EXHIBIT 10.17

 

 

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PURCHASE AND SALE AGREEMENT

 

by and between

 

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA

 

(“Seller”)

 

and

 

STANDARD INSURANCE COMPANY

 

(“Buyer”)

 

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Dated as of May 29, 2002

 

 

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TABLE OF CONTENTS

 

         

Page

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ARTICLE I    DEFINITIONS

  

  1

    Section 1.1.

  

Certain Definitions

  

  1

    Section 1.2.

  

Singular and Plural

  

  6

ARTICLE II    TRANSFER OF GROUP BUSINESS ASSETS AND ASSUMPTION OF COINSURED
LIABILITIES

  

  6

    Section 2.1.

  

Transfer of Group Business Assets

  

  6

    Section 2.2.

  

Assumption of Coinsured Liabilities

  

  6

    Section 2.3.

  

Purchase Price

  

  6

    Section 2.4.

  

Closing

  

  6

    Section 2.5.

  

Closing Reserve Statement; Adjustments; Omitted Claims and Disputes

  

  7

    Section 2.6.

  

Manner of Payment

  

  9

    Section 2.7.

  

Transfer Taxes

  

  9

ARTICLE III    REPRESENTATIONS AND WARRANTIES OF SELLER

  

  9

    Section 3.1.

  

Organization

  

  9

    Section 3.2.

  

Authority; Binding Effect

  

  9

    Section 3.3.

  

No Conflict

  

10

    Section 3.4.

  

Filings and Consents

  

10

    Section 3.5.

  

Financial Statements

  

10

    Section 3.6.

  

Reserves

  

10

    Section 3.7.

  

Undisclosed Liabilities; Absence of Changes

  

11

    Section 3.8.

  

Litigation and Investigations

  

11

    Section 3.9.

  

Compliance with Law

  

11

    Section 3.10.

  

Taxes

  

11

    Section 3.11.

  

No Brokers or Finders

  

12

    Section 3.12.

  

No Misrepresentation

  

12

    Section 3.13.

  

Books and Records

  

12

    Section 3.14.

  

ERISA Compliance of Covered Group Policies

  

12

    Section 3.15.

  

Material Contracts

  

12

ARTICLE IV    REPRESENTATIONS AND WARRANTIES OF BUYER

  

12

    Section 4.1.

  

Organization

  

13

    Section 4.2.

  

Authority; Binding Effect

  

13

    Section 4.3.

  

No Conflict

  

13

    Section 4.4.

  

Filings and Consents

  

13

    Section 4.5.

  

Actions Pending

  

13

 

 

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TABLE OF CONTENTS

(continued)

 

         

Page

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    Section 4.6.

  

Reports; Financial Statements

  

14

    Section 4.7.

  

Authority to Conduct Group Business

  

15

    Section 4.8.

  

No Brokers or Finders

  

15

ARTICLE V    COVENANTS OF SELLER

  

15

    Section 5.1.

  

Operation of the Business

  

15

    Section 5.2.

  

Pre-Closing Access by Buyer; Delivery of Books and Records

  

15

    Section 5.3.

  

Additional Financial Statements

  

16

    Section 5.4.

  

Seller’s Non-Compete

  

16

ARTICLE VI    COVENANTS OF BUYER

  

16

    Section 6.1.

  

Post-Closing Access by Seller

  

16

    Section 6.2.

  

Buyer Non-Solicitation and Non-Interference

  

16

ARTICLE VII    JOINT COVENANTS

  

17

    Section 7.1.

  

Filings and Notices; Approvals and Consents

  

17

    Section 7.2.

  

Form and Rate Filings

  

17

    Section 7.3.

  

Policyholder Confidentiality

  

18

    Section 7.4.

  

Updating Schedules

  

18

ARTICLE VIII    TRANSITIONAL MATTERS

  

18

    Section 8.1.

  

Pre-Closing Cooperation

  

18

    Section 8.2.

  

Retention; Severance

  

22

    Section 8.3.

  

Indemnity Reinsurance

  

22

    Section 8.4.

  

Necessary Support Services

  

22

    Section 8.5.

  

Use of Seller Names Post-Closing

  

22

ARTICLE IX    CONDITIONS TO OBLIGATIONS OF BUYER

  

22

    Section 9.1.

  

Representations and Warranties Correct

  

23

    Section 9.2.

  

Performance; No Default

  

23

    Section 9.3.

  

No Litigation, Injunctions or Restraints

  

23

    Section 9.4.

  

Governmental Approvals

  

23

    Section 9.5.

  

No Material Adverse Effect

  

23

    Section 9.6.

  

Other Transaction Documents

  

23

    Section 9.7.

  

Opinion of Counsel for Seller

  

23

ARTICLE X    CONDITIONS TO OBLIGATIONS OF SELLER

  

23

    Section 10.1.

  

Representations and Warranties Correct

  

23

    Section 10.2.

  

Performance; No Default

  

24

    Section 10.3.

  

No Litigation, Injunctions or Restraints

  

24

 

ii

 

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TABLE OF CONTENTS

(continued)

 

 

 

         

Page

    Section 10.4.

  

Governmental Approval

  

24

    Section 10.5.

  

No Material Adverse Effect

  

24

    Section 10.6.

  

Other Transaction Documents

  

24

    Section 10.7.

  

Opinion of Counsel for Buyer

  

24

ARTICLE XI    DELIVERIES AT CLOSING

  

24

    Section 11.1.

  

Deliveries by Seller

  

24

    Section 11.2.

  

Deliveries by Buyer

  

25

    Section 11.3.

  

Deliveries by Seller and Buyer

  

25

ARTICLE XII    INDEMNIFICATION

  

25

    Section 12.1.

  

Indemnification

  

25

    Section 12.2.

  

Procedures for Third Party Claims

  

26

    Section 12.3.

  

Procedures for Direct Claims

  

27

    Section 12.4.

  

Survival

  

27

    Section 12.5.

  

Duty of Mitigation

  

28

    Section 12.6.

  

Subrogation

  

28

    Section 12.7.

  

Exclusive Remedy

  

28

ARTICLE XIII    MISCELLANEOUS PROVISIONS AND AGREEMENTS

  

28

    Section 13.1.

  

Confidentiality; Public Announcements

  

28

    Section 13.2.

  

Expenses

  

29

    Section 13.3.

  

Notices

  

29

    Section 13.4.

  

Amendment; No Waiver

  

30

    Section 13.5.

  

Termination

  

30

    Section 13.6.

  

Arbitration

  

30

    Section 13.7.

  

Consent to Jurisdiction; Waiver of Jury Trial

  

31

    Section 13.8.

  

Assignment

  

32

    Section 13.9.

  

Entire Agreement; Section Headings

  

32

    Section 13.10.

  

Applicable Law

  

32

    Section 13.11.

  

Further Assurances

  

32

    Section 13.12.

  

Parties in Interest

  

32

    Section 13.13.

  

Interpretation

  

32

    Section 13.14.

  

Severability

  

33

    Section 13.15.

  

Counterparts

  

33

 

iii

 

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TABLE OF CONTENTS

(continued)

 

 

 

LIST OF EXHIBITS & SCHEDULES

 

Exhibit

  

A

  

Form of Closing Reserve Statement

    

B

  

Form of Post-Closing Reserve Statement

    

C

  

Actuarial Assumptions and Methodologies

    

D

  

Form of Indemnity Reinsurance Agreement

    

E

  

Form of Administration Agreement

    

F

  

Form of Transition Service Agreement

Schedule

  

1.1

  

Material Adverse Effect Exceptions

    

3.4

  

Filings and Consents

    

3.5

  

Group Business Financial Statements

    

3.7

  

Liabilities Outside the Ordinary Course of Business

    

3.8

  

Group Business Litigation

    

3.15

  

Material Contracts

    

4.4

  

Filings and Consents

    

4.7

  

Insurance Licenses of Buyer

    

5.1

  

Operation of the Business

    

6.2

  

Group Policyholders

    

8.2(a)

  

Retention Summary

    

8.2(b)

  

Severance Arrangements

 

iv

 

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PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT, dated as of May 29, 2002 (together with the
exhibits and schedules hereto, this “Agreement”), is entered into by and between
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a life insurance company
organized under the laws of the State of New York (“Seller”), and STANDARD
INSURANCE COMPANY, a life insurance company organized under the laws of the
State of Oregon (“Buyer”).

 

W I T N E S S E T H

 

WHEREAS, Seller is engaged in the business of selling, marketing, underwriting,
issuing and administering group life and group disability insurance policies
(collectively, the “Group Business”) and desires to sell certain of the Group
Business to Buyer, on the terms and subject to the conditions hereinafter set
forth;

 

WHEREAS, Buyer desires to purchase certain of the Group Business, on the terms
and subject to the conditions hereinafter set forth;

 

WHEREAS, To effectuate the foregoing, it is contemplated that, upon the terms
and subject to the conditions of this Agreement and to the receipt of all
necessary insurance regulatory consents or approvals: (i) Buyer and Seller will
enter into the Indemnity Reinsurance Agreement to provide for the reinsurance by
Buyer on a one hundred percent (100%) indemnity coinsurance basis of the
Coinsured Liabilities (capitalized terms used but otherwise undefined in these
recitals shall have their respective meanings as set forth in Section 1.1)
arising under the Covered Group Policies; (ii) the sale and assignment by
Seller, and the acceptance, purchase and assumption by Buyer, of the Group
Business Assets and the Coinsured Liabilities will occur as set forth herein and
the Indemnity Reinsurance Agreement; (iii) Seller and Buyer will enter into the
Administration Agreement, pursuant to which Buyer and/or its Affiliate will
provide certain administrative services on behalf of the Seller with respect to
the Covered Group Policies as of the Effective Time; (iv) Seller and Buyer will
enter into the Transition Service Agreement pursuant to which Seller will
provide certain transitional and administrative services on behalf of Buyer
and/or its Affiliates with respect to the Covered Group Policies as of the
Effective Time; (v) Seller, Buyer and BNY Western Trust Company, as the Trustee,
will enter into the Security Trust Agreement to provide for the establishment of
a trust account for the benefit of Seller to assure that Seller will have access
to assets in the event that Buyer becomes unable to meet its obligations to
Seller under the Indemnity Reinsurance Agreement; (vi) Seller and Buyer will
enter into the License Agreement pursuant to which Seller will permit Buyer and
certain of its Affiliates to use certain trade and/or service marks of Seller in
connection with the administration of the Covered Group Policies; and (vii)
Seller and Buyer will execute such other instruments and documents as are
described herein; and

 

WHEREAS, except as expressly set forth herein, and in the Indemnity Reinsurance
Agreement, the Administration Agreement and the Transition Service Agreement,
and consistent with all applicable insurance regulatory requirements, Buyer
shall conduct the acquired Group Business independently of Seller after the
Closing;

 

NOW THEREFORE, in consideration of the premises and of the mutual covenants and
agreements contained herein, Seller and Buyer hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1. Certain Definitions. The following capitalized terms shall have the
respective meanings set forth below:

 

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“AAA” is defined in Section 13.6(a).

 

“Actual Reserve Amount” is defined in Section 2.5(b).

 

“Actuarial Assumptions and Methodologies” is defined in Section 2.5(c).

 

“Administration Agreement” is defined in Section 8.3.

 

“Affiliate” of a specified Person means a Person that (at the time when the
determination is to be made) directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified Person. As used in the foregoing sentence, the term “control”
(including, with correlative meaning, the terms “controlling,” “controlled by”
and “under common control with”) means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.

 

“Agreement” is defined in the recitals of this Agreement.

 

“AIDS Claims” is defined in Section 2.5(f).

 

“Anniversary Date” means one year after the Closing Date.

 

“Balance Sheets” is defined in Section 3.5.

 

“Books and Records” means the originals or copies of all Group Business data and
records (including, without limitation, computer generated, recorded or stored
records) including customer lists, policy information, forms of Covered Group
Policies, rating plans, disclosure and other documents and filings required
under all applicable laws, statutes, ordinances and regulations, claim records,
sales records, premium and billing records, underwriting records, financial
records, advertising material, tax records, government reporting records and
compliance records, including manuals, guidelines and written procedures related
to any of the foregoing in the possession or control of Seller or any of its
Affiliates and relating exclusively to the Group Business or that are material
to the Group Business.

 

“Business Day” means any day other than a Saturday or Sunday or any other day on
which commercial banks in New York, New York are permitted or required to be
closed.

 

“Buyer” is defined in the recitals of this Agreement.

 

“Buyer Indemnifiable Losses” is defined in Section 12.1(a).

 

“Buyer Reports” is defined in Section 4.6(b).

 

“Buyer’s SAP Financial Statements” is defined in Section 4.6(a).

 

“Closing” is defined in Section 2.4.

 

“Closing Date” is defined in Section 2.4.

 

“Closing Reserve Statement” is defined in Section 2.5(a).

 

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.

 

“Coinsured Liabilities” is defined in the Indemnity Reinsurance Agreement.

 

“Competing Business” is defined in Section 5.4.

 

2

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“Confidentiality Agreement” is defined in Section 13.1.

 

“Covered Group Policies” is defined in the Indemnity Reinsurance Agreement.

 

“Deficiency Amount” is defined in Section 2.5(b).

 

“Direct Claim” is defined in Section 12.3.

 

“Estimated Reserve Amount” is defined in Section 2.5(a).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, together
with the rules and regulations promulgated thereunder.

 

“Excess Amount” is defined in Section 2.5(b).

 

“Excluded Liabilities” is defined in the Indemnity Reinsurance Agreement.

 

“GAAP” means United States generally accepted accounting principles.

