<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-8069
INVESTORS INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 13-2574130
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
7200 W. Camino Real
Boca Raton, Florida 33433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 391-5043
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock $.50 par value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES ____ NO __X__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 8, 1996 was $1,596,977.
The number of shares of Registrant's Common Stock, par value $.50, outstanding
on April 8, 1996 was 2,767,789 shares.
Documents incorporated by reference: Form 8K dated February 13, 1996.
<PAGE> 2
PART I
Item 1. Business
Investors Insurance Group, Inc. ("IIG" or the "Company") is a holding company
which manages its subsidiaries' operations and recruits agents for its life
insurance subsidiary. IIG was incorporated under the laws of the State of
Florida on May 11, 1993 and is the successor corporation of the former Gemco
National, Inc. ("Gemco"), a New York corporation founded in 1966. The change
in corporate identity was made to increase investor awareness of IIG's current
market focus and was approved by Gemco's shareholders at the Annual Meeting of
Shareholders on June 11, 1993. The actual change was accomplished by the
merger of Gemco National, Inc. into a new Florida corporation, Investors
Insurance Group, Inc., on September 1, 1993.
The Company specializes in the sale of flexible premium deferred annuity
products through its wholly-owned subsidiary, Investors Insurance Corporation
("Investors"), a life insurance company founded in 1956. The Company has two
other subsidiaries, IIC, Inc. and Investors Marketing Group, Inc. ("IMG").
IIC, Inc. is an insurance holding company which serves as the intermediate
parent of Investors, while IMG performs agent recruitment services for a
select group of unaffiliated life insurance companies.
Annuities have traditionally been used by individuals as a tax-deferred
savings vehicle for retirement planning and the Company designs its products
and directs its marketing efforts towards this savings and retirement market.
U.S. Census Bureau statistics indicate that the pre-retirement segment of this
market, ages 45-64, is the fastest growing age group in the country and
project a 30% increase in the number of individuals in this age group during
the 1990s. The Company believes that this demographic trend, longer life
expectancy, and rising per capita income (as well as the tax deferred savings
advantage of annuity products) will increase the demand for annuities in
retirement planning. To date, the 50 and older age group has accounted for
the majority of all annuity premiums received by the Company and management
believes that as this group expands, it will have an increasing interest in
saving for retirement and unanticipated medical costs.
The Company seeks to make sales of retirement savings products by offering
annuity products that meet the demands of agents and the pre- and post-
retirement population. The Company markets its products through independent
agents licensed in 21 states. Investors' agents are recruited by IIG, as well
as through other national marketing agencies ("NMAs"). As of December 31,
1995, the Company had approximately 2,000 independent agents licensed to sell
the Company's products. Since 1990, approximately 90% of annuity premiums
received by Investors have been produced by agents recruited by IIG or its
predecessor.
The Company's Corporate Headquarters is located at 7200 West Camino Real,
Suite 203, Boca Raton, Florida 33433. The Corporate Headquarters' telephone
number is (407) 391-5043. The Company's Administrative and Financial
operations are located at 3030 Hartley Road, Jacksonville, Florida 32257. The
telephone number at this location is (904) 260-6990.
<PAGE> 3 Products
The Company specializes in the sale of flexible premium deferred annuity
("FPDA") products to individuals. During each of the past five years, sales
of FPDAs have accounted for over 95% of the Company's premiums received.
FPDAs begin with a specific initial premium deposit by the policyowner at the
time of issuance and allow additional contributions to the policy whenever the
policyowner wants to make them. Following an accumulation period, the
policyowner is entitled to receive the accumulated value of the policy as a
lump-sum payment or through annuity payments over a certain period, or for
life. Interest credited during the accumulation period generally is not
subject to federal or state income tax.
Investors currently sells several variations of FPDA products with different
benefits, interest rates and commission structures. These products offer tax-
deferred accumulation of interest, one year interest rate guarantees,
guaranteed cash values, and a choice of guaranteed income options on the
selected maturity date. The products are continuously reviewed and
modifications made to remain competitive within the target market.
The Company's operating earnings are derived from its coinsurance ceding
commission and the excess of its actual investment income, including realized
gains (losses), over interest credited to annuity contracts and expenses. In
determining credited rates, Investors takes into account the profitability of
its annuity business and the relative competitive position of its products.
Credited rates during the initial and any renewal period are based on
assumptions and estimates relating principally to persistency, investment
yield and expenses as well as management's judgment with respect to market and
competitive conditions.
Investors' FPDAs have an initial credited interest rate that is guaranteed for
one year. Following the initial guarantee period, Investors may adjust the
credited interest rate annually, subject to the guaranteed minimum interest
rates specified in the contracts of 3.0% or 4.0% (minimum rates of 6.0% to
7.0% during the surrender charge period apply to a portion of the business).
At December 31, 1995, initial crediting rates ranged from 7.0% to 12.0%, based
on contract provisions; renewal crediting interest rates ranged from 4.0% to
7.0%.
The Company incorporates a number of features in its annuity products designed
to reduce the occurrence and adverse effect of premature termination of the
policy. Premature termination of an annuity contract results in the loss of
the Company's anticipated future investment earnings related to the annuity
deposit and in the accelerated recognition of expenses related to policy
acquisition, principally commissions, which are otherwise recoverable over the
life of the policy. However, if the policy were coinsured, premature
termination will accelerate recognition of the coinsurance ceding commission
(see Note 1 to the Financial Statements in Item 8).
The primary feature incorporated by the Company into its products to minimize
premature terminations is a surrender charge. While the policyowner is
permitted to withdraw all, or a portion, of the accumulated value, such
withdrawals are generally subject to a declining surrender charge during the
first nine years of the policy's life. The Company permits free annual
withdrawals following the first policy anniversary, but such withdrawals are
limited to 10% of the eligible accumulated value. In addition, one of the
Company's annuity products has a mandatory five year payout feature which
requires that all policy withdrawals, except 10% free withdrawals, be paid out
over a period of no less than five years. This product feature provides the
<PAGE> 4
Company protection from large withdrawal activity in rising interest rate
scenarios as policyholders move funds in search of higher interest rates.
The Company expanded its senior oriented product line in 1993 with the
addition of a Medicare Supplement health insurance plan and an accelerated
benefit life insurance product, both of which are considered important
coverages to senior age individuals. The Company's Medicare supplement plan
was specifically designed to attract female non-smokers, while the accelerated
life product was designed to provide a 100% acceleration of the death benefit
upon the diagnosis of a 12 month terminal illness. Development and marketing
efforts were quite extensive and related expenses totaled over $630,000 during
1993. Following the introduction of the Medicare Supplement product, this very
competitive market became subject to much uncertainty, primarily attributed to
the intense scrutiny placed on health care by federal and state governments.
In addition, the promotion of Medicare HMOs put a significant strain on the
Company's ability to compete effectively in this market. In December 1993,
with expected premium volumes well below breakeven levels, management withdrew
the Medicare supplement policy from the market. To further reduce its
exposure to future losses, in April 1994, the Company negotiated the sale of
this business to Old Surety Life Insurance Company.
The Company's accelerated life product, while well received by some agents,
did not generate significant interest in the marketplace and was withdrawn
from the market in December 1994. The reinsurance agreement with Winterthur
Life Re ("WLR") will continue to provide the Company protection from adverse
loss experience on this product.
Investments
The Company's long term profitability is largely determined by its ability to
maintain a spread between its investment earnings and the interest credited on
its annuity products. At December 31, 1995, the Company had $172 million of
cash and invested assets, of which $170 million or approximately 98.8%
represented cash or investments in fixed income securities.
The Company's fixed income investments are comprised exclusively of securities
issued by the U.S. Government, or U.S. Government agencies and sponsored
enterprises. All investments are made in accordance with guidelines
established by the Board of Directors as to type, liquidity, maturity and
duration of investment. These guidelines were developed in order to match the
cash flows of the investments with the expected cash requirements of policy
liabilities. The management of the Company's fixed income investments, in
accordance with these guidelines, is handled by Asset Allocation and
Management Companies ("AAM") of Chicago, Illinois.
Approximately 57% of the Company's fixed income investments are collateralized
mortgage obligations ("CMOs"). Like all mortgage-backed investments, CMO
securities are subject to prepayment risk, especially in periods of declining
interest rates when the mortgages which collateralize the security are repaid
more rapidly than scheduled, as individuals refinance higher rate mortgages to
take advantage of the lower prevailing rates. As a result, holders of CMOs
could receive prepayments on their investments which the holder may not be
able to reinvest at interest rates comparable to the rate on the prepaying
security.
The Company has reduced this risk of prepayment by investing its mortgage-
backed investment portfolio in planned amortization class ("PAC") and targeted
<PAGE> 5
amortization class ("TAC") instruments. These investments are designed to
amortize in a more predictable manner by shifting the primary risk of
prepayment of the underlying collateral to investors in other tranches
("support classes") of the CMO. In the first quarter of 1995, the Company
began to redirect its investments away from CMOs and toward other types of
securities backed by the U. S. Government or its agencies. Ultimately the
Company plans to reduce its CMO holdings to approximately 50% of its
portfolio. The Company uses expected prepayment assumptions to account for
its mortgage-backed securities. Accordingly, as prepayment rates on mortgage-
backed securities change, the Company adjusts its income realization on
mortgage-backed securities to reflect the best estimate of future cash flows
and the corresponding income resulting from the accretion of discounts and the
amortization of premiums.
The Company attempts to manage its assets and liabilities so that income and
principal payments received from investments are adequate to meet the cash
flow requirements of its policyholder liabilities. The estimated weighted
average duration of the Company's fixed income investment portfolio was 5.63
years as of December 31, 1995. The relatively short nature of the investment
portfolio reflects the characteristics of the Company's liabilities. The
majority of the Company's policy and deposit liabilities represent reserves
for FPDAs that may be partially or totally surrendered at the policyholders'
option, subject to surrender charges, when applicable. The cash flows of the
Company's liabilities are affected by actual maturities, surrender experience
and credited interest rates. The Company periodically performs cash flow
studies under various interest rate scenarios to evaluate the adequacy of
expected cash flows from its assets to meet the expected cash requirements of
its liabilities. The Company utilizes these studies to determine if it is
necessary to lengthen or shorten the average life and duration of its
investment portfolio.
Reinsurance
Under generally accepted accounting principles, amounts recoverable from the
reinsurer for future contract benefits are reflected as assets ("investment
contract benefits recoverable") and the related policy liability is presented
separately. Under statutory accounting, the recoverable amounts are off set
against the related policy liabilities.
In 1991, the Delaware Department of Insurance ("Delaware") expressed concern
over Investors' ratio of statutory policy liabilities to its capital and
surplus. To address this concern, on October 1, 1991 Investors entered into a
coinsurance agreement with Republic-Vanguard Life Insurance Company ("RVL"), a
member of Winterthur Swiss Insurance Group, one of the largest Swiss insurance
companies. Under the terms of this agreement 80% of all new annuity contracts
written by Investors was coinsured with RVL. This agreement enabled the
Company to slow the growth of its policy liabilities while at the same time
adding additional capital and surplus from the profits on the coinsured
portion of the business.
By 1994, however, the growth of the unreinsured portion of the business had
raised the ratio of statutory policy liabilities to capital and surplus to a
level that brought renewed concern from Delaware. To address this concern,
Investors increased the coinsurance rates for new business from 80% to 90% on
October 1, 1994 and to 100% on May 1, 1995 while at the same time it developed
plans to raise additional capital. Raising the coinsurance rates stopped the
ratio from significantly increasing, but by late 1995 the ratio was still in
excess of twenty to one, in excess of Delaware's target of fifteen to one, and
<PAGE> 6
it became clear that additional capital could not be raised prior to the end
of the 1995. Therefore, in early 1996, Investors entered into an agreement to
cede a block of annuity policies with statutory policy reserves of $76,306,929
to New Era Life Insurance Company ("New Era"). This reinsurance agreement
provides for an initial coinsurance period (up to five years) followed by full
assumption of the specified policies. Investors will continue to service
these policies through December 31, 2000. Under its terms, this agreement
became effective on December 31, 1995 and, with Delaware's approval, was
reflected in Investors' 1995 statutory statement. (However, since the
agreement did not actually close until 1996, it was reflected as a 1996
transaction under generally accepted accounting principles.) This additional
reinsurance reduced the ratio below Delaware's target.
During 1996, the Company plans to continue its efforts to raise additional
capital (see discussion below under Regulations and Licensing). This
additional capital will enable it to reduce its coinsurance rate on new
business and grow its block of inforce business while avoiding Delaware's
concern about the ratio.
Investors receives acquisition ceding commissions and continuing service fees
on coinsured business. Until December 31, 1993, the Company's accounting
policy was to reduce the deferred acquisition costs related to the ceded
annuity contracts by the portion of the costs recovered through the ceding
commission and to recognize the excess ceding commission at the time it was
received. Effective January 1, 1994, the Company adopted a new accounting
policy under which the recovered acquisition cost and excess ceding commission
are recognized over the life of the related annuity contracts.
The new accounting policy is derived from provisions of Statement of Financial
Accounting Standards (SFAS) No. 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts." Under SFAS 113, ceding
profits of an insurance company resulting from ceding insurance risks (as
specifically defined) are recognized over the life of the related insurance
policy, rather than as the risk is ceded. SFAS No. 113 provides specific
guidance on accounting for the excess ceding commissions that result from the
transfer of insurance risks. For other types of risk transfer arrangements,
such as the Company's coinsurance of its annuity contracts, SFAS No. 113
simply specifies "deposit accounting" and does not provide specific guidance
for applying this method of accounting. Many insurance companies have adopted
a type of "deposit accounting" very similar to the accounting specified
for insurance risks, under which excess ceding commissions are recognized over
the life of the related contracts. In view of this emerging consensus, and in
the interest of comparability of its financial statements with those of other
insurance companies, the Company has decided to adopt this approach to
accounting for its excess ceding commissions.
Under the new accounting method, the deferred acquisition costs related to the
annuities are not reduced; the full ceding commission, including the ceding
profit and the recovery of the annuity acquisition costs, is treated as
unearned income. This unearned ceding commission is treated as earned in
direct relation to the present value of expected gross profits of the related
annuity contracts, which is the same manner in which the related deferred
amortization costs are amortized. Like deferred acquisition costs, the
unearned ceding commission will be adjusted retrospectively when changes are
made to the current or future estimated gross profits. As the ceding
commission is earned, the profit portion is recognized as commission income
and the cost recovery portion is offset against the amortization of deferred
acquisition costs.
<PAGE> 7
Normally, the Company plans to recover its acquisition cost and make its
profit from the excess of investment income over interest credited and other
expenses. If the policy is prematurely terminated, the Company may not
recover its acquisition costs. However, if the risk is coinsured, premature
termination will accelerate recognition of the unearned ceding commission.
In May of 1992, Investors Insurance negotiated a stop loss reinsurance treaty
with RVL. This treaty (INVE0002) was entered into in an effort to further
increase consumer confidence in the Company's financial stability. Under the
terms of this agreement, RVL will provide excess of loss coverage on the 20%
of Investors' annuities not directly ceded to them and will pay any losses in
excess of 120% of the sum of premiums plus investment income plus any positive
net capital gains on the policies covered. This treaty became effective June
1, 1992 for all annuity premium written through December 31, 1992. In 1993,
the stop loss terms were revised to reduce the cost to Investors from 0.020%
of premiums to 0.014% of premiums. This reduction was accomplished by
increasing the attachment point for the beginning of coverage from 120% to
130% of the sum of premiums plus investment income plus any positive net
capital gains. The new treaty (INVE0003, amended by INVE004 and INVE005)
became effective on January 1, 1993 and covered all annuity policies written
through December 31, 1994. Policies issued after December 31, 1994 are not
covered by these stop loss arrangements.
To offset the surplus strain on the accelerated benefit life product,
Investors negotiated a reinsurance agreement with Winterthur Life Re ("WLR"),
another member of the Winterthur Swiss Insurance Group. This agreement
(INVEWL01) provided that 80% of all accelerated benefit life policies written
be coinsured with WLR. The commissions and expense allowance for this product
equals 145% of first year premium with additional amounts for renewal premiums
ranging from 17% in years 2 through 10 to 15% for years eleven and after.
Employees and Independent Contractors
As of February 15, 1996, the Company and its subsidiaries had 27 full-time
employees and 3 part-time employees. As of the same date, Investors had
approximately 2,000 independent insurance agents licensed directly to it. All
of these agents are independent contractors who also represent other insurance
companies and are not employees of Investors.
Competition
The life insurance industry is highly competitive with many life insurance
companies offering diverse products with many alternative marketing or
distribution systems. Many of these life insurance companies have been in
business for a longer time, are more widely known by reason of such factors as
age and size and have greater financial resources than the Company. However,
due to the specialized nature of Investors' products, the Company competes
directly with a relatively small number of other insurance companies
nationwide and in regional and state markets. Management believes that
Investors has been able to attract and will continue to be able to attract,
motivate and retain productive independent marketing organizations and agents
by providing quality products and service.
Currently, banks and bank holding companies are entering the insurance and
securities businesses resulting in increased competition for the Company's
products. The banking industry can be expected to continue to seek expanded
powers to sell insurance and annuities through both changes in the law or
<PAGE> 8
interpretation of current laws. The ultimate outcome and timing of such
changes are not easily anticipated, but the Company will continue to monitor
developments in order to respond quickly to new opportunities or increased
competition.
Regulation and Licensing
As an insurance company, Investors is subject to regulation and supervision in
the states in which it is authorized to do business. This regulation is
designed primarily to protect policyholders. Although the extent of
regulation varies from state to state, in general the insurance laws of the
states establish supervisory agencies with broad administrative powers. These
powers include the granting and revocation of licenses to transact business,
licensing of agents, approval of products and policy forms, determination of
permissible investments, and establishment of minimum reserve requirements and
capital and surplus levels.
The state regulations require Investors to file detailed periodic financial
reports with the supervisory authorities in each of the states in which it
does business. These reports are prepared based on what is known as the
statutory accounting principles, which differs from the generally accepted
accounting principles ("GAAP"). The primary differences between these two
sets of accounting principles are:
Deferred Acquisition Costs. These costs are treated as a period
expense on a statutory basis, but are amortized over the expected gross
profits under GAAP;
Policy Liabilities. The calculation of the liability for future policy
benefits is based on different assumptions for statutory purposes than
for GAAP and is reported net of reinsurance;
Unearned Ceding Commission. Subsequent to the change in GAAP
accounting described in footnote 1, the excess ceding commission (GAAP
profit) is deferred and amortized based on the expected gross profit of
the related annuity contracts. Prior to this change, both statutory
and GAAP profits were consistently recognized as the business was
ceded;
Investment Market Value Adjustment. All fixed maturity securities are
reported at amortized cost for statutory purposes, while GAAP requires
the fixed maturities classified as "available for sale" to be reported
at market value for 1995 and 1994 and at the lower of aggregate
amortized cost or market in prior years;
Goodwill. The excess of the purchase price of Investors over its
identifiable assets and liabilities is deferred and amortized for GAAP.
These costs are not recognized under statutory accounting;
Interest Maintenance and Asset Valuation Reserves. These reserves are
treated as liabilities for statutory purposes, but are restored to
capital and surplus for GAAP;
Non-Admitted Assets. Certain designated assets are not recognized
under statutory accounting;
<PAGE> 9
Deferred Income Taxes. Under certain conditions, the impact of certain
variances from taxable income is recognized as an adjustment to income
tax expense for GAAP, but not for statutory accounting purposes; and
Premium Revenue. Under GAAP, premiums related to certain interest
sensitive products is excluded from revenue.
In addition to these differences, from time to time, insurance companies may
record transactions in different periods for regulatory purposes than under
generally accepted accounting principles. The New Era reinsurance agreement
was recorded in 1995 for statutory accounting but in 1996 under generally
accepted accounting principles.
Since Investors is incorporated in Delaware, the Delaware Department of
Insurance is the primary regulatory body which supervises Investors'
operations. However, other states' agencies (such as Florida, Arizona and
California) exercise regulatory authority over Investors where the majority of
its products are sold. Under the rules of the National Association of
Insurance Commissioners ("NAIC"), one or more of the supervisory agencies will
examine Investors periodically (usually at three year intervals) on behalf of
all the states in which it is licensed to conduct business. During 1993,
Investors was examined by the Delaware Department of Insurance for the three
year period ended December 31, 1992. The official examination report
contained no significant adjustments with respect to Investors' statutory
financial statements or capital and surplus. In February 1996, the Delaware
Department of Insurance began its regular triennial examination for the period
ended December 31, 1995. This examination is expected to be completed near
the end of 1996.
The NAIC has established risk-based capital standards to determine the capital
requirements of a life insurance company based on the type and mixture of
risks inherent in its operations. These standards require the computation of
a risk-based capital amount which is then compared to a company's actual total
adjusted capital. The computation involves applying factors to various
statutory financial data to address four primary risks: asset default, adverse
insurance experience, interest rate risk and external events. These
standards, effective in 1993, provide for regulatory attention when the
percentage of total adjusted capital to authorized control level risk-based
capital is below certain levels. At December 31, 1995, Investors' percentage
of total adjusted capital is well in excess of ratios which would require
regulatory action.
The NAIC has formulated twelve ratios which are referred to as the Insurance
Regulatory Information System ("IRIS") ratios. The IRIS ratios are used to
help evaluate each life insurance company's financial performance. Companies
which have four or more ratios falling outside of the "expected" ranges may be
subject to additional regulatory review. In 1995, Investors had five IRIS
ratios falling outside the expected ranges. Investors will furnish an
explanation of the exceptions to the Delaware Department of Insurance, which
may then disseminate the information to other insurance departments.
Investors may experience future IRIS ratios outside of industry standards due
to continued growth and extensive use of reinsurance, but management does not
anticipate any substantial regulatory issues to result.
During 1995, Delaware expressed increased concern over Investors' high ratio
of statutory policy liabilities to capital and surplus. In December 1995, the
IIG signed a definitive agreement to sell Investors to Standard Management
Corporation ("SMC") in exchange for stock of SMC and relief from IIG's $8
million note. However, in the first quarter of 1996, the agreement was
<PAGE> 10
terminated and a controversy ensued between IIG and SMC regarding the basis of
this termination. In April 1996, IIG agreed to settle all the disputes
arising from this agreement and its termination by paying SMC $8,000 in cash
and 72,000 restricted shares of IIG stock.
Simultaneously with IIG's search for additional capital, Investors responded
directly to Delaware's concern by structuring a reinsurance agreement for a
significant block of its business. As described in Note 5 of the Company's
financial statements, in the first quarter of 1996, Investors closed a
reinsurance agreement with New Era. This agreement was effective December 31,
1995 and, based on Delaware's approval, was recorded in Investors' statutory
financial statements for 1995 (under generally accepted accounting principles,
this transaction was recorded in 1996). As a result, Investors' ratio of
statutory liabilities to capital and surplus was reduced below Delaware's
target. However, Delaware continues to monitor Investors closely, including
reviewing and approving certain expenditures.
Because of the amount of business Investors writes in California
(approximately 33% of its total in 1995), that State considers Investors to be
"commercially domiciled" in California and regulates it accordingly.
Therefore, in addition to Delaware's approval, Investors had to obtain
approval for the New Era reinsurance agreement from the California Department
of Insurance ("California"). California approved the coinsurance portion on
the New Era agreement, but wanted additional time to review the assumption
portion of the agreement. Investors agreed to arrange a capital infusion that
would raise its statutory capital and surplus to $11 million by June 30, 1996
in order to continue to write new business in California. The Arizona
Department of Insurance ("Arizona") has raised questions about Investors'
continuing ability to write new business at, or above, its 1995 level based on
its current statutory capital and surplus. In 1995, Investors wrote
approximately 24% of its new business in Arizona.
To satisfy both California and Arizona, the Company signed a definitive
agreement on April 29, 1996 with AAM Capital Partners, L. P. ("AAM") for the
sale of up to $7,000,000 of convertible voting preferred stock (70,000
shares). This infusion of capital will be used to recapitalize IIG's
insurance subsidiary, Investors Insurance Corporation. The insurance company
will then be able to retain a larger portion of its profitable annuity
business that is currently being ceded to a reinsurer. AAM has in-depth
expertise of insurance operations and plans to help IIG utilize its marketing
expertise in a number of new and expanding markets. AAM is an equity
investment fund which participates in investments in the insurance industry.
Under the terms of the agreement, which is scheduled to close on June 30,
1996, IIG's Board of Directors will expand to seven members. As separate
groups, the owners of the preferred and common shares will each separately
elect three directors. The remaining director will be elected by all the
shareholders. Each preferred share will be convertible at any time into 100
shares of common stock or, after December 31, 2001, redeemable for $100 per
share, plus accrued dividends at the option of the holder. In conjunction
with this agreement, IIG will exchange 250,000 restricted shares of its common
stock for all of IIG's currently outstanding warrants to purchase 1,000,000
shares of common stock. These warrants are currently held by Chester County
Fund, Inc., IIG's largest shareholder.
