File No. 811-08433
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM
N-8B-2
REGISTRATION STATEMENT OF UNIT INVESTMENT TRUSTS
WHICH ARE CURRENTLY ISSUING SECURITIES
PURSUANT TO SECTION 8(B) OF THE
INVESTMENT COMPANY ACT OF 1940
COVA VARIABLE LIFE ACCOUNT FIVE
______________________________________________________________________
(NAME OF UNIT INVESTMENT TRUST)
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Furnish name of the trust and the Internal Revenue Service Employer
Identification Number.
Cova Variable Life Account Five ("Separate Account").
IRS Employer Identification Number: N/A
(b) Furnish title of each class or series of securities issued by the trust.
Modified Single Premium Variable Life Insurance Policy ("Policy").
2. Furnish name and principal business address and ZIP Code and the Internal
Revenue Service Employer Identification Number of each depositor of the trust.
Cova Financial Life Insurance Company ("Company")
4100 Newport Place Drive, Suite 840
Newport Beach, CA 92600
800-523-1661
IRS Employer Identification Number: 94-2176117
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3. Furnish name and principal business address and ZIP Code and the Internal
Revenue Service Employer Identification Number of each custodian or trustee of
the trust indicating for which class or series of securities each custodian or
trustee is acting.
Not Applicable
4. Furnish name and principal business address and ZIP Code and the Internal
Revenue Service Employer Identification Number of each principal underwriter
currently distributing securities of the trust.
The Policy is not currently being distributed. When such distribution
commences, Cova Life Sales Company will be the "Principal Underwriter."
Cova Life Sales Company ("Life Sales")
One Tower Lane, Suite 3000
Oakbrook Terrace, IL 60181
IRS Employer Identification Number: 36-3324851
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5. Furnish name of state or sovereign power, the laws of which govern with
respect to the organization of the trust.
California
6. (a) Furnish the dates of execution and termination of any indenture or
agreement currently in effect under the terms of which the trust was organized
and issued or proposes to issue securities.
The Separate Account was established pursuant to a resolution of the Board
of Directors of the Company on March 24, 1992, and was designated as an
operational Separate Account on March 24, 1992. The Separate Account will
continue in existence until its complete liquidation and the distribution of its
assets to the persons entitled to received them.
(b) Furnish the dates of execution and termination of any indenture or agreement
currently in effect pursuant to which the proceeds of payments on securities
issued or to be issued by the trust are held by the custodian or trustee.
Not Applicable.
7. Furnish in chronological order the following information with respect to each
change of name of the trust since January 1, 1930. If the name has never been
changed, so state.
The Separate Account has never been known by any other name.
8. State the date on which the fiscal year of the trust ends.
The fiscal year of the Separate Account ends on December 31.
9. MATERIAL LITIGATION. Furnish a description of any pending legal proceedings,
material with respect to the security holders of the trust by reason of the
nature of the claim or the amount thereof, to which the trust, the depositor, or
the principal underwriter is a party or of which the assets of the trust are the
subject, including the substance of the claims involved in such proceeding and
the title of the proceeding. Furnish a similar statement with respect to any
pending administrative proceeding commenced by a governmental authority or any
such proceeding or legal proceeding known to be contemplated by a governmental
authority. Include any proceeding which, altogether immaterial itself, is
representative of, or one of, a group which in the aggregate is material.
There are no legal proceedings to which the Separate Account or the Principal
Underwriter is a party. The Company is engaged in various kinds of routine
litigation, which in its judgement are not of material importance in relation to
the total capital and surplus of the Company.
II. GENERAL DESCRIPTION OF THE TRUST
AND SECURITIES OF THE TRUST
GENERAL INFORMATION CONCERNING THE SECURITIES OF THE TRUST AND THE RIGHTS OF
HOLDERS.
10. Furnish a brief statement with respect to the following matters for each
class or series of securities issued by the trust:
(a) Whether the securities are of the registered or bearer type;
The Policy which is to issued is of the registered type insofar as the Policy is
personal to the Owner, and the records concerning the Owner are maintained by
the Company.
(b) Whether the securities are of the cumulative or distributive type;
The Policy is of the cumulative type.
(c) The rights of security holders with respect to withdrawal or redemption;
The Owner may make withdrawals from the Policy for its Cash Surrender
Value.
(d) The rights of security holders with respect to conversion, transfer, partial
redemption, and similar matters;
The Owner may transfer a Policy's Account Value from one Sub-Account to
another Sub-Account.
(e) If the trust is the issuer of periodic payment plan certificates, the
substance of the provisions of any indenture or agreement with respect to lapses
or defaults by security holders in making principal payments, and with respect
to reinstatement;
Not Applicable
(f) The substance of the provisions of any indenture or agreement with respect
to voting rights, together with the names of any persons other than security
holders given the right to exercise voting rights pertaining to the trust's
securities or the underlying securities and the relationship of such persons to
the trust;
The underlying securities of the Separate Account are shares issued by:
Cova Series Trust, Lord Abbett Series Fund, Inc. and General American Capital
Company, collectively, the Funds.
The Company will vote the shares held in the Separate Account in accordance
with instructions received from persons having a voting interest in the Separate
Account. The Company will vote shares for which it has not received instructions
in the same proportion as it votes shares for which it has received
instructions. The Company will vote shares it owns in the same proportion as it
votes shares for which it has received instructions.
(g) Whether security holders must be given notice of any change in:
(1) the composition of the assets of the trust;
Notice must be given of any such proposed change.
(2) the terms and conditions of the securities issued by the trust;
Notice must be given of any such proposed change.
(3) the provisions of any indenture or agreement of the trust;
Notice must be given of any such proposed change.
(4) the identity of the depositor, trustee or custodian;
There is no provision requiring notice to or consent of Owners with respect
to any change in the identity of the Separate Account's depositor. The Company's
obligations under the Policy, however, cannot be transferred to any other entity
without notice to the Owner.
(h) Whether the consent of the security holders is required in order for action
to be taken concerning any change in:
(1) the composition of the assets of the trust;
Consent of Owners is not required when substituting the underlying
securities of the Separate Account. However, to substitute such securities,
approval of the Securities and Exchange Commission is required in compliance
with Section 26(b) of the Investment Company Act of 1940. The Company may,
however, add additional Sub-Accounts without the consent of Owners. Except as
required by federal or state law or regulation, no action will be taken by the
Company which will adversely affect the rights of Owners without their consent.
(2) the terms and conditions of the securities issued by the trust;
No change in the terms and conditions of the Policy can be made without the
consent of the Owners except as required by federal or state law or regulation.
(3) the provisions of any indenture or agreement of the trust;
Not Applicable.
(4) the identity of the depositor, trustee or custodian;
There is no provision requiring notice to or consent of Owners with respect
to any change in the identity of the Separate Account's depositor. The Company's
obligations under the Policy, however, cannot be transferred to any other entity
without compliance with state insurance law, which may under some circumstances,
require the Owner's consent.
(i) Any other principal feature of the securities issued by the trust or any
other principal right, privilege or obligation not covered by subdivisions (a)
to (g) or by any other item in this form.
In return for the payment of premiums, the Policy provides insurance
coverage on the life of the insured.
The Policy provides for the right to borrow from the Company using the
Policy's Cash Value as collateral.
INFORMATION CONCERNING THE SECURITIES UNDERLYING THE TRUST'S SECURITIES.
11. Describe briefly the kind or type of securities comprising the unit of
specified securities in which security holders have an interest.
The securities held in the Separate Account will be shares of Cova Series Trust,
Lord Abbett Series Fund, Inc. and General American Capital Company, all of which
are open-end, management investment companies of the series type.
12. If the trust is the issuer of periodic payment plan certificates and if any
underlying securities were issued by another investment company, furnish the
following information for each such company:
(a) Name of company;
Cova Series Trust
Lord Abbett Series Fund, Inc.
General American Capital Company
(b) Name and principal business address of depositor;
Cova Financial Life Insurance Company is the depositor of the Cova Series Trust.
Its address is: One Tower Lane, Suite 3000, Oakbrook Terrace, IL 60181.
Lord, Abbett & Co. is the depositor of the Lord Abbett Series Fund, Inc. Its
address is: 767 Fifth Avenue, New York, NY 10153.
General American Life Insurance Company is the depositor of the General American
Capital Company. Its address is: 700 Market Street, St. Louis, MO 63101.
(c) Name and principal business address of trustee or custodian;
Investor's Bank & Trust Company is the custodian for the Cova Series Trust. Its
address is: 200 Clarendon Street, Boston, MA 02116.
The Bank of New York is the custodian for the Lord Abbett Series Fund, Inc. Its
address is: 40 Wall Street, New York, NY 10286.
The Bank of New York is the custodian for the General American Capital Company.
Its address is: 40 Wall Street, New York, NY 10286.
(d) Name and principal business address of principal underwriter;
Cova Series Trust and Lord Abbett Series Fund, Inc. distribute their own shares.
Walnut Street Securities Inc, acts as the principal underwriter for General
American Capital Company.
(e) The period during which the securities of such company have been the
underlying securities.
No underlying securities have yet been acquired by the Separate Account.
INFORMATION CONCERNING LOADS, FEES, CHARGES AND EXPENSES.
13. (a)Furnish the following information with respect to each load, fee, expense
or charge to which: (1) principal payments; (2) underlying securities; (3)
distributions; (4) cumulated or reinvested distributions or income; and (5)
redeemed or liquidated assets of the trust's securities are subject; (A) the
nature of such load, fee, expense, or charge; (B) the amount thereof; (C) the
name of the person to whom such amounts are paid and his relationship to the
trust; (D) the nature of the services performed by such person in consideration
for such load, fee, expense or charge.
1. Principal Payments
MORTALITY AND EXPENSE RISK CHARGE. For the first ten years, the Company deducts
a charge equal, on an annual basis, to 0.90% of the Account Value allocated to
the Separate Account. For the eleventh year and after, the charge is 0.75%. This
compensates the Company for assuming the mortality and expense risks under the
Policy.
ADMINISTRATIVE CHARGE. The Company deducts a charge equal, on an annual basis,
to 0.40% of the Account Value. This compensates the Company for expenses
incurred in the operation of the Separate Account and for administering the
Policy.
TAX EXPENSE CHARGE. This deduction is the sum of the Premium Tax Charge and the
Federal Tax Charge. It is deducted monthly for the first ten years. It is equal,
on an annual basis, to .40% (.15% for Federal Tax Charge and .25% for Premium
Tax Charge) of the Account Value. This compensates the Company for federal and
state tax incurred as a result of issuing the Policy.
COST OF INSURANCE CHARGE. Each month the Company deducts a charge for the cost
of insurance which compensates the Company for insurance coverage provided
during the month.
ANNUAL POLICY MAINTENANCE FEE. Every year on the anniversary of the Policy Date,
Cova deducts $30 as a policy maintenance fee. Under some circumstances, this
charge is waived. This, in addition to the Administrative Charge, compensates
the Company for the administrative expenses incurred.
2. Underlying Securities
The Funds are charged management fees by their respective investment adviser and
incur operating expenses.
3. Distributions
Not Applicable.
4. Cumulated or reinvested distributions or income.
All investment income and other distributions are reinvested in Fund shares at
net asset value.
5. Redeemed or liquidated assets.
SURRENDER CHARGE. The surrender charge is taken out of the Account Value
surrendered during the first ten years which is not part of the Annual
Withdrawal Amount. The Surrender Charges, which are equal to a percent of
Premium surrendered are:
<TABLE>
<CAPTION>
<S> <C>
Policy Year Surrender Charge
- ----------- -----------------
1 7.5%
2 7.5%
3 7.5%
4 6.0%
5 5.0%
6 4.0%
7 3.0%
8 2.0%
9 1.0%
10 + 0%
</TABLE>
This compensates the Company for the expenses incurred in distributing the
Policy.
DEFERRED PREMIUM TAX CHARGE. This charge is assessed on premiums surrendered
from the Policy. It is equal to:
<TABLE>
<CAPTION>
<S> <C>
Policy Year Deferred Premium Tax Charge
- ----------- ----------------------------
1 2.25%
2 2.00%
3 1.75%
4 1.50%
5 1.25%
6 1.00%
7 .75%
8 .50%
9 .25%
10 + 0%
</TABLE>
This charge enables the Company to collect that portion of the Premium Tax
Charge it has not collected before the Policy is surrendered.
(b) For each installment payment type of periodic payment plan certificate of
the trust, furnish the following information with respect to sales load and
other deductions from principal payments.
See response to item 13(a)(1).
(c) State the amount of total deductions as a percentage of the net amount
invested for each type of security issued by the trust. State each different
sales charge available as a percentage of the public offering price and as a
percentage of the net amount invested. List any special purchase plans or
methods established by rule or exemptive order that reflect scheduled variations
in, or elimination of, the sales load, and identify each class of individuals or
transactions to which such plans apply.
(1) The amount of sales load as a percentage of the net amount invested is
0%.
(2) There is no charge deducted from premiums.
(d) Explain fully the reasons for any difference in the price at which
securities are offered generally to the public, and the price at which
securities are offered for any class of transactions to any class or group of
individuals, including officers, directors, or employees of the depositor,
trustee, custodian or principal underwriter.
Not Applicable.
(e) Furnish a brief description of any loads, fees, expenses or charges not
covered in Item 13(a) which may be paid by security holders in connection with
the trust or its securities.
None.
(f) State whether the depositor, principal underwriter, custodian or trustee, or
any affiliated person of the foregoing may receive profits or other benefits not
included in answer to Item 13(a) or 13 (d) through the sale or purchase of the
trust's securities or interests in such securities, or underlying securities or
interests in underlying securities, and describe fully the nature and extent of
such profits or benefits. None.
(g) State the percentage that the aggregate annual charges and deductions for
maintenance and other expenses of the trust bear to the dividend and interest
income from the trust property during the period covered by the financial
statements filed herewith.
Not Applicable
INFORMATION CONCERNING THE OPERATIONS OF THE TRUST.
14. Describe the procedure with respect to applications (if any) and the
issuance and authentication of the trust's securities, and state the substance
of the provisions of any indenture or agreement pertaining thereto.
A person desiring to purchase a Policy must complete an application on a form
provided by the Company. The Company will underwrite the Policy before it is
issued and, if the applicant meets the underwriting standards of the Company,
the Policy will be issued.
15. Describe the procedure with respect to the receipt of payments from
purchasers of the trust's securities and the handling of the proceeds thereof,
and state the substance of the provisions of any indenture or agreement
pertaining thereto.
When a Policy is purchased, the Company will initially invest the premium in the
Money Market Portfolio. After 15 days (or longer in those states where required)
from the Policy Issue Date, the Company will allocate the Account Value to the
Investment Portfolios as requested in the application.
16. Describe the procedure with respect to the acquisition of underlying
securities and the disposition thereof, and state the substance of the
provisions of any indenture or agreement pertaining thereto.
The Company applies premiums to the purchase of Investment Portfolio shares at
their net asset value. Redemption of Investment Portfolio shares may be made by
the Company to permit the payment of benefits or amounts in connection with
requests for surrender or for other purposes contemplated by the Policy.
17. (a) Describe the procedure with respect to withdrawal or redemption by
security holders.
Any surrender by an owner may be made by communication in writing to the
Company at its service office. Upon written receipt of such request, the Company
will cancel accumulation units in the Policy and redeem Investment Portfolio
shares in sufficient amount to meet any requests. See Item 10.
(b) Furnish the names of any persons who may redeem or repurchase, or are
required to redeem or repurchase, the trust's securities or underlying
securities from security holders, and the substance of the provisions of any
indenture or agreement pertaining thereto.
The Company is required to honor surrender requests as described in Items
10(c) and 17(a). With respect to the Separate Account's underlying securities,
the Investment Options are required to redeem their shares at net asset value
and to make payment therefore within 3 business days. (c) Indicate whether
repurchased or redeemed securities will be canceled or may be resold.
When there is a total withdrawal from a Policy, it is canceled.
18. (a) Describe the procedure with respect to the receipt, custody and
disposition of the income and other distributable funds of the trust and state
the substance of the provisions of any indenture or agreement pertaining
thereto.
All income and other distributable funds of the Separate Account are
reinvested in Investment Option shares and are added to the assets of the
Separate Account.
(b) Describe the procedure, if any, with respect to the reinvestment of
distributions to security holders and state the substance of the provisions of
any indenture or agreement pertaining thereto.
Not Applicable.
(c) If any reserves or special funds are created out of income or principal,
state with respect to each such reserve or fund the purpose and ultimate
disposition thereof, and describe the manner of handling of same.
Not Applicable.
(d) Submit a schedule showing the periodic and special distributions which have
been made to security holders during the three years covered by the financial
statements filed herewith. State for each distribution the aggregate amount and
amount per share. If distributions from sources other than current income have
been made, identify each such other source and indicate whether such
distribution represents the return of principal payments to security holders. If
payments other than cash were made describe the nature thereof, the account
charged and the basis of determining the amount of such charge.
No distributions have been made.
19. Describe the procedure with respect to the keeping of records and accounts
of the trust, the making of reports and the furnishing of information to
security holders, and the substance of the provisions of any indenture or
agreement pertaining thereto.
The Company provides confirmations with respect to all premiums received, loan
transactions and any surrenders. The Company also provides each Policy owner
with an annual statement which will show the current amount of death benefit
payable under the Policy, the current Account Value, the current Cash Surrender
Value, current Debt and will show all transactions previously confirmed. The
statement will also show all premiums paid and all charges deducted during the
policy year.
20. State the substance of the provisions of any indenture or agreement
concerning the trust with respect to the following:
(a) Amendments to such indenture or agreement;
Not Applicable.
(b) The extension or termination of such indenture or agreement;
Not Applicable.
(c) The removal or resignation of the trustee or custodian, or the failure of
the trustee or custodian to perform its duties, obligations and functions;
Not Applicable.
(d) The appointment of a successor trustee and the procedure if a successor
trustee is not appointed;
The Separate Account has no trustees.
(e) The removal or resignation of the depositor, or the failure of the depositor
to perform its duties, obligations and functions;
There are no provisions relating to the removal or resignation of the
depositor or the failure of the depositor to perform its duties, obligations and
functions.
(f) The appointment of a successor depositor and the procedure if a successor
depositor is not appointed.
There are no provisions relating to the appointment of a successor
depositor or the procedure if a successor depositor is not appointed.
21. (a) State the substance of the provisions of any indenture or agreement with
respect to loans to security holders.
Policy owners may borrow from the Company using the Policy as the sole
security.
(b) Furnish a brief description of any procedure or arrangement by which loans
are made available to security holders by the depositor, principal underwriter,
trustee or custodian, or any affiliated person of the foregoing.
The following items should be covered.
(1) the name of each person who makes such agreements or arrangements with
security holders;
The Company will make a loan to an Owner with the Policy as the sole
security.
(2) the rate of interest payable on such loans;
The interest rate for a Policy loan is 6% per annum.
(3) the period for which loans may be made;
Loans can be made while the Policy is in force.
(4) costs or charges for default in repayment at maturity;
Not applicable.
(5) other material provisions of the agreements or arrangements;
A policy loan will result in accumulation units being redeemed from the
Investment Portfolios and the proceeds being transferred to the Loan Account.
The Company will pay interest on the Loan Account at an annual rate of 4.0%
(unless a Preferred Loan is in effect which earns 6%). An outstanding loan
reduces the amount of death benefit and the cash value.
(c) If such loans are made, furnish the aggregate amount of loans outstanding at
the end of the last fiscal year, the amount of interest collected during the
last fiscal year allocated to the depositor, principal underwriter, trustee or
custodian or affiliated person of the foregoing and the aggregate amount of
loans in default at the end of the last fiscal year covered by financial
statements filed herewith.
Not Applicable.
22. State the substance of the provisions of any indenture or agreement with
respect to limitations on the liabilities of the depositor, trustee or
custodian, or any other party to such indenture or agreement.
There is no such provision or agreement.
23. Describe any bonding arrangement for officers, directors, partners or
employees of the depositor or principal underwriter of the trust, including the
amount of coverage and the type of bond.
The officers and directors of the Company are covered under a fidelity bond
in the amount of $5,000,000. The officers and directors of Cova Life Sales
Company are covered under a fidelity bond in the amount of $5,000,000 for each
loss, $5,000,000 for aggregate losses with a $250,000 deductible.
24. State the substance of any other material provisions of any indenture or
agreement concerning the trust or its securities and a description of any other
material functions or duties of the depositor, trustee or custodian not stated
in Item 10 or Items 14 to 23 inclusive.