 

“Governmental Entity” means any agency, administrative division or department
(or administrative subdivision), commission, regulatory authority, taxing or
administrative authority, guaranty fund association, court or other judicial
body or legislature of the government of the United States or of any state,
city, municipality, county or town thereof, or of any foreign jurisdiction,
including the employees or agents of any thereof.

 

“Group Business” is defined in the recitals of this Agreement.

 

“Group Business Assets” means all of Seller’s right, title and interest in and
to: (i) the Books and Records and (ii) cash equal to the value of the Reserves
as reflected on the Closing Reserve Statement or Post-Closing Reserve Statement,
as the case may be.

 

“Group Business Financial Statements” is defined in Section 3.5.

 

“Group Policyholder” is defined in Section 6.2.

 

“Indemnifiable Losses” is defined in Section 12.1(b).

 

“Indemnified Party” is defined in Section 12.2(a).

 

“Indemnifying Party” is defined in Section 12.2(a).

 

“Indemnity Reinsurance Agreement” is defined in Section 8.3.

 

“Independent Actuary” is defined in Section 2.5(d)(3).

 

“Insurance License” means any license, certificate of authority, permit or other
authorization granted by a Governmental Entity to transact an insurance or
reinsurance business.

 

“Interest Rate” means six percent (6%) per annum.

 

“Knowledge” means: (i) with respect to Seller, the actual knowledge of any of
Glenn MacFarlane, Jeremiah Hanrahan, Michael Kahn or Diane McGovern and (ii)
with respect to Buyer, the actual knowledge of any of James Bloyer, David
Fitzpatrick, Lawrence Frank or Victor Trelawny.

 

“Liability” means any indebtedness, liability, claim, cost, loss, damage,
deficiency, judgment, settlement, obligation or responsibility, whether fixed or
unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured,
due or to become due, accrued, absolute, contingent or otherwise.

 

“License Agreement” is defined in Section 8.5.

 

3

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“Liens” means all mortgages, pledges, security interests, liens, charges,
options, conditional sales agreements, restrictions, covenants, easements,
rights of way, title defects or other encumbrances of any nature whatsoever.

 

“Material Adverse Effect” means, (i) with respect to the acquired Group
Business, a change in the business, financial condition or results of operation
of the Group Business taken as a whole, that is material and adverse, or
materially and adversely affects the ability of Seller to perform its
obligations under this Agreement or to consummate the transactions contemplated
hereby; provided however, that no Material Adverse Effect shall arise out of or
result from any event, occurrence or development to the extent resulting from
(A) changes in general economic conditions in the United States, including,
without limitation, fluctuations in interest rates, (B) changes in general
industry conditions with respect to either life insurance or disability
insurance industries, (C) the announcement or execution of this Agreement or any
of the other Transaction Documents or the identity of, or facts relating to,
Buyer or any of its Affiliates, (D) any adverse change in the amount or rate of
cancellation, non-renewal, termination, lapse, surrender or similar action with
respect to the Covered Group Policies, (E) any adverse change in the amount of
the Reserves or (F) any event set forth on Schedule 1.1 hereof; and (ii) with
respect to Buyer, a change in the business, financial condition or results of
operations of Buyer that is material and adverse or materially and adversely
affects the ability of Buyer to perform its obligations under this Agreement or
the other Transaction Documents or to consummate the transactions contemplated
hereby and thereby, including, without limitation, operating the Group Business
after the Closing Date.

 

“Material Breach” is defined in Section 8.1(o).

 

“New York Insurance Department” means the New York State Insurance Department or
any successor insurance regulatory body in the State of New York.

 

“NY SAP” means the statutory accounting practices prescribed or permitted by the
New York Insurance Department for the preparation of annual and quarterly
financial statements and other financial reports by life insurance companies.

 

“Omitted Claims” is defined in Section 2.5(d)(3).

 

“Omitted Claims Reserve Statement” is defined in Section 2.5(d)(3).

 

“Open Claims List” is defined in Section 2.5(a).

 

“Oregon SAP” means the statutory accounting practices prescribed or permitted by
the State of Oregon Department of Consumer and Business Services Insurance
Division for the preparation of annual and quarterly financial statements and
other financial reports by life insurance companies.

 

“Pension Business” means the business of selling, marketing, underwriting,
issuing and administering retirement annuities (whether fixed or variable, on an
individual or group basis), including, without limitation, those used as funding
vehicles for qualified defined contribution plans under Sections 401(a), 403(a),
403(b) and 457 of the Code and other non-qualified deferred compensation plans.

 

“Person” means any individual, corporation, limited liability company, joint
stock company, joint venture, partnership, unincorporated association,
governmental regulatory entity, country, state or political subdivision thereof,
trust or other entity.

 

“Policyholder” means a holder of a Covered Group Policy.

 

“Post-Closing Reserve Statement” is defined in Section 2.5(b).

 

“Pre-Closing Period” is defined in Section 8.1(a).

 

4

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“Purchase Price” means the amount provided in Section 2.3.

 

“Reserves” means, as of any specified date, the amount required in the aggregate
to be maintained as statutory reserves for the Coinsured Liabilities in respect
of the Covered Group Policies calculated on a NY SAP basis, as of such date,
consisting exclusively of amounts in respect of those items set forth on Exhibit
A hereof, in each case net of third party reinsurance ceded.

 

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

 

“Securities Act” means the Securities Act of 1933, as amended, together with the
rules and regulations promulgated thereunder.

 

“Security Trust Agreement” is defined in the Indemnity Reinsurance Agreement.

 

“Seller” is defined in the recitals.

 

“Seller Employee” is defined in Section 8.1(d).

 

“Seller Indemnifiable Losses” is defined in Section 12.1(b).

 

“StanCorp” is defined in Section 4.6(b).

 

“StanCorp SEC Reports” is defined in Section 4.6(b).

 

“Subsidiary” means, with respect to any Person, any corporation, partnership,
joint venture or other legal entity of which such Person (either alone or
through or together with any other Subsidiary) owns, directly or indirectly,
more than 50% of the outstanding stock or other equity interest the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.

 

“Tax” or “Taxes” means all taxes, charges, duties, fees, levies or other
assessments, including but not limited to, income, excise, property, sales,
transfer, use, stamp, franchise, withholding, premium, gross receipts, value
added, environmental, estimated, social security, workers compensation and
unemployment taxes, and guarantee fund assessments imposed by the United States,
any possession thereof, any state, county, local or foreign government, or any
subdivision or agency of any of the foregoing, and any interest, penalties or
additions to tax relating to the foregoing.

 

“Taxing Authority” means any federal, state, local or foreign Governmental
Entity responsible for the administration or collection of any Tax, or for the
adjudication of any case, controversy or proceeding with respect to Tax.

 

“Tax Return” means any return, report, information return, or other document
(including any related or supporting information) filed or required to be filed
with any federal, state, local or foreign Governmental Entity or other authority
in connection with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements relating
to any Tax.

 

“Third Party Claim” is defined in Section 12.2(a).

 

“Threshold Amount” is defined in Section 12.1(a)

 

“Transaction Documents” means this Agreement, the Indemnity Reinsurance
Agreement, the Administration Agreement, the Transition Service Agreement and
the Security Trust Agreement.

 

“Transition Period” is defined in the Transition Service Agreement.

 

“Transition Service Agreement” is defined in Section 8.4.

 

“Transition Services” is defined in the Transition Service Agreement.

 

5

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“Transition Termination Date” is defined in the Transition Service Agreement.

 

“Transfer Taxes” is defined in Section 2.7.

 

Section 1.2. Singular and Plural. Any singular term in this Agreement shall be
deemed to include the plural, and any plural term the singular.

 

ARTICLE II

 

TRANSFER OF GROUP BUSINESS ASSETS

AND ASSUMPTION OF COINSURED LIABILITIES

 

Section 2.1. Transfer of Group Business Assets. On the Closing Date, upon the
terms and subject to the conditions of this Agreement and the Indemnity
Reinsurance Agreement, and to the receipt of all necessary insurance regulatory
consents and approvals, Seller shall sell, assign, transfer, and convey to
Buyer, and Buyer shall purchase and accept from Seller, all of Seller’s right,
title and interest in and to the Group Business Assets, free and clear of all
Liens. The Group Business Assets assigned and transferred shall consist of (x)
cash equal to the NY SAP value of the Reserves as of the Closing Date (subject
to the adjustment provisions of Section 2.5 hereof) required to be transferred
pursuant to Section 4.1 of the Indemnity Reinsurance Agreement and (y) all
remaining Group Business Assets, which shall be transferred through the
execution and delivery on the Closing Date of appropriate assignments, bills of
sale and other instruments of transfer and conveyance in form and substance
reasonably acceptable to and executed by Buyer and Seller.

 

Section 2.2. Assumption of Coinsured Liabilities. On the Closing Date, upon the
terms and subject to the conditions of this Agreement and the Indemnity
Reinsurance Agreement, and subject to the receipt of all necessary insurance
regulatory consents or approvals, Seller shall assign and transfer, and Buyer
shall absolutely and irrevocably assume without further liability or recourse to
Seller (other than as provided for in the Transaction Documents), and thereafter
Buyer shall be liable for and pay, perform and discharge when due, 100% of the
Coinsured Liabilities.

 

Section 2.3. Purchase Price. In consideration of the sale, assignment, transfer
and conveyance by Seller to Buyer of the Group Business Assets and the cession
of reinsurance of the Coinsured Liabilities by Seller to Buyer, on the Closing
Date Buyer shall pay to Seller an amount equal to SEVENTY-FIVE MILLION DOLLARS
($75,000,000) (the “Purchase Price”); provided, however, that to the extent that
the cash equal to the NY SAP value of the Reserves as of the Closing Date
(subject to the provisions of Section 2.5 hereof) required to be transferred
from Seller to Buyer pursuant to the terms hereof and of the Indemnity
Reinsurance Agreement is greater than the Purchase Price, then such transfer of
cash from Seller to Buyer in respect of the Reserves shall be made net of the
Purchase Price; provided further, that notwithstanding the adjustment provisions
set forth in Section 2.5 hereof, the Purchase Price shall be non-refundable in
whole or in part for any reason whatsoever after the Closing Date other than in
connection with the recapture by Seller of the Coinsured Liabilities in
accordance with the Indemnity Reinsurance Agreement.

 

Section 2.4. Closing. The closing of the sale, assignment, transfer and
conveyance of the Group Business Assets and reinsurance of the Coinsured
Liabilities (the “Closing”), shall take place at the offices of Clifford Chance
Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166 at 10:00 A.M.,
Eastern Time, following the fulfillment or waiver of the conditions precedent
specified in Articles IX and X, on the last Business Day of the calendar month
during which the last approval (as set forth on Schedule 3.4) of the
transactions contemplated by the Transaction Documents is obtained, unless such
date is less than three (3) Business Days prior to the end of suchcalendar
month, in which case, the last Business Day of the following calendar month,
provided that the parties may agree to another date, time and/or place (the
“Closing Date”); provided, however, that the point of delivery of the Group
Business Assets shall be in Oregon.

 

6

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Section 2.5. Closing Reserve Statement; Adjustments; Omitted Claims and
Disputes.

 

(a) Not less than ten (10) Business Days nor more than twenty (20) Business Days
prior to the Closing Date, Seller shall prepare and deliver to Buyer in
accordance with the notice provisions of Section 13.3 a statement in the form of
Exhibit A hereto (the “Closing Reserve Statement”) setting forth a calculation
of the estimated amount of Reserves (on a NY SAP basis) for the purposes of
transfers on the Closing Date (the “Estimated Reserve Amount”), with all amounts
included in such calculation determined as of the last day of the most recent
calendar quarter ending at least one month prior to the Closing Date, together
with an accurate and complete list as of such day of all claims for benefits
(including waiver of life insurance premium) that were approved, payable or
pending, to which the Estimated Reserve Amount relates (an “Open Claims List”).
On the Closing Date, cash transfers in respect of the Reserves as of such date
shall be equal to the Estimated Reserve Amount.

 

(b) Promptly after the Closing Date (but not more than sixty (60) calendar days
thereafter), Seller shall prepare and deliver to Buyer in accordance with the
notice provisions of Section 13.3 a statement in the form of Exhibit B hereto
(the “Post-Closing Reserve Statement”) setting forth a calculation of the actual
amount of Reserves (on a NY SAP basis, except for the adjustments specified in
the final three paragraphs of Exhibit C hereto) as of the Closing Date (the
“Actual Reserve Amount”), together with an Open Claims List updated as of the
Closing Date. The Post-Closing Reserve Statement shall indicate either the
excess of the Actual Reserve Amount over the Estimated Amount (the “Deficiency
Amount”) or the excess of the Estimated Reserve Amount over the Actual Reserve
Amount (the “Excess Amount”).

 

(c) The Reserves shown on each of the Closing Reserve Statement and the
Post-Closing Reserve Statement shall be calculated by Seller in accordance with
NY SAP (except for the adjustments to the Post-Closing Reserve Statement
specified in the final three paragraphs of Exhibit C hereto) consistent with the
actuarial assumptions and methodologies used by Seller for the preparation of
the Group Business Financial Statements as of December 31, 2001 and as described
on Exhibit C hereof (the “Actuarial Assumptions and Methodologies”). Unless
disputed in accordance with Section 2.5(d), the Post-Closing Reserve Statement
delivered by Seller to Buyer shall be final, binding and conclusive on Buyer and
Seller.

