Execution Copy
AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
Among
ING AMERICA INSURANCE HOLDINGS, INC.,
ANB ACQUISITION CORP.,
AETNA INC.
and, for limited purposes only, ING GROEP N.V.
Dated as of July 19, 2000
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TABLE OF CONTENTS
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ARTICLE I
The Transaction; Closing; Effective Time
1.1 The Spin-Off.................................................................................... 2
1.2 The Merger...................................................................................... 2
1.3 Closing......................................................................................... 2
1.4 Effective Time.................................................................................. 3
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1 The Certificate of Incorporation................................................................ 3
2.2 The By-Laws..................................................................................... 3
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1 Directors....................................................................................... 3
3.2 Officers........................................................................................ 3
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1 Effect on Capital Stock......................................................................... 4
4.2 Exchange of Cash for Shares..................................................................... 6
4.3 Dissenters' Rights.............................................................................. 8
ARTICLE V
Representations and Warranties
5.1 Representations and Warranties of the Company................................................... 9
(a) Organization, Good Standing and Qualification.......................................... 9
(b) Capital Structure...................................................................... 12
(c) Corporate Authority; Approval and Fairness............................................. 13
(d) Governmental Filings; No Violations.................................................... 14
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(e) Statutory Reports; Company Reports; Financial Statements............................... 15
(f) Absence of Certain Changes............................................................. 18
(g) Litigation and Liabilities............................................................. 20
(h) Employee Benefits...................................................................... 21
(i) Compliance with Laws; Permits.......................................................... 24
(j) Takeover Statutes...................................................................... 26
(k) Environmental Matters.................................................................. 26
(l) Taxes.................................................................................. 27
(m) Labor Matters.......................................................................... 29
(n) Insurance.............................................................................. 30
(o) Intellectual Property.................................................................. 30
(p) Rights Plan............................................................................ 31
(q) Brokers and Finders.................................................................... 31
(r) Insurance Business..................................................................... 31
(s) Liabilities and Reserves............................................................... 33
(t) Separate Accounts...................................................................... 33
(u) Material Contracts..................................................................... 34
(v) Investment Contracts, Fund Clients and Advisory Clients................................ 35
(w) Company Broker/Dealers................................................................. 37
(x) Bank Regulatory Matters................................................................ 38
(y) No Contracts, Etc...................................................................... 38
5.2 Representations and Warranties of ING, Parent and Merger Sub.................................... 39
ARTICLE VI
Covenants
6.1 Interim Operations; Operation of Businesses..................................................... 41
6.2 Acquisition Proposals........................................................................... 45
6.3 Accuracy of Proxy Statement and Form 10......................................................... 47
6.4 Shareholders Meeting............................................................................ 48
6.5 Filings; Other Actions; Notification............................................................ 48
6.6 Access.......................................................................................... 51
6.7 Stock Exchange.................................................................................. 51
6.8 Publicity....................................................................................... 51
6.9 Benefits; Company Options....................................................................... 52
6.10 ERISA Client Lists.............................................................................. 53
6.11 Expenses........................................................................................ 53
6.12 Indemnification; Directors' and Officers' Insurance............................................. 53
6.13 Compliance with 1940 Act Section 15............................................................. 55
6.14 Fund Client Contracts, Distribution Plans and Boards............................................ 56
6.15 Non-Fund Advisory Contracts..................................................................... 56
6.16 Qualification of the Fund Clients; Fund Client Boards........................................... 57
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6.17 Rights.......................................................................................... 57
6.18 Takeover Statute................................................................................ 57
6.19 Company Debt.................................................................................... 57
6.20 Voting of Shares................................................................................ 57
6.21 Other Agreements................................................................................ 57
6.22 Headquarters and Related Matters................................................................ 59
6.23 Asia............................................................................................ 59
6.24 Confidentiality................................................................................. 59
ARTICLE VII
Conditions
7.1 Conditions to Each Party's Obligation to Effect the Merger...................................... 60
7.2 Conditions to Obligations of Parent and Merger Sub.............................................. 61
7.3 Conditions to Obligation of the Company......................................................... 63
ARTICLE VIII
Termination
8.1 Termination by Mutual Consent................................................................... 64
8.2 Termination by Either Parent or the Company..................................................... 64
8.3 Termination by the Company...................................................................... 65
8.4 Termination by Parent........................................................................... 65
8.5 Effect of Termination and Abandonment........................................................... 65
ARTICLE IX
Miscellaneous and General
9.1 Survival........................................................................................ 67
9.2 Modification or Amendment....................................................................... 67
9.3 Waiver of Conditions............................................................................ 67
9.4 Counterparts.................................................................................... 68
9.5 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL................................................... 68
9.6 Notices......................................................................................... 69
9.7 Entire Agreement; No Other Representations...................................................... 71
9.8 No Third Party Beneficiaries.................................................................... 71
9.9 Obligations of Parent and of the Company........................................................ 71
9.10 Transfer Taxes.................................................................................. 72
9.11 Severability.................................................................................... 72
9.12 Interpretation.................................................................................. 72
9.13 Assignment...................................................................................... 72
9.14 Specific Performance............................................................................ 73
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INDEX OF DEFINED TERMS
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1940 Act ............................................................... 14
1999 10-K .............................................................. 9
Account Client ......................................................... 34
Acquisition Proposal ................................................... 45
Advisers Act ........................................................... 14
Advisory Client ........................................................ 35
Advisory Entities ...................................................... 35
Advisory Entity ........................................................ 35
Aetna China Name Rights ................................................ 58
Affiliate .............................................................. 10
Agent .................................................................. 32
Agreement .............................................................. 1
ALICA .................................................................. 15
Assumed Long-Term Debt Obligations ..................................... 4
Balance Sheet Date ..................................................... 18
Banking Authorities .................................................... 14
Bankruptcy and Equity Exception ........................................ 13
By-Laws ................................................................ 3
CBCA ................................................................... 2
Certificate ............................................................ 5
Certificate of Merger .................................................. 3
Charter ................................................................ 3
Chinese Mark ........................................................... 58
Chinese Mark Agreement ................................................. 58
CityPlace Accrual Amount ............................................... 5
Class B Voting Preferred Stock ......................................... 4
Client ................................................................. 35
Closing ................................................................ 2
Closing Date ........................................................... 2
Closing Date Interest Accrual .......................................... 6
Code ................................................................... 8
Common Stock ........................................................... 4
Company ................................................................ 1
Company Actuarial Analyses ............................................. 32
Company Broker/Dealers ................................................. 37
Company Disclosure Letter .............................................. 9
Company Intellectual Property Rights ................................... 30
Company Material Adverse Effect ........................................ 10
Company Option ......................................................... 12
Company Reports ........................................................ 16
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Company Requisite Vote ................................................. 13
Company SAP Statements ................................................. 15
Company Separate Accounts .............................................. 33
Compensation and Benefit Plans ......................................... 21
Confidentiality Agreement .............................................. 71
Constituent Corporations ............................................... 1
Contracts .............................................................. 15
Costs .................................................................. 54
Coverage Policies ...................................................... 59
Current Premium ........................................................ 55
D&O Insurance .......................................................... 55
Designated Person ...................................................... 19
Designated Persons ..................................................... 19
Dissenting Shareholders ................................................ 4
Dissenting Shares ...................................................... 4
Distribution Agreement ................................................. 1
Effective Time ......................................................... 3
Employee Benefits Agreement ............................................ 52
ERISA .................................................................. 21
ERISA Affiliate ........................................................ 22
ERISA Affiliate Plan ................................................... 22
ERISA Client ........................................................... 34
Excluded Capital Contribution .......................................... 5
Excluded Dividends ..................................................... 5
Excluded Employee ...................................................... 20
Excluded Share ......................................................... 4
Excluded Shares ........................................................ 4
Extended Date .......................................................... 64
First 2000 10-Q ........................................................ 9
Foreign Company Statements ............................................. 15
Form 10 ................................................................ 47
Fund Client ............................................................ 35
GAAP ................................................................... 17
Governmental Approvals ................................................. 48
Governmental Consents .................................................. 60
Governmental Entity .................................................... 14
HSR Act ................................................................ 14
Indemnified Parties .................................................... 53
ING .................................................................... 1
ING Companies .......................................................... 4
Insurance and Healthcare Authorities ................................... 14
Insurance Laws ......................................................... 24
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Intellectual Property .................................................. 30
International Entities ................................................. 20
International Retained Insurance ....................................... 10
Investment Contract .................................................... 35
IRS .................................................................... 22
Joint Venture .......................................................... 12
knowledge of the Company ............................................... 21
Laws ................................................................... 25
Long-Term Debt ......................................................... 5
MEC .................................................................... 28
Merger ................................................................. 1
Merger Consideration ................................................... 5
Merger Sub ............................................................. 1
NASD ................................................................... 14
Net Capital Contribution Amount ........................................ 5
Net Interest Accrual Amount ............................................ 5
Notice of Superior Proposal ............................................ 47
NYSE ................................................................... 51
of which the Company has knowledge ..................................... 21
open Taxable years ..................................................... 29
Order .................................................................. 61
Out-of-Pocket Expenses ................................................. 66
Parent ................................................................. 1
Parent Disclosure Letter ............................................... 39
Parent ERISA List ...................................................... 53
Parent Interest Portion ................................................ 5
Parent Material Adverse Effect ......................................... 39
Paying Agent ........................................................... 6
Payment Fund ........................................................... 6
PBGC ................................................................... 14
Pension Plan ........................................................... 22
Permitted Sales ........................................................ 5
Permitted Sales Proceeds ............................................... 5
Person ................................................................. 7
Preferred Stock ........................................................ 12
Proxy Statement ........................................................ 47
Qualified Plan ......................................................... 22
Representatives ........................................................ 51
Retained Insurance Companies ........................................... 10
Retained Insurance Contracts ........................................... 32
Right .................................................................. 4
Rights Agreement ....................................................... 4
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SEC .................................................................... 9
Section 6.21 Subsidiaries .............................................. 57
Securities Act ......................................................... 16
Share .................................................................. 4
Shareholders Meeting ................................................... 48
Shares ................................................................. 4
shares ................................................................. 36
Spin-Off ............................................................... 1
Spinco ................................................................. 1
Stock Plans ............................................................ 12
Subsidiary ............................................................. 10
Superior Proposal ...................................................... 46
Surviving Corporation .................................................. 2
Takeover Statute ....................................................... 26
Tax .................................................................... 27
Tax Allocation Agreement ............................................... 28
Tax Authority .......................................................... 28
Tax Return ............................................................. 28
Tax Sharing Agreement .................................................. 43
Taxable ................................................................ 27
Taxes .................................................................. 27
Termination Date ....................................................... 64
Termination Fee ........................................................ 66
the Company has no knowledge ........................................... 21
Total assets under management .......................................... 62
Transaction ............................................................ 1
Transaction Agreements ................................................. 2
Transaction Expenses ................................................... 53
U.S. Retained Insurance Companies ...................................... 10
Voting Debt ............................................................ 13
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AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
AGREEMENT AND PLAN OF RESTRUCTURING AND MERGER
(hereinafter called this "Agreement"), dated as of July 19, 2000, among AETNA
INC., a Connecticut corporation (the "Company"), ING AMERICA INSURANCE HOLDINGS,
INC., a Delaware corporation ("Parent"), and ANB ACQUISITION CORP., a
Connecticut corporation and a newly formed, wholly owned subsidiary of Parent
("Merger Sub", the Company and Merger Sub sometimes being hereinafter
collectively referred to as the "Constituent Corporations") and, for the sole
purpose of Sections 4.2, 4.3, 5.2, 6.3, 6.5, 6.8, 6.12, 6.18, 6.19, 6.20 and
Article IX, ING GROEP N.V., a corporation organized under the laws of the
Netherlands ("ING").
