for an escrow account (the "Escrow Account") to be
maintained by an escrow agent mutually acceptable to the parties hereto (the
"Escrow Agent").
(b) At the Closing, Purchaser, the Insurance Subsidiaries and
Seller will enter into a transitional services agreement substantially in the
form of Exhibit C (the "Transitional Services Agreement").
2.7 Closing Deliveries.
(a) At the Closing, Seller shall deliver to Purchaser (i)
stock certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers duly executed in blank, in proper form for transfer,
and with all appropriate stock transfer tax stamps affixed, (ii) such deeds,
bills of sale, assignments of leases and contracts, and any other instruments of
conveyance (collectively, the "Conveyance Documents") that are necessary or
appropriate to effectuate the transfer of the Acquired Assets to Purchaser,
(iii) an executed copy of the Escrow Agreement and Transitional Services
Agreement, (iv) a signed resignation by each of the directors of the Insurance
Subsidiaries effective on the Closing Date and (v) such other documents,
instruments or certificates as Purchaser or its counsel may reasonably request.
At the Closing, Seller shall execute and deliver all agreements, instruments and
further documents as are contemplated by the Settlement Agreement in accordance
therewith.
(b) At the Closing, Purchaser shall deliver to Seller, (i)
such duly executed instruments as are necessary or appropriate to effectuate the
assumption of the Assumed Liabilities by Purchaser, (ii) an executed copy of the
Escrow Agreement and Transitional Services Agreement, (iii) such other
documents, instruments or certificates as Seller or its counsel may reasonably
request and (iv) the Purchase Price (by delivery to the Escrow Account) in
accordance with Section 2.5. At the Closing, Purchaser shall execute and deliver
all agreements, instruments and further documents as are contemplated by the
Settlement Agreement in accordance therewith.
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2.8 Closing; Closing Date. The closing of the transactions
contemplated hereby (the "Closing") shall take place at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New
York 10019-6064 at 10:00 a.m., local time, on the third Business Day after all
conditions set forth in Article 6 shall have been satisfied or waived and the
Section 363/365 Order has been entered by the Bankruptcy Court, or at such other
time or date as Purchaser and Seller shall agree upon in writing. The date upon
which the Closing occurs is referred to herein as the "Closing Date."
2.9 Adjusted Purchase Price. The Purchase Price shall be adjusted to
reflect the following:
(a) Any variance in excess of $1,000,000 between the
Historical Statutory Surplus as of September 30, 1999 and the Final Statutory
Surplus, as provided in Section 2.10;
(b) Any Net Realized Loss Balance in respect of the
disposition of those securities (the "Securities") owned by the Insurance
Subsidiaries and listed on Exhibit D attached hereto (the "Asset List"), as
provided in Section 2.11; and
(c) Any and all losses, costs, damages or expenses (including
reasonable and documented attorneys', accountants', consultants' and experts'
fees and expenses) suffered or incurred by Purchaser or any of its Affiliates
(including, without limitation, officers, directors, employees or agents of
Purchaser or such Affiliate) (each, a "Purchaser Indemnified Party") based upon,
resulting from or arising out of (i) any inaccuracy in or breach of any
representation or warranty of Seller contained herein, or (ii) the breach on the
part of Seller of any unwaived covenant or agreement set forth in this Agreement
which survives the Closing ("Losses"), as provided in Section 2.12; and
provided, however, that, notwithstanding anything to the contrary contained
herein, (x) no adjustment shall be made under Section 2.9(b) to the extent any
such disposition of Securities is reflected in the Final Statutory Surplus, (y)
no adjustment shall be made under Section 2.9(c) to the extent that any Losses
resulting from or arising out of any such inaccuracy or breach is reflected in
the Final Statutory Surplus, and (z) Losses shall be calculated net of any
insurance proceeds received by any Purchaser Indemnified Party pursuant to any
insurance policy owned by the Insurance Subsidiaries on or prior to Closing; and
provided, further, that no adjustment pursuant to Section 2.9(a) or 2.9(c) shall
be made in respect of (A) Taxes, or any inaccuracy or breach of any
representation or warranty made in Section 3.9, in each case in respect of any
taxable year ending after December 31, 1998, unless and to the extent that, but
for this proviso, the adjustment in respect thereof would exceed $15,000,000; or
(B) litigation, suits, proceedings, causes of action or other claims against or
affecting either of the Insurance Subsidiaries (including legal fees and
expenses incurred by the Insurance Companies in connection therewith) against
the Insurance Subsidiaries, or any inaccuracy or breach of Section 3.8, unless
and
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to the extent that, but for this proviso, the adjustment in respect thereof
would exceed $5,000,000, and, in each such case, any such adjustment shall be
for the excess over $15,000,000 or $5,000,000, as applicable.
2.10 Surplus Adjustment.
(a) Preparation of Final Balance Sheet and Adjustment
Certificate. As soon as practicable, but in any event within 60 days after the
Closing Date, Seller shall prepare a balance sheet of the Insurance Subsidiaries
as of the Closing Date or, if such date is not a month-end, the close of
business on the month-end immediately preceding the Closing Date (the
"Preliminary Final Balance Sheet"), a copy of which shall be delivered to
Purchaser. In the event the Preliminary Final Balance Sheet is prepared as of
any date that is not the Closing Date, then such Preliminary Final Balance Sheet
shall be adjusted to reflect all transactions occurring on or prior to the
Closing Date (including, without limitation, any transactions resulting in an
Intercompany Payable), but excluding any Excluded Items. The Preliminary Final
Balance Sheet shall, except with respect to the exclusion of the Excluded Items,
present fairly, in all material respects, the financial position of the
Insurance Subsidiaries at such date in accordance with SAP consistently applied
during the periods involved. In addition, Seller shall prepare a certificate
(the "Surplus Adjustment Certificate"), based on the Preliminary Final Balance
Sheet, setting forth the amount, if any, payable from the Escrow Account to
Purchaser, or by Purchaser to the Escrow Account, pursuant to Section 2.10(d).
The Surplus Adjustment Certificate shall be provided to Purchaser promptly upon
the availability thereof. Purchaser will, and will cause the Insurance
Subsidiaries to, provide Seller and its professional advisors full access to the
books, ledgers, files, reports and operating records of the Insurance
Subsidiaries and the then current employees of the Purchaser and the Insurance
Subsidiaries, and will fully cooperate in preparing and reviewing the
Preliminary Final Balance Sheet and the Surplus Adjustment Certificate.
(b) Review of Preliminary Final Balance Sheet. Upon receipt of
the Preliminary Final Balance Sheet and the Surplus Adjustment Certificate,
Purchaser (and its professional advisors) shall have the right during the
succeeding 30-day period (the "Surplus Review Period") to examine the
Preliminary Final Balance Sheet and the Surplus Adjustment Certificate, and all
books and records used to prepare the Preliminary Final Balance Sheet and the
Surplus Adjustment Certificate. If Purchaser objects to all or any part of the
Preliminary Final Balance Sheet or the Surplus Adjustment Certificate, it shall
so notify Seller in writing (such notice, a "Surplus Disagreement Notice") on or
before the last day of the Surplus Review Period, setting forth a specific
description of Purchaser's objection and the amount of the adjustment that
Purchaser believes should be made to each item of its objection. If no Surplus
Disagreement Notice is delivered within the Surplus Review Period, the
Preliminary Final Balance Sheet and the Surplus Adjustment Certificate shall be
deemed to have been accepted by the parties hereto.
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(c) Dispute Resolution.
(i) In the event that any Surplus Disagreement Notice is
delivered in accordance with Section 2.10(b), Purchaser and Seller shall
attempt to resolve the objections set forth therein within five days of
receipt of such Surplus Disagreement Notice. The objections set forth in
the Surplus Disagreement Notice that are resolved by Purchaser and Seller
in accordance with this Section 2.10(c)(i) shall collectively be referred
to herein as the "Resolved Surplus Objections." The Surplus Adjustment
Certificate and Preliminary Balance Sheet shall be adjusted to reflect any
Resolved Surplus Objections.
(ii) If Purchaser and Seller are unable to resolve all
the objections set forth in any Surplus Disagreement Notice within such
five-day period, they shall jointly appoint Deloitte & Touche, LLP (or any
successor thereof) within five days of the end of such five-day period
(the "CPA Firm"). The CPA Firm, acting as experts and not as arbitrators,
shall review the objections set forth in the Surplus Disagreement Notice
that are not Resolved Surplus Objections (collectively, the "Surplus
Differences"). The CPA Firm shall determine, based on the requirements set
forth in this Section 2.10 and only with respect to Surplus Differences
submitted to the CPA Firm, whether and to what extent the Preliminary
Final Balance Sheet and/or the Surplus Adjustment Certificate require
adjustment; provided, however, that in no event shall any determination by
the CPA Firm of any Surplus Difference result in an adjustment greater
than the amount of the adjustment requested with respect to such Surplus
Difference in the Surplus Disagreement Notice. Purchaser and Seller shall
each pay 50% of the fees and disbursements of the CPA Firm in respect of
such engagement. Purchaser and Seller shall, and shall cause the Insurance
Subsidiaries to, provide to the CPA Firm full cooperation. The CPA Firm's
resolution of the Surplus Differences shall be conclusive and binding upon
the parties. The Surplus Differences as resolved by the CPA Firm in
accordance with this Section 2.10(c)(ii) shall collectively be referred to
herein as the "CPA-Determined Differences." The Surplus Adjustment
Certificate and the Preliminary Balance Sheet shall be adjusted to reflect
any CPA-Determined Differences.
(d) Calculation of Surplus Purchase Price Adjustments. The
Purchase Price adjustment under Section 2.9(a) shall be based on the Final
Balance Sheet and shall be as follows:
(i) If the Final Statutory Surplus set forth in the
Surplus Adjustment Certificate (as adjusted pursuant to Section 2.10(c))
is greater than the Historical Statutory Surplus by at least $1,000,000,
then Purchaser shall pay to the Escrow Account, as an increase in Purchase
Price, the amount of such excess over $1,000,000 (an "Increased Surplus
Adjustment"), in accordance with Section 2.10(e).
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(ii) If the Final Statutory Surplus set forth in the
Surplus Adjustment Certificate (as adjusted pursuant to Section 2.10(c))
is less than the Historical Statutory Surplus by at least $1,000,000, then
Purchaser shall be entitled to receive from the Escrow Account, as a
reduction in Purchase Price, the amount of such deficiency that is in
excess of $1,000,000 (a "Reduced Surplus Adjustment"), in accordance with
Section 2.10(e).
(e) Payment of Surplus Purchase Price Adjustments. On the
fifth day (such fifth day, the "Surplus Adjustment Payment Date") following the
latest to occur of (x) the 15th day following receipt of the Preliminary Final
Balance Sheet and the Surplus Adjustment Certificate by Purchaser, (y) the
resolution by Purchaser and Seller of all objections set forth in the Surplus
Disagreement Notice, if any, and (z) the resolution by the CPA Firm of all
Surplus Differences, if any, Purchaser shall pay to the Escrow Account the
amount, if any, equal to the Increased Surplus Adjustment, or the Escrow Agent
shall pay from the Escrow Account to Purchaser the amount, if any, equal to
Reduced Surplus Adjustment. An Increased Surplus Adjustment or Reduced Surplus
Adjustment shall be payable on the Surplus Adjustment Payment Date, with
interest accrued from the Closing Date until, but not including, the Surplus
Adjustment Payment Date, at a rate equal to the Escrow Rate as of the Surplus
Adjustment Payment Date. In the event of a Reduced Surplus Adjustment, Seller
and Purchaser shall, at least two days prior to the Surplus Adjustment Payment
Date, jointly execute and deliver to the Escrow Parties a certificate (the
"Surplus Adjustment Notice") setting forth the amount of the Reduced Surplus
Adjustment.
2.11 Asset Liquidation Adjustment.
(a) Asset List. The Asset List sets forth, as of November 30,
1999, the Carrying Value for the Securities listed thereon. The Asset List shall
be updated as promptly as practicable following Closing to reflect the Carrying
Value of the Securities in the Final Balance Sheet and to remove any Securities
sold (or deemed to have been sold pursuant to this Section 2.11) on or prior to
the Closing Date in accordance with the provisions of this Section 2.11. The
Carrying Value for the Securities that are listed on Schedule 2.11(a) (such
Securities, the "CBO Equities") shall be adjusted from their Carrying Value as
set forth on the Asset List to the date of any prepayment on, or sale or deemed
sale of, such Security using the same interest rates as used in determining the
value set forth on the Asset List.
(b) Advisor. On or prior to the Closing Date, Seller and
Purchaser will retain BlackRock Financial Management, Inc. and/or other mutually
acceptable investment advisors or bankers (collectively the "Advisor"), on such
terms and conditions (which shall include the obligation to report to Seller and
Purchaser and otherwise abide by the procedures set forth in the further
provisions of this Section 2.11) as shall be acceptable to Seller and Purchaser,
to liquidate any Securities remaining on the Asset List as of the Closing Date
during the 12 months following Closing (the "Sell-Off
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Period"); provided, however, that Purchaser may, in its sole discretion, and by
written notice delivered to the Escrow Parties extend the Sell-Off Period to an
appropriate date not later than the 18-month anniversary of Closing if, despite
the Advisor's best efforts, all of the Securities have not been sold (or deemed
to have been sold pursuant to this Section 2.11) on or prior to the expiration
of the Sell-Off Period (as may have been previously extended pursuant hereto).
The Advisor shall be entitled to a fee for its services, to be mutually agreed
upon by the parties.
(c) Interim and Final Accounting by Advisor. Within the first
five Business Days of each month, the Advisor will submit to Seller, Purchaser
and the Escrow Agent a detailed accounting tracking the sale of each Security on
the Asset List and the Net Sales Proceeds therefrom during the prior month (the
"Interim Accounting"). Within five days after the earlier of (A) the end of the
Sell-Off Period, as may be extended as set forth above, and (B) the date on
which all Securities on the Asset List have been sold (or deemed to have been
sold pursuant to this Section 2.11), the Advisor will submit to each of the
Escrow Parties a detailed accounting tracking the sale of each Security on the
Asset List for the period of time not accounted for in the last submitted
Interim Accounting and for the entire period of the Advisor's retention (the
"Final Accounting," the date of such Final Accounting being the "Final
Accounting Date").
(d) Retention Option. The Asset List also sets forth an agreed
upon minimum price for each of the Securities listed thereon (with respect to
each Security, a "Minimum Price"). Seller shall not, and shall cause the
Insurance Subsidiaries not to, from the date hereof until the Closing Date, and
the Advisor shall not, from and after Closing, sell or otherwise dispose of any
Security at a price below the Minimum Price for such Security, without first
notifying Seller and Purchaser in writing (an "Asset Sale Notice") of such
proposed disposition, including the Securities proposed to be disposed of (the
"Offered Securities"), the price for such Offered Securities (the "Offer
Price"), the proposed date for consummating such disposition (the "Asset Sale
Closing") and other material terms and conditions of such proposed disposition,
at least four hours (or, in the case of a proposed sale of any CBO Equities, two
Business Days) in advance of the Asset Sale Closing. Purchaser shall have the
option (the "Retention Option"), but not the obligation, to elect to prevent the
consummation of such disposition by notifying Seller, GenAm and, after Closing,
the Advisor in writing of such election (the "Purchaser Notice") within four
hours (or, in the case of a proposed sale of any CBO Equities, two Business
Days) of its receipt of such Asset Sale Notice. Any Offered Security in respect
of which Purchaser has exercised its Retention Option may not be sold or
otherwise disposed of at a price below the Minimum Price without again complying
with this Section 2.11(d); provided, that, if Purchaser shall have exercised
such Retention Option on behalf of GenAm pursuant to the GenAm Option Agreement,
then such Offered Securities may be sold to GenAm in accordance therewith, in
which case such Offered Securities shall be considered to be retained by the
Insurance Subsidiaries and not sold for purposes hereof, unless deemed to have
been sold pursuant to clause (e) or (f) below.
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(e) Deemed Sales. Notwithstanding anything to the contrary
contained herein, but subject to the next sentence, any Security as to which
Purchaser has exercised its Retention Option on or prior to Closing that has not
been sold on or prior to Closing shall, for purposes of preparing the Final
Balance Sheet, be deemed to have been sold at the highest Offer Price contained
in an Asset Sale Notice delivered in respect of such Security. Notwithstanding
anything to the contrary contained herein, any Security as to which Purchaser
has exercised its Retention Option after Closing that has not been sold on or
prior to the Final Accounting Date, for purposes of calculating the Net Realized
Loss Balance, shall be deemed to have been sold as of the Final Accounting Date
at the highest Offer Price contained in the Asset Sale Notice delivered in
respect of such Security prior to the Final Accounting Date; provided, that such
Securities shall not, without Seller's consent, be deemed to be sold pursuant to
this clause (e) unless such Offer Price was at least equal to 85% of the Minimum
Price for such Security.
(f) Appraisal. Any Securities (the "Appraised Securities")
that are (i) not sold to any Person other than GenAm or Purchaser or any of
their Affiliates (herein, a "Third Party") pursuant to a legitimate bid by such
Third Party and (ii) not deemed sold pursuant to clause (e) above, in each case,
on or prior to the Final Accounting Date, shall be deemed to have been sold at
the Appraised Price as of the Final Accounting Date.
(g) Appraisal Procedures. Seller and Purchaser shall attempt
to agree on the Fair Value of any Appraised Securities within ten days following
the Final Accounting Date. If Seller and Purchaser are able to agree as to the
Fair Value of any such Appraised Securities, the Appraised Price of such
Appraised Securities shall be deemed to equal such agreed upon Fair Value. If
Seller and Purchaser are not able to agree as to the Fair Value of any such
Appraised Securities (the "Disputed Securities") within such ten-day period, an
Appraisal Firm shall be selected in accordance with the Selection Procedures and
jointly engaged by Seller and Purchaser, within ten days following the Final
Accounting Date, to determine the Fair Value of the Disputed Securities.
Purchaser and Seller shall each pay 50% of the fees and disbursements of such
Appraisal Firm. Purchaser and Seller shall, and shall cause the Insurance
Subsidiaries to, provide such Appraisal Firm with full cooperation. Such
Appraisal Firm shall deliver its determination (the "Appraisal") of the Fair
Value of each of the Disputed Securities (the "Appraised Price") in writing to
Seller and Purchaser within 30 days of such engagement, which determination
shall be conclusive and binding upon the parties.
(h) Confidentiality. As a condition to the effectiveness of
the Retention Option and the GenAm Option Agreement, the Minimum Price of each
Security shall be kept strictly confidential by Purchaser and Seller in
accordance with the confidentiality agreement, dated as of the date hereof (the
"Value Confidentiality Agreement"), between Purchaser and Seller. As a condition
to its engagement hereunder, Advisor shall agree to be bound by the Value
Confidentiality Agreement. As a condition
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to the effectiveness of the GenAm Option Agreement, GenAm shall agree to be
bound by the Value Confidentiality Agreement.
(i) Interim Loss Payments. On or before the tenth Business Day
following the end of each fiscal quarter following the Closing Date and prior to
the Final Accounting Date, Purchaser may, by delivering a written notice (a
"Loss Payment Notice") to Seller and the Escrow Agent, demand payment (a "Loss
Payment") by the Escrow Agent from the Escrow Account in an amount equal to the
extent that the Net Realized Loss Balance as of such quarter-end is positive.
