Exhibit 10.1

EXECUTION VERSION

 

 

INVESTMENT AND CONTRIBUTION AGREEMENT

BY AND AMONG

PHOENIX INVESTMENT MANAGEMENT COMPANY,

VIRTUS HOLDINGS, INC.,

HARRIS BANKCORP, INC.

AND

THE PHOENIX COMPANIES, INC.

 

 

Dated as of

October 30, 2008

 

 

 

 

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Table of Contents

 

          Page ARTICLE I DEFINITIONS    1 ARTICLE II CONTRIBUTION; SALE AND
PURCHASE    10    SECTION 2.01. Contribution and Exchange    10    SECTION
2.02. Agreement to Sell and to Purchase; Purchase Price    11    SECTION
2.03. Closings    11 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
   12    SECTION 3.01. Organization and Standing    12    SECTION 3.02. Capital
Stock    13    SECTION 3.03. Authorization; Enforceability    13    SECTION
3.04. No Violation; Consents    14    SECTION 3.05. Financial Statements    14
   SECTION 3.06. Absence of Certain Changes    15    SECTION 3.07. Assets    15
   SECTION 3.08. Intellectual Property    15    SECTION 3.09. No Undisclosed
Material Liabilities    16    SECTION 3.10. Compliance with Laws    17   
SECTION 3.11. No Litigation    18    SECTION 3.12. Compliance with Constituent
Documents    19    SECTION 3.13. Interim Changes    19    SECTION 3.14. Brokers
and Finders    19    SECTION 3.15. Real Property    19    SECTION
3.16. Contracts    19    SECTION 3.17. Regulatory Documents    20    SECTION
3.18. Virtus Funds    21    SECTION 3.19. Assets Under Management; Clients    23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE INVESTOR    24    SECTION
4.01. Organization; Authorization; Enforceability    24    SECTION 4.02. Private
Placement    24    SECTION 4.03. No Violation; Consents    25    SECTION
4.04. No Litigation    25    SECTION 4.05. Financing    25    SECTION
4.06. Ownership of Preferred Stock    25    SECTION 4.07. Brokers and Finders   
26    SECTION 4.08. Tax Liability    26    SECTION 4.09. Compliance with Laws   
26

 

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          Page

ARTICLE V REPRESENTATIONS AND WARRANTIES OF PNX AND PIMCO

   26   

SECTION 5.01. Organization; Authorization; Enforceability

   26   

SECTION 5.02. No Violation; Consents

   27   

SECTION 5.03. No Litigation

   27

ARTICLE VI COVENANTS OF THE COMPANY, PNX AND PIMCO

   27   

SECTION 6.01. Access to Information

   27   

SECTION 6.02. Compliance with Conditions; Reasonable Best Efforts

   28   

SECTION 6.03. Consents and Approvals

   28   

SECTION 6.04. Filing of Certificate of Designations

   29   

SECTION 6.05. Reservation of Shares

   29   

SECTION 6.06. Listing of Shares

   29   

SECTION 6.07. Governance Matters

   29   

SECTION 6.08. Registration Rights

   30   

SECTION 6.09. Additional Financing Right

   30   

SECTION 6.10. Investor Put Right; Company Call Option

   31   

SECTION 6.11. Interim Period Actions

   32   

SECTION 6.12. Equity Awards

   33   

SECTION 6.13. Regulatory Action

   33   

SECTION 6.14. Tax Separation

   34   

SECTION 6.15. Rights Agreement

   34

ARTICLE VII COVENANTS OF THE INVESTOR

   34   

SECTION 7.01. Compliance with Conditions; Reasonable Best Efforts

   34   

SECTION 7.02. Consents and Approvals

   34   

SECTION 7.03. Restrictions on Transfer

   34   

SECTION 7.04. Standstill

   35   

SECTION 7.05. Confidentiality; Information

   37   

SECTION 7.06. Tax Treatment

   38

ARTICLE VIII CONDITIONS PRECEDENT TO THE STEP 1 CLOSING AND STEP 2 CLOSING

   38   

SECTION 8.01. Conditions to the Company’s Obligations in Respect of the Step 1
Closing Date

   38   

SECTION 8.02. Conditions to the Investor’s Obligations in Respect of the Step 1
Closing Date

   39   

SECTION 8.03. Conditions to Each Party’s Obligations in Respect of the Step 2
Closing Date

   39   

SECTION 8.04. Conditions to the Company’s Obligations in Respect of the Step 2
Closing Date

   40   

SECTION 8.05. Conditions to the Investor’s Obligations in Respect of the Step 2
Closing Date

   40

 

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          Page

ARTICLE IX MISCELLANEOUS

   41   

SECTION 9.01. Indemnification

   41   

SECTION 9.02. Survival

   43   

SECTION 9.03. Legends

   43   

SECTION 9.04. Notices

   44   

SECTION 9.05. Termination

   46   

SECTION 9.06. GOVERNING LAW

   46   

SECTION 9.07. WAIVER OF JURY TRIAL

   46   

SECTION 9.08. Entire Agreement

   47   

SECTION 9.09. Modifications and Amendments

   47   

SECTION 9.10. Waivers and Extensions

   47   

SECTION 9.11. Titles and Headings; Rules of Construction

   47   

SECTION 9.12. Exhibits and Schedules

   47   

SECTION 9.13. Press Releases and Public Announcements

   47   

SECTION 9.14. Assignment; No Third-Party Beneficiaries

   48   

SECTION 9.15. Specific Performance

   48   

SECTION 9.16. Severability

   48   

SECTION 9.17. Counterparts

   48

 

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INVESTMENT AND CONTRIBUTION AGREEMENT (this “Agreement”), dated as of
October 30, 2008, by and among PHOENIX INVESTMENT MANAGEMENT COMPANY, a Delaware
corporation (“PIMCO”), VIRTUS HOLDINGS, INC., a Delaware corporation (the
“Company”), HARRIS BANKCORP, INC., a Delaware corporation (the “Investor”), and
THE PHOENIX COMPANIES, INC., a Delaware corporation (“PNX”).

WHEREAS, PIMCO owns all of the shares of common stock, par value $0.01, of
Virtus Investment Partners, Inc., a Delaware corporation (“Virtus” and the
common stock thereof, “Virtus Common Stock”);

WHEREAS, PIMCO desires to contribute (the “Contribution”) to the Company all of
the Virtus Common Stock owned by it in exchange for all of the issued and
outstanding shares of common stock, par value $0.01 per share, of the Company
(“Common Stock”) and all of the issued and outstanding shares of Series A
Non-Voting Participating Convertible Preferred Stock, par value $0.01 per share,
of the Company (the “Series A Preferred Stock”) and Series B Voting
Participating Convertible Preferred Stock, par value $0.01 per share, of the
Company (the “Series B Preferred Stock,” and together with the Series A
Preferred Stock, the “Preferred Stock”);

WHEREAS, immediately after the Contribution, PIMCO desires to sell to the
Investor, and the Investor desires to purchase from PIMCO, subject to the terms
and conditions hereof, all of the Series A Preferred Stock owned by PIMCO;

WHEREAS, PIMCO is a direct wholly-owned subsidiary of PNX;

WHEREAS, PNX and Virtus expect to enter into a Separation Agreement (as defined
herein) whereby, subject to the terms and conditions thereof, PNX will, after
the contribution by PIMCO of all of the outstanding shares of the Company to PNX
in accordance with the Separation Agreement, including the transfer of all the
assets and liabilities of the Virtus Business (as defined herein) and subject to
the terms and conditions of the Separation Agreement, distribute (the
“Distribution”) to PNX’s stockholders all the shares of Common Stock; and

WHEREAS, immediately prior to the Distribution, PIMCO desires to sell to the
Investor, and the Investor desires to purchase from PIMCO, subject to the terms
and conditions hereof, all of the Series B Preferred Stock owned by PIMCO;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows.

ARTICLE I

DEFINITIONS

(a) As used in this Agreement, the following terms shall have the following
meanings:

“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For the purposes of this Agreement, “control” when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.

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“Applicable Law” means (a) any United States Federal, state, local or foreign
law, statute, rule, regulation, order, writ, injunction, judgment, decree or
permit of any Governmental Authority and (b) any rule or listing requirement of
any national stock exchange or Commission recognized trading market on which
securities issued by the Company or any of the Subsidiaries are listed or
quoted.

“Board of Directors” means the board of directors of the Company.

“Business Day” means any day other than a Saturday, a Sunday, or a day when
banks in The City of New York, New York are authorized by Applicable Law to be
closed.

“Capital Stock” means (i) with respect to any Person that is a corporation, any
and all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and (ii) with respect to any other Person, any
and all partnership or other equity interests of such Person.

“Certificate of Designations” means the Certificate of Designations of Series A
Non-Voting Convertible Preferred Stock and Series B Voting Convertible Preferred
Stock of Virtus Holdings, Inc.

“Client” of a Person means any other Person to which such Person or any of its
controlled Affiliates provides investment management or investment advisory
services, including any sub-advisory services, relating to securities or other
financial instruments, commodities, real estate or any other type of asset,
pursuant to an investment advisory arrangement.

“Closing Price” of the Common Stock or any other securities means, as of any
date of determination:

(a) the closing sale price (or if no closing sale price is reported, the last
reported sale price) of shares of the Common Stock or such other securities on
the New York Stock Exchange on that date; or

(b) if the Common Stock or such other securities are not traded on the New York
Stock Exchange on that date, the closing sale price of shares of Common Stock or
such other securities as reported in composite transactions for the principal
U.S. national or regional securities exchange on which the Common Stock or such
other securities are so traded on that date (or, if no closing sale price is
reported, the last reported sale price of shares of the Common Stock or such
other securities on the principal U.S. national or regional securities exchange
on which the Common Stock or such other securities are so traded on that date);
or

 

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(c) if the Common Stock or such other securities are not traded on a U.S.
national or regional securities exchange on that date, the last quoted bid price
on that date for the Common Stock or such other securities in the
over-the-counter market as reported by Pink OTC Markets Inc. or a similar
organization; or

(d) if the Common Stock or such other securities are not so quoted by Pink OTC
Markets Inc. or a similar organization on that date, the market price of the
Common Stock or such other securities on that date as determined by a nationally
recognized independent investment banking not affiliated with the Company
retained by the Company for this purpose.

For the purposes of this Agreement, all references herein to the closing sale
price and the last reported sale price of the Common Stock on the New York Stock
Exchange shall be such closing sale price and last reported sale price as
reflected on the website of the New York Stock Exchange (www.nyse.com) and as
reported by Bloomberg Professional Service; provided that in the event that
there is a discrepancy between the closing sale price and the last reported sale
price as reflected on the website of the New York Stock Exchange and as reported
by Bloomberg Professional Service, the closing sale price and the last reported
sale price on the website of the New York Stock Exchange shall govern.

If during a period applicable for calculating the Closing Price of Common Stock
or any other security any event occurs that requires an adjustment to the
Conversion Rate (as defined in the Certificate of Designations), the Closing
Price of the Common Stock or such other security shall be calculated for such
period in a manner determined by the Company in good faith and in accordance
with the provisions of the Certificate of Designations to appropriately reflect
the impact of such event on the price of the Common Stock or such other security
during such period.

“Code” means the Internal Revenue Code of 1986, as amended.

“Commission” means the United States Securities and Exchange Commission.

“Commodity Exchange Act” means the Commodity Exchange Act, as from time to time
amended, and the rules and regulations of the Commission promulgated thereunder.

“Common Stock” has the meaning set forth in the recitals to this Agreement and,
unless the context otherwise requires, includes the associated Series C Junior
Participating Preferred Stock purchase rights issuable in respect of such shares
pursuant to the Rights Agreement.

“Common Stock-Equivalent Security” means securities of the Company more than 50%
of the principal amount, liquidation preference or stated value of which is
convertible into or exchangeable or exercisable for, shares of Common Stock. Any

 

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offerings of units of multiple securities, one or more of which securities is
Common Stock or a Common-Stock-Equivalent Security, shall not constitute an
offering of Common Stock-Equivalent Securities unless more than 50% of the
aggregate principal amount, liquidation preference and/or stated value of all
securities comprising such unit is attributable to Common Stock or is
convertible into or exchangeable or exercisable for, shares of Common Stock.

“Compensation Committee of the Company”, means the compensation committee of the
Company, one of the members of which will be Investor Designate.

“Competitor” means any investment adviser registered or licensed under
Applicable Law, including without limitation the Investment Advisers Act,
engaged primarily in sponsoring or managing retail mutual funds in the United
States and having aggregate assets under management in excess of $40 billion
located anywhere in the world.

“Contract” means any contract, lease, loan agreement, mortgage, security
agreement, trust indenture, note, bond, license or other agreement (whether
written or oral) or instrument.

“Conversion Shares” means the shares of Common Stock issuable upon the
conversion of the Series A Preferred Stock and Series B Preferred Stock in
accordance with the terms of the Certificate of Designations.

“Draft Form 10” means the amended registration statement on Form 10 filed by the
Company with the Commission on September 10, 2008 in connection with the
Distribution (and all exhibits and schedules thereto and documents incorporated
by reference therein).

“Effective Date” means the date the Form 10 is first declared effective by the
Commission and eligible to be mailed to PNX’s stockholders.

“Exchange Act” means the Securities Exchange Act of 1934, as from time to time
amended, and the rules and regulations of the Commission promulgated thereunder.

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as
amended, and the rules, regulations and class exemptions of the U.S. Department
of Labor thereunder.

“Form 10” means the registration statement on Form 10 filed by the Company with
the Commission in connection with the Distribution (and all exhibits and
schedules thereto and documents incorporated by reference therein), as amended
through the Effective Date.

“Fund Board Approval” means the approval by the board of directors or board of
trustees of each fund of the Company or its applicable Subsidiary that is
registered as an investment company under the Investment Company Act of a new
investment advisory contract with the Company or its applicable Subsidiary in
accordance with Section 15 of the Investment Company Act.

 

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“Fund Financial Statements” means the financial statements of each Virtus Fund
for the three (3) most recently completed fiscal years and the most recent
semi-annual period, if any, including a statement of net assets or statement of
assets and liabilities and schedule of investments, a statement of operations
and a statement of changes in net assets and, in the case of such year-end
statements, together with a report by such Virtus Fund’s independent registered
public accounting firm.

“Fund Shareholder Approval” means the approval by the shareholders of each fund
of the Company or its applicable Subsidiary that is registered as an investment
company under the Investment Company Act of a new investment advisory contract
with the Company or its applicable Subsidiary in accordance with Section 15 of
the Investment Company Act.

“GAAP” means United States generally accepted accounting principles,
consistently applied.

“Governmental Authority” means (i) any foreign, Federal, state or local court or
governmental or regulatory agency or authority, (ii) any arbitration board,
tribunal or mediator and (iii) any national stock exchange or Commission
recognized trading market on which securities issued by the Company or any of
the Subsidiaries are listed or quoted.

“Intellectual Property” means any patent (including all reissues, divisions,
continuations and extensions thereof), patent application, patent right,
trademark, trademark registration, trademark application, servicemark, trade
name, business name, brand name, logo, all other source indicators and all good
will associated therewith and symbolized thereby, work of authorship in any
media, copyright, copyright registration, design, design registration, software,
firmware, trade secret, license, customer list, confidential and proprietary
information, proprietary technology, know-how, invention, discovery,
improvement, process or formula or any right to any of the foregoing, and all
other forms of intellectual property.

“Investment Advisers Act” means the Investment Advisers Act of 1940, as amended
from time to time amended, and the rules and regulations of the Commission
promulgated thereunder.

“Investment Company Act” means the Investment Company Act of 1940, as from time
to time amended, and the rules and regulations of the Commission promulgated
thereunder.