RECITALS
WHEREAS, provided that all conditions precedent to the
Distribution (as defined below) have been satisfied, immediately prior to the
Effective Time (as defined below), the Company and Aetna U.S. Healthcare Inc., a
Pennsylvania corporation and a wholly owned subsidiary of the Company
("Spinco"), intend to enter into a distribution agreement in the form of Annex A
hereto, with such changes as may be approved by Parent in accordance with
Section 9.2(b) of this Agreement (the "Distribution Agreement"), and to effect
the various transactions contemplated thereby and, with the exception of this
Agreement, by the other Transaction Agreements (as defined below) (all such
transactions being referred to collectively as the "Spin-Off");
WHEREAS, the respective boards of directors of each of Parent,
Merger Sub and the Company have determined that it is in the best interests of
their respective entities and shareholders to enter into this Agreement and have
approved and adopted this Agreement and the merger of Merger Sub with and into
the Company (the "Merger", the Spin-Off, the Merger and the other transactions
contemplated by the Transaction Agreements sometimes being hereinafter
collectively referred to as the "Transaction") upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, in making the foregoing determinations, the board of
directors of the Company considered, among other things, the interests of the
Company's employees, customers, creditors and suppliers, as well as community
and societal considerations;
WHEREAS, the Company, ING, Parent and Merger Sub desire to
make certain representations, warranties, covenants and agreements in connection
with this Agreement and the Distribution Agreement (this Agreement, the
Distribution Agreement
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and the other agreements and term sheets attached hereto or thereto sometimes
being hereinafter collectively referred to as the "Transaction Agreements"); and
WHEREAS, for federal income Tax (as defined below) purposes,
it is intended that the Transaction will be treated at the shareholder level as
an integrated transaction in redemption and disposition of the Company's
outstanding capital stock.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Transaction; Closing; Effective Time
1.1 The Spin-Off. Provided that all conditions precedent to
the Spin-Off have been satisfied, prior to the Effective Time, the Company shall
enter into the Distribution Agreement with Spinco, each other Person that will
be a party to any Transaction Agreement (other than the Merger Agreement) shall
enter into each such Transaction Agreement, and, on the terms and subject to the
conditions of the Transaction Agreements, immediately prior to the Effective
Time, the Company shall effect, and cause Spinco to effect, the Spin-Off.
1.2 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time Merger Sub shall be merged
with and into the Company and the separate corporate existence of Merger Sub
shall thereupon cease. The Company shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation"), and
the separate corporate existence of the Company with all its rights, privileges,
powers and franchises shall continue unaffected by the Merger, except as set
forth in Article II of this Agreement. The Merger shall have the effects
specified in the Connecticut Business Corporation Act, as amended (the "CBCA").
1.3 Closing. The closing of the Merger (the "Closing") shall
take place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New
York, New York at 9:00 A.M. on the second business day on which the last to be
fulfilled or waived of the conditions set forth in Article VII (other than those
conditions that by their nature are to be fulfilled at the Closing, but subject
to the fulfillment or waiver of those conditions and subject to compliance with
the provisions of Section 4.2(b) of this Agreement) shall be fulfilled or waived
in accordance with this Agreement or (ii) at such other place and time and/or on
such other date as the Company and Parent may agree in writing (the "Closing
Date").
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1.4 Effective Time. As soon as practicable following the
Closing, the Company, Parent and Merger Sub will cause a Certificate of Merger
(the "Certificate of Merger") to be executed, acknowledged and delivered for
filing to the Secretary of State of Connecticut as provided in Section 33-819 of
the CBCA. The Merger shall become effective at the time when the Certificate of
Merger has been accepted for filing by the Secretary of State of Connecticut or
such other time as the parties hereto may agree to specify in the Certificate of
Merger (the "Effective Time").
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1 The Certificate of Incorporation. The certificate of
incorporation of Merger Sub as in effect immediately prior to the Effective Time
shall be the certificate of incorporation of the Surviving Corporation (the
"Charter"); provided, however, that the Charter shall be amended to change the
name of the Surviving Corporation to the name of: "Lion Connecticut Holdings
Inc.", and as so amended, shall be the certificate of incorporation of the
Surviving Corporation until duly amended as provided therein or by applicable
law.
2.2 The By-Laws. The by-laws of Merger Sub as in effect at the
Effective Time shall be the by-laws of the Surviving Corporation (the
"By-Laws"); provided, however, that the By-Laws shall be amended to change the
name of the Surviving Corporation to the name of: "Lion Connecticut Holdings
Inc.", and as so amended, shall be the by-laws of the Surviving Corporation
until thereafter amended as provided therein or by applicable law.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1 Directors. The directors of Merger Sub at the Effective
Time shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Charter and the By-Laws.
3.2 Officers. The officers of the Company at the Effective
Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their
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successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Charter and the
By-Laws. Prior to the Effective Time, the Company shall cause, by transfer or
otherwise, all officers of the Company and its Subsidiaries (as defined below)
and Affiliates (as defined below) who will be employees of Spinco or any of its
Subsidiaries after the Spin-Off (as contemplated by the Transaction Agreements)
to cease their employment with the Company and each of its Subsidiaries and
Affiliates, as the case may be, and no replacements shall be elected, appointed
or hired for such employees without the approval of Parent.
ARTICLE IV
Effect of the Merger on Capital Stock;
Exchange of Certificates
4.1 Effect on Capital Stock. At the Effective Time, as a
result of the Merger and without any action on the part of the holder of any
capital stock of the Company:
(a) Merger Consideration. Each share of Common Stock, par
value $0.01 per share, of the Company ("Common Stock"), including the associated
right to purchase one one-hundredth of a share of Class B Voting Preferred
Stock, par value $0.01 per share ("Class B Voting Preferred Stock"), of the
Company (each a "Right" and, together with Common Stock, a "Share" or,
collectively, the "Shares") issued pursuant to the Rights Agreement, dated as of
September 24, 1999, between the Company and First Chicago Trust Company of New
York, as Rights Agent (the "Rights Agreement"), issued and outstanding
immediately prior to the Effective Time (other than (i) Shares owned by or on
behalf of ING, Parent, Merger Sub or any other Subsidiary of ING (collectively,
the "ING Companies") or Shares that are owned by or on behalf of the Company or
any Subsidiary of the Company and in each case not held on behalf of third
parties or (ii) Shares ("Dissenting Shares") that are owned by shareholders
("Dissenting Shareholders") exercising dissenter's rights pursuant to Sections
33-855 through 33-872 of the CBCA (each such Share owned by or on behalf of the
ING Companies, the Company and any Subsidiary of the Company and each Dissenting
Share, an "Excluded Share" and collectively, the "Excluded Shares")) shall be
converted into the right to receive an amount in cash per Share equal to (x)
$7.70 billion (i) minus the greater of (A) $2.678 billion (which amount shall be
reduced by $300 million if the $300 million outstanding principal amount of the
6.75% Notes of Aetna Services, Inc. due 2001 due and payable on August 15, 2001
is repaid in full on such maturity date) and (B) the aggregate principal amount
of all Long-Term Debt (as defined below) outstanding as of the Effective Time to
any Person (other than obligations for indebtedness set forth in Section
4.1(a)(i) of the Company Disclosure Letter) (such amount being the "Assumed
Long-Term Debt
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Obligations"), (ii) plus the Net Capital Contribution Amount (positive or
negative), (iii) plus the Net Interest Accrual Amount (positive or negative) and
(iv) minus the CityPlace Accrual Amount divided by (y) the aggregate number of
outstanding Shares as of the Effective Time (the "Merger Consideration"). At the
Effective Time, all Shares issued and outstanding immediately prior to the
Effective Time shall no longer be outstanding and shall be canceled and retired
and shall cease to exist, and each certificate or other similar evidence of
ownership of uncertificated Shares (such certificate or similar evidence of
ownership of uncertificated Shares being referred to herein as a "Certificate")
formerly representing any of such Shares (other than Excluded Shares) shall
thereafter represent only the right to the Merger Consideration. "Net Capital
Contribution Amount" means an amount determined as of the Effective Time for the
period after March 31, 2000 until the Effective Time that is equal to the
aggregate cash capital contributions (other than Excluded Capital Contributions
(as defined below)) made (without duplication) after March 31, 2000 by the
Company or Aetna Services, Inc. to Aetna Retirement Services, Inc., Aetna
International, Inc. or any of their respective Subsidiaries from among the
permitted capital contributions included in Section 4.1(a) of the Company
Disclosure Letter minus the amount of any dividends or distributions (other than
Excluded Dividends) paid (without duplication) after March 31, 2000 from Aetna
Retirement Services, Inc., or Aetna International, Inc. or any of their
respective Subsidiaries (other than Subsidiaries that are not Subsidiaries of
the Company) to Aetna Services, Inc. (other than any such dividends and
distributions paid in respect of the proceeds (after Taxes and transaction
expenses incurred in connection therewith) (the "Permitted Sales Proceeds")
received from the sale or disposition of (i) Inversiones Mercantile-Aetna C.A.
and (ii) the Company's direct or indirect interest in Kwang Hua Securities
Investment & Trust Co. and Kwang Hua Securities Investment Consultant Co. Ltd.