 

(d) Notwithstanding any other provision of this Agreement to the contrary, for
the purposes of resolving any dispute concerning any Deficiency Amount or Excess
Amount, Buyer and Seller agree as follows:

 

(1) Buyer may dispute any amount(s) reflected on the Post-Closing Reserve
Statement only in the event that the net effect of all disputed amounts would,
in determining the aggregate amount of Reserves on the Closing Date after
reconsideration of all amounts reflected on the Post-Closing Reserve Statement,
affect any Deficiency Amount or Excess Amount by at least $250,000. In the event
that Buyer desires to dispute any such amount in the Post-Closing Reserve
Statement, it shall within thirty (30) Business Days following Buyer’s receipt
of the Post-Closing Reserve Statement notify Seller in writing in accordance
with the notice provisions of Section 13.3 of any disputed item, including the
specific amount or amounts thereof in dispute and the basis for such dispute. If
Buyer does not so notify Seller within such thirty (30) Business Day period, the
Post-Closing Reserve Statement delivered by Seller to Buyer and the Deficiency
Amount or Excess Amount shown thereon shall be final, binding and conclusive on
Buyer and Seller.

 

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(2) If Buyer makes a timely dispute in accordance with Section 2.5(d)(1) above,
Buyer and Seller shall attempt to reconcile their differences through good faith
negotiations among executive officers of each of Buyer and Seller and any
agreement among them as to any disputed amount or amounts shall be final,
binding and conclusive on Buyer and Seller.

 

(3) If, thirty (30) Business Days after Buyer’s written notice of dispute to
Seller in accordance with Section 2.5(d)(1), amounts reflected on the
Post-Closing Reserve Statement remain in dispute, Buyer and Seller shall submit
the determination of the amount of the Reserves on the Closing Date (including a
determination of items in dispute) for resolution to an individual mutually
agreed upon by Seller and Buyer who shall be an employee of a United States
branch office of Milliman USA. If Seller and Buyer are unable to agree upon such
individual within five (5) Business Days, then Milliman USA shall appoint within
five (5) Business Days an individual who is an employee of a United States
branch office of Milliman USA experienced in actuarial principles applicable to
reserving for group life and group disability business who has never been
personally involved in the provision of actuarial services to either Seller or
Buyer (the “Independent Actuary”). The Independent Actuary shall, as soon as
reasonably practicable but in any event within twenty (20) Business Days after
submission, determine and report to Buyer and Seller upon the items in dispute,
or, at the option and direction of either party, the aggregate amount of
Reserves (including, without limitation, the items in dispute), on the Closing
Date, in either case in accordance with the provisions hereof. Any such
determination of the Independent Actuary shall be final, binding and conclusive
upon Buyer and Seller; provided, however, that notwithstanding anything to the
contrary in this Agreement, in the event that it is subsequently determined
prior to the Anniversary Date that certain claims related to Covered Group
Policies approved, payable or pending as of the Closing Date were inadvertently
omitted from the Open Claims List delivered with the Post-Closing Reserve
Statement in accordance with Section 2.5(b) but nevertheless included in the
definition of Coinsured Liabilities under the Indemnity Reinsurance Agreement
(“Omitted Claims”), and that cash equal to the value of the Reserves in respect
of such Omitted Claims was inadvertently not transferred to Buyer, after such
inadvertent errors are discovered by either party, the discovering party shall
advise the other party of such errors and promptly thereafter the Buyer shall
prepare and deliver to Seller a reserve statement in respect of such Omitted
Claims, prepared in accordance with NY SAP and the Actuarial Assumptions and
Methodologies (except for the adjustments described in the final three
paragraphs of Exhibit C) as of the Closing Date (the “Omitted Claims Reserve
Statement”). Promptly after delivery of the Omitted Claims Reserve Statement,
Seller shall transfer to Buyer cash equal to the value of the reserves in
respect of such Omitted Claims as reflected on the Omitted Claims Reserve
Statement prepared as of the Closing Date. Seller may dispute any amount(s) set
forth on the Omitted Claims Reserve Statement and any such dispute shall be
resolved in accordance with the procedures applicable to disputes related to the
Post-Closing Reserve Statement. Each of Buyer and Seller shall be responsible
for the fees and costs of the Independent Actuary in the same proportion as (x)
the aggregate dollar amount of items submitted to the the Independent Actuary
that are unsuccessfully disputed by each such party (as finally determined by
the the Independent Actuary) bears to (y) the aggregate dollar amount of
disputed items so submitted.

 

(4) On the date on which all items contained in the Post-Closing Reserve
Statement become final, binding and conclusive on Buyer and Seller in accordance
with Section 2.5(c) or Section 2.5(d), as the case may be, (i) if there remains
a Deficiency Amount, then Seller shall promptly pay to Buyer such Deficiency
Amount, plus interest accrued thereon from the Closing Date to the payment date
at the Interest Rate or (ii) if there is an Excess Amount, then Buyer shall
promptly pay to Seller such Excess Amount, plus interest accrued thereon from
the Closing Date to the payment date at the Interest Rate.

 

(e) For purposes of this Section 2.5, “final, binding and conclusive” shall mean
that the applicable determination shall have the same preclusive and estoppel
effect for all purposes as if such determination had been embodied in a final
judgment, no longer subject to appeal, entered by a court of competent
jurisdiction after full and fair litigation on the merits.

 

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(f) Buyer acknowledges and agrees that it considered as a part of its evaluation
of the Group Business and its formulation of the Purchase Price the specific
actuarial assumptions and methodologies used by Seller in establishing and
maintaining reserves for Auto-Immune Deficiency Syndrome related disability
claims (“AIDS Claims”). Notwithstanding anything to the contrary set forth in
the Transaction Documents, Buyer shall have no rights or remedies of any nature
whatsoever, including, without limitation, any adjustment to the Reserves on the
Closing Date, any Deficiency Amount or any Excess Amount under this Section 2.5
or any indemnification under Article XII of this Agreement, in any way relating
to such specific actuarial assumptions and methodologies as the same are used to
determine the amount of the Reserves on the Closing Date related to AIDS Claims.

 

Section 2.6. Manner of Payment. Each payment required to be made by any party
hereto pursuant to the terms of this Agreement shall be made in cash by
transferring the amount thereof by wire transfer of immediately available United
States dollars to the account or accounts designated in writing by the party
entitled to such payment.

 

Section 2.7. Transfer Taxes. Seller and Buyer shall cooperate in filing all
necessary documentation and returns with respect to sales, use, transfer,
recording, gains, and other similar taxes and fees (such taxes and fees,
including any interest or penalties thereon, collectively, “Transfer Taxes”).
Seller agrees to indemnify, defend and hold harmless Buyer for any Transfer
Taxes arising out of or in connection with the transactions effected pursuant to
this Agreement. The Liability of Seller pursuant to this Section 2.7 shall not
be subject to the threshold articulated in Article XII, but shall be measured
from the first dollar.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller hereby represents and warrants to Buyer as follows:

 

Section 3.1. Organization. Seller is a stock life insurance company duly
incorporated, validly existing and in good standing under the laws of the State
of New York with all necessary corporate power and authority to own the Group
Business Assets and operate the Group Business as it is currently being
operated. Seller is duly licensed as a life insurance company, or expressly
exempt from such licensing, and in good standing in all jurisdictions applicable
to the Group Business.

 

Section 3.2. Authority; Binding Effect. Seller has all corporate power and
authority necessary to execute, deliver and perform its obligations under the
Transaction Documents. Such execution, delivery and performance have been duly
authorized by all necessary corporate action on the part of Seller. The
execution and delivery by Seller of, and the performance by Seller of its
obligations under, the Transaction Documents will not result in any material
violation by Seller of any law, rule or regulation applicable to Seller. Seller
is not a party to, nor subject to or bound by, any judgment, injunction or
decree of any court or other Governmental Entity that may restrict or interfere
with the performance by Seller of its obligations under the Transaction
Documents. This Agreement is (and when executed and delivered by Seller, each of
the other Transaction Documents will be) a valid and binding obligation of
Seller, enforceable against Seller in accordance with its respective terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
rehabilitation, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors’ rights generally and (ii) the
exercise by courts of equity powers.

 

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Section 3.3. No Conflict. The execution and delivery by Seller of, and the
performance by Seller of its obligations under, the Transaction Documents do not
and will not contravene the organizational documents of Seller or conflict with,
result in a breach of, or entitle any party (with due notice or lapse of time or
both) to terminate, accelerate or declare a default with respect to, any
material agreement or instrument to which Seller is a party or by which Seller
or its assets are bound, except such termination, acceleration or default that
would not be reasonably likely to have a Material Adverse Effect on the Group
Business. The execution and delivery by Seller of, and the performance by Seller
of its obligations under, the Transaction Documents will not result in any
material violation by Seller of any law, rule or regulation applicable to
Seller. To the Knowledge of Seller after reasonable due inquiry, the execution
and delivery by Seller of, and the performance by Seller of its obligations
under, the Transaction Documents will not result in any violation by Seller of
any law, rule or regulation applicable to Seller. Seller is not a party to, nor
subject to or bound by, any judgment, injunction or decree of any court or other
Governmental Entity that may materially restrict or interfere with the
performance by Seller of its obligations under the Transaction Documents. To the
Knowledge of Seller after reasonable due inquiry, Seller is not a party to, nor
subject to or bound by, any judgment, injunction or decree of any court or other
Governmental Entity that may restrict or interfere with the performance by
Seller of its obligations under the Transaction Documents.

 

Section 3.4. Filings and Consents. No consent, waiver, approval, authorization
or order of, or registration, qualification or filing with, any court or other
Governmental Entity is required of the Seller for the execution and delivery by
Seller of, and the performance by Seller of its obligations under, the
Transaction Documents and the consummation by Seller of the transactions
contemplated thereby, other than the filing of applications or notices with,
and/or the obtaining of approvals from, those insurance regulatory authorities
set forth on Schedule 3.4 with respect to Seller’s cession of reinsurance in
respect of the Coinsured Liabilities under the Covered Group Policies; provided,
however, that if it is subsequently determined that any additional insurance
regulatory notices, consents or approvals are required of Seller, such notices
shall be delivered and/or such consents and/or approvals shall be obtained.

 

Section 3.5. Financial Statements. Attached hereto on Schedule 3.5 are unaudited
pro forma balance sheets of the Group Business as of December 31, 1999, 2000 and
2001, and as of March 31, 2002, respectively (the “Balance Sheets”) and related
unaudited pro forma income statements for the Group Business for the fiscal
years 1999, 2000 and 2001, and the fiscal quarter ended March 31, 2002,
respectively (together with the Balance Sheets, the “Group Business Financial
Statements”). Each of the Group Business Financial Statements were prepared in
accordance with NY SAP consistently applied and fairly present in all material
respects the financial position and results of operations of the Group Business
for the periods therein presented except as otherwise expressly provided
therein.

 

Section 3.6. Reserves. The aggregate Reserves for the Coinsured Liabilities in
respect of the Covered Group Policies as of December 31, 2001 and March 31, 2002
as reflected on the Group Business Financial Statements: (i) have been
determined in accordance with generally accepted actuarial standards and
practices consistently applied (except as set forth therein) and are fairly
stated in accordance with sound actuarial principles and the Actuarial
Assumptions and Methodologies (other than the adjustments described in the final
three paragraphs of Exhibit C) and (ii) are consistent with NY SAP applied
historically by Seller. Notwithstanding any other provision contained in this
Agreement, nothing in this Agreement or any of the Transaction Documents is
intended to be or shall be construed to provide a guarantee of the ultimate
adequacy of the Reserves in the Group Business Financial Statements, the Closing
Reserve Statement or the Post-Closing Reserve Statement (as the same may be
adjusted pursuant to Section 2.5).

 

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Section 3.7. Undisclosed Liabilities; Absence of Changes. Except as and to the
extent set forth on the Balance Sheet of the Group Business at March 31, 2002,
including all notes thereto, contained in the Group Business Financial
Statements, Seller has no liabilities or obligations of any nature (whether
known or unknown, matured or unmatured, and whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of the Group Business or in the notes thereto,
prepared in accordance with NY SAP, except (i) for Liabilities incurred in the
ordinary course of business since March 31, 2001, or (ii) Liabilities not in
excess of $350,000 incurred outside the ordinary course of business. Schedule
3.7 contains an accurate and complete list of all Liabilities of the Group
Business incurred outside the ordinary course of business since March 31, 2002
in excess of $10,000. Since March 31, 2002, no event has occurred that has
resulted in a Material Adverse Effect with respect to the Group Business.

 

Section 3.8. Litigation and Investigations . Except as set forth on Schedule 3.8
or expressly reflected or reserved against and identified in the Group Business
Financial Statements, as of the date hereof there are no actions, suits,
investigations or proceedings pending or, to the Knowledge of Seller, threatened
against Seller arising from or relating to the Group Business or that in any
manner challenges or seeks to prevent, enjoin or materially alter or delay the
transactions contemplated by any of the Transaction Documents. As of the date
hereof, there is no default with respect to any judgment against Seller with
respect to the Group Business, and all such judgments have been satisfied or
appropriately stayed.

 

Section 3.9. Compliance with Law. To the Knowledge of Seller, the Group Business
is being conducted in compliance with all applicable laws, statutes, ordinances
and regulations, including, without limitation, those relating to Taxes, except
where the failure to comply would not have a Material Adverse Effect on the
Group Business. To the Knowledge of Seller, it has not received any written
notice to the effect that, or has otherwise been advised that, it is not in
compliance with any such law, statute, ordinance or regulation concerning the
Group Business where the failure to comply could be reasonably expected to have
a Material Adverse Effect on the Group Business, and Seller has no Knowledge of
any presently existing circumstances that are likely to result in violations of
any such regulations that would, individually or in the aggregate, have a
Material Adverse Effect on the Group Business. All Covered Group Policies are in
all material respects to the extent required under applicable law, on forms
approved by applicable insurance regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for by
objection or on forms not required to be approved by the applicable Governmental
Entities when issued, and such forms comply in all material respects with
applicable laws. The Covered Group Policies that are life insurance policies
qualify as life insurance under applicable law, including without limitation,
the Code. There are no statutory or regulatory prohibitions of, or limitations
on, Seller’s ability to renew the Covered Group Policies in accordance with
their respective terms.