In addition to the normal and customary contingencies, final closing of the
agreement is subject to regulatory approval and the full subscription of AAM's
coinvestor group.
<PAGE> 11
If this agreement closes as scheduled, the additional capital should satisfy
the conditions set by both California and Arizona and reduce the level of
regulatory scrutiny from Delaware.
Item 2. Properties
The Company leases approximately 1,300 square feet of office space on the
second floor of a building at 7200 West Camino Real, Boca Raton, Florida
33433. This lease expires on September 30, 1998.
Investors leases approximately 6,700 square feet of office space on the third
floor of a building at 3030 Hartley Road, Jacksonville, Florida 32257. This
lease expires on October 31, 1996.
Neither the Company or its subsidiaries own any commercial real estate.
Item 3. Legal Proceedings
There is action pending against the Company in the Supreme Court of the State
of New York, County of New York entitled Federal Insurance Company v. Gemco
National, Inc. in which Federal Insurance Company ("Federal") seeks
compensatory damages of $596,000 for an alleged breach of contract. Federal
alleges that the Company breached its agreement with Federal to pay the
premiums on its automobile, worker's compensation and commercial insurance
policies underwritten by Federal for the Company's former subsidiary, the
Ampat Group Inc. Oral depositions in regard to this matter commenced in the
Spring of 1990. There has been no activity with regards to this matter since
that time. Management intends to vigorously defend this action. Management
believes the Company has valid defenses which it will assert in defense of
this matter.
There exists a dispute between the Pennsylvania Department of Insurance, as
statutory liquidator of Corporate Life Insurance Company, and the Delaware
Department of Insurance, as liquidator of National Heritage Life Insurance
Company, as to the ownership of the Secured Subordinated Debenture issued in
1989 by Gemco National, Inc. to Corporate Life Insurance Company in connection
with the purchase by Gemco of all of the outstanding shares of stock of IIC,
Inc., Investors Insurance Corporation and Westchester Reinsurance, Ltd. To
avoid being subject to double liability, the Company filed a Complaint in
Equity for Interpleader with the Pennsylvania Commonwealth Court captioned
Investors Insurance Group, Inc. v. Insurance Commissioner of Pennsylvania
Department of Insurance and Insurance Commissioner of Delaware Department of
Insurance, (518 MD 1995, PA Cmwlth Ct. 1995). The parties involved in this
action had entered into a 90 day standstill agreement, however, no resolution
of the issues involved in this action was reached. On March 4, 1996,
Defendant, Insurance Commissioner of Delaware Department of Insurance, filed
preliminary objections to the original complaint and on April 16, 1996 to an
amended complaint filed by the Company in response to the preliminary
objections originally filed. Defendant, Insurance Commissioner of
Pennsylvania Department of Insurance has been granted two additional 30 day
extensions to file and answer. The resolution of the above action will not
cause additional liability to the Company.
In connection with the above action, the Delaware Department of Insurance
filed on March 14, 1996, a Petition for Declaratory Judgment, Specific
Performance and Injunctive Relief against Investors Insurance Group, Inc. in
the case entitled, In The Matter of the Liquidation of National Heritage Life
<PAGE> 12
Insurance company, (C. A. Nd 13530, DE Ct. Chancery, 1996). The Delaware
Department of Insurance has requested the Court to enter a declaratory
judgment that it is the owner of the Secured Subordinated Debenture and as
such, is entitled to receipt of interest payments being held in escrow, and is
entitled to have the Debenture registered in its name. The action also
requests the Court to declare that the Debenture is a negotiable instrument
and that the Company does not have any claim to offset the principal amount of
the Debenture and further seeks indemnification from the Company. The Company
is currently reviewing these filings and extensions. The ultimate outcome of
this case cannot be determined at this time.
Item 4. Submission of Matters to a Vote of Security Holders
At its Annual Meeting on November 17, 1995, the shareholders elected five
directors and approved an Amendment to the Articles of Incorporation
authorizing a class of Preferred Stock, and granting exclusive authority to
the Board of Directors to determine the rights, preferences an limitations of
the Preferred Stock. The results of the vote were as follows:
For Against Abstained
--------- ------- ---------
Directors:
Melvin C. Parker 2,166,068 28,904 0
Ronald W. Hayes 2,166,068 28,904 0
Donald F. U. Goebert 2,166,068 28,904 0
Ernest D. Palmarella 2,165,968 29,004 0
Jack L. Howard 2,165,968 29,004 0
Amendment Authorizing Preferred Stock 1,406,515 130,769 7,195
<PAGE> 13
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters.
(A) Market Information
The Registrant's common stock is traded on the American Stock Exchange. The
following table sets forth the high and low sale prices for the stock by
calendar quarter for 1995 and 1994.
1995 1994
---------------- ----------------
HIGH LOW HIGH LOW
------ ------- ------- -------
First Quarter............... 2 3/8 1 3/4 2 5/8 1 9/16
Second Quarter.............. 2 1/8 1 15/16 2 3/8 1 9/16
Third Quarter............... 1 13/16 1 1/8 2 1/8 1 5/8
Fourth Quarter.............. 1 3/8 15/16 1 15/16 1 9/16
(B) Holders.
As of April 8, 1996, there were 751 shareholders of record of common stock of
the Registrant. The Registrant has no precise knowledge as to the number of
beneficial holders of the Registrant's common stock.
(C) Dividends
The Registrant has not paid any dividends during the past two years and at the
present time it is not expected that dividends will be paid in 1996.
<PAGE> 14
Item 6. Selected Financial Data
(in thousands except per share amounts)
As of and for the year ended December 31,
----------------------------------------------
INCOME SUMMARY 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues $ 15,260 $ 12,453 $15,268 $12,885 $10,797
Net Investment
Income 11,598 10,751 10,052 8,459 5,882
Income (Loss) before
income taxes (517) (2,973) (498) 334 874
Net Income (Loss) (381) (7,030) (864) 313 265
PER SHARE OF COMMON STOCK
Income (Loss) before
income taxes $ (0.19 $ (1.07) $ (0.18) $ 0.12 $ 0.32
Net Income (Loss) (0.14) (2.54) (0.31) 0.11 0.10
BALANCE SHEET
Total Assets $574,486 $462,041 $322,147 $229,675 $140,861
Total Investments 160,619 143,746 130,887 121,217 103,784
Investment contract
benefits recoverable 351,489 262,058 162,351 86,717 16,841
Future policy benefit
- - Investment Contracts 511,315 422,937 304,734 212,966 123,611
Note Payable 8,000 8,000 8,000 8,000 8,000
Shareholders' Equity 1,428 (16,318)2 585 1,328 1,710
_______________________
1 In 1994, the Company changed its method of accounting for ceding
commissions. For a discussion of this issue, see "Change in Accounting for
Ceding Commission" in Note 1 to the financial statements in Item 8.
If the new accounting principle had been in effect in prior years, the results
above would have been different. Those pro forma amounts that would have been
changed are presented in the table below.
<PAGE> 15
Summary of Selected Pro Forma Financial Data that would have been different if
the change in accounting adopted in 1994 had been in effect in prior years
1993 1992 1991
---- ---- ----
Revenue $13,614 $ 11,236 $10,241
Income (loss) before income tax (2,152) (1,315) 318
Net loss (2,518) (1,336) (291)
Shareholders' Equity (3,274) (877) 1,154
Per Share Items:
Income (loss) before income tax $ (0.78) $ (0.48) $ 0.11
Net loss (0.91) (0.48) (0.11)
2 Balance reflects the impact of adopting Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity
Securities.
<PAGE> 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The following analysis discusses the results of operations and financial
condition of Investors Insurance Group, Inc. (the "Company") and its wholly-
owned subsidiaries, primarily Investors Insurance Corporation ("Investors"),
and should be read in conjunction with the Company's consolidated financial
statements and notes thereto included elsewhere in this report.
Primary Product
The Company, through its subsidiary Investors, specializes in the sale of
flexible premium deferred annuity products ("FPDA") as a retirement savings
vehicle for individuals. During the past three years, sales of FPDAs have
accounted for over 95% of the Company's total premiums received and were
$106.3 million, $123.8 million and $95.9 million in 1995, 1994 and 1993,
respectively.
Under generally accepted accounting principles ("GAAP"), premiums received on
FPDAs are not recognized as revenue at the time of sale but rather are
reflected as future policy liabilities. Similarly, policy acquisition costs
(primarily commissions) related to such sales are not recognized as expenses
but rather are capitalized as deferred acquisition costs ("DAC"). As a result
of this process, no profit or loss is realized at the time of sale.
The Company's operating earnings from this product are derived from the excess
of investment income (including interest and investment gains (losses) and
surrender fees over the sum of interest credited to annuity contracts and
acquisition and maintenance expenses. Over the life of an annuity, net
investment income, net investment gains (losses) and policy fees are
recognized as revenue and DAC is amortized as an expense. The timing of the
DAC amortization is based on the estimated gross profits which is adjusted
based on actual experience. The Company's earnings depend, in large part,
upon persistency of its annuities to enable it to recover the unamortized
portion of its DAC. The Company uses surrender charges in annuity policies
both to discourage, and to mitigate, the effect of premature withdrawals.
Reinsurance
Under generally accepted accounting principles, amounts recoverable from the
reinsurer for future contract benefits are reflected as assets ("investment
contract benefits recoverable") and the related policy liability is presented
on a gross basis. Under statutory accounting, the amounts are off-set against
the related policy liabilities.
In 1991, the Delaware Department of Insurance ("Delaware") expressed concern
over Investors' ratio of statutory policy liabilities to its capital and
surplus. To address this concern, on October 1, 1991 Investors entered into a
coinsurance agreement with Republic-Vanguard Life Insurance Company ("RVL"), a
member of Winterthur Swiss Insurance Group, one of the largest Swiss insurance
companies. Under the terms of this agreement 80% of all new annuity contracts
written by Investors was coinsured with RVL. This agreement enabled the
Company to slow the growth of its policy liabilities while at the same time
adding additional capital and surplus from the profits on the coinsured
portion of the business.
<PAGE> 17
By 1994, however, the growth of the unreinsured portion of the business had
raised the ratio of statutory policy liabilities to capital and surplus to a
level that brought renewed interest from Delaware. To address this concern,
Investors increased the coinsurance rates for new business from 80% to 90% on
October 1, 1994 and to 100% on May 1, 1995 while at the same time it developed
plans to raise additional capital. Raising the coinsurance rates stopped the
ratio from significantly increasing, but by late 1995 the ratio was still in
excess of twenty to one, well in excess of Delaware's target of fifteen to
one, and it became clear that additional capital could not be raised prior to
the end of the 1995. Therefore, Investors began working on an additional
reinsurance arrangement.
In early 1996, Investors entered into an agreement to cede a block of annuity
policies with statutory policy reserves of $76,306,929 to New Era Life
Insurance Company ("New Era"). This reinsurance agreement provides for an
initial coinsurance period (up to five years) followed by full assumption of
the specified policies. Investors will continue to service these policies
through December 31, 2000. Under its terms, this agreement became effective
on December 31, 1995 and, with Delaware's approval, was reflected in
Investors' 1995 statutory statement. (However, since the agreement did not
actually close until 1996, it was reflected as a 1996 transaction under
generally accepted accounting principles.) This additional reinsurance
reduced the ratio below Delaware's target.
During 1996, the Company plans to continue its efforts to raise additional
capital (see discussion below under Liquidity and Capital Resources). This
additional capital will enable the Company to reduce its coinsurance rate on
new business and grow its block of inforce business without adversely
impacting the ratio.
Reinsurance Accounting
Investors receives acquisition ceding commissions and continuing service fees
on coinsured business. Until December 31, 1993, the Company's accounting
policy was to reduce the deferred acquisition costs related to the ceded
annuity contracts by the portion of the costs recovered through the ceding
commission and to recognize the excess ceding commission at the time it was
received. Effective January 1, 1994, the Company adopted a new accounting
policy under which the recovered acquisition cost and excess ceding commission
are recognized over the life of the related annuity contracts.
The new accounting policy is derived from provisions of Statement of Financial
Accounting Standards (SFAS) No. 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts." Under SFAS 113, ceding
profits of an insurance company resulting from ceding insurance risks (as
specifically defined) are recognized over the life of the related insurance
policy, rather than as the risk is ceded. SFAS No. 113 provides specific
guidance on accounting for the excess ceding commissions that result from the
transfer of insurance risks. For other types of risk transfer arrangements,
such as the Company's coinsurance of its annuity contracts, SFAS No. 113
simply specifies "deposit accounting" and does not provide specific guidance
for applying this method of accounting. Many insurance companies have adopted
a type of "deposit accounting" very similar to the accounting specified for
insurance risks, under which excess ceding commissions are recognized over the
life of the related contracts. In view of this emerging consensus, and in the
interest of comparability of its financial statements with those of other
insurance companies, the Company decided to adopt this approach to accounting
for its excess ceding commissions.
<PAGE> 18
Under the new accounting method the deferred acquisition costs related to the
annuities are not reduced; the full ceding commission, including the ceding
profit and the recovery of the annuity acquisition costs, is treated as
unearned income. This unearned ceding commission is treated as earned in
direct relation to the present value of expected gross profits of the related
annuity contracts, which is the same manner in which the related deferred
acquisition costs are amortized. Like deferred acquisition costs, the
unearned ceding commission will be adjusted retrospectively when changes are
made to the current or future estimated gross profits. As the ceding
commission is earned, the profit portion is recognized as commission income
and the cost recovery portion is offset against the amortization of deferred
acquisition costs.
Normally, the Company plans to recover its acquisition cost and make its
profit from the excess of investment income over interest credited and other
expenses. If the policy is prematurely terminated, the Company may not fully
recover its acquisition costs. However, if the risk is coinsured, premature
termination will accelerate recognition of the unearned ceding commission.
Ancillary Products
The Company expanded its senior oriented product line in 1993 with the
addition of a Medicare supplement health insurance plan and an accelerated
benefit life insurance product.
The Company's Medicare supplement plan was specifically designed to attract
female non-smokers, while the accelerated benefit plan was designed to provide
a 100% acceleration of the death benefit upon the diagnoses of a 12 month
terminal illness. Development and marketing efforts were quite extensive and
cost over $630,000 during 1993. Following the introduction of the Medicare
supplement product, this very competitive market became subject to much
uncertainty, primarily attributed to the intense scrutiny placed on health
care by federal and state governments. In addition, the promotion of Medicare
HMOs put a significant strain on the Company's ability to compete effectively
in this market. In December 1993, with expected premium volumes well below
break-even levels, management withdrew the Medicare supplement policy from the
market. To further reduce its exposure to future losses, in April 1994, the
Company negotiated the sale of its in force Medicare supplement business to
Old Surety Life Insurance Company.
The accelerated benefit life product, while well received by some agents, did
not generate significant interest in the marketplace and management withdrew
the product from the market in December 1994.
Results of Operations
Premiums and policy fees increased $397,000, or 31.4%, to $1.7 million in 1995
from $1.3 million in 1994. This increase is primarily attributable to the
surrender or conversion of annuity policies. As these transactions take
place, the Company earns fees from surrender charges and premium income from
conversion to policies with life-contingent settlement options.
Premiums and policy fees decreased $162,000, or 11.4%, to $1.3 million in 1994
from $1.4 million in 1993. This decrease is attributed to the reduction in
premiums on the Medicare Supplement business following withdrawal of the
product from the market.
<PAGE> 19
Net investment income increased $.8 million, or 7.9%, to $11.6 in 1995 from
$10.8 million in 1994, due primarily to the 8.5% growth of the weighted
average portfolio base. This increase was partially offset by a slight
decline in the average yield.
Net investment income increased $.7 million, or 7%, to $10.8 in 1994 from
$10.1 million in 1993, due to growth in the portfolio asset base. The
increase from asset growth was mitigated, however, by a decline in the average
yield on the portfolio from 7.9% in 1993 to 7.4% in 1994. The average yield
decline resulted from amortization/accretion adjustments required by revised
CMO cash flow estimates utilized in projecting amortization/accretion of bond
premium/discount.
Realized investment gains (losses) increased $1.4 million, or 414.1%, to $1.1
million in 1995 from $(0.3) million in 1994. The 1995 gains are primarily the
result of the following: a). a gain of $242,000 resulting from the merger of
Jupiter Tequesta National Bank ("JNB") into First United Bancorp ("FUB") in
which the Company received cash and shares of FUB in exchange for the
Company's shares of Jupiter TNB, b). a gain of $132,000 from the settlement of
a litigation matter related to an investment that was written off several
years ago, and c). gains of approximately $716,000 resulting from a program to
reduce its investment in CMO type securities.
Realized investment gains (losses) decreased $2.0 million, or 120.9%, to
$(0.3) million in 1994 from $1.7 million in 1993. This decrease is the
combined result of the stabilization of market interest rates (which resulted
in fewer security trades needed to maintain balance between the investment
portfolio and the related policyholder liabilities) and recognition of a loss
of $1.3 million to adjust the cost basis of an investment in the common stock
of an affiliate to reflect its current market trading range. Management
believes the decline in market value of this investment is other than
temporary.
Commission and other income increased $0.1 million, or 15.9%, to $0.9 million
in 1995 from $0.8 million in 1994. This increase is primarily due to the
increasing service fees on the growing block of reinsured policies. This
increase in service fee income is partially off-set by the reduction of
reinsurance commission income related to Medicare supplement and accelerated
life products which were discontinued in 1994.
Commission and other income decreased $1.3 million, or 61.9%, to $0.8 million
in 1994 from $2.1 million in 1993. Commission income makes up the majority of
this item and relates to compensation for the Company's sales and distribution
system received from its coinsurer. This change is primarily the result of
the change in the timing of the recognition of the ceding commission income
from the specific ceding date to recognition over the life of the related
annuity contract.
Current and future insurance benefits increased $0.2 million, or 34.0%, to
$0.9 million in 1995 from $0.7 in 1994. This increase reflects the combined
impact of the discontinuation of the Medicare supplement and accelerated life
products in 1994 and the increasing value of the life contingent polices
(primarily due to interest) issued as annuity settlement options.
Current and future insurance benefits increased only $26,000, or 4.0%, to
$0.68 million in 1994 from $0.65 million in 1993. The increase is attributed
to benefits recorded for the Medicare supplement and accelerated benefit life
products introduced and sold during 1993 and 1994.
<PAGE> 20
Interest on investment contracts increased $0.5 million, or 5.8%, to $9.6 in
1995 from $9.1 million in 1994. While the weighted average crediting rate
continued to decline in 1995, the weighted average policy reserve balance
increased approximately 6.9% over 1994.
Interest on investment contracts increased $0.4 million, or 4.5%, to $9.1 in
1994 from $8.7 million in 1993. The increase in interest on investment
contracts of 4.2% in 1994 compared to 1993 is attributed to the growth of
investment contracts inforce. Partially off-setting this increase, the
weighted average crediting rate for investment contract deposits declined from
6.5% in 1993 to 6.0% in 1994, as credited rates on contracts issued in 1993
and 1992 were renewed in the 4% to 5% range.
Underwriting, acquisition and insurance expenses decreased $0.3 million in
1995, or 6.9%, to $4.3 million in 1995 from $4.6 million in 1994. This cost
reduction is primarily the result of the reduction of promotional expenses
supporting the discontinued Medicare Supplemental and Accelerated Benefit Life
products and the disposal cost of the remaining Medicare Supplemental policies
which were incurred in 1994. Also, based on the Company's actual experience,
there was some slowing of the amortization of deferred acquisitions costs in
1995.
Underwriting, acquisition and insurance expenses increased $0.9 million, or
16.1%, to $4.6 in 1994 from $5.6 million in 1993. The decrease of 15.9% in
1994 compared to 1993 is attributed to cost savings in printing and postage
for agent recruiting, coupled with a significant decrease in product
development expenses. The 1993 development of Medicare Supplement and
Accelerated Benefit Life products generated over $630,000 of expenses which
did not recur in 1994.
Other expenses decreased $0.1 million, or 9.3%, to $0.9 million in 1995 from
$1.0 million in 1994. This cost reduction is primarily related to the 1994
provision of an allowance on a receivable described below.
Other expenses increased $0.2 million in 1994, or 32.4%, to $1.0 million in
1994 from $0.8 million in 1993. This category consists of interest expense on
the $8.0 million secured subordinated debenture and amortization on the cost
in excess of net assets of businesses acquired asset. Effective December 1,
1994, management revised the estimated life of the cost in excess of net
assets of businesses acquired asset from 40 to 20 years. As a result of this
revision, the remaining unamortized balance of the cost in excess of net
assets of businesses acquired asset will be amortized over approximately 13
years, and the 1994 amortization was increased by $13,000. In 1994, other
expenses also includes an allowance of $237,000 against a reduction of the
original purchase cost of Investors. The former owner of Investors is
currently under state supervision and it is unclear whether any of this
purchase price reduction will be realized.
Income taxes decreased $0.3 million, or 168.7%, to $(0.1) million in 1995 from
$0.2 million in 1994. The Company maintains a 100% allowance against its net
deferred tax assets until the realization of such assets is more readily
determinable. Therefore, the tax expense balances shown reflect only the
current tax incurred by Investors. Investors' reinsurance transaction with
New Era Life Insurance Company, which was recognized in its 1995 statutory
basis financial statements, created a tax loss which can be carried back to
prior tax years. While the Company can consolidate its life and non-life
subsidiaries in 1995, the non-life tax losses can not be used to carryback
<PAGE> 21
against prior year returns. These non-life losses will be available for
carryforward in future years. However, the "change in control" that could
result from the issuance of the preferred stock to new investors as discussed
below could substantially reduce the Company's ability to utilize its non-life
loss carryforwards.
Income taxes decreased $0.2 in 1994, or 54.0%, to $0.2 million in 1994 from
$0.4 million in 1993.
Net loss decreased $6.6 million, or 94.6%, to $0.4 in 1995 from $7.0 million
in 1994. This decrease is primarily due to the change in accounting in 1994
and the change in realized investment gains (losses).
Net loss increased $6.1 million, or 813.6%, to $7.0 million in 1994 from $0.9
in 1993. The increase in loss from 1993 to 1994 is primarily attributable to
the change in accounting related to the timing of the recognition of ceding
commission income and the recognition of the unrealized loss on the common
stock of an affiliate.
Liquidity and Capital Resources
The Company is an insurance holding company whose principal asset is the
common stock of Investors. The Company's primary cash requirements are to
meet debt service and to pay operating expenses. As a holding company, the
Company relies on funds received from Investors in the form of commissions
paid under a management and service agreement whereby the Company provides
agent recruiting and administrative services. The insurance laws of the State
of Delaware generally limit the ability of Investors to pay cash dividends in
excess of certain amounts without prior regulatory approval and also require
that certain agreements relating to the payment of fees and charges to the
Company by Investors be approved by the Delaware Insurance Department. As
reflected in the parent only statement of cash flows in Note 9 to the
Company's financial statements, the parent company's cash flow from operations
has been insufficient to meet its operating needs for several years. In prior
years, IIG met this cash drain by liquidating its other investments. If this
cash drain continues at the level it experienced in 1995, there is substantial
doubt that IIG can continue to meet its obligations on a timely basis without
an additional source of funds. While not available at this time, the Company
is currently trying to develop new sources of cash (see discussion below).
On March 31, 1997, the Company will need to retire its $ 8 million note
payable which is secured by its shares of IIC, Inc. which owns all the
outstanding shares of Investors. This note originated as part of the purchase
of IIC, Inc and its subsidiary Investors. As described more fully in Note 6
to the Company's financial statements, the Company believes the balance of the
note is overstated because certain warranties made by seller were false.
Subsequent to the purchase, the seller (an insurance company), attempted to
transfer the non-negotiable note to another insurance company. Thereafter,
both insurance companies went into rehabilitation, one in Pennsylvania and the
other in Delaware. At this time, the Company cannot negotiate an appropriate
adjustment to the note amount since both Pennsylvania and Delaware claim
ownership. The Company plans to refinance this note or raise sufficient
capital to retire it, but no assurance can be given that this will be
accomplished.
The liquidity needs of Investors are met by premiums received from annuity
sales, net investment income received, the proceeds from investments upon
<PAGE> 22
maturity, sale or redemption and commissions received from its coinsurer on
annuity contracts transferred. The primary uses of funds by Investors are the
payment of surrenders, policy benefits, operating expenses and commissions,
and the purchase of assets for investment purposes. No material capital
expenditures are planned.
Investors tests the ability of its investment portfolio to fund its liability
to its policyholders under several possible future interest rate environments.
The results of these tests are used by the state regulatory authorities to
assess the adequacy of Investors' stated liabilities. Based on the results of
these tests, no adjustments to the stated liability have been required.