(the items referred to in clauses (i) and (ii) collectively, the "Permitted
Sales")). The term "Long-Term Debt" means indebtedness for borrowed money, the
term of which, when incurred, had a maturity date of one year or more, of the
Company or any of its Subsidiaries. The term "Excluded Capital Contribution"
means any portion of any capital contribution made, directly or indirectly, to
Spinco or any of its Subsidiaries. The term "Excluded Dividends" means cash
dividends or other cash distributions, funds for which were originally provided
by Subsidiaries of Aetna Retirement Services, Inc. or Aetna International, Inc.
that are also Subsidiaries of Spinco, net of any Tax cost to any of the Company
or its Subsidiaries. The term "Net Interest Accrual Amount" means the amount
(positive or negative) equal to the Parent Interest Portion minus the Closing
Date Interest Accrual. The term "CityPlace Accrual Amount" means an amount equal
to the next aggregate semi-annual lease payment of the Company and its
Subsidiaries payable in respect of the the CityPlace building to be made after
the Effective Time multiplied by a fraction the numerator of which is the total
number of days elapsed since the immediately preceding October 31 or March 30
until the Effective Time and the denominator of which is 180. "Parent Interest
Portion" shall mean an amount equal to the amount of interest that would accrue
(in a manner consistent with accruals on the Assumed Long-Term Debt Obligations)
on $1 billion (one
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billion dollars) principal amount of indebtedness bearing an annual interest
rate of 7.1% from and including April 1, 2000 to the Effective Time. "Closing
Date Interest Accrual" shall mean the amount of interest accrued as of the
Effective Time in respect of the Assumed Long-Term Debt Obligations.
(b) The Merger and the Spin-Off shall be effected such that
the shares of Spinco to be distributed in the Spin-Off and the Merger
Consideration are distributed or paid, as the case may be, only to the same
holder of a share of Common Stock.
(c) Cancellation of Shares. Each Share issued and outstanding
immediately prior to the Effective Time and owned by or on behalf of any of the
ING Companies or owned by the Company or any Subsidiary of the Company (in each
case other than Shares that are held on behalf of third parties) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
no longer be outstanding and shall be canceled and retired without payment of
any consideration therefor and shall cease to exist.
(d) Merger Sub. At the Effective Time, each share of common
stock, par value $0.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation.
4.2 Exchange of Cash for Shares.
(a) Paying Agent. At or prior to the Effective Time, ING shall
cause Parent or an Affiliate of Parent to deposit with First Chicago Trust
Company of New York (the "Paying Agent"), for the benefit of the holders of
Shares, cash sufficient to pay the aggregate Merger Consideration in exchange
for Shares outstanding immediately prior to the Effective Time (other than
Excluded Shares) upon due surrender of the Certificates (or affidavits of loss
in lieu thereof) pursuant to the provisions of this Article IV (such cash being
hereinafter referred to as the "Payment Fund").
The funds deposited with the Paying Agent shall be invested by
the Paying Agent as Parent shall reasonably direct, and any net profit resulting
from, or interest or income produced by, such investments will be payable to the
Surviving Corporation or Parent, as Parent directs.
(b) Payment Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause the Paying Agent to mail to each holder of
record of Shares (other than holders of Excluded Shares) (i) a letter of
transmittal specifying that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates (or
affidavits of loss in lieu thereof) to the Paying Agent, such
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letter of transmittal to be in such form and have such other provisions as
Parent and the Company may reasonably agree, and (ii) instructions for use in
effecting the surrender of the Certificates (and affidavits of loss in lieu
thereof) in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation (or due submission of an affidavit of loss in lieu
thereof) to the Paying Agent together with such letter of transmittal, duly
executed, the holder of such Certificate (or submitter of such affidavit, as the
case may be) shall be entitled to receive in exchange therefor, a check in the
amount (after giving effect to any required Tax withholdings) of the number of
Shares represented by such Certificate (or affidavit of loss in lieu thereof)
multiplied by the Merger Consideration, and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on any amount payable
upon due surrender (after giving effect to any required Tax withholding) of the
Certificates. In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, a check for any cash to be
paid upon due surrender of the Certificate may be paid to such a transferee if
the Certificate formerly representing such Shares is presented to the Paying
Agent, accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer Taxes have been paid
or are not applicable.
For the purposes of this Agreement, the term "Person" shall
mean any individual, corporation (including not-for-profit corporations),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, Governmental Entity (as defined below)
or other entity of any kind or nature.
(c) Transfers. After the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to
the Surviving Corporation or Parent for transfer, they shall be canceled and,
provided the Merger Consideration provided thereon has not escheated to the
relevant Governmental Entity (as defined below), exchanged for a check (after
giving effect to any required Tax withholding) in the proper amount pursuant to
this Article IV.
(d) Termination of Payment Fund. Any portion of the Payment
Fund (including the profit, interest or income from any investments thereof)
that remains unclaimed by the holders of Shares (other than Excluded Shares) for
one year after the Effective Time shall be returned to Parent or as directed by
Parent. Any holders of Shares (other than Excluded Shares) who have not
theretofore complied with this Article IV shall thereafter look only to Parent
for payment of (after giving effect to any required Tax withholdings) the Merger
Consideration upon due surrender of their Certificates (or affidavits of loss in
lieu thereof), without any interest thereon. Notwithstanding the foregoing, none
of Parent, the Surviving Corporation, the Paying Agent or any other
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<PAGE> 16
Person shall be liable to any former holder of Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(e) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by Parent, the posting by such Person of a
bond in customary amount as indemnity against any claim that may be made against
it with respect to such Certificate, the Paying Agent will issue in exchange for
such lost, stolen or destroyed Certificate a check in the amount (after giving
effect to any required Tax withholdings) of the number of Shares represented by
such lost, stolen or destroyed Certificate multiplied by the Merger
Consideration upon due surrender of, and deliverable in respect of the Shares
represented by, such Certificate pursuant to this Agreement.
(f) Withholding of Tax. Parent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any former holder of Shares such amounts as Parent (or any affiliate thereof) is
required to deduct and withhold with respect to the making of such payment under
the U.S. Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code") or any provision of state, local
or foreign Tax Law (as defined below). Such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the former holders of
Shares in respect of which such deduction and withholding was made.
4.3 Dissenters' Rights. Any Person who otherwise would be
deemed a Dissenting Shareholder shall not be entitled to receive the Merger
Consideration with respect to the Shares owned by such Person unless and until
such Person shall have failed to perfect or shall have effectively withdrawn or
lost such holder's right to dissent from the Merger under the CBCA. Each
Dissenting Shareholder shall be entitled to receive only the payment determined
pursuant to Sections 33-855 through 33-872 of the CBCA with respect to Shares
owned by such Dissenting Shareholder. The Company shall give Parent (i) prompt
notice of any written dissenters' demands, attempted withdrawals of such
demands, and any other instruments served pursuant to applicable Law received by
the Company relating to dissenters' rights and (ii) the opportunity to direct
all negotiations and proceedings with respect to dissenters' demands under the
CBCA. The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any dissenters' demands for payment
for Shares, offer to settle or settle any such demands or approve any withdrawal
of any such demands. If, after the Effective Time, such Dissenting Shareholder
fails to perfect, withdraws or loses its right to demand the payment of fair
value for its Shares under the CBCA, such Shares shall be treated as if they had
been converted as of the Effective Time into a right to receive the Merger
Consideration and ING shall cause Parent to promptly thereafter deposit, or
cause to be
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deposited, with the Paying Agent, for the benefit of such Dissenting
Stockholder, cash sufficient to pay the aggregate Merger Consideration in
exchange for all such Shares.
ARTICLE V
Representations and Warranties
5.1 Representations and Warranties of the Company. Except as
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, filed with the Securities and Exchange Commission (the "SEC")
on February 29, 2000 (the "1999 10-K"), the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000, filed with the SEC on April 27, 2000
(the "First 2000 10-Q"), the Company's Annual Proxy Statement on Schedule 14A,
filed with the SEC on March 22, 2000, or as set forth in the corresponding
sections or subsections of the disclosure letter, dated the date hereof,
delivered to Parent by the Company on or prior to entering into this Agreement
(the "Company Disclosure Letter"), the Company hereby represents and warrants to
Parent and Merger Sub as set forth in this Section 5.1. All representations and
warranties contained in this Agreement which are made as to Joint Ventures (as
defined below) or any other joint ventures shall be made only as to the actual
knowledge of those people set forth on Section 5.1 of the Company Disclosure
Letter.
(a) Organization, Good Standing and Qualification. (i) Each of
the Company and its Subsidiaries (as defined below) and Joint Ventures and
Spinco is an entity duly organized, validly existing and in good standing (or
relevant state or foreign law equivalent) under the Laws of its respective
jurisdiction of organization and has all requisite corporate or similar power
and authority to own and operate its properties and assets and to carry on its
business as presently conducted and is qualified to do business and is in good
standing in each jurisdiction where the ownership or operation of its assets or
properties or conduct of its business requires such qualification, except (A) to
the extent such qualifications to do business include the possession of
insurance, reinsurance or healthcare licenses, which are addressed in Section
5.1(a)(ii) below and (B) where the failure to be so organized, qualified or in
good standing (or relevant state or foreign law equivalent), or to have such
power or authority is not, individually or in the aggregate, reasonably likely
to have a Company Material Adverse Effect (as defined below). The Company has
made available to Parent complete and correct copies of the certificate of
incorporation and by-laws or other comparable governing instruments of the
Company and each of the Subsidiaries and Joint Ventures of the Company set forth
in Section 5.1(a)(i)(A) of the Company Disclosure Letter. Such certificates of
incorporation and by-laws or other comparable governing instruments of the
Company, Spinco, each of the Joint Ventures and each of the Subsidiaries listed
in Section 5.1(a)(i)(A) of the Company Disclosure Letter so delivered are in
full force and effect. Section 5.1(a)(i)(B) of the
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Company Disclosure Letter contains, as of the date of this Agreement, a correct
and complete list of (x) each Subsidiary and Joint Venture of the Company and
(y) each jurisdiction where the Company and each of such Subsidiaries and Joint
Ventures is organized.