“knowledge of the Company” means the knowledge of George Aylward, Frank Waltman,
Steve Neamtz, Nancy Curtiss, Michael Angerthal, David Hanley, Patrick Bradley,
Kevin Carr, Nancy Engberg and Bonnie Malley (with respect to human resources
only).

 

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“LIBOR” means the rate per annum determined by the Investor by reference to the
British Bankers’ Association for three-month deposits in U.S. dollars (as set
forth by any service selected by the Investor that has been nominated by the
British Bankers’ Association as an authorized information vendor for the purpose
of displaying such rates).

“Lien” means any mortgage, pledge, lien, security interest, claim, restriction,
charge or encumbrance of any kind.

“Material Adverse Effect” means any circumstance, event, change, development or
effect that, individually or in the aggregate, (1) is or would be material and
adverse to the business, assets, results of operations or financial condition of
the Company and the Subsidiaries, taken as a whole, or (2) would have a material
adverse effect on the ability of the Company to timely perform its obligations
under this Agreement; provided, however, that in determining whether a Material
Adverse Effect has occurred, there shall be excluded any effect to the extent
resulting from the following: (A) changes in generally accepted accounting
principles or regulatory accounting principles generally applicable to banks,
savings associations or their holding companies, (B) changes in laws, rules and
regulations of general applicability or interpretations thereof by any
Governmental Authority, (C) actions or omissions of the Company expressly
required by the terms of this Agreement or taken with the prior written consent
of the Investor, (D) changes in general economic, monetary or financial
conditions, including changes in prevailing interest rates and credit markets,
(E) changes in the market price or trading volumes of the Common Stock or the
Company’s other securities (but not the underlying causes of any such changes),
(F) the failure of the Company to meet any internal or public projections,
forecasts, estimates or guidance for any period ending on or after June 30, 2008
(but not the underlying causes of any such failure), (G) changes in global or
national political conditions, including the outbreak or escalation of war or
acts of terrorism, and (H) the public disclosure of this Agreement or the
Transactions; except, with respect to clauses (A), (B), (D) and (G) to the
extent that the effects of such changes have a disproportionate effect on the
Company and the Subsidiaries, taken as a whole, relative to other asset
management businesses generally.

“Permitted Liens” means (i) mechanics’, carriers’, workmen’s, repairmen’s or
other like Liens arising or incurred in the ordinary course of business, Liens
arising under original purchase price conditional sales contracts and equipment
leases with third parties entered into in the ordinary course of business and
liens for taxes that are not due and payable or that may thereafter be paid
without penalty, (ii) Liens that secure obligations that are reflected as
liabilities in the Company Financial Statements or Liens the existence of which
is referred to in the notes to the Company Financial Statements,
(iii) imperfections of title or easements, covenants, rights-of-way and
encumbrances, if any, that, individually or in the aggregate, do not materially
impair, and could not reasonably be expected materially to impair, the continued
use and operation of the assets to which they relate in the conduct of the
Virtus Business as presently conducted, and (iv) (A) zoning, building and other
similar legal restrictions, (B) Liens that have been placed by any developer,
landlord or other third party on property over which the Company or any
Subsidiary has easement rights or on any leased property and subordination or

 

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similar agreements relating thereto and (C) unrecorded easements, covenants,
rights-of-way and other similar restrictions, which, individually or in the
aggregate, do not materially impair, and could not reasonably be expected to
materially impair, the continued use and operation of the assets to which they
relate in the conduct of the Virtus Business as presently conducted.

“Person” means any individual, partnership, corporation, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity.

“Policies and Procedures” means the investment policies approved by the board of
trustees or board of directors of a Virtus Fund or reflected in a Virtus Fund’s
registration statement under the Securities Laws or any policies or procedures
adopted by a Virtus Fund, whether pursuant to Rule 38a-1 under the Investment
Company Act, other Applicable Law or otherwise, or by any Virtus Investment
Adviser pursuant to Rule 206(4)-7 under the Investment Advisers Act, other
Applicable Law or otherwise, with respect to the management of the Virtus Funds.

“Regulatory Documents” means all reports, registration statements and other
documents, together with any amendments required to be made with respect
thereto, that are filed, or required to be filed, by law, by contract or
otherwise with any Governmental Authority.

“Regulatory Issue” means a situation or event that would trigger any of the
following: (i) the Company or any of the Subsidiaries becoming ineligible
pursuant to Section 9(a) or 9(b) of the Investment Company Act to serve as an
investment adviser (or in any other capacity contemplated by the Investment
Company Act) to a registered investment company, including any action,
proceeding or investigation pending or threatened by any Governmental Authority,
which would result in the ineligibility of any of the Company or the
Subsidiaries to serve in such capacities; (ii) the Company or any of the
Subsidiaries becoming ineligible pursuant to Section 203(e) or (f) of the
Investment Advisers Act to serve as an investment adviser or as an associated
person of a registered investment adviser, as applicable, or to be subject to
statutory disqualification with respect to membership or participation in, or
association with a member of a self-regulatory organization as defined in
Section 3(a)(39) of the Exchange Act or disqualification for any other reason
pursuant to such act or similar provisions under other securities and
commodities laws; (iii) any regulated Subsidiary having to disclose the
occurrence or existence of any event referenced in the foregoing clause (i) or
(ii), including, without limitation, disclosure required in any prospectus,
Forms ADV or BD or any form required for licensing and registration as a
commodity trading adviser or commodity pool operator under the Commodity
Exchange Act, which disclosure could reasonably be expected to have an adverse
effect on the Company or the Subsidiaries; (iv) the imposition of any
“affiliated transactions” restrictions under Section 17 of the Investment
Company Act on the Company or any of the Subsidiaries (other than any such
restrictions arising from the Investor’s ownership of any equity of the Company)
that would constitute a material burden on the Company and the Subsidiaries; or
(v) an “assignment” of investment advisory contracts of the Company or any of
the Subsidiaries

 

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under the Investment Company Act or the Investment Advisers Act, unless the Fund
Board Approvals and Fund Shareholder Approvals have been obtained for such
transaction.

“Representatives” means, collectively, with respect to any Person, such Person’s
directors, partners, officers, employees, financial advisors, lenders,
accountants, attorneys, agents, equity investors, controlled Affiliates and
controlling persons of such Person or its controlled Affiliates.

“Rights Agreement” means the Rights Agreement of the Company, to be dated on or
about the date of Distribution.

“Securities Act” means the Securities Act of 1933, as from time to time amended,
and the rules and regulations of the Commission promulgated thereunder.

“Securities Laws” means the Securities Act; the Exchange Act; the Investment
Company Act; the Investment Advisers Act; the Trust Indenture Act of 1939, as
amended; the published rules and regulations of the Commission promulgated under
any of the foregoing statutes; and the securities or “blue sky” laws of any
state or territory of the United States.

“Separation Agreement” means the Separation, Plan of Reorganization and
Distribution Agreement between PNX and the Company to be entered into in
connection with the Distribution.

“Series A Preferred Stock” has the meaning set forth in the recitals to this
Agreement. The Series A Preferred Stock has the designation, powers, preferences
and rights, and qualifications, limitations and restrictions thereof set forth
in the Certificate of Designations.

“Series B Preferred Stock” has the meaning set forth in the recitals to this
Agreement. The Series B Preferred Stock has the designation, powers, preferences
and rights, and qualifications, limitations and restrictions thereof set forth
in the Certificate of Designations.

“subsidiary” means, with respect to any Person, (i) a corporation a majority of
whose capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such Person, by a
subsidiary of such Person, or by such Person and one or more subsidiaries of
such Person, (ii) a partnership in which such Person or a subsidiary of such
Person is, at the date of determination, a general partner of such partnership
and has the power to direct the policies and management of such partnership, or
(iii) any other Person (other than a corporation) in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, has (A) at
least a majority ownership interest or (B) the power to elect or direct the
election of a majority of the directors or other governing body of such Person.

 

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“Subsidiary” means a subsidiary of the Company, including any subsidiary of
Virtus that will be transferred to the Company in connection with the
Contribution.

“Tax Returns” means any return, report, information statement, schedule or other
document (including any related or supporting information) required to be filed
with any taxing authority with respect to Taxes, including information returns,
claims for refunds of Taxes and any amendments or supplements to any of the
foregoing.

“Taxes” means all federal, provincial, territorial, state, municipal, local,
foreign or other taxes, imposts, levies or other like assessments or charges
including all income, franchise, gains, capital, real property, goods and
services, transfer, value added, gross receipts, windfall profits, severance, ad
valorem, personal property, production, sales, use, license, stamp, documentary
stamp, mortgage recording, excise, employment, payroll, social security,
unemployment, disability, estimated or withholding taxes, and all customs and
import duties, together with any interest, additions, fines or penalties with
respect thereto or in respect of any failure to comply with any requirement
regarding Tax Returns and any interest in respect of such additions, fines or
penalties.

“Transactions” means the transactions contemplated by this Agreement.

“Virtus Business” has the meaning set forth in the Separation Agreement with
respect to “Spinco Business”.

“Virtus Fund” means any investment company registered under the Investment
Company Act for which the Company or any Subsidiary acts as an investment
adviser, sponsor or distributor.

“Virtus Investment Advisor” means each of the Subsidiaries listed on Schedule
1(a).

(b) As used in this Agreement, the following terms shall have the meanings given
thereto in the Sections set forth opposite such terms:

 

Term

  

Section

Additional Financing Right    6.09(a) Beneficial Ownership    7.04(f)
Beneficially Own    7.04(f) BMO Group    6.13(a) Board Representative    6.07(a)
Call Closing Date    6.10(b) Call Option    6.10(b) Call Price    6.10(b)
Company    Preamble Company Financial Statements    3.05(a) Company Intellectual
Property    3.08(a) Contribution    Recitals De Minimis Claim    9.01(d)

 

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Term

  

Section

DGCL    3.02(d) Disclosing Party    7.05(b) Distribution    Recitals Fund
Agreements    3.18(b)(i) Fund Reports    3.18(b)(ii) HIM    4.09 Indemnified
Party    9.01(c) Indemnifying Party    9.01(c) Investor    Preamble Investor
Designate    6.07(a) Losses    9.01(a) Material Contract    3.16(a) New
Preferred Stock    6.09(a) PIMCO    Preamble Plan    6.12 PNX    Preamble
Preferred Stock    Recitals Put Closing Date    6.10(a) Put Price    6.10(a) Put
Right    6.10(a) Qualifying Issuance    6.09(a) Qualifying Ownership Interest   
6.01 Series A Exchange    2.02(b) Step 1 Closing    2.03(a) Step 1 Closing Date
   2.03(a) Step 1 Sale    2.02(a) Step 2 Closing    2.03(a) Step 2 Closing Date
   2.03(a) Step 2 Sale    2.02(b) Threshold Amount    9.01(d) Transfer   
7.03(a) Virtus    Recitals Virtus Broker Dealer Subsidiary    3.10(b) Virtus
Common Stock    Recitals Voting Securities    7.04(f)

ARTICLE II

CONTRIBUTION; SALE AND PURCHASE

SECTION 2.01. Contribution and Exchange. Upon the terms and subject to the
conditions set forth in this Agreement, on the Step 1 Closing Date, PIMCO will
contribute to the Company all of the Virtus Common Stock held by PIMCO in
exchange for 770,000 shares of Common Stock, 9,783 shares of Series A Preferred
Stock and 35,217 shares of Series B Preferred Stock.

 

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SECTION 2.02. Agreement to Sell and to Purchase; Purchase Price. (a) Upon the
terms and subject to the conditions set forth in this Agreement, on the Step 1
Closing Date, PIMCO shall sell to the Investor, and the Investor shall purchase
and accept from PIMCO, 9,783 shares of Series A Preferred Stock (the “Step 1
Sale”), for an aggregate purchase price, payable by wire transfer of immediately
available funds to a bank account or bank accounts designated by PIMCO, equal to
$1.00.

(b) Immediately prior to the Distribution and upon the terms and subject to the
conditions set forth in this Agreement, on the Step 2 Closing Date, PIMCO shall
sell to the Investor, and the Investor shall purchase and accept from PIMCO,
35,217 shares of Series B Preferred Stock (the “Step 2 Sale”), for an aggregate
purchase price, payable by wire transfer of immediately available funds to a
bank account or bank accounts designated by PIMCO, equal to $35 million.
Concurrently with the Step 2 Sale, the Investor will exchange all of the Series
A Preferred Stock received by it in the Step 1 Sale for an additional 9,783
shares of Series B Preferred Stock (the “Series A Exchange”). After giving
effect to the Step 2 Sale and the Series A Exchange, the Investor will own in
the aggregate 45,000 shares of Series B Preferred Stock.

SECTION 2.03. Closings. (a) Subject to the satisfaction or waiver of the
conditions set forth in this Agreement, (i) the closing of the Contribution and
Step 1 Sale (the “Step 1 Closing”) shall occur at 9:30 a.m., New York time, on
or before October 31, 2008, except as otherwise agreed by the parties, and
(ii) the closing of the Step 2 Sale and Series A Exchange (the “Step 2 Closing”)
shall occur immediately after the consummation of the Distribution, provided
that, in each case, if such conditions have not been so satisfied or waived on
such applicable date, the Step 1 Closing and Step 2 Closing shall occur on the
first business day after the satisfaction or waiver (by the party entitled to
grant such waiver) of the conditions to the Step 1 Closing and Step 2 Closing
set forth in this Agreement (other than those conditions that by their nature
are to be satisfied at the Step 1 Closing or Step 2 Closing, as the case may be,
but subject to fulfillment or waiver of those conditions), at the offices of
Simpson Thacher & Bartlett LLP located at 425 Lexington Avenue, New York, New
York 10017 or such other date or location as agreed by the parties. The date of
the Step 1 Closing is referred to as the “Step 1 Closing Date.” The date of the
Step 2 Closing is referred to as the “Step 2 Closing Date.”

(b) On the Step 1 Closing Date:

 

  (i) PIMCO shall deliver to the Company all of the Virtus Common Stock held by
PIMCO and the stock certificates representing the Virtus Common Stock held by
PIMCO.

 

  (ii) The Company shall deliver to PIMCO duly executed stock certificates,
registered in PIMCO’s name and representing 770,000 shares of Common Stock,
9,783 shares of Series A Preferred Stock and 35,217 shares of Series B Preferred
Stock.

 

  (iii) The Investor shall deliver to the Company the officer’s certificate of
the Investor contemplated by Section 8.01(d).

 

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  (iv) Each of the Company, PNX and PIMCO shall deliver to the Investor the
officer’s certificate of the Company, PNX and PIMCO, respectively, contemplated
by Section 8.02(f).

 

  (v) PIMCO shall deliver to the Investor certificates representing 9,783 shares
of Series A Preferred Stock.

On the Step 2 Closing Date:

 

  (i) The Investor shall deliver to PIMCO all of the shares of Series A
Preferred Stock received by it in the Step 1 Sale.

 

  (ii) PIMCO shall deliver to the Investor certificates representing 35,217
shares of Series B Preferred Stock.

 

  (iii) The Investor shall deliver to the Company the officer’s certificate of
the Investor contemplated by Section 8.04(b).

 

  (iv) Each of the Company, PNX and PIMCO shall deliver to the Investor the
officer’s certificate of the Company, PNX and PIMCO, respectively, contemplated
by Section 8.05(e).

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF THE COMPANY

The Company hereby represents and warrants to the Investor on the date hereof as
follows:

SECTION 3.01. Organization and Standing. (a) The Company is duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted and as proposed
to be conducted immediately following the Distribution. The Company has
furnished to the Investor true and correct copies of the Company’s certificate
of incorporation and by-laws as amended through the date of this Agreement and
true and correct copies of the Company’s certificate of incorporation and
by-laws in substantially the form as will be in effect as of the Distribution
(exclusive of the certificate of designations to be filed in connection with the
Rights Agreement).