The NAIC has established risk-based capital standards to determine the capital
requirements of a life insurance company based on the type and mixture of
risks inherent in its operations. These standards require the computation of
a risk-based capital amount which is then compared to a company's actual total
adjusted capital. The computation involves applying factors to various
statutory financial data to address four primary risks: asset default, adverse
insurance experience, interest rate risk and external events. These standards
provide for regulatory attention when the percentage of total adjusted capital
to authorized control level risk-based capital is below certain levels. At
December 31, 1995, Investors percentage of total adjusted capital is well in
excess of the ratios which would require regulatory action.
Investors must maintain adequate statutory capital and surplus in order to
continue producing annuity premium in the jurisdictions in which it is
licensed. As discussed above, Delaware has expressed concern over Investors'
ratio of capital and surplus to policyholder liabilities, which was
approximately twenty to one at the end of 1994. At the end of 1995, as a
result of the increase in the coinsurance rates and the New Era agreement,
this ratio is less than fourteen to one, below Delaware's target of fifteen to
one.
Both California and Arizona (which together account for approximately 57% of
Investors new business in 1995) have expressed concern about Investors'
ability to continue writing new business unless its capital is substantially
increased. Investors has agreed to arrange a capital infusion that would
raise its statutory capital and surplus to $11 million by June 30, 1996 in
order to continue writing new business in California.
The Company signed a definitive agreement on April 29, 1996 with AAM Capital
Partners, L. P. ("AAM") for the sale of up to $7,000,000 of convertible voting
preferred stock (70,000 shares). This infusion of capital will be used to
recapitalize IIG's insurance subsidiary, Investors Insurance Corporation.
The insurance company will then be able to retain a larger portion of its
profitable annuity business that is currently being ceded to a reinsurer. AAM
has in-depth expertise of insurance operations and plans to help IIG utilize
its marketing expertise in a number of new and expanding markets. AAM is an
equity investment fund which participates in investments in the insurance
industry.
Under the terms of the agreement, which is scheduled to close on June 30,
1996, IIG's Board of Directors will expand to seven members. As separate
groups, the owners of the preferred and common shares will each separately
elect three directors. The remaining director will be elected by all the
shareholders.
Each preferred share will be convertible at any time into 100 shares of common
stock or, after December 31, 2001, redeemable for $100 per share, plus accrued
<PAGE> 23
dividends at the option of the holder. In conjunction with this agreement,
IIG will exchange 250,000 restricted shares of its common stock for all of
IIG's currently outstanding warrants to purchase 1,000,000 shares of common
stock. These warrants are currently held by Chester County Fund, Inc., IIG's
largest shareholder.
In addition to the normal and customary contingencies, final closing of the
agreement is subject to regulatory approval and the full subscription of AAM's
coinvestor group.
The Company's independent auditors have included an explanatory paragraph in
their report on the Company's financial statements stating that the Company's
significant operating losses, accumulated deficit and liquidity problems raise
substantial doubt about the Company's ability to continue as a going
concern. If this agreement closes as scheduled, management believes the
resulting funds should be adequate to assure that both IIG and Investors can
continue to operate in the normal course of business. If the agreement fails
to close as scheduled, management will attempt to develop alternative plans to
obtain the needed funds. However, there can be no assurance that this could
be done in a timely or economical manner.
Inflation and Changing Prices
The Company does not believe that inflation has had a material effect on its
consolidated results of operations.
Interest rate changes may have temporary effects on the sales levels and
profitability of the annuity products offered by the Company. For example,
regardless of whether interest rates rise or fall, competing investment
products (such as annuities offered by the Company's competitors, bank
certificates of deposit and mutual funds) may temporarily become more
attractive to potential customers. The Company constantly monitors
interest rates with respect to a spectrum of durations and sells annuities
that permit flexible responses to interest rate changes as part of its
management of interest spreads. As required, the Company adjusts the rate
credited to its policyholders to maintain its competitive position and to
achieve its required interest spread.
While the Company's CMO investment policy limits its investment in CMOs to low
risk tranches (PACs, TACs, etc.), Delaware encouraged the Company to reduce
its concentration in CMO investments. During 1995, it replaced several CMO
investments and reduced the portion of CMO investment to approximately 57%
of its bond portfolio as of December 31, 1995.
The Company manages its investment portfolio in part to reduce its exposure to
interest rate fluctuations. In general, the market value of the Company's
fixed maturity portfolio increases or decreases in inverse relationship with
fluctuations in interest rates, and the Company's net investment income
increases or decreases in direct relationship to interest rate changes. For
example, if interest rates decline, the Company's fixed maturity investments
generally will increase in market value, while net investment income will
decrease as fixed income investments mature or are sold and proceeds are
reinvested at the declining rates, and vice versa.
<PAGE> 24
Interest rate changes significantly effect the market value of the Company's
investment portfolio. Since the Company carries most of its investments at
market value, these changes, net of the related effects on the amortization of
deferred acquisition cost and unearned commission, and the related deferred
tax accounts, directly effect total shareholders' equity.
New Pronouncements by the Financial Accounting Standards Board
The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets Being Disposed of," which provides guidance on
how and when impairment losses are recognized on long-lived assets. This
statement, when adopted, is not expected to have a material impact on the
Company.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by FASB in
October 1995. The accounting requirements of this Statement are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
Disclosure requirements are also effective for fiscal year beginning after
December 15, 1995 although pro-forma disclosure is required for all awards
granted in fiscal years beginning after December 15, 1994. Disclosures for
awards granted in the first fiscal year beginning after December 15, 1994
(i.e. 1995 awards) are not required in financial statements for that fiscal
year but must be represented subsequently whenever financial statements for
that fiscal year are presented for comparative purposes. SFAS No. 123
encourages all entities to adopt a fair value based method of accounting for
all employee stock compensation plans. Under these fair value based method,
compensation cost is measured at the grant date based upon the fair value (as
defined by the Statement) of the award at that date and is recognized over the
service period. Companies not electing to adopt this fair value based method
may continue to account for these plans using the intrinsic value based method
prescribed by APB Opinion No. 25, although they must make program disclosures
of net income and earnings per share as if the fair value based method had
been used. The Company intends to continue to account for employee stock
compensation plans using APB No. 25 and will begin providing required pro
forma disclosures in 1996.
_________________________________________________
Caution on Forward-Looking Statements
The 1995 Private Securities Litigation Reform Act provides issuers the
opportunity to make cautionary statements regarding forward-looking
statements. Accordingly, any forward-looking statement contained herein or in
any other oral or written statement by the Company or any of its officers,
director or employees is qualified by the fact that actual results of the
Company may differ materially from such statement due to the following
important factor, among other risks and uncertainties inherent in the
Company's business:
Prevailing interest rate levels, including any continuation of the current
relatively flat yield curve for short-term investments, which may affect the
ability of the Company to sell its products, the market value of the Company's
investments or the lapse rate of the Company's policies, notwithstanding
product design features intentioned to enhance persistency of the Company's
products.
<PAGE> 25
Changes in the federal income tax laws and regulations which may affect the
relative tax advantage of the Company's products.
Changes in the regulation of financial services, including bank sales of
insurance products, which may affect the competitive environment for the
Company's products.
<PAGE> 26
Item 8. Financial Statements and Supplementary Data
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORTS 27-28
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993:
Consolidated Balance Sheets 29-30
Consolidated Statements of Operations 31-32
Consolidated Statements of Shareholders'
Equity and Capital Deficit 33
Consolidated Statements of Cash Flows 34-35
Notes to Consolidated Financial Statements 36-59
Unaudited Consolidated Quarterly Financial Data 60
SCHEDULES OF THE REGISTRANT:
(A) Schedule II - Condensed Financial Information
of Registrant (incorporated in Note 9 of
Notes to Consolidated Financial Statements)
SCHEDULES OF THE REGISTRANT AND CONSOLIDATED SUBSIDIARIES:
(A) Schedule I - Summary of Investments 61
(B) Schedule IV - Reinsurance (incorporated
in Note 5 of Notes to Consolidated
Financial Statements)
<PAGE> 27
Report of Independent Certified Public Accountants
The Board of Directors
Investors Insurance Group, Inc. and Subsidiaries
Jacksonville, Florida
We have audited the accompanying consolidated balance sheet of Investors
Insurance Group, Inc. and Subsidiaries as of December 31, 1995 and the related
consolidated statements of operations, shareholders' equity (capital deficit)
and cash flows for the year then ended. 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 audit.
We conducted our audit 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 of
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 the overall financial statement
presentation. We believe that our audit provides 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 Investors Insurance Group,
Inc. and Subsidiaries at December 31, 1995 and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has experienced significant operating
losses, has an accumulated deficit and is experiencing liquidity problems at
December 31, 1995. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
Orlando, Florida
May 3, 1996
<PAGE> 28
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Investors Insurance Group, Inc. and Subsidiaries:
We have audited the consolidated balance sheet of Investors Insurance Group,
Inc. and subsidiaries as of December 31, 1994, and the consolidated statements
of operations, shareholder's equity, and cash flows for the years ended
December 31, 1994 and 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 our audits to
obtain reasonable assurance about whether the financial statements are free of
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Investors
Insurance Group, Inc. and subsidiaries as of December 31, 1994, and the
results of their operations and their cash flows for the years ended December
31, 1994 and 1993, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standard Board's Statement
of Financial Accounting Standard No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." and changed its method of accounting for
excess ceding commissions.
Jacksonville, Florida
June 30, 1995
<PAGE> 29
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in thousands)
ASSETS 1995 1994
---- ----
Investments:
Fixed maturities held to maturity,
at amortized cost (market $10,556
in 1995 and $8,957 in 1994) $ 9,504 $ 9,509
Securities available for sale:
Fixed maturities, at market in 1995
(amortized cost $141,474 in 1995 and
$144,426 in 1994) 149,231 132,025
Equity securities, at market (cost $339
in 1995 and $407 in 1994) 366 662
Short-term investments 356 312
Mortgage loans on real estate 564 648
Policy loans 598 590
-------- --------
Total 160,619 143,746
Cash and cash equivalents 11,372 3,530
Investment in common stock of affiliate,
at market (costs $992 in both 1995 and 1994) 803 874
Accrued investment income 1,090 999
Deferred acquisition costs 42,468 45,405
Investment contract benefits recoverable 351,489 262,058
Reinsurance benefits recoverable 2,438 1,069
Cost in excess of net assets of businesses acquired
(less accumulated amortization of $1,014 in 1995
and $738 in 1994) 3,666 3,942
Other assets 541 418
-------- --------
Total Assets $574,486 $462,041
======== ========
See notes to consolidated financial statements.
<PAGE> 30
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1995 AND 1994
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIT)
1995 1994
---- ----
Liabilities:
Future policy benefits and claims:
Investment contracts $511,315 $422,937
Life insurance reserves 7,189 5,325
Accident & health claim reserves 5 11
Unearned ceding commission (including
deferred gross profits of $7,031 in 1995
and $6,959 in 1994) 38,062 36,755
Note payable 8,000 8,000
Amounts due to coinsurer 5,998 2,988
Accrued expenses 250 267
Other liabilities 2,239 2,076
-------- --------
Total 573,058 478,359
-------- --------
Commitments & Contingencies
Shareholders' Equity (Capital Deficit):
Preferred Stock, no par, authorized 20,000,000
shares, none issued - -
Common Stock, $.50 par value; authorized
30,000,000 shares; issued 2,767,782 in 1995
and 2,766,982 in 1994; outstanding 2,763,782
in 1995 and 2,766,982 in 1994 1,384 1,383
Additional paid-in capital 3,651 3,651
Net unrealized investment gains (losses) 7,083 (11,051)
Accumulated deficit (10,682) (10,301)
Treasury stock, at cost (4,000 shares in 1995) (8) -
------- -------
1,428 (16,318)
------- -------
Total Liabilities and Shareholders'
Equity (Capital Deficit) $574,486 $462,041
======== =======
See notes to consolidated financial statements.
<PAGE> 31
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in thousands, except per share data)
1995 1994 1993
Revenue: ---- ---- ----
Premium and policy fees $ 1,660 $ 1,263 $ 1,425
Net investment income 11,598 10,751 10,052
Realized investment gains (losses) 1,090 (347) 1,661
Commission and other income 912 786 2,130
-------- -------- --------
Total revenue 15,260 12,453 15,268
Benefits and Expenses:
Current and future insurance benefits 915 680 654
Interest on investment contracts 9,614 9,085 8,722
Underwriting, acquisition and
insurance expenses 4,326 4,645 5,623
Other expenses 922 1,016 767
------ ------ ------
Total benefits and expenses 15,777 15,426 15,766
------ ------ ------
Loss before income taxes (517) (2,973) (498)
Income tax expense (benefit) (136) 198 366
------ ------ ------
Loss before cumulative effect
of change in accounting principle (381) (3,171) (864)
Cumulative effect to December 31, 1993
of changing to a different method of
recognizing ceding commission income - (3,859) -
------ ------- -------
Net loss $ (381) $(7,030) $ (864)
====== ====== =======
See notes to consolidated financial statements.
<PAGE> 32
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in thousands, except per share data)
1995 1994 1993
---- ---- ----
Per Share of Common Stock:
Loss before cumulative effect
of change in accounting principle $ (0.14) $ (1.15) $ (0.31)
Cumulative effect to December 31, 1993
of changing to a different method of
recognizing ceding commission income - (1.39) -
------- ------- -------
Net loss $ (0.14) $ (2.54) $ (0.31)
======== ========= ========
Weighted Average Number of
Shares Outstanding 2,764,205 2,766,982 2,766,982
========= ========= =========
Pro forma amounts assuming the new ceding commission
recognition method is applied retroactively:
Net loss $ (3,172) $ ( 2,518)
============ ==========
Net loss per share of common stock $ (1.15) $ (0.91)
======== ==========
See notes to consolidated financial statements.
<PAGE> 33
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY (CAPITAL DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in thousands)
Common Stock Net
-------------- Additional unrealized
Number of Paid-in investment Accumulated Treasury
shares Amount capital gains (losses) deficit stock
--------- ------- ------- ------------- --------- -------
Balance at
January 1, 1993 2,831,482 $ 1,417 $ 3,657 $ (1,299) $ (2,407) $ (40)
Retirement of
treasury shares (52,926) (26) (5) - - 31
Change in net
unrealized losses - - - 121 --
Net loss - - - - (864) -
--------- ------- ------- --------------- --------- -------
Balance at
December 31, 1993 2,781,556 1,391 3,652 (1,178) (3,271) (9)
Cumulative effect
of change in accounting
principle regarding
fixed maturity
securities - - - 2,540 - -
Retirement of
treasury shares (14,574) (8) (1) - - 9
Change in net
unrealized losses - - - (12,413) - -
Net loss - - - - (7,030) -
--------- ------- ------- --------------- --------- -------
Balance at
December 31, 1994 2,766,982 1,383 3,651 (11,051) (10,301) -
Treasury shares
purchased - - - - - (8)
Common shares issued 800 1 - - - -
Change in net
unrealized losses - - - 18,134 - -
Net Loss - - - - (381) -
--------- ------- ------- --------------- --------- -------
Balance at
December 31, 1995 2,767,782 $1,384 $3,651 $ 7,083 $(10,682) $ (8)
========= ======= ======= =============== ========= =======
See notes to consolidated financial statements.
<PAGE> 34 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net loss $ (381) $ (7,030) $ (864)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Cumulative effect to December 31, 1994
of changing to a different method of
recognizing ceding commission income - 3,859 -
Net accretion of fixed maturities (594) (535) (565)
Realized investment losses (gains) (1,112) 347 (1,661)
Amortization of costs in excess of
net assets of businesses acquired 288 140 127
Amortization of deferred acquisition costs 1,351 1,610 1,779
Amortization of unearned ceding commissions (230) (255) -
Deferral of unearned ceding commission 12,420 12,776 -
Deferred acquisition costs recovered
upon transfer of investment contract - - 7,437
of investment contract deposits
Deferral of acquisition costs (11,038) (12,724) (9,348)
Change in assets and liabilities:
Increase in investment contract benefits
recoverable (18,899) (12,405) (8,649)
Increase in insurance reserves and
interest on investment contracts 30,190 21,880 18,199
Increase in other assets, net (1,595) (21) (812)
Increase in other liabilities, net 3,159 1,263 661
------- ------- ------
Net cash provided by operating
activities 13,559 8,905 6,305
------- ------- ------
Cash flows from investing activities:
Investment repayments:
Fixed maturities, held to maturity - - 250
Fixed maturities, available for sale - - 283
Mortgage loans 84 514 472
Policy loans, net (9) 128 110
Investments sold:
Fixed maturities, available for sale 75,751 36,807 26,572
Equity securities 793 - -
Investments in:
Fixed maturities, held to maturity - (500) (1,510)
Fixed maturities, available for sale (71,471) (60,537) (37,051)
Equity securities (343) - (11)
Short-term investments, net (44) 42 3,443
-------- -------- --------
Net cash provided by (used in)
investing activities 4,761 (23,546) (7,442)
-------- -------- --------
See notes to consolidated financial statements.
<PAGE> 35
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in thousands)
1995 1994 1993
---- ---- ----
Cash flows from financing activities:
Investment contract deposits $ 107,214 $124,263 $ 96,256
Investment contract withdrawals (47,168) (27,363) (21,902)
Investment contract funds
transferred (99,960) (101,479) (75,048)
Investment contract funds recovered 29,443 14,177 8,064
Treasury stock purchased (8) - -
Common stock issued 1 - -
--------- --------- ---------
Net cash provided by (used in)
financing activities (10,478) 9,598 7,370
---------- --------- --------
Net increase (decrease) in cash
and cash equivalents 7,842 (5,043) 6,233
Cash and cash equivalents,
beginning of year 3,530 8,573 2,340
--------- -------- --------
Cash and cash equivalents,
end of year $ 11,372 $ 3,530 $ 8,573
======== ========== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 640 $ 640 $ 640
Income taxes 30 487 147
See notes to consolidated financial statements.
<PAGE> 36
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying consolidated financial statements of Investors Insurance
Group, Inc. ("IIG") and subsidiaries ("the Company") are prepared in
accordance with generally accepted accounting principles ("GAAP"). All
significant intercompany items have been eliminated in consolidation. IIG was
incorporated under the laws of the State of Florida on May 11, 1993, and is
the successor corporation of the former Gemco National, Inc. ("Gemco"), a New
York corporation founded in 1966. The change in corporate identity was
approved by Gemco's shareholders at the Annual Meeting of Shareholders on June
11, 1993. The actual change was accomplished by the merger of Gemco into a
new Florida corporation, Investors Insurance Group, Inc., on September 1,
1993.
The Company operates predominantly in the life insurance industry, with its
primary product emphasis on the sale of flexible premium deferred annuities.
All of the Company's insurance operations are conducted through Investors
Insurance Corporation ("Investors"), which was organized in 1957 and is
licensed to sell life, annuity and health insurance in 21 states. Another
subsidiary, IIC, Inc., is an insurance holding company and is the direct
parent of Investors. Investors Marketing Group, Inc. ("IMG") was formed in
June of 1994 to market annuities for a select group of unaffiliated life
insurance companies. A former subsidiary, IICAM, Inc., was dissolved in 1993
and its operating function of providing marketing management and agent
recruiting services for Investors was assumed by IIG. The dissolution of
IICAM, Inc. had no significant effect on the consolidated financial statements
of the Company.
Going Concern Consideration:
The Company's financial statements are presented on the going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Delaware insurance law and
regulations restrict Investors ability to pay dividends or enter into other
arrangements with IIG, while at the same time the Note Payable (see Note 6)
requires IIG to pay interest. In prior years, IIG met this cash drain by
liquidating its other investments. If this cash drain continues at the level
it experienced in 1995, there is substantial doubt that IIG can continue to
meet its obligations on a timely basis without an additional source of
funds. At the same time, the successful product marketing efforts of
Investors have increased its need for capital which it has agreed to raise.
The combined impacts of these forces require the Company to raise additional
funds.
As described more fully in Note 11, the Company has signed an agreement to
issue preferred stock in exchange for up to $7,000,000. While the agreement
is subject to certain contingencies, if it closes as scheduled, the Company
believes the resulting funds should be adequate to assure that both IIG
and Investors can continue operating in the normal course of business. If the
agreement fails to close as scheduled, management will develop alternative
plans to obtain the needed funds. However, there can be no assurance that
<PAGE> 37
this could be done in a timely or economical manner.
The accompanying financial statements do not include any adjustments to
reflect the possible future effects that may result from the inability of the
Company to continue as a going concern.
Investments:
Fixed-maturity investments are securities that mature at a specified future
date more than one year after being issued. Fixed-maturity securities that
the Company intends to hold until maturity are classified as "held to
maturity" and are carried at amortized cost. Amortized cost is based on the
purchase price and is adjusted periodically in order that the carrying value
will equal the face or par value at maturity.
Fixed-maturity securities which may be sold prior to maturity due to changes
in interest rates, prepayment risks, liquidity needs, tax planning purposes or
other similar factors, are classified as "available for sale." On January 1,
1994, the Company adopted Statement of Financial Accounting Standard ("FSAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which requires that fixed-maturity securities classified as available for sale
be reported at market value. Prior to SFAS No. 115, such securities were
carried at the lower of aggregate cost or market. The difference between the
aggregate carrying value for fixed maturities available for sale and the
aggregate amortized cost of such securities, is reported, net of the related
impacts on the amortization of deferred acquisition costs, unearned ceding
commission and deferred income taxes, as a separate component of shareholders'
equity.
Premiums and discounts related to mortgage based investments are amortized
based on expected prepayments. As differences arise between actual and
expected prepayments, the effective yield is recalculated to reflect the
actual prepayments to date and anticipated future prepayments. The net
investment is then adjusted to the amount that would have existed had the new
effective yield been applied since its acquisition.
Equity securities (common stocks) are carried at current market value. If the
current market value of equity securities is higher than the purchase cost,
the excess is an unrealized gain, and if lower than cost and the decline is
temporary, the difference is an unrealized loss. The net unrealized gains or
losses on equity securities, net of the related impacts on the amortization of
deferred acquisition costs and deferred income taxes, are reported in a
separate component of shareholders' equity, along with the net unrealized
gains or losses on fixed-maturity securities available for sale.
Short-term investments are carried at cost, which approximates market value.
These investments consist of highly liquid investments with maturities of one
year or less from date of purchase.
Mortgage loans on real estate and policy loans are carried at their unpaid
balances. The mortgage loans are secured by the underlying real estate.
Policy loans are fully collateralized by the related policy's cash value.
Net realized investment gains and losses are included in the determination of
net earnings. If a decline in the market value of an individual investment is
considered to be other than temporary, the difference between amortized book
value and net realizable value is recorded as a realized investment loss. The
cost of investments sold is determined using the specific identification basis.
<PAGE> 38
Cash Equivalents:
Cash equivalents consist of highly liquid investments with maturities of three
months or less at the date of purchase.
Deferred Acquisition Costs:
Costs which vary with and are primarily related to the acquisition of new
business have been deferred to the extent that such costs are deemed
recoverable through future earnings. These costs include commissions and
certain expenses related to policy issuance, underwriting and marketing. For
traditional life products, deferred acquisition costs ("DAC") are amortized
with interest over the premium paying period in proportion to the ratio of
anticipated annual premium revenue to the anticipated total premium revenue.
DAC for universal life and annuity contracts is amortized in relation to the
present value of expected gross profits on the products. Retrospective
adjustments of these amounts are made when the Company revises its estimates
of current or future gross profits to be realized from a group of policies,
including both realized and unrealized investment gains and losses related to
changes in market interest rates for those investments segmented against
interest sensitive liabilities. Anticipated investment income is considered
in the determination of recoverability of deferred acquisition costs. (see
below - Change in Accounting for Ceding Commissions)
Cost in Excess of Net Assets of Businesses Acquired:
Cost in excess of net assets of businesses acquired relates to IIG's
acquisition of IIC and Investors in 1989. Prior to December 1, 1994, this
balance was being amortized over 40 years on the straightline method. As of
December 1, 1994, management changed its amortization estimate for this asset
to a total of 20 years and revised the amortization schedule accordingly. The
Company determines the recoverability of cost in excess of net assets of
businesses acquired by ensuring that the gross profit stream, after recovering
DAC, exceeds the balance of this asset.
Future Policy Benefits and Claims:
The liability for future policy benefits for traditional life insurance
products has been computed based upon mortality, lapse and interest
assumptions applicable to these coverages, including provision for adverse
deviations. Interest rates range from 3.00% to 9.25%. Mortality, morbidity
and withdrawal rate assumptions are based on the experience of the Company and
are periodically reviewed against industry standards and experience.
With respect to investment contracts, the Company uses the retrospective
deposit accounting method. Future policy benefits represent the premium
deposits received plus accumulated interest, less mortality and administration
charges. Interest credited to these contracts ranged from 4.0% to 12.0%
during 1995, 4.15% to 12.0% during 1994 and 5.0% to 8.0% during 1993.