Each Loss Payment Notice shall include a detailed calculation of the Net
Realized Loss Balance as of such quarter-end, and shall include a detailed
description of any deemed sale transactions hereunder. The Escrow Agent will pay
to Purchaser from the Escrow Account an amount equal to the Loss Payment
specified in the Loss Payment Notice within two Business Days of receipt of such
Loss Payment Notice.
(j) Calculation of Final Liquidation Adjustments. The Purchase
Price Adjustment under Section 2.9(b) shall be based on the Net Realized Loss
Balance as of the Final Accounting Date (the "Ending Loss Balance") and shall be
calculated as follows:
(i) If the Ending Loss Balance is negative, then
Purchaser shall pay to the Escrow Account, as a reimbursement of previous
Loss Payments, the amount of such negative balance, plus interest accrued
thereon from the date of that previous Loss Payment which, had it not been
distributed from the Escrow Account, would have resulted in a Net Realized
Loss Balance of zero or greater, until, but not including the Final
Liquidation Adjustment Payment Date, at a rate equal to the Escrow Rate as
of the Final Accounting Date (such negative balance plus interest, the
"Loss Payment Reimbursement"), in accordance with Section 2.11(l).
(ii) If the Ending Loss Balance is positive, then the
Escrow Agent shall pay from the Escrow Account to Purchaser, as a
reduction in Purchase Price, the amount of such positive balance, plus
interest accrued thereon from the date of Closing Date until, but not
including, the Final Liquidation Adjustment Payment Date, at a rate equal
to the Escrow Rate ("Final Liquidation Adjustment"), in accordance with
Section 2.11(l).
(k) Preparation of Liquidation Adjustment Certificate. As soon
as practicable following the Final Accounting Date, but in any event within five
Business Days following receipt of the Appraisal, Seller and Purchaser shall
jointly execute and deliver a certificate (the "Liquidation Adjustment
Certificate") to each of the Escrow Parties. The Liquidation Adjustment
Certificate shall set forth the amount, if any, payable from the Escrow Account
to Purchaser or from Purchaser to the Escrow Account pursuant to Section
2.11(j).
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(l) Payment of Final Liquidation Adjustments. On the second
Business Day (such second day, the "Final Liquidation Adjustment Payment Date")
following issuance of the Liquidation Adjustment Certificate, the Purchaser
shall pay to the Escrow Account the amount, if any, equal to the Loss Payment
Reimbursement or the Escrow Agent shall pay from the Escrow Account to Purchaser
the amount, if any, equal to the Final Liquidation Adjustment.
2.12 Indemnification Adjustment.
(a) Claims By Third Parties. From the date hereof until the
Escrow Termination Date, if Purchaser becomes aware of any third party claim
that may result in a Loss (an "Asserted Third Party Liability"), Purchaser shall
promptly give notice thereof (the "Third Party Claims Notice") to Seller. The
Third Party Claims Notice shall describe the Asserted Third Party Liability in
reasonable detail, and shall indicate the amount (estimated, if necessary, and
to the extent feasible) of the Loss that has been or may be suffered by
Purchaser. Seller may elect to control the compromise or defense, at its own
expense and by its own counsel (reasonably acceptable to Purchaser) of any
Asserted Third Party Liability. If Seller elects to control the compromise or
defense of any such Asserted Third Party Liability, it shall within 20 days (or
sooner, if the nature of the Asserted Third Party Liability so requires) notify
Purchaser of its intent to do so, and Purchaser shall fully cooperate, at the
expense of Seller, in the compromise of, or defense against, such Asserted Third
Party Liability. If Seller elects not to control the compromise or defense of
such Asserted Third Party Liability or fails to notify Purchaser of such
election within such 20-day period, Purchaser may pay, compromise or defend such
Asserted Third Party Liability. Notwithstanding the foregoing, none of
Purchaser, Seller or the Insurance Subsidiaries may settle or compromise any
Asserted Third Party Liability without the consent of Seller and Purchaser (such
consent not to be unreasonably withheld or delayed). In any event, each of
Seller and Purchaser may each participate, at its own expense, in the defense of
such Asserted Third Party Liability. If Seller chooses to defend any Asserted
Third Party Liability, Purchaser shall make available to Seller any books,
records or other documents related to the Acquired Business or otherwise within
its control that are necessary or appropriate for such defense.
(b) Claims By Purchaser. If, at any time and from time to time
prior to the date that is 18 months following the Closing Date, any Purchaser
Indemnified Party incurs any Loss subject to indemnification under Section
2.9(c) (an "Indemnifiable Loss"), Purchaser shall deliver a notice to Seller (a
"Claims Notice") specifying the amount (the "Claimed Amount") of any such
Indemnifiable Loss for which Purchaser believes it is entitled to payment from
the Escrow Account (the "Indemnity Claim"). Such Claims Notice shall be
accompanied by a reasonably full description of the basis for such claim and
reference to the representation or warranty with respect to which such Indemnity
Claim is asserted.
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(c) Response by Seller. Within 30 days after receipt of any
Claims Notice, Seller shall, with respect to such Claims Notice, by notice to
Purchaser (a "Response Notice"), either (a) approve the request for payment from
the Escrow Account for the Claimed Amount in whole, or (b) deny the request for
payment from the Escrow Account for the Claimed Amount in whole or in part. If
Seller denies the request for payment from the Escrow Account in whole or in
part, such Response Notice shall be accompanied by a reasonably full description
of the basis for such denial. Any portion of the Claimed Amount for which Seller
shall have approved the request for payment is referred to herein as the
"Approved Indemnity Amount." Seller and Purchaser shall jointly execute and
deliver a written notice (an "Approved Indemnity Payment Notice") to each of the
other Escrow Parties, jointly instructing the Escrow Agent to pay any Approved
Indemnity Amount from the Escrow Account to Purchaser.
(d) Resolutions of Disputes. If Seller denied in whole or in
part the request for payment from the Escrow Account for the Claimed Amount,
Seller and Purchaser shall attempt to resolve such dispute (an "Indemnity
Dispute") as promptly as possible. If Seller and Purchaser resolve such
Indemnity Dispute, they shall jointly execute and deliver a written notice (an
"Indemnity Settlement Notice") to each of the other Escrow Parties, instructing
the Escrow Agent to pay out of the Escrow Account to Purchaser the amount, if
any, agreed to by Seller and Purchaser in settlement of such Indemnity Dispute
(the "Indemnity Settlement Amount"). If Purchaser and Seller fail to resolve
such Indemnity Dispute within 30 days after receipt by Purchaser of the Response
Notice corresponding to such Indemnity Dispute, such dispute may be submitted by
either party to the Bankruptcy Court for resolution and a Final Indemnity Order.
Seller and Purchaser shall jointly execute and deliver a written notice (the
"Indemnity Judgment Notice") to each of the other Escrow Parties, instructing
the Escrow Agent to pay to Purchaser from the Escrow Account the amount, if any,
ordered to be paid in any Final Indemnity Order and attaching a copy of such
Final Indemnity Order.
(e) Calculation of Reserves. In the event that a Pending
Indemnity Claim has not been Fully Satisfied on or prior to the Final Accounting
Date, Seller and Purchaser shall attempt to agree upon an amount (the "Pending
Claim Reserve Amount") that represents a reasonable reserve in respect of such
Pending Indemnity Claim until such Pending Indemnity Claim is Fully-Satisfied.
If Purchaser and Seller are unable to agree on such amount within five Business
Days following the Final Accounting Date, they shall jointly appoint the CPA
Firm to determine the Pending Claim Reserve Amount. The CPA Firm, acting as
experts and not arbitrators, shall review the Claim Notice, the Response Notice
and any other written materials submitted by the parties hereunder in respect of
such Pending Indemnity Claim, including any Approved Indemnity Payment Notice
and shall confer with counsel of its choice regarding the merits of such Pending
Indemnity Claim. The CPA Firm shall determine the Pending Claim Reserve Amount
based on GAAP and advise of such counsel; provided, however, that in no event
shall the Pending Claim Reserve Amount exceed the Claimed Amount less any
Approved Indemnity Amount for such Pending Indemnity Claim. Purchaser and Seller
shall each pay
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50% of the fees and disbursements of the CPA Firm in respect of such engagement
(including the reasonable and documented fees and expenses of the CPA-Firm's
counsel). Purchaser and Seller shall, and shall cause the Insurance Subsidiaries
to, provide to the CPA Firm and its counsel full cooperation. The CPA Firm's
written determination (the "CPA Reserve Determination") of the Pending Indemnity
Claim Reserve Amount in respect of any Pending Indemnity Claim shall be
delivered to Seller and Purchaser no later than 15 days following the engagement
of such CPA Firm under this Section 2.12(e) and shall be conclusive and binding
upon the parties. Within two Business Days of receipt of the CPA Reserve
Determination, or if Seller and Purchaser agree on the Pending Claim Reserve
Amount for each Pending Indemnity Claim, promptly following such agreement,
Seller and Purchaser shall execute and deliver a certificate (the "Reserve
Certificate") to the Escrow Agent which sets forth the aggregate amount (the
"Aggregate Reserve Amount") equal to the Pending Indemnity Claim Reserve Amount
for each Pending Indemnity Claim as of the Final Accounting Date.
(f) Payment of Indemnity Adjustments. On or before the third
Business Day following receipt of an Approved Indemnity Payment Notice, an
Indemnity Settlement Notice or an Indemnity Judgment Notice, as the case may be,
the Escrow Agent shall pay from the Escrow Account to Purchaser, as a reduction
in Purchase Price pursuant to Section 2.9(c), the amount instructed by Purchaser
and Seller to be paid to Purchaser in any such notice and, to the extent
interest is not reflected in such amount, with interest accrued on such amount
from the date of the Loss in respect of which such amount is being paid until,
but not including the date of such payment, at a rate equal to the Escrow Rate
on such payment date.
2.13 Distributions from Escrow on Final Accounting. On or before the
date (the "Final Accounting Payment Date") that is prior to the Escrow
Termination Date, but is the later of (a) the Final Liquidation Adjustment
Payment Date and (b) the second Business Day following the receipt by the Escrow
Agent of the Reserve Certificate, the Escrow Agent shall distribute all funds
remaining in the Escrow Account on the Final Accounting Payment Date, but only
to the extent such funds exceed the sum of $10,000,000 plus the Aggregate
Reserve Amount set forth in the Reserve Certificate and only after payment to
Purchaser of any Loss Payments due under Section 2.11(i), as follows:
First, to the Escrow Agent, for any amounts due and payable to
the Escrow Agent under the Escrow Agreement as of the Final Accounting
Payment Date;
Second, to GenAm and Equitable, the Ratable Share of the total
amount available to be distributed pursuant to this paragraph, which
amounts shall be paid on account of the GenAm Contribution and the
Equitable Contribution, respectively; provided, that, in no event shall
(x) the amount so distributed to GenAm (the "First GenAm Payment Amount")
exceed the sum (the "GenAm
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Limit") of $17,853,512, plus interest accrued thereon from the Closing
Date until, but not including, the Final Accounting Payment Date at a rate
equal to the Escrow Rate as of the Final Accounting Payment Date or (y)
the amount so distributed to Equitable (the "First Equitable Payment
Amount") exceed the sum (the "Equitable Limit") of $1,000,000, plus
interest accrued thereon from the Closing Date until, but not including,
the Final Accounting Payment Date at a rate equal to the Escrow Rate as of
the Final Accounting Payment Date; and
Third, to Seller, in partial payment of the Purchase Price.
2.14 Distribution From Escrow on Escrow Termination Date. On the
Escrow Termination Date, the Escrow Agent shall distribute all funds remaining
in the Escrow Account on such date as follows:
First, to the Escrow Agent, for any amounts due and payable to
the Escrow Agent under the Escrow Agreement as of the Escrow Termination
Date;
Second, to Purchaser, for payment of any amounts due to
Purchaser pursuant to Section 2.11 or 2.12, but only to the extent not
previously paid, which amount shall be paid as a reduction in Purchase
Price;
Third, to GenAm and Equitable, the Ratable Share of the total
amount available to be distributed pursuant to this paragraph, which
amounts shall be paid in full satisfaction and discharge of the GenAm
Contribution and the Equitable Contribution respectively; provided, that,
in no event shall (x) the amount so distributed to GenAm exceed the
difference between the GenAm Limit and the First GenAm Payment Amount or
(y) the amount so distributed to Equitable exceed the difference between
the Equitable Limit and the First Equitable Payment Amount; and
Fourth, to Seller, any remaining funds for payment in full of
the Purchase Price as adjusted herein.
2.15 Intercompany Adjustment. If the Net Intercompany Balance is
positive, then Purchaser shall be entitled to receive from Seller such Net
Intercompany Balance on the Surplus Adjustment Payment Date. If the Net
Intercompany Balance is negative, then Purchaser shall pay to Seller the
absolute value of such Net Intercompany Balance on the Surplus Adjustment
Payment Date.
ARTICLE 3
REPRESENTATIONS AND
WARRANTIES OF SELLER
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Seller represents and warrants to Purchaser as follows:
3.1 Organization. Except as disclosed on Schedule 3.1, Seller and
each of the Insurance Subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Except as
set forth on Schedule 3.1, Seller and each of the Insurance Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
for such failures to be so duly qualified or licensed and in good standing that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Seller has previously delivered or made available to
Purchaser correct and complete copies of the certificates of incorporation,
bylaws (or equivalent governing instruments) and minute books, as currently in
effect, of each of the Insurance Subsidiaries. The minute books of the Insurance
Subsidiaries accurately reflect all formal actions taken at all meetings and all
consents in lieu of meetings of the Stockholders of such Insurance Subsidiary
and the board of directors of such Insurance Subsidiary, all since January 1,
1998. None of the current or former directors of Seller is serving, or has
served, as a director and/or officers of Seller at the request of any of the
Insurance Subsidiaries.
3.2 Capitalization. The number of authorized, issued and outstanding
shares of the capital stock of the Insurance Subsidiaries, and the record and
beneficial ownership of such issued and outstanding shares of capital stock, are
as set forth on Schedule 3.2. The Insurance Holdco owns beneficially and of
record all of the Shares to be sold to Purchaser hereunder, and the Insurance
Holdco has the full and unrestricted power to sell, assign, transfer and deliver
the Shares to Purchaser upon the terms and subject to the conditions of this
Agreement free and clear of all Liens. There are no shares of capital stock of
Integrity issued or outstanding other than the Shares. All of the Shares are
duly authorized, validly issued, fully paid, nonassessable and free of any
preemptive rights. There is no outstanding option, warrant, right, subscription,
call, unsatisfied preemptive right or other agreement or right of any kind to
purchase or otherwise acquire from Insurance Holdco any capital stock of
Integrity. All of the issued and outstanding shares of capital stock of National
are duly authorized, validly issued, fully paid, nonassessable and free of any
preemptive rights, and are owned beneficially and of record by Integrity, free
and clear of all Liens. There is no outstanding option, warrant, right,
subscription, call, unsatisfied preemptive right or other agreement or right of
any kind to purchase or otherwise acquire from Integrity any capital stock of
National. There is no outstanding security of any kind convertible into such
capital stock, and there is no outstanding contract or other agreement of Seller
or either Insurance Subsidiary to purchase, redeem or otherwise acquire any
outstanding shares of capital stock or any other equity security of either
Insurance Subsidiary.
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3.3 Authorization; Binding Agreement. Subject to the entry and
effectiveness of the Section 363/365 Order, Seller has the full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and, subject to the entry and effectiveness of the section 363/365 Order, the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Seller, and no other
corporate proceedings on the part of Seller are necessary to approve this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Seller and (assuming the due
authorization, execution and delivery of this Agreement by Purchaser)
constitutes a legal, valid and binding agreement of Seller, enforceable against
Seller in accordance with its terms, subject to the entry and effectiveness of
the Section 363/365 Order.
3.4 Noncontravention. Subject to the entry and effectiveness of the
Section 363/365 Order, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (a) conflict with
or result in any breach of any provision of the certificate of incorporation or
the by-laws (or the equivalent governing instruments) of any of Seller or the
Insurance Subsidiaries, (b) except as set forth on Schedule 3.4, require any
consent or approval under or conflict with or result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation (collectively,
"Contracts and Other Agreements") to which any of Seller or the Insurance
Subsidiaries is a party or by which any of them or any portion of their
properties or assets may be bound; provided, however, that Seller shall be
deemed to have obtained any consent or approval required under any of the
Contracts and Other Agreements if, and to the extent that, pursuant to the
Section 363/365 Order the Seller is authorized to assume and assign any of such
Contracts and Other Agreements pursuant to section 365 of the Bankruptcy Code or
(c) violate any order, judgment, writ, injunction, determination, award, decree,
law, statute, rule or regulation (collectively, "Legal Requirements") applicable
to any of Seller or the Insurance Subsidiaries or any portion of their
properties or assets; provided, however, that no representation or warranty is
made in the foregoing clauses (b) and (c) with respect to matters that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
3.5 Governmental Approvals. No consent, approval or authorization,
of, or declaration or filing with, any foreign, federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality (each, a "Government Entity") on the part of any of Seller or
the Insurance Subsidiaries that has not been obtained or made is required in
connection with the execution or delivery by Seller of this Agreement or the
consummation by Seller of the transactions contemplated hereby, other than (a)
any consent, approval, or authorization of, or declaration or filing
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with, the Bankruptcy Court, (b) any consent, approval, authorization,
declaration, filing or other applicable requirement under the HSR Act, the
Exchange Act, the Investment Company Act or the Investment Advisers Act, (c) any
consent, approval, authorization, declaration, filing or notice required under
any applicable insurance or banking law in any jurisdiction in which any of
Seller or the Insurance Subsidiaries is domiciled, and (d) any consent,
approval, authorization, declaration or filing that, if not obtained or made
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
3.6 Insurance Statements. Seller has delivered or made available or,
with respect to (c) below, will make available, to Purchaser true, correct and
complete copies of (a) the statutory financial statements filed in its state of
domicile for each of the Insurance Subsidiaries for the years 1996 through 1998,
together with all exhibits and Schedules thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith and (b) the statutory
financial statements filed in its state of domicile for each such Insurance
Subsidiary for the quarter ending September 30, 1999 (the "September 30
Insurance Statements") and (c) the statutory financial statements filed in its
state of domicile for all quarters ending thereafter and prior to the Closing
for each of the Insurance Subsidiaries. All such statements shall be referred to
as the "Insurance Statements." Except as set forth on Schedule 3.6, the
Insurance Statements present (and, with respect to any Insurance Statement for
any quarter after September 30, 1999, and prior to the Closing, will present)
fairly, in all material respects, on a consistent basis and in accordance with
practices prescribed or permitted by the appropriate regulatory agencies of each
state in which the Insurance Statements have been filed or may be required to be
filed ("SAP"), the financial position of each such Insurance Subsidiary at the
date of each such statement and results of each such Insurance Subsidiary's
operations for each such referenced periods. Except as set forth on Schedule
3.6, the exhibits and schedules included in the Insurance Statements are fairly
stated in all material respects in relation to the subject Insurance Statements
taken as a whole, and the Insurance Statements comply in all material respects
with all applicable regulatory requirements.