 

Section 3.10. Taxes. Seller has (i) duly and timely filed (or there have been
duly filed on its behalf) all Tax Returns required to be filed by or on behalf
of Seller on or before the date hereof, and all such Tax Returns were true,
accurate and complete and in compliance with the Code in all material respects;
(ii) paid in full on a timely basis (or there has been paid on its behalf) all
Taxes shown to be due on such Tax Returns and Seller has not received any
effective notice or any communication, whether oral or written, from any
Governmental Entity, arbitrator or any other Person regarding a violation or
failure of the Seller, in the conduct of the Group Business, to comply with the
Code or any state income and/or premium tax laws or regulations that could
reasonably be expected to have a Material Adverse Effect on the Group Business
or materially interfere with the Seller’s ability to perform its obligations
under the Transaction Documents; and (iii) none of the Group Business Assets are
subject to any Liens in favor of any Taxing Authority.

 

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Section 3.11. No Brokers or Finders. Except for Deloitte & Touche Corporate
Finance LLC, the fees of which shall be paid by Seller, neither Seller nor its
Affiliates has retained any agent, broker, investment bank, financial advisor or
other person that is or will be entitled to any broker’s or finder’s fees or any
other commission or similar fee in connection with any of the transactions
contemplated by the Transaction Documents. Seller agrees to indemnify and hold
Buyer harmless from and against any and all loss, claim, damage, cost, or
expense arising out of or in connection with any claim against Buyer or its
Affiliates for any such broker’s or finder’s fee, other commission or similar
fee resulting from actions taken by Seller. The liability of Seller pursuant to
this Section 3.11 shall not be subject to the threshold articulated in Article
XII, but shall be measured from the first dollar.

 

Section 3.12. No Misrepresentation. No representation, warranty or statement
made, or information provided by Seller in this Agreement or in any other
Transaction Document, when considered in the aggregate together with all such
other representations, warranties, statements and information, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading.

 

Section 3.13. Books and Records. The Seller has good title to the Books and
Records, free and clear of all Liens, and at the Closing, Buyer will acquire the
Books and Records free and clear of all Liens. The Books and Records are true,
complete and correct in all material respects, have been maintained in
accordance with good business practices and accurately present and reflect in
all material respects all of the transactions and actions therein described.
Seller has provided or made available to Buyer on or prior to the date hereof
copies of written policies, procedures and guidelines relating to the acquired
Group Business, including all underwriting policies, procedures, and guidelines
relating to the Group Business, other than those written polices, procedures and
guidelines which are not material to the conduct or operation of the Group
Business.

 

Section 3.14. ERISA Compliance of Covered Group Policies. Except with respect to
Covered Group Policies under any “employee benefit plan” (as defined in Section
3(3) of ERISA) covering employees of Seller and its Affiliates, neither Seller
nor any officer or employee thereof is, with respect to a Covered Group Policy,
a named fiduciary or a plan administrator as such terms are defined in Section 3
of ERISA; provided, however, that as an entity that makes claim decisions and
reviews denials of claims under the Covered Group Policies, Seller may be deemed
to be a fiduciary with discretionary authority with respect to such claims
decisions and reviews. With respect to any Covered Group Policy to which Seller
is a party in interest or a disqualified person under ERISA or the Code, (i) no
material tax, civil liability or penalty has been imposed on Seller; (ii) Seller
has no material liability to any person, including the Internal Revenue Service
or the United States Department of Labor, and (iii) to the Knowledge of Seller,
no circumstances exist which could result in the imposition of such tax and
penalty or result in such liability after the Closing Date.

 

Section 3.15. Material Contracts. Schedule 3.15 contains an accurate and
complete list of all contracts (other than insurance policies, annuity contracts
and other insurance products) to which the Seller is a party directly related
to, and necessary for the operation by the Seller of, the Group Business that
have a duration in excess of six (6) months and provide for compensation of the
party thereto other than the Seller in excess of $50,000 per annum.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF BUYER

 

Buyer hereby represents and warrants to Seller that:

 

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Section 4.1. Organization. Buyer is a life insurance company duly organized,
validly existing and in good standing under the laws of the State of Oregon.
Buyer is a duly licensed life insurance company in good standing in the District
of Columbia and all states of the United States except New York and is an
accredited reinsurer in New York. The Standard Life Insurance Company of New
York, an Affiliate of Buyer, is a life insurance company duly organized, validly
existing and in good standing under the laws of the State of New York with all
necessary licenses and approvals from Governmental Entities in the State of New
York to perform such obligations on behalf of Buyer under the Administration
Agreement that relate to claims adjusting within the State of New York and to
the performance of services under the Administration Agreement relating to the
issuance, reinstatement, renewal or conversion of Covered Group Policies in the
State of New York.

 

Section 4.2. Authority; Binding Effect. Buyer has the corporate power and
authority to execute, deliver and perform its obligations under the Transaction
Documents, including, without limitation, the power and authority to engage in
the acquired Group Business after the Closing Date. This Agreement is (and when
executed and delivered by Buyer, each of the Transaction Documents will be) a
valid and binding obligation of Buyer, enforceable against it in accordance with
its terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, rehabilitation, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors’ rights generally and (ii) the
exercise by courts of equity powers.

 

Section 4.3. No Conflict. The execution and delivery by Buyer of, and the
performance by Buyer of its obligations under, the Transaction Documents do not
and will not contravene the organizational documents of Buyer or conflict with,
result in a breach of, or entitle any party (with due notice or lapse of time or
both) to terminate, accelerate or declare a default with respect to, any
material agreement or instrument to which Buyer is a party or by which Buyer or
its assets are bound, except such termination, acceleration or default that
individually or in the aggregate would not have a Material Adverse Effect on
Buyer. The execution and delivery by Buyer of, and the performance by Buyer of
its obligations under, the Transaction Documents will not result in any material
violation by Buyer of any law, rule or regulation applicable to Buyer. Buyer is
not a party to, nor subject to or bound by, any judgment, injunction or decree
of any court or other Governmental Entity that may materially restrict or
interfere with the performance by Buyer of its obligations under the Transaction
Documents.

 

Section 4.4. Filings and Consents. No consent, waiver, approval, authorization
or order of, or registration, qualification or filing with, any court or other
Governmental Entity is required of the Buyer for the execution and delivery of
the Transaction Documents, the performance by Buyer or its Affiliate of each of
its obligations under the Transaction Documents and the consummation by Buyer or
its Affiliate of the transactions contemplated thereby, other than those set
forth on Schedule 4.4. No consent or waiver of any party to any material
contract to which Buyer is a party is required for the execution and delivery by
Buyer of, and the performance by Buyer of its obligations under, the Transaction
Documents or the conduct of the Group Business following the Closing provided,
however, that if it is subsequently determined that any additional insurance
regulatory notices, consents or approvals are required of Buyer, such notices
shall be delivered and/or such consents and/or approvals shall be obtained.

 

Section 4.5. Actions Pending. There is no action, suit, investigation or
proceeding pending or, to the Knowledge of Buyer, threatened against Buyer or
any of its properties or rights questioning the validity of the Transaction
Documents or any action taken or to be taken pursuant thereto that could
reasonably be expected to impair or restrict Buyer’s ability to perform its
obligations thereunder, to consummate the transactions contemplated by the
Transaction Documents or to conduct the Group Business following the Closing.

 

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Section 4.6. Reports; Financial Statements.

 

(a) Buyer has delivered to Seller its statutory Annual Statement for the fiscal
year ending December 31, 2001 as filed with the State of Oregon Department of
Consumer and Business Services Insurance Division, and containing in part
statements of assets, liabilities, surplus and other funds; summary of
operations; capital and surplus accounts; and cash flow (“Buyer’s SAP Financial
Statements”). Buyer’s SAP Financial Statements (including, without limitation,
the interrogatories therein) fairly present the statutory financial condition
and results of operations of Buyer at and as of the dates and for the periods
indicated therein and have been prepared in accordance with Oregon SAP
consistently applied throughout the periods indicated, except as expressly set
forth therein. Buyer’s SAP Financial Statements were prepared by Buyer and have
been audited or reviewed by independent accountants.

 

(b) Since December 31, 2001, Buyer’s publicly held parent corporation StanCorp
Financial Group, Inc. (“StanCorp”) has filed (i) all forms, reports, statements
and other documents required to be filed with (A) the SEC, including, without
limitation, (1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on
Form 10-Q, (3) all proxy statements relating to meetings of stockholders
(whether annual or special), (4) all required Current Reports on Form 8-K, (5)
all other reports or registration statements and (6) all amendments and
supplements to all such reports and registration statements (collectively, the
“StanCorp SEC Reports”) and (B) any applicable state securities authorities; and
(ii) all forms, reports, statements, notices and other documents required to be
filed with any other applicable federal or state regulatory authorities,
including, without limitation, state insurance and health regulatory
authorities, except where the failure to file any such forms, reports,
statements, notices and other documents under this clause (ii) would not be
reasonably expected to have a Material Adverse Effect on Buyer (all such forms,
reports, statements, notices and other documents in clauses (i) and (ii) of this
Section 4.6(b) being collectively referred to as the “Buyer Reports”). The Buyer
Reports, including all Buyer Reports filed after the date of this Agreement and
prior to the Closing, (i) were or will be prepared in all material respects in
accordance with the requirements of applicable laws (including, with respect to
the StanCorp SEC Reports, the Securities Act and the Exchange Act, as the case
may be), and (ii) did not at the time they were filed, or will not at the time
they are filed, 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
will be made, not misleading.

 

(c) Each of the consolidated financial statements (including in each case any
related notes thereto) contained in the StanCorp SEC Reports, including any
StanCorp SEC Reports filed after the date of this Agreement and prior to the
Closing, (i) have been or will be prepared in all material respects in
accordance with the published rules and regulations of the SEC and GAAP applied
on a consistent basis throughout the periods involved except (A) to the extent
required by change in GAAP and (B) with respect to StanCorp SEC Reports filed
prior to the date of this Agreement, as may be indicated in the notes thereto;
and (ii) fairly present or will fairly present the consolidated financial
position of StanCorp and its Subsidiaries as of the respective dates thereof and
the consolidated results of operations and cash flows for the periods indicated,
except that (A) any unaudited interim financial statements (1) were or will be
subject to normal and recurring year-end adjustments which were not or arenot
expected to be material in amount and (2) are not or may not be necessarily
indicative of results for the full fiscal year and (B) any pro forma financial
information contained in such consolidated financial statements is not or may
not be necessarily indicative of the consolidated financial position of Buyer
and its Subsidiaries as of the respective dates thereof and the consolidated
results of operations and cash flows for the periods indicated.

 

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(d) Except as and to the extent set forth on the balance sheet of Buyer at
December 31, 2001, including all notes thereto, contained in Buyer’s SAP
Financial Statements, Buyer has no liabilities or obligations of any nature
(whether known or unknown, matured or unmatured, and whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on, or reserved
against in, a balance sheet of Buyer or in the notes thereto, prepared in
accordance with Oregon SAP, except (i) as otherwise reported in the financial
statements contained in Buyer’s SAP Financial Statements for the quarter ended
March 31, 2002, or (ii) for Liabilities incurred in the ordinary course of
business since December 31, 2001, or (iii) Liabilities incurred outside the
ordinary course of business that would not have a Material Adverse Effect on
Buyer, its ability to consummate the transactions contemplated by the
Transaction Documents or its ability to operate the Group Business after the
Closing Date. Since December 31, 2001, no event has occurred that has resulted
in a Material Adverse Effect with respect to Buyer.

 

Section 4.7. Authority to Conduct Group Business. Except as set forth on
Schedule 4.4, Buyer and its Affiliates have all Insurance Licenses, third party
administrator licenses, independent adjuster licenses and other authorizations
from Governmental Entities, the use and exercise of which are necessary for the
conduct of the Group Business, and such Insurance Licenses, other licenses and
authority are in full force and effect and are listed, described and categorized
in Schedule 4.7. There is no proceeding or investigation pending, or, to the
Knowledge of Buyer threatened, that would reasonably be expected to lead to the
revocation, amendment, failure to renew, limitation, suspension or restriction
of any Insurance License, other license or authority referred to in this Section
4.7.

 

Section 4.8. No Brokers or Finders. Neither Buyer nor its Affiliates has
retained any agent, broker, investment banker, financial advisor or other firm
or person that is or will be entitled to any broker’s or finder’s fee or any
other commission or similar fee in connection with any of the transactions
contemplated by the Transaction Documents. Buyer agrees to indemnify and hold
Seller harmless from and against any and all loss, claims, damage, cost, or
expense arising out of or in connection with any claim against Seller or its
Affiliates for any such broker’s or finder’s fee, other commission or similar
fee resulting from actions taken by Buyer. The Liability of Buyer pursuant to
this Section 4.8 shall not be subject to the threshold articulated in Article
XII, but shall be measured from the first dollar.

 

ARTICLE V

 

COVENANTS OF SELLER

 

Section 5.1. Operation of the Business. Except as set forth on Schedule 5.1 and
as expressly contemplated by this Agreement and the Transaction Documents, from
the date hereof until the Closing, Seller shall conduct the Group Business in
the ordinary course and substantially in the same manner as heretofore conducted
and in accordance with applicable law. In furtherance thereof, Seller shall use
commercially reasonable efforts (i) to preserve the Group Business Assets, (ii)
to maintain present customers of the Group Business, and (iii) to preserve the
goodwill of the Group Business.