Accident & health reserves and claims represent amounts recorded to pay claims
received on various accident & health policies in force and an allowance for
premiums received but not yet earned on such policies.
<PAGE> 39
Participating Policies:
A portion of the life insurance business in force is participating policies.
The provision for the policyholders' dividend liability, based on dividend
scales contemplated when the policies were issued, is included in the
liability for policy reserves. Dividends are determined annually and are
payable only upon declaration by the Board of Directors.
Coinsurance Accounting:
The Company coinsures portions of its life insurance and annuity contract
exposure under traditional coinsurance arrangements. Generally, the Company
enters into these arrangements to assist in diversifying its insurance and
investment risks and to manage its statutory capital and surplus.
The Company's liability for Future Policy Benefits and Claims includes amounts
that are recoverable under these coinsurance agreements. Recoverable amounts
related to the transfer of insurance risks are presented as Reinsurance
Benefits Recoverable; Recoverable amounts related to the transfer of
investment risks represented as Investment Contract Benefits Recoverable.
(see below - Change in Accounting for Ceding Commissions)
Amounts received from, or paid to, the coinsurer for Interest Credited on
Investment Contracts and surrender fees are offset against the related expense
and revenue accounts in the Statement of Earnings.
Recognition of Insurance Revenues:
Traditional life insurance premiums are recognized as revenue over the
premium-paying period, adjusted for premiums due and advance premiums. Policy
fee revenue includes surrender, mortality and administrative charges earned on
annuity, universal life and other contracts.
The Company receives a commission on the transfer of investment contracts risk
to the coinsurer. This commission is compensation for the Company's annuity
sales and distribution system that originated the contracts. The Company has
no future obligation with respect to this commission and, prior to January
1, 1994, the portion representing excess ceding commission was recognized in
earnings and the portion representing recovery of acquisition expenses was
charged to deferred acquisition costs when the risk was transferred to the
coinsurer. As discussed below under Change in Accounting for Ceding
Commissions, after 1993, these commissions are deferred and recognized in
earnings in proportion to the earnings generated directly from the related
annuity contracts (without consideration of the impact of the coinsurance
agreement).
Federal Income Taxes:
Currently, IIG and its non-life subsidiaries file a consolidated federal
income tax return. Beginning in 1995, Investors may be included in this
consolidated return.
Life insurance companies with total assets less that $500 million are allowed
a deduction which is not available to larger life companies. As a "small"
life insurance company, 60% of the first $3 million of "life insurance company
taxable income" is deductible. This deduction phases out on a pro-rata basis
<PAGE> 40
as income increases from $3 million to $15 million.
The Company uses the asset and liability method of accounting for income tax
expense prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this
method of accounting, deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recorded net of the applicable valuation allowance. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Net Income (Loss) per Common Share:
Net income (loss) per common share is based on the weighted average number of
shares and share equivalents outstanding during the year.
Change in Accounting for Ceding Commission:
As the Company sells an annuity contract, it cedes a significant portion of
the resulting investment risk and benefit to another insurance company under a
coinsurance agreement. Similar to an insurance agency, the Company receives a
commission from the coinsurer to compensate it for its sales and distribution
efforts. Any excess of this ceding commission over the related policy
acquisition cost is profit to the Company. The Company's right to this
commission is in no way contingent; other than the risk of default on the part
of the coinsurer, the Company has no further potential for profit or loss from
the portion of the business ceded. Prior to January 1, 1994, the Company used
an accounting policy that recognized the earnings process as completed when
these investment risks and benefits were ceded.
Thus, the related excess ceding commissions were recognized at the time of
receipt of the ceding commission.
Under the provisions of Statement of Financial Accounting Standards (SFAS) No.
113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts", excess ceding commissions of an insurance company
resulting from ceding insurance risks (as specifically defined) are recognized
over the life of the related insurance policy, rather than as the risk is
ceded. SFAS No. 113 provides specific accounting guidance for accounting for
the excess ceding commissions that result from the transfer of insurance
risks. For other types of arrangements where insignificant amounts of
insurance risk is transferred, such as the Company's coinsurance of its
annuity contracts, SFAS No. 113 simply specifies "deposit accounting" and does
not provide specific guidance for applying this method of accounting. Many
insurance companies have adopted a type of "deposit accounting" very similar
to the accounting specified for insurance risks: excess ceding commissions are
recognized over the life of the related contracts. In view of this emerging
consensus, and in the interest of comparability of its financial statements
with those of other insurance companies, the Company has decided to adopt this
approach to accounting for its excess ceding commissions.
Under the prior accounting method, as investment risks were ceded, the
deferred acquisition costs related to the annuity contracts were reduced by
the portion of the costs recovered through the ceding commission; the
<PAGE> 41
remaining excess ceding commission was recognized as revenue in the period the
investment risks and benefits were transferred. Under the new accounting
method, which was retroactively adopted effective January 1, 1994, the
deferred acquisition costs related to the annuities are not reduced; the full
ceding commission, including the excess ceding commissions and the recovery of
the annuity acquisition costs, is treated as unearned income. This unearned
ceding commission is treated as earned in direct relation to the present value
of expected gross profits of the related annuity contracts, which is the same
manner in which the related deferred amortization costs are amortized. Like
deferred acquisition costs, the unearned ceding commission will be adjusted
retrospectively when changes are made to the current or future estimated gross
profits. As the ceding commission is earned, the excess ceding commission is
recognized as commission income and the cost recovery portion is offset
against the amortization of deferred acquisition costs.
The cumulative effect of this change in accounting practice, $3.8 million as
of January 1, 1994, has been included as a adjustment to earnings for the year
ended December 31, 1994.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments. Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to
management as of December 31, 1995.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash and cash equivalents, accrued investment income and accrued
expenses. Fair values were assumed to approximate carrying values for these
financial instruments since they are short term in nature and their carrying
amounts approximate fair values or they are receivable or payable on demand.
The fair value of the Company's investment securities were based on quoted
market values, if available. If quoted market prices were not available, fair
values were estimated using quoted market prices for similar securities.
Since the ultimate cash flow related to the note payable is not determinable,
calculation of its theoretical market value is not practicable.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of he financial statements and
the reported amounts of revenues and expense during the reporting period.
Actual results could differ from those estimates.
New Financial Accounting Standards:
The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets Being Disposed of," which provides guidance on
how and when impairment losses are recognized on long-lived assets. This
statement, when adopted, is not expected to have a material impact on the
Company.
<PAGE> 42
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by FASB in
October 1995. The accounting requirements of this Statement are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
Disclosure requirements are also effective for fiscal year beginning after
December 15, 1995 although pro-forma disclosure is required for all awards
granted in fiscal years beginning after December 15, 1994. Disclosures for
awards granted in the first fiscal year beginning after December 15, 1994
(i.e. 1995 awards) are not required in financial statements for that fiscal
year but must be represented subsequently whenever financial statements for
that fiscal year are presented for comparative purposes. SFAS No. 123
encourages all entities to adopt a fair value based method of accounting for
all employee stock compensation plans. Under the fair value based method,
compensation cost is measured at the grant date based upon the fair value (as
defined by the Statement) of the award at that date and is recognized over the
service period. Companies not electing to adopt this fair value based method
may continue to account for these plans using the intrinsic value based method
prescribed by APB Opinion No. 25, although they must make program disclosures
of net income and earnings per share as if the fair value based method had
been used. The Company intends to continue to account for employee stock
compensation plans using APB No. 25 and will begin providing required pro
forma disclosures in 1996.
Reclassification:
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
<PAGE> 43
(2) INVESTMENTS
-----------
The amortized cost and fair values of fixed maturity and equity investments as
of December 31 are summarized as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ------ -------- -------
1995:
Held to maturity:
U.S. Treasury obligations $ 9,004 $1,052 $ - $ 10,056
Progress Financial Corporation 500 - - 500
Available for sale:
Securities issued by U.S. Government
agencies and authorities 141,474 7,791 34 149,231
Equity securities 339 27 - 366
--------- ------ ------- --------
151,317 8,870 34 160,153
1994: --------- ------ ------- --------
Held to maturity:
U.S. Treasury obligations $ 9,009 $ - $ 552 $ 8,457
Progress Financial Corporation 500 - - 500
Available for sale:
Securities issued by U.S. Government
agencies and authorities 144,426 - 12,401 132,025
Equity securities 407 255 - 662
--------- ------ ------- --------
Total $154,342 $ 255 $12,953 $141,644
========= ====== ======= ========
Fair values for investments are based on quoted market prices, except for the
common stock of Jupiter Tequesta National Bank ("Jupiter") in 1994. Jupiter
was a small local bank located in Jupiter, Florida whose stock was not
actively traded on any major exchange. Prior to December 31, 1994, Jupiter's
fair value was considered to be its purchase cost which approximated the book
value of its shares. The fair value at December 31, 1994 was based upon a
definitive agreement of sale with 1st United Bancorp ("FUB") of Boca Raton,
Florida, whereby FUB acquired all the outstanding stock of Jupiter in 1995.
The purchase price, which translates to approximately $16.36 per share, was
used as the fair value at December 31, 1994. The sale was completed in April
1995.
In a 1994 private placement, the Company purchased a $500,000 redeemable,
subordinated debenture issued by Progress Financial Corporation ("PFC") with
which the Company shares a common director. The bond, which pays 8.25%
interest quarterly and matures on June 30, 2004, was accompanied by warrants
to purchase 50,000 shares of PFC common stock for $6.00. No cost or value has
been assigned to these warrants.
The Company owns 188,971 shares, or 3.7%, of the capital stock of an affiliate
with which it shares a common director. After closely monitoring this
investment for several years, in 1994, the Company concluded the decline in
market value of these shares was other than temporary. Therefore, in 1994 the
cost basis of this investment was reduced to its then most recent trading
range (market value of $992,098) and the Company recognized an investment loss
of $1,275,555.
<PAGE> 44
The table below summarizes the cost and market value of this investment as of
as of December 31:
1995 1994
---- ----
Market Value $803,127 $873,991
======== ========
Cost $992,098 $992,098
======== ========
Cash equivalents and other investments totaling $9,968,000 and $8,064,000 at
December 31, 1995 and 1994, respectively, were on deposit with state agencies
to meet regulatory requirements.
The expected maturities of the Company's fixed maturity investments at
December 31, 1995 were as follows (in thousands):
Amortized Cost Fair Value
-------------- ----------
Due in one year or less $ 4,834 $ 5,116
Due after one year through five years 22,800 24,130
Due after five years through ten years 60,142 63,651
Due after ten years 63,202 66,890
-------- --------
$ 150,978 $ 159,787
======= =======
This table includes mortgage-backed securities whose expected maturities are
based on the forecasted cash flows from the underlying mortgages.
Realized investments gains (losses) and changes in the unrealized investment
gains (losses) for the year ended December 31 were as follows (in thousands):
Realized Investment Gains (Losses)
----------------------------------
1995 1994 1993
---- ---- ----
Fixed maturity securities $ 730 $ 754 $ 1,611
Equity securities 360 - -
Investment in Affiliate - (1,276) -
Other - 175 50
------- ------- --------
$ 1,090 $ (347) $ 1,611
======= ======= ========
<PAGE> 45
Unrealized Investment Gains (Losses)
------------------------------------
As of Change During the
December 31, Year Ended
-------------- -----------------------
1995 1994 1995 1994 1993
---- ---- ---- ---- ----
Securities available for sale $7,784 $(12,146) $19,930 $(17,966) $ 3
Investment in affiliates (189) (118) (71) 1,063 118
Deferred acquisition costs (4,433) 6,370 (10,803) 17,017 -
Deferred tax asset 1,148 4,419 (3,271) 1,409 -
Deferred tax valuation allowance 1,778 (2,776) 4,554 (3,105) -
----- ------- ----- ------- ----
Impact of assets 6,088 (4,251) 10,339 (1,582) 121
----- ------- ------ ------- ----
Unearned ceding commission (3,921) 5,157 (9,078) 12,527 -
Deferred tax liability 2,926 1,643 1,283 (1,696) -
----- ----- ----- ------- ----
Impact of liabilities (995) 6,800 (7,795) 10,831 -
----- ----- ------- ------ ----
Impact on shareholder's equity $7,083 $(11,051) $18,134 $(12,413) $ 121
===== ======= ====== ======= =====
The components of net investment income for the year ended December 31 are as
follows (in thousands):
1995 1994 1993
---- ---- ----
Fixed maturities $ 11,093 $ 10,533 $ 9,830
Mortgage and policy loans 90 111 147
Short-term investments 545 228 198
------ ------ ------
Gross investment income 11,728 10,872 10,175
Less investment expenses 130 121 123
------ ------ ------
Net investment income $ 11,598 $ 10,751 $ 10,052
====== ====== ======
(3) COMMITMENTS AND CONTINGENCIES
There is action pending against the Company in the Supreme Court of the State
of New York, County of New York, entitled Federal Insurance Company vs. Gemco
National, Inc. in which Federal Insurance Company ("Federal") seeks
compensatory damages in excess of $550,000 for an alleged breach of contract.
Federal alleges that Gemco breached its agreement with Federal to pay the
premiums on its automobile, workers' compensation and commercial insurance
policies underwritten by Federal for the Gemco's subsidiary, the Ampat Group,
Inc. No activity with respect to this action has occurred since early 1990.
However, under New York law, lawsuits remain pending indefinitely. Although
management believes the Company has valid defenses to this claim, the ultimate
outcome cannot be predicted with any degree of certainty.
<PAGE> 46
(4) INCOME TAXES
Income tax expense (benefit) consist of the following (in thousands):
Year ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Current income tax expense (benefit) $ (136) $ 198 $ 366
Deferred income taxes:
Change in net deferred tax asset 190 (2,015) 596
Change in valuation allowance (190) 2,015 (596)
---- ---- ----
Total income tax expense (benefit) $ (136) $ 198 $ 366
==== ==== ====
The net deferred tax assets related to unrealized gains and losses on
investments for the year ended December 31 are as follows (in thousands):
1995 1994 1993
---- ---- ----
Net deferred tax asset, beginning $2,777 $ 307 $ 308
Change during year (4,555) 2,470 (1)
------- ----- ----
Net deferred tax asset (liability),
ending (1,778) 2,777 307
Valuation allowance 1,778 (2,777) (307)
----- ------- -----
Net balance $ - $ - $ -
===== ======= =====
The valuation allowance related to the deferred tax asset accounts is
calculated on both an aggregate basis and for those items effecting income.
The difference between these calculations is combined with the impacts of the
unrealized investment gains (losses) which effect shareholder's equity
directly. Therefore, while the aggregate valuation allowance is a contra-
asset, the residual allowance assigned to the unrealized investment gains
(losses) may be either positive or negative.
<PAGE> 47
Actual income tax expense (benefit) for 1995, 1994 and 1993 differed from the
"expected" tax expense for those years as computed by applying the U.S.
Federal corporate income tax rate of 34% to income before income taxes by the
following:
1995 1994 1993
---- ---- ----
Computed "expected" tax expense (benefit) (34)% (34)% (34)%
Increase (reduction) in income taxes
resulting from:
Changes in the valuation allowance for
deferred tax assets,allocated to income
tax expense (54)% 47 % 179 %
Non-deductible expenses including amortization
of intangibles 21 % 2 % 9 %
Small life insurance company deduction - % (8)% (83)%
State income taxes, net of federal
income tax benefit (1)% - 2 %
Impact of tax loss carryback 38 % - -
Other, net 1 % - -
----- ---- -----
(29)% 7 % 73 %
===== ===== =====
<PAGE> 48
The components of the deferred tax assets and liabilities at December 31 are
as follows (in thousands):
1995 1994
---- ----
Deferred tax assets:
Life insurance company:
Policyholder reserves and liabilities $23,241 $4,763
Unrealized losses on investments - 3,101
Investment in affiliates 366 354
Unearned ceding commission 9,516 9,189
Alternative minimum tax carryforward 185 186
Other 4 2
Non-life company:
Operating loss carryforward 1,428 1,356
Other 75 185
------ ------
Total deferred tax assets 34,815 19,136
Valuation allowance (3,319) (8,064)
Net deferred tax assets 31,496 11,072
------ ------
Deferred tax liabilities:
Life insurance company:
Deferred acquisition costs (10,472) (11,000)
Unrealized gains on investments (1,945) -
New Era reinsurance premium (19,077) -
Other (1) (17)
Non-life company - other (1) (55)
-------- --------
Total deferred tax liabilities (31,496) (11,072)
-------- --------
Net deferred tax assets and liabilities $ - $ -
======== ========
The net increase (decrease) in the total valuation allowance for the years
ended December 31, 1995, 1994 and 1993 was $(4,745,000), $4,486,000 and
$596,000, respectively. Based on the continuing losses, the Company cannot be
assured of realizing its deferred tax assets. Therefore, a 100% valuation
allowance will be assigned to the net deferred tax asset until realization of
this asset is considered more likely than not.
<PAGE> 49
At December 31, 1995, in addition to an alternative minimum tax carryforward
in the life insurance company of $186,000 (which does not expire), IIG had the
following tax carryforward items (in thousands):
Operating Loss Capital Loss
Year of expiration Carryforward Carryforward
------------------ -------------- ------------
1996 $ - $ 45
1997 - 190
2001 3,392 -
2002 752 -
2003 248 -
2004 742 -
2005 895 -
2007 136 -
2008 397 -
2009 322 -
2010 375 -
----- ------
$7,259 $ 235
====== =======
When the Preferred Shares discussed in Notes 10 and 11 are issued, the
resulting "change in control" could substantially reduce the Company's ability
to utilize its non-life loss carryforwards.
Investors' "policyholders surplus account," which arose under prior tax law,
is generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account,
which, under provision of the Tax Reform Act of 1984, will not increase after
1983, is approximately $1.7 million. This amount has not been subjected to
current income taxes but, under certain conditions that management considers
to be remote, may become subject to income taxes in future years. At current
tax rates, the maximum amount of such tax (for which no provision has been
made in the financial statements) is approximately $595,000.
<PAGE> 50
(5) COINSURANCE
Investors reduces its overall risk on whole life, immediate annuity and health
insurance policies through an uncollateralized program of quota share
coinsurance and excess of loss reinsurance. As the direct insurer, Investors
retains primary liability to the policyholder on all risks transferred. The
premium income and benefit expenses presented in the Statement of Operations
for the year ended December 31 are reflected net of the reinsurance
transactions outlined below (in thousands):
1995 1994 1993
Quota Share Contracts: ---- ---- ----
Premium ceded $ 1,850 $ 617 $ 703
Surrender Fees $ 1,674 $ 834 $ 451
Benefits recovered $ 225 $ 465 $ 612
Interest on investment contracts
recovered $ 19,273 $12,367 $ 8,580
Amortization of deferred acquisition
cost $ 1,130 $ 1,375 $ 505
Excess of Loss Contracts:
Premium ceded $ - $ 79 $ 55
Benefits recovered $ - $ - $ -
Republic-Vanguard Life Insurance Company ("RVL"), is the Company's primary
reinsurer and a member of the Winterthur Swiss Insurance Group (one of the
largest Swiss insurance companies). The substantial portion of the Company's
reinsurance is coinsurance related to investment risks transferred to RVL
totaling approximately $351.5 million at December 31, 1995 and recorded as
investment contract benefits recoverable on the accompanying balance sheet.
From October 1, 1991 through September 30, 1994, 80% of Investors's annuity
production was transferred to RVL. For contracts issued subsequent to October
1, 1994 and May 1, 1995, this percentage was revised to 90% and 100%,
respectively, due to concerns over Investors' ratio of statutory policy
liabilities to capital and surplus (See Note 8). See Note 1 for additional
information on the accounting for coinsurance arrangements.
The Company's Accelerated Benefit life policies are being reinsured with WLR
on a 80% coinsurance contract.
As a result of Delaware's continued concern over Investors' ratio of statutory
policy liabilities to capital and surplus, in early 1996, Investors entered
into an agreement to cede a block of annuity policies with statutory policy
reserves of $76,306,929 to New Era Life Insurance Company ("New Era"). This
reinsurance agreement provides for an initial coinsurance period (up to five
years) followed by full assumption of the specified policies. Investors will
continue to service these policies through December 31, 2000. Investors will
pay New Era coinsurance allowances of 1% of the average statutory policy
liability for the first 5 years. Thereafter, New Era will pay Investors 2% of
the average statutory policy for the following five years. The profit related
to these allowances will be deferred until its realization is assured.
Since under its terms, this agreement became effective on December 31, 1995
and, based on Delaware's approval, was reflected in Investors' 1995 statutory
statement, Investors' ratio of statutory policy liabilities to capital and
surplus the ratio was reduced below Delaware's target. The Company expects
this to help allay Delaware's concerns (see Notes 8 and 11). (Since this
transaction was closed in 1996, it will be treated as a 1996 event under
generally accepted accounting principles.)
<PAGE> 51
(6) NOTE PAYABLE
In connection with its acquisition of IIC and Investors, the Company issued an
$8,000,000 secured subordinated note payable due March 31, 1997, with interest
at 8% payable quarterly. The note is secured by the stock of IIC. This
security interest is subordinate to any senior indebtedness.
As a result of material misrepresentations by the seller, the Company has
several significant claims which, if sustained, should reduce the principal
amount of the note and result in a refund of previously paid interest.
However, these issues cannot be settled at this time since ownership of the
note is in dispute. The seller, a Pennsylvania insurance company, allegedly
transferred the non-negotiable note to a Delaware insurer. Subsequently, both
companies came under orders of rehabilitation from the insurance departments
of their respective states. Now, in their roles as liquidators, both states
claim ownership of the note.
To avoid being subject to double liability, the Company filed a Complaint in
Equity for Interpleader with the Pennsylvania Commonwealth Court in late 1995.
While the parties have had numerous discussions regarding settlement, there
has been no agreement to date. In connection with this action, on March 14,
1996, the Delaware Department of Insurance filed a petition for Declaratory
Judgment against the Company in Delaware court. This action requests the
court to declare that the note is negotiable and that the Company does not
have any claim to offset the principal amount of the note and seeks
indemnification from the Company. The Company is currently reviewing these
filings and extensions.
Ultimately, settlement of this dispute will not result in any additional
liability to the Company, but should make it possible to settle the Company's
claims against the note. Since the ultimate cash flow related to this note is
not determinable, calculation of its theoretical market value is not
practicable.
(7) STOCK OPTIONS AND WARRANTS
The Company has instituted three incentive stock option plans for the benefit
of employees or agents of the Company and its subsidiaries ("1982 Plan," "1992
Plan" and "Agents Plan").
Under the 1982 Plan, options for up to 147,074 shares of the Company's common
stock are authorized and outstanding. These options may be exercised at a
price of $.625 per share.
The 1992 Plan was approved by the shareholders in June 1992. This plan allows
options on up to 500,000 shares of the Company's common stock to be granted to
employees of the Company and/or its subsidiaries. During 1992, 340,000
options were granted under this plan of which 112,000 were vested at issue.
The remaining 228,000 options vest over a four year period starting January 1,
1993, in amounts totaling 72,000; 72,000; 72,000 and 12,000, respectively.
During 1994 and 1993, respectively, 17,500 and 87,500, additional options were
granted under this plan, all of which vested at issue. No options were
granted under this plan in 1995, however, 27,500 options expired due to
employee resignations and will be returned to the pool of options available
<PAGE> 52
for grant under this plan.
The Agents Plan was initiated by the Board of Directors in September 1994 and
is subject to renewal annually at the discretion of the Board of Directors.
This Plan allows issuance of options on up to 75,000 shares of common stock
annually to Investors' most productive agents. However, in 1995, the Board
authorized the issuance of options on 97,000 shares. If unexpired, these
options expire two years after the date of grant.
Outstanding options to purchase common stock at December 31, 1995 were as
follows:
Average
Outstanding Options Option Year of
Options Exercisable Price Expiration
1982 Plan 147,074 147,074 $ 0.6250 2000
1992 Plan 417,500 405,500 $ 1.6164 2002-04
Agents Plan 82,200 82,200 $ 1.8212 1997
The Company makes no charges against income for these stock options since the
exercise price of all options is equal to or greater than the market value of
the Company's common stock at the date of each grant. Upon exercise of any of
these stock options, the excess of the option price over the par value would
be credited to additional paid-in capital.
In 1989, the Company issued warrants, exercisable at issue, to purchase
1,000,000 shares of its common stock at $2.00 per share. The agreement
issuing these warrants contained an adjustment clause whereby the number of
shares and the purchase price might require adjustment based on the issuance
of common stock and stock options. As of December 31, 1995, the adjusted
number of shares and share price were 1,062,438 and $1.8825, respectively.
These warrants expire on March 31, 1997 (see Note 11).