(b) Each direct and indirect material Subsidiary will, at the time of the
Distribution, be duly incorporated, validly existing and, where applicable, in
good standing under the laws of its jurisdiction of incorporation and have all
requisite power and authority to own its properties and assets and to carry on
its business as it is proposed to be conducted immediately following the
Distribution, and each such material Subsidiary and the Company will be
qualified to transact business, and will be in good standing, in each
jurisdiction and under the laws of such

 

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jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary except
in all cases as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as set forth in Schedule
3.01, (i) all of the outstanding shares of capital stock of each such material
Subsidiary are validly issued, fully paid, nonassessable and free of preemptive
rights and upon consummation of the Contribution will be owned directly or
indirectly by the Company and (ii) there are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting or transfer of any shares of capital stock of any such material
Subsidiary, including any right of conversion or exchange under any outstanding
security, instrument or agreement.

SECTION 3.02. Capital Stock. (a) The authorized Capital Stock of the Company
immediately following the Distribution will consist solely of (i) 5,750,000
shares of Common Stock, which may be amended based on any distribution ratio
established by PNX for the Distribution, and (ii) no shares of preferred stock
are issued or outstanding, prior to the issuance of the Preferred Stock as
contemplated by this Agreement. Each share of Capital Stock of the Company
(including without limitation the Preferred Stock) will be, as of the date or
dates of their issuance, duly authorized and, when issued and delivered in
accordance with this Agreement, will be duly and validly issued and fully paid
and nonassessable, and the issuance thereof will not be subject to any
preemptive or similar rights or made in violation of any Applicable Law.
Immediately after the Distribution, the number of outstanding shares of Common
Stock will be 770,000 and the number of shares of Common Stock into which all of
the shares of the outstanding shares of Preferred Stock are convertible shall be
230,000.

(b) Except as set forth on Schedule 3.02, there are (i) no outstanding options,
warrants, agreements, conversion rights, exchange rights, preemptive rights or
other rights (whether contingent or not) to subscribe for, purchase or acquire
any issued or unissued shares of Capital Stock of the Company or any Subsidiary
and (ii) no restrictions upon, or Contracts or understandings of the Company or
any Subsidiary with respect to, the voting or transfer of any shares of Capital
Stock of the Company or any Subsidiary.

(c) Prior to the Step 1 Closing Date, the Conversion Shares will have been duly
authorized and adequately reserved in contemplation of the conversion of the
Series A Preferred Stock and Series B Preferred Stock and, when issued and
delivered in accordance with the terms of the Certificate of Designations, will
have been duly and validly issued and will be fully paid and nonassessable, and
the issuance thereof will not have been subject to any preemptive or similar
rights or made in violation any Applicable Law.

(d) The holders of the Series A Preferred Stock and the Series B Preferred Stock
will, upon issuance thereof, have the rights set forth in the Certificate of
Designations (subject to the limitations and qualifications set forth therein
and under the General Corporation Law of the State of Delaware (the “DGCL”)).

SECTION 3.03. Authorization; Enforceability. The Company has the power and
authority to execute, deliver and perform the terms and provisions of this
Agreement, and has taken all action necessary to authorize the execution,
delivery and performance by it of this Agreement and to consummate the
Transactions. No other corporate proceeding on the part of

 

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the Company or its stockholders is necessary for such authorization, execution,
delivery and consummation. The Company has duly executed and delivered this
Agreement and, assuming the due authorization, execution and delivery by the
other parties hereto, constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.

SECTION 3.04. No Violation; Consents. (a) The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the Transactions do not and will not violate, conflict with, result in a
breach of or contravene in any material respect any Applicable Law. Except as
set forth on Schedule 3.04, the execution, delivery and performance by the
Company of this Agreement and the consummation of the Transactions will not
(i)(A) violate, conflict with, result in a breach of or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any Contract to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of the assets of the Virtus Business will be
subject immediately following the Distribution, or (B) result in the right of
termination, acceleration of or creation or imposition of any Lien upon any of
the properties or assets of the Virtus Business, except for any such violations,
conflicts, breaches or defaults that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect and
(ii) conflict with or violate any provision of the certificate of incorporation
or bylaws or other governing documents of the Company or any Subsidiary.

(b) Except for (i) applicable filings, if any, with the Commission pursuant to
the Exchange Act, including without limitations the Form 10, (ii) filings under
state securities or “blue sky” laws and (iii) filing of the Certificate of
Designations with the Secretary of State of the State of Delaware, no notice to,
exemption or review by, consent, authorization approval or order of, or filing
or registration with, any Governmental Authority or other Person is required to
be obtained or made by the Company, or any Subsidiary for the execution,
delivery and performance of this Agreement or the consummation of the
Transactions, except where the failure to obtain such consents, authorizations
or orders, or make such filings or registrations, would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

SECTION 3.05. Financial Statements. (a) The historical financial statements of
the Company and the Subsidiaries (including any related notes or schedules)
included in the Draft Form 10 (the “Company Financial Statements”) were prepared
in accordance with GAAP applied on a consistent basis (except as may be
disclosed therein). The Company Financial Statements fairly present in all
material respects the combined financial position of the Company and the
Subsidiaries as of the respective dates thereof and the results of operations,
cash flows and changes in invested equity for the respective periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end audit adjustments on a basis comparable with past periods).

(b) The books and records of the Virtus Business have been maintained in
accordance with good business practices. Except as otherwise described in the
Draft Form 10, the Unaudited Pro Forma Consolidated Balance Sheet as of June 30,
2008 included in the Draft Form 10 does not reflect any material asset that is
not intended to constitute a part of the Virtus

 

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Business after giving effect to the Transactions (excluding routine dispositions
of investment assets in the ordinary course of business consistent with past
practice), and the Unaudited Pro Forma Consolidated Statements of Operations for
the six months ended June 30, 2008 and for the year ended December 31, 2007
included in the Draft Form 10 do not reflect the results of any material
operations of any Person that are not intended to constitute a part of the
Virtus Business after giving effect to the Transactions. Except as otherwise
described in the Draft Form 10 or in Schedule 3.05(b), such consolidated
statements of operations reflect all material costs that historically have been
incurred in connection with the operation of the Virtus Business.

(c) The Company and the Subsidiaries maintain in all material respects internal
controls over financial reporting to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP, including policies and procedures
that (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of
the Company and the Subsidiaries, (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that receipts and expenditures of the
Company and the Subsidiaries are being made only in accordance with
authorizations of management and directors of the Company and the Subsidiaries
and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the assets of the Company and
the Subsidiaries that could have a material effect on the financial statements.

SECTION 3.06. Absence of Certain Changes. Except as disclosed in the Draft Form
10, since June 30, 2008 until the date hereof, no event or events have occurred
that has had or would reasonably be expected to have a Material Adverse Effect.

SECTION 3.07. Assets. Except as set forth in Schedule 3.07, the Company and the
Subsidiaries own and have or, immediately following the Distribution will own
and have, good, valid and marketable title to, or a valid leasehold interest in,
or otherwise have or, immediately following the Distribution will have,
sufficient and legally enforceable rights to use without any increase in payment
therefor, all of the properties and assets (real, personal or mixed, tangible or
intangible) used or held for use in connection with, reasonably necessary for
the conduct of, or otherwise material to the operations of the Virtus Business,
free and clear of all Liens, except for Permitted Liens. This Section 3.07 does
not apply to Intellectual Property (for which Section 3.08 is applicable).

SECTION 3.08. Intellectual Property. (a) Except as set forth in Schedule 3.08
and except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, (i) the Company and each Subsidiary
owns or has sufficient rights to use all the Intellectual Property used in the
conduct of the Virtus Business (the “Company Intellectual Property”) free and
clear of any Liens and the consummation of the Transactions will not conflict
with, alter, impair or terminate any of such rights, (ii) to the knowledge of
the Company, the registered Intellectual Property owned by the Company and any
of the Subsidiaries is valid, subsisting and enforceable, (iii) to the knowledge
of the Company, the use of any licensed Company Intellectual Property by the
Company and the Subsidiaries, as licensee and the use of any other Company
Intellectual Property the use of which by the Company or any Subsidiary is
governed by a Contract with a third-party is and, will, immediately following
the

 

15

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Distribution be, in accordance in all material respects with the applicable
license or Contract pursuant to which the entities conducting the Virtus
Business acquired the right to use such Company Intellectual Property, (iv) the
Company and the Subsidiaries are not infringing, misappropriating or otherwise
violating the Intellectual Property rights of others and since January 1, 2005,
neither the Company nor any of the Subsidiaries has received any written
notification that the Virtus Business or the Company Intellectual Property has
infringed upon, misapproproiated or violated the Intellectual Property rights of
others, (v) to the knowledge of the Company, no Company Intellectual Property is
being infringed, misappropriated or violated by others; and (vi) to the
knowledge of the Company, no Company Intellectual Property is being used or
enforced by the Virtus Business, the Company or any Subsidiary in a manner that
would reasonably be expected to result in the abandonment, cancellation or
unenforceability of any Company Intellectual Property.

(b) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, the Company and the Subsidiaries
take reasonable steps to maintain, police, preserve and protect the Company
Intellectual Property including such Intellectual Property that is confidential
in nature.

(c) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, the computers, software, systems,
databases, networks and other information technology equipment of the Company
and each Subsidiary operate and perform in all material respects as required to
conduct the Virtus Business and have not materially failed or malfunctioned
within the past 3 years. The Company and the Subsidiaries have implemented or
are implementing reasonable disaster recovery and back up technology.

(d) None of the software owned by the Company or the Subsidiaries contains or is
distributed with any shareware, open source code or other software whose use or
distribution is under a license that requires the Company and/or any of its
Subsidiaries to do any of the following: (i) disclose or distribute such
software owned by the Company and/or any of the Subsidiaries in source code
form, (ii) authorize the licensee of such software to make derivative works
thereof or (iii) distribute such software at no costs to the recipient.

SECTION 3.09. No Undisclosed Material Liabilities. Except as disclosed on
Schedule 3.09 or in the Draft Form 10, there are no liabilities of the Virtus
Business, the Company or the Subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other than
(i) liabilities disclosed, reflected or reserved against in the balance sheet of
the Company and the Subsidiaries dated as of June 30, 2008 (and the notes
thereto) included in the Draft Form 10 or in the “Management’s Discussion and
Analysis of Financial Condition and Results of Operation” section of the Draft
Form 10, (ii) liabilities incurred in the ordinary course consistent with past
practice since June 30, 2008, (iii) liabilities arising under this Agreement,
(iv) liabilities not required by GAAP to be recognized or disclosed on a
consolidated balance sheet of the Company and its consolidated Subsidiaries or
in the notes thereto, provided, in the case of clauses (ii) and (iv) above, that
any such liability would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, and (v) liabilities to be retained
by PNX.

 

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SECTION 3.10. Compliance with Laws. (a) The Virtus Business, the Company and the
Subsidiaries have been conducted and are in compliance in all material respects
with all Applicable Laws, except for instances of noncompliance that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect.

(b) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, (i) each Virtus Investment Advisor
is duly registered as an investment adviser under the Investment Advisers Act
and under the securities laws of each jurisdiction where the conduct of its
business requires such registration, licensing or qualification (and has been so
registered at all times when it has been required under Applicable Law to be so
registered) and is in compliance with federal, state and foreign laws requiring
such registration, licensing or qualification or is subject to no material
liability or disability by reason of the failure to be so registered, licensed
or qualified in any such jurisdiction or to be in such compliance and
(ii) neither the Company nor any Subsidiary (other than the Virtus Investment
Advisors), is required to be registered, licensed or qualified as an investment
adviser under any Applicable Law including the laws requiring any such
registration, licensing or qualification in any jurisdiction in which it or such
other subsidiaries conduct business. The Company has no investment advisors
(other than the Virtus Investment Advisors) whether registered under the
Investment Advisers Act or not. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, (i) Phoenix
Equity Planning Corporation (the “Virtus Broker Dealer Subsidiary”) is, and has
been at all times during the prior six years, duly registered, licensed or
qualified as a broker-dealer under the Exchange Act, and under the securities
laws of each jurisdiction where the conduct of its business requires such
registration, licensing or qualification, and is in compliance with federal,
state and foreign laws requiring such registration, licensing or qualification
or is subject to no material liability or disability by reason of the failure to
be so registered, licensed or qualified in any such jurisdiction or to be in
such compliance and (ii) the Virtus Broker Dealer Subsidiary is a member in good
standing of the Financial Industry Regulatory Authority and each other
self-regulatory organization where the conduct of its business requires such
membership. Neither the Company nor any of the Subsidiaries (other than the
Virtus Broker Dealer Subsidiary) is required to be registered, licensed or
qualified as a broker-dealer under any Applicable Law including the laws
requiring any such registration, licensing or qualification in any jurisdiction
in which it or such other Subsidiaries conduct business, except where the
failure to be so registered, licensed or qualified would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

(c) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, each of the Company, the
Subsidiaries (including the Virtus Investment Advisers) and each of its
predecessors, if any, in the conduct of the Virtus Business has at all times
rendered investment advisory services to all Clients, including the Virtus
Funds, in compliance with all applicable requirements as to portfolio
composition and portfolio management, including the terms of any and all
applicable investment advisory agreements, written instructions from the Virtus
Funds, including the applicable Policies and Procedures, the organizational
documents of the Virtus Funds, applicable Regulatory Documents, board of
director or trustee directives (if applicable) and Applicable Law. The Company
or the Subsidiaries has not taken (or failed to take) any action that would be
inconsistent in any material respect with any of the Virtus Funds’ prospectuses
and other offering, advertising and marketing materials.

 

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(d) None of the Virtus Investment Advisers or any “affiliated person” (as
defined in the Investment Company Act) of any of them is (taking into account
any applicable exemption) ineligible pursuant to Section 9(a) or 9(b) of the
Investment Company Act to serve as an investment adviser (or in any other
capacity contemplated in the Investment Company Act) to a Virtus Fund, and there
is no proceeding pending and served or, to the knowledge of the Company, pending
and not served, or threatened by any Governmental Authority, which would result
in the ineligibility of any of the Virtus Investment Advisers or any “affiliated
persons” of any of them to serve in any such capacities. None of the Virtus
Investment Advisers and the “affiliated persons” (as defined in the Investment
Advisers Act) of any of them is ineligible pursuant to Section 203 of the
Investment Advisers Act to serve as a registered investment adviser or
“associated person” (as defined in the Investment Advisers Act) of a registered
investment adviser, and there is no proceeding pending and served or, to the
knowledge of the Company, pending and not served, or threatened by any
Governmental Authority, which would result in the ineligibility of any of the
Virtus Investment Advisers or any “affiliated person” to serve in any such
capacities. Neither the Virtus Broker Dealer Subsidiary nor its associated
persons is ineligible pursuant to Section 15(b) of the Exchange Act to serve as
a broker-dealer or as an “associated person” (as defined in the Exchange Act) of
a registered broker-dealer, as applicable, and there is no proceeding pending
and served or, to the knowledge of the Company, pending and not served, or
threatened by any Governmental Authority, which would result in the
ineligibility of the Virtus Broker Dealer Subsidiary or any “affiliated person”
to serve in any such capacities.