The Owner may assign his rights under the Policy. The Owner may change owners
during the life time of the Insured while the Policy is in force.
III. ORGANIZATION, PERSONNEL AND AFFILIATED
PERSONS OF DEPOSITOR
ORGANIZATION AND OPERATIONS OF DEPOSITOR.
25. State the form of organization of the depositor of the trust, the name of
the state or other sovereign power under the laws of which the depositor was
organized and the date of organization.
The Company was incorporated in California in 1972 as a stock life insurance
company.
26. (a) Furnish the following information with respect to all fees received by
the depositor of the trust in connection with the exercise of any functions or
duties concerning securities of the trust during the period covered by the
financial statements filed herewith.
Not Applicable.
(b) Furnish the following information with respect to any fee or any
participation in fees received by the depositor from any underlying investment
company or any affiliated person or investment adviser of such company.
See Item 13(a).
27. Describe the general character of the business engaged in by the depositor
including a statement as to any business other than that of depositor of the
trust. If the depositor acts or has acted in any capacity with respect to any
investment company or companies other than the trust, state the name or names of
such company or companies, their relationship, if any, to the trust, and the
nature of the depositor's activities therewith. If the depositor has ceased to
act in such named capacity, state the date of and circumstances surrounding such
cessation.
The Company is presently licensed to do business in the State of California. It
acts as the depositor of Cova Variable Annuity Account Five. The portfolios of
Cova Series Trust represent some of the Investment Portfolios under the
Policies.
OFFICIALS AND AFFILIATED PERSONS OF DEPOSITOR.
28. (a) Furnish as at latest practicable date the following information with
respect to the depositor of the trust, with respect to each officer, director,
or partner of the depositor, and with respect to each natural person directly or
indirectly owning, controlling or holding with power to vote five percent or
more of the outstanding voting securities of the depositor.
See Item 29.
(b) Furnish a brief statement of the business experience during the last five
years of each officer, director or partner of the depositor.
The directors and executive officers of the Company are listed below:
<TABLE>
<CAPTION>
<S> <C>
Name Principal Occupation During the Past Five Years
- ------- -----------------------------------------------
John W. Barber*** Director of Cova-June, 1995 to present; Director of First
Cova Life Insurance Company (FCLIC)-June, 1995 to present;
Director of CFLIC June, 1995 to present; Vice President and
Controller of General American Life Insurance
Company-December, 1984 to present; President and Director of
Equity Intermediary Company- October, 1988 to present.
Jerome P. Darga* Vice President and Assistant Secretary of Cova-1992 to
present; Vice President and Assistant Secretary of
CFLIC-1992 to present; Vice President and Assistant
Secretary of CLMC-1992 to present.
Connie A. Doern**** Vice President of Cova-1997 to Present, prior thereto
Assistant Vice President from 1990 to 1995; Vice President
of CFLIC- 1997 to Present, prior thereto Assistant Vice
President from 1990 to 1995; Vice President of FCLIC-1997 to
Present, prior thereto Assistant Vice President from 1993 to
1995; Vice President of J&H/KVI-1989 to Present.
Judy M. Drew* Vice President of Cova-1988 to present; Vice President of
CFLIC-1988 to present; Vice President of FCLIC-1992 to
present; Senior Vice President of CLMC-1996 to present,
prior thereto Vice President from 1989 to 1996; President,
COO and Director of Cova Life Sales Company (CLSC)-1988 to
present.
Patricia E. Gubbe* Vice President of Cova-1989 to present; Vice President of
CFLIC-1989 to present; Vice President of FCLIC-1992 to
present; First Vice President of CLMC-1996 to present, prior
thereto Vice President from 1989 to 1996; Vice President and
Chief Compliance Officer of CLSC-1989 to present.
Philip A. Haley* Executive Vice President of Cova-May 1997 to present, prior
thereto Vice President from 1990 to 1997 and Assistant Vice
President from 1989 to 1990; Executive Vice President of
FCLIC- May, 1997 to present, prior thereto Vice President
from 1995 to 1997; Executive Vice President of CFLIC-May
1997 to present, prior thereto Vice President from 1990 to
1997 and Assistant Vice President from 1989 to 1990;
Executive Vice President of CLMC from May, 1997 to present,
prior thereto Senior Vice President from 1996 to 1997 and
Vice President from 1990 to 1996 and Assistant Vice
President from 1989 to 1990; Vice President of CLSC from
1991 to present, prior thereto Assistant Vice President from
1989 to 1991.
Christopher S. Harden* Vice President of Cova- 1991 to present; Vice President of
CFLIC-1991 to present; First Vice President of CLMC-1996 to
present, prior thereto Vice President-1991 to 1996.
J. Robert Hopson* Vice President, Chief Actuary and Director of Cova-1991 to
present; Vice President, Chief Actuary and Director of
CFLIC-1991 to present; Vice President, Chief Actuary and
Director of FCLIC-1992 to present; Senior Vice President,
Chief Actuary and Director of CLMC-1996 to present, prior
thereto Vice President and Director from 1993 to 1996 and
Vice President from 1991 to 1993.
Thomas E. Hughes, Jr.** Treasurer and Director of Cova-June, 1995 to present;
Treasurer and Director of CFLIC-June, 1995 to present;
Treasurer of FCLIC-June, 1995 to present; Corporate Actuary
and Treasurer of General American Life Insurance Company-
October, 1994 to present. Formerly, Executive Vice
President-Group Pensions General American Life Insurance
Company-March, 1990 to October, 1994. In addition to the
Cova companies, Director of the following General American
subsidiary companies: Paragon Life Insurance Company and RGA
Reinsurance Company-October, 1994 to present. Treasurer of
the following General American subsidiary companies: Paragon
Life Insurance Company, General Life Insurance Company of
America, General Life Insurance Company, General American
Holding Company, Red Oak Realty Company, Gen Mark
Incorporated, Walnut Street Securities, Inc., Walnut Street
Adviser's Inc., White Oak Royalty Company, Walnut Street
Funds, Inc., and RGA Reinsurance Company-October, 1994 to
present.
Lisa O. Kirchner**** Vice President of Cova-1997 to present, prior thereto
Assistant Vice President from 1990 to 1995; Vice President
of CFLIC-1997 to present, prior thereto Assistant Vice
President from 1988 to 1995; Vice President of FCLIC-1997 to
present, prior thereto Assistant Vice President from 1993 to
1995; Vice President of J&H/KVI-1985 to present.
Douglas E. Jacobs* Vice President of Cova- 1985 to present; Vice President of
CFLIC-1985 to present; Vice President of CLMC-1985 to
present.
Richard A. Liddy** Chairman of the Board of Directors of Cova, CFLIC, FCLIC,
CLMC, Advisory and Allocation- April, 1997 to present;
Chairman of the Board, President and Chief Executive Officer
of General American Life Insurance Company-May, 1992 to
present; Mr. Liddy also holds various positions with the
General American subsidiaries as follows: Chairman of the
Board and President of General American Mutual Holding
Company, GenAmerica Corporation and General American Holding
Company; Chairman of the Board of Security Equity Life
Insurance Company, Conning Corporation, The Walnut Street
Funds, Inc., General American Capital Company, Reinsurance
Group of America, Inc., RGA Life Reinsurance Company of
Canada, and RGA Reinsurance Company.
William C. Mair* Vice President, Controller and Director of Cova since 1995
to present, prior thereto Vice President, Controller,
Treasurer and Director. Vice President, Controller and
Director of CFLIC since 1995 to present, prior thereto Vice
President, Controller, Treasurer and Director; Vice
President, Controller and Director of FCLIC- from 1992 to
present; Vice President, Treasurer, Controller and Director
of Advisory-1993 to present; Vice President, Treasurer,
Controller and Director of Allocation-1994 to present;
Director of CLSC-1992 to present; Senior Vice President,
Treasurer, Controller and Director of CLMC-1989 to present;
Vice President, Treasurer, Controller, Chief Financial
Officer, Chief Accounting Officer and Director of Trust-
1996 to present.
Matthew P. McCauley** Assistant Secretary and Director of Cova-June, 1995 to
present; Assistant Secretary and Director of CFLIC-June,
1995 to present; Assistant Secretary and Director of
FCLIC-June, 1995 to present; Associate General Counsel and
Vice President of General American Life Insurance
Company-1973 to present; Also, Director, Vice President,
General Counsel and Secretary for several other General
American subsidiaries; including Equity Intermediary
Company, Red Oak Realty Company, and White Oak Royalty
Company; General American Holding Company and Paragon Life
Insurance Company. General Counsel and Secretary,
Reinsurance Group of America, Incorporated. Director and
Secretary, General American Capital Company. General Counsel
and Secretary, Conning Corporation. General Counsel, Conning
Asset Management Company. Director of RGA Reinsurance
Company, Walnut Street Securities, Inc. Secretary to the
Walnut Street Funds, Inc.
Mark E. Reynolds* Executive Vice President of Cova-May, 1997 to present;
Executive Vice President of CFLIC-May, 1997 to present;
Executive Vice President of CFSLIC-May, 1997 to present;
Executive Vice President and Director of FCLIC - May 1997 to
present; Executive Vice President of CLMC-May, 1997 to
present; Executive Vice President and Director of Cova
Investment Advisory Corporation-December, 1996 to present;
Executive Vice President and Director of Cova Investment
Allocation Corporation-December, 1996 to present.
Leonard M. Rubenstein** Director of Cova, CFLIC, FCLIC, and CLMC-January, 1996 to
present; Director of Advisory and Allocation from 1995 to
present; Executive Vice President and Director of General
American Life Insurance Company-1992 to present. Mr.
Rubenstein also holds various positions with the General
American subsidiaries as follows: Director and Treasurer of
General American Capital Company; Senior Vice President
Investments, Treasurer and Director of Reinsurance Group of
America, Incorporated; Director of Paragon Life Insurance
Company; Director of General American Holding Company; Chief
Executive Officer, Chairman and Director for Conning
Corporation; Director of the following: General Life
Insurance Company, Security Equity Life Insurance Company,
BHIF America de Vida Seguros S.A. (Chile), Manatial Seguros
de Vida, S.A. (Argentina), Red Oak Realty Company, General
Life Insurance Company of America; RGA Reinsurance Company;
Secretary and Director for RGA Sud America S.A.
Myron H. Sandberg* Vice President of Cova-1985 to present; Vice President of
CFLIC-1985 to present; and CLMC 1989 to present.
John W. Schaus* Vice President of Cova- 1988 to present; Vice President of
CFLIC-1988 to present; and CLMC- 1989 to present.
Lorry J. Stensrud* President and Director of Cova from June, 1995 to present,
prior thereto Executive Vice President; President and
Director of CFLIC from June, 1995 to present, prior thereto
Executive Vice President; President and Director of FCLIC
from June, 1995 to present, prior thereto Executive Vice
President; President and Director of CLMC from June, 1995 to
present, prior thereto Executive Vice President only;
President and Director of Advisory from 1993 to present;
President and Director of Allocation from 1994 to present.
Director of CLSC from 1989 to present; President, Chief
Executive Officer and Director of Trust-1996 to present.
Peter L. Witkewiz***** Vice President of Cova-1997 to present; Vice President of
CFLIC-1997 to present; Vice President of FCLIC-1997 to
present.
Kent R. Zimmerman** Assistant Treasurer of Cova-May, 1996 to present; Assistant
Treasurer of CFLIC-May, 1996 to present; Assistant Treasurer
of CLMC- 1996 to present. Second Vice President of General
American Life Insurance Company- 1997 to present, prior
thereto Vice President of General American Life Insurance
Company 1992 to 1997. Mr. Zimmerman holds various positions
with the General American subsidiaries - Assistant
Treasurer, Security Equity Life Insurance Company, Paragon
Life Insurance Company, General Life Insurance Company of
America and RGA Reinsurance Co.
* Business Address: Cova, One Tower Lane, Suite 3000, Oakbrook Terrace, IL 60181
** Business Address: General American, 700 S. Market Street, St. Louis, MO 63101
*** Business Address: General American, 13045 Tesson Ferry Road, St. Louis, MO
63128
**** Business Address: J&H/KVI, 1776 West Lakes Parkway, West Des Moines, IA
50266
</TABLE>
COMPANIES OWNING SECURITIES OF DEPOSITOR.
29. Furnish as at la test practicable date the following information with
respect to each company which directly or indirectly owns, controls or holds
with power to vote five percent or more of the outstanding voting securities of
the depositor.
The Company is a wholly owned subsidiary of Cova Financial Services Life
Insurance Company, which in turn is a wholly owned subsidiary of General
American Life Insurance Company.
CONTROLLING PERSONS.
30. Furnish as at latest practicable date the following information with respect
to any person, other than those covered by Items 28, 29, and 42 who directly or
indirectly controls the depositor.
None.
COMPENSATION OF OFFICERS AND DIRECTORS OF DEPOSITOR:
COMPENSATION OF OFFICERS OF DEPOSITOR.
31. Furnish the following information with respect to the remuneration for
services paid by the depositor during the last fiscal year covered by financial
statements filed herewith:
(a) Directly to each of the officers or partners of the depositor directly
receiving the three highest amounts of remuneration. Not Applicable. As of the
date hereof, the Separate Account had not yet commenced operations.
(b) Directly to all officers or partners of the depositor as a group exclusive
of persons whose remuneration is included under Item 31(a), stating separately
the aggregate amount paid by the depositor itself and the aggregate amount paid
by all the subsidiaries.
Not Applicable. As of the date hereof, the Separate Account had not yet
commenced operations.
(c) Indirectly or through subsidiaries to each of the officers or partners of
the depositor.
Not Applicable. As of the date hereof, the Separate Account had not yet
commenced operations.
COMPENSATION OF DIRECTORS
32. Furnish the following information with respect to the remuneration for
services, exclusive of remuneration reported under Item 31, paid by the
depositor during the last fiscal year covered by financial statements filed
herewith:
(a) The aggregate direct remuneration to directors;
Not Applicable. See Item 31.
(b) Indirectly through subsidiaries to directors.
Not Applicable. See Item 31.
COMPENSATION TO EMPLOYEES.
33. (a) Furnish the following information with respect to the aggregate amount
of remuneration for services of all employees of the depositor (exclusive of
persons whose remuneration is reported in Items 31 and 32) who received
remuneration in excess of $10,000 during the last fiscal year covered by
financial statements filed herewith from the depositor and any of its
subsidiaries.
Not Applicable. See Item 31.
(b) Furnish the following information with respect to the remuneration for
services paid directly during the last fiscal year covered by financial
statements filed herewith to the following classes of persons (exclusive of
those person covered by Item 33(a)): (1) sales managers, branch managers,
district managers and other persons supervising the sale of registrant's
securities; (2) salesmen, sales agents, canvassers and other persons making
solicitations but not in a supervisory capacity; (3) administrative and clerical
employees; and (4) others (specify). If a person is employed in more than one
capacity, classify according to predominant type of work.
Not Applicable. See Item 31.
COMPENSATION TO OTHER PERSONS.
34. Furnish the following information with respect to the aggregate amount of
compensation for services paid any person (exclusive of persons whose
remuneration is reported in Items 31, 32, and 33), whose aggregate compensation
in connection with services rendered with respect to the trust in all capacities
exceeded $10,000 during the last fiscal year covered by financial statements
filed herewith from the depositor and any of its subsidiaries:
Not Applicable. See Item 31.
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
DISTRIBUTION OF SECURITIES.
35. Furnish the names of the States in which sales of the trust's securities:
(a) are currently being made, (b) are presently proposed to be made, and (c)
have been discontinued, indicating by appropriate letter the status with respect
to each State.
No sales of the Policy have been made or are currently being made. It is
presently proposed to sell the Policy in the states where the Company is
licensed to do business.
36. If sales of the trust's securities have at any time since January 1, 1936
been suspended for more than a month describe briefly the reasons for such
suspension.
Not Applicable.
37. (a) Furnish the following information with respect to each instance where
subsequent to January 1, 1937, any Federal or State governmental officer,
agency, or regulatory body denied authority to distribute securities of the
trust, excluding a denial which was merely a procedural step prior to any
determination by such officer, etc. and which denial was subsequently rescinded:
(1) name of officer, agency or body; (2) date of denial; (3) brief statement of
reason given for denial.
Not Applicable.
(b) Furnish the following information with regard to each instance where,
subsequent to January 1, 1937, the authority to distribute securities of the
trust has been revoked by any Federal or State governmental officer, agency or
regulatory body: (1) name of officer, agency or body; (2) date of revocation;
(3) brief statement of reason given for revocation.
Not Applicable.
38. (a) Furnish a general description of the method of distribution of
securities of the trust.
The Policy issued by the Separate Account will be sold by licensed
insurance agents in those states where the Policy may be lawfully sold. Such
agents will be registered representatives of a broker-dealer registered under
the Securities Exchange Act of 1934 which is a member of the National
Association of Securities Dealers, Inc.
(b) State the substance of any current selling agreement between each principal
underwriter and the trust or the depositor, including a statement as to the
inception and termination dates of the agreement, any renewal and termination
provisions, and any assignment provisions.
The Company intends to execute an agreement with the Principal Underwriter
whereby it will distribute the Policy by executing selling agreements with other
broker-dealers. The agreement will be effective on the date executed and will
remain effective until terminated by either party upon sixty (60) days notice,
and may not be assigned.
(c) State the substance of any current agreements or arrangements of each
principal underwriter with dealers, agents, salesmen, etc. with respect to
commissions and overriding commissions, territories, franchises, qualifications
and revocations. If the trust is the issuer of periodic payment plan
certificates, furnish schedules of commissions and the bases thereof. In lieu of
a statement concerning schedules of commissions, such schedules of commissions
may be filed as Exhibit A(3)(c).
See Exhibit A(3)(c).
INFORMATION CONCERNING PRINCIPAL UNDERWRITER.
39. (a) State the form of organization of each principal underwriter of
securities of the trust, the name of the State or other sovereign power under
the laws of which each underwriter was organized and the date of the
organization.
Cova Life Sales Company is a corporation organized under the laws of
Illinois on 9/25/84.
(b) State whether any principal underwriter currently distributing securities of
the trust is a member of the National Association of Securities Dealers, Inc.
Cova Life Sales Company is a member of the National Association of
Securities Dealers, Inc.
40. a) Furnish the following information with respect to all fees received by
each principal underwriter of the trust from the sale of securities of the trust
and any other functions in connection therewith exercised by such underwriter in
such capacity or otherwise during the period covered by the financial statements
filed herewith.
Not Applicable.
(b) Furnish the following information with respect to any fee or any
participation in fees received by each principal underwriter from any underlying
investment company or any affiliated person or investment adviser of such
company: (1) the nature of such fee or participation; (2) the name of the person
making payment; (3) the nature of the services rendered in consideration for
such fee or participation; (4) the aggregate amount received during the last
fiscal year covered by the financial statements filed herewith.
Not Applicable.
41. (a) Describe the general character of the business engaged in by each
principal underwriter, including a statement as to any business other than the
distribution of securities of the trust. If a principal underwriter acts or has
acted in any capacity with respect to any investment company or companies other
than the trust, state the name or names of such company or companies, their
relationship, if any, to the trust and the nature of such activities. If a
principal underwriter has ceased to act in such named capacity, state the date
of and the circumstances surrounding such cessation.
Cova Life Sales Company also acts as the principal underwriter of variable
annuity contracts issued by the Company and its affiliated insurance companies.
(b) Furnish as at latest practicable date the address of each branch office of
each principal underwriter currently selling securities of the trust and furnish
the name and residence address of the person in charge of such office.
Not Applicable.
(c) Furnish the number of individual salesmen of each principal underwriter
through whom any of the securities of the trust were distributed for the last
fiscal year of the trust covered by the financial statements filed herewith and
furnish the aggregate amount of compensation received by such salesmen in such
year.
Not Applicable.
42. Furnish as at latest practicable date the following information with respect
to each principal underwriter currently distributing securities of the trust and
with respect to each of the officers, directors, or partners of such
underwriter.
Not Applicable.
43. Furnish, for the last fiscal year covered by the financial statements filed
herewith, the amount of brokerage commissions received by any principal
underwriter who is a member of a national securities exchange and who is
currently distributing the securities of the trust or effecting transactions for
the trust in the portfolio securities of the trust.
None.
OFFERING PRICE OR ACQUISITION VALUATION OF SECURITIES OF THE TRUST.