 

Section 5.2. Pre-Closing Access by Buyer; Delivery of Books and Records. Until
the Closing, Seller shall permit Buyer and its authorized representatives, at
their expense, at all reasonable times, without disruption of the normal
operations of Seller, including without limitation the Group Business, to have
access to and to examine Books and Records (including the right to make extracts
therefrom or copies thereof), and shall cooperate with Buyer in its
investigation of the Group Business. Until the Closing, Seller shall permit
representatives of Buyer, to the extent reasonably necessary or desirable, to
consult with Group Business employees concerning all financial and operational
matters relating to the Group Business. Seller may take such steps as are
reasonably appropriate in the circumstances to protect the confidentiality of
information that does not relate to the Group Business and

 

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is contained in any Books and Records that include information relating to the
Group Business. To the extent permitted by applicable law, Seller shall deliver
to Buyer in Oregon on the Closing Date or as soon as practicable thereafter,
physical possession of the Books and Records.

 

Section 5.3. Additional Financial Statements. Until the Closing, as soon as
reasonably practicable after they become available, Seller shall furnish to
Buyer additional unaudited pro forma financial statements for the Group Business
for all interim quarterly and annual periods subsequent to December 31, 2001 but
prior to the Closing Date, which shall be prepared in accordance with NY SAP.

 

Section 5.4. Seller’s Non-Compete. For a period of three (3) years following the
Effective Time, neither Seller nor any of its Affiliates shall engage anywhere
in the United States in marketing, selling, distributing, issuing or
administering group life or group disability insurance coverage (a “Competing
Business”); provided, however, that if after the Closing Date Seller shall
acquire by merger, stock purchase, asset purchase or other form of business
combination or acquisition a Person who is then currently engaged in a Competing
Business, this Section 5.5(a) shall not be violated if the annual GAAP revenues
from such acquired Competing Business represent twenty-five percent (25%) or
less of the total GAAP revenues of the acquired Person, or if Seller or the
relevant acquiring Affiliate execute and deliver definitive documents in respect
of the divestiture of such acquired Competing Business not later than twelve
(12) months after acquiring such Competing Business. Seller acknowledges and
agrees that monetary damages would not be a sufficient remedy for a breach of
its obligations under this Section 5.4 and that in addition to all other rights
and remedies which may be available to Buyer, Buyer shall be entitled to seek
equitable relief, including injunction and specific performance, for any breach
by Seller of its obligations under this Section 5.4.

 

ARTICLE VI

 

COVENANTS OF BUYER

 

Section 6.1. Post-Closing Access by Seller. After the Closing Date, Buyer shall,
and shall cause its Affiliates to, permit Seller and its authorized
representatives, at their expense, at all reasonable times, without unreasonable
disruption of the normal operations of Buyer or the Group Business, to have
access to and to examine all premises, properties, files, books, documents,
records, financial and tax information (including computerized information ) and
to make extracts therefrom or copies thereof in connection with (i) any audit or
other investigation by any Taxing Authority or any required reports or
submissions to any Governmental Entity with respect to the Group Business, (ii)
Third Party Claims and investigations and insurance relating thereto, (iii)
litigation or arbitration relating to the Group Business and involving Seller
and (iv) transitional matters pursuant to Article VIII. Buyer shall, and shall
cause its Affiliates to, preserve and maintain such files, books, documents,
records, financial and tax information, (including computerized information),
for the greater of (A) the period during which Buyer may make a claim against
Seller for Indemnifiable Losses hereunder or (B) five (5) years. Buyer shall,
and shall cause its Affiliates to, permit Seller or its representatives, to the
extent reasonably necessary or desirable, to consult with Group Business
employees concerning all financial and operational matters in connection with
clauses (i), (ii), (iii) and (iv) above.

 

Section 6.2. Buyer Non-Solicitation and Non-Interference. Buyer acknowledges
that Seller has material existing Pension Business with the customers of the
Group Business, and that Seller is only willing to sell the Group Business to
Buyer if Seller obtains from Buyer the covenants in this Section 6.2 relating to
the protection of Seller’s Pension Business relationships with Group Business
customers. Buyer agrees that the covenants contained in this Section 6.2 provide
reasonable protections to Seller against Buyer’s use of the Group Business and
the Group Business Assets to harm Seller’s Pension Business relationships with
Seller’s Group Business customers. Promptly after execution and

 

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delivery of this Agreement, Buyer shall notify in writing its employees and
those of its Affiliates with responsibility for marketing, selling, soliciting
for the sale of, or issuing Buyer’s Pension Business that for a period of three
(3) years following the execution and delivery of this Agreement, such employees
should not intentionally and directly solicit any Policyholder (which shall not
include an individual certificateholder) of a Covered Group Policy (each, a
“Group Policyholder”), a list of which Group Policyholders is attached hereto as
Schedule 6.2, to purchase any of Buyer’s, any of its Affiliates’ or any other
Person’s Pension Business or interfere with Seller’s relationship with a Group
Policyholder with respect to Seller’s Pension Business, including, without
limitation, by attempting to persuade any Group Policyholder to terminate, to
not renew or to refrain from entering into any arrangement with Seller in
respect of any of Seller’s Pension Business, excluding in each case any Group
Policyholder that on the date of this Agreement is already a Pension Business
customer of Buyer. Buyer also agrees that it shall not, and shall cause its
Affiliates not to, solicit for the sale of, or sell to, any Group Policyholder
for a period of three (3) years following the execution and delivery of this
Agreement any Pension Business of Buyer or any of its Affiliates. Provision of
the notices and the observance of the restriction on sales of Pension Business
by Buyer and its Affiliates described in this section shall guarantee compliance
with this section. Buyer acknowledges and agrees that monetary damages would not
be a sufficient remedy for a breach of its obligations under this Section 6.2
and that in addition to all other rights and remedies which may be available to
Seller, Seller shall be entitled to seek equitable relief, including injunction
and specific performance, for any breach by Buyer of its obligations under this
Section 6.2.

 

ARTICLE VII

 

JOINT COVENANTS

 

Section 7.1. Filings and Notices; Approvals and Consents. Seller and Buyer
shall, as promptly as practicable after the execution and delivery of this
Agreement, cooperate to make and give all governmental filings and governmental
and third party notices (and to provide requested information supplemental
thereto) required to be made or given by Seller or Buyer, including, without
limitation, those described in Sections 3.4 and 4.4, in order to consummate the
transactions contemplated by the Transaction Documents. Any such filing or
notice, and any supplemental information requested by the relevant Governmental
Entity in connection therewith, shall be in substantial compliance with the
requirements of such Governmental Entity. Seller and Buyer shall keep each other
apprised of the status of the governmental approval process and of any
communications with, and any inquiries or requests for additional information
from, the relevant Governmental Entity, and shall comply promptly with any such
inquiry or request. Seller and Buyer shall use their respective commercially
reasonable best efforts to obtain promptly all such governmental approvals.
Seller and Buyer agree to make such changes to the Transaction Documents as are
required to obtain the approvals of Governmental Entities required in order to
consummate the transactions contemplated by the Transaction Documents, provided
that such changes constitute (i) requirements customarily imposed by
Governmental Entities in transactions of the type contemplated by the
Transaction Documents, (ii) requirements that do not impose terms that are
materially inconsistent with any material term contained in the Transaction
Documents that materially and adversely affects the economic value to Buyer of
the transactions contemplated by the Transaction Documents or (iii) requirements
that do not produce a Material Adverse Effect with respect to the Group
Business. Seller and Buyer shall furnish to each other such necessary
information and reasonable assistance as either party may request in connection
with its preparation of any filing or submission to be made in accordance with
this Section 7.1.

 

 

Section 7.2. Form and Rate Filings. Buyer, with Seller’s cooperation, shall, as
soon as possible after the execution of this Agreement, diligently proceed or
cause its Affiliates to proceed diligently with the necessary regulatory filings
and applications so that Buyer may begin conducting the Group Business directly
through Buyer and its Affiliates, as appropriate. Such filings and applications

 

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shall include, but not be limited to, making form and rate filings in all
jurisdictions where such filings are required for the conduct of the Group
Business. Buyer, with Seller’s cooperation, shall use reasonable efforts to
obtain approval of such forms and rates as promptly as possible.

 

Section 7.3. Policyholder Confidentiality. Buyer and Seller agree to maintain
the confidentiality of all records and other information relating to customers
and plan participants of the Group Business in accordance with applicable
contracts and laws. This Section 7.3 shall survive the Closing and the
expiration or termination of all of the Transaction Documents.

 

Section 7.4. Updating Schedules. In connection with the Closing, Seller and
Buyer shall supplement or amend the various schedules to this Agreement to
reflect any matter that, if existing, occurring or known on the date hereof
should have been so disclosed, or that is necessary to correct any information
in such schedules that was or has been rendered inaccurate; provided, however,
that no such supplements or amendments to the schedules shall cure any
misrepresentation or breach of this Agreement.

 

ARTICLE VIII

 

TRANSITIONAL MATTERS

 

Section 8.1. Pre-Closing Cooperation

 

(a) During the period between the execution and delivery of this Agreement and
the Closing Date (the “Pre-Closing Period”), Seller and Buyer will cooperate in
planning and preparing for a smooth assumption of the Group Business by Buyer,
through the development and implementation of a strategy and action plan
designed to achieve a successful transfer of the customers of the Group Business
to Buyer and efficiently migrate the administration of the Group Policies to
Buyer after the Closing. Buyer and Seller agree that the first priority during
the Pre-Closing Period shall be to continue the conduct of the Group Business in
the ordinary course of business substantially in the manner heretofore conducted
and in a manner intended to maintain the present customers and goodwill of the
Group Business.

 

(b) Seller and Buyer each acknowledge that a successful and expeditious systems
and data conversion is critical to achieving the goals described herein, and
each of Seller and Buyer agrees to undertake commercially reasonable efforts
pursuant to a mutually agreed action plan during the Pre-Closing Period to
accomplish a successful and expeditious systems and data conversion. During the
Pre-Closing Period, Seller will use commercially reasonable efforts on a
mutually agreed basis during the Pre-Closing Period to provide reasonable
support to Buyer to enable conversion of data in respect of the Group Business.
Buyer will use commercially reasonable efforts on a mutually agreed basis during
the Pre-Closing Period to provide specific action plans and proposals with
respect to the conversion effort, write, run and test conversion programs and
change and test Buyer’s information technology systems to enable completion of
the efficient transition as soon as reasonably practicable following the
Closing. Buyer shall also be responsible for all tasks relating to the systems
and data conversion other than those specifically set forth herein. Seller will
use commercially reasonable efforts on a mutually agreed basis during the
Pre-Closing Period to provide documentation reasonably requested by Buyer on
Seller systems processing and data; provide reasonable assistance to Buyer in
understanding and mapping of Seller data, especially unique data that supports
special Covered Group Policy provisions; identify known data issues and assist
Buyer in resolving them; provide reasonable assistance to Buyer in planning of
data conversion tests; provide reasonable business system expert support
throughout testing process; create extracts in existing Seller formats for input
into Buyer conversion routines; provide single workstation access to AWD
(Image/workflow) system for image viewing; provide reasonable reports for use in
defining and

 

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testing conversion processes; create reasonable reports to support data-mapping;
create programs reasonably requested by Buyer to select representative samples
of the total Group Business portfolio; provide reasonable reports for use in
defining, testing, balancing and cleaning up conversion processes; create
reasonable extracts in support of the testing process at Buyer; explore option
to provide 5250 remote access to Seller claims and billing systems (if provided,
at Buyer’s expense); provide Mosaic created contracts in PDF format in all
contract forms currently being issued in connection with the conduct of Group
Business, if required under applicable law; support all other reasonable systems
activities necessary to transfer the business, such as assistance with the
lockbox and EFT transition.

 

(c) Reasonably promptly after the execution and delivery of this Agreement,
Seller will provide to Buyer a list of the Covered Group Policies in force and
lapsed Covered Group Policies that are subject to reinstatement as of the date
such list is provided. Each such list will set forth the renewal date, number of
lives insured, type of insurance, situs of Policyholder and assigned claim
office for each Covered Group Policy on the list. Reasonably promptly after the
execution and delivery of this Agreement, Seller will provide to Buyer copies of
contracts, treaties, binders, slips and such other documentation reasonably
requested by Buyer related to reinsurance ceded under Group Policies by Seller
to third party reinsurers. During the Pre-Closing Period, Buyer and Seller will
review and discuss such third party reinsurance documentation to determine
whether such third party reinsurance should be terminated and/or commuted by
Seller or assigned to Buyer with a novation of Seller. Buyer shall provide
Seller notice within thirty (30) days after the execution and delivery of this
Agreement of any such third party reinsurance that Buyer wants assigned to it,
with a novation of Seller, and Seller agrees to use commercially reasonable
efforts to effect any such assignment and novation, provided that the terms of
any such assignment and novation must be mutually acceptable to Seller and
Buyer, and that any such assignment and novation would require the prior written
consent of any such reinsurer.

 

(d) Reasonably promptly after the execution and delivery of this Agreement,
Seller and Buyer will coordinate with and assist each other pursuant to a
mutually agreed relationship management plan in announcing the sale of the Group
Business from Seller to Buyer to Group Business employees of Seller (“Seller
Employees”), Group Business Policyholders and claimants (other than claimants in
litigation with Seller) under Covered Group Policies then in force. Such
coordination and assistance will include notifying the other party reasonably in
advance of the timing and contents of any such announcements and allowing such
other party to provide comments on such announcements, if practicable and to the
extent allowed by applicable law. During the Pre-Closing Period, at the
reasonable request of Buyer, Seller will use commercially reasonable efforts on
a mutually agreed basis to participate in reasonable telephone conferences with
selected Policyholders or accompany Buyer on in-person visits of Seller
Employees to Policyholders, including telephone conferences and in-person visits
in connection with Seller renewals and new business initiatives, for purposes of
introducing Buyer or its sales or service representatives to such Policyholders.