(e) Schedule 3.10(e)(i) lists all examinations of the Company and the
Subsidiaries (including Virtus) conducted by any Governmental Authority since
January 1, 2005 and the Company has made available to the Investor complete and
accurate copies of all material correspondence relating to the Virtus Business
in its, the Subsidiaries’ or PIMCO’s possession, whether from or to the
Governmental Authority, in connection therewith. To the knowledge of the
Company, there is no unresolved material violation, criticism, or exception by
any Governmental Authority with respect to any report or statement relating to
any examination of the Company, the Subsidiaries or any Virtus Fund relating to
the Virtus Business. Schedule 3.10(e)(ii) lists all subpoena, examination or
other information or document requests from any Governmental Authority received
by PIMCO (only with respect to the Virtus Business) the Company or the
Subsidiaries since January 1, 2005 and their responses thereto, copies of which,
omitting attachments and enclosures, have previously been provided to the
Investor.

SECTION 3.11. No Litigation. (a) Except as disclosed in the Draft Form 10 or
Schedule 3.11, there are not any (x) outstanding judgments, awards, orders,
decrees or written notices of any alleged violation of Applicable Law against or
affecting the Company or any of the Subsidiaries or, with respect to the Virtus
Business only, PNX, PIMCO or any of their Affiliates (other than the Company and
the Subsidiaries) (y) proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Virtus Business, the Company, any of the
Subsidiaries or any Virtus Fund or (z) investigations by any Governmental
Authority that are, to the knowledge of the Company, pending or threatened
against or affecting the Virtus Business, the Company, any of the Subsidiaries,
any Virtus Fund or, with respect to the Virtus

 

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Business only, PNX, PIMCO or any of their Affiliates (other than the Company and
the Subsidiaries) that, in any case, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.

SECTION 3.12. Compliance with Constituent Documents. None of the Company or any
material Subsidiary is in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, would result in a default
under the respective articles or certificate of incorporation, bylaws or similar
organizational instruments of such entities.

SECTION 3.13. Interim Changes. Since June 30, 2008, except for (i) actions taken
to prepare the Company to be an independent public company (e.g., the
incorporation of the Company and the Subsidiaries, the retention of additional
employees and the creation of a corporate infrastructure), (ii) actions taken to
transfer the Virtus Business from PNX and its subsidiaries to the Company and
the Subsidiaries and (iii) actions taken to pursue the business and strategy of
the Company and the Subsidiaries as described in the Draft Form 10, the Virtus
Business has been operated in all material respects in the ordinary course of
business. Without limiting the foregoing, except to the extent consistent with
the business and strategy of the Company and the Subsidiaries as described in
the Draft Form 10 or as otherwise described in the Draft Form 10, since June 30,
2008, neither the Company nor, with respect to the Virtus Business, any
Subsidiary has entered into any material new lines of business or terminated any
existing material lines of business or agreed in writing or otherwise to do so.

SECTION 3.14. Brokers and Finders. Neither the Company nor any Subsidiary nor
any of their respective officers or directors has employed any broker or finder
or incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder’s fees, and no broker or finder has acted directly or
indirectly for the Company or any Subsidiary, in connection with this Agreement
or the Transactions.

SECTION 3.15. Real Property. Neither the Company nor any Subsidiary owns any
real property or any interest therein. Except as set forth in Schedule 3.15,
there exists no material default or condition, or any state of facts or event
which with the passage of time or giving of notice or both would constitute a
material default, in the performance of the obligations of the Company or the
Subsidiaries under any material real property lease to which the Company or any
Subsidiary is a party or, to the knowledge of the Company, by any other party to
any of such leases. Neither the Company nor any of the Subsidiaries has received
any written or oral communication from the landlord or lessor under any of such
real property leases claiming that it is in breach of its obligations under such
leases, except for written or oral communications claiming breaches that,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.

SECTION 3.16. Contracts. (a) The exhibits to the Form 10 and Schedule 3.16
(a) together contain a correct and complete list of all Contracts (except
ordinary Contracts entered in the ordinary course of business for delivery of
advisory, administrative and similar services to Clients) in effect as of the
date of this Agreement (i) to which the Company or any of its Affiliates is a
party, and (ii) that is material to the Virtus Business (each, including
ordinary Contracts entered in the ordinary course of business for delivery of
advisory, administrative and

 

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similar services to Clients, a “Material Contract”). The Company has made
available or delivered to the Investor complete and correct copies of all
written Material Contracts (except ordinary Contracts entered in the ordinary
course of business for delivery of advisory, administrative and similar services
to Clients), including the Separation Agreement and each Ancillary Agreement (as
such term is defined in the Separation Agreement)) and accurate and complete
descriptions of all material terms of all oral Material Contracts.

(b) Each Material Contract is valid, binding and in full force and effect, and
is enforceable against the Company or any of its Affiliates that is a party
thereto, as the case may be, and, to the knowledge of the Company, each other
party thereto, in accordance with its terms. Each of the Company or its
Affiliates, as the case may be, has duly performed all of its material
obligations under each such Material Contract to the extent that such
obligations have accrued. There are no existing defaults (or circumstances,
occurrences, events or acts that, with the giving of notice or lapse of time or
both would become defaults) of the Company or any of its Affiliates or, to the
knowledge of the Company, any other party thereto under any Material Contract,
except in each case for any defaults that, individually or in the aggregate,
have not had and would not reasonably be expected to have a Material Adverse
Effect. To the knowledge of the Company, there are no circumstances,
occurrences, events or acts that, with the giving of notice or lapse of time or
both, would permit any party thereto, to alter or amend any of the material
terms or conditions of any Material Contract or would permit or would result in
any increased liability or penalty, except for such circumstances, occurrences,
events or acts that, individually or in the aggregate, have not had or resulted
in and would not reasonably be expected to have a Material Adverse Effect.

(c) Except as set forth on Form 10 or on Schedule 3.16(c), there is no Material
Contract, material arrangement, material liability or material obligation
(whether or not evidenced by a writing) concerning the Virtus Business between
the Company or the Subsidiaries, on the one hand, and PIMCO or any of its
Affiliates (other than the Company and the Subsidiaries), on the other hand.

SECTION 3.17. Regulatory Documents. (a) Except for instances of failure to make
filings or payments that have not had and would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, since
January 1, 2006 each of the Company, the Subsidiaries and the Company’s and the
Subsidiaries’ Affiliates (only with respect to the Virtus Business) has timely
filed all Regulatory Documents required to be filed by it (including, in the
case of the Company, the Draft Form 10, as it may be amended or supplemented),
and has paid all fees and assessments due and payable in connection with such
filings.

(b) As of their respective dates, the Regulatory Documents complied, and any
Regulatory Documents to be filed prior to the Step 2 Closing will comply, in all
material respects with the requirements of Applicable Law (including the
Securities Laws), and none of such Regulatory Documents, as of their respective
dates, contained or will contain any untrue statement of a material fact or
omitted to state a fact required to be stated therein or necessary (in light of
the applicable circumstances) in order to make the statements therein not
misleading.

 

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SECTION 3.18. Virtus Funds. (a) Fund Compliance with Laws and Investment
Policies. (i)The Draft Form 10 sets forth a correct and complete list of all
Virtus Funds.

(ii) Since Virtus has been an administrator or an advisor to it, each Virtus
Fund has been continuously (A) registered as an investment company under the
Investment Company Act, (B) in compliance in all material respects with (1) the
Securities Laws and the rules and regulations promulgated thereunder, (2) the
investment policies and investment restrictions set forth in its registration
statements under the Investment Company Act as from time to time in effect,
(3) such Virtus Fund’s Policies and Procedures, and (4) the laws of each
jurisdiction in which shares of such Virtus Fund have been offered for sale or
sold, except, in each instance, where any such non-compliance would not have a
Material Adverse Effect, and (C) duly registered or licensed and in good
standing under the laws of each jurisdiction in which qualification is
necessary. Without limiting the generality of the foregoing, each Virtus Fund
has maintained records required by the Investment Company Act, including records
necessary to substantiate the performance of the Virtus Fund set forth in such
Virtus Fund’s registration statement as from time to time in effect, and such
records are true and correct in all material respects.

(iii) Except as set forth on Schedule 3.18(a)(iii), neither the Company nor any
of the Subsidiaries or any “affiliated person” (as defined in the Investment
Company Act) of any of them or any Virtus Fund receives or is entitled to
receive any compensation directly or indirectly (A) from any Person in
connection with the purchase or sale of securities or other property to, from or
on behalf of any Virtus Fund, other than bona fide ordinary compensation as
principal underwriter for such Virtus Fund or as broker in connection with the
purchase or sale of securities in compliance with Section 17(e) of the
Investment Company Act or (B) from any Virtus Fund or its security holders for
other than bona fide investment advisory, administrative or other services.
Accurate and complete disclosure of all such compensation arrangements has been
made in the registration statement of each Virtus Fund filed with the
Commission.

(iv) Schedule 3.18(a)(iv) lists all examinations, investigations or proceedings
of or with respect to any Virtus Fund or any service provider to the Virtus
Funds (whether or not an Affiliate of the Company) since January 1, 2006 of or
by any Governmental Authority to the extent such examination, investigation or
proceeding is known to the Company, PNX or PIMCO and relates to the Company, the
Subsidiaries or the Virtus Funds. The Company has provided to the Investor
copies of all written material correspondence, including any subpoenas,
regarding such examinations, investigations and proceedings, except for those
which are not in its or its Affiliates possession and are with respect to such
service providers that are not Affiliates of the Company. There are no
restrictions imposed by or arising out of any Governmental Authority, consent
judgments or Commission or judicial orders on or against or with regard to any
Virtus Fund currently in effect, except for exemptive orders issued pursuant to
Section 6(c) of the Investment Company Act listed on Schedule 3.18(a)(iv).

(b) Fund Agreements and Fund Reports. (i) Since Virtus has been an administrator
or an advisor to it, each Virtus Fund has timely filed with the Commission and
any other applicable Governmental Authority all of the investment advisory
agreements and distribution or underwriting contracts, plans adopted pursuant to
Rule 12b-1 under the Investment Company Act and all arrangements for the payment
of “service fees” (as such term is

 

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defined in Rule 2830 of the FINRA Conduct Rules), and all transfer agency,
custody, administrative services and other similar agreements to which it is a
party, and any amendments thereto, if any, in each case, that have been in
effect at any time since January 1, 2005 (collectively, the “Fund Agreements”),
and has timely paid all fees and other compensation required to be paid in
connection therewith. True, correct and complete copies of the Fund Agreements:
(A) have been made available to the Investor prior to the date hereof and
(B) are in full force and effect. Since the inception of each Virtus Fund, there
has been in full force and effect at all times an investment advisory agreement
and a distribution or underwriting agreement for such Virtus Fund, and each such
Fund Agreement was duly approved in accordance with the applicable provisions of
the Investment Company Act.

(ii) Except where the failure to do so would not have a Material Adverse Effect,
since Virtus has been an administrator or an advisor to it, each Virtus Fund has
timely filed all prospectuses, annual information forms, registration
statements, proxy statements, financial statements, notices on Form 24f-2, other
forms, reports, sales literature and advertising materials and any other
documents (other than the Fund Agreements) required to be filed with any
Governmental Authority, and any amendments thereto (the “Fund Reports”), and has
timely paid all fees and interest required to be paid in connection therewith.
The Fund Reports (x) have been prepared in all material respects in accordance
with the requirements of Applicable Law, and (y) did not at the time they were
filed and, with respect to any prospectus, proxy statement, sales literature or
advertising material, did not during the period of its authorized use, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were or are made,
not misleading.

(c) Fund Financial Statements. Each Fund Financial Statement is consistent with
the books and records of such Virtus Fund and, for the periods for which Virtus
has been an administrator or an advisor to it, has been prepared in accordance
with GAAP applied on a consistent basis throughout the periods presented in such
Fund Financial Statement, subject, in the case of interim unaudited Fund
Financial Statements, only to normal year-end audit adjustments on a basis
comparable with past periods. Each statement of net assets or assets and
liabilities and schedule of investments included in the Fund Financial
Statements presents fairly in all material respects the financial position of
the applicable Virtus Fund as at the dates thereof, and each statement of
operations and changes in net assets included in the Fund Financial Statements
presents fairly for the periods for which Virtus has been an administrator or an
advisor to it the results of operations and cash flows of such Virtus Fund for
the respective period or periods indicated.

(d) Fund Taxes. (i) For the periods for which Virtus has been an administrator
or an advisor to it, each Virtus Fund has satisfied the relevant requirements of
the Code for all taxable years, or parts thereof, of such Virtus Fund ending on
or prior to the earlier of the Step 1 Closing to be treated as a regulated
investment company as defined in Sections 851-855 of the Code. Neither the
Company nor any of the Subsidiaries or any Virtus Fund or any other agent of any
Virtus Fund has received any written notice or other written communication
asserting that any Virtus Fund is not in compliance with any of the requirements
necessary to be treated as a regulated investment company. With respect to each
Virtus Fund, to the knowledge of the Company, no claims have been or are being
asserted by any Governmental

 

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Authority with respect to any material amount of Taxes and there are no
threatened claims for any material amount of Taxes. None of the Virtus Funds has
ever entered into a closing agreement pursuant to Section 7121 of the Code (or
any similar provision of state, local or foreign law). There has not been any
audit by any Governmental Authority concerning any material Tax liability of any
Virtus Fund, and, to the knowledge of the Company, no such audit is in progress
and no Virtus Fund has been notified in writing by any Governmental Authority
that any such audit is contemplated or pending. No extension of time with
respect to any date on which a material Tax Return was or is to be filed by any
Virtus Fund is in force, and no waiver or agreement by any Virtus Fund is in
force for the extension of time for the assessment or payment of any material
amount of Taxes.

(ii) For the periods for which Virtus has been an administrator or an advisor to
it, neither the Company nor any of the Subsidiaries has taken (or failed to
take) any action that would (A) prevent any of the Virtus Funds from qualifying
as a “regulated investment company,” within the meaning of Section 851 of the
Code, or (B) otherwise be inconsistent in any material respect with any of the
Virtus Funds’ prospectuses and other offering, advertising and marketing
materials.

(iii) Each Virtus Fund has complied, in all material respects, with all
information reporting and withholding provisions imposed by the Code and any
applicable similar provisions of state, local and foreign law.

SECTION 3.19. Assets Under Management; Clients. (a) Each Client to which Virtus
or any Subsidiary provides investment management, advisory or sub-advisory
services that is (i) an employee benefit plan, as defined in Section 3(3) of
ERISA that is subject to Title I of ERISA, (ii) a Person acting on behalf of
such a plan or (iii) any entity whose assets include the assets of such a plan,
within the meaning of ERISA and applicable regulations (hereinafter referred to
as an “ERISA Client”) has, since January 1, 2005, been managed by Virtus or any
of its Affiliates such that the exercise of such management or provision of any
services is in compliance in all material respects with the applicable
requirements of ERISA. Each of Virtus and its Affiliates managing such Person,
to the extent it is regulated under the Investment Advisers Act, satisfies the
requirements of Prohibited Transaction Class Exemption 84-14 for a “qualified
professional asset manager” (as such term is used in Prohibited Transaction
Class Exemption 84-14).

(b) Each of the Company and any Subsidiary that provides investment advisory
services has at all times rendered investment advisory services to Clients with
whom such entity is or was a party to an investment advisory agreement or
similar arrangement in substantial compliance with the terms of such investment
advisory agreements, written instructions from such Clients, the organizational
documents of such Clients, if applicable, any prospectuses or other offering
materials, board of director or trustee directives and Applicable Law.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE INVESTOR

The Investor hereby represents and warrants to the Company and PIMCO on the date
hereof as follows:

SECTION 4.01. Organization; Authorization; Enforceability. The Investor is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority to
own its properties and assets and to carry on its business as it is now being
conducted. The Investor has the power and authority to execute, deliver and
perform its obligations under this Agreement and has taken all necessary action
to authorize the execution, delivery and performance by it of this Agreement and
to consummate the Transactions. No other proceedings on the part of the Investor
are necessary for such authorization, execution, delivery and consummation. The
Investor has duly executed and delivered this Agreement and, assuming the due
authorization, execution and delivery by the other parties hereto constitutes a
legal, valid and binding obligation of it, enforceable against it in accordance
with its terms.