3.7 No Undisclosed Liabilities. As of the date hereof, none of the
Insurance Subsidiaries has any Liabilities which are not reflected in the
September 30 Insurance Statements, except for (i) Liabilities incurred since
September 30, 1999, all of which arose in the ordinary course of business
consistent with past practice, (ii) Liabilities arising as a result of the
transactions contemplated hereby consistent with the provisions of this
Agreement, (iii) Liabilities disclosed in Schedule 3.7 or (iv) Liabilities which
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. The Insurance Subsidiaries have no Institutional
Liabilities except for those reflected in the September 30 Insurance Statements
and for those reflected in the Settlement Agreements.
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3.8 Litigation, Judgments, No Default, Etc. Except as disclosed in
Schedule 3.8, there is no legal, administrative, arbitration or other similar
proceeding, claim, action or governmental or regulatory investigation of any
nature pending or, to the Knowledge of Seller, threatened, against or otherwise
affecting the Insurance Subsidiaries or any of their respective properties or
assets or challenging the validity or propriety of the transactions contemplated
by this Agreement which, if adversely determined, would have, individually or in
the aggregate, a Material Adverse Effect, and there is no injunction, order,
judgment, decree or regulatory restriction (collectively "Orders") imposed upon
the Insurance Subsidiaries or any of their respective properties or assets which
has had or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. Schedule 3.8 sets forth a true and
complete list of all pending litigation which does not relate to any liability
arising from insurance policies or similar instruments in the ordinary course of
business, except for any litigation that, individually and in the aggregate, is
not reasonably likely to have a Material Adverse Effect on the Insurance
Subsidiaries.
3.9 Tax Matters. Except as disclosed in Schedule 3.9, as of the date
hereof and as of the Closing Date:
(a) All material Tax Returns that include or should have
included the Insurance Subsidiaries or that are required to be filed by any of
the Insurance Subsidiaries have been or will be duly and timely filed with the
appropriate Tax Authority, and all such Tax Returns are true, correct and
complete in all material respects; and complete and accurate copies of all such
Tax Returns for all taxable periods for which the statute of limitations has not
run have been provided to Purchaser.
(b) All material Taxes with respect to each of the Insurance
Subsidiaries or with respect to the Acquired Assets or chargeable as a Lien on
the assets thereof or on the Acquired Assets have been timely paid in full,
unless such Taxes are being contested in good faith and adequate reserves
therefor have been established on the books and records of the Insurance
Subsidiaries.
(c) There are no material Liens, or any agreement to give any
Lien, on any of the assets of the Insurance Subsidiaries or any of the Acquired
Assets that arose in connection with any failure (or alleged failure) to pay any
Taxes (other than Taxes not yet due as of the date hereof and as of the Closing
Date), unless such Taxes are being contested in good faith and adequate reserves
therefor have been established on the books and records of the Insurance
Subsidiaries.
(d) For all taxable years ending on or prior to December 31,
1995, the statutory period of limitation with respect to all Tax Returns has
expired, and there are no outstanding agreements, waivers or arrangements
extending any statutory period of limitation, with respect to any claim for, or
the period for the collection or assessment of, Taxes or deficiencies due from
or with respect to each of the Insurance
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Subsidiaries or with respect to the Acquired Assets or that may become payable
by any of the Insurance Subsidiaries or chargeable as a Lien on the assets
thereof or on the Acquired Assets for any taxable period. All closing agreements
pursuant to section 7121 of the Internal Revenue Code of 1986, as amended (the
"Code") (or any predecessor provision) and similar agreements under federal,
state, local or foreign law that have been entered into by or with respect to
any of the Insurance Subsidiaries have been disclosed or provided to Purchaser.
All written rulings, technical advice memoranda or similar determinations
relating to Taxes issued to any of the Insurance Subsidiaries by any Tax
Authority have been provided to Purchaser.
(e) No material claims have been asserted against any of the
Insurance Subsidiaries by any Tax Authority with respect to any Taxes, and there
is no unpaid deficiency or assessment for Taxes currently outstanding against
any of the Insurance Subsidiaries. Neither Seller nor any of the Insurance
Subsidiaries has received any notice of deficiency, proposed deficiency or
assessment from any Tax Authority with respect to Taxes of any of the Insurance
Subsidiaries. The Tax Returns of the Insurance Subsidiaries or any Tax Returns
that include the Insurance Subsidiaries are not currently the subject of any
audit by any Tax Authority, and neither Seller nor any of the Insurance
Subsidiaries have been informed formally or informally that any Tax Authority
intends to audit, challenge or assess Taxes with respect to any Tax Returns
filed by or that include any of the Insurance Subsidiaries prior to the Closing
Date.
(f) None of the Insurance Subsidiaries is, has been and nor
will be (with or without notice or lapse of time or both) in material violation
of any applicable law or regulation relating to the payment or withholding of
Taxes; and each of the Insurance Subsidiaries has duly and timely (taking into
account all valid extensions) withheld and paid over to the appropriate Tax
Authorities all material amounts required to be so withheld and paid over under
either section 3402 or section 3405 of the Code (or similar provisions of state,
local or foreign law), for all periods under all applicable laws and
regulations.
(g) None of the Insurance Subsidiaries has agreed to nor is
required to make any adjustment pursuant to section 481(a) of the Code (or
similar provision of state, local or foreign law) or pursuant to any change in
any accounting method of any of the Insurance Subsidiaries prior to the date
hereof; none of the Insurance Subsidiaries has any application pending with any
Tax Authority for any changes in any accounting method; and no Tax Authority has
proposed any such adjustment or change in accounting method.
(h) No Tax Authority of any jurisdiction in which any of the
Insurance Subsidiaries does not pay Taxes has issued any notice that Taxes are
due from or with respect to the any of the Insurance Subsidiaries.
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(i) Each of the Insurance Subsidiaries is taxable as a life
insurance company within the meaning of section 816 of the Code and was so
taxable for all prior years subject to examination by the Tax Authorities.
(j) None of the Insurance Subsidiaries is or has been a member
of any consolidated, combined, unitary or affiliated group of corporations for
any Tax purposes (an "Affiliated Group") other than the Affiliated Group of
which the Insurance Subsidiaries are the only members; none of the Insurance
Subsidiaries is or has been a party to, or bound by, or has or had any
obligation under any Tax sharing or similar agreement.
(k) No power of attorney granted by any of the Insurance
Subsidiaries with respect to any Taxes of any of the Insurance Subsidiaries is
currently in force.
(l) The Seller is not a "foreign person" subject to
withholding pursuant to Section 1445 of the Code.
3.10 Employee Benefit Plans.
(a) Schedule 3.10(a) sets forth a true and correct list of
each deferred compensation plan, incentive compensation plan, equity
compensation plan, "welfare plan" (within the meaning of section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")); "pension
plan" (within the meaning of section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to (the "Plans") by Seller or
the Insurance Subsidiaries or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with Seller or the Insurance
Subsidiaries would be deemed a "single employer" within the meaning of Section
4001 of ERISA for the benefit of any employee or former employee of Seller or
the Insurance Subsidiaries. Each of the Plans (other than the Assumed Plans)
under which any employee of the Insurance Subsidiaries has any benefit
entitlements as of the Closing Date, or in which any employee of the Insurance
Subsidiaries otherwise participates, has been maintained by Seller rather than
by the Insurance Subsidiaries prior to Closing. Schedule 3.10(a) further set
forth a true and correct list of each employee of Seller and the Insurance
Subsidiaries which list identifies each such employee's name, title, hire date,
current base salary and most recent bonuses.
(b) Seller has heretofore made available to Purchaser with
respect to each of the Plans, true and correct copies of each of the following
documents, if applicable: (i) the Plan document, (ii) the actuarial report for
such Plan for each of the last two years, (iii) the most recent determination
letter from the Internal Revenue Service
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(the "IRS") for such Plan and (iv) the most recent summary plan description and
related summaries of material modifications.
(c) Except as set forth in Schedule 3.10(c), each of the Plans
has been maintained and operated at all times in material compliance with its
terms and with the applicable provisions of the Internal Revenue Code of 1986,
as amended (the "Code") and ERISA; each of the Plans intended to be "qualified"
within the meaning of Section 40l(a) of the Code has received a determination
letter from the IRS that the Plan is qualified and, to the Knowledge of Seller,
no condition or event which has occurred or could reasonably be expected to
occur which could reasonably be expected to adversely affect such qualified
status; no plan is subject to Title IV of ERISA or the minimum funding
requirements of Section 412 of the Code; neither Seller nor any ERISA Affiliate
has incurred, directly or indirectly, any liability under Title IV of ERISA
(other than Pension Benefit Guaranty Corporation (the "PBGC") premiums) that has
not been satisfied in full; and there are no pending, or to the Knowledge of
Seller, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Plans or any trusts related
thereto.
(d) Except as set forth on Schedule 3.10(d), neither Seller
nor any of the Insurance Subsidiaries has any current or projected liability in
respect of post-employment or post-retirement health or medical or life
insurance benefits for retired, former or current employees of Seller or the
Insurance Subsidiaries.
3.11 Finders and Investment Bankers. None of the Insurance
Subsidiaries, nor any of their respective officers or directors, has incurred
any liability for any investment banking, business consultancy, financial
advisory, brokerage or finders' fees or commissions in connection with the
transactions contemplated hereby, except for fees payable by the Insurance
Subsidiaries to Stephens, Inc., in connection with this transaction, all of
which fees have been or will be paid and reflected in Final Statutory Surplus.
3.12 Collective Bargaining Agreements. None of the Insurance
Subsidiaries is a party to or subject to any collective bargaining agreement
with any labor union. There are no labor controversies pending or, to the
Knowledge of Seller, threatened against the Insurance Subsidiaries which would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
3.13 Insurance. Each of the Insurance Subsidiaries carries insurance
with insurers that, to the Knowledge of Seller, as of the date hereof, are
solvent, in amount and types of coverage which are customary in the industry and
against risks and losses which are usually insured against by Persons holding or
operating similar properties and similar businesses as the Insurance
Subsidiaries. Except as set forth on Schedule 3.13, as of the date hereof, no
material claims have been asserted under any of
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such insurance policies or relating to the properties, assets or operations of
the Insurance Subsidiaries since September 30, 1999.
3.14 Intellectual Property. Schedule 3.14 sets forth a true, correct
and complete list, as of the date hereof, and a brief description of the
material patents, patent applications, trademarks, trademark registrations,
applications for trademark registrations, trade secrets, service marks, service
mark registrations, applications for service mark registrations, trade names,
copyright registrations or applications for copyright registrations or
copyrights, and computer software programs and source codes (collectively
referred to as "Intellectual Property") licensed or owned by the Insurance
Subsidiaries or material to the business operations of the Insurance
Subsidiaries as of the date hereof. The Insurance Subsidiaries own or possess
adequate licenses or other rights to use the Intellectual Property and all other
intellectual property rights material to the Insurance Subsidiaries, and the
same are sufficient to conduct the business of the Insurance Subsidiaries as
they are now being conducted. The operations of the Insurance Subsidiaries do
not infringe and, to the Knowledge of Seller, as of the date hereof, no one has
asserted to Seller or the Insurance Subsidiaries that such operations infringe,
upon any intellectual property owned, possessed or used by any third party. To
the Knowledge of Seller, as of the date hereof, there are no third parties whose
operations infringe nor has anyone asserted that such operations conflict with
or infringe, the Intellectual Property (or any other intellectual property)
owned, possessed or used by the Insurance Subsidiaries as of the date hereof.
Except as set forth on Schedule 3.14, the execution and delivery of this
Agreement by Seller, the consummation of the transactions contemplated hereby,
and the continued use by the Insurance Subsidiaries of the Intellectual Property
(and any other intellectual property used by the Insurance Subsidiaries) after
the Closing, will neither cause the Insurance Subsidiaries to be in violation or
default under any licenses, sublicenses or other agreements to which the
Insurance Subsidiaries or Seller are a party and pursuant to which the Insurance
Subsidiaries are authorized to use the Intellectual Property (and any other
intellectual property used by the Insurance Subsidiaries), nor entitle any other
party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement, except where any such violation, default,
termination or modification would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
3.15 Compliance with Law. Except as set forth on Schedule 3.15, the
businesses of the Insurance Subsidiaries have been conducted in all material
respects in accordance with all Legal Requirements applicable to the Insurance
Subsidiaries (excluding ERISA, which is covered by Section 3.10); provided,
however, that no representation or warranty is made in this sentence with
respect to conduct not in accordance with any of the foregoing that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. As of the date hereof, except as set forth on Schedule
3.15, neither Seller nor any of the Insurance Subsidiaries has received any
written notice of alleged material violations of any of the foregoing, other
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than written notices received prior to January 1, 1999, which have been cured or
otherwise remedied or responded to, and there are no pending or, to the
Knowledge of Seller, threatened hearings or investigations with respect to
alleged material violations of any of the foregoing.
3.16 Licenses and Permits. Except as set forth on Schedule 3.16,
each of the Insurance Subsidiaries has obtained, and is in compliance in all
material respects with, all necessary licenses, permits, consents, approvals,
orders, certificates, authorizations, declarations and filings required by all
Government Entities and all courts and other tribunals for the lawful ownership
and use of their properties and assets and the conduct of the businesses and
operations of the Insurance Subsidiaries as now conducted (collectively, the
"Required Licenses"), and, as of the date hereof, there are no proceedings
pending or, to the Knowledge of Seller, threatened which may result in the
revocation, cancellation or suspension, or any materially adverse modification,
of any such Required License; provided, however, that no representation or
warranty is made in this Section 3.16 with respect to revocations,
cancellations, suspensions or modifications of Required Licenses that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. None of the Required Licenses will be terminated or
impaired or become terminable as a result of the execution of this Agreement or
consummation of the Transactions contemplated hereby, except as would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect.
3.17 Value of Securities. Notwithstanding anything to the contrary
in this Agreement, Purchaser acknowledges and agrees that Seller makes no
representation or warranty with respect to the value, liquidity or condition of
any Securities.
3.18 Contracts. Schedule 3.18 sets forth a complete and accurate
list, as of the date hereof, of all contracts to which the Insurance
Subsidiaries are a party (excluding policies of insurance or reinsurance in the
ordinary course of business) or by which any of their respective assets are
bound which contain obligations of the Insurance Subsidiaries in excess of
$250,000 or which are otherwise material to the business of the Insurance
Subsidiaries taken as a whole (collectively, the "Contracts"). Neither Seller
nor the Insurance Subsidiaries have received written notice of a cancellation of
or an intent to cancel any Contract whose cancellation would have, individually
or in the aggregate, a Material Adverse Effect. To the Knowledge of Seller,
there exists no breach or event of default on the part of the Insurance
Subsidiaries with respect to such Contracts which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
3.19 Title to Assets. The Insurance Subsidiaries have good title to,
or valid and subsisting leasehold interests in, all real and material personal
property and other material assets on their books and reflected on each
Insurance Subsidiary's balance sheet at December 31, 1998 or acquired in the
ordinary course of business since December 31,
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1998 which would have been required to be reflected on such balance sheet if
acquired on or prior to December 31, 1998, other than assets which have been
disposed of in the ordinary course of business and those assets the failure of
which to have good title to, or valid and subsisting leasehold interests in,
would not, individually or in the aggregate, have a Material Adverse Effect.
Schedule 3.19 sets forth a true and complete listing, as of the date hereof, of
all real property owned by the Insurance Subsidiaries and all real estate leases
or subleases to which the Insurance Subsidiaries are a party. None of such
assets is subject to any lien, pledge, security interest, claim, easement,
limitation, restriction or encumbrance of any kind or nature whatsoever, or any
agreement to give any of the foregoing, except as set forth on Schedule 3.19 or
reflected in the financial statements of the Insurance Subsidiary as of December
31, 1998 or which in the aggregate are not substantial in amount or do not
materially interfere with the present use of such property or assets. Except as
set forth on Schedule 3.19 and as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, the Insurance
Subsidiaries have the right to quiet enjoyment of all property leased by any of
them for the full term of each such lease or sublease or similar agreement (or
any renewal option) relating thereto and such leased property is not subject to
any failure to have the right to quiet enjoyment.
3.20 Transactions with Certain Persons.
(a) Except as set forth on Schedule 3.20, to the Knowledge of
Seller, neither any officer, director or employee of Seller, the Insurance
Subsidiaries or any Affiliate, nor any member of any such individual's immediate
family, is presently a party to any material transaction with the Insurance
Subsidiaries, including any contract or other binding arrangement (i) providing
for the furnishing of material services by such Person (except in such Person's
capacity as an officer, director, employee or consultant), (ii) providing for
the rental of material real or personal property from such Person, or (iii)
otherwise requiring material payments to such Person (other than for services as
an officer, director, employee or consultant of Seller or the Insurance
Subsidiaries).
(b) As of the date hereof, except as set forth on Schedule
3.20 or in the ordinary course of business consistent with past practice, since
December 31, 1998 no Intercompany Receivables or Intercompany Payables have been
settled, except in connection with the termination of the Institutional
Business.
(c) The Net Intercompany Balance is not positive.
3.21 Reinsurance and Retrocessions. Schedule 3.21 sets forth a true
and complete list of all reinsurance and retrocession treaties and agreements in
force as of the date of this Agreement to which the Insurance Subsidiaries are a
ceding party, any terminated or expired treaty or agreement under which there
remains any outstanding liability from one reinsurer with respect to paid or
unpaid case reserves in excess of $100,000 and any treaty or agreement with any
Affiliate of the Insurance Subsidiaries, the
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effective date of each such treaty or agreement, and the termination date of any
treaty or agreement which has a definite termination date. To the Knowledge of
Seller, the Insurance Subsidiaries are not in default in any respect as to any
provision of any reinsurance or retrocession treaty or agreement and have not
failed to meet the underwriting standards required for any business reinsurance
thereunder except for defaults which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
3.22 Environmental Laws. (a) To the Knowledge of Seller, except as
set forth on Schedule 3.22 and as would not, individually or in the aggregate,
have a Material Adverse Effect: (i) the Insurance Subsidiaries are in compliance
with all applicable Environmental Laws, and possess and are in compliance with
all Environmental Permits required under such laws for the conduct of their
business and operations, (ii) there are no past, present or future events,
conditions, circumstances, practices, plans or legal requirements that would
prevent, or increase the burden on, the Insurance Subsidiaries of complying with
applicable Environmental Laws or of their obtaining, renewing or complying with
all Environmental Permits required under such laws for the conduct of their
business and operations, and (iii) there are and have been no conditions at any
property owned, operated or otherwise used by the Insurance Subsidiaries now or
in the past, or at any other location, that would give rise to liability of the
Insurance Subsidiaries under any Environmental Law.
(b) Notwithstanding anything herein to the contrary, the
representations and warranties contained in this Section 3.22 do not address any
liability or obligation of the Insurance Subsidiaries arising from any
obligation the Insurance Subsidiaries may have to defend or indemnify an
insured, pursuant to a contract of insurance or reinsurance, with respect to any
claim relating to Hazardous Materials or under any Environmental Law.
3.23 No Material Adverse Change. Except as set forth on Schedule
3.23, since September 30, 1999, there has been no change in the business,
operations, assets, liabilities, condition (financial or otherwise) or results
of operations of the Insurance Subsidiaries which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
3.24 Insurance Business. Except as otherwise would not reasonably be
likely to have a Material Adverse Effect:
(a) all policies, binders, slips, certificates, annuity
contracts and participation agreements and other agreements of insurance,
whether individual or group, in effect as of the date hereof (including all
supplements, endorsements, riders and ancillary agreements in connection
therewith) that are issued by the Insurance Subsidiaries are, to the extent
required under applicable law, on forms approved by applicable insurance
regulatory authorities or which have been filed and not objected to by such
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authorities within the period provided for objection, and such forms comply in
all material respects with the insurance statutes, regulations and rules
applicable thereto. Premium rates established by the Insurance Subsidiaries that
are required to be filed with or approved by insurance regulatory authorities
have been so filed or approved, the premiums charged conform thereto in all
material respects, and such premiums comply in all material respects with the
insurance status, regulations and rules applicable thereto.