As used in this Agreement, the term (x) "Subsidiary" means,
with respect to any Person, any entity, whether incorporated or unincorporated,
of which at least a majority of the securities or ownership interests having by
their terms ordinary voting power to elect a majority of the board of directors
or other persons performing similar functions is directly or indirectly owned or
controlled by such Person or by one or more of its respective Subsidiaries or by
such Person and any one or more of its respective Subsidiaries; provided,
however, that except in the context of references in Section 5.1(e)(iii) to
consolidated financial statements of the Company and its Subsidiaries, (A) no
member of the Spinco Group (as defined in the Distribution Agreement) shall be
deemed to be a Subsidiary, Joint Venture or "Affiliate" (as defined in Rule
12b-2 under the Exchange Act) of the Company, (B) each member of the Spinco
Group (other than Spinco) shall be deemed to be a Subsidiary only of Spinco and
not a member of the Aetna Group (as defined in the Distribution Agreement), (C)
no member of the Aetna Group shall be deemed to be a Subsidiary, Joint Venture
or Affiliate of Spinco or member of the Spinco Group and (D) each member of the
Aetna Group (other than the Company) shall be deemed to be a Subsidiary only of
the Company and not a member of the Spinco Group, and (y) "Company Material
Adverse Effect" means a material adverse effect on the financial condition,
properties, business or annual results of operations of the Company and its
Subsidiaries and Joint Ventures taken as a whole, except to the extent that such
adverse effect results from (A) general economic conditions or changes therein
in any one or more countries, (B) financial market fluctuations or conditions in
any one or more countries, (C) adverse economic, currency or regulatory changes
or effects in or affecting the financial services industry, insurance industry
or asset management industry in any one or more countries or (D) the
announcement of the transactions contemplated herein. Notwithstanding the
foregoing, the parties hereto acknowledge and agree that in no event shall any
matter that is or would be a Spinco Group Liability (as such term is defined in
the Distribution Agreement) constitute or give rise to, in whole or in part, a
Company Material Adverse Effect.
(ii) The Company and its Subsidiaries (i) conducts its
domestic insurance and reinsurance operations exclusively through Aetna Life
Insurance and Annuity Company and Aetna Insurance Company of America (the "U.S.
Retained Insurance Companies") and (ii) conducts its international insurance,
reinsurance and health care operations through those Subsidiaries, Joint
Ventures and joint ventures set forth in Section 5.1(a)(ii)(A) of the Company
Disclosure Letter (the "International Retained Insurance Companies" and,
together with the U.S. Retained Insurance Companies, the "Retained Insurance
Companies"). Section 5.1(a)(ii)(B) of the Company
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<PAGE> 19
Disclosure Letter sets forth the jurisdictions where the Retained Insurance
Companies are domiciled or "commercially domiciled" and licensed to do an
insurance or reinsurance or healthcare business for insurance regulatory
purposes. Each of the Retained Insurance Companies is (A) duly licensed or
authorized to engage in the business conducted by it (including, without
limitation, as a healthcare company, an insurance company or, where applicable,
a reinsurer) in its jurisdiction of organization, (B) duly licensed or
authorized as a healthcare company, an insurance company or, where applicable, a
reinsurer in each other jurisdiction where it is required to be so licensed or
authorized, and (C) duly authorized in its jurisdiction of organization and each
other applicable jurisdiction to engage in or write each line of business
reported as being written in the Company SAP Statements (as defined below) (in
the case of U.S. Retained Insurance Companies) or (in the case of International
Retained Insurance Companies) comparable report, except, in the case of each of
clauses (A) through (C), where the failure to be so licensed or authorized is
not reasonably likely to have a Company Material Adverse Effect. The Company and
each of the Retained Insurance Companies have made all required filings under
applicable Insurance Laws (as defined below) except where the failure to file is
not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect.
(iii) Joint Ventures. Section 5.1(a)(iii)(A) of the Company
Disclosure Letter sets forth a list of each of the Company's and its
Subsidiaries' Joint Ventures. With respect to each of those Joint Ventures so
indicated in Section 5.1(a)(iii) of the Company Disclosure Letter, the Company
has made available to Parent correct and complete copies of all agreements among
Joint Venture parties with respect to the Joint Venture and all governing
instruments and amendments thereto with respect to each Joint Venture. With
respect to each of the Joint Ventures, the Company has made available to Parent
correct and complete copies of all agreements to which the Company or any of its
Subsidiaries or Joint Ventures is a party which (i) have affected or are
reasonably likely to affect the ability, if any, of Parent to direct and control
such entity's business operations after consummation of the Merger and the other
transactions contemplated in the Transaction Agreements or (ii) evidence any
commitment (whether or not contingent) for future investment of capital or
otherwise to be directly or indirectly made by ING, the Company or any of their
respective Subsidiaries therein, or any other future material liabilities or
obligations in respect thereof of ING, the Company or any of their respective
Subsidiaries. With respect to the joint ventures of the Company and its
Subsidiaries that are not Joint Ventures: (A) neither the Company nor any of its
Subsidiaries or Joint Ventures is liable for any material obligations or
material liabilities of any such joint ventures, (B) neither the Company nor any
of its Subsidiaries or Joint Ventures is obligated to make any loans or capital
contributions to, or to undertake any guarantees or obligations with respect to,
such joint ventures, (C) none of such joint ventures own any assets that are
material to the continued conduct of the business of the Company and its
Subsidiaries and Joint Ventures, taken as a whole, substantially as it is
presently conducted, (D) neither the Company nor any of its Subsidiaries or
Joint Ventures is subject to any limitation on its right to compete
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or any material limitation on its right to otherwise conduct its business by
reason of any agreement relating to such joint venture and (E) each joint
venture is in material compliance with all Laws of all Governmental Entities. As
used herein, "Joint Venture" shall mean those direct or indirect joint ventures
of the Company or any of its Subsidiaries (i) that are not otherwise direct or
indirect Subsidiaries of the Company and (ii) in which the Company or any of its
Subsidiaries as of the date of this Agreement have invested, or made commitments
to invest, $25 million or more, but "Joint Venture" and "joint venture" shall
not include any entities whose securities are held solely for passive investment
purposes by the Company or any of its Subsidiaries. Section 5.1(a)(iii)(B) of
the Company Disclosure Letter contains, as of the date of this Agreement, a
correct and complete list of each joint venture of the Company and its
Subsidiaries that is not a Joint Venture.
(b) Capital Structure. The authorized capital stock of the
Company consists of 500,000,000 shares of Common Stock, of which 141,149,275
shares of Common Stock were outstanding as of the close of business on June 30,
2000, 15,000,000 shares of Class A Voting Preferred Stock, par value $0.01 per
share, of which no shares are outstanding, 15,000,000 shares of Class B Voting
Preferred Stock, of which no shares are outstanding, 15,000,000 shares of Class
C Voting Preferred Stock, par value $0.01 per share, of which no shares are
outstanding, and 15,000,000 shares of Class D Non-Voting Preferred Stock, par
value $0.01 per share, of which no shares are outstanding (the Class A Voting
Preferred Stock, the Class B Voting Preferred Stock, the Class C Voting
Preferred Stock and the Class D Non-Voting Preferred Stock sometimes being
referred to herein as the "Preferred Stock"). Since June 30, 2000 to the date
hereof, no Shares have been issued except in the ordinary course of business,
including, without limitation, pursuant to stock option exercises. All of the
outstanding shares of Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable. The Company has no shares of Common Stock
or Preferred Shares reserved for or otherwise subject to issuance, except that,
as of the date hereof, there were (i) 22,179,682 shares of Common Stock reserved
for issuance pursuant to those plans identified as Stock Plans in Section 5.1(b)
of the Company Disclosure Letter (collectively, the "Stock Plans"), (ii)
1,673,145 shares of Class B Voting Preferred Stock reserved for issuance
pursuant to the Rights Agreement, (iii) 3,200,000 shares of Common Stock
reserved for issuance pursuant to the Share Exchange and Registration Rights
Agreement dated as of December 17, 1999, between the Company and Citibank, N.A.
and (iv) 1,000,000 shares of Common Stock reserved for issuance pursuant to the
Certificate dated August 6, 1999 representing Stock Appreciation Rights to
purchase shares of Common Stock of the Company, issued to The Prudential
Insurance Company of America. The Company has provided to Parent a correct and
complete list of the aggregate outstanding options, as of the date of this
Agreement, to purchase Shares under the Stock Plans (each a "Company Option"),
including the date of grant, exercise price and number of Shares subject
thereto. Each of the outstanding shares of capital stock or other securities of
each of the Company's Subsidiaries is duly
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authorized, validly issued, fully paid and nonassessable and owned by the
Company or a direct or indirect wholly owned subsidiary of the Company, free and
clear of any lien, pledge, security interest, claim or other encumbrance. Except
as set forth above, there are no preemptive or other outstanding rights,
options, warrants, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, agreements, arrangements, calls, commitments or
rights of any kind that obligate the Company or any of its Subsidiaries to issue
or sell any shares of capital stock or other securities of the Company or any of
its Subsidiaries or any securities or obligations convertible or exchangeable
into or exercisable for, or giving any Person a right to subscribe for or
acquire, any securities of the Company or any of its Subsidiaries, and no
securities or obligations evidencing such rights are authorized, issued or
outstanding. The Company does not have outstanding any bonds, debentures, notes
or other obligations the holders of which have the right to vote (or convertible
into or exercisable for securities having the right to vote) with the
shareholders of the Company on any matter ("Voting Debt").