SECTION 4.02. Private Placement. (a) The Investor understands that (i) the
offering and sale of the Preferred Stock and the Conversion Shares is intended
to be exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and (ii) there is no existing public or other market for the Preferred
Stock.

(b) The Investor (i) is a “qualified institutional buyer”, as such term is
defined in Rule 144A under the Securities Act or (ii) is an institutional
“accredited investor”, as such term is defined in Rule 501(a) of Regulation D
under the Securities Act.

(c) The Investor is acquiring the Preferred Stock to be acquired hereunder (and
will acquire the Conversion Shares) for its own account (or for accounts over
which it exercises investment authority), for investment and not with a view to
the resale or distribution thereof in violation of any Applicable Laws.

(d) The Investor understands that the Preferred Stock and the Conversion Shares
will be issued in transactions exempt from the registration or qualification
requirements of the Securities Act and applicable state securities laws, and
that such securities must be held indefinitely unless a subsequent disposition
thereof is registered or qualified under the Securities Act and such laws or is
exempt from such registration or qualification.

(e) The Investor (A) has been furnished with or has had full access to all the
information that it considers necessary or appropriate to make an informed
investment decision with respect to the Preferred Stock and the Conversion
Shares and that it has requested from the Company, (B) has had an opportunity to
discuss with management of the Company the intended business and financial
affairs of the Company and to obtain information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to it or to which had
access and (C) can bear the economic risk of (x) an investment in the Preferred
Stock and the Conversion Shares indefinitely

 

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and (y) a total loss in respect of such investment, has such knowledge and
experience in business and financial matters so as to enable it to understand
and evaluate the risks of and form an investment decision with respect to its
investment in the Preferred Stock and the Conversion Shares and to protect its
own interest in connection with such investment.

SECTION 4.03. No Violation; Consents. (a) The execution, delivery and
performance by the Investor of this Agreement and the consummation by it of the
Transactions do not and will not violate, conflict with, result in a breach of
or contravene in any material respect any Applicable Law. The execution,
delivery and performance by the Investor of this Agreement and the consummation
of the Transactions will not (i)(A) violate, conflict with, result in a breach
of or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under
any Contract to which it is party or by which it is bound or to which any of its
assets is subject or (B) result in the creation or imposition of any Lien upon
any of the properties or assets of it, except for any such violations,
conflicts, breaches, defaults or Liens that would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of it to timely perform its obligations under this Agreement and
(ii) conflict with or violate any provision of the certificate of incorporation
or bylaws or other governing documents of it.

(b) Except for applicable filings, if any, with the Commission pursuant to the
Exchange Act, no notice to, exemption or review by consent, authorization
approval or order of, or filing or registration with, any Governmental Authority
or other Person is required to be obtained or made by the Investor for the
execution, delivery and performance of this Agreement or the consummation of any
of the Transactions, except where the failure to obtain such consents,
authorizations or orders, or make such filings or registrations, would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of it to timely perform its obligations under this
Agreement.

SECTION 4.04. No Litigation. There are not any (a) outstanding judgments,
orders, decrees or written notices of any alleged violations of Applicable Law
against or affecting the Investor or any of the Subsidiaries, (b) proceedings
pending or, to the knowledge of it, threatened against or affecting the Investor
or any of the Subsidiaries or (c) investigations by any Governmental Authority
that are, to the knowledge of it, pending or threatened against or affecting it
or any of the Subsidiaries that, in any case, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on the ability of
it to timely perform its obligations under this Agreement.

SECTION 4.05. Financing. The Investor will have on each of the Step 1 Closing
Date and Step 2 Closing Date available funds to consummate the purchase of the
Preferred Stock to be purchased by it on such dates on the terms and conditions
contemplated by this Agreement.

SECTION 4.06. Ownership of Preferred Stock. The Investor does not own, directly
or indirectly (other than in a fiduciary capacity), or have any option or right
to acquire, any securities of PNX, the Company or any Subsidiaries other than
the Preferred Stock being purchased by it hereunder.

 

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SECTION 4.07. Brokers and Finders. Except for BMO Capital Markets, Corp., the
Investor nor any of its officers or directors has employed any broker or finder
or incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder’s fees, and no broker or finder has acted directly or
indirectly for the Investor, in connection with this Agreement or the
Transactions, in each case, whose fees the Company would be required to pay.

SECTION 4.08. Tax Liability. The Investor has reviewed with its own Tax advisors
the federal, state, local, and foreign Tax consequences of this investment and
the Transactions if and to the extent it deems such review to be advisable. It
has relied solely on such advisors and not on any statements or representations
of the Company or of any agents of the Company. It understands that, except as
otherwise specifically contemplated by this Agreement, it (and not the Company
or PIMCO) shall be responsible for its own Tax liability that may arise as a
result of this investment or the other Transactions contemplated by this
Agreement.

SECTION 4.09. Compliance with Laws. Neither Harris Investment Management, Inc.
(“HIM”) nor any “affiliated person” (as defined in the Investment Company Act)
of HIM is (taking into account any applicable exemption) ineligible pursuant to
Section 9(a) or 9(b) of the Investment Company Act to serve as an investment
adviser (or in any other capacity contemplated in the Investment Company Act) to
any registered investment company, and there is no proceeding pending and served
or, to the knowledge of the Investor, pending and not served, or threatened by
any Governmental Authority, which would result in the ineligibility of HIM or
any “affiliated persons” of HIM to serve in any such capacities. Neither HIM nor
any “affiliated persons” (as defined in the Investment Advisers Act) of HIM is
ineligible pursuant to Section 203 of the Investment Advisers Act to serve as a
registered investment adviser or “associated person” (as defined in the
Investment Advisers Act) of a registered investment adviser, and there is no
proceeding pending and served or, to the knowledge of the Investor, pending and
not served, or threatened by any Governmental Authority, which would result in
the ineligibility of HIM or any “affiliated person” to serve in any such
capacities.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PNX AND PIMCO

Each of PNX and PIMCO hereby represents and warrants to the Investor on the date
hereof as follows:

SECTION 5.01. Organization; Authorization; Enforceability. It is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted
and as proposed to be conducted immediately following the Distribution. It has
the power and authority to execute, deliver and perform its obligations under
this Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Agreement and to consummate the
Transactions. No other proceedings on the part of it or its stockholders is
necessary for such authorization, execution, delivery and consummation. It has
duly executed and delivered this Agreement and, assuming the due authorization,
execution and delivery by the other parties hereto, constitutes a legal, valid
and binding obligation of it, enforceable against it in accordance with its
terms.

 

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SECTION 5.02. No Violation; Consents. (a) The execution, delivery and
performance by it of this Agreement and the consummation by it of the
Transactions do not and will not violate, conflict with, result in a breach of
or contravene in any material respect any Applicable Law. The execution,
delivery and performance by it of this Agreement and the consummation of the
Transactions (i) will not (A) violate, conflict with, result in a breach of or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
Contract to which it is party or by which it is bound or to which any of its
assets is subject, or (B) result in the creation or imposition of any Lien upon
any of the properties or assets of it, except for any such violations,
conflicts, breaches, defaults or Liens that would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of it to timely perform its obligations under this Agreement; and
(ii) will not conflict with or violate any provision of the certificate of
incorporation or bylaws or other governing documents of it.

(b) Except for applicable filings, if any, with the Commission pursuant to the
Exchange Act, including without limitation the Form 10, no notice to, exemption
or review by, consent, authorization, approval or order of, or filing or
registration with, any Governmental Authority or other Person is required to be
obtained or made by it for the execution, delivery and performance of this
Agreement or the consummation of any of the Transactions, except where the
failure to obtain such consents, authorizations or orders, or make such filings
or registrations, would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of it to timely
perform its obligations under this Agreement.

SECTION 5.03. No Litigation. There are not any (a) outstanding judgments,
orders, decrees or written notices of any alleged violation of Applicable Law
against or affecting it or any of its subsidiaries, (b) proceedings pending or,
to the knowledge of it, threatened against or affecting it or any of its
subsidiaries or (c) investigations by any Governmental Authority that are, to
the knowledge of it, pending or threatened against or affecting it or any of its
subsidiaries that, in any case, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the ability of it to
timely perform its obligations under this Agreement.

ARTICLE VI

COVENANTS OF THE COMPANY, PNX AND PIMCO

SECTION 6.01. Access to Information. (a) From the date hereof, until the date
when the Preferred Stock purchased pursuant to this Agreement and Beneficially
Owned by the Investor represent less than 10% of the outstanding Common Stock
(counting as shares owned by the Investor all Conversion Shares and shares of
Preferred Stock and Conversion Shares thereof acquired through any exercise of
the Additional Financing Right) (the “Qualifying Ownership Interest”), the
Company will permit the Investor to visit and inspect, at the Investor’s
expense, the properties of the Company and the Subsidiaries, to examine the
corporate books and to discuss the affairs, finances and accounts of the Company
and the Subsidiaries with the principal officers of the Company, all upon
reasonable notice and at such reasonable times and as

 

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often as the Investor may reasonably request. Any investigation pursuant to this
Section 6.01 shall be conducted during normal business hours and in such manner
as not to interfere unreasonably with the conduct of the business of the
Company, and nothing herein shall require the Company or any Subsidiary to
disclose any information to the extent (i) prohibited by Applicable Law,
(ii) that the Company reasonably believes such information to be competitively
sensitive information (except to the extent the Investor provides assurances
reasonably acceptable to the Company that such information shall not be used by
the Investor or its Affiliates to compete with the Company and Subsidiaries) or
(iii) that such disclosure would reasonably be expected to cause a violation of
any agreement to which the Company or any Subsidiary is a party or would cause a
risk of a loss of privilege to the Company or any Subsidiary (provided that the
Company shall use its reasonable best efforts to make appropriate substitute
disclosure arrangements under circumstances where the restrictions in this
clause (iii) apply).

(b) The Company will provide to the Investor, upon request, all financial
information regarding the Company that the Investor may reasonably require, in
connection with its equity investment in the Company, to prepare its financial
statements and otherwise comply with its financial reporting obligations under
Applicable Law and to make all other reports and filings in respect of such
investment that may be required by any Governmental Authority subject, if
necessary, to customary confidentiality arrangements.

SECTION 6.02. Compliance with Conditions; Reasonable Best Efforts. Each of the
Company, PNX and PIMCO shall use its reasonable best efforts to cause all
conditions precedent to the obligations of the Company, PIMCO and the Investor
to be satisfied. Upon the terms and subject to the conditions of this Agreement,
the Company, PNX and PIMCO will use reasonable best efforts to take, or cause to
be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable consistent with Applicable Law to consummate and make
effective in the most expeditious manner practicable the Transactions in
accordance with the terms of this Agreement. Notwithstanding the
foregoing, nothing contained in this Agreement confers upon any of PNX, PIMCO or
the Company any obligation to effect the Distribution.

SECTION 6.03. Consents and Approvals. The Company, PNX and PIMCO (a) shall use
their reasonable best efforts to obtain all necessary consents, waivers,
authorizations and approvals of all Governmental Authorities and of all other
Persons required in connection with the execution, delivery and performance of
this Agreement or the consummation of the Transactions and (b) shall diligently
assist and cooperate with the Investor in preparing and filing all documents
required to be submitted by the Investor to any Governmental Authority in
connection with the Transactions (which assistance and cooperation shall
include, without limitation, timely furnishing to the Investor all information
concerning the Company and the Subsidiaries that counsel to the Investor
reasonably determines is required to be included in such documents or would be
helpful in obtaining any such required consent, waiver, authorization or
approval). The Company, PNX and PIMCO will advise the Investor promptly upon
receiving any communication from any third party or Governmental Authority whose
consent or approval is required for the consummation of the Transactions that
there is a reasonable likelihood that any requisite third party or regulatory
approval will not be obtained or that the receipt of any such approval will be
materially delayed.

 

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SECTION 6.04. Filing of Certificate of Designations. Prior to the Step 1 Closing
Date, the Company shall file the Certificate of Designations with the Secretary
of State of the State of Delaware pursuant to Section 151(g) of the DGCL and
such Certificate of Designations shall continue to be in full force and effect
as of the Step 1 Closing Date and the Step 2 Closing Date.

SECTION 6.05. Reservation of Shares. The Company shall (a) cause to be
authorized and reserve and keep available at all times during which any shares
of Preferred Stock remain outstanding, free from preemptive rights, out of its
treasury stock or authorized but unissued shares of Capital Stock, or both,
solely for the purpose of effecting the conversion of the Preferred Stock
pursuant to the terms of the Certificate of Designations sufficient shares of
Common Stock (including any related rights issuable in respect thereof pursuant
to the Rights Agreement) to provide for the issuance of the maximum number of
shares issuable upon conversion of outstanding shares of Preferred Stock owned
at any time by the Investors and (b) issue and cause the transfer agent to
deliver such shares of Common Stock (including any related rights issuable in
respect thereof pursuant to the Rights Agreement) as required upon conversion of
the shares of Preferred Stock and take all actions necessary to ensure that all
such shares will, when issued and paid for pursuant to the conversion of the
Preferred Stock, be duly and validly issued, fully paid and nonassessable.

SECTION 6.06. Listing of Shares. The Company shall cause the Conversion Shares
to be listed or otherwise eligible for trading on the New York Stock Exchange or
any other national securities exchange on which the Common Stock may then be
listed or eligible for trading.

SECTION 6.07. Governance Matters. (a) The Company will promptly cause one person
nominated by the Investor (the “Investor Designate”) and one person elected by
the holders of Preferred Stock in accordance with the Certificate of
Designations (together, the “Board Representatives”) to be elected or appointed
to the Board of Directors, subject to satisfaction of all legal and governance
requirements regarding service as a director of the Company, such appointments
to be effective as of the date of the Distribution. After such appointments, so
long as the Investor Beneficially Owns at least 10% of the outstanding shares of
Common Stock (including for this purpose Conversion Shares and shares of
Preferred Stock and Conversion Shares thereof acquired through any exercise of
the Additional Financing Right), the Company will be required to recommend to
its stockholders the election of the Investor Designate at the Company’s annual
meeting, subject to satisfaction of all legal and governance requirements
regarding service as a director of the Company, to the Board of Directors. If
the Investor no longer Beneficially Owns the minimum percentage of Common Stock
specified in the prior sentence, the Investor will have no further rights under
this Section 6.07 with respect to an Investor Designate, and, at the written
request of the Board of Directors, shall use all reasonable best efforts to
cause its Investor Designate to resign from the Board of Directors as promptly
as possible thereafter.

(b) The Investor Designate (including any successor nominee) duly selected in
accordance with Section 6.07(a) shall, subject to Applicable Law, be one of the
Company’s nominees to serve on the Board of Directors. The Company shall use all
reasonable best efforts to have the Investor Designate elected as a director of
the Company and the Company shall solicit proxies for such person to the same
extent as it does for any of its other nominees to the Board of Directors.

 

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(c) Subject to Section 6.07(a), the Investor shall have the power to designate
an Investor Designate’s replacement upon the death, resignation, retirement,
disqualification or removal from office of such director. The Board of Directors
will promptly take all action reasonably required to fill the vacancy resulting
therefrom with such person (including such person, subject to Applicable Law,
being one of the Company’s nominee to serve on the Board of Directors, using all
reasonable best efforts to have such person elected as director of the Company
and the Company soliciting proxies for such person to the same extent as it does
for any of its other nominees to the Board of Directors).