(8) STATUTORY CAPITAL AND SURPLUS AND DIVIDEND RESTRICTIONS
The statutory accounting practices prescribed or permitted by regulatory
authorities differ in certain respects from GAAP. The principal differences
between GAAP and statutory accounting are as follows:
-Deferred Acquisition Costs. These costs are treated as a period
expense on a statutory basis, but are amortized over the expected
gross profits under GAAP;
-Policy Liabilities. The calculation of the liability for future
policy benefits is based on different assumptions for statutory
purposes than for GAAP and is reported net of reinsurance;
-Unearned Ceding Commission. Subsequent to the change in GAAP
accounting described in Note 1, the GAAP profit of the ceding
commission is deferred and amortized based on the expected gross
profit of the related annuity contracts. Prior to this change,
both statutory and GAAP profits were consistently recognized as
the business was ceded.
<PAGE> 53
-Investment Market Value Adjustment. All fixed maturity securities
are reported at amortized cost for statutory purposes, while GAAP
requires the fixed maturities classified as "available for sale" to
be reported at market value;
-Goodwill. The excess of the purchase price of Investors over its
identifiable assets and liabilities is deferred and amortized for
GAAP. These costs are not recognized under statutory accounting.
-Interest Maintenance and Asset Valuation Reserves. These reserves
are treated as liabilities for statutory purposes, but are restored
to capital and surplus for GAAP;
-Non-Admitted Assets. Certain designated assets are not recognized
under statutory accounting;
-Deferred Income Taxes. Under certain conditions, the impact of
certain variances from taxable income is recognized as an adjustment
to income tax expense for GAAP, but not for statutory accounting
purposes; and
-Premium Revenue. Under GAAP, premiums related to certain interest
sensitive products is excluded from revenue.
In addition to these differences, from time-to-time, insurance companies may
record transactions in different periods for regulatory purposes than under
generally accepted accounting principles. The New Era reinsurance agreement
(see Note 5) was recorded in 1995 for statutory accounting but in 1996 under
generally accepted accounting principles.
As a result of these differences, the statutory net income (loss) was
$ (1,279,992), $ 297,634 and $430,623 in 1995, 1994 and 1993, respectively.
The impact of these differences on the reported net worth of the Company is
summarized below:
1995 1994
---- ----
Investors' statutory capital and surplus $ 5,457,006 $ 7,107,826
Deferred acquisition costs 42,467,973 45,404,640
Policy liability adjustment (89,888,981) (18,765,202)
Unearned ceding commission (38,062,255) (36,754,673)
Investment market value adjustment 7,756,735 (12,402,028)
Goodwill 3,665,559 3,942,195
Interest maintenance and asset
valuation reserves 1,272,892 2,357,143
Reinsurance payable to New Era 76,306,929 0
Non-admitted assets 208,584 120,008
Other, net 155,710 254,194
---------- ----------
IIG's investment in Investors 9,340,152 (8,735,897)
IIG's note payable (8,000,000) (8,000,000)
Other assets and liabilities of IIG 88,024 417,241
---------- -----------
IIG's GAAP basis shareholder's equity $ 1,428,176 $ (16,318,656)
========== ===========
<PAGE> 54
At December 31, 1995, Investors' capital and surplus exceeded the $550,000
minimum required by the insurance laws of its state of domicile, which is
Delaware. The Delaware Insurance Department had expressed concern over
Investors' ratio of capital and surplus to policyholder liabilities. The
Company stabilized this ratio by increasing the coinsurance percentage
for new business to 100%, and later reduced this ratio to the level that
Delaware believes is appropriate by consummating a coinsurance arrangement
with New Era Life Insurance Company to reinsure a significant block of
business (see Note 5).
Investors tests the ability of its investment portfolio to fund its liability
to its policyholders under several possible future interest rate environments.
The results of these tests are used by the state regulatory authorities to
assess the adequacy of Investors' statutory liabilities. Based on the results
of these tests, no adjustments to the statutory liabilities have been
required.
The NAIC has established risk-based capital standards to determine the capital
requirements of a life insurance company based on the type and mixture of
risks inherent in its operations. These standards require the computation of
a risk-based capital amount which is then compared to a company's actual total
adjusted capital. The computation involves applying factors to various
statutory financial data to address four primary risks: asset default, adverse
insurance experience, interest rate risk and external events. These
standards, effective in 1993, provide for regulatory attention when the
percentage of total adjusted capital to authorized control level risk-based
capital is below certain levels. At December 31, 1995, Investors percentage
of total adjusted capital is in excess of ratios which would require
regulatory action.
Interest rate changes significantly effect the market value of the Company's
investment portfolio. Since the Company carries most of its investments at
market value, these changes, net of the related effects on the amortization of
deferred acquisition cost and unearned ceding commission, and the related
deferred tax accounts, directly effect total shareholders' equity.
Dividends and other distributions to IIG from Investors are restricted.
Investors is required to maintain minimum capital and surplus, determined in
accordance with regulatory practices. Distributions are further limited by
insurance regulations and may require prior approval of the regulatory
insurance departments. Under the terms of a pledge agreement executed in
conjunction with the issuance of the secured subordinated note payable
described in Note 6, any dividend distributions from the subsidiaries to IIG
will be held in an escrow account as collateral. IIG may only use the escrow
account to increase the surplus of Investors in the form of a capital
contribution. In the event of default, the escrow account would be available
to satisfy any accrued interest and the principal balance due under the terms
of the secured subordinated note payable.
<PAGE> 55
(9) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
CONDENSED BALANCE SHEETS
PARENT COMPANY
(in thousands)
December 31,
--------------------
ASSETS 1995 1994
---- ----
Cash and cash equivalents $ 272 $ 206
Equity securities, at market 16 446
Investments in affiliate and
wholly-owned subsidiary 9,430 -
Other assets 10 28
----- -----
Total assets $9,728 $ 680
===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIT)
Liabilities:
Note payable $ 8,000 $ 8,000
Deficit investment in
wholly-owned subsidiary - 8,668
Accrued expenses 300 330
------- -------
Total liabilities 8,300 16,998
------- -------
Shareholders' Equity (Capital Deficit):
Common stock 1,384 1,383
Additional paid-in capital 3,652 3,651
Net unrealized investment
gains (losses) 7,060 (11,051)
Accumulated deficit (10,660) (10,301)
Treasury stock (8) -
------- -------
Total Shareholders' Equity
(Capital Deficit) 1,428 (16,318)
------- -------
Total Liabilities and
Shareholders' Equity
(Capital Deficit) $ 9,728 $ 680
======= ======
<PAGE> 56
(9) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (continued)
-------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS
PARENT COMPANY
(in thousands)
Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
Revenue:
Investment income $ 7 $ 2 $ 6
Realized investment gains (losses) 382 (1,276) -
Management fees 995 1,216 982
----- ------- ------
Total revenue 1,384 (58) 988
----- ------- ------
Expenses:
General and administrative expenses 803 1,023 743
Interest expense 640 640 640
----- ------- -----
Total expenses 1,443 1,663 1,383
----- ------- -----
Loss before equity in net income (loss)
of subsidiaries and income taxes (59) (1,721) (395)
Equity in net income (loss) of
subsidiaries 299 (1,450) (468)
----- ------- -----
Loss before income taxes (358) (3,171) (863)
Income tax expense - - 1
------ ------- -----
Loss before cumulative effect
of change in accounting principle (358) (3,171) (864)
Cumulative effect to December 31, 1994
of changing to a different method of
recognizing ceding commission income - (3,859) -
------ ------- -----
Net Loss $ (358) $(7,030) $ (864)
====== ======= =====
<PAGE> 57
(9) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (continued)
-------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
PARENT COMPANY
(in thousands)
Year Ended December 31,
-------------------------
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net loss $ (358) (7,030) $(864)
Adjustments to reconcile net loss to net
cash used in operating activities:
Cumulative effect to December 31, 1993
of changing to a different method of
recognizing ceding commission income - 3,859 -
Equity in net loss of subsidiaries 299 1,450 468
Realized investment (gains) losses (382) 1,276 -
Change in other assets and
other liabilities, net (48) 131 82
------ ------ -------
Net cash used in operating activities (489) (314) (314)
------ ------- -------
Cash flows from investing activities:
Proceeds from the sale of investments 577 216 -
Purchases of equity securitie (15) - (12)
------ ------- -------
Net cash provided by (used in)
investing activities 562 216 (12)
------ ------- -------
Cash flows from financing activities:
Common stock issued 1 - -
Treasury shares purchased (8) - -
------ ------- -------
Net cash used in financing activities (7) - -
------ ------- -------
Net increase (decrease) in cash and
cash equivalents 66 (98) (326)
Cash and cash equivalents,
beginning of year 206 304 630
------ ------- -------
Cash and cash equivalents, end of year $ 272 $ 206 $ 304
====== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 640 $ 640 $ 640
Income taxes - - 1
<PAGE> 58
(10) PREFERRED STOCK
At the annual shareholders meeting held on November 17, 1995, the shareholders
authorized the Company to issue up to 20,000,000 shares of no par preferred
stock. Further, the shareholders authorized the Board of Directors to
establish the actual number of shares to be issued in a series, and to fix the
designations, powers, preferences and rights within a series of shares and the
qualifications, limitations or restrictions thereof without further
shareholder approval. As of May 1, 1996, the Board has taken no action
relating to these shares and none have been issued.
(11) SIGNIFICANT SUBSEQUENT EVENTS
During 1995, Delaware expressed increased concern over Investors' high ratio
of statutory policy liabilities to capital and surplus. In late 1995, IIG
decided to reconsider all its options, including the possible sale of
Investors and reinsuring a large block of its inforce business. In December
1995, the IIG signed a definitive agreement to sell Investors to Standard
Management Corporation ("SMC") in exchange for stock of SMC and relief from
IIG's $8 million note. However, in the first quarter of 1996, the agreement
was terminated and a controversy ensued between IIG and SMC regarding the
basis of this termination. In April 1996, IIG agreed to settle all the
disputes arising from this agreement and its termination by paying SMC $8,000
in cash and 72,000 restricted shares of IIG stock. The accompanying financial
statements reflect the provision for this settlement.
Simultaneously with IIG's search for additional capital, Investors responded
to Delaware's concern by structuring a reinsurance agreement for a significant
block of its business. As described in Note 5, in the first quarter of 1996,
Investors closed a reinsurance agreement with New Era. This agreement was
effective December 31, 1995 and, with Delaware's approval, was recorded in
Investors' statutory financial statements for 1995 (but in 1996 under
generally accepted accounting principles). As a result, Investors' ratio of
statutory liabilities to capital and surplus was reduced below Delaware's
targeted amount. However, Delaware continues to monitor Investors closely,
including reviewing and approving certain expenditures.
Under the terms of the New Era reinsurance agreement, Investors elected to
transfer cash rather than securities to New Era. Therefore, in January and
February of 1996 Investors sold the securities supporting this block of
business and realized an investment gain of $3.7 million. Under generally
accepted accounting principles, this gain accelerates the amortization of
the deferred acquisition costs related to this block of business by
approximately $2.1 million, leaving approximately of $1.6 million as a
contribution to profits for the first quarter of 1996.
Because of the amount of business Investors writes in California
(approximately 33% of its total in 1995), that State considers Investors to be
"commercially domiciled" in California and regulates it accordingly.
Therefore, in addition to Delaware's approval, Investors had to obtain
approval for the New Era reinsurance agreement from the California Department
of Insurance ("California"). California approved the coinsurance portion on
the New Era agreement, but wanted additional time to review the assumption
portion of the agreement. Investors agreed to arrange a capital infusion that
would raise its statutory capital and surplus to $11 million by June 30, 1996
in order to continue to write new business in California. The Arizona
Department of Insurance ("Arizona") has raised questions about Investors'
continuing ability to write new business at, or above, its 1995 level based on
<PAGE> 59
its current statutory capital and surplus. In 1995, Investors wrote
approximately 24% of its new business in Arizona.
To satisfy both California and Arizona, the Company signed a definitive
agreement on April 29, 1996 with AAM Capital Partners, L. P. ("AAM") for the
sale of up to $7,000,000 of convertible voting preferred stock (70,000
shares). This infusion of capital will be used to recapitalize IIG's
insurance subsidiary, Investors Insurance Corporation. The insurance company
will then be able to retain a larger portion of its profitable annuity
business that is currently being ceded to a reinsurer. AAM has in-depth
expertise of insurance operations and plans to help IIG utilize its marketing
expertise in a number of new and expanding markets. AAM is an equity
investment fund which participates in investments in the insurance industry.
Under the terms of the agreement, which is scheduled to close on June 30,
1996, IIG's Board of Directors will expand to seven members. As separate
groups, the owners of the preferred and common shares will each separately
elect three directors. The remaining director will be elected by all the
shareholders. Each preferred share will be convertible at any time into 100
shares of common stock or, after December 31, 2001, redeemable for $100 per
share, plus accrued dividends at the option of the holder. In conjunction
with this agreement, IIG will exchange 250,000 restricted shares of its common
stock for all of IIG's currently outstanding warrants to purchase 1,000,000
shares of common stock. These warrants are currently held by Chester
County Fund, Inc., IIG's largest shareholder.
In addition to the normal and customary contingencies, final closing of the
agreement is subject to regulatory approval and the full subscription of AAM's
coinvestor group.
If this agreement closes as scheduled, the additional capital should satisfy
the conditions set by both California and Arizona and reduce the level of
regulatory scrutiny from Delaware.
(12) Related Party Transactions:
Under a consulting agreement which was terminated in March 1996, Mr. Goebert
(one of the Company's directors) received $100,000 in 1995 and 1994. The law
firm of Palmarella & Sweeney, P. C., in which Mr. Palmarella (one of the
Company's directors) is a principal shareholder, received legal fees of
$117,415 and $90,900 in 1995 and 1994, respectively.
<PAGE> 60
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA
The following is a tabulation of the unaudited quarterly results of operations
for the years ended December 31, 1995 and 1994 (in thousands, except per share
amounts):
Net Net
Total Income Income (Loss)
Revenues (Loss) Per Share
-------- -------- ---------
1995 Quarters
First $ 3,630 $ (324) $ (0.12)
Second 4,234 24 0.01
Third 3,511 (593) (0.21)
Fourth 3,885 512 0.18
1994 Quarters
First $3,165 $(4,472) $(1.62)*
Second 4,132 (1,461 (0.53)
Third 3,445 (131) (0.05)
Fourth 1,711 (966) (0.35)
* Includes the cumulative affect through December 31, 1993 of
retroactively applying the change in accounting for ceding
commissions of $(3,858,552), or $(1.39) per share.
<PAGE> 61
INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS
DECEMBER 31, 1995
(Dollars in thousands)
Amount at
Cost or which
Amortized Fair shown
Type of Investment Cost Value in the
------------------ balance sheet
--------- ----- -------------
Held to maturity:
Fixed maturities:
U.S. Government treasury obligations $ 9,004 $10,056 $ 9,004
Banks 500 500 500
------- ------- -------
Total held to maturity 9,504 10,556 9,504
------- ------- -------
Securities available for sale:
Fixed maturities:
U.S. Government agencies and authorities 141,474 149,231 149,231
Equity securities:
Common stocks - banks and
insurance companies 339 366 366
------- ------- -------
Total securities available for sale 141,813 149,597 149,597
------- ------- -------
Total debt and equity securities 151,317 160,153 159,101
Mortgage loans on real estate 564 564 564
Policy loans 598 598 598
Short-term investments 356 356 356
------- ------- -------
Total investments $ 152,835 $161,671 $ 160,619
======= ======= =======
<PAGE> 62
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information required by Item 9 is incorporated by reference to Form 8K
filed February 13, 1996.
<PAGE> 63
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The Board of Directors of the Company currently consists of four directors
whose terms expire at the 1996 Annual Meeting. The four directors are Messrs.
Melvin C. Parker, Ronald W. Hayes, Donald F.U. Goebert and Ernest D.
Palmarella. On April 4, 1996, Mr. Jack L. Howard resigned as a director. The
Board has not decided when, or if, it will name a new director for the
remainder of Mr. Howard's term.
The following table sets forth the age and address of each currently active
director, the principal occupation or employment of each director during the
previous five years, the year in which each individual initially became a
director of the Company and other directorships in any company with a class
of securities registered pursuant to section 12 of the Exchange Act or subject
to the requirements of sections 15(d) of such Act or any company registered as
and investment company under the Investment Company Act of 1940.
Position with the Company and
Principal Occupation or Employment Director
Name During Past Five Years Since
---------------- ------------------------------- ------------
Melvin C. Parker (1)(3) Chairman of the Board of Directors of January 3, 1992
7200 W. Camino Real the Company since March 15, 1996;
Boca Raton, FL 33433 President, Chief Executive Officer and
Age 52 a Director of the Company since
January 1992; Treasurer of the Company
since November 1995; President, Chief
Executive Officer and a Director of
IIC, Inc. and Investors Insurance
Corporation since June 1990; President,
Treasurer and a Director of Investors
Marketing Group, Inc. since June 1994;
President and Chief Marketing Officer
of Financial Benefit Life Insurance
Company from August 1988 to June 1990.
Ronald W. Hayes (1) Chairman of the Board from January June 11, 1987
7200 W. Camino Real 1989 to March 15, 1995; President and
Boca Raton, FL 33433 Chief Executive Officer of the Company
Age 58 from January 1989 to January 1992;
Director of IIC, Inc.; Director and
Vice President of Investors; until
1995, Director of Jupiter Tequesta
Bank; President and 100% shareholder
of Lincoln Consulters and Investors,
Inc. for more than the past five
years.
<PAGE> 64
Donald F.U. Goebert (1) Vice President and a Director of the June 11, 1987
615 Willowbrook Lane Company from June 1987 to present;
West Chester, PA 19382 Secretary and Treasurer of the Company
Age 59 from June 1987 to June 1992; until
1995, Director of Jupiter Tequesta
Bank; Director of Progress Financial
Corporation; Chairman of the Board and
President of Adage, Inc. for more than
the past five years.
Ernest D. Palmarella Vice President of the Company from January 13,1987
(2) (3) January 1989 to March 1996; Director
2 Radnor Corporate of the Company since January 1989;
Center attorney and principal shareholder in
Radnor, PA 19087 the law firm of Palmarella and
Age 44 Sweeney, P.C. since September 1994;
attorney and principal shareholder in
the law firm of Mirarchi & Palmarella,
P.C. from May 1990 to September 1994;
associate in the law firm of Boroff,
Harris and Heller, P.C. from April
1989 to May 1990.
- ------------------------------
(1) Designates member of Executive Committee
(2) Designates member of Finance/Audit Committee
(3) Designates member of Compensation Committee
Directors Compensation
A director receives a fee in the amount of $500 for each meeting of
the Board of Directors and receives a fee in the amount of $300 for each
meeting of any standing committee of the Board of Directors. The Company has
no other arrangements regarding compensation for services as a director.
Executive Officers
The name and age of each executive officer of the Company, the
office or offices held by such person and the date on which such person
initially held such office or offices are set forth below.
Initial Date
Name Office Age of Office
-------------- --------------------- --- --------------
Melvin C. Parker Chairman of the Board 52 March 1996
of Directors
President January 1992
Treasurer November 1995
Donald F.U. Goebert Vice President 59 July 1989
Susan F. Powell Vice President 47 January 1992
Secretary November 1995
<PAGE> 65
Each officer is elected to serve until the next annual meeting of directors is
held and until his/her successor is elected and has qualified or until his/her
earlier death, resignation or removal from office.
On March 15, 1996, the board of directors selected Mr. Melvin C. Parker to
succeed Mr. Ronald W. Hayes as Chairman of the Board for the Company. Mr.
Hayes continues to serve as a director of the Company.
On March 15, 1996, Mr. Ernest D. Palmarella resigned as Vice President of the
Company, but continues to serve as a director and general counsel.
The business experience for the previous five (5) years of Melvin C. Parker
and Donald F.U. Goebert is set forth above under "Directors".
Susan F. Powell has served as Secretary of the Company since November 1995, Vice
President of the Company since June 11, 1993, and Assistant Secretary of the
Company from June 1992 to November 1995. At various times over the last five
years, Ms. Powell has served as Executive Vice President, Senior Vice
President and Secretary of Investors Insurance Corporation and IIC, Inc., and
Secretary of Investors Marketing Group, Inc., all subsidiaries of the Company.
The employment agreements of both Melvin C. Parker and Susan F. Powell may be
canceled with sixty days notice. Mr. Goebert has no employment agreement.
<PAGE> 66
Item 11. Executive Compensation
The following table shows the compensation paid or accrued by the Company or
its Subsidiaries for the fiscal years ended December 31, 1995, 1994 and 1993
to, or for the account of, the Chief Executive Officer and each of the four
highest paid executive officers whose cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
----------------------------------------------------
Long
Annual Compensation Term
(5)
---------------------- -------
All Other
Name and Salary Bonus Other Options/ Compensation
Principle Position Year ($) ($) ($) SARs (#) ($)(3)(4)(6)
- ------------------ ---- ------- ------ -------- ------- ------------
Melvin C. Parker, 1995 208,586 67,056 6,000(1) - 27,300
President and CEO 1994 208,586 64,640 6,000(1) - 26,600
1993 203,908 44,194 6,000(1) 25,000 24,660
Ronald W. Hayes, 1995 120,134 - - - 15,500
Chairman of the Board (7) 1994 120,135 - - - 14,800
1993 120,000 - - - 13,000
Susan F. Powell, 1995 115,300 20,117 - - 13,452
Executive Vice President 1994 114,152 19,692 - - 13,379
of Investors Insurance 1993 112,149 10,226 - 20,000 12,238
Corporation
Donald F. U. Goebert, 1995 100,000(2) - - - 3,500
Vice President and 1994 100,000(2) - - - 2,800
Director 1993 100,000(2) - - - 1,000
- --------------------------
(1) Represents car allowance.
(2) Represents fee paid under investment consulting contract.
This agreement was terminated in March 1996.
(3) Includes contributions to the deferred compensation plan
described below
(4) Includes contributions made by the Company or its
subsidiaries, on behalf of the named officer, to the
Investors Insurance Group, Inc. Simplified Employee Pension
Plan. Under the Plan, the Company or its subsidiaries may
make annual contributions not in excess of the lesser of fifteen
(15%) percent of an employee's salary or thirty thousand
($30,000) dollars.
(5) There are no restricted stock awards or LTIP payments.
(6) Includes directors fees.
(7) Mr. Hayes' employment agreement was terminated in March 1996.
<PAGE> 67
Executive and Other Employee Benefit Plans
Incentive Stock Option Plan No. 1
The Company currently has in effect an Incentive Stock Option Plan adopted by
the Shareholders of the Company in 1982 which provides that (a) options for up
to 200,000 shares of common stock may be issued to employees of the Company
and/or its subsidiaries; (b) the exercise price shall not be less than fair
market value on the date of grant; (c) the term of an option may not exceed ten
(10) years and will end no later than three (3) months after termination of
employment, death or retirement or one (1) year after date of permanent
disability; and (d) such other terms as set forth in the Plan or as may be set
by the Company's Board of Directors. The Plan and each option is subject to the
provisions of section 422 of the Internal Revenue Code of 1986, as amended. The
Plan is applicable only to those options currently outstanding (147,074 shares)
and no additional options may be granted under the Plan.
Incentive Stock Option Plan No. 2
The Company currently has in effect an Incentive Stock Option Plan adopted by
the Shareholders of the Company on June 18, 1992 which provides that (a) options
for up to 500,000 shares of common stock, par value $.50 per share, may be
issued to employees of the Company and/or its subsidiaries; (b) the exercise
price shall be not less than the fair market value of the shares on the date on
which the option is granted; (c) the term of the option may not exceed ten (10)
years and will end no later than three (3) months after an employee's death,
retirement or termination from service for any reason other than disability and
shall expire no later than one (1) year after an employee's termination from
service due to disability; and (d) such other terms set forth in the Plan or as
may be approved by the Board of Directors of the Company. The Plan and each
option is subject to Section 422 of the Internal Revenue Code of 1986, as
amended.
There were no stock options issued to executive officers under
Stock Option Plan No. 2, in 1995.
<PAGE> 68
Option Exercises and Fiscal Year End Values
The following table provides information as to the unexercised
options to purchase the Company's Common Stock granted in fiscal year 1995 and
prior fiscal years to the named officers and the value of said options held by
them as of the end of the year.
OPTION VALUES AS OF DECEMBER 31, 1995
---------------------------------------------------------------
Value of Unexercised
Number of Unexercised Options at In-the-Money options
December 31, 1995 (#) at December 31, 1995 ($)
---------------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------ ---------- --------- ----------- -------------
Melvin C. Parker 313,000 12,000 $ - $ -
Susan F. Powell 40,000 - - -
Ronald W. Hayes 67,409 - 21,065 -
Donald F.U. Goebert 67,409 - 21,065 -
Ernest D. Palmarella 12,256 - 3,830 -
* Value determined from market price at the fiscal year end ($0.9375)
less exercise price. The actual value, if any, an executive may realize will
depend on the stock price on date of exercise of option, so there is no
assurance the value stated will be equal to the value realized by the
executive.