 

(e) Promptly after the execution and delivery of this Agreement, Seller will use
commercially reasonable efforts on a mutually agreed basis to assist Buyer in
arranging meetings at Seller’s offices with selected Seller Employees dedicated
to the Group Business in which Buyer will have the opportunity to communicate
Buyer’s plans with respect to such Seller Employees, to interview such Seller
Employees and/or, at Buyer’s sole discretion, to make offers of employment to
such Seller Employees to be effective upon the Closing or offers to engage such
Seller Employees as consultants to be effective upon the Closing. During the
Pre-Closing Period, Seller will maintain its compensation and benefit programs
for the employees of the Group Business without any reduction in the aggregate
value of compensation and benefits provided thereunder. During the Pre-Closing
Period, Seller will notify Buyer of any notice of resignation tendered by any
such Seller Employee reasonably promptly after receiving such notice. To the
extent required as a result of resignation of Seller Employees in order to
continue to administer the day to day operations of the Group Business
consistent with its current level of

 

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performance, Seller agrees to retain temporary employees or consultants or to
outsource services. Seller agrees to communicate with Buyer any intent to
terminate a Seller Employee. Seller agrees not to terminate any Seller Employee
during the Pre-Closing Period that Buyer believes is necessary for the
performance of the transition or business transfer services, except for a
termination for cause (including unsatisfactory performance of duties).

 

(f) During the Pre-Closing Period, Seller will permit a reasonable number of
representatives of Buyer on a mutually agreed basis and reasonable times and in
a reasonable manner (a) to observe both at Seller’s home office in New York City
and at Seller’s claims office in Denver business processes related to the Group
Business and (b) to have access to and to copy any Books and Records (subject to
the existing Confidentiality Agreement between Seller and Buyer). During the
Pre-Closing Period, Seller will provide on a mutually agreed basis and at
reasonable times and in a reasonable manner computer hook-ups, telephones and
cubicles or work space for Buyer representatives at Seller’s home office in New
York City and at Seller’s claims office in Denver. In addition, during the
Pre-Closing Period, on a mutually agreed basis and at reasonable times and in a
reasonable manner, Seller will provide Buyer’s employees access to selected
Seller Employees dedicated to operating the Group Business during Seller’s
normal business hours and facilitate reasonable in-person meetings, telephone or
video conferences or e-mail communications, in order for Buyer to learn Seller’s
business processes with respect to the Group Business and to obtain the
perspectives of Seller Employees regarding effectively and efficiently migrating
the Group Business to Buyer. During the Pre-Closing Period, Seller will provide
Buyer with those reports relating to the Group Business routinely prepared for
managers and supervisors of Seller with Group Business responsibilities,
including, but not limited to, those that relate to claims, premium, renewal and
financial reporting. During the Pre-Closing Period, Seller will also provide
such other mutually agreed reports relating to the Group Business as are
reasonably requested by Buyer. Buyer’s observation of business processes on-site
at Seller’s offices, review of Books and Records, receipt of routine management
reports or its business migration consultation with Seller’s Employees will not
be deemed to constitute administering the Group Business and Buyer will not be
deemed to administer the Covered Group Policies until such time as the
Transition Service Agreement and the Administration Agreement provide for the
assumption of administration by Buyer.

 

(g) During the Pre-Closing Period, at Buyer’s request, Seller will share and
discuss with Buyer the proposed renewal premium rates for Covered Group
Policies. During the Pre-Closing Period, Seller will cooperate with Buyer as
reasonably requested by Buyer on a mutually agreed basis to assist Buyer in
ultimately replacing Seller from and after the Closing as the issuing company
for group life and group disability insurance issued to Policyholders, including
participating in reasonable in-person visits and telephone conferences
introducing Buyer or its sales or service representatives to selected
Policyholders. Seller agrees through Seller Employees to recommend to
Policyholders to accept Buyer in substitution for Seller as the issuing insurer
with respect to Group Business after the Closing.

 

(h) During the Pre-Closing Period, Seller will continue to write new group life
and group disability insurance business, although Buyer acknowledges that the
writing of such new business is expected to proceed during the Pre-Closing
Period on a significantly diminished basis. When making proposals to prospective
new customers with respect to Group Business during the Pre-Closing Period,
Seller will, to the extent commercially reasonable, invite Buyer to provide
input into any written submissions and/or oral presentations to such prospective
customers. It is expressly understood, however, that some submissions or
presentations may be in such an advanced stage immediately after the execution
and delivery of this Agreement that the input of Buyer into such submissions or
presentations shall, as a practical matter, be minimal

 

(i) During the Pre-Closing Period, Buyer will be afforded the reasonable
opportunity on a mutually agreed basis to observe and monitor claims processing
on-site at Seller’s offices and shall

 

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be advised, on at least a monthly basis, by Seller of claims processing trends.
During the Pre-Closing Peroid, in a mutually agreed manner, Buyer shall be
advised of and be provided with an opportunity to review and comment on, all
claim denials and claim reopen decisions. During the Pre-Closing Period, Buyer
shall be advised in a mutually agreed manner of all claim-related reserve
adjustments. Buyer understands that it will have no authority to administer
claims in respect of Covered Group Policies until such time as the Transition
Service Agreement and the Administration Service Agreement provide for Buyer to
administer such claims.

 

(j) During the Pre-Closing Period, Buyer will be afforded the opportunity in a
mutually agreed manner to inspect any and all documents evidencing Governmental
Entity filings regarding Covered Group Policies for all contract forms currently
being issued in connection with the conduct of the Group Business and any
approvals or disapprovals thereof. During the Pre-Closing Period, Seller will
also provide Buyer’s employees reasonable access in a mutually agreed manner to
selected Seller Employees dedicated to operating the Group Business during
Seller’s normal business hours and facilitate reasonable in-person meetings,
telephone or video conferences or e-mail communications, in order for Buyer to
identify Seller’s approved or disapproved Covered Group Policy forms and
provisions, claim administration practices with respect to those forms and
provisions, and to obtain the perspectives of Seller Employees regarding Buyer’s
preparation of policy forms that match or approximate coverage afforded under
the Covered Group Policies.

 

(k) Seller will be responsible at all times for the costs associated with
satisfying its contractual obligations in respect of the systems and data
conversion. During the Pre-Closing Period, each of Buyer and Seller will bear
its own costs when providing any collaborative service described in this Section
8.1.

 

(l) Throughout the Pre-Closing Period, Seller shall retain full and complete
control over the conduct of the Group Business and the supervision and direction
of the activities of Seller’s employees. Nothing in this Section 8.1 shall
provide Buyer or its employees or representatives with the right to supervise or
give directions to any Seller Employee in any respect.

 

(m) All access to the premises on which the Group Business is conducted, the
Books and Records and the Seller Employees shall be provided at times and in a
manner mutually agreed between Seller and Buyer. No such access to premises,
Books and Records or Seller Employees shall be provided outside business hours
or at times or in a manner that is unreasonable or disrupts or interferes with
the normal operation of the Group Business.

 

(n) Under no circumstances shall the cooperation and collaboration contemplated
by this Section 8.1 require Seller to expand its facilities or acquire a
mainframe or midframe computer, hardware or other equipment or software, other
than the development of software programs essential to systems and data
conversion obligations of Seller referred to in Section 8.1(b).

 

(o) The obligations of the parties contained in this Section 8.1 reflect the
good faith intent of Seller and Buyer to collaborate during the Pre-Closing
Period. Notwithstanding any other provision of this Agreement, no breach by
Seller of any provision of this Section 8.1 shall constitute a failure to
satisfy a condition of Closing under the Agreement. If Seller shall commit
consistent and material breaches of this Section 8.1 constituting, when
considered in the aggregate, a material breach of its duties and obligations
under this Section 8.1 (a “Material Breach”), then Buyer may during the
continuance of such Material Breach provide Seller with a written notice making
specific reference to this Section 8.1 and specifying in detail the Material
Breach and demanding a cure thereof. Seller shall thereafter have a commercially
reasonable period of time to cure such Material Breach and, if such Material
Breach is cured by Seller within such period, Buyer shall have no remedies
available to it against

 

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Seller with respect to such cured Material Breach. If Seller does not cure a
Material Breach within a commercially reasonable period of time following the
required written notice thereof and such Material Breach causes Buyer to require
Transition Services from Seller pursuant to the Transition Service Agreement
after the Transition Termination Date, then such Transition Termination Date
shall be extended to the extent of the delay in transition of the Group Business
to Buyer caused by such Material Breach without any escalation in the costs and
expenses Buyer is required to reimburse Seller during such extension. Such
extension of the Transition Termination Date shall be Buyer’s exclusive remedy
for any breach by Seller of its obligations under Section 8.1.

 

Section 8.2. Retention; Severance

 

(a) In order for Seller to retain certain Seller Employees during the
Pre-Closing Period and the Transition Period to ensure an efficient transition
of the Group Business from Seller to Buyer, Buyer and Seller agree to implement
promptly after the execution and delivery of this Agreement a retention program
for such employees as described on Schedule 8.2(a).

 

(b) In furtherance of Seller’s and Buyer’s desire to maintain the goodwill of
Seller and Buyer with Seller Employees and provide the appropriate incentives to
Seller Employees in connection with the transition of the Group Business from
Seller to Buyer, Seller agrees to implement promptly after the execution and
delivery of this Agreement the severance arrangements as described on Schedule
8.2(b).

 

Section 8.3. Indemnity Reinsurance. As of the Closing Date, Buyer shall
indemnity reinsure the Coinsured Liabilities in respect of the Covered Group
Policies on a one hundred percent (100%) coinsurance basis pursuant to an
Indemnity Reinsurance Agreement (in the form attached hereto as Exhibit D, the
“Indemnity Reinsurance Agreement”), which Seller and Buyer shall enter into at
the Closing. From and after the Closing Date, Buyer and or its Affiliate shall
provide to Seller all necessary administrative and other services with respect
to the Covered Group Policies pursuant to the Administration Agreement that
Seller and Buyer shall enter into at the Closing (in the form attached hereto as
Exhibit E, the “Administration Agreement”).

 

Section 8.4. Necessary Support Services. Following the Closing, Seller shall
make available to Buyer for an agreed upon transitional period certain necessary
support services pursuant to the Transition Service Agreement (in the form
attached hereto as Exhibit F, the “Transition Service Agreement”) to be entered
into by Seller and Buyer at the Closing.

 

Section 8.5. Use of Seller Names Post-Closing. The rights of Buyer and its
Affiliates to use certain trade and/or service marks of Seller after the Closing
Date shall be limited solely to Buyer’s provision of administrative services in
accordance with the Administration Agreement and shall be governed by a license
agreement entered into between Buyer and Seller on the Closing Date, on terms
and subject to conditions mutually agreed upon between Buyer and Seller (the
“License Agreement”), provided that the License Agreement shall provide that
Buyer’s use of such trade and/or service marks of Seller shall be at no cost to
Buyer.

 

ARTICLE IX

 

CONDITIONS TO OBLIGATIONS OF BUYER

 

The obligation of Buyer to consummate the transactions contemplated by this
Agreement at the Closing is subject to the satisfaction by Seller or waiver by
Buyer of the following conditions on or before the Closing Date:

 

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Section 9.1. Representations and Warranties Correct. All of Seller’s
representations and warranties shall be true and correct in all material
respects on the date hereof and on the Closing Date as if made on such date
(other than those made as of a specified date earlier than the date hereof), and
the aggregate effect of all inaccuracies in Seller’s representations and
warranties contained herein as of the date hereof and as of the Closing Date
shall not represent a Material Adverse Effect on the Group Business (for the
purpose of determining such aggregate effect, treating each such representation
that has a Material Adverse Effect qualification as if it did not have such a
qualification). Buyer shall have received from appropriate officers of Seller a
certificate or certificates to such effect, in form and substance reasonably
satisfactory to Buyer.

 

Section 9.2. Performance; No Default. Seller shall have performed and complied
in all material respects with all covenants, obligations, agreements and
conditions required by this Agreement to be performed or complied with by it at
or prior to the Closing (except as set forth in Section 8.1 hereof) and Buyer
shall have received from appropriate officers of Seller a certificate or
certificates to such effect, in form and substance reasonably satisfactory to
Buyer.

 

Section 9.3. No Litigation, Injunctions or Restraints. There shall not be
instituted or pending, any action, suit, investigation, or other proceeding in,
before, or by any court, Governmental Entity, or other Person seeking to
restrain, enjoin, or otherwise prevent consummation of this Agreement or the
transactions contemplated hereby, and no temporary restraining order,
preliminary or permanent injunction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be in
effect.

 

Section 9.4. Governmental Approvals. The consents and approvals of Governmental
Entities contemplated by Section 3.4 shall have been obtained, or waiting
periods referenced in the relevant statutes or regulations shall have expired
without adverse action.

 

Section 9.5. No Material Adverse Effect. Since December 31, 2001, no event shall
have occurred that shall have resulted or is reasonably likely to result in a
Material Adverse Effect with respect to the Group Business.

 

Section 9.6. Other Transaction Documents. The other Transaction Documents shall
have been entered into at Closing.

 

Section 9.7. Opinion of Counsel for Seller. Buyer shall have received an
opinion, dated as of the Closing Date, from inside counsel to Seller, in form
and substance reasonably satisfactory to Buyer.