(c) Corporate Authority; Approval and Fairness. (i) The
Company has, and Spinco will have prior to the Effective Time, all requisite
corporate power and authority and the Company has, and Spinco will have prior to
the Effective Time, taken all corporate action necessary in order to execute,
deliver and perform its obligations under the Transaction Agreements to which it
is or will be a party and to consummate, on the terms and subject to the
conditions of the Transaction Agreements, the transactions contemplated hereby
and thereby, subject only to approval of this Agreement and the transactions
contemplated hereby by the holders of at least two-thirds of the outstanding
shares of Common Stock (the "Company Requisite Vote"). Each Transaction
Agreement to which the Company or Spinco is or will be a party, when executed by
such party, will be a valid and binding agreement of such party enforceable
against such party in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to the
rights of creditors of insurance companies generally and to general equity
principles (the "Bankruptcy and Equity Exception").
(ii) The board of directors of the Company (A) has, and, in
the case of Spinco, the Board of Directors of Spinco will have prior to the
Effective Time, unanimously approved the Transaction Agreements and the
transactions contemplated hereby and (B) has declared that this Agreement and
the transactions contemplated hereby, taken as a whole, are fair to, advisable
and in the best interests of the holders of shares of Common Stock. In taking
such action, the Board of Directors of the Company considered, among other
things, the interests of the Company's employees, customers, creditors and
suppliers as well as community and societal considerations. The board of
directors of the Company has also has received the opinions of its financial
advisors, Donaldson Lufkin & Jenrette Securities Corporation and Goldman, Sachs
& Co., to the effect that the
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consideration to be received by the holders of shares of Common Stock in the
Merger is fair from a financial point of view to the holders of shares of Common
Stock.
(d) Governmental Filings; No Violations. (i) Other than the
reports, filings, registrations, consents, approvals, permits, authorizations,
applications, expiry of waiting periods and/or notices (A) pursuant to Section
1.4, (B) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (C) under any foreign competition laws, (D) under the
Exchange Act, the Securities Act (in each case as defined below) and other
securities laws, (E) under the Investment Company Act of 1940, as amended (the
"1940 Act"), (F) under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), (G) with the NYSE (as defined below), (H) with the National
Association of Securities Dealers, Inc. (the "NASD"), (I) with applicable
foreign, federal and state regulatory authorities governing insurance and
healthcare (including, but not limited to, the Commissioners or Superintendents,
as the case may be, of Insurance of Connecticut and Florida) (the "Insurance and
Healthcare Authorities"), (J) in respect of certain undertakings made by the
Company to the Insurance and Healthcare Authorities of the States of Florida and
California, (K) with federal and state regulatory authorities governing banking
(including, but not limited to, the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation, the Connecticut Banking Department, and the
Office of the Comptroller of the Currency), insurance premium finance,
commercial collections, leasing, consumer finance, financial services,
investment services, commercial finance and mortgage lending or servicing (the
"Banking Authorities"), (L) with the Department of Labor, (M) with applicable
foreign and federal regulatory authorities governing foreign investments, (N)
with applicable foreign regulatory authorities governing the management of
pension plans, (O) with applicable state regulatory authorities governing
investments advisors, (P) with the Pension Benefit Guaranty Corporation (the
"PBGC") (Q) required to be obtained from any Governmental Entity (as defined
below) in its capacity as a customer of the Company, Spinco or any of their
Subsidiaries or any Joint Ventures and (R) with the IRS in connection with
certain transfers contemplated by the Employee Benefits Agreement (as defined
below), no notices, reports or other filings are required to be made by the
Company, Spinco or any of their Subsidiaries or any Joint Ventures with, nor are
any consents, registrations, approvals, permits, applications, expiry of waiting
periods or authorizations required to be obtained by the Company, Spinco or any
of their Subsidiaries or any Joint Ventures from, any U.S. or non-U.S.
governmental or regulatory authority, agency, commission, tribunal, body or
other governmental, quasi-governmental or self-regulatory entity (each, a
"Governmental Entity"), in connection with the execution and delivery of the
Transaction Agreements by the Company and Spinco and the consummation by the
Company and Spinco of the Merger, the Spin-Off and the other transactions
contemplated hereby and thereby, except those that the failure to make or obtain
are not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or prevent,
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materially delay or materially impair the ability of the Company or Spinco to
consummate the Merger and the other transactions contemplated by the Transaction
Agreements.
(ii) The execution, delivery and performance of each
Transaction Agreement by the Company (and in the case of the Distribution
Agreement, Spinco) does not, and the consummation by the Company (and in the
case of the Distribution Agreement, Spinco) of the Merger and the other
transactions contemplated hereby and thereby will not, constitute or result in
(A) a breach or violation of, or a default under, the certificate or by-laws of
Spinco or the Company or the comparable governing instruments of any of the
Company's or Spinco's Subsidiaries or any Joint Ventures, (B) a breach or
violation of, or a default under, the acceleration of any rights or obligations
or the creation of a lien, pledge, security interest, claim or other encumbrance
on the assets of Spinco, the Company or any of the Company's or Spinco's
Subsidiaries or any Joint Ventures (with or without notice, lapse of time or
both) pursuant to, any agreement, lease, non-governmental license, contract,
treaty, note, mortgage, indenture, non-governmental franchise, non-governmental
permit, concession, arrangement or other non-governmental obligation
("Contracts") binding upon Spinco, the Company or any of the Company's or
Spinco's Subsidiaries or any Joint Ventures or, assuming compliance with the
matters referred to in Section 5.1(d)(i), any Law (as defined below), or any
governmental or non-governmental permit, franchise or license to which Spinco,
the Company or any of the Company's or Spinco's Subsidiaries or any Joint
Ventures is subject or (C) any change in the rights or obligations of any party
under any of the Contracts, except, in the case of clause (B) or (C) above, for
any breach, violation, default, acceleration, creation or change that is not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect or prevent, materially delay or materially impair the ability of
the Company or Spinco to consummate the transactions contemplated by the
Transaction Agreements. The payment of the Merger Consideration in the Merger
and distribution of the shares of Spinco to be distributed in the Spin-Off only
to the same holder of a share of Common Stock (as described in Section 4.1(b) of
this Agreement) is capable of being effected in accordance with Law.
(e) Statutory Reports; Company Reports; Financial Statements.
(i) Since January 1, 1997, each of the Retained Insurance Companies has filed
all annual or quarterly statements, together with all exhibits, interrogatories,
notes, actuarial opinions, affirmations, certifications, schedules or other
supporting documents in connection therewith, required to be filed with or
submitted to the appropriate regulatory authorities of the jurisdiction in which
it is, or was for the period of time covered by the filing, domiciled or
"commercially domiciled" on forms prescribed or permitted by such authority (in
the case of U.S. Retained Insurance Companies and Aetna Life Insurance Company
of America ("ALICA"), collectively, the "Company SAP Statements", and in the
case of International Retained Insurance Companies, other than immaterial
International Retained Insurance Companies, collectively the "Foreign Company
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<PAGE> 24
Statements"). The Company has delivered or made available to Parent all Company
SAP Statements and all Foreign Company Statements, in each case for the year
ended December 31, 1999 each in the form (including exhibits, annexes and any
amendments thereto) filed with the applicable insurance regulatory agency. Since
January 1, 1997, the financial statements included in the Company SAP Statements
and Foreign Company Statements for the periods from and after January 1, 1997,
including the notes thereto, have been prepared in accordance with statutory or
other applicable accounting practices prescribed or permitted by applicable
regulatory authorities in effect as of the date of the respective statements,
and such accounting practices have been applied on a substantially consistent
basis throughout the periods involved, except as expressly set forth in the
notes or schedules thereto. Such financial statements present fairly in all
material respects the respective statutory financial positions and results of
operations of each of the Retained Insurance Companies as of their respective
dates and for the respective periods presented therein. The Company SAP
Statements and Foreign Company Statements complied in all material respects with
all applicable Laws when filed, and no material deficiency has been asserted
with respect to any Company SAP Statements or Foreign Company Statements by the
applicable insurance regulatory body or other Governmental Entity. Except as
indicated therein, all assets that are reflected as admitted assets on the
Company SAP Statements and Foreign Company Statements , to the extent
applicable, comply in all material respects with all applicable Insurance Laws
(as defined below) with respect to admitted assets and are in an amount at least
equal to the minimum amounts required by applicable Insurance Laws. The
statutory balance sheets and statements of income, changes in financial position
and cash flow included in the Company SAP Statements for 1999 have been audited
by KPMG LLP and the Company has delivered or made available to Parent true and
complete copies of all audit opinions related thereto. To the extent the balance
sheets and statements of income, changes in financial position and cash flow
included in the Foreign Company Statements for 1999 have been audited, the
Company has delivered or made available to Parent true and complete copies of
all audit opinions related thereto. The Company has delivered to Parent true and
complete copies of all examinations and market conduct reports or other
comparable examinations or reports of insurance departments and any insurance
regulatory agencies since January 1, 1998 relating to the Retained Insurance
Companies.
(ii) The Company has filed with the SEC each registration
statement, report, proxy statement or information statement required to be filed
by it since January 1, 1997, including the 1999 10-K and the First 2000 10-Q,
each in the form, when filed (or if amended, as of the date of such amendment)
(including exhibits, annexes and any amendments thereto), promulgated by the SEC
under the Securities Act of 1933, as amended (the "Securities Act") or the
Exchange Act (collectively, with any other filings made with the SEC since
January 1, 1997, and including any such registration statements, reports, proxy
statements and information statements filed subsequent to the date hereof and as
amended, the "Company Reports"). As of their respective dates (or, if amended,
as
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of the date of such amendment), the Company Reports did not, and any Company
Reports filed with the SEC subsequent to the date hereof will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances in which they were made, not misleading.