(d) The Board Representatives shall be entitled to the same compensation and
same indemnification in connection with his or her role as a director as the
other members of the Board of Directors, and each Board Representative shall be
entitled to reimbursement for documented, reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors or any committees
thereof, to the same extent as the other members of the Board of Directors. The
Company shall notify the Board Representatives of all regular and special
meetings of the Board of Directors and shall notify the Board Representatives of
all regular and special meetings of any committee of the Board of Directors of
which a Board Representative is a member. The Company shall provide the Board
Representatives with copies of all notices, minutes, consents and other
materials provided to all other members of the Board of Directors concurrently
as such materials are provided to the other members.

SECTION 6.08. Registration Rights. The Company shall give the Investor and the
Investor shall have registration rights as set forth on Annex A to this
Agreement.

SECTION 6.09. Additional Financing Right. (a) So long as the Investor owns a
Qualifying Ownership Interest and subject to the prior receipt of the Fund Board
Approval and Fund Shareholder Approval, if at any time prior to the twenty-four
(24) month anniversary of the Step 2 Closing Date, the Company proposes to issue
to any Person any Common Stock or a Common Stock-Equivalent Security of the
Company (such issuance, a “Qualifying Issuance”) other than (i) pursuant to an
employee or non-management director stock option plan, stock bonus plan, stock
purchase plan or other management equity program or plan, (ii) pursuant to any
merger, share exchange or acquisition pursuant to which Common Stock or any
Common Stock-Equivalent Security are exchanged for, or issued upon cancellation
or conversion of, equity securities of another entity not Affiliated with the
Investor, or (iii) pursuant to any stock split, stock dividend or
recapitalization by the Company (so long as all stockholders of the same class
or series of securities of the Company are treated equally with all other
holders of such class or series of securities with respect to such class or
series), the Investor shall be afforded the right to provide additional
financing to the Company in lieu of the Qualifying Issuance through a purchase
of additional shares of Series B Preferred Stock or a new series of Preferred
Stock identical to the Series B Preferred Stock except with respect to
conversion price (as provided below) (such additional shares of Preferred Stock,
“New Preferred Stock”). The Investor will have the right (the “Additional
Financing Right”) to purchase New Preferred Stock up to a principal amount of
New Preferred Stock equal to $25 million. The conversion price for the New
Preferred Stock will be the lower of (i) the then applicable conversion price of
the Series B

 

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Preferred Stock and (ii) the current per share volume-weighted average price of
the Common Stock over the ten (10) trading days immediately prior to the
consummation of the purchase pursuant to the Additional Financing Right. The
Investor must exercise the Additional Financing Right within twenty
(20) Business Days after receipt of any notice of intention to initiate a
Qualifying Issuance from the Company.

(b) In the event that the Investor exercises its Additional Financing Right and
Beneficially Owns in excess of 33% of the outstanding Common Stock (including
for this purpose any Conversion Shares) after giving effect to such Additional
Financing Right, it shall be granted the right to appoint one (1) additional
member to the Board of Directors so long as such additional right would not give
rise to a Regulatory Issue. Such additional member of the Board of Directors
shall be afforded the same rights as the Investor Designate in accordance with
Section 6.07 (such additional member to be included in the term “Investor
Designate”).

(c) If the consummation of the Additional Financing Right would result in an
“assignment” of the investment advisory contracts of clients of the Company
within the meaning of the Investment Company Act and the Investment Advisers
Act, then the Company and the Investor shall structure the Qualified Issuance
and the securities to be issued by the Company (including, without limitation,
by altering the voting rights granted to the Investor) to ensure that such an
assignment will not occur.

SECTION 6.10. Investor Put Right; Company Call Option.

(a) Investor Put Right. Subject to Section 6.10(c), at any time on or after the
three (3) year anniversary of the Step 1 Closing, the Investor shall have the
right (the “Put Right”), to require the Company to repurchase, and the Company
shall repurchase, all of the Series A Preferred Stock purchased by the Investor
in the Step 1 Sale (or such number of the Series B Preferred Stock which were
issued and delivered to the Investor on the Step 2 Closing Date in exchange for
all the Series A Preferred Stock purchased by the Investor in the Step 1 Sale)
on not less than five (5) days’ notice from the Investor to the Company, which
notice shall include the intended date of settlement (the “Put Closing Date”),
for a purchase price (the “Put Price”) equal to the liquidation preference of
such shares of Series A Preferred Stock (including all accumulated and unpaid
dividends and accrued interest thereon to the Put Closing Date). The Put Price
shall be payable by the Company in immediately available funds to a bank account
or bank accounts designated by the Investor or, at the election of the Company,
may be paid in the form of two senior promissory notes each having an aggregate
principal amount equal to one half ( 1 /2) of the Put Price of the Company,
paying interest at LIBOR plus 300 basis points per annum, the first maturing on
the one (1) year anniversary of the Put Closing Date and the second maturing on
the two (2) year anniversary of the Put Closing Date.

(b) Company Call Option. Subject to Section 6.10(c), the Company shall have the
option (the “Call Option”) at any time after the consummation of the Step 1 Sale
and prior to any exercise of the Put Right by the Investor, to repurchase from
the Investor, and the Investor shall sell to the Company, all of the shares of
Series A Preferred Stock (or such number of the Series B Preferred Stock which
were issued and delivered to the Investor on the Step 2 Closing Date in exchange
for all the Series A Preferred Stock purchased by the Investor in the Step 1
Sale) then held by the Investor, on not less than five (5) days notice from the
Company to

 

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the Investor, which notice shall include the intended date of settlement (the
“Call Closing Date”), for a purchase price (the “Call Price”) equal to the
liquidation preference of such shares of Series A Preferred Stock (including all
accumulated and unpaid dividends and accrued interest thereon to the Put Closing
Date). The Call Price shall be payable by the Company in immediately available
funds to a bank account or bank accounts designated by the Investor on the Call
Closing Date.

(c) Termination of Put Right and Call Option. Notwithstanding anything to
contrary contained herein, the Put Right and the Call Option shall expire and be
null, void and of no further force or effect, if at the time that the Step 2
Sale is consummated or at anytime thereafter the average Closing Price for the
Common Stock during any five (5) consecutive trading day period exceeds the
conversion price per share of the Preferred Stock, as adjusted from time to
time. The Put Right and the Call Option shall also expire and be null, void and
of no further force or effect, in the event that the Investor converts any or
all of the Series A Preferred Stock received by it in the Step 1 Sale into
Common Stock (or such number of the Series B Preferred Stock which were issued
and delivered to the Investor on the Step 2 Closing Date in exchange for all the
Series A Preferred Stock purchased by the Investor in the Step 1 Sale), but in
the event that the Investor converts some but not all of Series A Preferred
Stock or such Series B Preferred Stock which were issued and delivered to the
Investor on the Step 2 Closing Date in exchange for all the Series A Preferred
Stock, as the case may be, into Common Stock, then the Put Right and the Call
Option shall expire and be null, void and of no further force or effect only
with respect to such converted shares and the provisions of this Section 6.10
will apply to the remaining shares of Series A Preferred Stock, or Series B
Preferred Stock which were issued and delivered to the Investor on the Step 2
Closing Date in exchange for all the Series A Preferred Stock, as the case may
be, mutatis mutandis.

(d) Guaranty. From and after the date of this Agreement, if all or any part of
the Company’s obligations under this Section 6.10 shall not be punctually paid
when due, PNX shall, immediately upon demand by the Investor, pay the amount due
to the Investor under this Section 6.10. This guaranty shall be a continuing
guaranty and shall remain in full force and effect until, and PNX’s liability
under this guaranty shall terminate upon, payment in full of all such amounts by
the Company. PNX acknowledges that its obligations under this Section 6.10(d)
shall not be released or discharged in whole or in part by the insolvency,
bankruptcy, liquidation, termination, dissolution, merger, consolidation or
other business combination of the Company.

SECTION 6.11. Interim Period Actions. (a) The Company, PNX and PIMCO covenant
and agree that after the date of this Agreement until the Step 2 Closing Date
(or the Step 1 Closing Date, if this Agreement has been terminated with respect
to the Step 2 Closing), unless the Investor shall otherwise approve in writing,
and except as may be required by Applicable Laws, the Company and Virtus shall,
and PNX and PIMCO shall cause the Company and Virtus to, conduct the Virtus
Business in the ordinary course consistent with past practice. The Company, PNX
and PIMCO further agree that during such period, unless the Investor shall
otherwise approve in writing: (i) the Company will not adopt or propose any
material change in its certificate of incorporation or by-laws, each in the
draft form provided to the Investor prior to the date hereof, (ii) none of the
Company, PNX or PIMCO will adopt or propose any material change in, or
terminate, or waive any material rights of the Company or for the benefit of the

 

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Virtus Business under the Separation Agreement, the “Employee Matters
Agreement”, the “Tax Separation Agreement” or the “Transition Services
Agreement” (as such terms are defined in the Separation Agreement), including
any schedules, annexes or exhibits thereto, or the change of control agreement
of Mr. George Aylward, each in the draft form provided to the Investor prior to
the date hereof, or enter into, approve or adopt any other Contract between the
Company or one or more of the Subsidiaries, on the one hand, and PNX, PIMCO or
any of their Affiliates (other than the Company and the Subsidiaries), on the
other hand, or any amendment to such a Contract, (iii) none of the Company or
the Subsidiaries will enter into, amend or terminate any Contract (other than
Contracts referred to in clause (ii) above) to which it is a party if such new
Contract, amendment or termination would be material to the Company or the
Investor and would adversely affect the Company or the Investor, and (iv) none
of the Company, PNX or PIMCO will take any action or omit to take any action
that is reasonably likely to result in any of the conditions to the Transactions
contemplated in this Agreement not being satisfied, or agree, authorize or
commit to do any of the foregoing.

(b) The Company, PNX and PIMCO covenant and agree that the terms of the
Certificate of Designations will be substantially consistent with those set
forth in the term sheet attached hereto as Exhibit A, with such modifications
thereto as the parties hereto may agree.

(c) The Company, PNX and PIMCO covenant and agree that after the date of this
Agreement until the Distribution, the Company will not enter into any employment
agreement with any of its employees or officers (including Mr. George Aylward).
Upon the Distribution, the Company may enter into such Contracts, provided that
any such Contract is approved by the Board of Directors and the Compensation
Committee of the Company.

SECTION 6.12. Equity Awards. The Company will not, and PNX and PIMCO shall cause
the Company not to grant shares of Common Stock (or securities convertible into
or exchangeable therefore) pursuant to any employee benefit plan or other
equity-based awards to employees or directors, other than pursuant to the Virtus
Investment Partners, Inc. Omnibus Incentive and Equity Plan (the “Plan”), for
the period of operation of the Plan in accordance with its terms. The Plan shall
not be materially different than the form provided to the Investor prior to the
date hereof and will have terms substantially consistent with those set forth in
Exhibit B. The Plan may become effective and the awards made thereunder be
granted only following the Distribution and will be subject to the approval of
the Board of Directors and the Compensation Committee of the Company.

SECTION 6.13. Regulatory Action. (a) Neither the Company nor any of the
Subsidiaries shall, and PNX and PIMCO shall cause the Company and the
Subsidiaries not to, enter into any settlement or consent in a regulatory
enforcement matter, or make any application to U.S. banking or other regulatory
authorities, that in either case would be reasonably likely (i) to cause the
Investor or any of its Affiliates to suffer any regulatory disqualification from
continuing to hold the investment in the Company, or (ii) to cause a suspension
of any registration or license material to the business of the Bank of Montreal
and its subsidiaries, taken together (the “BMO Group”), as it is conducted
today, or any other adverse regulatory consequence material to the BMO Group;
provided, that, in the case of any such proposed settlement or consent in a
regulatory enforcement matter, if any expected disqualification or adverse
regulatory consequence to the Investor could be avoided by the disposition by
the

 

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Investor of less than 10% of the shares of Preferred Stock originally purchased
on the Step 2 Closing Date, the Investor shall use its commercially reasonable
efforts to, and the Company will assist the Investor (including by waiving any
restrictions under Section 7.03, if required) in its efforts to, make such
disposition a commercially reasonable manner.

(b) The Investor and the Company will cooperate to ensure compliance with
various legal regulatory frameworks involving aggregation of positions among
Affiliates, and the Company will adopt position limits where necessary or
advisable. The Investor and the Company agree and acknowledge that U.S. and
other regulatory authorities may impose restrictions or conditions on Investor’s
investment in the Preferred Stock or the Common Stock which may limit or
restrict the actions of either of them or their respective subsidiaries and
Affiliates after the Step 1 Closing Date or the Step 2 Closing Date.

SECTION 6.14. Tax Separation. Each of PNX and the Company agrees to comply with
its respective obligations under the Tax Separation Agreement.

SECTION 6.15. Rights Agreement. The Rights Agreement will be substantially in
the form provided to the Investor prior to the date hereof, with such additional
provisions with respect to the Investor’s exclusion as an “Acquiring Person”
which shall be mutually agreed by the Investor and the Company.

ARTICLE VII

COVENANTS OF THE INVESTOR

SECTION 7.01. Compliance with Conditions; Reasonable Best Efforts. The Investor
will use reasonable best efforts to cause all conditions precedent to its
obligations to be satisfied. Upon the terms and subject to the conditions of
this Agreement, the Investor will use reasonable best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable consistent with applicable law to consummate and make
effective in the most expeditious manner practicable the Transactions in
accordance with the terms of this Agreement.

SECTION 7.02. Consents and Approvals. The Investor (a) shall use its reasonable
best efforts to obtain all necessary consents, waivers, authorizations and
approvals of all Governmental Authorities and of all other Persons required in
connection with the execution, delivery and performance of this Agreement or the
consummation of the Transactions and (b) shall diligently assist and cooperate
with the Company in preparing and filing all documents required to be submitted
by the Company to any Governmental Authority in connection with the Transactions
(which assistance and cooperation shall include, without limitation, timely
furnishing to the Company all information concerning the Investor that counsel
to the Company reasonably determines is required to be included in such
documents or would be helpful in obtaining any such required consent, waiver,
authorization or approval).

SECTION 7.03. Restrictions on Transfer.

(a) Restrictions on Transfer. Until the thirty month anniversary of the Step 2
Closing Date, the Investor will not transfer, sell, assign or otherwise dispose
of (“Transfer”) any

 

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Preferred Stock or Conversion Shares acquired pursuant to this Agreement;
provided that, except for Transfers pursuant to Rule 144 under the Securities
Act or a registered offering, any Transfer permitted under this Section 7.03(a)
must not (i) cause a Regulatory Issue, or (ii) be made to a Competitor or any
controlled Affiliate of any Competitor.

(b) Permitted Transfers. Notwithstanding Section 7.03(a), the Investor shall be
permitted to Transfer any portion or all of its Preferred Stock or Conversion
Shares at any time under the following circumstances:

(1) Transfers to any Affiliate under common control with the Investor’s ultimate
parent entity but in only if the transferee agrees in writing for the benefit of
the Company (with a copy thereof to be furnished to the Company) to be bound by
the terms of this Agreement (any such transferee shall be included in the term
“Investor”);

(2) Transfers pursuant to a merger, tender offer or exchange offer or other
business combination, acquisition of assets or similar transaction or change of
control involving the Company or any Subsidiaries;

(3) Transfers commenced after the commencement of bankruptcy or insolvency
proceedings;

(4) Transfers made in connection with a pledge to a financial institution to
secure a bona fide debt financing and any foreclosure of such pledge and
subsequent sale of the securities; or

(5) Transfers made with the prior written consent of the Company.