44. (a) Furnish the following information with respect to the method of
valuation used by the trust for purposes of determining the offering price to
the public of securities issued by the trust or the valuation of shares or
interests in the underlying securities acquired by the holder of a periodic
payment plan certificate.
Account Values allocated to the Separate Account are invested at net asset
value in the Investment Portfolios in accordance with the selection made by the
owner.
Account Values will fluctuate in accordance with investment results of the
Investment Portfolios selected. In order to determine how these fluctuations
affect Account Value, accumulation units are used. Every business day the
Company determines the value of an accumulation unit for each of the Investment
Portfolios. The value of an accumulation unit for any given business day is
determined by multiplying a factor referred to as the net investment factor
times the value of an Accumulation unit for the previous business day. The net
investment factor is a number that reflects the change (up or down) in an
underlying Investment Portfolio share.
(b) Furnish a specimen schedule showing the components of the offering price of
the trust's securities as at the latest practicable date.
Not Applicable.
(c) If there is any variation in the offering price of the trust's securities to
any person or classes of persons other than underwriters, state the nature and
amount of such variation and indicate the person or classes of persons to whom
such offering is made.
Not Applicable.
45. Furnish the following information with respect to any suspension of the
redemption rights of securities issued by the trust during the three fiscal
years covered by the financial statements filed herewith: (a) by whose action
redemption rights were suspended; (b) the number of days' notice given to
security holders prior to suspension of redemption rights; (c) reason for
suspension; (d) period during which suspension was in effect.
Not Applicable.
REDEMPTION VALUATION OF SECURITIES OF THE TRUST.
46. (a) Furnish the following information with respect to the method of
determining the redemption or withdrawal valuation of securities issued by the
trust:
(1) the source of quotations used to determine the value of portfolio
securities;
The Custodians for the underlying series funds.
(2) whether opening, closing bid, asked or any other price is used;
Net asset value is used.
(3) whether price is as of the day of sale or as of any other time;
As of the next compute price.
(4) a brief description of the methods used by registrant for determining
other assets and liabilities including accrual for expenses and taxes (including
taxes on unrealized appreciation);
See item 13(a).
(5) other items which registrant deducts from the net asset value in
computing redemption value of its securities; and
See item 13(a).
(6) whether adjustments are made for fractions.
Not applicable.
(b) Furnish a specimen schedule showing the components of the redemption price
to the holders of the trust's securities as at the latest practicable date.
Not applicable.
PURCHASE AND SALE OF INTERESTS IN UNDERLYING SECURITIES FROM AND TO SECURITY
HOLDERS.
47. Furnish a statement as to the procedure with respect to the maintenance of a
position in the underlying securities or interests in the underlying securities,
the extent and nature thereof and the person who maintains such a position.
Include a description of the procedure with respect to the purchase of
underlying securities or interest in the underlying securities from security
holders who exercise redemption or withdrawal rights and the sale of such
underlying securities and interests in the underlying securities to other
security holders. State whether the method of valuation of such underlying
securities or interests in the underlying securities differs from that set forth
in Items 44 and 46. If any item of expenditure included in the determination of
the valuation is not or may not actually be incurred or expended, explain the
nature of such item and who may benefit from the transaction.
The Company will maintain a position in Investment Portfolio shares by
purchasing Investment Portfolio shares at net asset value in connection with
premiums allocated to the Separate Account in accordance with instructions from
the Owners and to redeem Investment Portfolio shares at net asset value for the
purposes of making Policy obligations, or making adjustments in the reserves
held in the Separate Account. There are no procedures for the purchase of
underlying securities or interests therein from Owners who exercise surrender
rights in that Owners have no direct interest therein.
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Furnish the following information as to each trustee or custodian of the
trust:
(a) Name and principal business address;
None.
(b) Form of organization;
Not Applicable.
(c) State or other sovereign power under the laws of which the trustee or
custodian was organized;
Not Applicable.
(d) Name of governmental supervising or examining authority.
Not Applicable.
49. State the basis for payment of fees or expenses of the trustee or custodian
for services rendered with respect to the trust and its securities, and the
aggregate amount thereof for the last fiscal year. Indicate the person paying
such fees or expenses. If any fees or expenses are prepaid, state the unearned
amount.
Not Applicable.
50. State whether the trustee or custodian or any other person has or may create
a lien on the assets of the trust, and if so, give full particulars, outlining
the substance of the provisions of any indenture or agreement with respect
thereto.
Not Applicable.
VI. INFORMATION CONCERNING THE INSURANCE OF
HOLDERS OF SECURITIES
51. Furnish the following information with respect to insurance holders of
securities:
(a) The name and address of the insurance company;
Cova Financial Life Insurance Company
4100 Newport Place Drive, Suite 840
Newport Beach, CA 92600
800-523-1661
(b) The types of policies and whether individual or group policies;
The Policy is an individual modified single premium variable life insurance
policy.
(c) The types of risks insured and excluded;
The Policy provides for a death benefit upon the death of the Insured. Under
some circumstances, a portion of the death benefit will be paid out if the
Insured is terminally ill. The death benefit is the only insurance benefit
offered.
(d) The coverage of the policies;
While the Policy remains in force, it provides for a death benefit on the life
of the Insured.
(e) The beneficiaries of such policies and the uses to which the proceeds of
policies must be put;
The Owner designates one or more persons to be the beneficiaries of the
death benefit. There are no limitations on the use of the proceeds.
(f) The terms and manner of cancellation and of reinstatement;
The Policy will terminate if (1) the owner makes a total surrender of the
Policy, (2) the grace period has ended, or (3) the Insured has died. The Policy
can be reinstated if the owner did not make a total surrender and if the Insured
is still alive within five years after the end of the grace period. To reinstate
the Policy, the Insured must provide evidence of insurability and either repay
any outstanding loan and accrued interest or reinstate the loan plus interest. A
sufficient premium must be paid to (1) cover all deductions that are due and
unpaid and (2) be sufficient to keep the Policy in force for 2 months.
(g) The method of determining the amount of premiums to be paid by holders of
securities;
See Item 13(a) for information on the types of charges and methods of
assessing them.
(h) The amount of aggregate premiums paid to the insurance company during the
last fiscal year;
Not Applicable.
(i) Whether any person other than the insurance company receives any part of
such premiums, the name of each such person and the amounts involved, and the
nature of the services rendered therefor;
The Company may from time to time, enter into reinsurance treaties with
other insurers whereby such insurers may agree to reimburse the Company for
mortality expenses.
(j) The substance of any other material provisions of any indenture or agreement
of the trust relating to insurance.
Not Applicable.
VII. POLICY OF REGISTRANT
52. (a) Furnish the substance of the provisions of any indenture or agreement
with respect to the conditions upon which and the method of selection by which
particular portfolio securities must or may be eliminated from assets of the
trust or must or may be replaced by other portfolio securities. If an investment
adviser or other person is to be employed in connection with such selection,
elimination or substitution, state the name of such person, the nature of any
affiliation to the depositor, trustee or custodian, any principal underwriter,
and the amount of remuneration to be received for such services. If any
particular person is not designated in the indenture or agreement, describe
briefly the method of selection of such person.
The Company will not substitute another security for the underlying
securities of the trust unless the Securities and Exchange Commission shall have
approved such substitution.
(b) Furnish the following information with respect to each transaction involving
the elimination of any underlying security during the period covered by the
financial statements filed herewith.
Not Applicable.
(c) Describe the policy of the trust with respect to the substitution and
elimination of the underlying securities of the trust with respect to: (1) the
grounds for elimination and substitution; (2) the type of securities which may
be substituted for any underlying security; (3) whether the acquisition of such
substituted security or securities would constitute the concentration of
investment in a particular industry or group of industries or would conform to a
policy of concentration of investment in a particular industry or group of
industries; (4) whether such substituted securities may be the securities of
another investment company; and (5) the substance of the provisions of any
indenture or agreement which authorize or restrict the policy of the registrant
in this regard.
Not Applicable.
(d) Furnish a description of any policy (exclusive of policies covered by
paragraphs (a) and (b) herein) of the trust which is deemed a matter of
fundamental policy and which is elected to be treated as such.
None.
REGULATED INVESTMENT COMPANY.
53. (a) State the taxable status of the trust.
The Company is taxed as a life insurance company under the Internal Revenue
Code. Since the Separate Account is not a separate entity from the Company and
its operations form a part of the company, it will not be taxed separately as a
"regulated investment company" under the Subchapter M of the Code.
(b) State whether the trust qualified for the last taxable year as a regulated
investment company as defined in Section 851 of the Internal Revenue Code of
1954, and state its present intention with respect to such qualifications during
the current taxable year.
Not Applicable.
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. If the trust is not the issuer of periodic payment plan certificates,
furnish the following information with respect to each class or series of its
securities.
Not Applicable.
55. If the trust is the issuer of periodic payment plan certificates, a
transcript of a hypothetical account shall be filed in approximately the
following form on the basis of the certificate calling for the smallest amount
of payments. The schedule shall cover a certificate of the type currently being
sold assuming that such certificate had been sold at a date approximately 10
years prior to the date of registration or at the approximate date of
organization of the trust.
Not Applicable.
56. If the trust is the issuer of periodic payment plan certificates, furnish by
years for the period covered by the financial statements filed herewith in
respect of certificates sold during such period, the following information for
each fully paid type and each installment payment type of periodic payment plan
certificate currently being issued by the trust.
Not Applicable.
57. If the trust is the issuer of periodic payment plan certificates, furnish by
years for the period covered by the financial statements filed herewith the
following information for each installment payment type of periodic payment plan
certificate currently being issued by the trust.
Not Applicable.
58. If the trust is the issuer of periodic payment plan certificates, furnish
the following information for each installment payment type of periodic payment
plan certificate outstanding as at the latest practicable date.
Not Applicable.
59. Financial statements:
Financial Statements of the Trust
The financial statements have not been filed for the Separate Account. It has
not yet commenced operations, has no assets or liabilities and has received no
income nor incurred any expense.
Financial Statements of the Depositor
The financial statements of the Company are filed herewith.
COVA FINANCIAL
LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Financial Statements (Unaudited)
June 30, 1997 and 1996
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Balance Sheets (Unaudited)
June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
AS OF AS OF
ASSETS 6/30/97
12/31/96
<S> <C> <C>
Investments:
Debt securities available for sale at market
(cost of $90,833 in 1997 and $71,257 in 1996) $ 90,923 $ 71,263
Policy loans 1,052 1,048
Short-term investments available for sale at market
(cost of $248 in 1996 and $44 in 1996) 246 44
Total investments 92,221 72,355
Cash and cash equivalents - interest bearing 5,080 4,150
Cash - non-interest bearing 2,182 2,485
Accrued investment income 1,364 1,122
Deferred policy acquisition costs 5,405 3,321
Present value of future profits 1,101 1,178
Goodwill 1,979 2,034
Deferred tax asset (net) 1,007 1,115
Receivable from OakRe 81,289 92,238
Reinsurance receivables 0 51
Other assets 69 44
Separate account assets 40,628 18,880
Total Assets $232,325 $198,973
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Balance Sheets, (Unaudited) Continued
June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
AS OF AS OF
LIABILITIES AND SHAREHOLDERS EQUITY 6/30/97 12/31/96
<S> <C> <C>
Policyholder deposits $164,741 $154,566
Future policy benefits 4,703 4,561
Payable on purchase of securities 2,010 0
Accounts payable and other liabilities 965 1,794
Future purchase price payable to OakRe 620 683
Federal on a state income taxes payable 12 0
Guaranty assessments 1,585 1,585
Reinsurance payables 15 0
Separate account liabilities 40,628 18,880
Total Liabilities 215,279 182,069
Shareholders equity:
Common stock, $233 par value. (Authorized 30,000
shares; issued and outstanding 12,000 shares in
1997 and 1996) 2,800 2,800
Additional paid-in capital 13,523 13,523
Retained earnings 703 580
Net unrealized appreciation on securities, net of tax 20 1
Total Shareholders Equity 17,046 16,904
Total Liabilities and Shareholders Equity $232,325 $198,973
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Income (Unaudited)
Six months ended June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED:
6/30/97
6/30/96
<S> <C> <C>
Revenues:
Premiums $ 304 $ 340
Net investment income 3,004 1,801
Net realized gain (loss) on sale of investments 16 (8)
Separate Account charges 193 39
Other Income 27 6
Total Revenues 3,544 2,178
Benefits and expenses:
Interest on policyholder deposits 2,116 1,044
Current and future policy benefits 451 382
Operating and other expenses 499 306
Amortization of purchased intangibles assets 100 161
Amortization of deferred acquisition costs 155 25
Total Benefits and Expenses 3,321 1,918
Income before income taxes 223 260
Income Taxes:
Current 2 190
Deferred $ 98 (75)
Total income tax expense $ 100 $ 115
Net Income $ 123 $ 145
</TABLE>
See accompanying notes to unaudited financial statements.
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Shareholders Equity (Unaudited)
June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED:
6/30/97 12/31/96
<S> <C> <C>
Common Stock ($233 par value common stock; authorized 30,000 shares; issued and outstanding
12,000 shares in 1997 and 1996.
Balance at beginning of period $ 2,800 $ 2,800
Balance at end of period 2,800 $ 2,800
Additional paid-in capital:
Balance at beginning of period 13,523 13,523
Balance at end of period 13,523 13,523
Retained earnings:
Balance at beginning of period 580 168
Net income 123 412
Balance at end of period $ 703 $ 580
</TABLE>
See accompanying notes to unaudited financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Shareholders Equity, (Unaudited) Continued
June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION> FOR THE PERIODS ENDED:
6/30/97 12/31/96
<S> <C> <C>
Net unrealized appreciation/(depreciation) of securities:
Balance at beginning of period $ 1 $ 192
Change in unrealized appreciation/(depreciation) of debt and equity securities 81 (840)
Change in deferred federal income taxes (10) 103
Change in deferred acquisition costs attributable to unrealized losses/(gains) 2 (69)
Change in present value of future profits attributable to unrealized losses/(gains)
(54) 615
Balance at end of period 20 1
Total Shareholders Equity $17,046 $16,904
</TABLE>
See accompanying notes to unaudited financial statements.
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows (Unaudited)
Six months ended June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION> FOR THE PERIODS ENDED:
6/30/97 6/30/96
<S> <C> <C>
Cash flows from operating activities:
Interest and dividend receipts $ 2,812 $ 1,501
Premiums received 313 350
Insurance and annuity benefit payments (307) (287)
Operating disbursements (939) (324)
Taxes on income paid (62) (255)
Commissions and acquisition costs paid (1,761) (1,108)
Other (17) 5
Net cash provided by/(used in) operating
activities 39 (118)
Cash flows from investing activities:
Cash used for the purchase of investment
securities (27,834) (20,927)
Proceeds from investment securities sold 9,035 4,919
and matured
Other (18) (43)
Net cash (used in) investing
activities $(18,817) $(16,051)
</TABLE>
See accompanying notes to unaudited financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows, (Unaudited) (Continued)
Six months ended June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
FOR THE
PERIODS ENDED:
6/30/97 6/30/96
<S> <C> <C>
Cash flows from financing activities:
Policyholder deposits $ 37,057 $ 12,996
Transfers from OakRe 7,394 22,795
Transfer to Separate Accounts (17,530) (5,019)
Return of policyholder deposits (7,516) (16,941)
Net cash provided by financing
activities 19,405 13,831
Increase/(decrease) in cash and cash
equivalents 627 (2,338)
Cash and cash equivalents at beginning of 6,635 6,134
period
Cash and cash equivalents at end of period $ 7,262 $ 3,796
</TABLE>
See accompanying notes to unaudited financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows, (Unaudited) Continued
Six months ended June 30, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED:
6/30/97 6/30/96
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income $ 123 $ 145
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in future policy
benefits (net of reinsurance) 142 101
Increase in payables and
accrued liabilities 22 15
Increase in accrued investment
income (242) (330)
Amortization of intangible assets and 254 186
deferred acquisition costs
Amortization and accretion of securities
premiums and discounts 81 25
Net realized (gain)/loss on sale of
investments (16) 8
Interest accumulated on policyholder
deposits 2,116 1,044
Investment expenses paid 55 50
Increase/(decrease) in current and deferred
Federal income taxes 100 (140)
Recapture commissions paid to OakRe (84) (172)
Deferral of acquisition costs (2,268) (821)
Due to/from affiliates 14 36
Other (258) (265)
Net cash provided by operating activities $ 39 $ (118)
=======
</TABLE>
See accompanying notes to Unaudited financial statements.
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Unaudited Interim Financial Statements
June 30, 1997 and 1996
(1)
The interim consolidated financial statements for Cova Financial Life
Insurance Company (CFLIC) have been prepared on the basis of generally
accepted accounting principles and, in the opinion of management, reflect all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation or results for such periods. The results of operations and cash
flows for any interim period are not necessarily indicative of results for the
full year. These financial statements should be read in conjunction with the
financial statements as of December 31, 1996 and December 31, 1995, and for
each of the years in the three-year period ended December 31, 1996 and related
notes thereto, presented elsewhere herein. Interim financial data presented
herein are unaudited.
(2) INVESTMENTS
The Company's investments in debt and equity securities are considered
available for sale and carried at estimated fair value, with the aggregate
unrealized appreciation or depreciation being recorded as a separate component
of shareholders equity. The carrying value and amortized cost of investments
at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR AMORTIZED
VALUE GAINS LOSSES VALUE COST
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 100 $ 0 $ 0 $ 100 $ 100
Collateralized mortgage 23,750 138 (63) 23,750 23,675
Corporate, state, municipalities,
and political subdivisions 67,073 411 (396) 67,073 67,058
Total debt securities 90,923 549 (459) 90,923 90,833
Policy loans 1,052 - - 1,052 1,052
Short term investments 246 - (2) 246 248
Total investments $92,221 $549 ($461) $ 9,222 $92,133
------- ---- ------- ------- -------
<FN>
As of June 30, 1997, the company had no impaired investments.
</TABLE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Unaudited Interim Financial Statements
The amortized cost and estimated market value of debt securities at June 30,
1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities will be substantially shorter than
their contractual maturity because they require monthly principal installments
and mortgagees may prepay principal.
<TABLE>
<CAPTION>
June 30, 1997
Estimated
Amortized Market
Cost Value
<S> <C> <C>
(in thousands of dollars)
Due after one year through five years $26,140 $26,151
Due after five years through ten years 34,348 34,350
Due after ten years 6,670 6,672
Mortgage-backed securities 23,675 23,750
Total $90,833 $90,923
<FN>
At June 30, 1997, approximately 92.3% of the Company's debt securities are
investment grade or are non-rated but considered to be of investment grade.
Of the 7.7% non-investment grade debt securities, 4.8% are rated as BB+, 1.8%
are rated as BB and 1.1% are rated as B.
</TABLE>
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Unaudited Interim Financial Statements
The components of net investment income, realized capital gains/(losses) and
unrealized gains/(losses)were as follows:
<TABLE>
<CAPTION> FOR THE PERIODS ENDED:
6/30/97 6/30/96
(in thousands of dollars)
<S> <C> <C>
Income on debt securities $3,007 $1,663
Income on short-term investments 92 138
Income on policy loans (40) 43
Miscellaneous interest - 7
Total investment income 3,059 1,851
Investment expenses 55 50
Net investment income 3,004 1,801
Realized capital gains/(losses) were as
follows:
Debt securities 16 (8)
Net realized gains/(losses) on
investments $ 16 $ (8)
</TABLE>
<TABLE>
<CAPTION> FOR THE PERIODS ENDED:
6/30/97 6/30/96
(In thousands of dollars)
<S> <C> <C>
Unrealized gains/(losses) were as follows: ffollowa
Debt securities 87 (878)
Short-term investments - -
Effects on deferred acquisition costs
amortization 11 -
Effects on present value of future
profits (67) 570
Unrealized gains/(losses) before income tax 31 (308)
Unrealized income tax benefit/(expense) (11) 108
Net unrealized gains (losses) on
investments $ 20 $(200)
</TABLE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to unaudited Interim Financial Statements
(3) Securities Greater than 10% of Shareholders Equity
As of June 30, 1997 the Company had one individual security which exceeded 10%
of Shareholders equity:
Colonial Realty 7.5%, 07/15/2001 $2,022,220
(4) Statutory Surplus
Statutory capital and surplus as of June 30, 1997 was $10,711,996. Statutory
net losses for CFLIC for the periods ended June 30, 1997 and 1996 were
$(331,478) and $(118,647), respectively.