(iii) Each of the consolidated balance sheets included in the
Company Reports (including the related notes and schedules) fairly presents in
all material respects, or will fairly present in all material respects, the
consolidated financial position of the Company and its Subsidiaries as of its
date and each of the consolidated statements of income, shareholders' equity and
cash flows included in the Company Reports (including any related notes and
schedules) fairly presents in all material respects, or will fairly present in
all material respects, the results of operations, retained earnings and cash
flows, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to notes and
normal year-end audit adjustments that will not be material in amount or
effect), in each case in accordance with U.S. generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
may be noted therein.
(iv) Section 5.1(e)(iv) of the Company Disclosure Letter
contains the unaudited pro forma consolidated balance sheet of Spinco and its
Subsidiaries as of March 31, 2000, together with the related unaudited
consolidated statement of income for the three-month period then ended, and the
unaudited pro forma consolidated statement of income of Spinco and its
Subsidiaries for the year ended December 31, 1999. Such statements present
information as if the Spin-Off had occurred (on the terms and subject to the
conditions set forth in the Transaction Agreements) as of the Balance Sheet Date
or, with respect to the income statements, as if the Spin-Off had occurred (on
the terms and subject to the conditions set forth in the Transaction Agreements)
as of the beginning of the period presented. Such statements are based on, and
should be read in conjunction with, the historical consolidated financial
statements included in the Company Reports. Such balance sheet fairly presents
in all material respects the consolidated financial position of Spinco and its
Subsidiaries as of its date, as if the Spin-Off had occurred (on the terms and
subject to the conditions set forth in the Transaction Agreements) on such date,
and each such consolidated statement of income, fairly presents in all material
respects the results of operations of Spinco and its Subsidiaries for the
periods set forth therein, as if the Spin-Off had occurred (on the terms and
subject to the conditions set forth in the Transaction Agreements) as of the
beginning of such period (subject to notes and normal year-end audit adjustments
that will not be material in amount or effect). The accounts reflected in the
unaudited pro forma consolidated financial statements referred to in this
subsection have been prepared in accordance with GAAP on a basis consistent with
the historical audited consolidated financial statements of the Company and its
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<PAGE> 26
Subsidiaries (including Spinco and its Subsidiaries) and were prepared in
accordance with the requirements of SEC Regulation S-X as it relates to pro
forma financial statements.
(v) Section 5.1(e)(v) of the Company Disclosure Letter
contains the unaudited pro forma consolidated balance sheet of the Company and
its Subsidiaries as of March 31, 2000, together with the related unaudited
consolidated statement of income, for the three-month period then ended, and the
unaudited pro forma consolidated statement of income of the Company and its
Subsidiaries for the year ended December 31, 1999. Such statements present
information as if the Spin-Off had occurred (on the terms and subject to the
conditions set forth in the Transaction Agreements) as of the Balance Sheet Date
or, with respect to the income statements, as if the Spin-Off had occurred (on
the terms and subject to the conditions set forth in the Transaction Agreements)
as of the beginning of the period presented. Such statements are based on, and
should be read in conjunction with, the historical consolidated financial
statements included in the Company Reports. Such balance sheet fairly presents
in all material respects the consolidated financial position of the Company and
its Subsidiaries as of its date, as if the Spin-Off had occurred (on the terms
and subject to the conditions set forth in the Transaction Agreements) on such
date, and each such consolidated statement of income fairly presents in all
material respects the results of operations of the Company and its Subsidiaries
for the periods set forth therein, as if the Spin-Off had occurred (on the terms
and subject to the conditions set forth in the Transaction Agreements) as of the
beginning of such period (subject to notes and normal year-end audit adjustments
that will not be material in amount or effect). The accounts reflected in the
unaudited pro forma financial statements referred to in this subsection have
been prepared in accordance with GAAP on a basis consistent with the historical
audited consolidated financial statements of the Company and its Subsidiaries
(including Spinco and its Subsidiaries) and were prepared in accordance with the
requirements of SEC Regulation S-X as it relates to pro forma financial
statements.
(f) Absence of Certain Changes. Except as disclosed in the
Company Reports filed prior to the date hereof or as expressly contemplated by
the Transaction Agreements or Section 6.1 hereof, since March 31, 2000 (the
"Balance Sheet Date"), the Company and its Subsidiaries and Joint Ventures have
conducted their respective businesses only in, and have not engaged in any
material transaction other than according to, the ordinary course of such
businesses consistent with prior practice and since the Balance Sheet Date there
has not been (i) any Company Material Adverse Effect or any development or
combination of developments of which the Company has knowledge (as such phrase
is defined below) that has had or is reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect; (ii) any damage,
destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by the Company or any of its
Subsidiaries or Joint Ventures, whether or not covered by insurance, which is
reasonably likely to have a Company Material Adverse Effect; (iii) any change by
the Company or any of its Subsidiaries in accounting principles,
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<PAGE> 27
practices or methods, except as may be appropriate to conform to changes in
statutory or regulatory accounting rules or generally accepted accounting
principles or regulatory requirements with respect thereto; (iv) any
declaration, setting aside or payment of any dividend or other distribution in
respect of the capital stock of the Company or Aetna Retirement Services, Inc.
or Aetna International, Inc., except for dividends or other distributions on the
capital stock of the Company publicly announced prior to the date hereof and
except for regularly scheduled quarterly cash dividends on the Company's capital
stock; (v) any material addition, or any development involving a prospective
material addition, to the Company and its Subsidiaries' consolidated reserves
for future insurance policy benefits or other insurance policy claims and
benefits other than as a result of new business produced in the ordinary course
of business since the Balance Sheet Date and except to the extent relating
solely to any member of the Spinco Group; (vi) any material change in the
actuarial, investment, reserving, underwriting or claims administration
policies, practices or principles of any Retained Insurance Company, except as
may be appropriate to conform to changes in statutory or regulatory accounting
or actuarial rules or generally accepted accounting or actuarial principles or
regulatory requirements with respect thereto; (vii) any amendment of any of the
Compensation and Benefit Plans (as defined below) other than amendments in the
ordinary course of business consistent with prior practice; (viii) any granting
by the Company or any of its Subsidiaries to any of the 20 highest paid
employees (by base salary) of the Company (each a "Designated Person" and
collectively, the "Designated Persons") of any increase in compensation, except
(A) for increases in the ordinary course of business consistent with prior
practice, (B) as was required under employment agreements in effect as of the
Balance Sheet Date or (C) in connection with a promotion; (ix) any granting by
the Company or any of its Subsidiaries to any Designated Person of any increase
in severance or termination pay, except (A) for obligations which have been
satisfied prior to the date hereof, (B) for increases in the ordinary course of
business consistent with prior practice in any one case not in excess of
$100,000, (C) as was required under any employment, severance or termination
agreement in effect as of the Balance Sheet Date or (D) in connection with a
promotion; (x) any entry by the Company or any of its Subsidiaries into any new
severance or termination agreement with any Designated Person, except (A) for
obligations which have been satisfied prior to the date hereof, (B) new
severance or termination obligations in the ordinary course of business
consistent with prior practice in any one case not in excess of $100,000, (C) in
connection with a promotion or (D) any new severance or termination agreement
entered into at Parent's request or with Parent's consent; (xi) except in the
ordinary course of business consistent with past practices, any material Tax
election made by the Company or any of its Subsidiaries or any material changes
of the Company or any of its Subsidiaries' methods of accounting for federal
income Tax purposes or (xii) any transfer or transaction that would have been
prohibited by Section 6.1(l) had it been in effect since March 31, 2000;
provided, however, that the limitations of clauses (vii) through (x) of this
Section 5.1(f) shall not apply to any actions taken in respect of any individual
who, after giving effect to the Spin-Off, will be an
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<PAGE> 28
executive officer, director or employee of Spinco or any of its Subsidiaries (an
"Excluded Employee") if such actions do not adversely affect the Company and its
Subsidiaries and such limitations shall not apply to any actions taken in
respect of any other individual so long as any liabilities resulting from such
actions are the responsibility of Spinco or any of its Subsidiaries (after
giving effect to the Transaction Agreements). For purposes of the proviso to
this Section 5.1(f), an action will not be considered to adversely affect the
Company and its Subsidiaries if (i) the action is taken with respect to an
Excluded Employee whose employment arrangements expressly provide that, upon
consummation of the Spin-Off, any and all claims of such Excluded Employee with
respect to employment shall be brought only against Spinco or any of its
Subsidiaries and shall not be brought against the Company or any of its
Subsidiaries or (ii) if the aggregate liability for the action (other than an
action described in the foregoing clause (i)), together with the aggregate
liability for all actions other than those described in the foregoing clause
(i), determined in each case without regard to the Transaction Agreements, is
less than $10 million.
(g) Litigation and Liabilities. (i) Except as disclosed in the
Company Reports filed prior to the date hereof, there are no civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the Company, threatened against Spinco, the
Company, their respective Subsidiaries, any of the Joint Ventures or any of
their respective properties or assets except for those that are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect or prevent, materially delay or materially impair the ability of
the Company or Spinco to consummate the transactions contemplated by the
Transaction Agreements.
(ii) Set forth in Section 5.1(g)(ii) of the Company Disclosure
Letter is a complete list, as of the date hereof, of all civil, criminal or
administrative actions, suits, claims (other than individual customer complaints
which are received in the ordinary course of business, consistent with past
practices, and as to which no suit, action or arbitration has been commenced),
hearings, investigations or proceedings pending, or, to the actual knowledge of
the people set forth in Section 5.1(g)(ii) of the Company Disclosure Letter,
threatened, against the Company and its Subsidiaries (other than Aetna
International, Inc. and its Subsidiaries, the "International Entities"), any
Joint Ventures and any joint ventures of the Company or their properties or
assets.
(iii) Set forth in Section 5.1(g)(iii) of the Company
Disclosure Letter is a complete list, as of the date hereof, of each civil,
criminal or administrative actions, suits, claims (other than individual
customer complaints which are received in the ordinary course of business,
consistent with past practices, and as to which no suit, action or arbitration
has been commenced), hearings, investigations or proceedings pending, or, to the
actual knowledge of the people set forth in Section 5.1(g)(iii) of the Company
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<PAGE> 29
Disclosure Letter, threatened, against the International Entities and the Joint
Ventures or their properties or assets, as to which, in each case, it is
reasonably likely to expect potential damages resulting therefrom to exceed
$500,000, net of applicable insurance and reserves.