(b) All insurance policy and annuity contract benefits payable
by any of the Insurance Subsidiaries and, to the Knowledge of Seller, by
any other Person that is a party to or bound by any reinsurance,
coinsurance or other similar agreement with any of the Insurance
Subsidiaries, have been paid in accordance with the terms of the insurance
policies, annuity contracts and other contracts under which they arose,
except for such benefits for which there is a reasonable basis to contest
payment.
(c) All advertising, promotional and sales materials and other
marketing practices used by any of the Insurance Subsidiaries or any agent
of any of the Insurance Subsidiaries have complied and are currently in
compliance with all applicable laws.
(d) Each insurance agent, at the time such agent wrote, sold
or produced business for any of the Insurance Subsidiaries since January
1, 1998, was duly licensed as an insurance agent (for the type of business
written, sold or produced by such insurance agent) in the particular
jurisdiction in which such agent wrote, sold or produced such business.
(e) No insurance agent or broker at the time such agent or
broker wrote, sold or produced business for any of the Insurance
Subsidiaries, violated (or with notice or lapse of time or both would have
violated) any term or provision of any law or order applicable to any
aspect (including, but not limited to, the writing, sale or production) of
the business of any of the Insurance Subsidiaries.
(f) As of the Closing Date, all insurance or investment
policies, plans, or contracts, financial products, employee benefit plans,
individual retirement accounts, or any similar or related policy,
contract, plan or product, whether individual, group or otherwise
including annuity contracts, life insurance contracts and variable
contracts, (the "Insurance Product(s)") issued, assumed, modified,
exchanged or sold by any of the Insurance Subsidiaries comply (and have
complied since the time of issuance, assumption, modification, exchange or
sale) with all requirements of the Code, and the rules and regulations
thereunder, relating to the qualifications and/or tax treatment for which
the Insurance Products were intended to qualify or for which any of the
Insurance Subsidiaries represented any or all of the Insurance Products
qualified, including sections 72,
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79, 101 104, 105, 106, 125, 130, 264, 401, 402, 403, 404, 408, 412, 415,
419, 419A, 457, 501, 505, 817, 818, 1035, 7702, 7702A and 7702B. No life
insurance contract issued, assumed, modified, exchanged or sold by any of
the Insurance Subsidiaries is a "modified endowment contract" within the
meaning of section 7702A of the Code, except for a life insurance contract
that was issued and administered as such.
All annuity contracts and life insurance policies that are
intended to qualify as "variable contracts" meet (and have met since
issuance) the requirements of section 817(h) of the Code, and all
segregated asset accounts held with respect to such contracts are, to the
extent required, adequately diversified. The Insurance Subsidiaries'
separate accounts have been maintained in compliance with the requirements
of section 817 of the Code at all relevant times. Each of the Insurance
Subsidiaries is treated as the owner, for federal income tax purposes, of
all assets underlying each annuity and life insurance contract.
(g) In providing recordkeeping and administrative services
with respect to customers' Insurance Products whether individual or group
retirement or deferred compensation plans or arrangements, and with
respect to any life insurance or annuity contracts issued, assumed,
modified, exchanged or sold by any of the Insurance Subsidiaries as of the
Closing Date, the Insurance Subsidiaries are in compliance with the
applicable administrative requirements of the Code, including sections 72,
401(a), 401(k), 403(b), 408(k), 408(p), 457(b), 7702 and 7702A of the Code
and the rules and regulations thereunder, and, to the extent applicable,
the requirements of Parts 2, 3 and 4 of Title I of ERISA.
(h) The underwriting standards utilized and ratings applied by
each of the Insurance Subsidiaries with respect to insurance policies,
annuity contracts or guaranteed investment contracts outstanding as of the
date hereof have been provided to Purchaser and, with respect to any such
policy or contract reinsured in whole or in part, conform in all material
respects to the standards and ratings required pursuant to the terms of
the related reinsurance, coinsurance or other similar contracts and Seller
has provided Purchaser with copies of all underwriting policies and
procedures for each of the Insurance Subsidiaries.
3.25 Title to Assets; Sufficiency. (a) Except as would not
reasonably be likely to have a Material Adverse Effect (i) Seller has good title
to all of the Acquired Assets, free and clear of all Liens (except for Liens
arising under the Assumed Contracts), and (ii) at the Closing, subject to the
entry and effectiveness of the 363/365 Order, Purchaser will acquire the
Acquired Assets, free and clear of all Liens (except for Liens arising from acts
of Purchaser or under the Assumed Contracts).
(b) Other than insurance licenses and qualifications necessary
to conduct the insurance business, the Acquired Assets constitute all the
assets, properties
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and rights of Seller necessary for Purchaser to conduct the Acquired Business
immediately following the Closing in all material respects as currently
conducted.
3.26 Government Regulation - Investment Advisers.
Except as identified on Schedule 3.26, neither Seller nor any
of its Subsidiaries is an "investment adviser" required to be duly registered
under the Investment Advisers Act as such. Each entity which is so identified is
in compliance in all material respects with all laws, rules and regulations
applicable to the conduct of the business of an investment adviser as conducted
by such entity with respect to the Funds. Each "investment adviser
representative," within the meaning of Rule 203A-3 under the Advisers Act, of
each such entity is registered in any state in which such representative is
required to be registered (with respect to the Funds) and, to the Knowledge of
Seller, is in compliance in all material respects with all laws, rules and
regulations applicable to such representative's activities authorized by and
conducted on behalf of such entity (with respect to the Funds).
3.27 Government Regulation - Investment Company.
(a) Except as identified on Schedule 3.27, neither of the
Insurance Subsidiaries is an "investment company," within the meaning of the
Investment Company Act, which is required to be registered under that Act in
order to engage in the transactions described in Investment Company Act ss.7.
(b) Seller or the appropriate Insurance Subsidiary or other
Subsidiary of Seller has a written investment advisory agreement with each of
Separate Account Ten of Integrity, The Legends Fund, Inc. and Select Ten Plus
Fund L.L.C. (collectively, the "Funds") pursuant to which it serves as
investment adviser to that Fund. Each of such agreements is in full force and
effect and no party thereto is in default thereunder. As to each investment
advisory agreement relating to a Fund, it will terminate upon the consummation
of the transaction contemplated by this Agreement.
(c) Neither Seller nor any of its Subsidiaries nor any
"interested person" of Seller or of a Subsidiary of Seller, as such term is
defined in the Investment Company Act, receives or is entitled to receive any
compensation directly or indirectly, except in each case compensation that
complies with Investment Company Act ss.17, (i) from any person in connection
with the purchase or sale of securities or other property to, from or on behalf
of any of the Funds, other than bona fide ordinary compensation as principal
underwriter for a Fund or (ii) from any of the Funds or its security holders for
other than bona fide investment advisory or other services.
(d) Neither Seller, nor any of its Subsidiaries, nor any
"affiliated person" of Seller or of any Subsidiary (as the term "affiliated
person" is defined in the Investment Company Act) has engaged in any activity,
been convicted of any crime
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or become subject to any limitation that would be the basis for disqualification
as an employee, officer, director, trustee, investment adviser or principal
underwriter for any Fund pursuant to Investment Company Act ss.ss.9(a) or 9(b).
(e) Each Fund is duly registered as an investment company
under the Investment Company Act and any applicable state securities law. Each
such federal and state registration is in full force and effect and was in full
force and effect at all times when such registration was required.
(f) All beneficial interests in each Fund are held by one or
more separate accounts of the Insurance Subsidiaries, and public access to each
Fund is available exclusively through the purchase of variable annuity
contracts. Shares of each Fund have been duly registered under the Securities
Act and qualified under applicable state securities laws, and (i) the related
registration statements were effective under the Securities Act and applicable
state securities laws at all times when such effectiveness was required and (ii)
no stop order suspending the effectiveness of any such registration statement
has been issued.
(g) Each Fund is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, with full power
and authority (including all necessary permits, licenses, registrations and
similar authorizations) to carry on its business in all material respects as
such business is now and was heretofore conducted.
(h) Each Fund is, and has been since it commenced operations,
in material compliance with all applicable federal and state securities laws and
with all applicable investment policies and restrictions, including without
limitation any investment policies and restrictions set forth in the prospectus,
statement of additional information or governing instrument of the Fund. To the
extent necessary, each Fund has been managed in compliance with the
qualification of the Fund as a "regulated investment company" under Subchapter M
of the Code since it commenced operations.
(i) Each registration statement, prospectus, statement of
additional information, proxy statement and report to shareholders, as amended
or supplemented, of each Fund, and all supplemental advertising and marketing
material relating to that Fund, complies, or complied when used, with the
Securities Act and the Investment Company Act and the regulations thereunder,
applicable state laws and, where applicable, the rules of the NASD. Such
registration statements, prospectuses, statements of additional information,
proxy statements and reports to shareholders, amendments, supplements, and
supplemental advertising and marketing material (i) do not or did not include
when used an untrue statement of a material fact; and (ii) do not omit or when
used did not omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. All
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supplemental advertising or marketing materials relating to that Fund that were
required to be filed with the NASD have been timely filed therewith.
(j) Each Fund has fully adopted procedures pursuant to Rules
17a-7, 17e-1 and 10f-3 under the Investment Company Act to the extent applicable
and is, and has been since it commenced operations, in compliance with the
requirements of Section 17(a), 17(e) and 10(f) of the Investment Company Act and
Rules 17a-7, 17e-1 and 10f-3 thereunder to the extent applicable.
(k) Each Fund is, and has been since it commenced operations,
(i) governed by a board of directors or trustees consisting of at least 50% of
its directors or trustees who are not "interested persons" of that Fund, Seller
or any of its Subsidiaries, or Seller or any affiliate thereof and (ii) in
compliance with the requirements and restrictions of ss.ss.10 and 16 of the
Investment Company Act and Rule 12b-1 thereunder to the extent applicable.
3.28 Government Regulation - Broker-Dealer. Except as identified on
Schedule 3.28, neither Seller nor any of its Subsidiaries is a "broker" or
"dealer" within the meaning of the Exchange Act. Each entity which is so
identified is in compliance in all material respects with all laws, rules and
regulations applicable to the conduct of the business of a broker-dealer as
conducted by such entity.
3.29 Government Regulation - Transfer Agent. Neither Seller nor any
of its Subsidiaries is required to be registered as a "transfer agent" under the
Exchange Act with respect to the Funds.
3.30 Government Regulation - Reports. Seller and each of its
Subsidiaries has filed all material reports required to be filed by it under the
Exchange Act (including, without limitation, Exchange Act ss.ss.13(d), (g) and
(f)) or the rules promulgated thereunder.
3.31 Government Regulation - Commodities and Futures. Neither Seller
nor any of its Subsidiaries is required to be registered with the National
Futures Association or Commodities Futures Trading Commission under the
Commodities Exchange Act.
3.32 Code of Ethics. Each Fund has adopted codes of ethics and
similar policies at least as and to the extent required by statutes applicable
to them, including without limitation (but as to any entity only if and as
applicable to it), Investment Company Act ss.17(j) and Rule 17j-I thereunder
relating to a formal code of ethics and Advisers Act ss.204A relating to a
policy prohibiting insider trading. There have been no material instances of
non-compliance with such policies.
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3.33 Separate Accounts.
(a) Each separate account maintained by an Insurance
Subsidiary (collectively, the "Separate Accounts") is duly and validly
established and maintained under the laws of its state of formation and is
either excluded from the definition of an investment company pursuant to Section
3(c)(11) of the Investment Company Act or is duly registered as an investment
company under the Investment Company Act. Each such Separate Account, if
registered, is operated in compliance with the Investment Company Act, has filed
all reports and amendments of its registration statement required to be filed,
and has been granted all exemptive relief necessary for its operations as
presently conducted. The insurance contracts under which Separate Account assets
are held are duly and validly issued and are either exempt from registration
under the Securities Act pursuant to Section 3(a)(2) of the Securities Act or
were sold pursuant to an effective registration statement under the Securities
Act, and any such registration statement is currently in effect to the extent
necessary to allow the appropriate Insurance Subsidiary to receive contributions
under such policies.
(b) To the extent required, the assets of each Separate
Account are adequately diversified within the meaning of Section 8.17(h) of the
Code.
3.34 Materiality. Notwithstanding anything to the contrary contained
herein, no representation or warranty is made in any of Sections 3.26 through
3.33 with respect to matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND
WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
4.1 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Purchaser is duly qualified and licensed to do business and is in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it make such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that, individually or in the aggregate, would not reasonably be
expected to have a Purchaser Material Adverse Effect.
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4.2 Authorization; Binding Agreement. Purchaser has the full legal
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Purchaser.
This Agreement has been duly and validly executed and delivered by Purchaser and
(assuming the due authorization, execution and delivery of this Agreement be
Seller) constitutes a legal, valid and binding agreement of Purchaser,
enforceable against it in accordance with its terms, except as enforcement may
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally.
4.3 Noncontravention. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws (or equivalent governing instruments) of Purchaser, (b)
require any consent, approval or notice under or conflict with or result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any Contracts
and Other Agreements to which Purchaser is a party or by which any material
portion of its properties or assets may be bound or (c) violate any Legal
Requirements applicable to Purchaser or any material portion of its properties
or assets; provided, however, that no representation or warranty is made in the
foregoing clauses (b) and (c) with respect to matters that, individually or in
the aggregate, would not reasonably be expected to have a Purchaser Material
Adverse Effect.
4.4 Governmental Approvals. No consent, approval or authorization
of, or declaration or filing with, any Governmental Entity on the part of
Purchaser that has not been obtained or made is required in connection with the
execution or delivery by Purchaser of this Agreement or the consummation by
Purchaser of the transactions contemplated hereby, other than (a) filings under
the HSR Act, the Exchange Act, the Investment Company Act and the Investment
Advisers Act, (b) approvals, filings and/or notices required under any
applicable insurance laws, and (c) consents, approvals, authorizations,
declarations or filings that, if not obtained or made would not, individually or
in the aggregate, reasonably be expected to result in a Purchaser Material
Adverse Effect.
4.5 Finders and Investment Bankers. None of Purchaser or any of its
respective officers, or directors has incurred any liability for any investment
banking, business consultancy, financial advisory, brokerage or finders' fees or
commissions in connection with the transactions contemplated hereby.
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4.6 Financing. Purchaser has, and as of Closing will have,
sufficient funds to consummate the transactions contemplated hereby, including,
without limitation, payment of the Purchase Price.
ARTICLE 5
COVENANTS
5.1 Conduct of Business of the Insurance Subsidiaries. Except as
contemplated by this Agreement, during the period commencing on the date hereof
and ending at the Closing, each of the Insurance Subsidiaries shall, and Seller
shall cause each of the Insurance Subsidiaries to, use commercially reasonable
efforts (in light of the exigencies presented to a debtor or
debtor-in-possession in circumstances substantially similar to those of Seller
and the Insurance Subsidiaries, including the information contained in the SEC
Filings) to preserve intact its business organization and relationships with its
customers and employees. Subject to any obligations as a debtor or
debtor-in-possession under the Bankruptcy Code, except as otherwise expressly
provided in this Agreement or as set forth on Schedule 5.1, prior to the
Closing, none of the Insurance Subsidiaries will, without the prior written
consent of Purchaser:
(a) amend or propose to amend its certificate of incorporation
or by-laws (or equivalent governing instruments);
(b) authorize for issuance, issue, sell, pledge, deliver or
agree or commit to issue, sell, pledge or deliver (whether through the issuance
or granting of any options, warrants, calls, subscriptions, stock appreciation
rights or other rights or other agreements) any capital stock of any class or
any securities convertible into or exchangeable for shares of capital stock of
any class of any of the Insurance Subsidiaries;
(c) split, combine or reclassify any Shares or declare, pay or
set aside for payment any dividend or other distribution in respect of any
Shares, or redeem, purchase or otherwise acquire any Shares;
(d) amend or otherwise change any existing Plan, or establish
any Plan or increase in any manner the compensation payable or to become payable
by the Insurance Subsidiaries to any of their respective directors, officers or
employees, other than in the ordinary course of business consistent with past
practice or as required under any existing Plan, or enter into any employment or
severance agreement with or grant any severance or termination pay to any
director, officer or employee of the Insurance Subsidiaries, other than in
accordance with existing Plans;
(e) except for the liquidation of the Securities on the Asset
List in accordance with Section 2.11, enter into any other agreements,
commitments or
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contracts that are material to the Insurance Subsidiaries, other than in the
ordinary course of business consistent with past practice;
(f) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or by
any other means, any business or any corporation, partnership, joint venture,
association, or other business organization or division thereof;
(g) incur or assume any indebtedness for borrowed money or
guarantee any indebtedness for borrowed money, in each case other than in the
ordinary course of business;
(h) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions set forth
in Article 6 not being satisfied;
(i) change its methods of accounting in effect at September
30, 1999, except as required by changes in GAAP or SAP;
(j) take any action impairing its rights in any Contract other
than in the ordinary course of business;
(k) commit any act which constitutes a material breach or
default under any Contract;
(l) except with regard to claims disputes in the ordinary
course of business, commence any material litigation or arbitration;
(m) except in the ordinary course of business, sell, assign or
transfer any material assets;
(n) except as required by law and disclosed to Purchaser in
writing at the earliest practicable date, make or change any material election
in respect of Taxes, settle any claim or assessment in respect of Taxes, consent
to any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes, or file any consolidated Tax Return which
includes Seller and either Insurance Subsidiary or both; or
(o) agree, commit or arrange to do any of the foregoing.
5.2 Access and Information. Between the date of this Agreement and
the Closing, Seller shall, and shall cause the Insurance Subsidiaries to, afford
Purchaser and its authorized representatives (including its accountants,
financial advisors and legal
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counsel) reasonable access during normal business hours to all of the
properties, personnel, Contracts and Other Agreements, any documents relating to
Tax Returns of the Insurance Subsidiaries and other books and records of the
Insurance Subsidiaries and shall promptly deliver or make available to Purchaser
(a) a copy of each report, schedule and other document filed by the Insurance
Subsidiaries pursuant to the requirements of federal securities laws and (b) all
other information concerning the business, properties, assets and personnel of
the Insurance Subsidiaries as Purchaser may from time to time reasonably
request, including access to outside counsel of the Insurance Subsidiaries in
connection with the review of any claim, dispute, action, proceeding, suit,
appeal, investigation or inquiry pending or threatened against the Insurance
Subsidiaries. Purchaser shall hold, and shall cause its representatives (as
defined in the letter agreement dated April 24, 1999, as amended (the
"Confidentiality Agreement"), between Seller and Purchaser) to hold, all
Information (as defined in the Confidentiality Agreement) in confidence in
accordance with the terms of the Confidentiality Agreement and, in the event of
the termination of this Agreement for any reason, Purchaser shall promptly
return or destroy all Information in accordance with the terms of the
Confidentiality Agreement.