COVA FINANCIAL
LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Financial Statements
December 31, 1996, 1995 and 1994
(With Independent Auditors Report Thereon)
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholder
Cova Financial Life Insurance Company:
We have audited the accompanying balance sheets of Cova Financial Life
Insurance Company (a wholly owned subsidiary of Cova Financial Services Life
Insurance Company) as of December 31, 1996 and 1995 and the related statements
of income, shareholders equity and cash flows for the year ended December 31,
1996 and the period from June 1, 1995 to December 31, 1995 (Successor
periods), and from January 1, 1995 to May 31, 1995, and for the year ended
December 31, 1994 (Predecessor periods). These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cova Financial Life Insurance
Company as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the Successor periods, in conformity with generally
accepted accounting principles. Also, in our opinion, the aforementioned
Predecessor financial statements present fairly, in all material respects, the
results of its operations and its cash flows for the Predecessor periods, in
conformity with generally accepted accounting principles.
St. Louis, Missouri
March 7, 1997
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Balance Sheets
December 31, 1996 and 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
ASSETS 1996
1995
<S> <C> <C>
Investments:
Debt securities available for sale at market
(cost of $71,257 in 1996 and $37,242 in 1995) $ 71,263 $ 38,092
Policy loans 1,048 1,063
Short-term investments available for sale at market
(cost of $44 in 1996 and $988 in 1995) 44 984
Total investments 72,355 40,139
Cash and cash equivalents - interest bearing 4,150 5,157
Cash - non-interest bearing 2,485 977
Accrued investment income 1,122 566
Deferred policy acquisition costs 3,321 1,164
Present value of future profits 1,178 576
Goodwill 2,034 2,306
Deferred tax asset (net) 1,115 1,007
Receivable from OakRe 92,238 127,335
Reinsurance receivables 51 458
Other assets 44 44
Separate account assets 18,880 3,451
Total Assets $198,973 $183,180
======== ========
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Balance Sheets, Continued
December 31, 1996 and 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS EQUITY 1996 1995
<S> <C> <C>
Policyholder deposits $154,566 $154,458
Future policy benefits 4,561 4,369
Accounts payable and other liabilities 1,794 1,116
Future purchase price payable to OakRe 683 1,265
Guaranty assessments 1,585 1,838
Separate account liabilities 18,880 3,451
Total Liabilities 182,069 166,497
Shareholders equity:
Common stock, $233 par value. (Authorized 30,000
shares; issued and outstanding 12,000 shares in
1996 and 1995) 2,800 2,800
Additional paid-in capital 13,523 13,523
Retained earnings 580 168
Net unrealized appreciation on securities, net of tax 1 192
Total Shareholders Equity 16,904 16,683
Total Liabilities and Shareholders Equity $198,973 $183,180
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Income
Years ended December 31, 1996, 1995, and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95
1994
<S> <C> <C> <C> <C>
Revenues:
Premiums $ 488 $ 142 $ 82 $ 1,335
Net investment income 4,176 1,419 5,271 15,101
Net realized gain (loss) on sale of
investments (28) 118 (272) 318
Separate account charges 134 10 -- --
Other income/(expense) 35 (7) 57 138
Total revenues 4,805 1,682 5,138 16,892
Benefits and expenses:
Interest on policyholder deposits 2,563 788 5,034 13,361
Current and future policy benefits 722 115 178 1,452
Operating and other expenses 570 309 814 1,384
Amortization of purchase intangible assets 66 157 -- --
Amortization of deferred acquisition costs 187 5 522 6,979
Total benefits and expenses 4,108 1,374 6,548 23,176
Income/(loss) before income taxes 697 308 (1,410) (6,284)
Income tax:
Current 351 -- (362) (80)
Deferred (66) 140 (201) (2,050)
Total income tax expense/(benefit) 285 140 (563) (2,130)
Net Income/(Loss) $ 412 $ 168 $ (847) $(4,154)
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Shareholders Equity
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Common stock ($233 par value in 1996 and
12/31/95, $50 par value for 5 mos. ended
5/31/95, 1994 & 1993; authorized 30,000
shares;issued and outstanding 12,000
shares in 1996, 1995 & 1994)
Balance at beginning of period $ 2,800 $ 2,800 $ 600 $ 600
Par value adjustment -- -- 2,200 __
Balance at end of period 2,800 2,800 2,800 600
Additional paid-in capital:
Balance at beginning of period 13,523 18,093 17,200 8,200
Adjustment to reflect purchase acquisition indicated in note 2
-- (7,570) -- --
Par value adjustment -- (2,200)
Capital contribution -- 3,000 3,093 9,000
Balance at end of period 13,523 13,523 18,093 17,200
Retained earnings:
Balance at beginning of period 168 209 4,045 8,199
Adjustment to reflect purchase acquisition indicated in note 2 --
(209) -- --
Net income/(loss) 412 168 (847) (4,154)
Adjustment due to financial reinsurance
transaction with OakRe - (2,989)
Balance at end of period $ 580 $ 168 $ 209 $ 4,045
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Shareholders Equity, Continued
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Net unrealized appreciation/(depreciation) of
securities:
Balance at beginning of period $ 192 $(3,789) ($11,316) --
Adjustment to reflect purchase acquisition indicated in note 2
-- 3,789 -- --
Implementation of change in accounting for
marketable debt and equity securities, net of
effects of deferred taxes of $735 and
deferred acquisition costs of $1,719 -- -- -- $ 1,366
Change in unrealized appreciation/(depreciation)
of debt and equity securities (840) 846 15,151 (29,570)
Change in deferred Federal income taxes 103 (104) (4,053) 6,829
Change in deferred acquisition costs
attributable to unrealized losses/(gains) (69) -- (3,571) 10,059
Change in present value of future profits
attributable to unrealized losses/(gains) 615 (550) -- --
Balance at end of period 1 192 (3,789) (11,316)
Total Shareholders Equity $16,904 $16,683 $ 17,313 $ 10,529
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Interest and dividend receipts $ 3,676 $ 934 $ 7,283 $ 15,690
Premiums received 509 154 90 1,357
Insurance and annuity benefit payments (580) (339) (252) (552)
Operating disbursements (768) (490) (1,038) (1,482)
Taxes on income refunded (paid) (341) -- 1,975 (856)
Commissions and acquisition costs paid (2,413) (1,169) (542) (1,262)
Other (183) 360 6,299 200
Net cash provided by/(used in) operating (100) (550) 13,815 13,095
activities
Cash flows from investing activities:
Cash used for the purchase of investment (42,655) (52,399) (935) (69,199)
securities
Proceeds from investment securities sold 10,635 14,399 151,204 115,994
and matured
Investment expenses (90) (57) (97) (320)
Net cash provided by/(used in) investing
activities $(32,110) $(38,057) $150,172 $ 46,475
---------
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows, Continued
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95
1994
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Policyholder deposits $ 38,348 $ 12,442 $ 5,614 $ 11,796
Transfers from/(to) OakRe 36,553 33,579 (171,081) --
Transfer to Separate Accounts (13,669) (3,312) -- --
Return of policyholder deposits (28,521) (26,897) (15,531) (43,377)
Capital contributions received -- 3,000 3,093 2,500
Net cash provided by/(used in) financing
activities 32,711 18,812 (177,905) (29,081)
Increase/(decrease) in cash and cash
equivalents 501 (19,795) (13,918) 30,489
Cash and cash equivalents at beginning of 6,134 25,929 39,847 9,358
period
Cash and cash equivalents at end of period $ 6,635 $ 6,134 $ 25,929 $ 39,847
</TABLE>
See accompanying notes to financial statements.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Statements of Cash Flows, Continued
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95 1994
<S> <C> <C> <C> <C>
Reconciliation of net income/(loss) to net cash provided by operating activities:
Net income/(loss) $ 412 $ 168 $ (847) $(4,154)
Adjustments to reconcile net income/(loss)
to net cash provided by operating
activities:
Increase/(decrease)in future policy
benefits (net of reinsurance) 192 (201) (52) 911
Increase/(decrease) in payables and
accrued liabilities 95 161 (252) 126
Decrease/(increase) in accrued investment
income (556) (525) 1,766 636
Amortization of intangible assets and 254 162 522 6,979
deferred acquisition costs
Amortization and accretion of securities
premiums and discounts 73 (9) 32 (369)
Net realized (gain)/loss on sale of
investments 28 (118) 272 (318)
Interest accumulated on policyholder
deposits 2,563 788 5,034 13,361
Investment expenses paid 90 57 97 320
Increase/(decrease) in current and deferred
Federal income taxes (66) 140 1,412 (2,986)
Recapture commissions paid to OakRe (273) (223) -- --
Deferral of acquisition costs (2,413) (1,169) (542) (1,262)
Due to/from affiliates 44 27 6,470 --
Other (543) 192 (97) (149)
Net cash provided by operating activities $ (100) $ (550) $13,815 $13,095
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(1) NATURE OF BUSINESS AND ORGANIZATION
NATURE OF THE BUSINESS
Cova Financial Life Insurance Company (the Company), formerly Xerox Financial
Life Insurance Company (the Predecessor), markets and services single premium
deferred annuities, immediate annuities, variable annuities, and single
premium whole-life insurance policies. The Company is licensed to do business
in the state of California. Most of the policies issued present no
significant mortality nor longevity risk to the Company, but rather represent
investment deposits by the policyholders. Life insurance policies provide
policy beneficiaries with mortality benefits amounting to a multiple, which
declines with age, of the original premium.
Under the deferred annuity contracts, interest rates credited to policyholder
deposits are guaranteed by the Company for periods from one to ten years, but
in no case may renewal rates be less than 3%. The Company may assess
surrender fees against amounts withdrawn prior to scheduled rate reset and
adjust account values based on current crediting rates. Policyholders also
may incur certain Federal income tax penalties on withdrawals.
Although the Company markets its products through numerous distributors,
including regional brokerage firms, national brokerage firms and banks,
approximately 81%, 71% and 47% of the Companys sales have been through two
specific brokerage firms, A.G. Edwards & Sons, Incorporated, and Edward Jones
& Company, Incorporated, in 1996, 1995 and 1994, respectively.
ORGANIZATION
The Company is a wholly owned subsidiary of Cova Financial Services Life
Insurance Company (CFSLIC). On December 31, 1996, Cova Corporation, an
insurance holding company wholly owned by General American Life Insurance
Company (GALIC), transferred 100% of the outstanding shares of the Company to
CFSLIC, an affiliated life insurer domiciled in Missouri. The transfer of
direct ownership had no effect on the operations of the Company as both CFSLIC
and the Company had existed under common management and control prior to the
transfer.
Prior to June 1, 1995 Xerox Financial Services , Inc. (XFSI) owned 100% of the
shares of the Predecessor. XFSI is a wholly owned subsidiary of Xerox
Corporation.
On June 1, 1995 XFSI sold 100% of the issued and outstanding shares of the
Predecessor to Cova Corporation in exchange for approximately $13.3 million
in cash and $1.1 million in future payables. In conjunction with this
Agreement, the Predecessor also entered into a financing reinsurance
transaction that caused OakRe Life Insurance Company(OakRe), an affiliate of
the Predecessor, to assume the economic benefits and risks of the single
premium deferred annuity deposits (SPDAs) which had an aggregate carrying
value at June 1, 1995 of $159.0 million. In exchange, the Predecessor
transferred specifically identified assets to OakRe with a market value at
June 1, 1995 of $162.0 million. Ownership of OakRe was retained by XFSI
subsequent to the sale of the Predecessor and other affiliates. The
Receivable from OakRe to the Company that was created by this transaction will
be liquidated over the remaining crediting rate guaranty periods (which will
be substantially expired by the year 2000) by the transfer of cash in the
amount of the then current account value, less a recapture commission fee to
OakRe on policies retained beyond their 30-day no-fee surrender window by the
Company, upon the next crediting rate reset date of each annuity policy. The
Company may then reinvest that cash for those policies that are retained and
thereafter assume the benefits and risks of those deposits.
In the event that both OakRe and XFSI default on the receivable, the Company
may draw funds from a standby bank irrevocable letter of credit established by
XFSI in the amount of $500 million. No funds were drawn on this letter of
credit during the periods ending December 31, 1996 and 1995.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
In substance, terms of the agreement have allowed the seller, XFSI, to retain
substantially all of the existing financial benefits and risks of the existing
business, while the purchaser, GALIC, obtained the corporate operating and
product licenses, marketing and administrative capabilities of the Company,
and access to the retention of the policyholder deposit base that persists
beyond the next crediting rate reset date.
(2) CHANGE IN ACCOUNTING
Upon closing of the sale, the Company restated its financial statements in
accordance with "push down purchase accounting", which allocates the net
purchase price of $13.3 million according to the fair values of the acquired
assets and liabilities, including the estimated present value of future
profits. These allocated values were dependent upon policies in force and
market conditions at the time of closing, however, these allocations were not
finalized until 1996. The table below summarizes the final allocation of
purchase price.
<TABLE>
<CAPTION>
(In Millions)
<S> <C>
Assets acquired:
Policy loans $ 0.9
Cash and cash equivalents 25.9
Short term investment 0.1
Present value of future profits 1.1
Goodwill 2.2
Deferred tax benefit 1.5
Reinsurance receivable 156.3
Other assets 0.1
--------
$ 188.1
Liabilities assumed:
Policyholder deposits $ 168.7
Future policy benefits 4.5
Future purchase price payable 1.1
Deferred income taxes 0.2
Other liabilities 0.3
$ 174.8
--------
Adjusted purchase price $ 13.3
========
</TABLE>
In addition to revaluing all material tangible assets and liabilities to their
respective estimated market values as of the closing date of the sale, the
Company also recorded in its financial statements the excess of cost over fair
value of net assets acquired (goodwill) as well as the present value of future
profits to be derived from the purchased and reinsured business. These amounts
were determined in accordance with the purchase method of accounting. This new
basis of accounting resulted in a reduction in shareholders equity of
approximately $4.0 million in 1995 reflecting the application of push down
purchase accounting. The Companys financial statements subsequent to June 1,
1995 reflect this new basis of accounting.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
All amounts for periods ended before June 1, 1995 are labeled Predecessor and
are based on Predecessor historical costs. The periods ending on or after
such date are labeled The Company and are based on the new cost basis of the
Company or fair values at June 1, 1995 and the subsequent results of
operations.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Investments in all debt securities and short term investments and those equity
securities with readily determinable market values are classified into one of
three categories: held-to-maturity, trading, or available-for-sale.
Classification of investments is based on management's current intent. All
debt securities and short term investments at December 31, 1996 and 1995 were
classified as available-for-sale. Securities available-for-sale are carried at
market value, with unrealized holding gains and losses reported as a separate
component of shareholders equity, net of deferred effects of income tax and
related effects on deferred acquisition costs and present value of future
profits.
Amortization of the discount or premium from the purchase of mortgage-backed
bonds is recognized using a level-yield method which considers the estimated
timing and amount of prepayments of the underlying mortgage loans. Actual
prepayment experience is periodically reviewed and effective yields are
recalculated when differences arise between the prepayments previously
anticipated and the actual prepayments received and currently anticipated.
When such a difference occurs, the net investment in the mortgage-backed bond
is adjusted to the amount that would have existed had the new effective yield
been applied since the acquisition of the bond, with a corresponding charge or
credit to interest income (the "retrospective method").
Investment income is recorded when earned. Realized capital gains and losses
on the sale of investments are determined on the basis of specific costs of
investments and are credited or charged to income.
A realized loss is recognized and charged against income if the Company's
carrying value in a particular investment in the available-for-sale category
has experienced a significant decline in market value that is deemed to be
other than temporary.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include currency and demand deposits in banks, US
Treasury bills, money market accounts, and commercial paper with maturities
under 90 days, which are not otherwise restricted.
SEPARATE ACCOUNT ASSETS
Separate accounts contain segregated assets of the Company that are
specifically assigned to variable annuity policyholders in the separate
accounts and are not available to other creditors of the Company. The
earnings of separate account investments are also assigned to the
policyholders in the separate accounts, and are not guaranteed or supported by
the other general investments of the Company. The Company earns mortality and
expense risk fees from the separate accounts and assesses withdrawal charges
in the event of early withdrawals. Separate accounts assets are valued at
fair market value.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business which vary with and are directly related
to the production of new business, principally commissions, premium taxes,
sales costs, and certain policy issuance and underwriting costs, are deferred.
These deferred costs are amortized in proportion to estimated future gross
profits derived from investment income, realized gains and losses on sales of
securities, unrealized securities gains and losses, interest credited to
accounts, surrender fees, mortality costs, and policy maintenance expenses.
The estimated gross profit streams are periodically reevaluated and the
unamortized balance of deferred acquisition costs is adjusted to the amount
that would have existed had the actual experience and revised estimates been
known and applied from the inception of the policies and contracts. The
amortization and adjustments resulting from unrealized gains and losses is not
recognized currently in income but as an offset to the unrealized gains and
losses reflected as a separate component of equity.
The components of deferred policy acquistion costs are shown below:
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
(In thousands) 1996 12/31/95 5/31/95
1994
<S> <C> <C> <C> <C>
Deferred policy acquisition costs,
beginning of period $1,164 $ 6,167 $ 9,718 $ 7,095
Effects of push down purchase
accounting -- (6,167) -- --
Commissions and expenses deferred 2,413 1,169 542 1,262
Amortization (187) (5) (522) (6,979)
Deferred policy acquisition costs
attributable to unrealized
gains/(losses) (69) -- (3,571) 8,340
Deferred policy acquistion costs,
end of period $3,321 $ 1,164 $ 6,167 $ 9,718
======= ========
</TABLE>
PURCHASE RELATED INTANGIBLE ASSETS AND LIABILITIES
In accordance with the purchase method of accounting for business
combinations, two intangible assets and a future payable related to accrued
purchase price consideration were established as of the purchase date:
PRESENT VALUE OF FUTURE PROFITS
As of June 1, 1995 the Company established an intangible asset which
represents the present value of future profits to be derived from both the
purchased and transferred blocks of business. Certain estimates were utilized
in the computation of this asset including estimates of future policy
retention, investment income, interest credited to policyholders, surrender
fees, mortality costs, and policy maintenance costs discounted at a pre-tax
rate of 18% (12% net after-tax).
In addition, as the Company has the option of retaining its SPDA policies
after they reach their next interest rate reset date and are recaptured from
OakRe, a component of this asset represents estimates of future profits on
recaptured business. This asset will be amortized in proportion to estimated
future gross profits derived from investment income, realized gains and losses
on sales of securities, unrealized securities gains and losses, interest
credited to accounts, surrender fees, mortality costs, and policy maintenance
(continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
expenses. The estimated gross profit streams are periodically reevaluated and
the unamortized balance of present value of future profits will be adjusted to
the amount that would have existed had the actual experience and revised
estimates been known and applied from the inception. The amortization and
adjustments resulting from unrealized gains and losses is not recognized
currently in income but as an offset to the unrealized gains and losses
reflected as a separate component of equity. The amortization period is the
remaining life of the policies, which is approximately 20 years from the date
of original policy issue.
Based on current assumptions, amortization of the original in-force PVFP
asset, expressed as a percentage of the original in-force asset, is projected
to be 8.4%, 6.2%, 4.8%, 4.0% and 3.4% for the years ended December 31, 1997
through 2001, respectively. Actual amortization incurred during these years
may be more or less as assumptions are modified to incorporate actual results.
During 1996, the Company adjusted its original purchase accounting to include
a revised estimate of the ultimate renewal (recapture) rate. This adjustment
resulted in a re-allocation of the net purchased intangible asset between
present value of future profits, goodwill, future payable and deferred taxes.
This final allocation and the resulting impact on inception to date
amortization was recorded, in its entirety, in 1996. No restatement of the
June 1, 1995 opening Balance Sheet was made.
The components of present value of future profits are shown below:
<TABLE>
<CAPTION>
The Company
7
Months
Ended
(In Thousands) 1996
12/31/95
<S> <C> <C>
Present value of future profits - beginning of period $ 576 $1,233
Interest added 74 56
Gross amortization 4 (163)
Adjustment due to revised push down purchase accounting (91) --
Present value of future profit attributable to
unrealized losses/(gains) 615 (550)
------- -------
Present value of future profits - end of period $1,178 $ 576
</TABLE>
FUTURE PAYABLE
Pursuant to the financial reinsurance agreement, the receivable from OakRe
becomes due in installments when the SPDA policies reach their next crediting
rate reset date. For any recaptured policies that continue in force with
OakRe into the next guarantee period, the Company will pay a commission to
OakRe of 1.75% up to 40% of policy account values originally reinsured and
3.5% thereafter. On policies that are recaptured and subsequently exchanged to
a variable annuity policy, the Company will pay commission to OakRe of 0.50%.