 

ARTICLE X

 

CONDITIONS TO OBLIGATIONS OF SELLER

 

The obligation of Seller to consummate the transactions contemplated by this
Agreement at the Closing is subject to the satisfaction by Buyer or waiver by
Seller of the following conditions, on or before the Closing Date:

 

Section 10.1. Representations and Warranties Correct. All of Buyer’s
representations and warranties shall be true and correct in all material
respects on the date hereof and on the Closing Date as if made on such date
(other than those made as of a specified date earlier than the date hereof), and
the aggregate effect of all inaccuracies in Buyer’s representations and
warranties contained herein as of the date hereof and as of the Closing Date
shall not represent a Material Adverse Effect (for the purpose of

 

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determining such aggregate effect, treating each such representation that has a
Material Adverse Effect qualification as if it did not have such a
qualification). Seller shall have received from appropriate officers of Buyer a
certificate or certificates to such effect, in form and substance reasonably
satisfactory to Seller.

 

Section 10 .2. Performance; No Default. Buyer shall have performed, observed and
complied in all material respects with all covenants, obligations, agreements
and conditions required by this Agreement to be performed, observed or complied
with by it at or prior to the Closing, and Seller shall have received from
appropriate officers of Buyer a certificate to such effect, in form and
substance reasonably satisfactory to Seller.

 

Section 10.3. No Litigation, Injunctions or Restraints. There shall not be
instituted or pending any action, suit, investigation, or other proceeding in,
before, or by any court, Governmental Entity, or other Person seeking to
restrain, enjoin, or otherwise prevent consummation of this Agreement or the
transactions contemplated hereby, and no temporary restraining order,
preliminary or permanent injunction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be in
effect.

 

Section 10.4. Governmental Approval. The consents and approvals of Governmental
Entities contemplated by Section 3.4 shall have been obtained, or waiting
periods referenced in the relevant statutes or regulations shall have expired
without adverse action.

 

Section 10.5. No Material Adverse Effect. Since December 31, 2001, no event
shall have occurred which shall have resulted or is reasonably likely to result
in a Material Adverse Effect with respect to Buyer.

 

Section 10.6. Other Transaction Documents. The other Transaction Documents shall
have been entered into at Closing.

 

Section 10.7. Opinion of Counsel for Buyer. Seller shall have received an
opinion, dated the date of Closing, from inside counsel to Buyer, in form and
substance reasonably satisfactory to Seller.

 

ARTICLE XI

 

DELIVERIES AT CLOSING

 

On or prior to the Closing Date, the parties shall deliver the following items
or such items in substitution therefor as are satisfactory to the recipient:

 

Section   11.1. Deliveries by Seller. Seller shall deliver to Buyer:

 

(a) the Group Business Assets as set forth in Article II hereof;

 

(b) an updated list of Group Policyholders provided for in Section 6.2;

 

(c) updated schedules provided for in Section 7.4;

 

(d) the certificates executed by officers of Seller provided for in Sections 9.1
and 9.2;

 

(e) the opinion of counsel to Seller provided for in Section 9.7;

 

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(f) evidence, reasonably satisfactory in form and substance to Buyer, of
consents or approvals of the applicable Governmental Entities of the reinsurance
of the Covered Group Policies required to be obtained by Seller as contemplated
by this Agreement and the Indemnity Reinsurance Agreement; and

 

(g) such other instruments and documents as may be reasonably requested by, and
in form and substance reasonably satisfactory to, Buyer.

 

Section 11.2. Deliveries by Buyer. Buyer shall deliver to Seller:

 

(a) the Purchase Price;

 

(b) updated schedules provided for in Section 7.4;

 

(c) the certificates executed by officers of Buyer provided for in Sections 10.1
and 10.2;

 

(d) the opinion of counsel to Buyer provided for in Section 10.7;

 

(e) evidence, reasonably satisfactory in form and substance to Seller, of
consents or approvals of the applicable Governmental Entities of the reinsurance
of the Covered Group Policies required to be obtained by Buyer as contemplated
by this Agreement and the Indemnity Reinsurance Agreement; and

 

(f) such other instruments and documents as may be reasonably requested by, and
in form and substance reasonably satisfactory to, Seller.

 

Section 11.3. Deliveries by Seller and Buyer. Seller and Buyer shall each
deliver to the other duly executed counterparts of the Transaction Documents.

 

ARTICLE XII

 

INDEMNIFICATION

Section 12.1. Indemnification.

 

(a) Seller shall indemnify, defend and hold harmless Buyer and its Affiliates,
and their respective directors, officers and employees, from and against any and
all demands, actions, proceedings, suits (by any Person, including, without
limitation, any Governmental Entity) and Liabilities, paid or incurred,
resulting from or arising out of any Third Party Claim (as defined in Section
12.2 hereof) or Direct Claim (as defined in Section 12.3) (including, without
limitation, the reasonable costs and expenses of defending any and all actions,
suits, proceedings, demands, assessments, judgments, settlements and compromises
arising out of Third Party Claims or Direct Claims and reasonable attorneys’
fees and expenses in connection therewith) (individually and collectively,
“Buyer Indemnifiable Losses”) relating to, resulting from or arising out of (i)
any breach of any of the representations, warranties, covenants or agreements of
Seller contained in this Agreement or (ii) Excluded Liabilities; provided,
however, that for purposes of this section each such representation, warranty,
covenant or agreement that has a Material Adverse Effect qualification shall be
deemed not to have such a qualification; provided further, that Buyer may not
make a claim for indemnification of an individual item of Buyer Indemnifiable
Losses pursuant to this Section 12.1 unless such individual item of Buyer
Indemnifiable Losses exceeds $10,000; provided further, that Seller shall not
have any Liability

 

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for any Buyer Indemnifiable Losses unless the aggregate of all Buyer
Indemnifiable Losses for which Seller would be liable, but for this proviso,
exceeds on a cumulative basis an amount equal to $1,500,000 (the “Threshold
Amount”), in which case Seller’s Liability shall be only for such excess;
provided further, that the Liability of Seller for indemnification pursuant to
this Section 12.1 shall not exceed a maximum of seventy percent (70%) of the
Purchase Price; provided further, that the immediately preceding three provisos
shall not apply to indemnification pursuant to Section 3.11 hereof. It is
understood and agreed, in accordance with Section 3.6, that nothing in this
Agreement or the other Transaction Documents is intended to, or shall be
construed to, provide a guarantee of the ultimate adequacy of the Reserves in
the Group Business Financial Statements, the Closing Reserve Statement or the
Post-Closing Reserve Statement (as the same may be finalized pursuant to the
procedures, including the dispute resolution procedures, contemplated by Section
2.5).

 

(b) Buyer shall indemnify, defend and hold harmless Seller and its Affiliates,
and their respective directors, officers and employees from and against any and
all demands, actions, proceedings, suits (by any Person, entity or group,
including, without limitation, any Governmental Entity) and Liabilities, paid or
incurred, resulting from or arising out of any Third Party Claim or Direct Claim
(including, without limitation, the reasonable costs and expenses of defending
any and all actions, suits, proceedings, demands, assessments, judgments,
settlements and compromises arising out of Third Party Claims and Direct Claims,
and reasonable attorneys’ fees and expenses in connection therewith)
(individually and collectively, “Seller Indemnifiable Losses” and together with
Buyer Indemnifiable Losses, “Indemnifiable Losses”) relating to, resulting from
or arising out of any breach of any of the representations, warranties,
covenants or agreements of Buyer contained in this Agreement; provided, however,
that for purposes of this section each such representation, warranty, covenant
or agreement that has a Material Adverse Effect qualification shall be deemed
not to have such a qualification; provided further, that Seller may not make a
claim for indemnification of an individual item of Seller Indemnifiable Losses
pursuant to this Section 12.1 unless such individual item of Seller
Indemnifiable Losses exceeds $10,000; provided further, that Buyer shall not
have any Liability for any Seller Indemnifiable Losses unless the aggregate of
all Seller Indemnifiable Losses for which Buyer would be liable, but for this
proviso, exceeds on a cumulative basis an amount equal to the Threshold Amount,
in which case Seller’s Liability shall be only for such excess; provided,
further, that the Liability of Buyerfor indemnification pursuant to this Section
12.1(b) shall not exceed a maximum of seventy percent (70%) of the Purchase
Price and; provided further that the immediately preceding three provisos shall
not apply to indemnification pursuant to Section 4.8 hereof.

 

(c) In no event shall any Indemnifying Party be responsible for (i) lost profits
or special, indirect, consequential or punitive damages incurred by an
Indemnified Party relating to a Direct Claim or (ii) attorneys’ fees and other
similar costs to the extent incurred in any Indemnified Party’s enforcement of
its rights to collect indemnification under this Section 12.1.

 

Section 12.2. Procedures for Third Party Claims.

 

(a) The party seeking indemnification under Section 12.1 (the “Indemnified
Party”) agrees to give prompt notice to the party against whom indemnity is
sought (the “Indemnifying Party”) of the assertion of any claim, or the
commencement of any suit, action or proceeding by an unaffiliated Person in
respect of which indemnity may be sought under Section 12.1 (the “Third Party
Claims”). Such notice shall be delivered to the Indemnifying Party as promptly
as practicable, specifying in detail the facts constituting the basis for, and
the amount of, the claim asserted. The failure by any Indemnified Party so to
notify the Indemnifying Party shall not relieve any Indemnifying Party from any
Liability that it may have to such Indemnified Party with respect to any claim
made pursuant to this Section 12.2, except to the extent such failure shall
actually prejudice the Indemnifying Party.

 

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(b) Upon receipt of notice from the Indemnified Party pursuant to Section
12.2(a), the Indemnifying Party shall have the right, but not the obligation, to
assume the defense and control of such Third Party Claims. In the event that the
Indemnifying Party elects to assume the defense of a Third Party Claim, the
Indemnified Party shall have the right, but not the obligation, to participate
in the defense of such Third Party Claims at its own expense. In the event that
the Indemnifying Party elects to assume the defense of a Third Party Claim, the
Indemnifying Party shall (i) select counsel, contractors and consultants of
recognized standing and competence; (ii) shall take all steps reasonably
necessary in the defense or settlement of such Third Party Claim; and (iii) at
all times diligently pursue the resolution of such Third Party Claim. The
Indemnified Party shall, and shall cause each of its Affiliates and
representatives to, cooperate with the Indemnifying Party in the defense of any
Third Party Claim defended by the Indemnifying Party. In the event that the
Indemnifying Party elects to assume the defense of a Third Party Claim, the
Indemnifying Party shall deliver written notice of such election to the
Indemnified Party within fifteen (15) Business Days after receipt by the
Indemnifying Party of the Indemnified Party’s notice delivered pursuant to
Section 12.2(a). Failure of the Indemnifying Party to deliver such notice within
fifteen (15) Business Days shall terminate the Indemnifying Party’s right to
assume the defense and control of such Third Party Claims.

 

(c) The Indemnifying Party shall be authorized to consent to the settlement of,
or the entry of any judgment arising from, any Third Party Claim for which the
Indemnifying Party has assumed the defense in accordance with the terms of
Section 12.2(b) without the prior consent of the Indemnified Party, but only to
the extent that such settlement or entry of judgment (i) provides solely for the
payment of money by the Indemnifying Party (ii) contains no finding or admission
of any violation of law or any violation of the rights of any Person and (iii)
provides a complete release of the Indemnified Party from all matters that were
or could have been asserted in connection with such Third Party Claim. Except as
provided in the immediately preceding sentence, any settlement or consent to
entry of judgment shall require the prior written consent of the Indemnified
Party, which consent shall not to be unreasonably withheld or delayed.

 

Section 12.3. Procedures for Direct Claims. In the event the Indemnified Party
shall have a claim for indemnity against the Indemnifying Party that does not
involve a Third Party Claim (a “Direct Claim”), the Indemnified Party shall
deliver written notice of such claim with reasonable promptness to the
Indemnifying Party specifying in reasonable detail the facts constituting the
basis for, and the amount of, the claim asserted. The failure by any Indemnified
Party so to notify the Indemnifying Party shall not relieve the Indemnifying
Party from any Liability that it may have to such Indemnified Party with respect
to any claim made pursuant to this Section 12.3, except to the extent such
failure shall actually prejudice the Indemnifying Party.

 

Section 12.4. Survival.

 

(a) The indemnification provisions of, and covenants contained in, this
Agreement shall survive the Closing; provided, however, that a party’s right to
indemnification for a breach of a representation or warranty (which shall not
include a claim for indemnification based on Excluded Liabilities) shall
terminate on the date when the applicable representation or warranty terminates.

 

(b) The representations and warranties of Seller contained in Article III of
this Agreement shall survive the Closing until eighteen months after the Closing
Date.

 

(c) The representations and warranties of Buyer contained in Article IV of this
Agreement shall survive the Closing until eighteen months after the Closing
Date.

 

 

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(d) Neither Buyer nor Seller may make any claim for indemnification for a breach
of any representation or warranty (which shall not include a claim for
indemnification based on Excluded Liabilities) pursuant to Section 3.11, 4.8 or
12.1 unless it has given notice to the other party (which notice shall specify
in reasonable detail the facts constituting the basis for such claim) on or
before eighteen months after the Closing Date.

 

Section 12.5. Duty of Mitigation. Each Indemnified Party shall be obligated to
use commercially reasonable efforts (as it shall determine in good faith) to
mitigate to the extent reasonably practicable the amount of any Indemnifiable
Loss for which it is entitled to seek indemnification hereunder.

 

Section 12.6. Subrogation. Upon making any indemnification payment, the
Indemnifying Party shall, to the extent of such payment, be subrogated to all
rights of the Indemnified Party against any third party in respect of the
Indemnifiable Losses to which such payment relates; provided, however, that
until the Indemnified Party recovers full payment of its Indemnifiable Losses,
any and all claims of the Indemnifying Party against any such third party on
account of such payment are hereby made expressly subordinated in right of
payment to the Indemnified Party’s rights against such third party. Without
limiting the generality of any other provision hereof, each such Indemnified
Party and Indemnifying Party shall duly execute upon request all instruments
reasonably necessary to evidence and perfect the above-described subrogation and
subordination rights.