(c) The Investor shall give written notice to the Company, at least ten
(10) days prior to entering into any agreement pursuant to which it will
Transfer any Preferred Stock it owns (other than a Transfer pursuant to Rule 144
under the Securities Act or a registered offering or a Transfer permitted under
Section 7.03(a)). For the avoidance of doubt, within ten (10) days after giving
the notice to the Company, the Investor will be entitled to enter into any
transaction with any person with regards to the Transfer of Preferred Stock.

SECTION 7.04. Standstill. The Investor agrees that until the three (3) year
anniversary of the Step 2 Closing Date, without the prior written approval of
the Company, neither the Investor nor any of its controlled Affiliates will,
directly or indirectly:

(a) in any way acquire, offer or propose to acquire or agree to acquire,
Beneficial Ownership of any Common Stock or other securities issued by the
Company, or any securities convertible into or exchangeable for Common Stock or
any other equity securities of the Company if such acquisition would result in
the Investor and its Affiliates having Beneficial Ownership of more than 23.0%
of the outstanding shares of Common Stock of the Company (counting as shares
owned by the Investor any Conversion Shares), other than solely as a result of
the exercise of the Additional Financing Right or any other rights, entitlements
or obligations set forth in this Agreement, the certificate of incorporation of
the Company or the Certificate of

 

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Designations; provided, however, that the Investor or its controlled Affiliates
will, directly or indirectly, be entitled to acquire, offer or propose to
acquire or agree to acquire in any trading market on which securities issued by
the Company or any of the Subsidiaries are listed or quoted, Beneficial
Ownership of any Common Stock or other securities issued by the Company, or any
securities convertible into or exchangeable for Common Stock or any other equity
securities of the Company (i) at any time, so long as such acquisition would not
result in the Investor’s having Beneficial Ownership of Common Stock of the
Company representing more than 24.9% of the outstanding shares of Common Stock
(calculated on a fully diluted basis) at the time of acquisition or (ii) at any
time, so long as any resulting increase in the Beneficial Ownership of the
Investor and its Affiliates (as a percentage of the outstanding fully-diluted
Common Stock) is less than or equal to a prior reduction in such Beneficial
Ownership resulting from the issuance by the Company of shares of Common Stock
(or securities convertible into or exchangeable therefore) pursuant to any
employee benefit plan or other equity-based awards to employees or directors;
provided, further, that the Investor and its Affiliates shall not be entitled to
exercise its rights under clause (ii) of the preceding proviso at any time after
the Company shall have made a bona fide proposal that entitled the Investor to
exercise its Additional Financing Right and the Investor shall have declined to
do so.

(b) enter into or agree, offer, propose or seek (whether publicly or otherwise)
to enter into, or otherwise be involved in or part of, any acquisition
transaction, merger or other business combination relating to all or part of the
Company or any of the Subsidiaries or any acquisition transaction for all or
part of the assets of the Company or any Subsidiary or any of their respective
businesses;

(c) make, or in any way participate in, any “solicitation” of “proxies” (as such
terms are defined under Regulation 14A under the Exchange Act, disregarding
clause (iv) of Rule 14a-1(1)(2) and including any otherwise exempt solicitation
pursuant to Rule 14a-2(b)) to vote, or seek to advise or influence any person or
entity with respect to the voting of, any voting securities of the Company or
any Subsidiary;

(d) call or seek to call a meeting of the stockholders of the Company or any of
the Subsidiaries or initiate any stockholder proposal for action by stockholders
of the Company or any of the Subsidiaries, form, join or in any way participate
in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act and the
rules and regulations thereunder) with respect to any Voting Securities, or
seek, propose or otherwise act alone or in concert with others, to influence or
control the management, Board of Directors or policies of the Company or any
Subsidiaries; or

(e) bring any action or otherwise act to contest the validity of this
Section 7.04 or seek a release of the restrictions contained herein, or make a
request to amend or waive any provision of this Section 7.04;

provided that nothing in this Section 7.04 shall prevent the Investor or any of
its Affiliates from voting any Voting Securities then Beneficially Owned by the
Investor or its Affiliates in any manner except that the Investor agrees to vote
in favor of the slate of directors recommended by the Board of Directors at each
meeting of the Company’s

 

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stockholders for the election of such directors; provided, further, that nothing
in clause (b), (c) or (d) of this Section 7.04 shall apply to the Investor’s
Board Representatives solely in their capacity as directors of the Company.

(f) For purposes of this Agreement, a person shall be deemed to “Beneficially
Own” any securities of which such person is considered to be a “Beneficial
Owner” under Rule 13d-3 under the Exchange Act, provided that no Person shall be
deemed to Beneficially Own any securities it holds (or over which it has
investment discretion) in a fiduciary capacity for Clients. For purposes of this
Agreement, “Voting Securities” shall mean at any time shares of any class of
capital stock of the Company that are then entitled to vote generally in the
election of directors.

(g) Notwithstanding the foregoing provisions of this Section 7.04, the
restrictions set forth above in this Section 7.04 shall be suspended: (a) if it
is publicly disclosed that the Company is seeking any purchaser for a
controlling interest in its business or enters into negotiations for the sale of
such controlling interest, which negotiations are publicly disclosed; (b) if it
is publicly disclosed that (1) another Person or group which is unaffiliated
with the Investor has offered or proposed to acquire, directly or indirectly, by
purchase, tender offer, merger, consolidation or otherwise, a controlling
interest in the Company, or assets representing, at least fifty percent (50%) of
the market capitalization of the Company, and the Company has approved or
recommended that the stockholders of the Company accept such offer, or (2) the
Company has entered into an agreement in principle or definitive agreement
providing for a transaction described in the proceeding clause (1); (c) if a
party unaffiliated with the Investor shall have acquired control of the board of
directors of the Company through the solicitation of proxies or otherwise;
(d) with respect to any acquisition by the Investor or any of its Affiliates of
any assets or securities of the Company, as debtor, in a transaction subject to
the approval of the United States Bankruptcy Court pursuant to proceedings under
the United States Bankruptcy Code; (e) with respect to the sale or exchange by
the Investor of securities in a tender or exchange offer initiated by a Person
other than the Investor or its Affiliates; or (f) with respect to any action
taken by the Investor or its Affiliates required by this Agreement or necessary
to consummate the Transactions.

SECTION 7.05. Confidentiality; Information. (a) Each party hereto (the Company,
PNX and PIMCO being considered one party for purposes of this Section 7.05)
shall keep all information received by it from the other party or its
Representatives confidential and shall not, without the other party’s prior
written consent, disclose such information in any manner whatsoever, in whole or
in part. The Investor shall cause its Board Representatives to comply with the
foregoing requirement.

(b) Section 7.05(a) shall not apply to any such information as (i) is or becomes
generally available to the public other than as a result of any disclosure or
other action or inaction by a party hereto (the “Disclosing Party”) or any of
its Representatives in breach of its obligations under this Section 7.05 or
(ii) is or becomes known or available to the Disclosing Party on a
non-confidential basis from a source (other than the other party or its
Representatives) that, to the best of its knowledge, is not under a legal
obligation not to disclose such information to such party or (iii) was
independently developed by the Disclosing Party or its Representatives

 

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without reference to any information provided by the other party or its
Representatives (except pursuant to clauses (i), (ii) or (iv)) or (iv) was known
to the Disclosing Party prior to such disclosure by the other party or its
Representatives.

(c) In the event that the Disclosing Party or its Representatives become legally
compelled (by oral questions, interrogatories, requests for information or
documents, subpoenas, civil investigative demands or otherwise), to disclose any
information received from the other party or its Representatives, the Disclosing
Party shall provide the other party with prompt written notice so that such
other party may seek a protective order or other appropriate remedy, or if the
other party so directs, the Disclosing Party shall, and shall cause its
Representatives to, exercise its reasonable best efforts to obtain a protective
order or other appropriate remedy at the other party’s reasonable expense.
Failing the entry of a protective order or other appropriate remedy or receipt
of a waiver hereunder, the Disclosing Party shall furnish only that portion of
the information which it is advised by its counsel is legally required to be
furnished and shall exercise its reasonable best efforts to obtain reliable
assurance that confidential treatment shall be accorded such information.

(d) The Investor shall cause its Board Representatives to provide such
information to the Company as may reasonably be required in connection with the
Form 10 (if designated prior to the Effective Date) or any other filings with
the Commission or any other Governmental Authority in connection with the
Distribution or the Transactions.

SECTION 7.06. Tax Treatment. The parties acknowledge that PIMCO intends to treat
the Contribution as not qualifying as a transfer to a controlled corporation
under Section 351(a) or (b) of the Code and the Investor agrees not to take any
position for U.S. federal income tax purposes that is inconsistent with that
treatment.

ARTICLE VIII

CONDITIONS PRECEDENT TO THE STEP 1 CLOSING AND STEP 2 CLOSING

SECTION 8.01. Conditions to the Company’s Obligations in Respect of the Step 1
Closing Date. The obligations of the Company and PIMCO to issue and sell the
Preferred Stock hereunder shall be subject to the satisfaction or waiver, on the
Step 1 Closing Date, of the following conditions:

(a) no provision of any Applicable Law, injunction, order or decree of any
Governmental Authority shall be in effect which has the effect of making the
Transactions or the ownership by the Investor of the Preferred Stock or the
Conversion Shares illegal or shall otherwise prohibit the consummation of the
Transactions;

(b) the representations and warranties of the Investor contained in this
Agreement shall have been (A) in the case of representations and warranties that
are qualified as to materiality or Material Adverse Effect, true and correct and
(B) in all other cases, true and correct in all material respects, in each case
as of the Step 1 Closing Date with the same force and effect as though made on
and as of the Step 1 Closing Date;

 

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(c) the Investor shall have performed in all material respects all obligations
and agreements, and complied in all material respects with all covenants
contained in this Agreement to be performed and complied with by the Investor on
the Step 1 Closing Date; and

(d) the Investor shall have delivered to the Company a certificate executed by
it or on its behalf by a duly authorized officer, dated the Step 1 Closing Date,
to the effect that each of the conditions specified in paragraph (a) through
(c) of this Section 8.01 has been satisfied.

SECTION 8.02. Conditions to the Investor’s Obligations in Respect of the Step 1
Closing Date. The obligations of the Investor to purchase the Preferred Stock
hereunder shall be subject to the satisfaction or waiver, on the Step 1 Closing
Date, of the following conditions:

(a) no provision of any Applicable Law, injunction, order or decree of any
Governmental Authority shall be in effect which has the effect of making the
Transactions or the ownership by the Investor of the Preferred Stock or the
Conversion Shares illegal or shall otherwise prohibit the consummation of the
Transactions;

(b) the representations and warranties of the Company, PNX and PIMCO contained
in this Agreement shall have been (A) in the case of representations and
warranties that are qualified as to materiality or Material Adverse Effect, true
and correct and (B) in all other cases, true and correct in all material
respects, in each case as of the Step 1 Closing Date with the same force and
effect as though made on and as of the Step 1 Closing Date;

(c) each of the Company, PNX and PIMCO shall have performed in all material
respects all of their obligations, agreements and covenants contained in this
Agreement to be performed and complied with at or prior to the Step 1 Closing
Date;

(d) the Contribution shall have occurred;

(e) the Certificate of Designations, in the form that is agreed by the parties
in accordance with Section 6.11(b), shall have been filed with the Delaware
Secretary of State; and

(f) each of the Company, PNX and PIMCO shall have delivered to the Investor a
certificate executed by it or on its behalf by a duly authorized officer, dated
the Step 1 Closing Date, to the effect that each of the conditions specified in
paragraphs (a) through (e) of this Section 8.02 has been satisfied.

SECTION 8.03. Conditions to Each Party’s Obligations in Respect of the Step 2
Closing Date. The respective obligations of the Company and the Investor
hereunder required to be performed on the Step 2 Closing shall be subject to the
satisfaction or waiver of the following conditions in addition to the conditions
set forth in Section 8.04 and Section 8.05, respectively:

(a) The Form 10 shall have been declared effective by the Commission;

 

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(b) PNX shall have declared a dividend distributing all the shares of Common
Stock owned by PNX to holders of PNX common stock and not revoked such dividend;

(c) all conditions to the Distribution, as set forth in the Separation
Agreement, shall have been satisfied; and

(d) no provision of any Applicable Law, injunction, order or decree of any
Governmental Authority shall be in effect which has the effect of making the
Transactions or the ownership by the Investor of the Preferred Stock or the
Conversion Shares illegal or shall otherwise prohibit the consummation of the
Transactions.

SECTION 8.04. Conditions to the Company’s Obligations in Respect of the Step 2
Closing Date. The obligations of the Company and PIMCO to issue and sell the
Preferred Stock hereunder shall be subject to the satisfaction or waiver, on the
Step 2 Closing Date, of the following conditions:

(a) the Investor shall have performed in all material respects all obligations
and agreements, and complied in all material respects with all covenants
contained in this Agreement to be performed and complied with by the Investor on
the Step 2 Closing Date; and

(b) the Investor shall have delivered to the Company a certificate executed by
it or on its behalf by a duly authorized officer, dated the Step 2 Closing Date,
to the effect that each of the conditions specified in paragraph (a) of this
Section 8.04 and paragraph (d) of Section 8.03 has been satisfied.

SECTION 8.05. Conditions to the Investor’s Obligations in Respect of the Step 2
Closing Date. The obligations of the Investor to purchase the Preferred Stock
hereunder shall be subject to the satisfaction or waiver, on the Step 2 Closing
Date, of the following conditions:

(a) since the date of this Agreement, there shall not have occurred any change,
event, circumstances or development that has had, or would be reasonably likely
to have, a Material Adverse Effect;

(b) each of the Company, PNX and PIMCO shall have performed in all material
respects all of their obligations, agreements and covenants contained in this
Agreement to be performed and complied with at or prior to the Step 2 Closing
Date;

(c) the working capital of the Company (calculated as the excess of current
assets over current liabilities) shall be in excess of $28 million;

(d) any intercompany debt which the Company owes to PNX or any of its Affiliates
immediately after the Distribution, together with any such intercompany debt
that shall have been paid off by the Company or Virtus immediately prior to or
in connection with the Distribution, will not exceed $33 million; and

(e) each of the Company, PNX and PIMCO shall have delivered to the Investor a
certificate executed by it or on its behalf by a duly authorized officer, dated
the Step 2 Closing Date, to the effect that each of the conditions specified in
paragraphs (a) through (d) of this Section 8.05 and paragraphs (a) through
(d) of Section 8.03 has been satisfied.

 

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ARTICLE IX

MISCELLANEOUS

SECTION 9.01. Indemnification. (a) The Company, PNX and PIMCO agree jointly and
severally to indemnify and hold harmless the Investor and its Affiliates and
each of their respective officers, directors, partners, members and employees,
and each person who controls the Investor within the meaning of the Exchange Act
and the regulations thereunder, to the fullest extent lawful, from and against
any and all actions, suits, claims, proceedings, costs, losses, liabilities,
damages, expenses (including reasonable attorneys’ fees, disbursements and
taxes), amounts paid in settlement and other costs (collectively, “Losses”)
arising out of or resulting from (1) any inaccuracy in or breach of, the
representations or warranties of the Company, PNX or PIMCO in this Agreement,
where such representations or warranties are read without giving effect to any
qualifications or limitations set forth in such representation and warranties as
to “materiality”, “Material Adverse Effect”, “knowledge” and words of similar
import, (2) the breach of any agreements or covenants made by the Company, PNX
or PIMCO in this Agreement, (3) any Loss for which the Company is entitled to
indemnification under Section 6.02 of the Separation Agreement and Article II of
the Tax Separation Agreement (for this purpose, treating the Investor and its
Affiliates as though they were indemnified persons thereunder) without
duplication for any Loss the Company is made whole, (4) the Official Committee
of Asbestos Claimants of G-I Holdings, Inc. f/k/a GAF Corporation v. Building
Materials Corporation of America, et al and any related action, suit or
proceeding, or (5) the inquiry regarding Phoenix Growth and Income Fund.