The Company has recorded a future payable that represents the present value of
the anticipated future commission payments payable to OakRe over the remaining
life of the financial reinsurance agreement discounted at an estimated
borrowing rate of 6.5%. This liability represents a contingent purchase price
payable for the policies transferred to OakRe on the purchase date and has
been pushed down to the Company through the financial reinsurance agreement.
The Company expects that this payable will be substantially extinguished by
the year 2000.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The components of this future payable are shown below:
<TABLE>
<CAPTION>
The Company
7
Months
Ended
(In Thousands) 1996
12/31/95
<S> <C> <C>
Future payable - beginning of period $1,265 $1,438
Interest added 39 50
Payments to OakRe (273) (223)
Adjustment due to revised push down purchase accounting (348) --
Future payable - end of period $ 683 $1,265
======= =======
</TABLE>
GOODWILL
Under the push down method of purchase accounting, the excess of purchase
price over the fair value of tangible and intangible assets and liabilities
acquired is established as an asset and referred to as Goodwill. The Company
has elected to amortize goodwill on the straight line basis over a 20 year
period.
The components of Goodwill are shown below:
<TABLE>
<CAPTION>
<S> <C> <C>
(In Thousands) The Company
--------------------
7 Months Ended
1996 12/31/95
----------------
Goodwill - beginning of period $ 2,306 $ 2,375
Amortization (105) (69)
Adjustment due to revised push down purchase accounting
(167) --
Goodwill - end of period $ 2,034 $ 2,306
</TABLE>
DEFERRED TAX ASSETS AND LIABILITIES
XFSI and GALIC agreed to file an election to treat the acquisition of the
Company as an asset acquisition under the provisions of Internal Revenue Code
Section 338(h)(10). As a result of that election, the tax basis of the
Companys assets as of the date of acquisition were revalued based upon fair
market values as of June 1, 1995. The principal effect of the election was to
establish a tax asset on the tax-basis balance sheet of approximately $2.9
million for the value of the business acquired that is amortizable for tax
purposes over ten to fifteen years.
POLICYHOLDER DEPOSITS
The Company recognizes its liability for policy amounts that are not subject
to policyholder mortality nor longevity risk at the stated contract value,
which is the sum of the original deposit and accumulated interest, less any
withdrawals. The average weighted interest crediting rate on the Companys
policyholder deposits as of December 31, 1996 was 5.77%.
(Continued)
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
FUTURE POLICY BENEFITS
Reserves are held for future annuity benefits that subject the Company to
risks to make payments contingent upon the continued survival of an individual
or couple (longevity risk). These reserves are valued at the present value of
estimated future benefits discounted for interest, expenses, and mortality.
The assumed mortality is the 1983 Individual Annuity Mortality Tables
discounted at 5.50% to 8.50%, depending upon year of issue.
Current mortality benefits payable are recorded for reported claims and
estimates of amounts incurred but not reported.
PREMIUM REVENUE
The Company recognizes premium revenue at the time of issue on annuity
policies that subject it to longevity risks.
The Company currently assesses no explicit life insurance premium for its
commitment to make payments in excess of its recorded liability that are
contingent upon policyholder mortality. Benefits paid in excess of the
recorded liability are recognized when incurred as the amounts are not
material to the financial statements.
Amounts collected on policies not subject to any mortality or longevity risk
are recorded as increases in the policyholder deposits liability.
FEDERAL INCOME TAXES
Prior to June 1,1995 the revenues and expenses of the Predecessor were
included in a consolidated Federal income tax return with its parent company
and other affiliates. Allocations of Federal income taxes were based upon
separate return calculations.
Subsequent to June 1, 1995 the Company files its own separate income tax
return, independent from its ultimate parent, GALIC.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income to the period that includes
the enactment date.
RISKS AND UNCERTAINTIES
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
The following elements of the financial statements are most affected by the
use of estimates and assumptions:
- Investment market valuation
- Amortization of deferred policy acquisition costs
- Amortization of present value of future profits
- Recoverability of Goodwill
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The market value of the Company's investments is subject to the risk that
interest rates will change and cause a temporary increase or decrease in the
liquidation value of debt securities. To the extent that fluctuations in
interest rates cause the cash flows of assets and liabilities to change, the
Company might have to liquidate assets prior to their maturity and recognize a
gain or loss. Interest rate exposure for the investment portfolio is managed
through asset/liability management techniques which attempt to control the
risks presented by differences in the probable cash flows and reinvestment of
assets with the timing of crediting rate changes in the Company's policies and
contracts. Changes in the estimated prepayments of mortgage-backed securities
also may cause retrospective changes in the amortization period of securities
and the related recognition of income.
The amortization of deferred acquisition costs is based on estimates of
long-term future gross profits from existing policies. These gross profits
are dependent upon policy retention and lapses, the spread between investment
earnings and crediting rates, and the level of maintenance expenses. Changes
in circumstances or estimates may cause retrospective adjustment to the
periodic amortization expense and the carrying value of the deferred expense.
In a similar manner, the amortization of present value of future profits is
based on estimates of long-term future profits from existing and recaptured
policies. These gross profits are dependent upon policy retention and lapses,
the spread between investment earnings and crediting rates, and the level of
maintenance expenses. Changes in circumstances or estimates may cause
retrospective adjustment to the periodic amortization expense and the carrying
value of the asset.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets
to be Disposed of (SFAS #121), which was adopted by the Company in the fourth
quarter of 1995, the Company has considered the recoverability of Goodwill and
has concluded that no circumstances have occurred which would give rise to
impairment of Goodwill for the period ending December 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS #107) applies fair value disclosure
practices with regard to financial instruments, both assets and liabilities,
for which it is practical to estimate fair value. In cases where quoted
market prices are not readily available, fair values are based on estimates
that use present value or other valuation techniques.
These techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. Although fair value
estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, might
not be realized in the immediate settlement of the instruments. SFAS #107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Because of this, and further because a value of
a business is also based upon its anticipated earning power, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS
AND ACCRUED INVESTMENT INCOME:
The carrying values amounts reported in the balance sheets for these
instruments approximate their fair values. Short-term debt securities are
considered "available for sale" and are carried at fair value.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES):
Fair values for debt securities are based on quoted market prices, where
available. For debt securities not actively traded, fair value estimates are
obtained from independent pricing services. In some cases, such as private
placements and certain mortgage-backed securities, fair values are estimated
by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the investments. (See
note 4 for fair value disclosures).
INVESTMENT CONTRACTS:
The Company's policy contracts require the beneficiaries to commence receipt
of payments by the later of age 85 or 10 years after purchase, and
substantially all permit earlier surrenders, generally subject to fees and
adjustments. Fair values for the Company's liabilities for investment type
contracts (Policyholder Deposits) are estimated as the amount payable on
demand. As of December 31, 1996 and 1995 the cash surrender value of
policyholder funds on deposit were $537,442 and $104,571, respectively, less
than their stated carrying value. Of the contracts permitting surrender, 90%
provide the option to surrender without fee or adjustment during the 30 days
following reset of guaranteed crediting rates. The Company has not determined
a practical method to determine the present value of this option.
All of the Company's deposit obligations are fully guaranteed by the acquirer,
GALIC, and the receivable from OakRe equal to the SPDA obligations is
guaranteed by OakRe's parent, XFSI.
REINSURANCE
The impact of reinsurance on the December 31, 1996 financial statements is not
considered material.
The financing reinsurance agreement entered into with OakRe does not meet the
conditions for reinsurance accounting under Generally Accepted Accounting
Principles (GAAP). The net assets initially transferred to OakRe were
established as a receivable and then are subsequently increased as interest is
accrued on the underlying liabilities and decreased as funds are transferred
back to the Company when policies reach their crediting rate reset date or
benefits are claimed.
OTHER
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
(4) INVESTMENTS
The Company's investments in debt securities and short term investments are
considered available for sale and carried at estimated fair value, with the
aggregate unrealized appreciation or depreciation being recorded as a separate
component of shareholders equity. The carrying value and amortized cost of
investments at December 31, 1996 and 1995 were as follows:
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
<TABLE>
<CAPTION>
1996
GROSS GROSS
ESTIMATED
CARRYING UNREALIZED UNREALIZED
FAIR AMORTIZED
VALUE GAINS LOSSES
VALUE COST (in
thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 101 $ 1 $ -- $ 101 $ 100
Collateralized mortgage obligations 20,143 81 (119) 20,143 20,181
Corporate, state, municipalities,
and political subdivisions 51,019 433 (390) 51,019 50,976
Total debt securities 71,263 515 (509) 71,263 71,257
Policy loans 1,048 -- -- 1,048 1,048
Short term investments 44 -- -- 44 44
Total investments $72,355 $515 $(509) $72,355 $72,349
</TABLE>
<TABLE>
<CAPTION>
1995
GROSS GROSS
ESTIMATED
CARRYING UNREALIZED UNREALIZED
FAIR AMORTIZED
VALUE GAINS LOSSES
VALUE COST
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Debt Securities:
US. Government Treasuries $ 104 $ 3 $ -- $ 104 $ 101
Collateralized mortgage obligations 13,377 237 $(14) 13,377 13,154
Corporate, state, municipalities, and
political subdivisions 24,611 624 -- 24,611 23,987
Total debt securities 38,092 864 (14) 38,092 37,242
Policy loans 1,063 -- -- 1,063 1,063
Short term investments 984 0 (4) 984 988
Total investments $40,139 $864 $(18) $40,139 $39,293
======= ==== ===== ======= =======
</TABLE>
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The amortized cost and estimated market value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Maturities of mortgage-backed securities will be substantially shorter than
their contractual maturity because they require monthly principal installments
and mortgagees may prepay principal.
<TABLE>
<CAPTION>
1996
ESTIMATED
AMORTIZED MARKET
COST VALUE
<S> <C> <C>
(in thousands of dollars)
Due after one year through five years $20,531 $20,572
Due after five years through ten years 28,019 28,010
Due after ten years 2,527 2,538
Mortgage-backed securities 20,180 20,143
Total $71,257 $71,263
<FN>
At December 31, 1996, approximately 95.3% of the Company's debt securities are
investment grade or are non-rated but considered to be of investment grade.
Of the 4.7% non-investment grade debt securities, all are rated as BB+ or its
equivalent.
All debt securities were income producing during the years ended December 31,
1996 and 1995. As of December 31, 1996 and 1995 the Company had no impaired
investments.
</TABLE>
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The components of net investment income, realized capital gains/(losses) and
unrealized gains/(losses)were as follows:
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5
MONTHS
ENDED
ENDED
1996 12/31/95
5/31/95 1994
(in thousands of
dollars)
<S> <C> <C> <C> <C>
Income on debt securities $3,926 $1,166 $ 4,075 $ 15,013
Income on short-term investments 243 257 1,261 349
Income on policy loans 86 46 29 57
Miscellaneous interest 8 -- -- 4
Total investment income 4,263 1,469 5,365 15,423
Investment expenses (87) (50) (94) (322)
Net investment income 4,176 1,419 5,271 15,101
Realized capital gains/(losses) were as
follows:
Debt securities (28) 118 (272) 320
Short-term investments -- -- -- (2)
Net realized gains/(losses) on
investments $ (28) $ 118 $ (272) $ 318
======= ========= =========
Unrealized gains/(losses) were as follows:
Debt securities 6 $ 850 $(10,594) $(25,749)
Short-term investments -- (4) 1 (1)
Effects on deferred acquisition costs
amortization (69) -- 4,767 8,340
Effects on present value of future
profits amortization 65 (550) -- --
Unrealized gains/(losses) before income tax 2 296 (5,826) (17,410)
Unrealized income tax benefit/(expense) (1) (104) 2,037 6,094
Net unrealized gains (losses) on
investments $ 1 $ 192 $ (3,789) $(11,316)
</TABLE>
Proceeds from sales, redemptions and paydowns of investments in debt
securities during 1996 were $10,635,608. Gross gains of $16,757 and gross
losses of $44,311 were realized on those sales. Included in these amounts were
$1,355 of gross gains realized on the sale of non-investment grade securities.
Proceeds from sales, redemptions and paydowns of investments in debt
securities for the Company during 1995 were $14,400,247 and for the
Predecessor were $148,796,033. Gross gains of $136,104 and gross losses of
$17,789 were realized by the Company on its sales. The Predecessor realized
gross gains of $23,293 and gross losses of $295,368 on its sales.
Proceeds from sales, redemptions and paydowns of investments in debt
securities during 1994 were $115,993,655. Gross gains of $1,671,736 and gross
losses of $1,351,406 were realized on those sales.
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
Unrealized appreciation/(depreciation) of debt securities for the Company in
1996 and 1995, and the Predecessor in 1995 and 1994 were $(844,000), $850,000,
$15,152,000, and $(29,644,000), respectively. Unrealized appreciation/
(depreciation) of debt securities is calculated as the change between the cost
and market values of debt securities for the years then ended.
(5) SECURITIES GREATER THAN 10% OF SHAREHOLDERS EQUITY
As of December 31, 1996 the Company held the following individual securities
which exceeded 10% of Shareholders equity:
<TABLE>
<CAPTION>
<S> <C>
Long-term Debt Carrying
Securities Value
- --------------- ----------
Colonial Realty $2,036,540
</TABLE>
As of December 31, 1995 the Company held the following individual securities
which exceeded 10% of Shareholders equity:
<TABLE>
<CAPTION>
<S> <C>
Long-term Debt Carrying
Securities Value
- ----------------------- ----------
North American Mortgage $1,954,398
</TABLE>
(6) POST-RETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company has no direct employees and no retired employees. All personnel
used to support the operations of the Company are supplied by contract by Cova
Life Management Company (CLMC), a wholly owned subsidiary of Cova Corporation.
The Company is allocated a portion of certain health care and life insurance
benefits for future retired employees of CLMC. In 1996 and 1995, the Company
was allocated a portion of benefit costs including severance pay, accumulated
vacations, and disability benefits. At December 31, 1996 CLMC had no retired
employees nor any employees fully eligible for retirement and had no
disbursements for such benefit commitments. The expense arising from these
obligations is not material.
(7) INCOME TAXES
The Company files its own Federal Income Tax return. Amounts payable or
recoverable related to periods before June 1, 1995 are subject to an
indemnification agreement with XFSI, which has the effect that the Company is
not at risk for any income taxes nor entitled to recoveries related to those
periods.
Income taxes are recorded in the statements of earnings and directly in
certain shareholders equity accounts. Income tax expense (benefit) for the
years ended December 31 was allocated as follows:
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
<TABLE>
<CAPTION>
THE COMPANY
PREDECESSOR
7 MONTHS 5 MONTHS
ENDED ENDED
1996 12/31/95 5/31/95
1994
(In thousands of
dollars)
<S> <C> <C> <C> <C>
Statements of income:
Operating income (excluded realized
investment gains and losses) $ 295 $194 $ (561) $(2,241)
Realized investment gains/(losses) (10) (54) (2) 111
Income tax expense/(benefit) included
in the statements of income 285 140 (563) (2,130)
Shareholders equity:
Unrealized gains/(losses) on securities
available for sale and intangible assets (103) 104 4,053 (6,829)
Total income tax expense/(benefit) $ 182 $244 $3,490 $(8,959)
</TABLE>
The actual Federal income tax expense differed from the expected tax expense
computed by applying the US. Federal statutory rate to income before taxes on
income as follows:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
1995 1995
1996 7 MONTHS 5 MONTHS
1994
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computed expected tax expense $244 35.0% $108 35.0% $(494) 35.0% $(2,200) 35.0%
Tax-exempt bond interest -- -- -- -- (70) 5.0 -- --
Amortization of intangible assets 37 5.3 25 8.2 -- -- -- --
Other 4 .6 7 2.3 1 (.1) 70 (1.0)
Total $285 40.9% $140 45.5% $(563) 39.9% $(2,130) 34.0%
==== ===== ====== ===== ======== =====
</TABLE>
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands of dollars)
<S> <C> <C>
Deferred tax assets:
Tax basis of intangible assets purchased $ 733 $1,009
Liability for commission on recapture 239 443
Policy reserves 972 143
DAC Proxy Tax 556 277
Other Deferred tax assets 6 81
Total assets $2,506 $1,953
Deferred tax liabilities:
Unrealized gains in investments $ 1 $ 104
PVFP 219 377
Deferred acquisition costs 1,162 407
Other deferred tax liabilities 9 58
Total liabilities 1,391 946
Net deferred tax asset $1,115 $1,007
======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
the deferred tax assets will be fully realized in the future based upon
consideration of the reversal of existing temporary differences, anticipated
future earnings, and all other available evidence. Accordingly, no valuation
allowance is established.
(8) RELATED-PARTY TRANSACTIONS
The Company has entered into management, operations and servicing agreements
with both affiliated and unaffiliated companies. The affiliated companies are
Cova Life Management Company (CLMC), a Delaware corporate, which provides
management services and the employees necessary to conduct the activities of
the Company, and General American Investment Management Company, which
provides investment advice. Additionally, a portion of overhead and other
corporate expenses are allocated by the Companys ultimate parent, GALIC. The
unaffiliated companies are Johnson & Higgins, a New Jersey corporation, and
Johnson & Higgins/Kirke Van Orsdel, Inc., a Delaware corporation, which
provide various services for the Company including underwriting, claims and
administrative functions. The affiliated and unaffiliated service providers
are reimbursed for the cost of their services and are paid a service fee.
Expenses and fees paid to affiliated companies in 1996 and the seven months of
1995 for the Company were $303,694 and $375,764, respectively, and by the
Predecessor in 1995 and 1994 were $334,979 and $674,136 respectively.
(9) STATUTORY SURPLUS AND DIVIDEND RESTRICTION
Generally accepted accounting principles (GAAP) differ in certain respects
from the accounting practices prescribed or permitted by insurance regulatory
authorities (statutory accounting principles).
(Continued)
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
The major differences arise principally from the immediate expense recognition
of policy acquisition costs and intangible assets for statutory reporting,
determination of policy reserves based on different discount rates and
methods, the recognition of deferred taxes under GAAP reporting, the
non-recognition of financial reinsurance for GAAP reporting, and the
establishment of an Asset Valuation Reserve as a contingent liability based on
the credit quality of the Company's investment securities and an Interest
Maintenance Reserve as an unearned liability to defer the realized gains and
losses of fixed income investments presumably resulting from changes to
interest rates and amortize them into income over the remaining life of the
investment sold. In addition, SFAS #115 adjustments to record the carrying
values of debt securities and certain equity securities at market are applied
only under GAAP reporting and capital contributions in the form of notes
receivable from an affiliated company are not recognized under GAAP reporting.
Purchase accounting creates another difference as it requires the restatement
of GAAP assets and liabilities to their established fair values, and
shareholders equity to the net purchase price. Statutory accounting does not
recognize the purchase method of accounting.
As of December 31, the differences between statutory capital and surplus and
shareholder's equity determined in conformity with generally accepted
accounting principles (GAAP) were as follows:
<TABLE>
<CAPTION>
1996 1995
(in thousands of dollars)
<S> <C> <C>
Statutory Capital and Surplus $11,176 $11,457
Reconciling items:
Statutory Asset Valuation Reserves 825 700
Interest Maintenance Reserve 34 69
GAAP investment adjustments to fair value 6 846
Deferred policy acquisition costs 3,321 1,164
GAAP basis policy reserves (2,101) (215)
Deferred federal income taxes (net) 1,115 1,007
Goodwill 2,034 2,306
Present value of future profits 1,178 576
Future purchase price payable (683) (1,265)
Other (1) 38
GAAP Shareholders Equity $16,904 $16,683
========
</TABLE>
Statutory net income (loss) for the years ended December 31, 1996, 1995 and
1994 were $(113,236), $(2,404,316) and $(13,042,271) respectively.
The maximum amount of dividends which can be paid by State of California
insurance companies to shareholders without prior approval of the insurance
commissioner is the greater of 10% of statutory surplus or statutory net gain
from operations for the preceding year. Accordingly, the maximum dividend
permissible during 1997 will be $837,581.