Simplified Employee Pension Plan
On January 1, 1992, the Company's subsidiary, Investors Insurance Corporation,
adopted a Simplified Employee Pension Plan. This same plan was subsequently
adopted by the Company on June 11, 1993. Under the Plan, the Company may
contribute each year for each employee the lesser of fifteen percent (15%) of
each employee's salary (not to exceed $150,000) or thirty thousand dollars
($30,000). A ten percent (10%) of salary contribution was made for the 1995 and
1994 fiscal years. Contributions under the Plan are not mandatory.
Deferred Compensation Plan
The Company executed a Deferred Compensation Plan with Melvin C. Parker in 1994.
The terms of this Plan provide for the annual payment of $8,500 to a Trust
Account for the benefit of Mr. Parker. Upon Mr. Parker's retirement, disability
or death, such amount which is existing in said Trust Account shall be paid to
him or his beneficiary. The Trust Account is maintained pursuant to a Trust
Agreement, the trustees of which are Ronald W. Hayes and Jack L. Howard. The
Trust Account is subject to the claims of the general creditors of the Company
in the event the Company becomes insolvent, but other than for insolvency, the
monies deposited into the Trust Account cannot revert back to the Company.
<PAGE> 69
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information concerning the beneficial security
ownership of the Company's common stock by the Directors and Executive Officers,
individually and as a group. The table also sets forth the only persons who, to
the company's knowledge, are the beneficial owners of more than five (5%)
percent of the outstanding voting securities of the company.
Shares Owned
Name and Address Beneficially as of Percent of
of Beneficial Owner April 8, 1996 Class (1)
- ------------------- ------------------ ----------
Melvin C. Parker 395,075 (2) 12.8%
7200 W. Camino Real
Boca Raton, Florida 33433
Ronald W. Hayes 173,909 (3) 6.1%
7200 W. Camino Real
Boca Raton, Florida 33433
Donald F.U. Goebert 2,012,059 (4) 51.6%
615 Willowbrook Lane
West Chester, PA 19382
Ernest D. Palmarella 12,816 (5) *
2 Radnor Corporate Center
Radnor, PA 19087
Susan F. Powell 40,000 (6) 1.5%
3030 Hartley Road
Jacksonville, FL 32257
All Directors and Officers
of the Company 2,634,859 (2-6) 60.7%
- -----------------
* Less than 1% ownership interest.
(1) These percentages are computed by dividing the number of
shares of common stock shown for each person by the sum of (i) the
number of shares of common stock outstanding on April 8, 1996, and
(ii) the number of shares which that particular person beneficially
owns pursuant to stock options and stock warrants.
(2) The shares listed as being beneficially owned by Mr. Parker
include a 1992 option, granted pursuant to Incentive Stock Option
Plan 2, which is currently exercisable in the amount of 300,000
shares. The actual grant to Mr. Parker is for 300,000 shares,
which vest 24% a year for four years, commencing in 1992 and a
final vesting of 4% on January 1, 1996. Mr. Parker's 1993 option
of 25,000 shares is also included in the calculation of his
beneficial ownership as of April 8, 1996.
<PAGE> 70
(3) The shares listed as being beneficially owned by Mr. Hayes
are held of record by Lincoln Consulters and Investors, Inc. The
shares listed as being beneficially owned by Mr. Hayes include an
option granted to him to purchase 67,409 shares pursuant to
Incentive Stock Option Plan 1.
(4) Mr. Goebert is the direct owner of 195,554 shares and has
options to purchase 67,409 shares of the Company's Stock pursuant
to Incentive Stock Option Plan 1. In addition, Mr. Goebert has
beneficial ownership through Chester County Fund, Inc. of 686,658
shares and a warrant to purchase 1,062,438 shares of the Company's
common stock.
(5) The shares listed as being beneficially owned by Mr. Palmarella
include an option granted to him to purchase 12,256 shares of the
Company's common stock pursuant to Incentive Stock Option Plan 1.
(6) The shares listed as beneficially owned by Ms. Powell include
options granted to her to purchase 40,000 shares pursuant to
Incentive Stock Option Plan 2.
The Securities and Exchange Commission requires filing of public reports by
directors, officers and beneficial owners of more than ten (10%) percent of
any class of Securities of a company registered pursuant to Section 12 of the
Securities Exchange Act. The new rules require proxy statement disclosure of
those directors, officers and more than ten (10%) percent beneficial
owners that fail to file required reports or that fail to timely file such
reports. The Company is not aware of any failure to file the required
documents.
Item 13. Certain Relationships and Related Transactions
Transactions Involving Directors and Officers
During 1995, the Company and its Subsidiaries engaged in various
transactions with directors or with organizations with which directors are
associated in their principal occupations. As indicated in the Compensation
Table, Mr. Goebert received $100,000 of compensation for consulting services.
These fees were paid to Mr. Goebert as non-employee compensation under a
consulting agreement which terminated in March 1996. Mr. Goebert is a
director of Progress Financial Corporation from whom Investors purchased a
$500,000 bond and warrants in a 1994 private placement. The bond pays 8.25%
interest quarterly and matures in 2004. During 1995, the law firm of
Palmarella & Sweeney, P.C. and/or Mirarchi & Palmarella, P.C., in which Mr.
Palmarella is a principal shareholder, received fees from the Company and its
subsidiaries, in the amount of $117,415, for legal services and related costs
and expenses. All the aforesaid transactions were in the ordinary course of
business and at normal or lower than commercial prices and terms.
<PAGE> 71
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
(i) Reports of Independent Certified Public Accountants
(ii) Consolidated Balance Sheets
(iii) Consolidated Statements of Operations
(iv) Consolidated Statements of Shareholders' Equity
(v) Consolidated Statements of Cash Flows
(vi) Notes to Consolidated Financial Statements
See Index to Financial Statements on page 26.
2. Financial Statement Schedules
Required schedules are included in Part II of this Annual
Report on Form 10-K. All other schedules are omitted either
because they are not applicable or because the required
information is shown in the consolidated financial statements
or the notes thereto.
3. Exhibits
See the Exhibit Index of this Annual Report on Form 10-K at
page 73.
(b) Reports on Form 8-K
The Company filed the following Forms 8-K during the last quarter of 1995 and
the first quarter of 1996:
December 12, 1995 Agreement to sell all the outstanding shares
of Investors Marketing Group, Inc. and
Investors Insurance Corporation.
February 8, 1996 Cancellation of agreement to sell all the
outstanding shares of Investors Marketing
Group, Inc. and Investors Insurance
Corporation.
February 13, 1996 Selection of BDO Seidman LLP as the
Company's primary accountant.
March 5, 1996 Reinsurance agreement with New Era Life
Insurance Company.
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INVESTORS INSURANCE GROUP, INC.
June 3, 1996 By: /s/ Melvin C. Parker
-----------------------
Melvin C. Parker, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. The duties and
responsibilities of the chief financial officer and controller have been
distributed among the officers and directors.
By: /s/ Melvin C. Parker June 3, 1996
--------------------------------------------
Melvin C. Parker, President, Chief Executive
Officer and Director
By: /s/ Donald F. U. Goebert June 3, 1996
--------------------------------------------
Donald F. U. Goebert, Director
By: /s/ Ernest D. Palmarella June 3, 1996
--------------------------------------------
Ernest D. Palmarella, Director
<PAGE> 73
Investors Insurance Group, Inc.
Exhibit Index
Regulation S-K
Exhibit Table
Reference Description of Exhibit Document
============== ================================================== ========
2 Stock Purchase Agreement, dated December 12, 1995 02.01
among Investors Insurance Group, Inc.,
Investors Marketing Group, Inc., Investors
Insurance Corporation, and Standard Management
Corporation. (Note: This agreement was
terminated; see Form 8K filed on February
8, 1996)
3 Articles of Incorporation of Registrant 03.01
3 Amendment to the Articles of Incorporation of 03.02
Registrant to authorize preferred stock
3 Bylaws of Registrant 03.03
4 Stock Purchase Agreement, dated March 31, 1989, 04.01
among Gemco National, Inc., Corporate Life
Insurance Company and IIC, Inc., relating to
the capital stock of IIC, Inc., Investors
Insurance Corporation and Westchester
Reinsurance, Ltd.
4 Common Stock Purchase Warrant, dated March 31, 04.02
1989, to Corporate Life Insurance Company
covering 1,000,000 shares of common stock
at an exercise price of $2.00 per share,
subject to adjustment.
4 Assignment of Common Stock Purchase Warrant, 04.03
dated March 5, 1991, transferring rights
under the March 31, 1989 warrant from
Corporate Life Insurance Company to Chester
County Fund, Inc.
4 Series A Preferred Stock Purchase Warrant, dated 04.04
April 26, 1996, between Investors Insurance
Group, Inc. and listed parties.
10 Incentive Stock Option Plan, effective June 8, 1982. 10.01
10 Incentive Stock Option Plan, effective June 18, 1992. 10.02
10 Reinsurance Agreement, INVE0001, between Regristrant's 10.03
subsidiary, Investors Insurance Corporation and
Republic-Vanguard Life Insurance Company,
effective October 1, 1991.
10 Addendum No. 1, effective January 1, 1993, to 10.05
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
<PAGE> 74
10 Addendum No. 2, effective December 1, 1993, to 10.06
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
10 Addendum No. 3, effective March 1, 1994, to 10.07
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
10 Addendum No. 4, effective April 1, 1994, to 10.08
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
10 Addendum No. 5, effective August 1, 1994, to 10.09
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
10 Addendum No. 6, effective October 1, 1994, to 10.10
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
10 Addendum No. 7, effective March 27, 1995 to 10.11
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
10 Addendum No. 8, effective May 1, 1995 to 10.12
Reinsurance Agreement INVE0001 between
Registrant's subsidiary, Investors Insurance
Corporation and Republic-Vanguard Life
Insurance Company.
10 Reinsurance Agreement, INVEWL01, between Registrant's 10.13
subsidiary, Investors Insurance Corporation
and Winterthur Life Re, effective May 1, 1993.
10 Reinsurance Agreement No. G-65000-1 between 10.14
Registrant's subsidiary, Investors Insurance
Corporation and Lincoln National Health &
Casualty Insurance Company, effective
December 1, 1992.
10 Reinsurance Agreement between Registrant's 10.15
subsidiary, Investors Insurance Corporation
and New Era Life Insurance Company, effective
December 31, 1995
<PAGE> 75
10 Management and Service Agreement between Registrant 10.16
and Registrant's subsidiary, Investors
Insurance Corporation, effective January 1, 1993.
10 Management Agreement between Registrant and 10.17
Registrant's subsidiary, Investors Marketing
Group, Inc., effective June 10, 1994.
10 Independent Contractor agreement between Registrant's 10.18
subsidiary, Investors Insurance Corporation and
Donald F.U. Goebert, dated December 30, 1991.
10 Termination of independent contractor agreement 10.19
between Registrant's subsidiary, Investors
Insurance Corporation and Donald F.U.
Goebert, effective June 30, 1994.
10 Independent Contractor agreement between Registrant 10.20
and Donald F.U. Goebert, dated July 1, 1994.
10 Termination of independent contractor agreement between 10.21
Registrant and Donald F.U. Goebert, effective
March 1, 1996.
10 Employment agreement between Registrant's 10.22
subsidiary, Investors Insurance Corporation,
and Ronald W. Hayes, dated December 31, 1991.
10 Termination of employment agreement between 10.23
Registrant's subsidiary, Investors Insurance
Corporation, and Ronald W. Hayes, effective
June 30, 1994.
10 Employment agreement between Registrant and Ronald W. 10.24
Hayes, Chairman of the Board of Directors,
effective July 1, 1994.
10 Termination of employment agreement between Registrant 10.25
and Ronald W. Hayes, effective March 15, 1996.
10 Employment agreement between Registrant's 10.26
subsidiary, Investors Insurance Corporation,
and Melvin C. Parker, dated July 1, 1993.
10 Deferred compensation agreement between Registrant's 10.27
subsidiary, Investors Insruance Corporation,
and Melvin C. Parker, dated December 12, 1994
10 Employment agreement between registrant and Melvin 10.28
C. Parker, dated April 19, 1996
10 Employment agreement between Registrant's 10.29
subsidiary, Investors Insurance Corporation,
and Susan F. Powell, dated July 1, 1993.
10 Employment agreement between Registrant's 10.30
subsidiary, Investors Insurance Corporation,
and Richard T. Magsam, dated July 1, 1993.
<PAGE> 76
10 Resignation of Richard T. Magsam effective March 31, 10.31
1995
10 Indemnity agreement between Registrant and 10.32
Melvin C. Parker, re: service as an officer
of Investors Marketing Group, Inc., dated
June 10, 1994.
10 Indemnity agreement between Registrant and 10.33
Susan F. Powell, re: service as an officer
of Investors Marketing Group, Inc., dated
June 10, 1994.
10 Agreement with California to raise additional capital
for Investors Insurance Corporation dated
February 20, 1996
10 Amendment Agreement with California to raise
additional capital for Investors Insurance
Corporation
11 Statement of Computation of Earnings per Share.
See Consolidated Statement of Operations and
Note 1 to the Consolidated Financial Statements.
18 Letter from KPMG Peat Marwick LLP on change 18.01
in accounting principles
21 Subsidiaries of Registrant. 21.01
27 Financial Data Schedule 27.01
<PAGE> 02.01.001
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 12, 1995
By and Among
INVESTORS INSURANCE GROUP, INC.
West Chester, Pennsylvania;
INVESTORS INSURANCE CORPORATION
Jacksonville, Florida;
INVESTORS MARKETING GROUP, INC.
Jacksonville, Florida;
and
STANDARD MANAGEMENT CORPORATION
Indianapolis, Indiana
<PAGE> 02.01.002
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
1.1 Terms Defined 1
1.2 Other Definitional Provisions 1
ARTICLE II -
SALE OF SHARES AND CLOSING 2
2.1 Purchase and Sale 2
2.2 Purchase Price 2
2.3 Adjustment 2
2.4 Closing 2
2.5 Shareholders Meeting 3
2.6 Registration Statement 3
2.7 IIC Holding Company 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER 4
3.1 Organization 4
3.2 Authority 4
3.3 Capital Stock 5
3.4 No Subsidiaries 5
3.5 No Conflicts or Violations 5
3.6 Books and Records 6
3.7 SAP Statements 6
3.8 No Other Financial Statements 7
3.9 Reserves 7
3.10 Absence of Changes 7
3.11 No Undisclosed Liabilities 11
3.12 Taxes 11
3.13 Litigation 14
3.14 Compliance With Laws 14
3.15 Benefit Plans. ERISA 16
3.16 Properties 18
3.17 Contracts 19
3.18 Insurance Issued by the Company 21
3.19 Threats of Cancellation 22
3.20 Licenses and Permits 23
3.21 Operations Insurance 23
i
<PAGE> 02.01.003
3.22 Intercompany Accounts 23
3.23 Bank Accounts 24
3.24 Brokers 24
3.25 Disclosure 24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER 24
4.1 Organization 24
4.2 Authority 24
4.3 No Conflicts or Violations 25
4.4 Litigation 26
4.5 Purchase for Investment 26
4.6 Capitalization 26
4.7 Taxes 27
4.8 Compliance With Laws 29
4.9 Employee Benefit Plans 29
4.10 Properties 31
4.11 Contracts 32
4.12 Licenses and Permits 33
4.13 Brokers 34
4.14 Disclosure 34
ARTICLE V
COVENANTS OF SELLER. THE COMPANY AND MARKETING 34
5.1 Lender and Regulatory Approvals 34
5. Investigation by the Buyer 35
5.2 No Negotiations, etc 35
5.3 Conduct of Business 36
5.4 Financial Statements and Reports 37
5.5 Investments 38
5.6 Employee Matters 38
5.7 No Charter Amendments 39
5.8 No Issuance of Securities 39
5.9 No Dividends 39
5.10 No Disposal of Property 39
5.11 No Breach or Default 40
5.12 No Indebtedness 40
5.13 No Acquisitions 40
5.14 Intercompany Accounts 40
5.15 Resignations of Officers and Directors 40
5.16 Tax Matters 40
5.17 New ERA Life Insurance Comnany Reinsurance Agreement 41
5.18 Senior Subordinated Debenture 41
ii
<PAGE> 02.01.004
5.19 Adage, Inc. Stock 41
5.20 Disclosure schedule 41
5.21 Notice and Cure 41
5.22 Shareholder Distribution List 41
ARTICLE VI
COVENANTS OF BUYER 41
6.1 Regulatory Approvals 42
6.2 Investigation by the Seller 42
6.3 Conduct of Business 42
6.4 Financial Statements and Reports 43
6.5 No Breach or Default 44
6.6 Notice and Cure 44
6.7 Approval By Shawmut 44
6.8 No Charter Amendments 44
6.9 No Dividends 45
6.10 Disclosure Schedule 45
6.11 Director and Officer Liability 45
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER 45
7.1 Representations and Warranties 45
7.2 Performance 45
7.3 Officer's Certificates 45
7.4 No Injunction 46
7.5 No Proceeding or Litigation 46
7.6 Consents, Authorizations, etc 46
7.7 No Adverse Change 46
7.8 Opinion of Counsel 47
7.9 New ERA Agreement 47
7.10 Shareholder Approval 47
7.11 Hart-Scott 47
7.12 Registration Statement 47
7.13 Approval by Shawmut 47
7.14 Resignation of Officers and Directors 47
7.15 Employment Agreement 47
7.16 Lockup Agreement 48
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER 48
8.1 Representations and Warrantes 48
8.2 Performance 48
8.3 Officer's Certificates 48
iii
<PAGE> 02.01.005
8.4 No Injunction 48
8.5 No Proceeding or Litigation 48
8.6 Consents, Authorizations, etc 49
8.7 Opinion of Counsel 49
8.8 Indiana Business Corporation Law 49
ARTICLE IX
SURVIVAL OF PROVISIONS REMEDIES 49
9.1 Survival 49
9.2 Available Remedies 50
ARTICLE X
INDEMNIFICATION 50
10.1 Tax Indemnification 50
10.2 Benefit Plan lndemnification 51
10.3 Other Indemnification 52
10.4 Method of Asserting Claims 53
10.5 After-Tax Damages 55
10.6 Assignment of Indemnification 56
10.7 Hold Back of Portion of Purchase Price 56
ARTICLE XI
TERMINATION 56
11.1 Termination 56
11.2 Effect of Termination 57
ARTICLE XII
MISCELLANEOUS 58
12.1 Notices 58
12.2 Entire Agreement 59
12.3 Expenses 59
12.4 Public Announcements 59
12.5 Confidentiality 60
12.6 Further Assurances 60
12.7 Waiver 60
12.8 Amendment 60
12.9 Counterparts 61
12.10 No Third Party Beneficiary 61
12.11 Governing Law 61
12.12 Binding Effect 61
12.13 Assignment 61
12.14 Headings, etc 61
12.15 Invalid Provisions 61
iv
<PAGE> 02.01.006
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of December 12, 1995 by and among Standard Management Corporation, an Indiana
corporation (the "Buyer"); Investors Insurance Corporation, a Delaware
Corporation (the "Company") and Investors Marketing Group, Inc., a Florida
corporation ("Marketing"); and Investors Insurance Group, Inc., a Florida
corporation (the "Seller").
WITNESSETH:
WHEREAS, Seller is the beneficial owner of all 100 shares of the
authorized, issued and outstanding capital common stock, $.01 par value per
share of IIC, Inc. ("IIC");
WHEREAS, Seller is the beneficial owner and Seller is the indirect
beneficial owner of all 750 shares of the authorized, issued and outstanding
capital common stock ("Common Stock"), $2,000.00 par value per share ("the
Shares") of Investors Insurance Corporation; and
WHEREAS, Seller is the beneficial owner of all 1,000 shares of the
authorized, issued and outstanding capital common stock ("Common Stock"), no
par value per share ("the Shares") of Investors Marketing Group, Inc., and
WHEREAS, Seller desires to sell, and Buyer desires to purchase from
Seller, all of the Shares of Investors Insurance Corporation and Investors
Marketing Group, Inc.;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined. The capitalized terms used in this Agreement and
not defined herein shall have the meanings specified in Exhibit A.
1.2 Other Definitional Provisions. Unless the context otherwise
requires, (a) references in this Agreement to the singular number shall
include the plural, and the plural number shall include the singular; (b)
words denoting gender shall include the masculine, feminine and neuter; (c)
the words "hereof," "herein" and "hereunder" and words of similar import refer
to this Agreement as a whole and not to any particular provision of this
Agreement, (d) unless otherwise specified, all Article and Section references
pertain to this Agreement; (e) the term "or" means "and/or"; and (f) the
phrase "ordinary course of business and consistent with past practice" refers
to the business and practice of the Seller or the Company, as the case may be.
<PAGE> 02.01.007
ARTICLE II
SALE OF SHARES AND CLOSING
2.1 Purchase and Sale. The Seller agrees to sell to the Buyer and the
Buyer agrees to purchase from the Seller the Shares at the Closing upon the
terms and subject to the conditions set forth in this Agreement.
2.2 Purchase Price. Subject to adjustment pursuant to Section 2.3
hereof, the purchase price for the Shares payable at the Closing shall be
equal to the issuance of 750,000 shares of the Buyer's registered, free
trading common stock, plus the assumption by the Buyer of a certain Senior
Subordinated Debenture dated March 31, 1989 in the principal amount of
$8,000,000 (the "Debenture") including the accrued and escrowed interest
therein. Said shares of Buyer's common stock, less the 50,000 shares escrow
pursuant to Section 10.7 hereof, shall be distributed to Seller's shareholders
at the Closing, by Buyer's transfer agent.
2.3 Adjustment
(a) On the day prior to Closing, the Seller will determine
and will deliver to the Buyer a certificate of the president of the
Seller setting forth the Seller's determination of the Adjusted Capital
and Surplus of Company as of the Closing Date, together with true and
complete copies of all Work Papers related thereto (collectively, the
"Closing Adjusted Capital and Surplus").
(b) The Adjusted Capital and Surplus of the Company shall be
determined in accordance with the Formula set forth on Exhibit B
hereto.
(c) If the Closing Adjusted Capital and Surplus is less than
$5,300,000, the Seller shall cause the difference to be paid to the
Company at Closing in cash or in securities acceptable to Buyer.
(d) If the Closing Adjusted Capital and Surplus is greater
than $5,300,000, the Buyer shall cause the difference to be paid to
Seller at Closing in the form of a dividend from the Company.
2.4 Closing. The Closing of the transactions contemplated by this
Agreement will take place at the offices of Investors Insurance Corporation,
3030 Hartley Road, Jacksonville, Florida 32257 or at such other place as the
Buyer shall specify, at 10:00 a.m., local time, on the Closing Date. At the
Closing, the Seller will deliver to the Buyer such documents and instruments
as the Buyer may reasonably request for the purpose of effectuating the
purchase and sale of the Shares and the transactions contemplated hereby,
including, without limitation, a certificate or certificates representing the
Shares issued in the name of the Buyer, or accompanied by executed stock
powers
2
<PAGE> 02.01.008
transferring the Shares to the Buyer, subject to a certain pledge agreement
(the "Pledge Agreement") between the Company and Corporate Life Insurance
Company ("CLIC") dated March 31, 1989.
2.5 Shareholders Meeting. Seller shall promptly take all action
necessary in accordance with the Florida Business Corporate Law and its
Articles of Incorporation and By-Laws to convene a meeting of its shareholders
on the earliest. practicable date to consider and vote on the sale
contemplated herein and shall use its best efforts to obtain shareholder
approval thereof. The shareholder meeting shall be held as soon as practicable
following the date upon which the Registration Statement becomes effective.
The Board of Directors of Seller shall recommend that Seller's shareholders
vote to approve the sale and not rescind its declaration that such sale is
advisable shall use its best efforts to solicit from shareholders of Seller
proxies in favor of the sale and shall take all other action in its judgement
reasonable necessary and appropriate to secure the vote of shareholders
required to effect the sale and the obligations imposed herein. At any such
meeting all shares of Seller then owned by Donald F.U. Goebert, Chester County
Fund, Inc., Melvin C.Parker, Ronald W. Hayes and Jack L. Howard (the "Control
Group") shall be voted in favor of such sale. No member of the Control Group
shall, prior to the Closing Date, sell, transfer, assign or otherwise dispose
of any share of Seller then owned by him, her or it.