5.3 Reasonable Best Efforts; Additional Actions.
(a) Subject to the terms and conditions herein (including,
without limitation, Section 5.4), each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all action, and to do or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using its reasonable best efforts to (i) obtain all consents,
amendments to or waivers under the terms of any contractual arrangements
required by the transactions contemplated by this Agreement, (ii) effect
promptly all necessary or appropriate registrations and filings with
Governmental Entities, including filings and submissions pursuant to the HSR
Act, the Exchange Act, the Investment Act and the Investment Advisers Act, (iii)
effect promptly and prosecute diligently (including responding to all reasonable
requests for supplemental information) all approvals, filings and/or notices
required under any applicable insurance laws for the consummation of the
transactions contemplated by this Agreement, (iv) defend any lawsuit or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transaction contemplated hereby, and (v)
fulfill or cause the fulfillment of the conditions to Closing set forth in
Article 6. Without limiting the generality of the foregoing, Purchaser shall
file all filings, applications and notices contemplated by clause (iii) of this
Section 5.3(a) as promptly as practicable after the date of this Agreement.
(b) In addition to the provisions of this Agreement, from time
to time after the Closing Date, Seller and Purchaser will use all commercially
reasonable efforts to execute and deliver such other instruments of conveyance,
transfer or
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assumption, as the case may be, and take such other action as may be reasonably
requested to implement more effectively the conveyance and transfer of the
Acquired Assets to Purchaser and the assumption of the Assumed Liabilities by
Purchaser.
(c) Purchaser and Seller shall have the right to review in
advance, and shall consult with the other party on, in each case subject to
applicable laws relating to the exchange of information, all the information
relating to Seller, the Insurance Subsidiaries or Purchaser, as the case may be,
and any of their respective Affiliates, which appear in any filing made with, or
written materials submitted to, any Governmental Entity or any other third party
in connection with the transactions contemplated by this Agreement. The parties
hereto agree that they will consult with each other with respect to the
obtaining of any permit, consent, approval or authorization of a Governmental
Entity or other third party necessary or advisable to consummate the
transactions contemplated by this Agreement and each party shall keep the other
apprised of the status of obtaining any such permit, consent, approval or
authorization. The party responsible for any such filing shall promptly deliver
to the other party evidence of the filing of all applications, filings,
registrations and notifications relating thereto, and any supplement, amendment
or item of additional information in connection therewith. The party responsible
for a filing shall also promptly deliver to the other party a copy of each
notice, order, opinion and other item of correspondence received from or sent to
any Governmental Entity by such filing party in respect of any such application.
In exercising the foregoing rights and obligations, Purchaser and Seller shall
act reasonably and promptly.
(d) Purchaser and Seller shall, upon request, furnish each
other with all information concerning themselves, their subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
in connection with any statement, filing, notice or application made by or on
behalf of Purchaser, the Insurance Subsidiaries or any of their respective
Affiliates to any Governmental Entity in connection with the transactions
contemplated by this Agreement (except to the extent that such information would
be, or relates to information that would be, filed under a claim of
confidentiality).
(e) Purchaser and Seller shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
5.4 Overbid Procedures. The parties acknowledge that,
notwithstanding anything to the contrary herein, under the Bankruptcy Code and
applicable law Seller must take reasonable steps to demonstrate that it has
sought to obtain the highest or best price possible for the Acquired Assets,
including, but not
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limited to, giving notice of the transactions contemplated by this Agreement to
creditors and other interested parties as ordered by the Bankruptcy Court,
providing information about the Acquired Business to responsible bidders subject
to appropriate confidentiality agreements, entertaining higher or better offers
from responsible bidders, and, if necessary, conducting an auction. To
facilitate the foregoing, Seller shall, promptly following the Petition Date,
seek the entry of an order (the "Overbid Procedures Order") providing for
procedures substantially similar to the following procedures:
(a) Seller shall give notice of the transactions contemplated
by this Agreement to such persons and in such manner as the Bankruptcy Court
shall direct.
(b) Unless this Agreement has been terminated in accordance
with its terms and except as provided pursuant to Section 5.4(a), Seller will
not authorize or permit any of its officers, directors or employees, or any
investment banker, financial adviser, attorney, accountant or any other
representative to solicit, initiate or encourage, or take any other direct or
indirect action to facilitate, any inquiry or the making of any proposal that
constitutes, or may reasonably expected to lead to, an Overbid (as hereinafter
defined); provided, however, that if, after Bankruptcy Court approval of the
Overbid Procedures Order, the Board of Directors of Seller determines in good
faith that it is necessary to do so to comply with its fiduciary duties under
corporate law or the Bankruptcy Code, Seller may, in response to an unsolicited
Overbid (x) provide public and non-public information concerning the Acquired
Business to those parties who have delivered an Overbid, which meets the
requirements of clause (c) below, provided that such party executes a
confidentiality agreement substantially the same as the Confidentiality
Agreement, and (y) participate in negotiations or discussions concerning such
Overbid. Seller shall promptly notify Purchaser in writing of (i) any proposal
received from any third party within 24 hours of the Seller's receipt of such
proposal, and (ii) any inquiry or request for information from any third party
within five Business Days of receipt of such inquiry or request. Notices by the
Seller pursuant to the preceding sentence shall include (to the extent known by
the Seller) the material terms and conditions of such inquiry, proposal or
request and the identity of the person making such inquiry, proposal or request.
Seller shall keep Purchaser informed of the status (including amendments or
proposed amendments) of any such inquiry, proposal or request, and upon the
request of Purchaser shall identify and furnish to Purchaser all information
provided in response to any such inquiry, proposal or request.
(c) Seller will consider as higher or better offers
("Overbids") for the Acquired Business and Assumed Liabilities only those
proposals that meet all of the following requirements:
(i) Overbids that propose consideration having a readily
ascertainable fair market value of not less than $3,500,000 in excess of
the sum of the Purchase Price (without taking into account possible
adjustments
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hereunder) and any amounts payable pursuant to Section 7.3, subject to
adjustments no less favorable to Seller than the adjustments hereunder.
(ii) Overbids that are in the form of this Agreement
marked to show all changes thereto and that are on terms and conditions no
less favorable in the aggregate to Seller than terms and conditions
contained in this Agreement, including, but not limited to, the Escrow,
the indemnities and the time of closing.
(iii) Overbids that are delivered to Seller with copies
to Purchaser not later than 5:00 p.m. Eastern Standard Time on the seventh
Business Day prior to the date set for the hearing to approve the
transactions contemplated by this Agreement (the "Section 363/365
Hearing") and that are accompanied by appropriate evidence (as determined
in good faith by Seller) of the bidder's financial ability to consummate a
transaction on or prior to the Closing Date.
(iv) With respect to subsequent Overbids (including any
by Purchaser), Overbids that include additional consideration of at least
$1,000,000 over the highest previous Overbid.
(d) If any qualified Overbids are timely received, an auction
will be conducted on the second business day following the due date for Overbids
at the offices of counsel for Seller at which only Purchaser, any member of the
"statutory committee" appointed in the Chapter 11 Case and any person who has
timely submitted an Overbid in conformity with this Section 5.4 shall be
entitled to participate. At the auction, bidding shall begin with the highest
qualifying Overbid and shall not conclude until each participating bidder has
had the opportunity to submit any additional Overbid with full knowledge of the
existing highest bid.
(e) Seller shall determine in good faith whether a submitted
Overbid meets the requirements described herein and whether this Agreement or
such Overbid constitutes the highest or best offer for the Acquired Assets and
Assumed Liabilities. The highest or best offer so determined so determined by
Seller shall be submitted to the Bankruptcy Court for approval at the Section
363/365 Hearing. Purchaser shall be deemed a party in interest with standing to
appear and be heard in connection with any motion, hearing, or other proceeding
relating to this Agreement or any Overbid.
5.5 Bankruptcy Actions.
(a) As promptly as practicable after the Petition Date, Seller
will file with the Bankruptcy Court a motion, supporting papers, notices and
proposed Overbid Procedures Order, all in form and substance reasonably
satisfactory to Purchaser, seeking the Bankruptcy Court's approval of the terms
of Sections 5.4 and 7.3 and
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observance and performance of such terms by Seller and Purchaser during the
pendency of the Chapter 11 Case.
(b) After the Petition Date, Seller will file with the
Bankruptcy Court the Section 363/365 Motion, and supporting papers and notices
all in form and substance reasonably satisfactory to Purchaser, seeking the
Bankruptcy Court's approval of this Agreement and the transactions contemplated
hereby.
(c) Seller will provide Purchaser with copies of all motions,
applications and supporting papers prepared by Seller (including forms of orders
and notices to interested parties) relating in any way to Purchaser, the
Acquired Assets or the transactions contemplated by this Agreement prior to the
filing thereof in the Chapter 11 Cases.
(d) Seller shall give appropriate notice, and provide
appropriate opportunity for hearing, to all parties entitled thereto, of all
motions, orders, hearings, or other proceedings relating to this Agreement or
the transactions contemplated hereby.
(e) Seller shall take all commercially reasonable actions
required to be taken by Seller necessary to assume and assign the Assumed
Contracts, including all actions to be taken pursuant to section 365 (b) and (f)
of the Bankruptcy Code.
5.6 Public Announcements. The initial press release or releases with
respect to the transactions contemplated by this Agreement shall be in the form
agreed to by Seller and Purchaser. Thereafter, for as long as this Agreement is
in effect, Seller and Purchaser, shall not, and shall cause their Subsidiaries
and Affiliates not to, issue or cause the publication of any press release or
any other announcement (including without limitation announcements to employees,
agents or policyholders) with respect to this Agreement or the transactions
contemplated hereby without the consent of the other, except where such release
or announcement is required by applicable law or pursuant to any listing
agreement with, or the rules or regulations of, any securities exchange or any
other regulatory requirements.
5.7 Certain Employee Matters.
(a) On or before the fifth day prior to the Closing Date,
Purchaser shall offer, or shall cause one or more of the Insurance Subsidiaries
to offer, employment to any one or more of the individuals identified on
Schedule 3.10(a) (the "Employees"), each such offer to be contingent upon the
consummation of the transactions contemplated by this Agreement. (Each Employee
who accepts Purchaser's offer of employment on or prior to the Closing Date
shall hereinafter be referred to as a "Transferred Employee" and collectively as
"Transferred Employees"). Purchaser or the
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applicable Insurance Subsidiary shall be free to terminate the employment of any
Transferred Employee so employed thereby at any time after the Closing Date.
(b) Effective as of the Closing Date, the Purchaser shall
assume the sponsorship (or liabilities, as the case may be) of, or shall cause
one or more of the Insurance Subsidiaries to assume the sponsorship (or
liabilities, as the case may be) of, (i) the Arm Severance Plan, in the form set
forth on Annex A to Schedule 3.10(a), (ii) the Stay-Pay Incentive Arrangement in
the form set forth on Annex B to Schedule 3.10(a) (iii) the Nonqualified
Deferred Compensation Plan, in the form set forth on Annex C to Schedule
3.10(a), and (iv) accrued and earned, but unused, vacation time (such plans to
be referred to herein as the "Assumed Plans").
(c) Without limiting the foregoing, Purchaser shall credit
each Transferred Employee with all of his or her service for Seller or either of
the Insurance Subsidiaries under Purchaser's employee benefit plans,
arrangements and policies for purposes of eligibility and vesting only (and not
for purposes of benefit accrual, except for the purposes of benefit accrual
under the Assumed Plans), but solely to the extent that such service was
credited thereto under similar employee benefit plans, arrangements and policies
of Seller or the Insurance Subsidiaries immediately prior to the Closing Date.
(d) Purchaser and its respective Subsidiaries will, or will
cause the Insurance Subsidiaries to provide each Transferred Employee with
credit for any co-payments and deductibles paid thereby in the year 2000 under
Seller's respective plans prior to the Closing Date in satisfying any applicable
deductible or out-of-pocket requirements under any welfare plans in which such
employees are eligible to participate after the Closing Date.
5.8 Tax - 338(h)(10). Seller and Purchaser agree to perform the
calculations necessary to determine the economic effect to the parties if they
were to jointly elect (the "Election") to treat the purchase transactions
contemplated hereby as an acquisition of assets under Section 338(h)(10) of the
Code. The parties agree to make such Election if it would be mutually beneficial
and that any benefit arising from such Election shall be shared equally between
Seller and Purchaser.
5.9 Escrow As Sole Remedy. Notwithstanding anything to the contrary
contained herein, from and after the Closing Date distributions from the Escrow
Account in accordance with the Escrow Agreement shall be the sole and exclusive
remedy for any breach by Seller of any representation, warranty, covenant or
obligation made or undertaken in this Agreement or in connection with the
transactions contemplated hereby, except for Seller's obligation under Section
7.3 to reimburse Purchaser for Expenses incurred. Without limiting the
generality of the foregoing, Purchaser expressly and irrevocably agrees that any
officers, directors or employees of Seller or any of its affiliates shall not be
liable for any breach by Seller of any
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representation, warranty, covenant or obligation made or undertaken in this
Agreement or in connection with the transactions contemplated hereby.
5.10 Unfair burden. Purchaser shall ensure that (i) none of the
transactions contemplated by this Agreement will cause the imposition of an
"unfair burden" (as such term is defined in Investment Company Act ss.15(f)) on
any of the Funds and (ii) the benefits of that such Section of the Investment
Company Act are available to the Funds.
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligations. The respective
obligations of each party to consummate the sale of Shares and the other
transactions contemplated hereby shall be subject to the fulfillment or waiver
at or prior to the Closing Date of the following conditions:
(a) the Overbid Procedures Order and the Section 363/365 Order
shall have been entered by the Bankruptcy Court, and each such order shall not
have been (i) stayed or reversed or (ii) modified or amended in a materially
adverse manner to either Seller or Purchaser without such party's consent; and
no order, injunction or decree issued by any Governmental Entity of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the transactions contemplated by this Agreement shall be in effect. No
proceeding initiated by any Governmental Entity seeking an injunction against
the transactions contemplated by this Agreement shall be pending. No statute,
rule, regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits, restricts or
makes illegal consummation of the transactions contemplated hereby;
(b) all consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made and shall remain in full force and effect (as the case may be),
except for filings and any other documents required to be filed after the
Closing and except where the failure to have obtained or made any such consent,
authorization, order, approval, filing or registration would not have a Material
Adverse Effect (all such consents, authorizations, orders, approvals, filings
and registrations being referred to herein as the "Requisite Regulatory
Approvals");
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(c) the transactions contemplated by the Settlement Agreements
shall have been consummated (including the execution and delivery of the GenAm
Option Agreement and the Value Confidentiality Agreement);
(d) any waiting period applicable to the transactions
contemplated hereby under the HSR Act shall have expired or been terminated; and
6.2 Conditions to Obligation of Purchaser. The obligation of
Purchaser to consummate the purchase of Shares and the other transactions
contemplated hereby shall be subject to the fulfillment or waiver at or prior to
the Closing Date of the following additional conditions:
(a) Seller shall have performed in all material respects the
covenants and obligations required to be performed by it under this Agreement at
or prior to the Closing;
(b) The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all material respects (except
representations and warranties qualified by materiality shall be true and
correct in all respects taking into account such qualification) as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except that any such representation and warranty that is given as
of a particular date or period and relates solely to such particular date or
period shall be true and correct only as of such date or period);
(c) Seller shall have executed a release substantially in the
form of Exhibit E in favor of the Insurance Subsidiaries and the Insurance
Subsidiaries' current and former officers and directors;
(d) Seller shall have contributed $15,000,000 in cash to the
capital of Integrity; and
(e) Purchaser shall have received a certificate signed by an
executive officer of Seller to the effect of Sections 6.2(a), 6.2(b) and 6.2(d).
(f) Since September 30, 1999, except as set forth on Schedule
3.4, there shall not have occurred any event, change or development which would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(g) The officers and employees of the Insurance Subsidiaries
set forth on Schedule 6.2(g) shall have executed and delivered to Purchaser
employment agreements in form and substance satisfactory to Purchaser in its
sole discretion.
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6.3 Conditions to Obligation of Seller. The obligation of Seller to
consummate the sale of Shares and the other transactions contemplated hereby
shall be subject to the fulfillment or waiver at or prior to the Closing Date of
the following additional conditions:
(a) Purchaser shall have performed in all material respects
the covenants and obligations required to be performed by it under this
Agreement at or prior to the Closing Date;
(b) the representations and warranties of Purchaser contained
in this Agreement shall be true and correct in all material respects (except
representations and warranties qualified by materiality shall be true and
correct in all respects taking into account such qualification) as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except that any such representation and warranty that is given as
of a particular date or period and relates solely to such particular date or
period shall be true and correct only as of such date or period);
(c) Seller shall have received a certificate signed by an
executive officer of Purchaser to the effect of Sections 6.3(a) and (b).
6.4 Frustration of Closing Conditions. Neither Seller nor Purchaser
may rely on the failure of any condition set forth in Section 6.1, 6.2 or 6.3,
as the case may be, to be satisfied if such failure is due to the failure of
such party to perform or observe its covenants and agreements hereunder,
including its obligation to use reasonable best efforts to consummate the
transactions contemplated by this Agreement.
ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing.
(a) By the mutual written consent of Purchaser and Seller;
(b) By Purchaser or Seller:
(i) (A) 60 days after the date on which any request or
application for a Requisite Regulatory Approval shall have been denied or
withdrawn at the request or recommendation of the Governmental Entity
which must grant such Requisite Regulatory Approval, unless within the
60-day period following such denial or withdrawal a petition for rehearing
or an amended application has been filed with the applicable Governmental
Entity, provided,
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however, that no party shall have the right to terminate this Agreement
pursuant to this Section 7.1(b)(i)(A) if such denial or request or
recommendation for withdrawal shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants
and agreements of such party set forth herein or (B) if a court of
competent jurisdiction or other Governmental Entity shall have issued an
Order or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such Order
or other action shall have become final and nonappealable;
(ii) within five days following January 31, 2000, if the
Overbid Procedures Order shall not have been entered by the Bankruptcy
Court on or prior to such date;
(iii) within five days following April 15, 2000, if the
Section 363/365 Order shall not have been entered by the Bankruptcy Court
on or prior to such date; or
(iv) if the Closing shall not have occurred on or before
April 30, 2000;
provided, however, that the right to terminate this Agreement under Section
7.1(b)(ii), (iii) or (iv) shall not be available to any party whose failure to
fulfill materially any covenant or obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date;
(c) By Seller, if the Board of Directors of Seller has
withdrawn, modified or changed in a manner adverse to Purchaser its approval or
recommendation of this Agreement in order to approve and permit Seller to
execute a definitive agreement relating to an Overbid and this action has been
approved by the Bankruptcy Court in accordance with Section 5.5;
(d) By Purchaser or Seller (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein), if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach is not cured within 30 days following
written notice to the party committing such breach, or which breach by its
nature, cannot be cured prior to the Closing;
(e) By Purchaser or Seller (provided that the terminating
party is not then in material breach of any representation, warranty, covenant
or other agreement contained herein), if there shall have been a material breach
of any of the covenants or agreements set forth in this Agreement on the part of
the other party, which breach shall not have been cured within 30 days following
receipt by the breaching party
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of written notice of such breach from the other party hereto, or which breach,
by its nature, cannot be cured prior to the Closing; or
(f) By Purchaser, if a rehabilitation proceeding is commenced
against either of the Insurance Subsidiaries by the insurance regulators in Ohio
or New York having jurisdiction over such Insurance Subsidiary.