The National Association of Insurance Commissioners has developed certain Risk
Based Capital (RBC) requirements for life insurers. If prescribed levels of
RBC are not maintained, certain actions may be required on the part of the
Company or its regulators. At December 31, 1996 the Company's Total Adjusted
Capital and Authorized Control Level - RBC were, $12,001,030 and $1,360,234
respectively. This level of adjusted capital satisfies regulatory
requirements.
<PAGE>
COVA FINANCIAL LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Cova Financial Services Life Insurance Company)
Notes to Financial Statements
(10) GUARANTY FUND ASSESSMENTS
The Company participates with all life insurance companies licensed in
California in an association formed to guarantee benefits to policyholders of
insolvent life insurance companies. Under the state law, as a condition for
maintaining the Companys authority to issue new business, the Company is
contingently liable for its share of claims covered by the guaranty
association for insolvencies incurred through 1996, but for which assessments
have not yet been determined nor assessed, to a maximum generally of 1% of
statutory premiums per annum.
At December 31, 1996, the National Organization of Life and Health Guaranty
Associations (NOLHGA) distributed a study of the major outstanding industry
insolvencies, with estimates of future assessments by state. Based on this
study, the Company has accrued a liability for approximately $1.6 million in
future assessments on insolvencies that occurred before December 31, 1996.
Under the coinsurance agreement between the Company and OakRe (see note 1),
OakRe is required to reimburse the Company for any future assessments that it
pays which relate to insolvencies occurring prior to June 1, 1995. As such,
the Company has recorded an additional receivable from OakRe for $1.6 million.
At the same time, the Company is liable to OakRe for 80% of any future premium
tax recoveries that are realized from any such assessments and may retain the
IX. EXHIBITS
A. (1) Resolution of Board of directors of the Company authorizing the
Separate Account.*
(2) None.
(3) (a) Form of Principal Underwriter's Agreement
(b) Selling Agreement
(c) Schedules of sales commissions referred to in Item 38(c)
(4) None
(5) Modified Single Premium Life Insurance Policy*
(6) (a) Articles of Incorporation of the Company
(b) Bylaws of the Company
(7) Not Applicable
(8) Not Applicable
(9) None
(10) Form of application*
B. Furnish copies of each of the following:
(1) Not Applicable
(2) Not Applicable
C. Not Applicable
*Incorporated by reference to Form N-8B-2 filed electronically by Registrant on
October 9, 1997.
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940 the depositor
of the Registrant has caused this registration statement to be duly signed on
behalf of the Registrant in the City of Oakbrook Terrace and State of Illinois
on the 7th day of November, 1997.
[SEAL]
COVA VARIABLE LIFE ACCOUNT FIVE
By: COVA FINANCIAL LIFE INSURANCE COMPANY
__________________________________________
By: /s/Lorry J. Stensrud
______________________________
COVA FINANCIAL LIFE INSURANCE COMPANY
By: /s/Lorry J. Stensrud
______________________________
Attest:/s/ Judy M. Drew
________________________________
(Name)
Sr. Vice President
________________________________
(Title)
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between COVA FINANCIAL LIFE INSURANCE COMPANY
("INSURANCE COMPANY") on behalf of COVA VARIABLE LIFE ACCOUNT FIVE (the
"Variable Account") and COVA LIFE SALES COMPANY ("PRINCIPAL UNDERWRITER") as
follows:
I
INSURANCE COMPANY proposes to issue and sell certain modified single
premium variable life insurance policies (collectively the "Policies") of the
Variable Account to the public through PRINCIPAL UNDERWRITER. The PRINCIPAL
UNDERWRITER agrees to provide sales service subject to the terms and conditions
hereof. The Policies to be sold are more fully described in the registration
statements and prospectuses hereinafter mentioned. Such Policies will be issued
by INSURANCE COMPANY through the Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right, during
the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the provisions
of the Securities Exchange Act of 1934, to be the distributor of the Policies
issued through the Variable Account. PRINCIPAL UNDERWRITER will sell the
Policies under such terms as set by INSURANCE COMPANY and will make such sales
to purchasers permitted to buy such Policies as specified in the prospectus.
III
PRINCIPAL UNDERWRITER shall be compensated for its distribution service in
such amount as to meet all of its obligations to selling broker-dealers with
respect to all Premium Payments accepted by INSURANCE COMPANY on the Policies
covered hereby.
IV
On behalf of the Variable Account, INSURANCE COMPANY shall furnish
PRINCIPAL UNDERWRITER with copies of all prospectuses, financial statements and
other documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Policies. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current effective
prospectuses as PRINCIPAL UNDERWRITER shall request.
V
PRINCIPAL UNDERWRITER is not authorized to give any information, or to make
any representations concerning the Policies or the Variable Account of
INSURANCE COMPANY other than those contained in the current registration
statements or prospectuses relating to the Variable Account filed with the
Securities and Exchange Commission or such sales literature as may be authorized
by INSURANCE COMPANY.
VI
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VII
This Agreement shall be effective upon the execution hereof and will remain
in effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
This Agreement may at any time be terminated by either party hereto upon 60
days' written notice to the other party.
VIII
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been given on the date of
service if served personally on the party to whom notice is to be given, or on
the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their respective officers thereunto duly authorized.
EXECUTED THIS ____ day of ______, 19__.
INSURANCE COMPANY
COVA FINANCIAL LIFE
INSURANCE COMPANY
BY:___________________________
ATTEST:____________________
Secretary
PRINCIPAL UNDERWRITER
COVA LIFE SALES COMPANY
BY:__________________________
ATTEST:____________________
Secretary
SELLING AGREEMENT
Agreement dated as of ___________________, 19____, by and among COVA
FINANCIAL LIFE INSURANCE COMPANY, a California corporation ("Life Company");
COVA LIFE SALES COMPANY, a Delaware corporation ("Distributor");
________________________, ("Broker-Dealer") and __________________________,
("Insurance Agent").
RECITALS
A. Pursuant to a distribution agreement with Distributor, Life Company has
appointed Distributor as the principal underwriter of the variable annuity
contracts identified in Schedule 1 to this Agreement at the time that this
Agreement is executed, and such other variable annuity contracts or variable
life insurance contracts that may be added to Schedule 1 from time-to-time in
accordance with Section 2(f) of this Agreement. Such contracts together with any
fixed annuity contracts shown on Schedule 1 shall be referred to herein as
"Contracts".
B. The parties to this Agreement desire that Broker-Dealer and Insurance Agent
be authorized to solicit applications for the sale of the Contracts to the
general public subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual promises and
covenants hereinafter set forth, the parties agree as follows:
1. ADDITIONAL DEFINITIONS
(a) Affiliate - With respect to a person, any other person controlling,
controlled by, or under common control with, such person.
(b) Agent - An individual associated with Insurance Agent and Broker-Dealer
who is appointed by Life Company as an agent for the purpose of soliciting
applications.
(c) NASD - The National Association of Securities Dealers, Inc.
(d) 1933 Act - The Securities Act of 1933, as amended.
(e) 1934 Act - The Securities and Exchange Act of 1934, as amended.
(f) 1940 Act - The Investment Company Act of 1940, as amended.
(g) Premium - A payment made under a Contract to purchase benefits under
such Contract.
(h) Prospectus - With respect to each Contract, the prospectus for such
Contract included within the Registration Statement for such Contract; provided,
however, that, if the most recently filed prospectus, filed pursuant to Rule 497
under the 1933 Act subsequent to the date on which the Registration Statement
became effective differs from the prospectus on file at the time the
Registration Statement became effective, the term "Prospectus" shall refer to
the most recently filed prospectus filed under Rule 497 from and after the date
on which it shall have been filed.
(i) Registration Statement - With respect to each Contract, the most recent
effective registration statement(s) filed with the SEC or the most recent
effective post-effective amendment(s) thereto with respect to such Contract,
including financial statements included therein and all exhibits thereto. There
may be more than one Registration Statement in effect at the time for a
Contract; in such case, any reference to "the Registration Statement" for a
Contract shall refer to any or all, depending on the context, of the
Registration Statements for such Contract.
(j) SEC - The Securities and Exchange Commission.
(k) Service Center - Policy Service office:
(i) Fixed Products: P.O. Box 295, Des Moines, IA 50301
(ii) Variable Products: P.O. Box 10366, Des Moines, IA 50306
(iii)Express Mail Only: 1776 West Lakes Parkway, West Des Moines, IA
50266
2. AUTHORIZATION OF BROKER-DEALER AND INSURANCE AGENT
(a) Distributor hereby authorizes Broker-Dealer under the securities laws,
and Life Company hereby authorizes and appoints Insurance Agent under the
insurance laws, each in a non-exclusive capacity, to distribute the Contracts.
Broker-Dealer and Insurance Agent accept such authorization and appointment and
shall use their best efforts to find purchasers for the Contracts, in each case
acceptable to Life Company.
(b) Life Company shall notify Broker-Dealer and Insurance Agent in writing
of all states and jurisdictions in which Life Company is licensed to sell the
Contracts. Broker-Dealer and Insurance Agent acknowledge that no territory is
exclusively assigned hereunder, and Life Company reserves the right in its sole
discretion to establish or appoint one or more agencies in any jurisdiction in
which Insurance Agent transacts business hereunder.
(c) Insurance Agent is vested under this Agreement with power and authority
to select and recommend individuals associated with Insurance Agent for
appointment as Agents of Life Company, and only individuals so recommended by
Insurance Agent shall become Agents, provided that Life Company reserves the
right in its sole discretion to refuse to appoint any proposed agent or, once
appointed, to terminate the same at any time with or without cause.
(d) Neither Broker-Dealer nor Insurance Agent shall expend or contract for
the expenditure of the funds of Life Company. Broker-Dealer and Insurance Agent
each shall pay all expenses incurred by each of them in the performance of this
Agreement, unless otherwise specifically provided for in this Agreement or
unless Life Company and Distributor shall have agreed in advance in writing to
share the cost of certain expenses. Initial and renewal state appointment fees
for Insurance Agent and appointees of Insurance Agent as Agents of Life Company
will be paid by Life Company according to the terms set forth in the rules and
regulations as may be adopted by Life Company from time-to-time. Neither
Broker-Dealer nor Insurance Agent shall possess or exercise any authority on
behalf of Distributor or Life Company other than that expressly conferred on
Broker-Dealer or Insurance Agent by this Agreement. In particular, and without
limiting the foregoing, neither Broker-Dealer nor Insurance Agent shall have any
authority, nor shall either grant such authority to any Agent, on behalf of
Distributor or Life Company: to make, alter or discharge any Contract or other
contract entered into pursuant to a Contract; to waive any Contract forfeiture
provision; to extend the time of paying any Premiums; or to receive any monies
or Premiums from applicants for or purchasers of the Contracts (except for the
sole purpose of forwarding monies or Premiums to Life Company).
(e) Broker-Dealer and Insurance Agent acknowledge that Life Company has the
right in its sole discretion to reject any applications or Premiums received by
it and to return or refund to an applicant such applicant's Premium.
(f) Schedule 1 to this Agreement may be amended by Distributor and Life
Company in their sole discretion from time-to-time to include other variable
annuity contracts, fixed annuity contracts, or variable life insurance
contracts, or to delete contracts from the Schedule.
(g) Distributor and Life Company acknowledge that Broker-Dealer and
Insurance Agent are each an independent contractor. Accordingly, Broker-Dealer
and Insurance Agent are not obliged or expected to give full time and energies
to the performance of their obligations hereunder, nor are Broker-Dealer and
Insurance Agent obliged or expected to represent Distributor or Life Company
exclusively. Nothing herein contained shall constitute Broker-Dealer, Insurance
Agent, the Agents or any agents or representatives of Broker-Dealer or Insurance
Agent as employees of Distributor or Life Company in connection with
solicitation of applications for the Contracts.
3. LICENSING AND REGISTRATION OF BROKER-DEALER, INSURANCE AGENT AND AGENTS
(a) Broker-Dealer represents and warrants that it is a Broker-Dealer
registered with the SEC under the 1934 Act, and is a member of the NASD in good
standing. Broker-Dealer must, at all times when performing its functions and
fulfilling its obligations under this Agreement, be duly registered as a
Broker-Dealer under the 1934 Act and as required by applicable law, in each
state or other jurisdiction in which Broker-Dealer intends to perform its
functions and fulfill its obligations hereunder.
(b) Insurance Agent represents and warrants that it is a licensed life
insurance agent where required to solicit applications. Insurance Agent must, at
all times when performing its functions and fulfilling its obligations under
this Agreement, be duly licensed to sell the Contracts in each state or other
jurisdiction in which insurance Agent intends to perform its functions and
fulfill its obligations hereunder.
(c) Broker-Dealer shall ensure that no individual shall offer or sell the
Contracts on its behalf in any state or other jurisdiction in which the
Contracts may lawfully be sold unless such individual is an associated person of
Broker-Dealer (as that term is defined in Section 3(a)(18) of the 1934 Act) and
duly registered with the NASD and any applicable state securities regulatory
authority as a registered person of Broker-Dealer qualified to distribute the
Contracts in such state o jurisdiction. Broker-Dealer shall be solely
responsible for the background investigations of the Agents to determine their
qualifications and will provide Life Company upon request with copies of such
investigations.
(d) Insurance Agent shall ensure that no individual shall offer or sell the
Contracts on behalf of Insurance Agent in any state or other jurisdiction unless
such individual is duly affiliated as an agent of Insurance Agent, duly licensed
and appointed as an agent of Life Company, and appropriately licensed,
registered or otherwise qualified to offer and sell the Contracts to be offered
and sold by such individual under the insurance laws of such state or
jurisdiction. Insurance Agent shall be responsible for investigating the
character, work experience and background of any proposed agent prior to
recommending appointment as agent of Life Company. Upon request, Life Company
shall be provided with copies of such investigation. All matters concerning the
licensing of any individuals recommended for appointment by Insurance Agent
under any applicable state insurance law shall be a matter directly between
Insurance Agent and such individual, and the Insurance Agent shall furnish Life
Company with proof of proper licensing of such individual or other proof,
reasonably acceptable to Life Company. Broker-Dealer and Insurance Agent shall
notify Distributor and Life Company immediately upon termination of an Agent's
association with Broker-Dealer or Insurance Agent.
(e) Without limiting the foregoing, Broker-Dealer and Insurance Agent
represent that they are in compliance with the terms and conditions of letters
issued by the Staff of the SEC with respect to the non-registration as a
broker-dealer of an insurance agency associated with a registered broker-dealer.
Broker-Dealer and the Insurance Agent shall notify Distributor immediately in
writing if Broker-Dealer and/or Insurance Agent fail to comply with any such
terms and conditions and shall take such measures as may be necessary to comply
with any such terms and conditions.
4. BROKER-DEALER AND INSURANCE AGENT COMPLIANCE
(a) Broker-Dealer and Insurance Agent hereby represent and warrant that
they are duly in compliance with all applicable federal and state securities
laws and regulations, and all applicable insurance laws and regulations.
Broker-Dealer and Insurance Agent each shall carry out their respective
obligations under this Agreement in continued compliance with such laws and
regulations. Broker-Dealer shall be responsible for securities training,
supervision and control of the Agents in connection with their solicitation
activities with respect to the Contracts and shall supervise Agents' compliance
with applicable federal and state securities law and NASD requirements in
connection with such solicitation activities. Broker-Dealer and Insurance Agent
shall comply, and shall ensure that Agents comply, with the rules and procedures
established by Life Company from time-to-time, and the rules set forth below,
and Broker-Dealer and Insurance Agent shall be solely responsible for such
compliance.
(b) Broker-Dealer, Insurance Agent and Agents shall not offer or attempt to
offer the Contracts, nor solicit applications for the Contracts, nor deliver
Contracts, in any state or jurisdiction in which the Contracts may not lawfully
be sold or offered for sale.
(c) Broker-Dealer, Insurance Agent and Agents shall not solicit
applications for the Contracts without delivering the Prospectus for the
Contracts, the then-currently effective prospectus(es) for the underlying
fund(s) and, where required by state insurance law, the then-currently effective
statement of additional information for the Contracts.
(d) Broker-Dealer, Insurance Agent and Agents shall not recommend the
purchase of a Contract to an applicant unless each has reasonable grounds to
believe that such purchase is suitable for the applicant in accordance with,
among other things, applicable regulations of any state insurance commission,
the SEC and the NASD.
(e) Insurance Agent shall return promptly to Life Company all receipts for
delivered Contracts, all undelivered contracts and all receipts for
cancellation, in accordance with the requirements established by Life Company
and/or as required under state insurance law. Upon issuance of a Contract by
Life Company and delivery of such Contract to Insurance Agent, Insurance Agent
shall promptly deliver such Contract to its purchaser. For purposes of this
provision "promptly" shall be deemed to mean not later than five (5) calendar
days. Life Company will assume that a Contract will be delivered by Insurance
Agent to the purchaser of such Contract within five (5) calendar days for
purposes of determining when to transfer premiums initially allocated to the
Money Market Account available under such Contracts to the particular investment
options specified by such purchaser. As a result, if purchasers exercise the
free-look provisions under such Contracts, Broker-Dealer shall indemnify Life
Company for any loss incurred by Life Company that results from Insurance
Agent's failure to deliver such Contracts to the purchasers within the
contemplated five (5) calendar day period.
(f) In the event that Premiums are sent to Insurance Agent or
Broker-Dealer, rather than to the Service Center, Insurance Agent and
Broker-Dealer shall promptly (and in any event, not later than two (2) business
days) remit such Premiums to Life Company at the Service Center. Insurance Agent
and Broker-Dealer acknowledge that if any Premium is held at any time by either
of them, such Premium shall be held on behalf of the customer, and Insurance
Agent or Broker-Dealer shall segregate such Premium from their own funds and
promptly (and in any event, within two (2) business days) remit such Premium to
Life Company. All such Premiums, whether by check, money order or wire, shall at
all times be the property of Life Company.
(g) Neither Broker-Dealer nor Insurance Agent, nor any of their directors,
partners, officers, employees, registered persons, associated persons, agents or
affiliated persons, in connection with the offer or sale of the Contracts, shall
give any information or make any representations or statements, written or oral,
concerning the Contracts, the underlying funds or fund Shares, other than
information or representations contained in the Prospectuses, statements of
additional information and Registration Statements for the Contracts, or a fund
prospectus, or in reports or proxy statements therefore, or in promotional,
sales or advertising material or other information supplied and approved in
writing by Distributor and Life Company.
(h) Broker-Dealer and Insurance Agent shall not use or implement any
promotional, sales or advertising material relating to the Contracts without the
prior written approval of Distributor and Life Company.
(i) Broker-Dealer and Insurance Agent shall be solely responsible under
applicable tax laws for the reporting of compensation paid to Agents.
(j) Broker-Dealer and Insurance Agent each represent that it maintains and
shall maintain such books and records concerning the activities of the Agents as
may be required by the SEC, the NASD and any appropriate insurance regulatory
agencies that have jurisdiction and that may be reasonably required by Life
Company. Broker-Dealer and Insurance Agent shall make such books and records
available to Life Company upon written request.
(k) Broker-Dealer and Insurance Agent shall promptly furnish to Life
Company or its authorized agent any reports and information that Life Company
may reasonably request for the purpose of meeting Life Company's reporting and
record keeping requirements under the insurance laws of any state, under any
applicable federal and state securities laws, rules and regulations, and the
rules of the NASD.
(l) Broker-Dealer shall secure and maintain a fidelity bond (including
coverage for larceny and embezzlement), issued by a reputable bonding company,
covering all of its directors, officers, agents and employees who have access to
funds of Insurance Company. This bond shall be maintained at Broker-Dealer's
expense in at least the amount prescribed by the NASD rules. Broker-Dealer shall
upon request provide Distributor with a copy of said bond. Broker-Dealer shall
also secure and maintain errors and omissions insurance acceptable to
Distributor and covering Broker-Dealer, Insurance Agent and Agents.
Broker-Dealer hereby assigns any proceeds received from a fidelity bonding
company, errors and omissions or other liability coverage, to Distributor or
Life Company as their interests may appear, to the extent of their loss due to
activities covered by the bond, policy or other liability coverage. If there is
any deficiency amount, whether due to a deductible or otherwise, Broker-Dealer
shall promptly pay such amount on demand. Broker-Dealer hereby indemnifies and
holds harmless Distributor or Life Company from any such deficiency and from the
costs of collection thereof, including reasonable attorneys' fees.