2.6 Registration Statement. Promptly following execution and delivery
of this Agreement, Buyer shall prepare a Registration on Form S-4 Statement,
covering the issuance of Buyer's shares in accordance with the purchase
contemplated herein (the "Registration Statement"), file it in preliminary
form with the SEC under the Securities Act, and use all reasonable efforts to
have it declared effective as promptly as possible by the SEC, and cleared by
the NASD, if required. Buyer shall also use all reasonable efforts to obtain
the approval of any "blue sky" authorities necessary for the issuance of such
shares. Seller shall cooperate with Buyer in the preparation of the
Registration Statement and provide Buyer all information regarding the Seller
and its affiliates required to be included therein and the Seller shall take
such other action as Buyer may reasonably request in connection with the
preparation of the Registration Statement and the actions to be taken by Buyer
pursuant to this Section 2.6.
Buyer shall cause the Registration Statement to comply as to form in
all material respects with the Securities Act. None of the information
supplied by Buyer specifically for inclusion in the Registration Statement
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Promptly following execution and delivery of this Agreement,
the Seller shall prepare and file with the SEC, in preliminary form, the Proxy
statement. As promptly as practicable after the Registration Statement has
been cleared by the SEC, Seller shall prepare the Proxy Statement/Prospectus
in definitive form and mail it to the shareholders of Seller as of the record
date for the Meeting and shall file the same with the SEC, the American Stock
Exchange and each "blue sky" authority with which the Registration Statement
is required to be filed." Seller shall notify Buyer of its intention to mail
the Proxy Statement to its shareholders, both orally and in writing, at least
48 hours prior to the intended time of such mailing.
3
<PAGE> 02.01.009
Seller shall cause the Proxy Statement-Prospectus to comply as to form in all
material respects with the Exchange Act. None of the information supplied by
Seller specifically for inclusion in the Proxy Statement-Prospectus shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.7 IIC Holding Company. Seller shall advise Buyer within five (5)
days of the date of this Agreement as to its position with respect to the sale
of IIC to Buyer. Buyer shall advise Seller within ten (10) days of the date of
this Agreement as to Buyer's position with respect to the purchase of IIC.
Buyer and Seller shall negotiate in good faith for up to fifteen (15) days
from the date of this Agreement to resolve any differences with respect to the
acquisition of IIC. If Buyer and Seller are unable to resolve their
differences with respect to IIC, either party may terminate this Agreement
without penalty or liability within fifteen (15) days after the date of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller hereby represents and warrants to the Buyer as follows:
3.1 Orqanization. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida and,
subject to the approval of Seller's stockholders of this Agreement, has full
corporate power and authority to enter into this Agreement and to perform its
obligations under this Agreement. The Company is an insurance company duly
organized, validly existing, and in good standing under the Laws of the State
of Delaware and Marketing is an insurance marketing company duly organized,
validly existing, and in good standing under the Laws of the State of Florida.
Both the Company and Marketing are duly licensed, qualified, or admitted to do
business and are in good standing in all jurisdictions in which the failure to
be so licensed, qualified, or admitted and in good standing, individually or
in the aggregate with other such failures, has or may reasonably be expected
to have a material adverse effect on the validity or enforceability of this
Agreement, on the ability of the Company or Marketing to each perform its
obligations under this Agreement, or on the Business or Condition of the
Company or Marketing. Section 3.1 of the Disclosure Schedule contains a true
and complete list of the states in which the Company or Marketing is licensed
to write life and health insurance. The Seller has furnished to the Buyer
true and complete copies of the articles of incorporation (as certified by the
appropriate governmental or regulatory authorities) and the Bylaws of each the
Company and Marketing, including all amendments thereto.
3.2 Authority. The Boards of Directors of the Seller, the Company and
Marketing, respectively, have duly and validly approved this Agreement and the
transactions contemplated hereby. Subject to the approval of Seller's
stockholders of this Agreement, the execution and delivery of this Agreement
by the Seller, the Company and Marketing and the performance by the Seller,
the Company or Marketing of their respective obligations under this Agreement
have been
4
<PAGE> 02.01.010
duly and validly authorized by all necessary corporate action on the part of
the Seller, the Company and Marketing. This Agreement constitutes a legal,
valid, and binding obligation of the Seller, the Company and Marketing and is
enforceable against the Seller, the Company and Marketing in accordance with
its terms, except to the extent that (a) enforcement may be limited by or
subject to any bankruptcy, insolvency, reorganization, moratorium, or similar
Laws now or hereafter in effect relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court or other similar Person before which any proceeding
therefor may be brought.
3.3 Capital Stock. The authorized capital stock of the Company
consists of 1,000 shares of common stock, $2,000.00 par value per share, of
which all 750 shares are validly issued and out-standing, fully paid and
nonassessable, and owned beneficially and of record by the Seller, and the
authorized capital stock of Marketing consists of 1,000 shares of common
stock, no par value per share, of which all 1,000 shares are validly issued
and outstanding, fully paid and nonassessable, and owned beneficially and of
record by the Seller, free and clear of all Liens, except for Liens disclosed
in Section 3.3 of the Disclosure Schedule. Except as disclosed in Section 3.3
of the Disclosure Schedule, there are no outstanding securities, obligations,
rights, subscriptions, warrants, options, charter or founders insurance
policies, phantom stock rights, or (except for this Agreement) other Contracts
of any kind that give any Person the right to (a) purchase or otherwise
receive or be issued any shares of capital stock of the Company or Marketing
(or any interest therein) or any security or Liability of any kind convertible
into or exchangeable for any shares of capital stock of the Company or
Marketing (or any interest therein) or (b) receive any benefits or rights
similar to any rights enjoyed by or accruing to a holder of the Common Stock,
or any rights to participate in the equity, income, or election of directors
or officers of the Company or Marketing.
3.4 No Subsidiaries. Neither the Company nor Marketing controls
(whether directly or indirectly, whether through the ownership of securities
or by Contract or proxy, and whether alone or in combination with others) any
corporation, partnership, business organization, or other similar Person.
3.5 No Conflicts or Violations. The execution and delivery of this
Agreement by the Seller, the Company and Marketing does not, and the
performance by the Seller, the Company and Marketing of their respective
obligations under this Agreement will not:
(a) subject to the approval of Seller's stockholders of this
Agreement and subject to obtaining the approvals contemplated by
Sections 5.1 and 6.2 hereof, violate any term or provisions of any Law
or any writ, judgment, decree, injunction, or similar order applicable
to the Seller, the Company or Marketing;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, any of the terms, conditions, or provisions of the articles or
certificate of incorporation or Bylaws of the Seller, the Company or
Marketing;
5
<PAGE> 02.01.011
(c) result in the creation or imposition of any Lien upon the
Seller, the Company, Marketing or any of their respective
Assets and Properties that individually or in the
aggregate with any other Liens has or may reasonably be
expected to have a material adverse effect on the
validity or enforceability of this Agreement, on the ability of the
Seller, the Company or Marketing to perform their respective
obligations under this Agreement, or on the Business or Condition of
the Seller, the Company or Marketing;
(d) except for the Debenture, conflict with or result in a
violation or breach of, or constitute (with or without notice or lapse
of time or both) a default under, or give to any Person any right of
termination, cancellation, acceleration, or modification in or with
respect to, any Contract to which the Seller, the Company or Marketing
is a party or by which any of their respective Assets or Properties may
be bound and as to which any such conflicts, violations, breaches,
defaults, or rights individually or in the aggregate have or may
reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement, on the ability of the
Seller, the Company or Marketing to perform its respective obligations
under this Agreement, or on the Business or Condition of the Seller,
the Company or Marketing; or
(e) subject to the approval of Seller's stockholders of this
Agreement, require the Seller, the Company or Marketing to obtain any
consent, approval, or action of, or make any filing with or give any
notice to, any Person except: (i) as contemplated in Section 5.1
hereof; (ii) as disclosed in Section 3.5(e) of the Disclosure Schedule;
or (iii) those which the failure to obtain, make, or give individually
or in the aggregate with any other such failures has or may reasonably
be expected to have no material adverse effect on the validity or
enforceability of this Agreement, on the ability of the Seller, the
Company or Marketing to perform its respective obligations under this
Agreement, or on the Business or Condition of the Seller, the Company
or Marketing.
3.6 Books and Records. The minute books and other similar records of
the Company and Marketing contain a true and complete record, in all material
respects, of all actions taken at all meetings and by all written consents in
lieu of meetings of the stockholder, Board of Directors, and each committee
thereof of the Company and Marketing. The Books and Records of the Company
and Marketing accurately reflect in all material respects the Business or
Condition of the Company and Marketing, and have been maintained in all
material respects in accordance with good business and bookkeeping practices.
3.7 SAP Statements. The Seller has previously delivered to the Buyer
true and complete copies of the following SAP Statements:
(a) Annual Statements of the Company for each of the years
ended December 31, 1992, 1993, and 1994 (and the notes relating
thereto, whether or not included therein); and
6
<PAGE> 02.01.012
(b) Audited SAP statements of the Company for each of the
years ended December 3, 1992, 1993 and 1994 (and the notes thereto,
whether or not included therein); and
(c) Quarterly Statements of the Company for each of the first
three quarters of 1995 (and the notes, if any, relating thereto,
whether or not included therein).
Except as disclosed in Section 3.7 of the Disclosure Schedule, each
such SAP Statement complied in all material respects with all applicable Laws
when so filed, and all material deficiencies known to Seller or Company with
respect to any such SAP Statement have been cured or corrected. Each such SAP
Statement, (and the notes relating thereto, whether or not included therein),
including, without limitation, each balance sheet and each of the statements
of operations, capital and surplus account, and cash flow contained in the
respective SAP Statement, was prepared in accordance with SAP, is true and
complete in all material respects, and fairly presents the financial
condition , the Assets and Properties, and the Liabilities of the Company as
of the respective dates thereof and the results of operations and changes in
capital and surplus and in cash flow of the Company for and during the
respective periods covered thereby.
3.8 No Other Financial Statements. Except for the financial
statements described in Section 3.7 (collectively, the "Financial
Statements"), since October 31, 1995 no other financial statements have been
prepared by or with respect to the Company (whether on a GAAP, SAP, or
other basis).
3.9 Reserves. All reserves and other similar amounts with respect
to insurance and annuities as established or reflected in the SAP Statements
of the Company dated as of December 31, 1994 and September 30, 1995 were
determined in accordance with generally accepted actuarial principles that
are in accordance with those called for by the provisions of the related
insurance and annuity Contracts and in the related reinsurance, coinsurance,
and other similar Contracts of Company, and meet the requirements of the
insurance Laws of the State of Delaware and states in which such insurance and
annuity Contracts were issued or delivered. All such reserves and other
similar amounts will be adequate (under generally accepted actuarial
principles consistently applied) to cover the total amount of all reasonably
anticipated matured and unmatured benefits, dividends, claims, and other
Liabilities of the Company under all insurance and annuity Contracts under
which the Company has or will have any Liability (including, without
limitation, any Liability arising under or as a result of any reinsurance,
coinsurance, or other similar Contract) on the respective dates of such SAP
Statements. The Company owns assets that qualify as legal reserve assets
under applicable insurance Laws in an amount at least equal to all such
required reserves and other similar amounts.
3.10 Absence of Changes. Except as disclosed in Section 3.10 of
the Disclosure Schedule or as specifically reflected in the September 30,
1995 SAP Statement, or except for changes or developments relating to the
conduct of the business of the Company or Marketing after the date of this
Agreement in conformity with this Agreement or the requests of the Buyer since
7
<PAGE> 02.01.013
December 31, 1994, there has not been, occurred, or arisen any change in, or
any event (including without limitation any damage, destruction, or loss
whether or not covered by insurance), condition, or state of facts of any
character that individually or in the aggregate has or may reasonably be
expected to have a material adverse effect on the Business or Condition of
the Company or Marketing. Except as disclosed in Section 3.10 of the
Disclosure Schedule (with paragraph references corresponding to those set
forth below), or except as specifically reflected in the September 30, 1995
SAP Statement, or except for changes or developments relating to the conduct
of the business of the Company or Marketing after the date of this Agreement
in conformity with this Agreement or the requests of the Buyer since December
31, 1994, the Company and Marketing have operated only in the ordinary course
of business and consistent with past practice, and (without limiting the
generality of the foregoing) there has not been, occurred, or arisen:
(a) any declaration, setting aside, or payment of any
dividend or other distribution in respect of the capital stock of the
Company or Marketing or any direct or indirect redemption, purchase, or
other acquisition by the Company or Marketing of any such stock or of
any interest in or right to acquire any such stock;
(b) any employment, deferred compensation, or other salary,
wage, or compensation Contract entered into between the Company or
Marketing and any of its officers, directors, employees, agents,
consultants, or similar representatives, except for normal and
customary Contracts with agents and consultants in the ordinary course
of business and consistent with past practice; or any increase in the
salary, wages, or other compensation of any kind, whether current or
deferred, of any officer, director, employee, agent, consultant, or
other similar representative of the Company or Marketing other than
routine increases that were made in the ordinary course of business and
consistent with past practice and that did not result in an increase of
more than five percent (5%) of the respective salary, wages, or
compensation of any such Person; or any creation of any Benefit Plan or
any contribution to or amendment or modification of any Benefit Plan;
(c) any issuance, sale, or disposition by the Company or
Marketing of any debenture, note, stock, or other security issued by
the Company or Marketing, or any modification or amendment of any right
of the holder of any outstanding debenture, note, stock, or other
security issued by the Company or Marketing;
(d) any Lien created on or in any of the Assets and
Properties of the Company or Marketing, or assumed by the Company or
Marketing with respect to any of such Assets and Properties, which Lien
relates to Liabilities individually or in the aggregate exceeding
$25 000 for the Company or Marketing or which Lien individually or in
the aggregate with any other Liens has or may reasonably be expected to
have a material adverse effect on the Business or Condition of the
Company or Marketing;
(e) any prepayment of any Liabilities individually or in the
aggregate exceeding $10,000;
8
<PAGE> 02.01.014
(f) any Liability involving the borrowing of money by the
Company or Marketing;
(g) any Liability incurred by the Company or Marketing in any
transaction (other than pursuant to any insurance or annuity Contract
entered into in the ordinary course of business and consistent with
past practice) not involving the borrowing of money, except such
Liabilities incurred by the Company or Marketing, the result of which
individually or in the aggregate cannot reasonably be expected to have
a material adverse effect on the Business or Condition of the Company
or Marketing;
(h) any damage, destruction, or loss (whether or not covered
by insurance) affecting any of the Assets and Properties of the Company
or Marketing, which damage, destruction, or loss individually exceeds
$25,000 or the result of which individually or in the aggregate has or
may reasonably be expected to have a material adverse effect on the
Business or Condition of the Company or Marketing;
(i) any work stoppage, strike, slowdown, other labor
difficulty, or (to the best knowledge of the Seller, the Company or
Marketing) union organizational campaign (in process or threatened) at
or affecting the Company or Marketing;
(j) any material change in any underwriting, actuarial,
investment, financial reporting, or accounting practice or policy
followed by the Company or Marketing, or in any assumption underlying
such a practice or policy, or in any method of calculating any bad
debt, contingency, or other reserve for financial reporting purposes or
for any other accounting purposes;
(k) any payment, discharge, or satisfaction by the Company or
Marketing of any Lien or Liability other than Liens or Liabilities that
were paid, discharged, or satisfied since December 31, 1994 in the
ordinary course of business and consistent with past practice, or were
paid, discharged, or satisfied as required under this Agreement;
(l) any cancellation of any Liability owed to the Company or
Marketing by any other Person;
(m) any write-off or write-down of, or any determination to
write off or down any of, the Assets and Properties of the Company or
Marketing or any portion thereof, except for write-offs or write-downs
that do not exceed $10,000 individually or in the aggregate for the
Company or Marketing;
(n) any sale, transfer, or conveyance of any investments, or
any other Assets and Properties, of the Company or Marketing with an
individual book value or with an aggregate
9
<PAGE> 02.01.015
book value in excess of $10,000, except as contemplated in Section 5.6
and except in the ordinary course of business and consistent with past
practice;
(o) any amendment, termination, waiver, disposal, or lapse of,
or other failure to preserve, any license, permit, or other form of
authorization of the Company or Marketing, the result of which
individually or in the aggregate has or may reasonably be expected to
have a material adverse effect on the Business or Condition of the
Company or Marketing;
(p) any transaction or arrangement under which the Company or
Marketing paid, lent, or advanced any amount to or in respect of, or
sold, transferred, or leased any of its Assets and Properties or any
service to, any officer or director of the Seller, the Company or
Marketing (except for payments of salaries and wages in the ordinary
course of business and consistent with past practice, and except for
payments made pursuant to any Contract disclosed in Section 3.10(b) or
Section 3.17(a) of the Disclosure Schedule), or of any Affiliate of the
Seller, the Company or Marketing, or of any such officer of director;
(ii) any business or other Person in which the Seller, the Company or
Marketing, any such officer or director, or any such Affiliate has any
material interest except, for advances made to, or reimbursements of,
officers or directors of the Seller, the Company or Marketing for
travel and other business expenses in reasonable amounts in the
ordinary course of business and consistent with past practice; or any
Affiliate of the Company or Marketing pursuant to any Contract of the
type described in Section 3.I7(g);
(q) any material amendment of, or any failure to perform all
of its obligations under, or any default under, or any waiver of any
right under, or any termination (other than on the stated expiration
date) of, any Contract that involves or reasonably would involve the
annual expenditure or receipt by the Company or Marketing of more than
$25,000 or that individually or in the aggregate is material to the
Business or Condition of the Company or Marketing;
(r) any decrease in the amount of, or any material change in
the nature of, the insurance or annuities in force of the Company or
any material change in the amount or nature of the reserves,
liabilities or other similar amounts of the Company with respect to
insurance and annuity Contracts (including, without limitation,
reserves and other similar amounts of a type required to be reflected
respectively on lines __ through _on page __ of
an Annual Statement of the Company);
(s) any amendment to the articles or certificate of
incorporation or Bylaws of the Company or Marketing;
(t) except for the New ERA Life Insurance Company Reinsurance
Agreement (the "New ERA Agreement"), any termination, amendment, or
execution by the Company of any reinsurance, coinsurance, or other
similar Contract, as ceding or assuming insurer;
10
<PAGE> 02.01.016
(u) any expenditure or commitment for additions to property,
plant, equipment or other tangible or intangible capital assets of the
Company or Marketing, except for any expenditure or commitment that
does not exceed $25,000 individually or the result of which
individually or in the aggregate does not have and may not reasonably
be expected to have a material adverse effect on the Business or
Condition of the Company or Marketing;
(v) any amendment or introduction by the Company of any
insurance or annuity Contract other than in the ordinary course of
business and consistent with past practice; or
(w) any Contract to take any of the actions described in this
Section other than actions expressly permitted under this Section.
3.11 No Undisclosed Liabilities. Except to the extent specifically
reflected in the balance sheet included in the December 31, 1994 SAP Statement
(or in the notes relating thereto), or except as disclosed in Section 3.11 of
the Disclosure Schedule, there were no Liabilities (other than policyholder
benefits payable in the ordinary course of business and consistent with past
practice) against, relating to, or affecting the Company or Marketing as of
December 31, 1994 that individually or in the aggregate have or may reasonably
be expected to have a material adverse effect on the Business or Condition of
the Company or Marketing. Except to the extent specifically reflected in
the balance sheet included in the September 30, 1995 SAP Statement (or in the
notes relating thereto), or except as disclosed in Section 3.11 of the
Disclosure Schedule, since December 31, 1994, neither the Company nor
Marketing has incurred any Liabilities (other than policyholder benefits
payable in the ordinary course of business and consistent with past practice)
that individually or in the aggregate have or may reasonably be expected to
have a material adverse effect on the Business
or Condition of the Company or Marketing.
3.12 Taxes. Except as disclosed in Section 3.12 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) All Tax Returns required to be filed with respect to the
Company or Marketing have been duly and timely filed, and, to the best
of Seller's knowledge, all such Tax Returns are true and complete in
all material respects. The Company and Marketing have duly and timely
paid all Taxes that are due, or claimed or asserted by any taxing
authority to be due, from the Company or Marketing for the periods
covered by such Tax Returns or have duly provided for all such Taxes in
the Books and Records of the Company or Marketing and in accordance
with GAAP and SAP, including, without limitation, in the Financial
Statements. There are no Liens with respect to Taxes (except for Liens
with respect to real property Taxes not yet due) upon any of the Assets
and Properties of the Company or Marketing.
(b) With respect to any period for which Tax Returns have not
yet been filed, or for which Taxes are not yet due or owing, the
Seller, the Company and Marketing have made due and sufficient current
accruals for such Taxes in their respective Books and Records and
11
<PAGE> 02.01.017
in accordance with SAP and GAAP, and such current accruals through
September 30, 1995 are duly and fully provided for in the Financial
Statements of the Seller, the Company and Marketing for the period then
ended.
(c) The United States federal income Tax Returns of the
Seller, the Company and Marketing and of each affiliated group (within
the meaning of the Code) of which the Seller, the Company and Marketing
are or have been members have not been audited or examined by the IRS,
and the statute of limitations for all periods through the year 1991
has expired. The state, local, and foreign income Tax Returns of the
Seller, the Company and Marketing and of each affiliated or
consolidated group of which the Seller, the Company and Marketing are
or have been members have not been audited or examined, and all
statutes of limitation for all applicable state, local, and foreign
taxable periods through the respective years specified in Section
3.12(c) of the Disclosure Statement have expired. There are no
outstanding agreements, waivers, or arrangements extending the
statutory period of limitation applicab]e to any claim for, or the
period for the collection or assessment of, Taxes due from the Seller,
the Company or Marketing for any taxable period. The Seller has
previously delivered to the Buyer true and complete copies of each of
the most recent audit reports relating to the United States federal,
state, local, and foreign income Taxes due from the Seller, the Company
and Marketing and the United States federal, state, local, and
foreign income Tax Returns, for each of the last three taxable years,
filed by the Seller, the Company and Marketing (insofar as such returns
relate to either the Seller, the Company or Marketing) filed by any
affiliated or consolidated group of which the Seller, the Company or
Marketing was then a member.
(d) No audit or other proceeding by any court, governmental or
regulatory authority, or similar Person is pending or (to the knowledge
of the Seller) threatened with respect to any Taxes due from the
Seller, the Company or Marketing or any Tax Return filed by or relating
to the Seller, the Company or Marketing. To the best knowledge of the
Seller, no assessment of Tax is proposed against the Seller, the
Company or Marketing or any of their Assets and Properties.
(e) No election under any of Sections 108, 168, 338, 441, 463,
472, 1017, 1033, or 4977 of the Code (or any predecessor provisions)
has been made or filed by or with respect to the Seller, the Company or
Marketing or any of their Assets and Properties. No consent to the
application of Section 341(f)(2) of the Code (or any predecessor
provision) has been made or filed by or with respect to the Seller, the
Company or Marketing or any of their Assets and Properties. None of
the Assets and Properties of the Seller, the Company or Marketing is an
asset or property that the Buyer or any of its Affiliates is or will be
required to treat as being owned by any other Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended and in effect immediately before the enactment of the Tax
Reform Act of 1986, or tax-exempt use property within the meaning of
Section 168(h)(l) of the Code. No closing agreement pursuant to Section
7121 of the Code (or any predecessor provision) or any similar
provision
12
<PAGE> 02.01.018
of any state, local, or foreign Law has been entered into by or with
respect to the Seller, the Company or Marketing or any of their Assets
and Properties.
(f) Neither the Seller, the Company nor Marketing has agreed
to or is required to make any adjustment pursuant to Section 48 1(a) of
the Code (or any predecessor provision) by reason of any change in any
accounting method of the Seller, the Company or Marketing, and neither
the Seller, the Company nor Marketing has any application pending with
any taxing authority requesting permission for any changes in any
accounting method of the Seller, the Company or Marketing. To the best
knowledge of the Seller the IRS has not proposed any such adjustment or
change in accounting method.
(g) Neither the Seller, the Company nor Marketing has been or
is in violation (or with notice or lapse of time or both, would be in
violation) of any applicable Law relating to the payment or withholding
of Taxes. The Seller, the Company and Marketing have duly and timely
withheld from employee salaries, wages, and other compensation and paid
over to the appropriate taxing authorities all amounts required to be
so withheld and paid over for all periods under all applicable Laws.
(h) Neither the Seller, the Company nor Marketing is a party
to, is bound by, or has any obligation under, any Tax sharing Contract
or similar Contract; notwithstanding any disclosure contained in the
Disclosure Schedule, the Seller represents and warrants that, at the
Closing, neither the Seller, the Company nor Marketing shall be a party
to, be bound by or have any obligation under, any Tax sharing Contract
or similar Contract or arrangement. Neither the Company nor Marketing
is not a foreign person within the meaning of Section 1445(f)(3) of the
Code.
(i) There are no reinsurance, coinsurance, or other similar
Contracts under which the Company receives or has received surplus
relief.
(j) Neither the Seller, the Company nor Marketing has made any
direct, indirect, or deemed distributions that have been or could be
taxed under Section 815 of the Code.