7.2 Procedure for and Effect of Termination. In the event that this
Agreement is terminated by Purchaser or Seller pursuant to Section 7.1, written
notice of such termination and abandonment shall forthwith be given to the other
party and, subject to the next sentence, this Agreement shall terminate and the
transactions contemplated shall be abandoned without any further action. If this
Agreement is terminated as provided herein, no party hereto shall have any
liability or further obligation to any other party under the terms of this
Agreement except (a) with respect to the willful breach by any party hereto, and
(b) this Section 7.2, Section 7.3, Article 8 and the last sentence of Section
5.2, shall survive the termination of this Agreement. In addition to any other
available remedy at law or in equity, if this Agreement is terminated as a
result of a material breach by Seller or Purchaser, then Seller or Purchaser,
respectively, shall indemnify and hold harmless the other party and each of such
other party's Affiliates, officers, directors, employees and agents (the
"Indemnified Parties") for any and all losses, costs, damages or expenses
(including reasonable and documented attorneys' fees) suffered or incurred by
the Indemnified Parties in connection with this Agreement or such termination.
7.3 Termination Fee; Expense Reimbursement.
(a) Termination Fee.
(i) Seller agrees and acknowledges that Purchaser's
negotiation and execution of this Agreement have resulted from an
investment of management time and has required a commitment of financial
and other resources by Purchaser, and that the negotiation and execution
have provided value to Seller and the Insurance Subsidiaries. Therefore,
if an Overbid Event (as defined below) occurs, Seller shall pay $3,579,000
to Purchaser as a termination fee (the "Termination Fee"); provided, that
Seller shall not be obligated to pay such Termination Fee if, prior to the
occurrence of the Overbid Event, this Agreement has validly been
terminated hereunder other than pursuant to Section 7.1(c). The
Termination Fee shall constitute an administrative expense of Seller under
sections 503(b) and 507 (a)(1) of the Bankruptcy Code.
(ii) An "Overbid Event" is the occurrence of any of the
following:
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(A) The termination of this Agreement pursuant to
Section 7.1(c); or
(B) The execution by Seller, or any trustee in
bankruptcy for Seller, of an agreement with any party other than
Purchaser providing for (i) the sale of the Acquired Business,
including through a sale of over 50% of the equity interest in
Seller or through a merger or other business combination involving
Seller or the Insurance Subsidiaries, or (ii) a sale of all or
substantially all of the assets of the Acquired Business to a
purchaser, or to several purchasers in substantially simultaneous
sales (an "Alternative Transaction").
(iii) Seller shall pay the Termination Fee required by
clause (i) above simultaneously with the closing of, and with the proceeds
from, any such Alternative Transaction, except that, if the proceeds from
such Alternative Transaction are insufficient to pay the Termination Fee,
Seller shall pay the remaining balance of the Termination Fee from other
sources. Seller's obligation to pay the Termination Fee shall constitute
an administrative expense of Seller under sections 503(b) and 507(a)(1) of
the Bankruptcy Code.
(b) Expense Reimbursement. The parties acknowledge that Seller
has on the date hereof reimbursed Purchaser for $250,000 of its reasonable and
documented costs and expenses ("Expenses") incurred prior to the date hereof.
Upon the execution of this Agreement, Seller shall reimburse Purchaser for all
Expenses incurred and not previously reimbursed hereunder, such reimbursement
not to exceed, when aggregated with all Expenses previously reimbursed
hereunder, $500,000. From and after the date hereof until the Closing Date,
Seller shall reimburse Purchaser for all Expenses incurred and not previously
reimbursed hereunder, such reimbursement not to exceed, when aggregated with all
Expenses previously reimbursed hereunder, $500,000. Subject to Bankruptcy Court
approval, each such reimbursement will be made by Seller within ten Business
Days of submission by Purchaser of an itemized statement reflecting such
expenses.
(c) Overbid Expense Reimbursement. If an Overbid Event occurs
and a Termination Fee is payable to Purchaser pursuant to clause (a) above, then
Seller shall reimburse Purchaser for all of its Expenses incurred in furtherance
of this Agreement and the transactions contemplated herein, including, without
limitation, reasonable consultant fees and expenses incurred by Purchaser for
services of outside counsel and consultants in negotiating this Agreement;
provided, that, (i) such Expenses have not been reimbursed pursuant to clause
(b) above, and (ii) such Expenses do not in the aggregate exceed $500,000 in
addition to the $500,000 referred to in (b) above. The obligation in this clause
(c) shall survive any termination of this Agreement, and shall constitute an
administrative expense of Seller under sections 503(b) and 507(a)(1) of the
Bankruptcy Code. Such reimbursement will be made by the Seller at such time as
the
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Termination Fee is payable to Purchaser within ten Business Days of submission
by Purchaser of each itemized statement reflecting such actual reasonable
expenses.
ARTICLE 8
MISCELLANEOUS
8.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by a written agreement
signed by each of the parties hereto at any time prior to the Closing with
respect to any of the terms contained herein. The parties shall promptly provide
a copy of any such agreement to the Escrow Agent.
8.2 Waiver of Compliance; Consents. Any failure of Purchaser or
Seller to comply with any obligation, covenant, agreement or condition herein
may be waived by Purchaser or Seller, respectively, only by a written instrument
signed by the party granting such waiver, a copy of which shall be promptly
forwarded by the parties to the Escrow Agent, but such waiver or failure to
insist upon strict compliance with such 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, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 8.2.
8.3 Survival. The respective representations and warranties of the
parties contained herein shall not survive the Closing; except that the
representations and warranties of Seller regarding the Insurance Subsidiaries
and the Acquired Assets shall survive the Closing until the date that is 18
months following the Closing Date. All covenants and agreements made by the
parties to this Agreement which contemplate performance following the Closing
Date shall survive the Closing Date.
8.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
by telecopier (with a confirmed receipt thereof) or registered or certified mail
(postage prepaid, return receipt requested), and on the next business day when
sent by overnight courier service, 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 Purchaser, to:
The Western and Southern Life Insurance Company
400 Broadway
Cincinnati, OH 45202
Attention: Donald J. Wuebbling
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Telecopier: (513) 629-1044
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attention: Stephen G. Rooney and Irena Goldstein
Telecopier: (212) 424-8500
(b) if to Seller, to:
ARM Financial Group, Inc.
515 West Market Street
Louisville, Kentucky 40202
Attention: Chief Executive Officer
Telecopier (502) 540-2830
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Alan W. Kornberg and Judith R. Thoyer
Telecopier: (212) 757-3990
8.5 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto, without the prior written consent of the other parties.
8.6 Expenses. Subject to Section 7.3, whether or not the
transactions contemplated hereby are consummated, all fees, charges and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees, charges or expenses.
8.7 Governing Law. This Agreement shall be governed by and construed
in accordance with applicable federal law and the laws of the State of Delaware
applicable to agreements made and to be performed entirely within such State,
without regard to the choice of law principles thereof.
8.8 SUBMISSION TO JURISDICTION, VENUE; WAIVER OF JURY TRIAL. EACH
PARTY HERETO AGREES THAT IT SHALL BRING
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ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER IN TORT OR
CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY IN THE BANKRUPTCY COURT. WITH
RESPECT TO ANY SUCH ACTION OR PROCEEDING BROUGHT BY ANY PARTY HERETO, EACH PARTY
HERETO (I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE BANKRUPTCY
COURT, (II) WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR
PROCEEDING IN THE BANKRUPTCY COURT, (III) WAIVES ANY OBJECTION THAT THE
BANKRUPTCY COURT IS AN INCONVENIENT FORUM OR DOES NOT HAVE JURISDICTION OVER ANY
PARTY HERETO, (IV) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH
ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE
HEREWITH AND (V) WAIVES ANY RIGHT TO A TRIAL BY JURY.
8.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10 Interpretation. 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 in any way affect the meaning or
interpretation of this Agreement.
8.11 Entire Agreement. This Agreement (including the schedules,
exhibits, documents or instruments referred to herein), the Settlement
Agreements, the Confidentiality Agreement and the Value Confidentiality
Agreement embody the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof and thereof and supersede all prior
agreements and understandings, both written and oral, among the parties, or
between any of them, with respect to the subject matter hereof and thereof.
8.12 No Third Party Beneficiaries. Except as provided in Section
5.7, this Agreement is not intended to, and does not, create any rights or
benefits of any party other than the parties hereto.
8.13 Schedules. The disclosure of any items in the Schedules to this
Agreement shall be deemed to be a disclosure for all purposes of this Agreement,
but shall expressly not be deemed to constitute an admission by either party, or
to otherwise imply or concede, that any such item is material.
8.14 No Implied Representations. Except as expressly provided in
Article 3 or 4, neither Seller nor Purchaser has made or intends to make hereby
any
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representation or warranty of any kind, whether express or implied, to the other
party or its Affiliates in respect to the Acquired Assets or the transactions
contemplated hereby.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
THE WESTERN AND SOUTHERN LIFE
INSURANCE COMPANY
By: /s/ John F. Barrett
-------------------
Name: John F. Barrett
Title: President and Chief Executive Officer
By: /s/ Donald J. Wuebbling
-----------------------
Name: Donald J. Wuebbling
Title: Senior Vice President
ARM FINANCIAL GROUP, INC.
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: Office of the President
INTEGRITY HOLDINGS, INC.
By: /s/ John R. McGeeney
--------------------
Name: John R. McGeeney
Title: Office of the President
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EXHIBIT B
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT (this "Escrow Agreement"), dated as of
_______________, among THE WESTERN AND SOUTHERN LIFE INSURANCE COMPANY, a mutual
insurance corporation (the "Purchaser"), ARM FINANCIAL GROUP, INC., a Delaware
corporation ("ARM"), INTEGRITY HOLDINGS, INC., a Delaware corporation and a
wholly-owned subsidiary of ARM, (the "Insurance Holdco" and, together with ARM,
the "Seller"), GENAMERICA CORPORATION, a Missouri corporation ("GenAm Corp"),
GENERAL AMERICAN LIFE INSURANCE COMPANY, a stock insurance company domiciled in
Missouri ("GenAmerican", and together with GENAM CORP., "GenAm"), THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a __________ ("Equitable"), and
______________, a _________________, as escrow agent (the "Escrow Agent"). Each
of Purchaser, Seller, GenAm and Equitable are sometimes referred to herein
collectively as the "Escrow Beneficiaries."
The Purchaser and the Seller are parties to a Purchase Agreement,
dated as of December [ ], 1999 (as may be amended from time to time in
accordance therewith, the "Purchase Agreement"), pursuant to which, among other
things, the Purchaser is acquiring all of the issued and outstanding shares of
capital stock of Integrity Life Insurance Company, an Ohio stock life insurance
company ("Integrity").
The Purchaser, the Seller, GenAm and Equitable are parties to a
Settlement Agreement, dated as of December 1, 1999 (the "Settlement Agreement"),
pursuant to which, among other things, GenAm has discharged certain obligations
of the Seller and Integrity and GenAm and Equitable have each contributed
certain funds to Integrity.
The Purchase Agreement provides for the payment and delivery by the
Purchaser of funds into the escrow account hereby established, to be held and
dealt with by the Escrow Agent as herein provided.
Certain terms used herein are defined in Section 11.1. Capitalized
terms used herein and not otherwise defined have the meanings assigned to them
in the Purchase Agreement.
Accordingly, the parties agree as follows:
1. Establishment of Escrow Account. Simultaneously with the
execution and delivery of this Escrow Agreement, the sum of $119,300,000 is
being deposited with the Escrow Agent (the "Deposit"), by wire transfer of
immediately available funds, receipt of which is hereby acknowledged by the
Escrow Agent. Such Deposit, and any amounts deposited with the Escrow Agent from
time to time by Purchaser pursuant to the Purchase Agreement, as such Deposit
and other amounts are from time to time invested and reinvested as herein
provided, less any distributions or payments made pursuant hereto, is referred
to herein as the "Escrow Account." The
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2
Escrow Agent will hold, invest and dispose of the Escrow Account, and any income
or interest earned or accrued with respect thereto, in accordance with the terms
and conditions hereof.
2. Investment of the Escrow Account; Reporting.
(a) Investment.
(a) The Escrow Agent, as directed in writing by the Seller,
shall invest any or all of the Escrow Account, and any undistributed income or
interest earned or accrued with respect thereto, in any of the following: [(i)
obliga tions issued or guaranteed by the United States of America or any agency
or instrumentality thereof, (ii) certificates of deposit (including money market
certificates and similar instruments) of or accounts with national banks,
holding companies of national banks or corporations endowed with trust powers
having, in any case, capital and surplus in excess of $100,000,000 at the time
of investment, (iii) commercial paper at the time of investment rated A-1 by
Standard & Poor's Corporation or Prime-1 by Moody's Investor's Service, Inc.,
(iv) obligations issued by any state or municipality of the United States, and
(v) money market funds substantially all of whose funds are invested in any of
the foregoing.](1)
(b) The Escrow Agent shall have no liability for any loss
sustained by the Escrow Account by reason of any investment made in accordance
with this Section 2.1 or for any failure to invest all or any part of the Escrow
Account.
(b) Monthly Statements. As soon as practicable following the
end of each month during the term of this Escrow Agreement, the Escrow Agent
shall deliver to the Escrow Beneficiaries a statement (a "Monthly Statement")
setting forth: (a) the Value of the Escrow Account at such date, (b) the amount
of income or interest earned or accrued with respect thereto during the period
covered by such Monthly Statement, including a good faith calculation of the
average rate of return earned on the Escrow Account during the period covered by
such Monthly Statement and during the period from the date hereof to the end of
such month, (c) the amounts paid by Purchaser to the Escrow Account pursuant to
the Purchase Agreement with respect to the period covered by such Monthly
Statement, and (d) the amounts owed or paid to the Escrow Beneficiaries pursuant
hereto with respect to the period covered by such Monthly Statement.
(c) Reinvestment of Income. Any income or interest of the
Escrow Account earned or accrued shall be accumulated and reinvested in
accordance with Section 2.1.
3. Term. This Agreement shall terminate on the date (the
"Termination Date") that is the earliest of (a) the date upon which all funds in
the Escrow Account have been distributed in accordance herewith and no funds
remain in the Escrow
- --------
(1) To be determined by the parties.
<PAGE>
3
Account; (b) the 18-month anniversary of the Closing Date; provided there are no
Pending Indemnity Claims as of such date; and (c) following such anniversary,
the first date upon which there are no Pending Indemnity Claims.
4. Distributions Prior to Final Accounting Payment Date.
(i) Surplus Adjustment. On the Surplus Adjustment Payment
Date, the Escrow Agent shall pay from the Escrow Account to Purchaser (to such
account or accounts as Purchaser shall have designated in the Surplus Adjustment
Notice) an amount equal to the Reduced Surplus Adjustment set forth in the
Surplus Adjustment Notice, including interest thereon computed in accordance
with Section 2.10(e) of the Purchase Agreement.
(ii) Liquidation Adjustment.
(1) Within two Business Days of the receipt by the
Escrow Agent of any Loss Payment Notice, the Escrow Agent shall pay from the
Escrow Account to Purchaser (to such account or accounts as Purchaser shall have
designated in such Loss Payment Notice), an amount equal to the Loss Payment
Amount.
(2) On the Final Liquidation Adjustment Payment Date,
the Escrow Agent shall pay from the Escrow Account to Purchaser (to such account
or accounts as Purchaser shall have designated in the Liquidation Adjustment
Certificate) an amount equal to the Final Liquidation Adjustment set forth in
the Liquidation Adjustment Certificate, including interest thereon computed in
accordance with Section 2.11(j) of the Purchase Agreement.
(iii) Indemnity Adjustment. Within two Business Days of
receipt by the Escrow Agent of an Approved Indemnity Payment Notice, an
Indemnity Settlement Notice or an Indemnity Judgment Notice (each, a "Notice"),
the Escrow Agent shall pay to the Purchaser from the Escrow Account (to such
account or accounts as Purchaser shall have designated in such Notice), an
amount equal to the amount set forth in such Notice, including interest thereon
computed in accordance with Section 2.12(f) of the Purchase Agreement.
5. Distribution on Final Accounting Payment Date. On the Final
Accounting Payment Date, the Escrow Agent shall distribute all funds remaining
in the Escrow Account on the Final Accounting Payment Date, but only to the
extent such funds exceed the sum of $10,000,000 plus the Aggregate Reserve
Amount set forth in the Reserve Certificate and only after payment to Purchaser
of any Loss Payments due under Section 2.11(i) of the Purchase Agreement, as
follows:
First, to the Escrow Agent, for any amounts due and payable to
the Escrow Agent under this Escrow Agreement as of the Final Accounting
Payment Date;
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4
Second, to GenAm and Equitable (to such respective accounts as
GenAm and Equitable shall have designated in writing before the Final
Accounting Payment Date), the Ratable Share of the total amount available
to be distributed pursuant to this paragraph, which amounts shall be paid
on account of the GenAm Contribution and the Equitable Contribution,
respectively; provided, that, in no event shall (x) the amount so
distributed to GenAm (the "First GenAm Payment Amount") exceed the sum
(the "GenAm Limit") of $17,853,512, plus interest accrued thereon from the
Closing Date until, but not including, the Final Accounting Payment Date
at a rate equal to the Escrow Rate as of the Final Accounting Payment Date
or (y) the amount so distributed to Equitable (the "First Equitable
Payment Amount") exceed the sum (the "Equitable Limit") of $1,000,000,
plus interest accrued thereon from the Closing Date until, but not
including, the Final Accounting Payment Date at a rate equal to the Escrow
Rate as of the Final Accounting Payment Date; and
Third, to Seller (to such account or accounts as Seller shall
have designated in writing before the Final Accounting Payment Date), any
remaining funds in partial payment of the Purchase Price.
6. Distribution on Escrow Termination Date. On the Escrow
Termination Date, the Escrow Agent shall distribute all funds remaining in the
Escrow Account on such date as follows:
First, to the Escrow Agent, for any amounts due and payable to
the Escrow Agent under this Escrow Agreement as of the Escrow Termination
Date;
Second, to Purchaser (to such account or accounts as Purchaser
shall have designated in writing before the Escrow Termination Date), for
payment of any amounts due to Purchaser pursuant to Section 4 hereof, but
only to the extent not previously paid, which amount shall be paid as a
reduction in Purchase Price;
Third, to GenAm and Equitable (to such respective accounts as
GenAm and Equitable shall have designated in writing before the Escrow
Termination Date), the Ratable Share of the total amount available to be
distributed pursuant to this paragraph, which amounts shall be paid in
full satisfaction and discharge of the GenAm Contribution and the
Equitable Contribution respectively; provided, that, in no event shall (x)
the amount so distributed to GenAm exceed the difference between the GenAm
Limit and the First GenAm Payment Amount or (y) the amount so distributed
to Equitable exceed the difference between the Equitable Limit and the
First Equitable Payment Amount; and
Fourth, to Seller, at such account or accounts as Seller shall
have designated in writing before the Escrow Termination Payment Date, any
remaining funds for payment in full of the Purchase Price as adjusted
herein.