5. SALES MATERIALS
(a) During the term of this Agreement, Distributor and Life Company will
provide Broker-Dealer and Insurance Agent, without charge, with as many copies
of Prospectuses (and any supplements thereto), current fund prospectus(es) (and
any supplements thereto), and applications for the Contracts, as Broker-Dealer
or Insurance Agent may reasonably request. Upon termination of this Agreement,
Broker-Dealer and Insurance Agent will promptly return to Distributor any
Prospectuses, applications, fund prospectuses, and other materials and supplies
furnished by Distributor or Life Company to Broker-Dealer, Insurance Agent or
the Agents.
(b) During the term of this Agreement, Distributor will be responsible for
providing and approving all promotional, sales and advertising material to be
used by Broker-Dealer and Insurance Agent. Distributor will file such materials
or will cause such materials to be filed with the SEC, the NASD, and/or with any
state securities regulatory authorities, as appropriate.
6. COMMISSION AGREEMENT
(a) During the term of this Agreement, Distributor and Life Company shall
pay to Broker-Dealer or Insurance Agent, as applicable, commissions and fees set
forth in Schedule 1 to this Agreement. The payment of such commissions and fees
shall be subject to the terms and conditions of this Agreement and those set
forth on Schedule 1. Schedule 1, including the commissions and fees therein, may
be amended at any time, in any manner, and without prior notice, by Distributor
or Life Company. Any amendment to Schedule 1 will be applicable to any Contract
for which any application or Premium is received by the Service Center on or
after the effective date of such amendment. However, Life Company reserves the
right to amend such Schedule with respect to subsequent premiums and renewal
commissions and the right to amend such Schedule pursuant to this subsection
even after termination of this Agreement. Compensation with respect to any
Contract shall be paid to Insurance Agent only for so long as Insurance Agent is
the agent-of-record and maintains compliance with applicable state insurance
laws and only while this Agreement is in effect.
(b) No compensation shall be payable, and Broker-Dealer and Insurance Agent
agree to reimburse Distributor and Life Company for any compensation that may
have been paid to Broker-Dealer, Insurance Agent or any Agents in any of the
following situations: (i) Insurance Company, in its sole discretion, determines
not to issue the Contract applied for; (ii) Insurance Company refunds the
premiums upon the applicant's surrender or withdrawal pursuant to any
"free-look" provision; (iii) Insurance Company refunds the premiums paid by
applicant as a result of a complaint by applicant; (iv) Insurance Company
determines that any person soliciting an application who is required to be
licensed or any other person or entity receiving compensation for soliciting
applications or premiums for the Contracts is not or was not duly licensed as an
insurance agent; or (v) any other situation listed on Schedule 1.
(c) Agents shall have no interest in this Agreement or right to any
commissions to be paid by Distributor or Life Company to Insurance Agent.
Insurance Agent shall be solely responsible for the payment of any commission or
consideration of any kind to Agents. Insurance Agent shall have no right to
withhold or deduct any commission from any Premiums in respect of the Contract
which it may collect unless and only to the extent that Life Company agrees in
writing, to permit Insurance Agent to net its commissions against Premiums
collected. Insurance Agent shall have no interest in any compensation paid by
Life Company to Distributor or any affiliate, now or hereafter, in connection
with the sale of any Contracts hereunder.
7. TERM AND TERMINATION
This Agreement may not be assigned except by written consent of the parties
hereto and shall continue for an indefinite term, subject to the termination by
any party hereto upon thirty (30) days advance written notice to the other
parties. This Agreement shall automatically terminate upon its breach by any
party hereto, or in the event the Distributor or Broker-Dealer ceases to be a
registered broker-dealer, a member of the NASD, or Insurance Agent ceases to be
properly licensed or upon th filing by any party hereto for protection under any
state or federal bankruptcy, insolvency or similar law.
8. COMPLAINTS AND INVESTIGATIONS
(a) Distributor, Life Company, Broker-Dealer and Insurance Agent shall
cooperate fully in any insurance regulatory investigation or proceeding or
judicial proceeding arising in connection with the Contracts marketed under this
Agreement. In addition, Distributor, Life Company, Broker-Dealer and Insurance
Agent shall cooperate fully in any securities regulatory investigation or
proceeding or judicial proceeding with respect to Distributor, Broker-Dealer,
their Affiliates and their agents, to the extent that such investigation or
proceeding relates to the Contracts marketed under this Agreement. Without
limiting the foregoing:
(i) Broker-Dealer and Insurance Agent will be notified promptly of any
customer complaint or notice of any regulatory investigation or proceeding
or judicial proceeding received by Distributor or Life Company with respect
to Insurance Agent or any Agent which may affect the issuance of any
Contract marketed under this Agreement.
(ii) Broker-Dealer and Insurance Agent will promptly notify Distributor and
Life Company of any written customer complaint or notice of any regulatory
investigation or proceeding or judicial proceeding received by
Broker-Dealer or Insurance Agent or their Affiliates with respect to
themselves, their Affiliates, or any Agent in connection with any Contract
marketed under this Agreement or any activity in connection with any such
Contract.
(b) In the case of a customer complaint, Distributor, Life Company,
Broker-Dealer and Insurance Agent will cooperate in investigating such complaint
and any response by Broker-Dealer or Insurance Agent to such complaint will be
sent to Distributor and Life Company for approval not less than five (5)
business days prior to its being sent to the customer or regulatory authority,
except that if a more prompt response is required, the proposed response shall
be communicated by telephone or facsimile.
(c) The provisions of this Section 8 shall remain in full force and effect
regardless of any termination of this Agreement.
9. MODIFICATION OF AGREEMENT
This Agreement supersedes all prior agreements, either oral or written,
between the parties relating to the Contracts, and except for any amendment of
Schedule 1 pursuant to the terms of the Agreement, may not be modified in any
way unless by written agreement signed by all of the parties to this Agreement.
10. INDEMNIFICATION
(a) Broker-Dealer and Insurance Agent, jointly and severally, shall
indemnify and hold harmless Distributor and Life Company and each person who
controls or is associated with Distributor or Life Company within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any reasonable amounts paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any actual or alleged:
(i) violation(s) by Broker-Dealer, Insurance Agent or an Agent of federal
or state securities law or regulations, insurance law or regulation(s), or
any rule or requirement of the NASD;
(ii) unauthorized use of sales or advertising material, any oral or written
misrepresentations, or any unlawful sales practices concerning the
Contracts, by Broker-Dealer, Insurance Agent or an Agent;
(iii) claims by the Agents or other agents or representatives of Insurance
Agent or Broker-Dealer for commissions or other compensation or
remuneration of any type;
(iv) any failure on the part of Broker-Dealer, Insurance Agent, or an Agent
to submit Premiums or applications to Life Company, or to submit the
correct amount of a Premium, on a timely basis and in accordance with this
Agreement;
(v) any failure on the part of Broker-Dealer, Insurance Agent, or an Agent
to deliver Contracts to purchasers thereof on a timely basis as set forth
in Section 4(e) of this Agreement; or
(vi) a breach by Broker-Dealer or Insurance Agent of any provision of this
Agreement.
This indemnification will be in addition to any liability which
Broker-Dealer and Insurance Agent may otherwise have.
(b) Distributor and Life Company, jointly and severally, shall indemnify
and hold harmless Broker-Dealer and Insurance Agent and each person who controls
or is associated with Broker-Dealer or Insurance Agent within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any reasonable amounts paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon a breach by Distributor or Life Company of any
provision of this Agreement. This indemnification will be in addition to any
liability which Distributor and Life Company may otherwise have.
(c) After receipt by a party entitled to indemnification ("indemnified
party") under this Section 10 of notice of the commencement of any action, if a
claim in respect thereof is to be made against any person obligated to provide
indemnification under this Section 10 ("indemnifying party"), such indemnified
party will notify the indemnifying party in writing of the commencement thereof
as soon as practicable thereafter, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this Section 10,
except to the extent that the omission results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged as a result of the
failure to give such notice. The indemnifying party will be entitled to
participate in the defense of the indemnified party but such participation will
not relieve such indemnifying party of the obligation to reimburse the
indemnified party for reasonable legal and other expenses incurred by such
indemnified party in defending himself or itself. The indemnification provisions
contained in this Section 10 shall remain operative in full force and effect,
regardless of any termination of this Agreement. A successor by law of
Distributor or Life Company, as the case may be, shall be entitled to the
benefits of the indemnification provisions contained in this Section 10.
11. RIGHTS, REMEDIES, ETC. ARE CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws. Failure of either party to insist upon strict compliance with any
of the conditions of this Agreement shall not be construed as a waiver of any of
the conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, nor shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
12. NOTICES
All notices hereunder are to be made in writing and shall be given:
<TABLE>
<CAPTION>
<S> <C>
IF TO DISTRIBUTOR, TO: IF TO LIFE COMPANY, TO:
Cova Life Sales Company Cova Financial Life Insurance Company
Attention: Judy M. Drew, President Attention: Judy M. Drew, Senior Vice President
One Tower Lane One Tower Lane
Suite 3000 Suite 3000
Oakbrook Terrace, Illinois 60181-4644 Oakbrook Terrace, Illinois 60181-4644
IF TO BROKER-DEALER, TO: IF TO INSURANCE AGENT, TO:
XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
</TABLE>
or such other address as such party may hereafter specify in writing. Each
such notice to a party shall be either hand delivered, transmitted by registered
or certified United States mail with return receipt requested or by express
courier, and shall be effective upon delivery.
13. INTERPRETATION, JURISDICTION, ETC.
This Agreement constitutes the whole agreement between the parties hereto
with respect to the subject matter hereof, and supersedes all prior oral or
written understandings, agreements or negotiations between the parties with
respect to the subject matter hereof. No prior writings by or between the
parties hereto with respect to the subject matter hereof shall be used by either
party in connection with the interpretation of any provision of this Agreement.
This Agreement shall be construe and its provisions interpreted under and in
accordance with the internal laws of the State of California without giving
effect to principles of conflict of laws.
14. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or
the breach hereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
15. SETOFFS; CHARGEBACKS
Broker-Dealer and Insurance Agent hereby authorize Distributor and Life
Company to set off from all amounts otherwise payable to Broker-Dealer and
Insurance Agent all liabilities of Broker-Dealer, Insurance Agent or Agent.
Broker-Dealer and Insurance Agent shall be jointly and severally liable for the
payment of all monies due to Distributor and/or Life Company which may arise out
of this Agreement or any other agreement between Broker-Dealer, Insurance Agent
and Distributor or Life Company including, but not limited to, any liability for
any chargebacks or for any amounts advanced by or otherwise due Distributor or
Life Company hereunder. All such amounts shall be paid to the Distributor and
Life Company within thirty (30) days of written request therefore. Distributor
and Life Company do not waive any of its other rights to pursue collection of
any indebtedness owed by Broker-Dealer or Insurance Agent or its Agents to
Distributor or Life Company. In the event Distributor or Life Company initiates
legal action to collect any indebtedness of Broker-Dealer, Insurance Agent or
its Agents, Broker-Dealer and Insurance Agent shall reimburse Distributor and
Life Company for reasonable attorney fees and expenses in connection therewith.
This provision shall remain in full force and effect regardless of any
termination of this Agreement.
16. HEADINGS
The headings in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
17. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
18. SEVERABILITY
This is a severable Agreement. In the event that any provision of this
Agreement would require a party to take action prohibited by applicable federal
or state law or prohibit a party from taking action required by applicable
federal or state law, then it is the intention of the parties hereto that such
provision shall be enforced to the extent permitted under the law, and, in any
event, that all other provisions of this Agreement shall remain valid and duly
enforceable as if the provision at issue had never been part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
COVA FINANCIAL
LIFE INSURANCE COMPANY
Date: ______________________________ By: _______________________________________________
Judy M. Drew, Senior Vice President
COVA LIFE SALES COMPANY
Date: ______________________________ By: ________________________________________________
Patricia E. Gubbe, First Vice President
XXXXXXXXXXXXX
Broker-Dealer
Date: ______________________________ By: ________________________________________________
Signature
________________________________________________
Print Name
________________________________________________
Title
XXXXXXXXXXXXXXX
Insurance Agent
Date: ______________________________ By: _________________________________________________
Signature
_________________________________________________
Print Name
_________________________________________________
Title
</TABLE>
<TABLE>
<CAPTION>
MODIFIED SINGLE PREMIUM VARIABLE LIFE
POLICY FORM SERIES CL-1020
<S> <C> <C> <C>
FOR AGES 0-80
Base Persistency
Commission Bonus Years
---------- ----- -----
5.50% Paid per purchase payment
.25% 2 - 9 The Persistency Bonus is to
be calculated on the contract's
.40% 10 & after anniversary value and paid on
a quarterly contract basis for
contracts serviced by the
Broker-Dealer or Insurance Agent.
FOR AGES 81-85
Base Persistency
Commission Bonus Years
---------- ----- -----
3.00% Paid per purchase payment
.25% 2 - 9 The Persistency Bonus is to
be calculated on the contract's
.40% 10 & after anniversary value and paid on
a quarterly contract basis for
contracts serviced by the
Broker-Dealer or Insurance Agent.
FOR AGES 86-90
Base Persistency
Commission Bonus Years
---------- ----- -----
1.50% Paid per purchase payment
.25% 2 - 9 The Persistency Bonus is to
be calculated on the contract's
.40% 10 & after anniversary value and paid on
a quarterly contract basis for
contracts serviced by the
Broker-Dealer or Insurance Agent.
</TABLE>
ARTICLES OF INCORPORATION
OF
INDUSTRIAL INDEMNITY LIFE INSURANCE COMPANY
KNOW ALL MEN BY THESE PRESENT:
We, the undersigned, all citizens and residents of the State of California,
have this day voluntarily associated ourselves together for the purpose of
forming a corporation under the laws of the State of California, and we do
hereby certify:
I.
The name of this corporation is Industrial Indemnity Life Insurance
Company.
II.
The purposes for which this corporation is formed are:
(A) The primary business in which this corporation is intended to engage is
to transact the business of insurance of the following classes, to-wit:
1. Life;
2. Disability;
3. Liability;
4. Workmen's Compensation;
5. Common Carrier Liability.
The foregoing classes of insurance shall have the definitions assigned
thereto by the Insurance Code of the State of California as the same may be from
time to time amended.
(B) This corporation is also formed for the following additional purposes:
1. To issues participating policies for any and all classes of insurance
above enumerated, except as prohibited by law;
2. To subscribe for, purchase, own, hold, loan upon, and dispose of, shares
of the capital stock of other corporations, and to exercise the rights of a
stockholder therein;
3. To acquire, own, hold, loan upon, pledge, reissue, and dispose of the
shares of the capital stock of this corporation;
4. To acquire, hold, own and dispose of bonds, notes, bills, debentures,
and any and every kind of obligation or evidence of indebtedness of individuals
or corporations, both public and private;
5. To acquire, own, hold, lease, improve, sell and dispose of real estate
to the full extent that an insurance company is permitted so to do under the
laws of the State of California;
6. To incur indebtedness, and as evidence thereof, to make, execute and
deliver the promissory notes or other obligations of this corporation, and
secure the same by pledge of its personal property, or mortgage, or deed of
trust of its real estate;
7. To lend money, and to take as security for such loans such security as
insurance companies are permitted to loan upon under and by virtue of the laws
of the State of California;
8. To employ agents to solicit insurance business on its behalf;
9. To make contracts and to do and perform any and all other matters and
things incidental or proper for the accomplishment of any of the purposes herein
enumerated, or which shall at any time appear conducive to or expedient for the
protection or benefit of this corporation, and to do any, and perform any and
all other matters and things which it may legally do and perform under and by
virtue of the laws of the State of California;
10. To do business anywhere in the world;
11. To act as partner or joint venturer or in any other legal capacity in
any transaction; and
12. To have and exercise all rights and powers and to do all acts which may
from time to time be authorized or granted by the General Corporation Law of the
State of California.
The foregoing enumeration of specific powers shall be construed as
independent objects, purposes and powers, and each of the purposes and objects
mentioned in this Article II of these Articles shall be in furtherance of, but
not in limitation of each other, and each shall, except when otherwise expressly
stated, be in no wise limited or restricted by the statement of other objects or
purposes herein, and said enumeration of specific powers shall not be construed
or held as limiting or restricting the ordinary powers of this corporation as
granted in the laws of the State of California.
III.
The county in this State where the principal office for the transaction of
the business of the corporation is located shall be the City and County of San
Francisco.
IV.
The total number of shares which the corporation is authorized to issue is
thirty thousand (30,000) shares. The aggregate par value of all said shares is
one million five hundred thousand ($1,500,000) dollars, and the par value of
each share is fifty ($50) dollars.
V.
The number of directors of this corporation is five (5). The number of
directors of the corporation set forth above shall constitute the authorized
number of directors until changed by an amendment of these Articles of
Incorporation or by a by-law duly adopted by the vote or written consent of a
majority of the then outstanding shares of stock of the corporation.
The names and addresses of the persons who are appointed to act as the
first directors are:
Fred Drexler #1 Myrtle Avenue
Mill Valley, California 94941
James G. LaPlante 1200 Bay Laurel Drive
Menlo Park, California 94025
Arno A. Rayner 275 East Strawberry Drive
Mill Valley, California 94941
Donald W. Satterlee 336 Hedge Road
Menlo Park, California 94025
Roxani M. Gillespie 134 Presidio Avenue
San Francisco, California 94115
IN WITNESS WHEREOF, for the purpose of forming this corporation under the
laws of the State of California, we, the undersigned, constituting the
incorporators of this corporation, and including all of the persons named herein
as the first directors, have executed these Articles of Incorporation this 29th
day of August, 1972.
/s/ Fred Drexler
----------------
/s/ James G. LaPlante
---------------------
/s/ Arno A. Rayner
------------------
/s/ Donald W. Satterlee
-----------------------
/s/ Roxani M. Gillespie
-----------------------
STATE OF CALIFORNIA
City and County of San Francisco
On this 29th day of August, 1972, before me, Marion E. Larson, a Notary
Public in and for the City and County of San Francisco, State of California,
residing therein, duly commissioned and sworn, personally appeared Fred Drexler,
James G. LaPlante, Arno A. Rayner, Donald W. Satterlee and Roxani M. Gillespie,
known to me to be the persons whose names are subscribed to the foregoing
Articles of Incorporation of Industrial Indemnity Life Insurance Company, and
acknowledged to me that they executed the same.
WITNESS my hand and official seal.
/s/ Marion E. Larson
--------------------
Notary Public
In and for the City and
County of San Francisco,
State of California
My Commission expires:
March 17, 1975
XEROX FINANCIAL LIFE
INSURANCE COMPANY
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
ROBERT A. PUCCINELLI and LAWRENCE E. MULRYAN Certify that:
1. They are the president and the secretary, respectively, of INDUSTRIAL
INDEMNITY LIFE INSURANCE COMPANY, a California Corporation.
2. Article I of the articles of incorporation of this corporation is
amended to read as follows:
"The name of this corporation is Xerox Financial Life Insurance
Company."
3. The foregoing amendment of articles of incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of articles of incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding
shares of the corporation is 12,000. The number of number of shares
voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
to our knowledge.
Date: August 11, 1985 /s/ Robert A. Puccinelli
------------------------
Robert A. Puccinelli, President
/s/ Lawrence E. Mulryan
-----------------------
Lawrence E. Mulryan, Secretary
STATE OF CALIFORNIA
Department of Insurance
San Francisco
I, BRUCE BUNNER, Insurance Commissioner of the State of California, do
hereby certify that on the date specified herein, the name XEROX FINANCIAL LIFE
INSURANCE COMPANY has been approved for use in California as a name change for
INDUSTRIAL INDEMNITY LIFE INSURANCE COMPANY for a period of 90 days from the
date herein.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day and
year specified below.
BRUCE BUNNER
Insurance Commissioner
By: /s/ Rita Fontana Pasquinucci
--------------------------------
RITA FONTANA PASQUINUCCI
Deputy
October 24, 1985
A California corporation must attach this Certificate to its Articles of
Incorporation (Amendment) filed with the California Secretary of State.
CERTIFICATE OF AMENDMENT
OF THE ARTICLES OF INCORPORATION
OF XEROX FINANCIAL LIFE INSURANCE COMPANY
UNDER SECTION 905 OF THE GENERAL CORPORATION LAW OF CALIFORNIA
We, Michael R. Hogan and Jeffrey K. Hoelzel, the duly elected Chairman and
Secretary, respectively, of Xerox Financial Life Insurance Company, a
corporation duly organized and existing under the General Corporation Law of the
State of California (the "Corporation"), do hereby certify as follows:
1. The Corporation's Articles of Incorporation were filed with the
California Secretary of State on September 6, 1972.