(iv) As of the date hereof, there is no litigation against any
member of the Spinco Group which, net of applicable insurance and reserves with
respect thereto, is reasonably likely to result in liability for amounts which
would be material to the financial condition of Spinco.
(v) Except for those obligations and liabilities that are
fully reflected or reserved against on the consolidated balance sheet of the
Company included in the 1999 10-K or the First 2000 10-Q and for obligations and
liabilities incurred in the ordinary course of business consistent with prior
practice since March 31, 2000, neither the Company nor any of its Subsidiaries
has incurred any obligations or liabilities of any nature whatsoever, whether
absolute, accrued, contingent, known, unknown or otherwise and none of the Joint
Ventures has incurred any obligation or liabilities of any nature whatsoever,
whether absolute, accrued, contingent or otherwise and, in each case, whether or
not required to be disclosed on a balance sheet prepared in accordance with GAAP
or statutory or other applicable accounting principles, including those relating
to matters involving any Environmental Law (as defined below), or any other
facts or circumstances of which the Company has knowledge that could result in
any claims against, or obligations or liabilities of, the Company or any of its
Affiliates or Joint Ventures, except for those that are not, individually or in
the aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company or
Spinco to consummate the transactions contemplated by the Transaction
Agreements. As used in the Agreement, each of the phrases (i) "of which the
Company has knowledge", (ii) "knowledge of the Company" and (iii) "the Company
has no knowledge" means the actual knowledge of those people set forth on
Section 5.1(g)(v) of the Company Disclosure Letter.
(h) Employee Benefits. (i) A true and complete copy of each
material employment benefit and compensation plan, Contract, policy or
arrangement, including each "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), bonus, incentive, deferred compensation, employee stock ownership,
stock bonus, stock purchase, restricted stock, stock option, stock appreciation
rights, stock based, termination and severance plan, Contract, policy or
arrangement that covers employees, directors, agents, consultants, former
employees or former directors of the Company and its Subsidiaries (the
"Compensation and Benefit Plans") and any trust agreement or insurance contract
forming a part of such Compensation and Benefit Plans has been made available to
Parent prior to the date hereof. The Compensation and Benefit Plans are listed
in Section 5.1(h) of the
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<PAGE> 30
Company Disclosure Letter and any "change of control" or similar provisions
therein are specifically identified in Section 5.1(h) of the Company Disclosure
Letter. Except as provided in the Transaction Agreements, neither the Company
nor any of its Subsidiaries has any commitment, oral or written, to create any
additional material Compensation and Benefit Plan or to modify or change any
existing Compensation and Benefit Plan in a material respect.
(ii) All Compensation and Benefit Plans are in substantial
compliance with all applicable Law, including the Code and ERISA, and all
required filings and disclosures with respect to any Compensation and Benefit
Plan have been timely made. More specifically, the Company and the Compensation
and Benefit Plans have at all times complied with Section 407 of ERISA with
respect to the holding and acquiring of "employer securities" and "qualifying
employer securities" as defined under ERISA. Each Compensation and Benefit Plan
that is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA (a "Pension Plan") and that is intended to be qualified under Section
401(a) of the Code (each, a "Qualified Plan"), has received a favorable
determination letter (including a determination that the related trust under
such Compensation and Benefit Plan is exempt from Tax under Section 501(a) of
the Code) from the Internal Revenue Service (the "IRS") with respect to "TRA"
(as defined in Section 1 of Revenue Procedure 93-39), and the Company is not
aware of any circumstances reasonably likely to result in revocation of any such
favorable determination letter. There is no material pending or, to the
knowledge of the Company, threatened legal action, suit, claim or governmental
investigation relating to any of the Compensation and Benefit Plans, other than
routine claims for benefits. Neither the Company nor any of its Subsidiaries nor
Spinco nor any of its Subsidiaries has engaged in a transaction, or omitted to
take any action, with respect to any Compensation and Benefit Plan that,
assuming the Taxable period of such transaction expired as of the date hereof,
could subject the Company or any of its Subsidiaries to a material Tax or
penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.
(iii) There is no material liability under Subtitle C or D of
Title IV of ERISA that has been incurred which has not been satisfied and no
such material liability is expected to be incurred by the Company or any
Subsidiary with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (such entity an "ERISA Affiliate" and such plan an "ERISA
Affiliate Plan"). The Company and its Subsidiaries have not incurred any
material withdrawal liability that has not been satisfied and the Company does
not expect that they will incur any such material withdrawal liability with
respect to any multiemployer plan under Subtitle E to Title IV of ERISA. Neither
the Company, its Subsidiaries nor any ERISA Affiliate has contributed, or been
obligated to contribute, to a
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<PAGE> 31
"multiemployer plan" within the meaning of Section 3(37) of ERISA within the
last six calendar years. No notice of a "reportable event", within the meaning
of Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any Pension Plan or any ERISA
Affiliate Plan within the 12-month period ending on the date hereof or, except
in respect of the transactions contemplated by the Transactions Agreements,
will be required to be filed in connection with the transactions contemplated
by the Transaction Agreements. The PBGC has not instituted proceedings to
terminate any Pension Plan or ERISA Affiliate Plan, and, to the knowledge of
the Company, no condition exists that presents a material risk that such
proceedings will be instituted.
(iv) All material contributions required to be made under the
terms of any Compensation and Benefit Plan or ERISA Affiliate Plan as of the
date hereof have been timely made in accordance with such terms and applicable
Law and/or have been reflected on the most recent consolidated balance sheet
filed or incorporated by reference in the Company Reports prior to the date
hereof. Neither any Pension Plan nor any ERISA Affiliate Plan has an
"accumulated funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA, and no ERISA Affiliate has an
outstanding funding waiver. Neither the Company nor its Subsidiaries or ERISA
Affiliates nor Spinco nor its Subsidiaries or ERISA Affiliates (x) has provided,
or is required to provide, security to any Pension Plan or to any ERISA
Affiliate Plan pursuant to Section 401(a)(29) of the Code or (y) has taken any
action, or omitted to take any action, that has resulted, or is reasonably
likely to result, in the imposition of a lien under Section 412(a) of the Code
or pursuant to ERISA.
(v) Under each Pension Plan which is a single-employer plan
and ERISA Affiliate Plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Pension
Plan's most recent actuarial valuation), did not exceed the then current value
of the assets of such Plan, and as of the date hereof, there has been no
material adverse change in the financial condition of such Plan nor any
amendment or other change to such Plan that would materially increase the amount
of benefits thereunder which reasonably could be expected to change such result.
(vi) Except as required by applicable Law, by the Transaction
Agreements or pursuant to individual agreements, neither the Company nor any of
its Subsidiaries or ERISA Affiliates have any obligations for retiree health and
life benefits under any Compensation and Benefit Plan. No action taken by the
Company or its Subsidiaries or Spinco or its Subsidiaries alters the Company's
or its Subsidiaries' ability to amend or terminate any retiree health or life
plan in accordance with the written terms of such plan.
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<PAGE> 32
(vii) The consummation of the Merger and the other
transactions contemplated by the Transaction Agreements will not, without any
other action (w) entitle any employee, consultant or director of the Company or
any of its Subsidiaries to any payment (including severance pay or similar
compensation) or any increase in compensation, (x) accelerate the time of
payment or vesting or trigger any payment of compensation or benefits or the
funding of any trust under, increase the amount payable or trigger any other
material obligation pursuant to, any of the Compensation and Benefit Plans or
(y) result in any breach or violation of, or a default under, any of the
Compensation and Benefit Plans.
(viii) With respect to each Compensation and Benefit Plan, if
applicable, the Company has provided or made available to Parent true and
complete copies of (i) the most recent Form 5500 filed with the IRS; (ii) the
most recent actuarial report and financial statement; (iii) the most recent
summary plan description; (iv) the forms filed with the PBGC (other than for
premium payments) since January 1, 1998; (v) the most recent determination
letter issued by the IRS; (vi) any Form 5310 or Form 5330 filed with the IRS;
and (vii) the most recent nondiscrimination tests performed under ERISA and the
Code (including 401(k) and 401(m) tests).
(ix) From March 31, 2000 through the date hereof, no (i)
Designated Persons or (ii) other employees of Aetna Retirement Services, Inc. or
Aetna International, Inc. or any of their Subsidiaries (that are also
Subsidiaries of the Company), Joint Ventures or joint ventures have been
transferred to or from the Company, Spinco, any of their respective Subsidiaries
or joint ventures or Aetna Services, Inc., other than transfers of such other
employees identified in clause (ii) in the ordinary course of business
consistent with past practices.
(i) Compliance with Laws; Permits. (i) The business and
operations of the Company and its Subsidiaries and Joint Ventures have been
conducted in compliance with all applicable foreign, federal, state and local
Laws regulating the business and products of insurance, reinsurance and
healthcare and all applicable orders and directives of Insurance and Healthcare
Authorities (including federal authorities with respect to health maintenance
organization and other health and workmen's compensation products and variable
insurance and annuity products) and market conduct recommendations resulting
from market conduct examinations conducted by or on behalf of Insurance and
Healthcare Authorities (including federal authorities with respect to health
maintenance organization and other health and workmen's compensation products
and variable insurance and annuity products) (collectively, "Insurance Laws"),
except where the failure to so conduct such business and operations is not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect. Without limiting the generality of the preceding sentence,
except where the failure to do so is not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse
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<PAGE> 33
Effect, each of the Company and its Subsidiaries and Joint Ventures and, to the
knowledge of the Company as of the date hereof, its Agents (as defined below),
have marketed, administered, sold and issued insurance, reinsurance, healthcare
and annuity products and guaranteed investment contracts in compliance with all
applicable Insurance Laws, including (A) all applicable prohibitions against
withdrawal of business lines and "redlining", (B) all applicable requirements
relating to the disclosure of the nature of insurance and/or annuity products
as policies of insurance or annuities, as the case may be, (C) all applicable
requirements relating to insurance and/or annuity product projections and
illustrations and (D) all applicable requirements relating to the advertising,
sales and marketing of insurance and annuity products, healthcare products and
guaranteed investment contracts. In addition, (X) there is no pending or, to
the knowledge of the Company, threatened charge by any Insurance and Healthcare
Authority that the Company or any of its Subsidiaries or Joint Ventures has
violated, nor any pending or, to the knowledge of the Company, threatened
investigation by any Insurance and Healthcare Authority with respect to
possible violations of any applicable Insurance Laws where such violations are,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect; (Y) none of the Company or any of its Subsidiaries or Joint
Ventures is subject to any order or decree of any Insurance and Healthcare
Authority relating specifically to such Person (as opposed to insurance
companies generally) which is, individually or in the aggregate, reasonably
likely to have a Company Material Adverse Effect; and (Z) the Company and its
Subsidiaries and Joint Ventures have filed all reports required to be filed
with any Insurance and Healthcare Authority as to which the failure to file
such reports is, individually or in the aggregate, reasonably likely to have a
Company Material Adverse Effect.