 

Section 12.7. Exclusive Remedy. Except as set forth in Sections 2.5, 2.7, 3.11,
4.8, 5.4, 6.2 and 8.1 (which is subject to the applicable exclusive remedy set
forth therein) of this Agreement, this Article XII shall be the exclusive remedy
for Buyer and Seller and any of their respective Affiliates, as the case may be,
relating to, resulting from or arising out of any breach by the other party of
any of the representations, warranties, covenants or agreements of such other
party contained in this Agreement. Indemnification under the indemnification
provisions contained in the Transaction Documents other than this Agreement is
to be determined in accordance with the terms of such other Transaction
Documents. Notwithstanding anything to the contrary set forth in this Article
XII, neither Seller, on the one hand, nor Buyer, on the other hand, shall have
any right or obligation under this Article XII with respect to any matter that
is expressly to be resolved pursuant to Section 2.5.

 

ARTICLE XIII

 

MISCELLANEOUS PROVISIONS AND AGREEMENTS

 

Section 13.1. Confidentiality; Public Announcements. Buyer and Seller agree that
the provisions of the Confidentiality Agreement between Buyer and Seller dated
as of February 28, 2002 (the “Confidentiality Agreement”) in respect of the
confidentiality of information are hereby incorporated herein by reference, and
Buyer and its Representatives (as defined in the Confidentiality Agreement)
shall treat all information received in connection with any of the Transaction
Documents as “Information” under such provisions, provided, however, that
notwithstanding the foregoing, nothing contained herein shall prohibit Buyer
pursuant to the terms and conditions of Section 8.1 from meeting with and making
offers to current or former Group Business employees of Seller for employment
with Buyer from and after the Closing provided that such employees were
identified in advance by Seller to Buyer, and such meetings and offers were
consented to by Seller, on or prior to the Closing Date and that such offers are
expressly conditioned upon the consummation of the Closing, provided further,
that the obligation of Buyer to refrain from hiring employees of Seller as
contained in the Confidentiality Agreement shall expire and be of no further
force or effect as of the second anniversary of the date hereof, provided
further, that notwithstanding anything to the contrary contained in the
Confidentiality Agreement, the confidentiality provisions thereof that are
hereby incorporated by reference shall survive the Closing and

 

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the expiration or termination of all of the Transaction Documents. Each of Buyer
and Seller agree to consult with each other before issuing any press release or
making any public statement with respect to any of the Transaction Documents or
the transactions contemplated thereby and, except as may be required by
applicable law or any listing agreement with any national securities exchange,
shall not issue any such press release or make any such public statement prior
to such consultation.

 

Section 13.2. Expenses. Each party shall bear its own expenses, including the
fees and expenses of any attorneys, accountants, investment bankers or others
engaged by it, in connection with this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby, except as
otherwise expressly provided herein.

 

Section 13.3. Notices. All notices, requests, demands and other communications
made hereunder shall be in writing and shall be deemed duly given upon delivery
if delivered personally, upon confirmation of transmission if sent by facsimile,
upon the third Business Day after mailing if sent by registered or certified
mail, postage prepaid, and upon receipt if sent by reputable overnight courier,
as follows, or to such other address or Person as either party may designate by
notice to the other parties hereunder:

 

If to Seller:

 

Teachers Insurance and Annuity Association of America

750 Third Avenue

New York, New York 10017

Attention: Office of General Counsel

Telephone: (212) 916-4700

Facsimile: (212) 916-6230

 

With a copy (which shall not constitute notice ) to:

 

Teachers Insurance and Annuity Association of America

750 Third Avenue

New York, New York 10017

Attention: Vice President – Insurance Finance and Planning

Telephone: (212) 916-5378

Facsimile: (212) 907-4321

 

With a copy (which shall not constitute notice ) to:

 

Clifford Chance Rogers & Wells LLP

200 Park Avenue

New York, NY 10166

Attention: Paul C. Meyer, Esq.

Telephone: (212) 878-8176

Fax: (212) 878-8375

 

If to Buyer:

 

Standard Insurance Company

1100 S.W. 6th Avenue

Portland, Oregon 97204

Attention: Michael T. Winslow

Telephone: (503) 321-6738

Fax: (503) 321-7935

 

 

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With a copy (which shall not constitute notice) to:

 

LeBoeuf, Lamb, Greene & MacRae, L.L.P

1000 Louisiana Street, Suite 1400

Houston, Texas 77002

Attention: B. Shelby Baetz

Telephone: (713) 287-2024

Fax: (713) 287-2100

 

Section 13.4. Amendment; No Waiver. Neither Buyer nor Seller shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth in this Agreement. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by both parties hereto. The failure of
either party to insist on strict compliance with this Agreement, or to exercise
any right or remedy under this Agreement, shall not constitute a waiver of any
rights provided under this Agreement, nor estop the parties from thereafter
demanding full and complete compliance nor prevent the parties from exercising
such a right or remedy in the future.

 

Section 13.5. Termination. This Agreement (except for the provisions of Sections
3.11, 4.8, 7.3, 13.1, 13.2, 13.6, 13.7 and 13.10, which shall continue in
effect), the other Transaction Documents and the transactions contemplated
hereby and thereby may be terminated and abandoned at any time prior to the
Closing Date (i) by mutual written agreement of Buyer and Seller, (ii) by Buyer
or Seller upon written notice given to the other after entry of a restraining
order or injunction restraining or prohibiting the transactions contemplated by
the Transaction Documents and the expiration or unfavorable disposition of all
appeals related thereto, (iii) by Buyer or Seller, upon ten (10) Business Days’
written notice to the other, if the Closing shall not have taken place by March
1, 2003, other than by reason of a matter within the control of the party
asserting such termination. In the event of any termination permitted by the
preceding sentence, the parties hereto shall have no liabilities pursuant to
this Agreement to the other party hereto, except for liabilities arising under
Sections 3.11, 4.8, 7.3 and 13.1. Without prejudice to any other rights or
remedies that it may have, either party may, prior to the Closing, forthwith
abandon the transactions contemplated hereby by written notice to the other
party if any of the conditions to the obligations of the abandoning party to
close the transactionscontemplated hereby have not been fulfilled prior to March
1, 2003 and shall not have been waived; provided, however, that such right shall
not permit a party to abandon the transactions contemplated hereby in the event
that such non-fulfillment was the fault, or within the control, of such party.

 

Section 13.6. Arbitration.

 

(a) Other than disputes concerning the Post-Closing Reserve Statement which
shall be resolved in accordance with Section 2.5, any dispute, controversy or
claim arising out of, relating to or in connection with this Agreement,
including, without limitation, any dispute regarding the validity, termination,
performance or breach of this Agreement, or any statutory claims relating
hereto, shall be finally settled by arbitration administered by the American
Arbitration Association (the “AAA”). The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the AAA, in effect at the
time of the arbitration, except as they may be modified herein or by agreement
of the parties to the arbitration.

 

(b) The place of arbitration shall be New York, New York.

 

(c) The arbitration shall be conducted by three (3) arbitrators, who shall be
disinterested current or former executive officers of life or health insurance
companies other than the two parties to this Agreement or their Affiliates. Each
of the parties shall appoint an arbitrator within thirty

 

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(30) days following the transmittal of written demand of either party to
arbitrate any dispute arbitrable under this Agreement and promptly notify the
other party of the name and address of such arbitrator. The two arbitrators
selected shall appoint the third arbitrator. If either party shall fail to
appoint an arbitrator, as herein provided, or should the two arbitrators so
named fail to select the third arbitrator within thirty (30) days following
their appointment, then, in either event, the President of the AAA shall appoint
such second and/or third arbitrator. The arbitrators will not be bound by formal
rules of legal procedure.

 

(d) The award rendered by the arbitrators shall be final and binding on the
parties to the arbitration. The award shall be rendered by the arbitrators in
the form of a written reasoned opinion, and shall not be appealable to the
arbitrators nor in a court of law, except to the extent provided under Sections
10 and 11 of the Federal Arbitration Act, 9 U.S.C.A. §§ 1-14, which Act shall
supply the substantive law of arbitration applicable to the arbitration provided
for herein. In no event shall any award include lost profits, special, indirect,
consequential or punitive damages. Judgment on the award may be entered in any
court of competent jurisdiction.

 

(e) To initiate arbitration, a party shall send a notice demanding arbitration
to the other parties at the address specified in Section 13.3. The notice
demanding arbitration shall be sent simultaneously by any two of the following
methods to the other parties: Federal Express courier, facsimile transmission
and certified mail, return receipt requested.

 

(f) After a notice demanding arbitration is received and the arbitrators
appointed, each party to the arbitration is required immediately to disclose to
the other party all documents in its control pertaining to any of the disputes,
controversies or claims contained in the notice demanding arbitration or as
directed by any two of the arbitrators. Each party to the arbitration shall have
the right to promptly obtain written interrogatories from, and depositions of,
any persons possessing knowledge or cognizance of the facts relevant to the
disputes, controversies or claims contained in the notice demanding arbitration
or as directed by any two of the arbitrators.

 

(g) The parties agree that they shall use, and they shall direct the arbitrators
to use, their best efforts to ensure compliance with the following timetable:
(i) the length of time from the initiation of arbitration to the final award
rendered by the arbitrators shall be no longer than six months; (ii) no longer
than thirty (30) days shall transpire between the service of a notice demanding
arbitration and appointment of the arbitrators; (iii) no longer than ninety (90)
days shall transpire for purposes of document disclosure and production of
witness interrogatories and depositions; and (iv) no longer than five days shall
transpire for presentation of the case to the arbitrators, and the arbitrators
shall be directed to use their best efforts to reach their decision and render
an award no longer than thirty (30) days thereafter. Notwithstanding anything to
the contrary set forth above, any award rendered shall not be invalidated or
otherwise rendered ineffective as a result of any failure to comply with any
component of the above timetable.

 

(h)   Each party shall be solely responsible for its own costs and expenses in
connection with any arbitration hereunder.

 

Section 13.7. Consent to Jurisdiction; Waiver of Jury Trial.

 

(a) Each of Buyer and Seller hereby expressly and irrevocably submits to the
exclusive jurisdiction of (i) the United States District Court for the Southern
District of New York and (ii) the Supreme Court of the State of New York, County
of New York for the purposes of enforcing awards from arbitration or any right
to specific performance arising out of this Agreement or any transaction
contemplated hereby. Each of Seller and Buyer agrees to commence any action,
suit or proceeding relating hereto either in the United States District Court
for the Southern District of New York

 

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or, if such suit, action or proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, County of
New York. Buyer further agrees that service of process, summons, notice or
document by hand delivery or U.S. registered mail in care of Standard Insurance
Company, 1100 S.W. 6th Avenue, Portland, Oregon 97204, Attention of the General
Counsel, shall be effective service of process for any action, suit or
proceeding brought against Buyer in any such court. Seller further agrees that
service of process, summons, notice or document by hand delivery or registered
mail in care of Teachers Insurance and Annuity Association of America, 730 Third
Avenue, New York, New York 10017, Attention: General Counsel, shall be effective
service of process for any action, suit or proceeding brought against Seller in
any such court. Each of Buyer and Seller irrevocably and unconditionally waives
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement or the transactions contemplated hereby in the United
States District Court for the Southern District of New York or Supreme Court of
the State of New York, County of New York and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum. Each of Buyer and Seller further expressly and
irrevocably waives any claim or defense in any such action or proceeding in
either such court based upon any lack of personal jurisdiction, improper venue
or forum non-conveniens or any similar basis.

 

(b) Each of the parties hereto hereby expressly and irrevocably waives trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Agreement or any instrument or document delivered pursuant
to this Agreement or the validity, protection, interpretation or enforcement
thereof.

 

Section 13.8. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors (including, but
not limited to, the surviving company of any merger involving a party), legal
representatives and permitted assigns, but this Agreement may not be assigned by
either party without the written consent of the other party.

 

Section 13.9. Entire Agreement; Section Headings. Except for the Confidentiality
Agreement, this Agreement, the exhibits and schedules attached hereto and the
other Transaction Documents contain the entire agreement among the parties
hereto with respect to thetransactions contemplated hereby and thereby and
supersede all previous written or oral negotiations, commitments and writings.
The section headings of this Agreement are for convenience of reference only and
do not form a part hereof and do not in any way modify, interpret or construe
the intentions of the parties.

 

Section 13.10. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.

 

Section 13.11. Further Assurances. Each of Seller and Buyer shall use its
reasonable best efforts to do or cause to be done all things necessary, proper
or advisable to consummate the transactions contemplated by the Transaction
Documents.

 

Section 13.12. Parties in Interest. Nothing in this Agreement is intended to
confer any rights or remedies under or by reason of this Agreement on any
Persons other than the parties hereto and their respective successors and
permitted assignees. Nothing in this Agreement is intended to relieve or
discharge the obligations or liability of any third Persons to the parties
hereto. No provision of this Agreement shall give any third Persons any right of
subrogation or action over or against the parties hereto.

 

Section 13.13. Interpretation. No provision of this Agreement shall be construed
against any party on the ground that such party drafted the provision or caused
it to be drafted.

 

 

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Section 13.14. Severability. The provisions of this Agreement are several, and
if any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision in this Agreement in any jurisdiction.

 

Section 13.15. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.

 

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized, as of the day
and year first above written.

 

TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA

By:

 

/s/ Bertram L. Scott

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

   

Name: Bertram L. Scott

Title: Executive Vice President

 

STANDARD INSURANCE COMPANY

By:

 

/s/ Douglas T. Maines

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

   

Name: Douglas T. Maines

Title: President, Employee Benefits – Insurance

 

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