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5
7. The Escrow Agent.
(a) Liability of the Escrow Agent. The Escrow Agent shall have
no liability or obligation with respect to the Escrow Account except for the
Escrow Agent's willful misconduct or gross negligence. The Escrow Agent's sole
responsibility shall be for the safekeeping, investment and disbursement of the
amounts in the Escrow Account in accordance with the terms of this Escrow
Agreement. The Escrow Agent shall have no implied duties or obligations and
shall not be charged with knowledge or notice of any fact or circumstance not
specifically set forth herein. The Escrow Agent may rely upon any instrument,
not only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which the Escrow Agent
shall in good faith believe (a) to be genuine, (b) to have been signed or
presented by the person or parties purporting to sign the same, and (c) to
conform to the provisions of this Escrow Agreement. In no event shall the Escrow
Agent be liable for incidental, indirect, special, consequential or punitive
damages. The Escrow Agent shall not be obligated to take any legal action or
commence any proceeding in connection with the Escrow Account or this Escrow
Agreement, or to appear in, prosecute or defend any such legal action or
proceeding. The Escrow Agent may consult legal counsel selected by it in the
event of any dispute or question as to the construction of any of the provisions
hereof or of its duties hereunder, and shall incur no liability and shall be
fully protected from any liability whatsoever in acting in accordance with the
opinion or instruction of such counsel. The Purchaser and the Seller shall each
promptly pay, upon demand, one-half of the reasonable and documented fees and
expenses of any such counsel.
(b) Indemnification of Escrow Agent.
(i) From and at all times after the date of this Escrow
Agreement, the Purchaser and the Seller, jointly and severally, shall, to the
fullest extent permitted by law and to the extent provided herein, indemnify and
hold harmless the Escrow Agent and each director, officer, employee, attorney,
agent and affiliate of the Escrow Agent (collectively, the "Indemnified
Parties") against any and all losses incurred by or asserted against any of the
Indemnified Parties from and after the date hereof, arising from or in
connection with the negotiation, preparation, execution, performance or failure
of performance of this Escrow Agreement or any transactions contemplated herein,
whether or not any such Indemnified Party is a party to any such action,
proceeding, suit or the target of any such inquiry or investigation; provided,
however, that no Indemnified Party shall have the right to be indemnified
hereunder for any liability finally determined by a court of competent
jurisdiction, subject to no further appeal, to have resulted from the gross
negligence or willful misconduct of such Indemnified Party. If any such action
or claim shall be brought or asserted against any Indemnified Party, such
Indemnified Party promptly shall notify the Purchaser and the Seller in writing,
and the Purchaser and the Seller shall assume the defense thereof, including the
employment of counsel and the payment of all expenses. Such Indemnified Party
shall, in its sole discretion, have the right to employ separate counsel in any
such action and to participate in the defense thereof, and the fees and expenses
of such counsel shall be paid by such Indemnified Party unless (i) the Purchaser
and/or the Seller agree to pay such fees and expenses, (ii) the Purchaser
<PAGE>
6
and/or the Seller shall fail to assume the defense of such action or proceeding
or shall fail, in the reasonable discretion of such Indemnified Party, to employ
counsel satisfactory to the Indemnified Party in any such action or proceeding,
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include both the Indemnified Party and the Purchaser and/or
the Seller, and the Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Purchaser and/or the Seller. All such
fees and expenses payable by the Purchaser and/or the Seller pursuant to the
foregoing sentence shall be paid from time to time as incurred, both in advance
of and after the final disposition of such action or claim. All of the foregoing
losses of the Indemnified Parties shall be payable 50% by the Purchaser and 50%
by the Seller, jointly and severally, upon demand by such Indemnified Party. The
obligations of the Purchaser and the Seller under this Section 7.2 shall survive
any termination of this Escrow Agreement and the resignation or removal of the
Escrow Agent.
(ii) The parties agree that neither the payment by the
Purchaser or the Seller of any claim by the Escrow Agent for indemnification
hereunder nor the disbursement of any amounts to the Escrow Agent from the
Escrow Account in respect of a claim by the Escrow Agent for indemnification
shall impair, limit, modify or affect, as between the Purchaser and the Seller,
the respective rights and obligations of the Purchaser, on the one hand, and the
Seller, on the other hand, under the Purchase Agreement.
8. Resignation; Successor Escrow Agent.
(a) Resignation. The Escrow Agent may resign at any time by
giving 30 days' notice of such resignation to the Purchaser and the Seller.
Thereafter, the Escrow Agent shall have no further obligation hereunder except
to hold the Escrow Account (and all undistributed interest or income earned or
accrued with respect thereto) as depositary. In such event, the Escrow Agent
shall not take any action until the Purchaser and the Seller have designated a
banking corporation, trust company or any other person mutually acceptable to
them as successor Escrow Agent. Upon receipt of joint written instructions from
the Purchaser and any of the Seller expressly indicating that a successor Escrow
Agent has been appointed, the Escrow Agent shall promptly deliver the Escrow
Account (and all undistributed interest or income earned or accrued with respect
thereto) to such successor Escrow Agent and shall thereafter have no further
obligations hereunder.
(b) Termination. The Purchaser and the Seller together may
terminate the appointment of the Escrow Agent hereunder upon notice to the
Escrow Agent specifying the date upon which such termination shall take effect
(the "Termination Notice"). In the event of such termination, the Purchaser and
the Seller shall, within 30 days of the date specified in the Termination
Notice, jointly appoint a successor Escrow Agent and upon receipt of joint
written instructions from the Purchaser and any of the Seller expressly
indicating that a successor Escrow Agent has been appointed, the Escrow Agent
shall turn over to such successor Escrow Agent the Escrow Account (and all
<PAGE>
7
undistributed interest or income earned or accrued with respect thereto). Upon
receipt of the Escrow Account, the successor Escrow Agent shall thereupon be
bound by all of the provisions hereof.
(c) Suspension of Performance; Disbursement into Court.
(i) If, at any time, the Escrow Agent is unable to
determine, to the Escrow Agent's reasonable satisfaction, the proper disposition
of any portion of the Escrow Account or the Escrow Agent's proper actions with
respect to its obligations hereunder, or if the Purchaser and the Seller have
not, within 30 days of the furnishing by the Escrow Agent of a notice of
resignation pursuant to Section 10.1(a) or within 30 days of the date of
termination specified in a Termination Notice, appointed a successor Escrow
Agent to act hereunder, then the Escrow Agent may, in its discretion, either:
(1) suspend the performance of any of its
obligations under this Escrow Agreement until such uncertainty shall be resolved
to the reasonable satisfaction of Escrow Agent or until a successor Escrow Agent
shall have been appointed (as the case may be); provided, however, that Escrow
Agent shall continue to hold the Escrow Account (and all undistributed interest
and income earned or accrued with respect thereto) as depository; or
(2) petition (by means of an interpleader action
or any other appropriate method) the Bankruptcy Court for instructions with
respect to such uncertainty, and pay into such court all funds held by it in the
Escrow Account for holding and disposition in accordance with the instructions
of such court.
(ii) The Escrow Agent shall have no liability to the
Purchaser or the Seller or any other person with respect to any such suspension
of performance or disbursement into court, specifically including any liability
or claimed liability that may arise, or be alleged to have arisen, out of or as
a result of any delay in the disbursement of funds held in the Escrow Account or
any delay in or with respect to any other action required or requested of the
Escrow Agent.
9. Escrow Agent Fees and Expenses. The Purchaser, on the one hand,
and the Seller, on the other hand, shall each pay one-half of the total fees and
expenses of the Escrow Agent for the Escrow Agent's services hereunder, which
shall be as set forth on Schedule 1 attached hereto.(2)
- --------
(2) Proposal to come from Escrow Agent.
<PAGE>
8
10. Secondary Obligations. Notwithstanding anything to the contrary
contained herein, all obligations of the Purchaser and the Seller to the Escrow
Agent and the other Indemnified Parties in accordance with Sections 7 through 9
thereof shall be satisfied first from the Escrow Account, and only after no
funds are remaining in the Escrow Account shall such obligations be satisfied by
the Purchaser and the Seller directly.
11. Miscellaneous.
(a) Certain Definitions.
(i) As used in this Escrow Agreement, the following
terms have the following meanings:
"person" means any individual, corporation, partnership, limited liability
company, limited liability partnership, firm, joint venture, association,
joint-stock company, trust, unincorporated organization or other entity.
"Value" with respect to the Escrow Account or any asset thereof as at any
date, means the aggregate face amount thereof determined by the Escrow Agent,
whose determination with respect thereto, unless manifestly erroneous, shall be
final.
(b) Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered in person, by overnight delivery via a national courier
service or by facsimile to the respective parties as follows:(3)
(i) if to the Purchaser, to:
The Western and Southern Life
Insurance Company
400 Broadway
Cincinnati, Ohio 45202
Attention:
Telephone:
Facsimile:
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
Attention: Stephen G. Rooney
and Irena Goldstein
- ----------
(3) Information to be completed by Closing.
<PAGE>
9
Telephone: (212) 424-8000
Facsimile: (212) 424-8500
(ii) if to the Seller, to:
ARM Financial Group, Inc.
515 West Market Street
Louisville, Kentucky 40202
Attention: Chief Executive Officer
Telecopier: (302) 540-2830
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Alan W. Kornberg and
Judith R. Thoyer
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
(c) if to GenAm to:
[To Come]
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019-6092
Attention: Jeff Liebman
Telephone: (212) 259-8000
Facsimile: (212) 259-6333
(d) if to Equitable to:
[To Come]
with a copy to:
Mitchell Williams Selig Gates & Woodyard
425 West Capital Avenue
Suite 1800
Little Rock, AK 72201-3525
Attention: Rick Campbell
Telephone: (501) 688-8882
<PAGE>
10
Facsimile: (501) 688-8807
Each such notice or other communication shall be effective (i) if delivered in
person, when such delivery is made at the address specified in this Section
11.2, (ii) if delivered by overnight courier, the next business day after such
notice or other communication is sent to the address specified in this Section
11.2, or (iii) if delivered by facsimile, when such facsimile is transmitted to
the facsimile number specified in this Section 11.2 and the appropriate
confirmation is received. Any party may, by notice given in accordance with this
Section 11.2, designate another address or Person for receipt of notices
hereunder.
(c) Entire Agreement. This Escrow Agreement is entered into
and delivered pursuant to the Purchase Agreement and as such contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
(d) Waivers and Amendments. Any failure of the Purchaser or
the Seller to comply with any obligation, covenant, agreement or condition
herein may be waived by the Purchaser or the Seller, respectively, only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such 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, such consent shall be given
in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 11.4. Subject to applicable law, this
Escrow Agreement may be amended, modified or supplemented only by a written
agreement signed by each of the parties hereto other than, if GenAm shall have
received the GenAm Limit pursuant to Section 5 and/or Section 6, GenAm and (b)
if Equitable shall have received the Equitable Limit pursuant Section 5 and/or
Section 6, Equitable.
(e) Governing Law. This Escrow Agreement shall be governed by
and construed in accordance with the laws of Delaware applicable to agreements
made and to be performed entirely within Delaware.
(f) SUBMISSION TO JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
EACH PARTY HERETO AGREES THAT IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT
OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS ESCROW AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN
EQUITY, EXCLUSIVELY IN THE BANKRUPTCY COURT. WITH RESPECT TO ANY SUCH ACTION OR
PROCEEDING BROUGHT BY ANY PARTY HERETO, EACH PARTY HERETO (I) IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE BANKRUPTCY COURT, (II) WAIVES ANY
OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE BANKRUPTCY
COURT, (III) WAIVES ANY OBJECTION THAT THE BANKRUPTCY COURT IS AN INCONVENIENT
FORUM OR DOES NOT HAVE JURISDICTION OVER ANY
<PAGE>
11
PARTY HERETO, (IV) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH
ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE
HEREWITH AND (V) WAIVES ANY RIGHT TO A TRIAL BY JURY.
(g) Binding Effect; Assignment. This Escrow Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise permitted herein, neither this Escrow Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto, without the prior written consent of the other parties.
(h) Usage. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require. All terms defined in this Escrow Agreement in their singular or plural
forms have correlative meanings when used herein in their plural or singular
forms, respectively. Unless otherwise expressly provided, the words "include,"
"includes," and "including" do not limit the preceding words or terms and shall
be deemed to be followed by the words "without limitation."
(i) Sections and Sections. All references herein to Sections
and Sections shall be deemed references to such parts of this Escrow Agreement,
unless the context shall otherwise require.
(j) Headings. The headings in this Escrow Agreement are for
reference only, and shall not affect the interpretation of this Escrow
Agreement.
(k) Interpretation. The Section headings contained in this
Escrow Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
(l) Severability of Provisions. If any provision or any
portion of any provision of this Escrow Agreement shall be held invalid or
unenforce able, the remaining portion of such provision and the remaining
provisions of this Agreement shall not be affected thereby. If the application
of any provision or any portion of any provision of this Agreement to any Person
or circumstance shall be held invalid or unenforceable, the application of such
provision or portion of such provision to Persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby.
(m) Counterparts. This Escrow Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
<PAGE>
12
[The balance of this page was intentionally left blank]
<PAGE>
13
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement
as of the date first above written.
THE WESTERN AND SOUTHERN LIFE
INSURANCE COMPANY
By:
-------------------------------------
Name:
Title:
ARM FINANCIAL GROUP, INC.
-----------------------------------------
Name:
Title:
INTEGRITY HOLDINGS, INC.
-----------------------------------------
Name:
Title:
GENAMERICA CORPORATION
By:
-------------------------------------
Name:
Title:
GENERAL AMERICAN LIFE
INSURANCE COMPANY
By:
-------------------------------------
Name:
Title:
<PAGE>
14
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
-------------------------------------
Name:
Title:
[ESCROW AGENT]
By:
-------------------------------------
Name:
Title:
Exhibit 10.2
Settlement Agreement
This Settlement Agreement, dated as of December 1, 1999 (this
"Agreement"), is among GenAmerica Corporation, a Missouri corporation ("GenAm"),
General American Life Insurance Company, a stock insurance company domiciled in
Missouri ("General American"), ARM Financial Group, Inc., a Delaware corporation
("ARM"), Integrity Life Insurance Company, a stock insurance company domiciled
in Ohio ("Integrity"), National Integrity Life Insurance Company ("National
Integrity"), Integrity Holdings, Inc., Metropolitan Life Insurance Company
("MetLife"), The Equitable Life Assurance Society of the United States
("Equitable"), and The Western and Southern Life Insurance Company, a mutual
insurance company domiciled in Ohio ("W&S").
W&S and ARM are entering into a Letter of Intent, dated as of December
1, 1999 (the "Letter of Intent"), with respect to a proposed sale by Integrity
Holdings, Inc., a Delaware corporation and wholly-owned Subsidiary of ARM, of
Integrity and its wholly-owned subsidiary, National Integrity, to W&S (the
"Proposed Transaction").
The Proposed Transaction is subject to the execution of a definitive
purchase agreement between the parties (the "Definitive Purchase Agreement")
and, among other conditions, the filing by ARM of a voluntary petition for
relief under chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") and the approval by the Bankruptcy Court of the Proposed
Transaction under sections 363 and 365 of the Bankruptcy Code.
This Agreement is being entered into by the parties in order to induce
ARM and W&S to enter into the Definitive Purchase Agreement and to complete the
Proposed Transaction. The consummation of certain transactions hereunder shall
be subject to satisfaction of the following conditions (the "Conditions"): (a)
the approval by the Bankruptcy Court of the Proposed Transaction under sections
363 and 365 of the Bankruptcy Code, (b) the approval of the Bankruptcy Court of
any such agreements as shall involve ARM, (c) the approval by appropriate
insurance regulators in the States of Ohio and New York, (d) the closing (the
"Closing") of the Proposed Transaction on or before April 30, 2000 (the "Closing
Date") and (e) the Definitive Sale Documentation, as such term is defined in the
Letter of Intent, is substantially in the form contemplated in the Letter of
Intent, subject to such deviations as do not materially adversely affect any of
GenAm, General American, MetLife, Equitable, Integrity or National Integrity or
any of the rights of any of the foregoing parties under the Letter of Intent or
this Agreement.
Accordingly, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby agree as
follows:
<PAGE>
1. GenAm Note.
(a) From the date hereof until the date (the "Forbearance
Date") that is the earlier of the (i) the Closing Date and (ii) April 30, 2000,
GenAm shall forbear from enforcing its rights in respect of any amount, whether
principal, interest, penalty, fees or otherwise, due or payable at any time
under or in respect of the Promissory Note, dated August 3, 1999, as amended
(the "Promissory Note"), from ARM to GenAm, or under or in respect of the Term
Loan Agreement, dated as of August 3, 1999, as amended (the "Term Loan
Agreement"), between ARM and GenAm under which the Promissory Note was issued.
(b) Notwithstanding the foregoing, subject to Section 502(b)
of the Bankruptcy Code, all interest, penalties, fees and other charges due or
payable under or in respect of the Promissory Note, or due or payable under or
in respect of the Term Loan Agreement, shall continue to accrue until the
Forbearance Date, and shall continue to accrue thereafter if the Closing Date is
not the Forbearance Date.
(c) Subject to satisfaction of the Conditions, GenAm shall
release and settle, effective as of the Closing Date, its rights against ARM in
respect of any amount, whether principal, interest, penalty, fees or otherwise,
due or payable at any time under or in respect of the Promissory Note or the
Term Loan Agreement.
2. Term Loans.
(a) From the date hereof until the Forbearance Date, GenAm
shall forbear from enforcing its rights in respect of a claim (the "Term Loan
Claim") allegedly due or payable under Section 3.03 of the Termination Master
Agreement, effective as of July 26, 1999, among ARM, Integrity and General
American (the "Termination Master Agreement") with respect to the term loans,
described on Schedule 1 hereto (the "Loans"), not previously delivered to GenAm
under the Termination Master Agreement.
(b) Subject to satisfaction of the Conditions, effective as of
the Closing Date, GenAm shall release and settle the Term Loan Claim and, as
part of such settlement, Integrity shall, in full settlement and satisfaction of
the Term Loan Claim, transfer, convey and assign to GenAm all of Integrity's
right, title and interest in, to and under the Loans.
3. General American Payments; Forbearance; Settlement and Releases.
(a) From the date hereof until the Forbearance Date, General
American shall forbear from enforcing its rights in respect of a claim (the
"Swap Claim") allegedly due or payable under Section 3.03 of the Termination
Master Agreement with respect to certain securities, swaps, caps or other
instruments (other than the Loans) not previously delivered to General American
under the Termination Master Agreement.
2
<PAGE>
(b) Subject to satisfaction of the Conditions, General
American shall release and settle, effective as of the Closing Date, the Swap
Claim and, as part of such settlement, General American shall be paid from the
Purchase Price Escrow (as defined in the Letter of Intent, the "Escrow"), as
soon as practicable following the Final Accounting (as such term is defined in
the Letter of Intent), but in any event not later than sixty (60) days
thereafter (the "Adjustment Date"), in full satisfaction and settlement of the
Swap Claim, and in accordance with the priority of payments provided in the
Letter of Intent, an amount to be determined in accordance with the provisions
of Section 8 hereof.