2. Article I of the Corporation's Articles of Incorporation is hereby
amended to read, in its entirety, as follows:
I.
The name of this corporation is Cova Financial Life Insurance
Company.
3. Article III of the Corporation's Articles of Incorporation is hereby
amended to read, in its entirety, as follows:
III.
The City and County in this State where the principal office for
the transaction of the business of the Corporation is located shall
be the City of Costa Mesa in Orange County.
4. The foregoing amendments of the Articles of Incorporation of the
Corporation have been duly approved by the Corporation's Board of
Directors.
5. The foregoing amendments to the Articles of Incorporation have been
duly approved by the required vote of shareholders in accordance with
Section 902 of the General Corporation Law of California. The total
number of outstanding shares of the Corporation is 12,000. The number
of shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote required was more than 50 percent.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
to the best of our own knowledge.
Date: June 1, 1995
Place: St. Louis, Missouri
/s/ Michael R. Hogan
--------------------
Michael R. Hogan, Chairman
/s/ Jeffery K. Hoelzel
----------------------
Jeffery K. Hoelzel, Secretary
STATE OF CALIFORNIA
DEPARTMENT OF INSURANCE
San Francisco
I, CHUCK QUACKENBUSH, Insurance Commissioner of the State of California, do
hereby certify that on the date specified herein, the name Cova Financial Life
Insurance Company has been approved and reserved in California as name change
for Xerox Financial Life Insurance Company for a period of 90 days from the date
herein.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed my official seal the day
and year specified below.
CHUCK QUACKENBUSH
Insurance Commissioner
By: /s/ Judith A. Milch
-----------------------
JUDITH A. MILCH
Deputy
August 11, 1995
A California corporation must attach this Certificate to its Articles of
Incorporation (Amendment) filed with the California Secretary of State.
Note: This certificate does not authorize the subject entity to transact
business in California unless and until a Certificate of Authority
or license has been issued.
BY-LAWS
OF
COVA FINANCIAL LIFE INSURANCE COMPANY
(Amended 6/l/95) (Formerly Xerox Financial Life
Insurance Company - Amended 8/12/85)
(Formerly Industrial Indemnity Life Insurance Company)
a California domiciled life insurance company
ARTICLE I
OFFICES
Section 1. Principal Office.
The Board of Directors is hereby granted full power and authority to select the
location of the principal office for the transaction of the business of the
corporation in the State of California and may change said location by
resolution at any time. (Amended 6/l/96)
Section 2. Other Offices.
Branch or subordinate offices may be established at any place or places where
the corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings.
All meetings of the shareholders shall be held at the principal office of the
corporation, or at any other place within or without the State of California
designated either by the written consent of all shareholders entitled to vote
thereat or designated by the Board of Directors. In the absence of such
designation, such meetings shall be held at the principal office of the
corporation.
Any meeting shall be valid, wherever held, if held by written consent of all the
shareholders entitled to vote thereat, given either before or after the meeting
and filed with the Secretary of the corporation.
Section 2. Annual Meetings.
An annual meeting of the shareholders to elect directors and to transact such
other business as may properly be brought before the meeting shall be held each
year at such date, time and place as the Board of Directors may determine.
(Amended 6/1/95)
Section 3. Special Meetings - Call - Notice.
Special meetings of shareholders for any purpose or purposes whatsoever, may be
called at any time by the Chief Executive Officer, or by the Board of Directors,
or by any two or more members thereof, or by one or more shareholders holding at
least one-fifth (1/5th) of the voting power of the corporation. Except in
special cases where other express provision is made by statute, notice of such
special meetings shall be given as provided by law. Notices of any special
meeting shall specify in addition to the place, day and hour of such meeting,
the general nature of the business to be transacted.
Section 4. Adjourned Meetings and Notice Thereof.
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of the
shares, the holders of which are either present in person or represented by
proxy thereat, but in the absence of a quorum no other business may be
transacted at any such meeting.
When any shareholders' meeting, either annual or special, is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. Save as aforesaid, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting, other than by announcement at the meeting at which such
adjournment is taken.
Section 5. Entry of Notice.
Whenever any shareholder entitled to vote has been absent from any meeting of
shareholders, whether annual or special, an entry in the minutes to the effect
that notice has been duly given shall be conclusive and incontrovertible
evidence that due notice of such meeting was given to such shareholders, as
required by law and the by-laws of the corporation.
Section 6. Voting.
At all meetings of shareholders, every shareholder entitled to vote shall have
the right to vote in person or by proxy the number of shares standing in his own
name on the stock records of the corporation. Such vote may be by voice vote or
by ballot; provided, however, that all elections for directors must be by ballot
upon demand made by a shareholder at any election before voting begins. The
candidates receiving the highest number of votes up to the number of directors
to be elected shall be elected. (Amended 6/1/95)
Section 7. Quorum
The presence in person or by proxy of the holders of a majority of the shares
entitled to vote at any meeting shall constitute a quorum for the transaction of
business. The shareholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
Section 8. Consent of Absentees.
The transactions of any meetings of shareholders, either annual or special,
however called and noticed, shall be as valid as though had a meeting duly held
after regular call and notice, if a quorum be present either in person or by
proxy, and if, either before or after the meeting, each of the shareholders
entitled to vote, not present in person or by proxy, sign a written waiver of
notice, or a consent to the holding of such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 9. Action without Meeting.
Any action which under the provisions of the Corporations Code may be taken at a
meeting of the shareholders may be taken without a meeting if authorized by a
writing signed by all the holders of shares who would be entitled to vote at a
meeting for such purpose and filed with the Secretary of the Corporation.
Section 10. Proxies.
Every person entitled to vote or execute consents shall have the right to do so
either in person or by an agent or agents authorized by a written proxy executed
by such person or his duly authorized agent and filed with the Secretary of the
Corporation; provided that no such proxy shall be valid after the expiration of
eleven (11) months from the date of its execution, unless the shareholder
executing it specifies therein the length of time for which such proxy is to
continue in force, which in no case shall exceed seven (7) years from the date
of its execution.
ARTICLE III
DIRECTORS
Section 1. Powers.
Subject to the limitations of the Articles of Incorporation, By-Laws and the
California Corporations Code as to actions to be authorized or approved by the
shareholders, all corporate power shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be controlled by, the
Board of Directors.
Section 2. Committees.
A. Executive Committee. The Board of Directors may from time to time appoint
from its own number an Executive Committee of three (3) or more members,
and shall by resolution fix the Chairmanship of said committee and the
members thereof.
The Executive Committee shall consult with the Chief Executive Officer upon
such matters as he may designate. In addition, the Executive Committee
shall have authority to exercise, at any time when the Board of Directors
is not in session, all powers of the Board of Directors which may be
lawfully delegated, and shall report to the Board of Directors all actions
taken under such authority.
The members of the Executive Committee may be allowed a fixed fee, with or
without expenses of attendance, for attending a meeting of the committee,
such fee to be determined from time to time by resolution of the Board of
Directors.
B. Investment Committee. By resolution, the Board of Directors may appoint
from its own number, supplemented in the minority by persons other than
members of the Board, an Investment Committee which shall have all the
powers as designated by the Board, except as limited by statute. The
Investment Committee shall be responsible for establishing the Investment
Policy of the Corporation, reviewing all of the corporation's investments
and shall conduct its business and hold meetings as determined by it from
time to time; that a quorum of such Committee shall be a majority of the
members of such Committee and that a majority vote of the members present
at a meeting of such committee shall constitute the act of such committee.
The Investment Committee shall keep a record of its acts and proceedings
and report the same to the Board of Directors. (Amended 5/23/86)
C. Standing or Temporary Committees. The Board of Directors may from time to
time appoint from its own number, or supplemented in the minority by
persons other than members of the Board, standing or temporary committees;
and the Board of Directors may from time to time invest such committees
which such powers as may be prescribed by the Board.
Section 3. Number of Directors.
Unless and until changed by the Board of Directors as hereinafter provided the
number of directors to constitute the Board of Directors shall be nine (9). The
Board of Directors, to the extent permitted by law, shall have the power, by
resolution, to change the number of directors from time to time provided that
any notice required by law of any such change is duly given. Directors need not
be shareholders unless the Articles of Incorporation at any time so provide.
(Amended 6/l/95)
Section 4. Election and Term of Office.
The directors shall be elected at each annual meeting of shareholders, but if
any such annual meeting is not held, or the directors are not elected thereat,
the directors may be elected at any meeting of the shareholders. All directors
shall hold office until his respective successors are elected.
Section 5. Vacancies.
Vacancies in the Board of Directors may be filled by a majority of the remaining
directors, though less than a quorum, and each director so elected shall hold
office until his successor is elected at an annual meeting of shareholders, or
at a special meeting called for that purpose.
A vacancy or vacancies shall be deemed to exist in case of the death,
resignation, or removal of any director, or if the shareholders shall increase
the authorized number of directors but shall fail at the voting at which such
increase is authorized, or at an adjournment thereof, to elect the additional
directors so provided for, or in case the shareholders fail at any time to elect
the full number of authorized directors.
The shareholders may at any time elect directors to fill any vacancy not filled
by the directors, and may elect the additional directors at the meeting at which
an amendment of the by-laws is voted authorizing an increase in the number of
directors.
If any director tenders his resignation, the Board shall have the power to elect
a successor to take office at such time as the resignation shall become
effective. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the date of the next annual meeting of
shareholders.
Section 6. Place of Meeting.
All meetings of the Board of Directors shall be held at the principal office of
the corporation, or at such other place within or without the State of
California designated at any time by resolution of the Board or by written
consent of all members of the Board.
Section 7. Organization Meeting.
Immediately following each annual meeting of shareholders, the Board of
Directors shall hold a meeting for the purpose of organization, election of
officers, and the transaction of other business. Notice of such meeting is
hereby dispensed with.
Section 8. Regular Meetings. A regular meeting of the Board of Directors shall
be held without notice other than this By-Law immediately after, and at the same
place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution the time and place, either within or without the State of
California, for the holding of additional regular meetings without notice other
than such resolution. (Amended 6/1/95)
Section 9. Notice of Adjournment.
Notice of adjournment of any directors' meeting need not be given to absent
directors, if the time and place are fixed at the meeting.
Section 10. Entry of Notice.
Whenever any director has been absent from any meeting of the Board of
Directors, an entry in the minutes to the effect that notice has been duly given
shall be conclusive and incontrovertible evidence that due notice of such
meeting was given to such director, as required by law and the by-laws of the
corporation.
Section 11. Waiver of Notice.
The transactions of any meeting of the Board of Directors, however called and
noticed and wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present, and if, either
before or after the meeting, each of the directors not present sign a written
waiver of notice or a consent to holding such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 12. Quorum.
One-third (1/3rd) of the authorized number of directors, but not less than two
(2), shall be necessary to constitute a quorum for the transaction of all
business, except to adjourn, as hereinafter provided, and except as provided
under Article IV, subsections 4 and 6.
Section 13. Adjournment.
A quorum of two directors may adjourn any directors' meeting to meet again at a
stated day and hour; provided, however, that in the absence of a quorum, a
majority of the directors present at any directors' meeting may adjourn from
time to time.
Section 14. Fees and Compensation.
Directors shall not receive any stated salary for their services as directors,
but, by resolution of the Board, a fixed fee, with or without expenses of
attendance, may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity, as an officer, agent, employee, or otherwise,
and receiving compensation therefor.
Section 15. Meeting by Conference Telephone.
Members of the Board of Directors or any committee thereof may participate in
any meeting through the use of conference telephone or similar communications
equipment, so long as all members participating in such a meeting can hear one
another. Participation in a meeting pursuant to this section constitutes
presence in person at any such meeting.
Section 16. Removal of Directors.
Any director may be removed either with or without cause at any time by the
affirmative vote of the shareholders of record holding a majority of the
outstanding shares of the corporation entitled to vote for the election of
directors, given at a meeting of the shareholders called for that purpose, or by
the holders of a majority of the outstanding shares entitled to vote for the
election of directors without holding a meeting or notice but by merely
presenting their majority to the secretary of the corporation in writing for the
removal of a director or directors without cause. Any director may be removed
with cause by a majority of the total number of directors constituting the
entire Board of Directors at a meeting of the Board of Directors. (Amended
6/l/95)
ARTICLE IV
OFFICERS
Section 1. Officers.
The officers of the corporation shall be the Chairman of the Board, Vice
Chairman of the Board, President, one or more Vice Presidents, Secretary, and
Treasurer. The corporation may also have such other officers as may be elected
by the Board of Directors or appointed in accordance with the provisions of
Section 3 of this Article. Officers other than the Chairman of the Board, Vice
Chairman of the Board and President need not be directors. One person may hold
two or more offices, except those of President and Secretary.
Section 2. Election.
The officers of the corporation required by Section I shall be chosen annually
by the Board of Directors, and each shall hold his office until he shall resign
or shall be removed or otherwise disqualified to serve, or his successor shall
be elected or qualified.
Section 3. Other Officers.
The Board of Directors or the Chief Executive Officer, subject to confirmation
by the Board of Directors, may appoint such other officers as the business of
the corporation may require, each of whom shall have such titles, hold office
for such period, have such authority and perform such duties as are provided in
the by-laws or as the Board of Directors or the Chief Executive Officer may from
time to time determine.
Section 4. Removal and Resignation.
Any officer may be removed, either with or without cause, by a majority of the
directors at the time in office, at any regular or special meeting of the Board,
or, except in the case of an officer elected by the Board of Directors, by the
Chief Executive Officer.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the chairman of the Board or to the President. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification, or any other cause, shall be filled in the manner prescribed
by the by-laws for regular appointment to such office.
Section 6. Chief Executive Officer.
The Board of Directors shall by vote of a majority of the directors in office at
the time of any regular or special meeting of the Board at which a majority of
the authorized directors are present, designate as Chief Executive Officer
either the Chairman of the Board or the President, and may by said majority vote
remove such designation. The Chief Executive Officer shall, subject to the
authority vested in the Board of Directors, supervise and control all of the
business and affairs of the corporation.
Section 7. Chairman of the Board.
The Chairman of the Board shall, if present, preside at all meetings of the
shareholders and of the Board of Directors and exercise and perform such other
powers and duties as may be from time to time assigned to him by the Board of
Directors or prescribed by the by-laws.
Section 8. Vice Chairman of the Board.
The Vice Chairman of the Board shall, in the absence of the Chairman of the
Board, preside at all meetings of the shareholders and of the Board of Directors
at which he is present and perform such other duties and exercise such other
powers as may be from time to time assigned to him by the Board of Directors or
the Chairman of the Board or prescribed by the by-laws.
Section 9. The President.
The President shall be the chief operating officer of the corporation in charge
of insurance affairs, subject to the direction and control of the Chief
Executive Officer. The President shall, in the absence of the Chairman of the
Board and the Vice Chairman of the Board, preside at all meetings of the
shareholders and of the Board of Directors.
Section 10. Vice Presidents.
Each Vice President shall have such powers and perform such duties as may be
from time to time assigned to him by the Board of Directors or the Chief
Executive Officer or prescribed by the by-laws.
Section 11. Secretary.
The Secretary shall keep, or cause to be kept, a book of minutes at the
principal office, or such other place as the Board of Directors may order, of
all meetings of directors and shareholders, with the time and place of holding,
how authorized, the notice thereof given, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the
Office of the corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the shareholders and their addresses, the
number of classes of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given notice of all the meetings of the
shareholders and of the Board of Directors required by the by-laws to be given,
and he shall keep the seal of the corporation in safe custody, and shall have
such other powers and perform such other duties as may be assigned by the Board
of Directors or the Chief Executive Officer or prescribed by the by-laws.
Section 12. Treasurer.
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital surplus and shares. Any surplus, including
earned surplus, paid-in surplus and surplus arising from a reduction of stated
capital, shall be classified according to source and shown in a separate
account. The books of account shall at all times be open to inspection by any
director.
The treasurer shall have such other powers and perform such other duties as may
be assigned to him by the Board of Directors or the Chief Executive Officer or
prescribed by the by-laws.
ARTICLE V
MISCELLANEOUS
Section 1. Record Date and Closing Stock Books.
The Board of Directors may fix a time, in the future, not exceeding thirty (30)
days preceding the date of any meeting of shareholders, and not exceeding thirty
(30) days preceding the date fixed for the payment of any dividend or
distribution, or for the allotment of rights, or when any change or conversion
or exchange or shares shall go into effect, as a record date for the
determination of the shareholders entitled to notice of and to vote at any such
meeting, or entitled to receive any such dividend or distribution, or any such
allotment of rights or to exercise the right in respect to any such change,
conversion or exchange of shares, and in such case only shareholders of record
on the date so fixed shall be entitled to notice of and to vote at such meeting,
or to receive such dividend, distribution or allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after any record date fixed as aforesaid. The Board
of Directors may close the books of the corporation against transfers of shares
during the whole, or any part of any such period.
Section 2. Inspection of Corporate Records.
The share register or duplicate share register, the books of account, the
minutes of proceedings of the shareholders and directors shall be open to
inspection upon the written demand of any shareholders or the holder of a voting
trust certificate, at any reasonable time, and for a purpose reasonably related
to his interests as a shareholder, and shall be produced at any time when
required by the demand of ten percent (10%) of the shares represented at any
shareholder's meeting. Such inspection may be made in person or by an agent or
attorney, and shall include the right to make extracts. Demand of inspection
other than at a shareholder's meeting shall be made in writing upon the Chairman
of the Board, President, Secretary or Assistant Secretary of the corporation.
Section 3. Checks, Drafts, etc.
All checks, drafts or other orders for payment of money, notes, or other
evidence of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.
Section 4. Annual Report.
Any annual report to the shareholders required by law is hereby expressly
dispensed with.
Section 5. Contract, etc./How Executed.
The Board of Directors, except as the by-laws otherwise provide, may authorize
any officer or officers, or agent or agents, to enter into any contract or
execute any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances; and unless so
authorized by the Board of Directors or Chief Executive Officer, shall have any
power or authority to bind the corporation by any contract or engagement, except
contracts of insurance, or to pledge its credit, or to render it liable for any
purpose, or to any amount; provided, the officers of the corporation are
expressly authorized to issue participating policies on its behalf, containing
such language with reference to participating as in their discretion will be to
the best interests of the corporation.
Section 6. Certificates of Stock.
A certificate or certificates for shares of the capital stock of the corporation
shall be issued to each shareholder when any such shares are fully paid up. All
such certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary, or be authenticated by facsimile of the
signature of the President or a Vice President and the written signature of the
Secretary or an Assistant Secretary. Every certificate authenticated by a
facsimile of a signature must be countersigned by a transfer agent or transfer
clerk, and be registered by an incorporated bank or trust company, either
domestic or foreign, as registrar of transfers, before issuance.
Section 7. Representation of Shares of Other Corporation.
The Chief Executive Officer, President or Treasurer of this corporation is
authorized to vote, represent and exercise on behalf of this corporation, all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted to said
officers to vote or represent on behalf of this corporation shares in any other
corporation or corporations may be exercised either by such officers in person
or by a person authorized to do so by proxy or power of attorney duly executed
by said officer.
Section 8. Inspection of By-Laws.
The corporation shall keep in its principal office for the transaction of
business, the original or a copy of the ByLaws, as amended or otherwise altered
to date, certified by the Secretary, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
Section 9. Indemnification.
This corporation shall indemnify, to the fullest extent allowed by California
law, its present and former directors and officers against expenses, judgments,
fines, settlements, and other amounts incurred in connection with any proceeding
or threatened proceeding brought against such directors or officer in their
capacity as such. Such indemnification shall be made in accordance with
procedures set forth by California law. Sums for expenses incurred in defending
any such proceeding may also be advanced to any such director or officer to the
extent and under the conditions provided by California law.
ARTICLE VI
CORPORATE SEAL
SECTION 1. Corporate Seal.
The Board of Directors may provide a corporate seal in the form of a circle with
the name of the corporation inscribed thereon. (Amended 6/1/95).
ARTICLE VII
AMENDMENTS
Section 1. Power of Shareholders.
By-laws may be adopted, amended or repealed, either at a meeting by the vote of
shareholders entitled to exercise a majority of the voting power, or by the
written assent of such shareholders.
Section 2. Power of Directors.
Authority to adopt, repeal or amend the By-Law fixing the number of directors is
hereby delegated to the Board of Directors.