(b) The Investor agrees to indemnify and hold harmless each of the Company and
its Affiliates and each of their respective officers and directors, and each
person who controls the Company within the meaning of the Exchange Act and the
regulations thereunder, to the fullest extent lawful, from and against any and
all Losses arising out of or resulting from (1) any inaccuracy in or breach of
the Investor’s representations or warranties in this Agreement or (2) the
Investor’s breach of agreements or covenants made by the Investor in this
Agreement.

(c) A party entitled to indemnification hereunder (each, an “Indemnified Party”)
shall give written notice to the party indemnifying it (the “Indemnifying
Party”) of any claim with respect to which it seeks indemnification promptly
after the discovery by such Indemnified Party of any matters giving rise to a
claim for indemnification; provided that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 9.01 unless and to the extent that the
Indemnifying Party shall have been actually prejudiced by the failure of such
Indemnified Party to so notify such party. Such notice shall describe in
reasonable detail such claim. In case any such action, suit, claim or proceeding
is brought against an Indemnified Party, the Indemnified Party shall be entitled
to hire, at its own expense, separate counsel and participate in the defense
thereof; provided, however, that the Indemnifying Party shall be entitled to
assume and conduct the defense thereof, unless the counsel to the Indemnified
Party advises such Indemnifying Party in writing that such claim involves a
conflict of interest (other than one of a monetary nature)

 

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that would reasonably be expected to make it inappropriate for the same counsel
to represent both the Indemnifying Party and the Indemnified Party, in which
case the Indemnified Party shall be entitled to retain its own counsel at the
cost and expense of the Indemnifying Party (except that the Indemnifying Party
shall only be liable for the legal fees and expenses of one law firm for all
Indemnified Parties, taken together with respect to any single action or group
of related actions). If the Indemnifying Party assumes the defense of any claim,
all Indemnified Parties shall thereafter deliver to the Indemnifying Party
copies of all notices and documents (including court papers) received by the
Indemnified Party relating to the claim, and each Indemnified Party shall
cooperate in the defense or prosecution of such claim. Such cooperation shall
include the retention and (upon the Indemnifying Party’s request) the provision
to the Indemnifying Party of records and information that are reasonably
relevant to such claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder. The Indemnifying Party shall not be liable for any settlement of any
action, suit, claim or proceeding effected without its written consent;
provided, however, that the Indemnifying Party shall not unreasonably withhold
or delay its consent. The Indemnifying Party further agrees that it will not,
without the Indemnified Party’s prior written consent (which shall not be
unreasonably withheld or delayed), settle or compromise any claim or consent to
entry of any judgment in respect thereof in any pending or threatened action,
suit, claim or proceeding in respect of which indemnification has been sought
hereunder unless such settlement or compromise includes an unconditional release
of such Indemnified Party from all liability arising out of such action, suit,
claim or proceeding.

(d) The Company, PNX and PIMCO shall not be required to indemnify the
Indemnified Parties pursuant to Section 9.01(a)(1), disregarding all
qualifications or limitations set forth in such representation and warranties as
to “materiality”, “Material Adverse Effect” and words of similar import,
(1) with respect to any claim for indemnification per individual breach or
series of related items if the aggregate amount of Losses with respect to such
claim are less than $10,000 (any claim involving Losses less than such amount
being referred to as a “De Minimis Claim”) and (2) unless and until the
aggregate amount of all Losses incurred with respect to all claims (other than
De Minimis Claims) pursuant to Section 9.01(a)(1) exceed $250,000 (the
“Threshold Amount”), in which event the Company, PNX and PIMCO shall be
responsible for only the amount of such Losses in excess of the Threshold
Amount. The Investor shall not be required to indemnify the Indemnified Parties
pursuant to Section 9.1(b), disregarding all qualifications or limitations set
forth in such representation and warranties as to “materiality”, “Material
Adverse Effect” and words of similar import, (1) with respect to any De Minimis
Claim and (2) unless and until the aggregate amount of all Losses incurred with
respect to all claims (other than De Minimis Claims) pursuant to Section 9.1(b)
exceed the Threshold Amount, in which event the Investor shall be responsible
for only the amount of such Losses in excess of the Threshold Amount.
Notwithstanding the foregoing provisions of this Section 9.01, the cumulative
indemnification obligations of (i) (x) the Company, PNX and PIMCO to the
Investor and all of the Indemnified Parties affiliated with (or whose claims are
permitted by virtue of their relationship with) the Investor or (y) the Investor
to the Company and the Indemnified Parties affiliated with (or whose claims are
permitted by virtue of their relationship with) the Company, in each case for
inaccuracies in or breaches of representations and warranties, shall not exceed
$35 million; and (ii) PNX and PIMCO to the Investor and all of the Indemnified
Parties affiliated with (or whose claims are permitted by virtue of their
relationship with) the Investor or (y) the Investor to PNX, PIMCO and the
Indemnified Parties affiliated with (or whose claims are permitted by virtue of
their relationship with) the Company, in each case for inaccuracies in or
breaches of representations and warranties, shall not exceed $22.5 million.

 

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(e) Any claim for indemnification pursuant to Section 9.01(a)(1) for breach of
any representation or warranty can only be brought on or prior to the expiration
of the survival period applicable to such representation or warranty as set
forth in Section 9.02; provided that if notice of a claim for indemnification
pursuant to Section 9.01(a)(1) for breach of any representation or warranty is
brought prior to the expiration of the survival period applicable to such
representation or warranty as set forth in Section 9.02, then the obligation to
indemnify in respect of such breach shall survive as to such claim until such
claim has been finally resolved.

(f) The indemnity provided for in this Section 9.01 shall be the sole and
exclusive monetary remedy of Indemnified Parties for any inaccuracy of any
representation or warranty or any other breach of any covenant or agreement
contained in this Agreement; provided that nothing herein shall limit in any way
any such party’s remedies in respect of fraud by any other party in connection
with the Transactions. No party to this Agreement (or any of its Affiliates)
shall, in any event, be liable or otherwise responsible to any other party (or
any of its Affiliates) for any consequential or punitive damages of such other
party (or any of its Affiliates) arising out of or relating to this Agreement or
the performance or breach hereof.

(g) Any indemnification payments pursuant to this Section 9.01 shall be treated
as an adjustment to the purchase price for the Preferred Stock for U.S. federal
income and applicable state and local Tax purposes, unless a different treatment
is required by Applicable Law.

SECTION 9.02. Survival. Each of the representations and warranties set forth in
this Agreement shall survive the Step 2 Closing Date (or the Step 1 Closing
Date, if this Agreement has been terminated with respect to the Step 2 Closing):

(a) indefinitely, in the case of any breach of, or inaccuracy in, the
representations and warranties set forth in Section 3.01 (Organization and
Standing), Section 3.02 (Capital Stock), Section 3.03 (Authorization;
Enforceability), Section 4.01 (Organization; Authorization; Enforceability), or
Section 5.01 (Organization; Authorization; Enforceability); and

(b) for a period of eighteen (18) months from the Step 2 Closing Date (or the
Step 1 Closing Date, if this Agreement has been terminated with respect to the
Step 2 Closing), in the case of any breach of, or inaccuracy in, any other
representation and warranty or until final resolution of any claim or action
arising from the breach of any such representation and warranty, if notice of
such breach was provided prior to the periods set forth above in this
Section 9.02, and thereafter shall expire and have no further force and effect,
including in respect of Section 9.01.

SECTION 9.03. Legends. (a) So long as applicable, each certificate representing
any portion of the Preferred Stock and Conversion Shares shall be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES. SUCH SHARES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS
AND DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
IT TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THOSE
LAWS.”

 

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(b) In addition, so long as applicable, each certificate representing any
portion of the Preferred Stock and Conversion Shares shall be stamped or
otherwise imprinted with a legend in the following form:

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN AN INVESTMENT AND CONTRIBUTION
AGREEMENT, DATED AS OF OCTOBER 30, 2008, AS IT MAY BE AMENDED FROM TIME TO TIME,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE
ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH. ANY
TRANSFER NOT IN COMPLIANCE WITH SUCH AGREEMENT SHALL BE VOID.”

The legend referred to in this paragraph (b) shall be removed at such time as
such security is transferred to a Person other than the Investor or any of its
permitted transferees.

SECTION 9.04. Notices. All notices, demands, requests, consents, approvals or
other communications required or permitted to be given hereunder or which are
given with respect to this Agreement shall be in writing and shall be personally
served, delivered by reputable air courier service with charges prepaid, or
transmitted by hand delivery, telegram, telex or facsimile, addressed as set
forth below, or to such other address as such party shall have specified most
recently by written notice. Notice shall be deemed given on the date of service
or transmission if personally served or transmitted by facsimile. Notice
otherwise sent as provided herein shall be deemed given on the next business day
following delivery of such notice to a reputable air courier service.

To the Company:

Virtus Holdings, Inc.

c/o Virtus Investment Partners, Inc.

56 Prospect Street

Hartford, Connecticut 06102

Attention: General Counsel

 

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with copies to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attn: Gary I. Horowitz

Telephone: (212) 455-2000

Fax:            (212) 455-2502

and

Day Pitney LLP

200 Campus Drive

Florham Park, New Jersey 07932

Attention: Warren J. Casey

Fax:            (973) 966-1015

To PIMCO:

Phoenix Investment Management Company

c/o The Phoenix Companies, Inc.

One American Row

Hartford, Connecticut 06102

Attention: General Counsel

with a copy to:

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attn: Gary I. Horowitz

Telephone: (212) 455-2000

Fax:            (212) 455-2502

To the Investor:

Harris Bankcorp, Inc.

111 W. Monroe Street

Chicago, Illinois 60603

Attn: Barbara Muir

Telephone: (416) 867-6423

Fax:            (312) 765-8106

with a copy to:

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

 

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Attn: John J. O’Brien

Telephone: (212) 558-4000

Fax:            (212) 558-4437

SECTION 9.05. Termination. (a) This Agreement may be terminated (i) at any time
prior to the Step 1 Closing Date, or following the Step 1 Closing, the Step 2
Closing Date (but only with respect to the Step 2 Closing), by mutual written
agreement of the Company and the Investor, (ii) if the Step 2 Closing shall not
have occurred on or prior to January 31, 2009, by either the Company or the
Investor, at any time after January 31, 2009, but only with respect to the
provisions of this Agreement governing the Step 2 Sale; provided that the right
to terminate this Agreement under this Section 9.05(a)(ii) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement was the cause of or resulted in the failure of the Step 2 Closing to
occur on or before such date or (iii) if any Governmental Authority shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Contribution, the Distribution or the other Transactions, by either the
Company or the Investor, provided that the right to terminate this Agreement
pursuant to this Section 9.05(a)(iii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement was the cause of, or
resulted in, such final order, decree or ruling.

In the event that in accordance with the foregoing this Agreement is terminated
only with respect to the Step 2 Closing, the parties hereto shall continue to be
bound by all the provisions of this Agreement, except for Section 2.02(b),
Section 6.07, Section 6.09, Section 7.04, Section 8.03, Section 8.04 and
Section 8.05. For the avoidance of doubt, in the event of termination of this
Agreement with respect to the Step 2 Closing, the Investor and the Company shall
retain their respective Put Right and Call Option with respect to the Series A
Preferred Stock purchased by the Investor in the Step 1 Sale.

(b) In the event of termination of this Agreement, written notice thereof shall
be given to the other parties specifying the provision hereof pursuant to which
such termination is made, and this Agreement (except for the provisions of
Section 7.05 and this Article IX which shall survive such termination) shall
become null and void.

SECTION 9.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, INTERPRETED
UNDER, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICTS OF LAW THEREOF.

SECTION 9.07. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH
PARTY (A) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER

 

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AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.07.

SECTION 9.08. Entire Agreement. (a) This Agreement (including all agreements
entered into pursuant hereto and thereto and all certificates and instruments
delivered pursuant hereto and thereto) constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements, representations, understandings, negotiations and
discussions between the parties, whether oral or written, with respect to the
subject matter hereof.

SECTION 9.09. Modifications and Amendments. No amendment, modification or
termination of this Agreement shall be binding upon any other party unless
executed in writing by the parties hereto intending to be bound thereby.

SECTION 9.10. Waivers and Extensions. Any party to this Agreement may waive any
condition, right, breach or default that such party has the right to waive,
provided that such waiver will not be effective against the waiving party unless
it is in writing, is signed by such party, and specifically refers to this
Agreement. Waivers may be made in advance or after the right waived has arisen
or the breach or default waived has occurred. Any waiver may be conditional. No
waiver of any breach of any agreement or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof nor of any other
agreement or provision herein contained. No waiver or extension of time for
performance of any obligations or acts shall be deemed a waiver or extension of
the time for performance of any other obligations or acts.

SECTION 9.11. Titles and Headings; Rules of Construction. Titles and headings of
sections of this Agreement are for convenience only and shall not affect the
construction of any provision of this Agreement. Unless the context otherwise
requires:

(a) a term has the meaning assigned to it;

(b) “or” is not exclusive;

(c) “including” means including without limitation; and

(d) words in the singular include the plural and words in the plural include the
singular.

SECTION 9.12. Exhibits and Schedules. Each of the exhibits and schedules
referred to herein and attached hereto is an integral part of this Agreement and
is incorporated herein by reference.

SECTION 9.13. Press Releases and Public Announcements. All public announcements
or public disclosures relating to the Transactions (other than the Form 10)
shall be made only if mutually agreed upon by the Company and the Investor,
except to the extent such disclosure is, in the opinion of counsel, required by
law or by stock exchange regulation.

 

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SECTION 9.14. Assignment; No Third-Party Beneficiaries. Except as otherwise set
forth in Section 7.03(c), this Agreement and the rights, duties and obligations
hereunder may not be assigned or delegated by the Company without the prior
written consent of the Investor, and may not be assigned or delegated by the
Investor without the Company’s prior written consent. Except as set forth above,
any assignment or delegation of rights, duties or obligations hereunder made in
violation of this Section 9.14 shall be void and of no effect. This Agreement
and the provisions hereof shall be binding upon and shall inure to the benefit
of each of the parties and their respective successors and permitted assigns.
This Agreement is not intended to confer any rights or benefits on any Persons
other than as expressly set forth in this Section 9.14.

SECTION 9.15. Specific Performance. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to seek specific performance of the terms hereof,
this being in addition to any other remedies to which they are entitled at law
or equity.

SECTION 9.16. Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.

SECTION 9.17. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.

[remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

PHOENIX INVESTMENT MANAGEMENT COMPANY By  

/s/ James D. Wehr

Name:   James D. Wehr Title:   President VIRTUS HOLDINGS, INC. By  

/s/ George R. Aylward, Jr.

Name:   George R. Aylward, Jr. Title:   President

[Signature Page to Investment and Contribution Agreement]

--------------------------------------------------------------------------------

HARRIS BANKCORP, INC. By  

/s/ Charles R. Tonge

Name:   Charles R. Tonge Title:   Vice Chairman

[Signature Page to Investment and Contribution Agreement]

--------------------------------------------------------------------------------

THE PHOENIX COMPANIES, INC. By  

/s/ Peter Hofmann

Name:   Peter Hofmann Title:   Senior Executive Vice President

[Signature Page to Investment and Contribution Agreement]