(c) Subject to satisfaction of the Conditions, at Closing,
each of ARM, Integrity, Integrity Holdings, Inc., National Integrity, W&S and
their respective affiliates and assigns (collectively, the "ARM Parties") shall
release and discharge any obligation or liability of GenAm, General American,
and MetLife and their respective affiliates and assigns (collectively, the
"GenAm Parties"), with respect to any matter arising under, or relating in any
way, to the Termination Master Agreement, or arising under or relating in any
way to any of the agreements or transactions entered into pursuant to the
Termination Master Agreement, other than obligations arising under this
Agreement, and the GenAm Parties shall release and discharge any obligation or
liability of the ARM Parties with respect to any matter arising under, or
relating in any way to the Termination Master Agreement, or arising under or
relating in any way to any of the agreements or transactions entered into
pursuant to the Termination Master Agreement, other than obligations arising
under this Agreement (including without limitation any obligations of ARM or
Integrity under Section 2(b) or 3(b) above in respect of the Loans or the Swap
Claim, respectively, and obligations of W&S under Section 7, below). In
addition, subject to satisfaction of the Conditions, at Closing, ARM shall
release and discharge any and all obligations or liabilities of, and any and all
claims against, GenAm and General American, of any kind or nature whatsoever,
other than obligations, liabilities or claims arising under this Agreement, and
GenAm and General American shall release and discharge, any and all obligations
or liabilities of, and any and all claims against, ARM, of any kind or nature
whatsoever, other than obligations, liabilities or claims arising under this
Agreement.
4. No Waiver by Reason of Forbearance. Notwithstanding the foregoing
provisions, if the Closing does not occur, the GenAm Parties shall not be deemed
to have waived any rights or claims against the ARM Parties or any other entity
as a result of executing this Agreement, or forbearing to exercise any rights or
assert any claims subject to, or relating to, this Agreement including, without
limitation, the Swap Claim and claims arising under or in respect of the
Promissory Note, the Term Loan Agreement, the Termination Master Agreement and
the Loans ("Claims Subject to Forbearance"), and the ARM Parties shall not, in
the event the Closing does not occur, interpose as a defense, or otherwise raise
against any of the GenAm Parties, waiver, laches, delay, estoppel or any similar
such defense in connection with Claims Subject to Forbearance.
3
<PAGE>
5. ARM Parties Forbearance. Until the Forbearance Date, the ARM Parties
shall forbear from exercising any rights with respect to, and asserting Claims
Subject to Forbearance.
6. Nonimpairment. Until the Forbearance Date, the ARM Parties shall not
take any action, and shall not enter into any transaction that impairs any right
of the GenAm Parties, under or with respect to the Claims Subject to
Forbearance, including, without limitation, selling, assigning or pledging any
interest that the ARM Parties may have in any such Claim.
7. Payments and Indemnification. (a) Subject to satisfaction of the
Conditions, at Closing, each of General American and Equitable shall remit to
Integrity a cash payment in the amount of $2 million.
(b) Subject to satisfaction of the Conditions, on the Closing
Date, (i) W&S shall enter into an indemnification agreement, in form and
substance reasonably satisfactory to General American and W&S, covering (x) any
losses arising out of the assignments to General American, as assignee, in
effect as of the date of Closing, of Structured Settlement Annuities issued by
Integrity or National Integrity and covered by the Joint Venture Reinsurance
Agreement, dated as of September 1, 1989, among General American, Integrity and
National Integrity (the "Joint Venture Agreement"), or otherwise arising out of
any structured settlement annuities or contracts issued by Integrity or National
Integrity against any of the GenAm Parties in respect of any transaction,
transfer or agreement between or among any of the GenAm Parties and any of the
ARM Parties, including without limitation, this Agreement and (ii) General
American shall release Integrity from any further obligation to pay fees to
General American under the Joint Venture Agreement as set forth on Exhibit I
thereto. The indemnification agreement referred to above shall not apply to any
contract or agreement between General American and Integrity, or between General
American and National Integrity, executed after the Closing Date.
(c) Subject to satisfaction of the Conditions, on the Closing
Date, W&S shall enter into an indemnification agreement, in form and substance
reasonably satisfactory to W&S and Equitable, covering any losses, damages,
liabilities, and expenses arising out of or related to (i) annuity contracts or
other similar obligations issued by Integrity or National Integrity and owned by
Equitable or its affiliates and (ii) the failure of Integrity or National
Integrity to perform the administration and other activities currently performed
by Integrity or National Integrity with regard to annuity contracts or other
similar obligations issued by Integrity or National Integrity and owned by
Equitable or its affiliates.
4
<PAGE>
8. Adjustment Date Payments by the Escrow Agent to General American and
Equitable.
(a) On the Adjustment Date, the Escrow Agent (as such term is
defined in the Letter of Intent) shall, after giving effect to the priorities
described in the Letter of Intent, make payment to each of General American and
Equitable, up to maximum amounts of $17,853,512 and $1 million, respectively,
taking into account any previous payments made out of the Escrow, their Ratable
Shares as such term is defined below, of the Escrow. The Ratable Share of
General American shall be that fraction the numerator of which is $17,853,512
and the denominator of which is $18,853,512. The Ratable Share of Equitable
shall be that fraction the numerator of which is $1 million and the denominator
of which is $18,853,512.
(b) At any time that W&S can exercise the Retention Option, as
such term is defined in the Letter of Intent, with respect to any of the
Securities, as such term is defined in the Letter of Intent, W&S shall give
written notice to General American of such fact and of whether W&S intends to
exercise the Retention Option with respect to such Securities. After receiving
such notice, General American shall have the option of giving notice to W&S that
General American shall exercise its option to purchase (the "General American
Purchase Option"), at the highest price offered for such Securities by a
prospective third-party purchaser in accordance with the Letter of Intent, the
Securities subject to the Retention Option; provided, however, that in the event
that W&S has given notice that it intends to exercise the Retention Option in
respect of such Securities, General American shall only purchase fifty percent
(50%) of such Securities, or such lesser percentage as may be required to comply
with the limitation imposed by the following sentence hereof. General American
may exercise the General American Purchase Option only to the extent that the
aggregate book value of Securities purchased by General American thereunder does
not exceed $50 million.
9. Ohio Department of Insurance. The Closing shall be subject to the
State of Ohio Department of Insurance releasing Integrity from the Supervision
of the Superintendent and the provision by the State of Ohio Department of
Insurance of written confirmation that, upon Closing, it is aware of no basis
upon which to initiate any receivership proceeding and no statutory basis upon
which a receiver of Integrity, if any, could properly initiate any preference
action with respect to the recapture transaction of the reinsurance agreement
between General American and Integrity.
10. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original and all such counterparts shall together constitute but one and
the same instrument.
11. Further Assurances. The parties hereby agree to execute promptly
any and all supplemental agreements, releases, affidavits, waivers and other
documents
5
<PAGE>
of any nature or kind which any other party hereto may reasonably require in
order to implement the provisions or objectives of this Agreement.
12. Amendment. This Agreement may not be amended, modified, changed,
discharged or terminated, except by an instrument in writing signed by each of
the parties hereto.
13. Effect of Alternative Transaction. Each of the GenAm Parties and
the ARM Parties (except W&S, which in such circumstances shall no longer be a
party to this Agreement) agrees that this Agreement shall remain binding on such
party if an Alternative Transaction, as defined in the Letter of Intent, with a
third party of comparable creditworthiness to W&S is consummated, subject to
such third party, at its option, being substituted for W&S hereunder, and
further subject to such third party imposing no additional liabilities,
obligations or burdens on any such party.
14. Successors and Assigns. This Agreement shall be binding on the
parties hereto and each of their respective successors and assigns.
15. Governing Law. This Agreement shall be governed by the laws of the
State of New York applicable to contracts made and to be performed entirely
within such State.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
GENAMERICA CORPORATION
By: /s/ Robert J. Banstetter
------------------------
Name: Robert J. Banstetter
Title: Vice-President
GENERAL AMERICAN LIFE
INSURANCE COMPANY
By: /s/ Robert J. Banstetter
------------------------
Name: Robert J. Banstetter
Title: Vice-President
ARM FINANCIAL GROUP, INC.
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: President, Retail Bus. Div.
INTEGRITY LIFE INSURANCE
COMPANY
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: President
INTEGRITY HOLDINGS, INC.
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: Officer of the President
7
<PAGE>
NATIONAL INTEGRITY LIFE
INSURANCE COMPANY
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: President
WESTERN AND SOUTHERN LIFE
INSURANCE COMPANY
By: /s/ Robert L. Walker
--------------------
Name: Robert L. Walker
Title: Sr. V.P. and Chief Financial Officer
By: /s/ Donald J. Wuebbling
-----------------------
Sr. VP & Gen. Counsel
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/ Stanley B. Tulin
--------------------
Name: Stanley B. Tulin
Title: Chief Financial Officer
METROPOLITAN LIFE INSURANCE
COMPANY
By: /s/ Salim Manzar
----------------
Name: Salim Manzar
Title: Vice-President
8
Exhibit 10.3
Settlement Agreement
This Settlement Agreement, dated as of December 1, 1999 (this
"Agreement"), among Bank One, NA, formerly known as The First National Bank of
Chicago "Bank One"), ARM Financial Group, Inc., a Delaware corporation ("ARM"),
and Integrity Life Insurance Company, a stock insurance company domiciled in
Ohio ("Integrity").
The Western and Southern Life Insurance Company, a mutual insurance
company domiciled in Ohio ("W&S"), and ARM are entering into a Letter of Intent,
dated December 1, 1999 (the "Letter of Intent"), with respect to a proposed sale
by Integrity Holdings, Inc., a Delaware corporation and wholly-owned subsidiary
of ARM, of Integrity and its wholly-owned subsidiary, National Integrity Life
Insurance Company ("National Integrity"), to W&S (the "Proposed Transaction").
To facilitate the Proposed Transaction, GenAmerica Corporation and
General American Life Insurance Company (collectively, "GenAm") have agreed
that, if the closing of the Proposed Transaction (the "Closing") occurs on or
before March 31, 2000 and ARM contributes $15 million to the capital of
Integrity on or before Closing, then at Closing the promissory note issued to
GenAm by ARM in the principal amount of $38 million will be cancelled, GenAm
will contribute $2 million in cash to Integrity and GenAm will release and
settle its claims against Integrity and National Integrity relating to certain
swaps owed to GenAm. As part of such settlement, The Equitable Life Assurance
Society of the United States ("Equitable") has agreed to contribute $2 million
to Integrity, in exchange for indemnities from W&S in connection with
assignments of certain structured settlement annuities by Integrity and National
Integrity. At Closing, as part of such settlement, GenAm and Equitable will
become entitled to share in certain proceeds of the Purchase Price Escrow
described in the Letter of Intent, after payments to W&S and of certain other
transaction fees and expenses, but before payments to ARM.
In addition, pursuant to a confidential settlement agreement with
another former institutional client of ARM, the principal owed by Integrity to
such client thereunder shall be reduced from $16.4 million to $12 million if the
Closing occurs on or before March 31, 2000.
The Proposed Transaction is subject to the execution of a definitive
purchase agreement between the parties (the "Definitive Purchase Agreement")
and, among other conditions, the filing by ARM of a voluntary petition for
relief under chapter 11 of Title 11 of the United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy
<PAGE>
Court") and the approval by the Bankruptcy Court of the Proposed Transaction
under sections 363 and 365 of the Bankruptcy Code.
Bank One, International Securization Corporation, a bankruptcy-remote
Delaware corporation ("ISC") and Integrity are parties, among others, to a
Termination and Sale Agreement, dated August 27, 1999 (the "Termination
Agreement").
This Agreement is being entered into by the parties in order to induce
ARM and W&S to enter into the Definitive Purchase Agreement and to complete the
Proposed Transaction. The consummation of certain transactions hereunder shall
be subject to satisfaction of the following conditions (the "Conditions"): (a)
the approval by the Bankruptcy Court of the Proposed Transaction under sections
363 and 365 of the Bankruptcy Code, (b) the approval of the Bankruptcy Court of
any such agreements as shall involve ARM including, without limitation, the
releases described in Section 2 below, (c) the approval by appropriate insurance
regulators in the States of Ohio, Missouri and New York, (d) delivery by the
Ohio Department of Insurance of the release and written confirmation required
under Section 3 hereof and (e) satisfactory completion by W&S of its due
diligence investigation and consummation of the Closing on or before March 31,
2000.
Accordingly, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Payments. Subject to satisfaction of the Conditions, at Closing,
Integrity shall pay to Bank One in full satisfaction of Integrity's obligations
to pay the Deferred Amount (as defined in Section 1 of the Termination
Agreement) an amount equal to six million dollars ($6,000,000), together with
interest due under such Section 1 as if the amount due at all times had been six
million dollars ($6,000,000).
2. Releases. Subject to satisfaction of the Conditions, at Closing,
ARM, Integrity Holdings, Inc., and Integrity will release and discharge Bank
One, ISC and their respective affiliates and assigns, and Bank One and ISC will
release and discharge ARM, Integrity and their respective affiliates and
assigns, with respect to all claims, obligations and liabilities of any kind
whatsoever, whether arising under the Bankruptcy Code or otherwise, including,
without limitation, any matter arising under, or relating in any way to, the
Termination Agreement and any of the agreements or transactions entered into
pursuant to the Termination Agreement, except for obligations arising under this
Agreement. Each such release shall be in form and substance satisfactory to Bank
One and ARM.
3. Ohio Department of Insurance. The Closing shall be subject to the
State of Ohio Department of Insurance releasing Integrity from the Supervision
of the Superintendent and the provision by the State of Ohio
<PAGE>
Department of Insurance of written confirmation that, upon Closing, it is aware
of no basis upon which to initiate any receivership proceeding and no statutory
basis upon which a receiver of Integrity, if any, could properly initiate any
preference or fraudulent transfer action with respect to the Termination
Agreement.
4. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original and all such counterparts shall together constitute but one and
the same instrument.
5. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto relating to the matters set forth in Sections 1 through
8 hereof and there are no other agreements between the parties hereto, either
existing or contemplated, written or oral, with respect thereto.
6. Further Assurances. The parties hereby agree to execute promptly any
and all supplemental agreements, releases, affidavits, waivers and other
documents of any nature or kind which any other party hereto may reasonably
require in order to implement the provisions or objectives of this Agreement.
7. Amendment; Successors. This Agreement may not be amended, modified,
changed, discharged or terminated, except by an instrument in writing signed by
each of the parties hereto. This Agreement shall be binding and inure to the
benefit of successors and assigns of the parties. Notwithstanding anything to
the contrary herein, Bank One and ISC agree that the terms of this Agreement
shall remain binding on each of them if a third party submits a higher and
better offer for the assets included in the Proposed Transaction and an
Alternative Transaction (as defined in the Letter of Intent) is consummated with
such third party; provided that Equitable and GenAm have also agreed to remain
bound in such circumstances to the agreements referenced in the recitals above
and provided, further that the former institutional client of ARM remains bound
to the agreement referenced in the recitals above.
8. Governing Law. This Agreement shall be governed by the laws of the
State of Ohio applicable to contracts made and to be performed entirely within
such State.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BANK ONE, NA (f/k/a The First
National Bank of Chicago)
By: /s/ Linda M. Thompson
---------------------
Name: Linda M. Thompson
Title: Senior Vice President
INTERNATIONAL SECURIZATION
CORPORATION
By: /s/ Kirk D. Farney
------------------
Name: Kirk D. Farney
Title: Authorized Signatory
ARM FINANCIAL GROUP, INC.
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: President, Retail Bus Div.
INTEGRITY LIFE INSURANCE
COMPANY
By: /s/ John R. Lindholm
--------------------
Name: John R. Lindholm
Title: President
Exhibit 99.1
PRESS RELEASE
Contact:
Jeannine Bergeron, Director of Corporate Communications
ARM Financial Group, Inc.
(502) 582-7971
e-mail: [email protected]
ARM FINANCIAL GROUP, INC. SIGNS DEFINITIVE AGREEMENT
WITH WESTERN AND SOUTHERN LIFE INSURANCE COMPANY
PR Newswire -
Louisville, KY, December 17, 1999 - ARM Financial Group, Inc. (OTCBB: ARMGA)
today announced that it has signed a definitive agreement whereby Western and
Southern Life Insurance Company (Western and Southern) will acquire the
Company's insurance subsidiaries, Integrity Life Insurance Company and National
Integrity Life Insurance Company.
Western and Southern is part of the Western-Southern Enterprise, a financial
services group which also includes Western-Southern Life Assurance Company,
Columbus Life Insurance Company, Touchstone Advisors, Fort Washington Investment
Advisors, Todd Investment Advisors, Countrywide Financial Services, Capital
Analysts and Eagle Realty Group. Assets owned or under management by the group
exceed $20 billion. Upon completion of this transaction, such assets will total
$25 billion. Western and Southern is rated A++ (Superior) by A.M. Best, AAA
(Highest) by Duff & Phelps, AAA (Extremely Strong) by Standard & Poor's, and Aa2
(Excellent) by Moody's.
The acquisition by Western and Southern will be implemented in a chapter 11 case
to be commenced by ARM under the Bankruptcy Code, subject to the approval of the
Bankruptcy Court. Under the terms of the agreement, the purchase price of
approximately $119 million, which is subject to a number of downward price
adjustments, will be placed in an escrow account for a period of eighteen months
or longer before any remaining proceeds would be distributed. In connection with
the Western and Southern transaction, ARM has also entered into settlement
agreements with certain institutional creditors of ARM and Integrity whereby,
among other things, certain obligations and contingent liabilities of ARM and
its subsidiaries would be extended, released or compromised, subject to the
closing of the transaction with Western and Southern. To the extent that there
are funds remaining in escrow after any downward purchase price adjustments,
certain payments will be made to institutional creditors for a portion of the
obligations that were extended, released or compromised. There can be no
assurance that the net proceeds from the sale (after taking into account the
purchase price adjustments and the escrow provisions relating to the
institutional settlement agreements) will be sufficient to satisfy the claims of
the Company's creditors or enable a distribution to shareholders. The Company
expects to file a Form 8-K with the Securities and Exchange Commission as soon
as possible with respect to these transactions.
<PAGE>
"We are pleased that we have reached an agreement with Western and Southern, one
of the highest rated companies in the industry today," said John R. Lindholm,
president - Integrity Life Insurance Company. "This transaction provides
enhanced value for Integrity and National Integrity policyholders. After the
closing, we would anticipate a dramatic improvement in our credit ratings. We
are particularly grateful to our distributors and policyholders who have
remained loyal and patient throughout this process. Ohio Insurance Director Lee
Covington and his staff have been invaluable in facilitating this sale.
Likewise, New York Superintendent of Insurance Neil Levin and his staff have
been tremendously supportive throughout this process."
The closing of the transaction is subject to the approval of the Ohio Department
of Insurance, the New York Department of Insurance, and the Bankruptcy Court, as
well as to other customary conditions to closing. The transaction is expected to
close late in the first quarter or early in the second quarter of 2000; however,
there can be no assurance as to obtaining the required approvals or the timing
of the closing of the transaction.
This document may include Forward-Looking Statements (as defined in the Private
Securities Litigation Reform Act of 1995) regarding the Company's growth and
earnings prospects. The accuracy of these statements is subject to a number of
business, market, and other factors beyond the Company's control, as
periodically described in our SEC filings, and actual results may be materially
different than such statements suggest. For further information, investors are
referred to the section entitled Forward-Looking Statements of the Company's
most recent Form 10-K, which statements, to the extent applicable, are
incorporated into this press release.
ARM Financial Group, Inc. (www.armfinancial.com) provides annuities through its
insurance subsidiaries, Integrity Life Insurance Company and National Integrity
Life Insurance Company. Retail face-amount certificates are issued through SBM
Certificate Company. ARM Securities Corporation provides broker and product
support. ARM Financial Group, Inc. is headquartered in Louisville, Kentucky.
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