(ii) In addition to Insurance Laws, except as set forth in the
Company Reports filed prior to the date hereof, the businesses of each of
Spinco, the Company and the Company's Subsidiaries and Joint Ventures have not
been, and are not being, conducted in violation of any applicable federal,
state, local or foreign law, statute, ordinance, directive, rule, regulation,
judgment, order, injunction, decree, arbitration award, agency requirement,
license or permit of any Governmental Entity (collectively, "Laws"), except for
violations or possible violations that are not, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company or
Spinco to consummate the Merger and the other transactions contemplated by the
Transaction Agreements. No investigation or review by any Governmental Entity
with respect to the Company or any of its Subsidiaries or Joint Ventures which
would be reasonably likely to have a Company Material Adverse Effect is pending
or, to the knowledge of the Company, threatened, nor has any Governmental Entity
indicated an intention to conduct the same. To the knowledge of the Company, no
change is required in the Company's or any of its Subsidiaries' or Joint
Ventures' processes, properties or procedures in connection with any such Laws,
and the Company has not received any notice or communication of any
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<PAGE> 34
noncompliance with any such Laws that has not been cured as of the date hereof
other than any such failure to make changes or non-compliance which is not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect. Spinco, the Company and the Company's Subsidiaries and Joint
Ventures each has all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct its business as presently conducted except those the absence of
which are not, individually or in the aggregate, reasonably likely to have a
Company Material Adverse Effect or prevent, materially delay or materially
impair the ability of the Company or Spinco to consummate the Merger and the
other transactions contemplated by the Transaction Agreements. None of the
Company's Subsidiaries which is a registered broker-dealer has entered into or
is subject to a restrictions letter agreement or similar agreement or decree
with the NASD as of the date hereof.
(j) Takeover Statutes. No restrictive provision of any "fair
price," "moratorium", "control share acquisition", "interested shareholder" or
other similar anti-takeover statute or regulation (each a "Takeover Statute") or
any restrictive provision of any anti-takeover provision in the Company's
certificate of incorporation and by-laws is, or at or following the Effective
Time will be, applicable to the Company, the Shares, the Merger or the other
transactions contemplated by the Transaction Agreements.
(k) Environmental Matters. Except as would not be reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect:
(i) the Company and its Subsidiaries and Joint Ventures have
at all times been in compliance with all Orders (as defined below) of any
Governmental Entity and all Laws, in each case related to any Environmental Law
(as defined in the Distribution Agreement);
(ii) there are not any past or present conditions or
circumstances at, or arising out of, any current or former business, assets or
properties of the Company or any of its Subsidiaries or Joint Ventures,
including but not limited to the on-site or off-site disposal, presence or
release of or exposure to any chemical substance, product or waste or any other
condition or circumstance which has resulted in or could reasonably be expected
to give rise to: (a) liabilities, fines, penalties, costs, capital expenditures
or obligations for any violation, noncompliance, cleanup, remediation, disposal
or corrective action under any Environmental Law or (b) claims arising for
personal injury, property damage, or damage to natural resources; and
(iii) neither the Company nor any of its Subsidiaries or Joint
Ventures has (a) received any notice of noncompliance with, violation of, or
liability or potential liability relating to any Environmental Law or (b)
entered into any consent decree, agreement or order or is subject to any order
of any court or governmental authority or
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<PAGE> 35
tribunal or any indemnity with any third party relating to any Environmental
Law or relating to the cleanup of any hazardous materials contamination.
(l) Taxes. (i) Except as would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect, the
Company and each of its Subsidiaries (A) have duly and timely filed (taking into
account any extension of time (to the extent validly received) within which to
file) all Tax Returns (as defined below) required to be filed by any of them and
all such filed Tax Returns are complete and accurate; (B) all Taxes (as defined
below) owed (whether or not shown on any Tax Return) have been paid when due,
including any Taxes that the Company or any of its Subsidiaries are obligated to
withhold from amounts owing to any employee, creditor or third party, except
with respect to matters contested in good faith; and (C) have not waived any
statute of limitations with respect to Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency, which waiver or extension has
covered a Tax period that has not yet expired. Except as are not reasonably
likely to have a Company Material Adverse Effect, (A) there are not any pending
or threatened audits, examinations, investigations or other proceedings in
respect of Taxes or Tax matters, (B) there are not any unresolved questions or
claims concerning the Company's or any of its Subsidiaries' Tax liability and
(C) there are no Tax liens against the Company or any of its Subsidiaries except
for liens for Taxes not yet due or Taxes being contested in good faith. The
Company has made available to Parent true and correct copies of the United
States federal income Tax Returns filed by the Company and its Subsidiaries for
each of the fiscal years ended December 31, 1995, 1996, 1997 and 1998. Neither
the Company nor any of its Subsidiaries is a party to any Tax Allocation
Agreement that is material to the determination of a Tax of the (i) Company and
its Subsidiaries, or (ii) Spinco and its Subsidiaries.
As used in this Agreement, (y) "Tax" (including, with
correlative meaning, the terms "Taxes", and "Taxable") means (i) all federal,
state, local and foreign income, profits, franchise, premium, gross receipts,
environmental, customs duty, capital stock, severances, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions, (ii) any liability for the payment of any amount of the type
described in clause (i) as a result of being or having been before the Closing
Date a member of an affiliated, consolidated, combined or unitary group, or a
party to any agreement or arrangement, as a result of which liability of the
Company and each of its subsidiaries to a Tax Authority is determined or taken
into account with reference to the liability of any other Person (including,
e.g., liability under Treasury Regulation 1.1502-6 or similar liability under
any other Law), and (iii) any liability for the payment of any amount as a
result of being party to any Tax Allocation Agreement or with respect to the
payment of
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<PAGE> 36
any amount of the type described in (i) or (ii) as a result of any existing
express or implied obligation (including, but not limited to, an
indemnification obligation). "Tax Return" means all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax Authority relating to
Taxes.
"Tax Allocation Agreement" means all existing agreements or
arrangements (whether or not written) binding the Company or any of its
Subsidiaries that provide for the allocation, apportionment, sharing or
assignment of any Tax liability or benefit, or the transfer or assignment of
income, revenues, receipts, or gains for the principal purpose of determining
any Person's Tax liability.
"Tax Authority" means the Internal Revenue Service and any
other domestic or foreign Governmental Entity or Person responsible for the
administration of any Tax Laws.
(ii) Except for situations which would not, individually or in
the aggregate, be reasonably likely to have a Company Material Adverse Effect,
(A) the Tax treatment under the Code of all Retained Insurance Contracts (as
defined below) is and at all times has been in all material respects the same or
more favorable to the purchaser, policyholder or intended beneficiaries thereof
as the Tax treatment under the Code for which such Retained Insurance Contracts
qualified or purported to qualify at the time of their issuance or purchase,
except for changes resulting from changes to the Code which do not affect such
Retained Insurance Contracts due to the effective date thereof, (B) each
hardware, software and firmware product used by the Retained Insurance Companies
to maintain such Retained Insurance Contracts' qualification for the Tax
treatment under the Code for which such Retained Insurance Contracts qualified
or purported to qualify at the time of their issuance or purchase is and at all
relevant times has been properly designed and implemented to maintain such
qualification, (C) each annuity contract issued by the Retained Insurance
Companies qualifies as an annuity contract under Section 72 of the Code, (D)
each life insurance policy which is a Retained Insurance Contract qualifies as a
life insurance contract for federal income Tax purposes and any such policy
which is a modified endowment contract under Section 7702A of the Code (each, a
"MEC") has been marketed as such at all relevant times or the policyholder
otherwise has consented to such MEC status and (E) each of the Retained
Insurance Companies is and at all times has been the owner for federal income
Tax purposes of the assets in any segregated asset account underlying or
supporting each variable annuity contract and each variable insurance policy
issued by it; provided, however, that for purposes of this sentence and Section
5.1(l)(iv), (A) the term Retained Insurance Companies shall include only Aetna
Life Insurance & Annuity Company and Aetna Insurance Company of America and (B)
the term Retained Insurance Contracts shall not include any contracts issued by
any Person other than the Retained Insurance Companies, as modified by clause
(A) of this proviso.
-28-
<PAGE> 37
(iii) Except for situations which would not, individually or
in the aggregate, be reasonably likely to have a Company Material Adverse
Effect, each Fund Client (as defined below) has elected to qualify and, for all
Taxable years that an Advisory Entity (as defined below) served as investment
adviser and with respect to which the applicable statute of limitations
(including any extensions) has not expired ("open Taxable years"), has
continuously qualified to be treated as a "regulated investment company" under
Subchapter M of Chapter 1 of Subtitle A of the Code and has continuously been
eligible to compute, and has for each such Taxable year computed, its federal
income Tax under Section 852 of the Code and has no earnings and profits
accumulated in any Taxable year. Except as would not be, individually or in the
aggregate, reasonably likely to have a Company Material Adverse Effect, each
Fund Client that is intended to be a Tax-exempt municipal bond fund has
satisfied the requirements of Section 852(b)(5) of the Code and is qualified to
pay exempt interest dividends as defined therein. At the Closing Date, all Tax
Returns with respect to any Taxable period for which the applicable statute of
limitations (including any extensions) has not expired and during which an
Advisory Enti