(k) All ceding commission expenses paid or accrued by the
Company in connection with any reinsurance arrangement or Contract. or
transaction have been capitalized and amortized over the life or lives
of such reinsurance arrangement or Contract in accordance with the
decision of the United States Supreme Court in Colonial American Life
Insurance Company vs. Commissioner of Internal Revenue, 109 S.Ct. 240
(1980).
(l) No material Liabilities have been proposed in connection
with any audit or other proceeding by any court, governmental or
regulatory authority, or similar Person with respect to any Taxes due
from the Seller, the Company nor Marketing or any Tax Return filed by
or relating to the Seller, the Company or Marketing.
13
<PAGE> 02.01.019
(m) Neither the Seller, the Company nor Marketing is a party
to any agreement, contract, plan or arrangement that has resulted, or
would result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the
Code.
3.13 Litigation. Except as disclosed in Section 3.13 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) There are no actions, suits, investigations, or
proceedings pending, or (to the best knowledge of the Seller)
threatened, against the Seller, the Company or Marketing or any of
their Assets and Properties, at law or in equity, in, before, or by any
Person that individually or in the aggregate have or may reasonably be
expected to have a material adverse effect on the validity or
enforceability of this Agreement, on the ability of the Seller, the
Company or Marketing to perform its respective obligations under this
Agreement, or on the Business or Condition of the Seller, the Company
or Marketing.
(b) There are no actions, suits, investigations, or
proceedings pending, or (to the best knowledge of the Seller)
threatened, against the Seller, the Company or Marketing or any of
their respective Assets and Properties, at law or in equity, in,
before, or by any Person that individually involve a claim or claims
for any injunction or similar relief or for damages exceeding $25,000
or an unspecified amount of damages.
(c) There are no writs, judgments, decrees, or similar orders
of any Person outstanding against the Seller, the Company or Marketing
that individually exceed $10,000 or that individually or in the
aggregate have or may reasonably be expected to have a material adverse
effect on the Business or Condition of the Seller, the Company or
Marketing, and there are no injunctions or similar orders of any Person
outstanding against the Seller, the Company or Marketing.
3.14 Compliance With Laws. Except as disclosed in Section 3.14 of the
Disclosure Schedule, neither the Company nor Marketing have or are in
violation (or with or without notice or lapse of time or both, would be in
violation) of any term or provision of any Law or any writ, judgment, decree,
injunction, or similar order applicable to the Company or Marketing or any of
their respective Assets and Properties, the result of which violation
individually or violations in the aggregate has or may reasonably be expected
to have a material adverse effect on the Business or Condition of the Company
or Marketing. Without limiting the generality of the foregoing:
(a) Since January 1, 1995, the Company and Marketing have
duly and validly filed or caused to be so filed all reports,
statements, documents, registrations, filings, or submissions that were
required by Law to be filed with any Person and as to which the failure
to so file, individually in the aggregate with other such failures, has
or may reasonably be expected to have a material adverse effect on the
Business or Condition of the Company or Marketing; all such filings
complied with applicable Laws in all material
14
<PAGE> 02.01.020
respects when filed and, no material deficiencies have been asserted by
any Person with respect to any such filings.
(b) The Seller has previously delivered to the Buyer the
reports reflecting the results of the most recent financial examination
of the Company issued by the State of Delaware. Except as disclosed in
Section 3.13(b) of the Disclosure Schedule, all material deficiencies
or violations in such report have been resolved to the satisfaction of
the State of Delaware.
(c) Except as disclosed in Section 3.13(c) of the Disclosure
Schedule, all outstanding insurance and annuity Contracts issued,
reinsured, or underwritten by the Company are, to the extent required
under applicable Laws, on forms approved by the insurance regulatory
authority of the jurisdiction where issued or have been filed with and
not objected to by such authority within the period provided for
objection.
(d) Section 3.13(d) of the Disclosure Schedule contains a true
and complete list of each master or prototype (as well as any
individually designed) pension, profit sharing, defined benefit, Code
Section 401(k), and other retirement or employee benefit plan or
Contract (including, but not limited to, simplified employee pension
plans, Code Section 403(a), (b) and (c) annuities, Keogh plans, and
individual retirement accounts and annuities) offered or sold by the
Company to, or maintained or sponsored for the benefit of any employees
of, any other Person, and each determination letter relating to the
creation or amendment of any such plan or Contract. Except as
disclosed in Section 3.13(d) of the Disclosure Schedule, each such plan
or Contract in all material respects conforms with, and has been
offered, sold, maintained, and sponsored in accordance with, all
applicable Laws. Except as disclosed in Section 3.13(d) of the
Disclosure Schedule, the Company or Marketing is not a fiduciary with
respect to any plan or Contract referenced in this Section 3.13(d).
(l) The Company does not provide administrative or
other contractual services for any plan or Contract referenced
in this Section 3.l3(d), including, but not limited to, any
third party administrative services for an Employee Welfare
Benefit Plan.
(2) To the extent that the Company maintains any
collective or commingled funds or accounts which restrict the
Persons who may invest therein to tax-exempt entities or
qualified plans, each such fund or account (of which a true and
complete list and description is disclosed in Section 3.13(d)(3)
of the Disclosure Schedule) has been established, maintained and
operated in accordance with all applicable Laws, has maintained
its tax-exempt status and has no non-qualified plans or trusts
or other taxable entities investing in it.
15
<PAGE> 02.01.021
(3) In addition to the representations and warranties
contained in Section 3.12, there are no claims pending, or (to the best
knowledge of the Seller, the Company or Marketing) threatened, against
the Company or Marketing or any of their respective Assets and
Properties, under any fiduciary liability insurance policy issued by or
to the Company or Marketing that individually or in the aggregate has
or may reasonably be expected to have a material adverse effect on the
Business or Condition of the Company or Marketing.
3.15 Benefit Plans, ERISA.
(a) Section 3.15(a) of the Disclosure Schedule contains a true
and complete list and description of, and discloses the annual amount
accrued or payable for each of the years ended December 31, 1992, 1993,
and 1994 under, each of the Benefit Plans and identifies each of the
Benefit Plans that is an Employee Pension Benefit Plan or an Employee
Welfare Benefit Plan, and sets forth the valuation date of each such
Benefit Plan. Neither the Seller, the Company nor Marketing, nor any
of their respective Affiliates has any Contract, plan, or commitment,
whether legally binding or not, to create any additional Benefit Plan
or to modify or change any existing Benefit Plan. Each contribution or
other payment required to be made or to be voluntarily made by each of
the Seller, the Company and Marketing on or before December 31, 1994
with respect to any of the Benefit Plans is disclosed in Section
3.15(a) of the Disclosure Schedule, together with the date such
contribution or payment is due or is to be made. Except as disclosed in
Section 3.15(a) of the Disclosure Schedule, no stock or other security
issued by the Seller, the Company or Marketing or any of their
respective Affiliates forms or has formed a material part of the Assets
and Properties of any Benefit Plan.
(b) None of the Benefit Plans is or has been a multi-employer
plan, as that term is defined in Section 3(37) of ERISA. There has been
no transaction, action, or omission involving the Seller, the Company
or Marketing, any ERISA Affiliate, or (to the best knowledge of the
Seller) any fiduciary, trustee, or administrator of any Benefit Plan,
or any other Person dealing with any such Benefit Plan or the related
trust or funding vehicle, that in any manner violates or will result in
a violation (with or without notice or lapse of time or both) of
Sections 404 or 406 of ERISA or constitutes or will constitute (with or
without notice or lapse of time or both) a prohibited transaction (as
defined in Section 4975(c)(I) of the Code or Section 406 of ERISA) for
which there exists neither a statutory nor a regulatory exemption and
which could subject the Seller, the Company or Marketing or any party
in interest (as defined in Section 3(14) of ERISA) to criminal or civil
sanctions under Section 501 or 502 of ERISA, or to Taxes under Code
Section 4975, or to any other Liability.
(c) Except as disclosed in Section 3.15(c) of the Disclosure
Schedule, there has been no reportable event (as defined in Section
4043(b) of ERISA) with respect to any Employee Pension Benefit Plan or
any Employee Welfare Benefit Plan for which notice to
16
<PAGE> 02.01.022
the PBGC has not been waived by rule or regulation. Neither the Seller,
the Company nor Marketing, nor any EPISA Affiliate has any Liability to
the PBGC (other than any Liability for insurance premiums not yet due
to the PBGC), to any present or former participant in or beneficiary of
any Benefit Plan (or any beneficiary of any such participant or
beneficiary), or to any Employee Pension Benefit Plan or any Employee
Welfare Benefit Plan. To the best knowledge of the Seller, no event,
fact, or circumstance has arisen or occurred that has resulted or may
reasonably be expected to result in any such Liability or a claim
against the Seller, the Company or Marketing by the PBGC, by any
present or former participant in or any beneficiary of any Employee
Pension Benefit Plan or any Employee Welfare Benefit Plan (or any
beneficiary of any such participant or beneficiary), or by any such
Benefit Plan. Except as provided in Section 5.8 hereof or as disclosed
in Section 3.15(c) of the Disclosure Schedule, no filing has been or
will be made by the Seller, the Company or Marketing, or any ERISA
Affiliate, and no proceeding has been commenced, for the complete or
partial termination of any Employee Pension Benefit Plan or any
Employee Welfare Benefit Plan, and no complete or partial termination
of any such Benefit Plan has occurred or, as a result of the execution
or delivery of this Agreement or the consummation of the transactions
contemplated hereby, will occur.
(d) All amounts that each of the Seller, the Company and
Marketing is required to pay by Law or under the terms of the Benefit
Plans as a contribution or other payment to or in respect of such
Benefit Plans as of the last day of the most recent fiscal year of each
of the Benefit Plans have been paid. The funding method used in
connection with each Benefit Plan that is or at any time has been
subject to the finding requirements of Title I, Subtitle B, Part 3 of
ERISA, meets the requirements of ERISA and the Code. No Benefit Plan
subject to Title IV of ERISA (or any trust established thereunder) has
ever incurred any accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of such Benefit Plan. With
respect to any period for which any contribution or other payment to or
in respect of any Benefit Plan is not yet due or owing, each of the
Seller, the Company and Marketing has made due and sufficient current
accruals for such contributions and other payments in accordance with
GAAP and SAP, and such current accruals through September 30, 1995 are
duly and fully provided for in the SAP Statement of the Company for the
period then ended.
(c) Each Benefit. Plan is and has been operated and
administered in all material respects in accordance with all applicable
Laws, including, without limitation, ERISA and the Code. Each of the
Employee Pension Benefit Plans and Employee Welfare Benefit Plans that
is intended to be qualified within the meaning of Section 401(a) of the
Code is so qualified and satisfies the requirements of Sections 401(a)
and 501(a) of the Code. There exists no fact, condition, or set of
circumstances that has or may reasonably be expected to have a material
adverse effect on the qualified status of any Employee Pension Benefit
Plan or any Employee Welfare Benefit Plan intended to be so qualified
or the intended United States Federal Income Tax treatment or
consequences of any Employee Pension Benefit Plan or any Employee
Welfare Benefit Plan. None of the Benefit Plans, or any related trust
17
<PAGE> 02.01.023
or funding vehicle, conducts or has conducted any unrelated trade or
business as that term is defined in Section 513 of the Code. All
necessary governmental approvals, determinations, and notifications for
all Employee Pension Benefit Plans and all Employee Welfare Benefit
Plans have been obtained.
(f) The actuarial assumptions utilized, where appropriate, in
connection with determining the funding of each Employee Pension
Benefit Plan (as set forth in the actuarial report for such Benefit
Plan) are reasonable in all material respects. Based on such actuarial
assumptions, as of December 31, 1994 the fair market value of the
Assets or Properties held under each Employee Pension Benefit Plan
exceeds the actuarially determined present value of all accrued
benefits of such Benefit Plan (whether or not vested) determined on an
ongoing-Benefit Plan basis.
(g) Except as disclosed in Section 3.l5(g) of the Disclosure
Schedule, and except for claims by third parties for benefits owed to
participants or beneficiaries under the Benefit Plans, and except for
divorce proceedings, there are no pending or (to the best knowledge of
the Seller) threatened actions, suits, investigations, or other
proceedings by any present or former participant or beneficiary under
any Benefit Plan (or any beneficiary of any such participant or
beneficiary) involving any Benefit Plan or any rights or benefits under
any Benefit Plan or any rights or benefits under any Benefit Plan other
than ordinary and usual claims for benefits by participants or
beneficiaries thereunder. There is no writ, judgment, decree,
injunction, or similar order of any court, governmental or regulatory
authority, or other similar Person outstanding against or in favor of
any Benefit Plan or any fiduciary thereof.
3.16 Properties. Except as disclosed in Section 3.16 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) The Company has good and valid title to all debentures,
notes, stocks, securities, and other assets that are of a type required
to be disclosed in Schedules B through DB of its Annual Statement and
that are owned by it, free and clear of all Liens.
(b) Each of the Company and Marketing owns good and
indefeasible title to, or has a valid leasehold interest in, all real
property used in the conduct of its business, operations, or affairs
or, with respect to the Company, of a type required to be disclosed in
Schedule A of the Company's Annual Statement, free and clear of all
Liens. All such real property, other than raw land, is in good
operating condition and repair and is suitable for its current uses. No
improvement on any such real property owned, leased, or held by the
Company or Marketing encroaches upon any real property of any other
Person. The Company and Marketing owns, leases, or has a valid right
under Contract to use adequate means of ingress and egress to, from,
and over all such real property.
18
<PAGE> 02.01.024
(c) The Company and Marketing owns good and indefeasible
title to, or has a valid leasehold interest in or has a valid right
under Contract to use, all tangible personal property that is used in
the conduct of their respective business, operations, or affairs, free
and clear of all Liens. All such tangible personal property is in good
operating condition and repair and is suitable for its current uses.
(d) Each of the Company and Marketing has, and at all times
after the Closing will have, the right to use, free and clear of any
royalty or other payment, obligations, claims of infringement or
alleged infringement, or other Liens, all marks, names, trademarks,
service marks, patents, patent rights, assumed names, logos, trade
secrets, copyrights, trade names, and service marks that are used in
the conduct of their respective business, operations, or affairs (of
which a true and complete list and description is disclosed in Section
3.16(e) of the Disclosure Schedule), and all computer software,
programs, and similar systems owned by or licensed to the Seller, the
Company or Marketing or any Affiliate of the Company or Marketing or
used in the conduct of their business, operations, or affairs (of which
a true and complete list and description is disclosed in Section
3.16(e) of the Disclosure Schedule). Neither the Seller, the Company
nor Marketing is in conflict with or in violation or infringement of;
nor has the Seller, the Company or Marketing received any notice of any
conflict with or violation or infringement of or any claimed conflict
with, any asserted rights of any other Person with respect to any
intellectual property or any computer software, programs, or similar
systems, including, without limitation, any of such items disclosed in
Section 3.16(e) of the Disclosure Schedule.
3.17 Contracts. Section 3.17 of the Disclosure Schedule (with
paragraph references corresponding to those set forth below) contains a
true and complete list of each of the following Contracts or other
documents or arrangements (true and complete copies, or, if none,
written descriptions, of which have been made available to the Buyer,
together with all amendments thereto), to which the Company or
Marketing is a party or by which any of their respective Assets and
Properties is or may be bound:
(a) all employment, agency, consultation, or representation
Contracts or other Contracts of any type (including, without
limitation, loans or advances) with any present officer, director,
employee, agent, consultant, or other similar representative of the
Company or Marketing (or former officer, director, employee, agent,
consultant or similar representative of the Company or Marketing, if
there exists any present or future liability with respect to such
Contract, whether now existing or contingent) (other than Contracts
with consultants and similar representatives who do not receive
compensation of $50,000 or more per year and other than employment or
agency Contracts, not containing terms which are unduly burdensome to
the Company or Marketing, with agents who do not receive compensation
of $50,000 or more per year), and the name, position, and rate of
compensation of each such Person and the expiration date of each such
Contract, as well as all sick leave, vacation, holiday, and other
similar practices, procedures, and policies of each
19
<PAGE> 02.01.025
of the Seller, the Company or Marketing established or administered
other than as Benefit. Plans;
(b) all Contracts with any Person containing any provision or
covenant limiting the ability of the Company or Marketing to engage in
any line of business or to compete with or to obtain products of
services from any Person or limiting the ability of any Person to
compete with or to provide products or services to the Company or
Marketing;
(c) all partnership, joint venture, profit-sharing, or similar
Contracts with any Person (other than Benefit Plans);
(d) all Contracts relating to the borrowing of money by the
Company or Marketing or to the direct or indirect guarantee by the
Company or Marketing of any obligation for borrowed money in excess of
$25,000 in the aggregate for the Company or Marketing or any of their
respective Affiliates, or any other Liability in respect of
indebtedness of any other Person, including without limitation any
Contract relating to the maintenance of compensating balances that are
not terminable by the Company or Marketing without penalty upon not
more than sixty (60) calendar days' notice, any line of credit or
similar facility, the payment for property, products, or services of
any other Person even if such property, products, or services are not
conveyed, delivered, or rendered, or the obligation to take-or-pay,
keep-well, make-whole, or maintain surplus or earnings levels or
perform other financial ratios or requirements; Section 3.17(d) of the
Disclosure Schedule contains a true and complete list of any
requirements for consents or approvals of creditors needed to
consummate the transactions contemplated hereby;
(e) all leases or subleases of real property used in the
Company's or Marketing's business, operations, or affairs, and all
other leases, subleases, or rental or use Contracts for which the
Company or Marketing is liable;
(f) all Contracts relating to the future disposition or
acquisition of any investment in or security of any Person or of any
interest in any business enterprise (other than the disposition or
acquisition of investments in the ordinary course of business and
consistent with past practice);
(g) all Contracts or arrangements (including, without
limitation, those relating to the sharing or allocation of expenses,
personnel, services, or facilities) between or among the Seller, the
Company and Marketing and any of their respective Affiliates or any
other Person who is described in Section 3.l0(p);
(h) all reinsurance, coinsurance, or other similar Contracts
indicating, with respect to each such Contract, the information
required to be disclosed in Schedule 5 of the Company's Annual
Statement;
20
<PAGE> 02.01.026
(i) all outstanding proxies, powers of attorney, or similar
delegations of authority of the Company or Marketing, except for powers
of attorney for the service of process pursuant to applicable insurance
Laws with respect to the Company;
(j) all Contracts for any product, service, equipment,
facility, or similar item (other than insurance and annuity Contracts
issued, reinsured, or underwritten by the Company and other than
reinsurance, coinsurance, and other similar Contracts) that by their
respective terms do not expire or terminate or are not terminable by
the Company or Marketing, without penalty or other Liability, within
six (6) months after December 31, 1995; and
(k) all other Contracts (other than insurance and annuity
Contracts issued, reinsured, or underwritten by the Company) that
involve the payment or potential payment, pursuant to the terms of such
Contracts, by or to the Company or Marketing of more than $10,000
individually or in the aggregate or that are otherwise material to the
Business or Condition of the Company or Marketing.
Each Contract disclosed or required to be disclosed in the Disclosure
Schedule pursuant to this Section is in full force and effect and constitutes
a legal, valid, and binding obligation of the Company or Marketing and of each
other Person that is a party thereto in accordance with its terms; and neither
the Company nor Marketing nor (to the best knowledge of the Seller, the
Company and Marketing) any other party to such Contract is in violation or
breach of or default under any such Contract, (or with or without notice or
lapse of time or both, would be in violation or breach of or default under any
such Contract). Except as disclosed in Section 3.17 of the Disclosure Schedule
(with a specific reference to this sentence), neither the Company nor
Marketing is a party to or bound by any Contract that was not entered into in
the ordinary course of business and consistent with past practice or that has
or may reasonably be expected to have, individually or in the aggregate with
any other Contracts, a material adverse effect on the Business or Condition of
the Company or Marketing. Neither the Company nor Marketing is not a party to
or bound by any collective bargaining or similar labor Contract.
3.18 Insurance Issued by the Company. Except as required by Law or
except as disclosed in Section 3.18 of the Disclosure Schedule (with paragraph
references corresponding to those set forth below):
(a) All insurance or annuity Contract benefits payable to the
Company by any other Person that is a party to or bound by any
reinsurance, coinsurance, or other similar Contract with the Company
have in all material respects been paid in accordance with the terms of
the insurance, annuity, and other Contracts under which they arose,
except for such benefits for which the Company reasonably believes
there is a reasonable basis to contest payment.
21
<PAGE> 02.01.027
(b) No outstanding insurance or annuity Contract issued,
reinsured, or underwritten by the Company entitles the holder thereof
or any other Person to receive dividends, distributions, or to share in
the income of the Company or receive any other benefits based on the
revenues or earnings of the Company or any other Person.
(c) The underwriting standards utilized and ratings applied
by the Company and (to the best knowledge of the Seller and the
Company) by any other Person that is a party to or bound by any
reinsurance, coinsurance, or other similar Contract with the Company
conform in all material respects to industry accepted practices and to
the standards and ratings required pursuant to the terms of the
respective reinsurance, coinsurance, or other similar Contracts.
(d) To the best knowledge of the Seller and the Company, all
amounts to which the Company is entitled under reinsurance,
coinsurance, or other similar Contracts (including without limitation
amounts based on paid and unpaid losses) are fully collectible.
(e) To the best knowledge of the Seller and the Company, each
insurance agent, at the time such agent wrote, sold, or produced
business for the Company, was duly licensed as an insurance agent (for
the type of business written, sold, or produced by such insurance
agent) in the particular jurisdiction in which such agent wrote, sold,
or produced such business for the Company.
(f) To the best knowledge of the Seller and the Company, no
such insurance agent violated (or with or without notice or lapse of
time or both, would have violated) any term or provision of any Law or
any writ, judgment, decree, injunction, or similar order applicable to
the writing, sale, or production of business for the Company.
(g) The tax treatment under the Code of all insurance,
annuity or investment policies, plans, or contracts; all financial
products, employee benefit plans, individual retirement accounts or
annuities; or any similar or related policy, contract, plan, or
product., whether individual, group, or otherwise, issued or sold by
the Company is and at all times has been the same or more favorable to
the Buyer, policyholder or intended beneficiaries thereof as the tax
treatment under the Code for which such contracts qualified or
purported to qualify at the time of its issuance or purchase. For
purposes of this Section 3.18(g), the provisions of the Code relating
to the tax treatment of such contracts shall include, but not
be limited to, Sections 72, 79, 89, 101, 104, 105, 106, 125,
130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 501, 505, 817, 818,
7702, and 7702A of the Code.
3.19 Threats of Cancellation. Except as disclosed in Section 3.19 of
the Disclosure Schedule, since December 31, 1994 no policyholder, group of
policyholder Affiliates, or Persons writing, selling, or producing insurance
business that. individually or in the aggregate accounted for five percent 5%
or more of the premium or annuity income of the Company for the year ended
22
<PAGE> 02.01.028
December 31, 1993, has terminated or (to the best knowledge of the Seller or
the Company) threatened to terminate its relationship with the Company.
3.20 Licenses and Permits. Except as disclosed in Section 3 20 of the
Disclosure Schedule (with paragraph references corresponding to those set
forth below):
(a) Each of the Company and Marketing owns or validly holds,
all licenses, franchises, permits, approvals, authorizations,
exemptions, classifications, certificates, registrations, and similar
documents or instruments that are required for its business,
operations, and affairs and that the failure to so own or hold has or
may reasonably be expected to have a material adverse effect on its
Business or Condition.
(b) All such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates,
registrations, and similar documents or instruments are valid and in
full force and effect and free of any restrictions imposed by any
Person.
3.21 Operations Insurance. Section 3.21 of the Disclosure Schedule
contains a true and complete list and description of all liability, property,
workers compensation, directors and officers liability, and other similar
insurance contracts that insure the business, operations, or affairs of the
Company or Marketing or affect or relate to the ownership, use, or operations
of any of the Assets and Properties of the Company or Marketing and that have
been issued to the Company, Marketing or any of their Affiliates (including,
without limitation, the names and addresses of the insurers, the expiration
dates thereof, and the annual premiums and payment terms thereof) or that are
held by the Company, Marketing or by any Affiliate of the Seller for the
benefit of the Company or Marketing following the Closing. All such insurance
is in full force and effect and (to the best knowledge of the Seller, the
Company and Marketing) is with financially sound and reputable insurers and,
in light of the business, operations, and affairs of the Company and
Marketing, is in amounts and provides coverage that are reasonable and
customary for Persons in similar businesses.
3.22 Intercompany Accounts. Except as reflected in the September 30,
1995 SAP Statement, or except as disclosed in Section 3.22 of the Disclosure
Schedule, there are no intercompany accounts (receivable or payable) between
the Company, Marketing and any of their Affiliates, and neither the Seller nor
any of its Affiliates provides or causes to be provided to the Company or
Marketing any products, services, equipment, facilities, or similar items
that, in the case of this clause (b), individually or in the aggregate are or
may reasonably be expected to be material to the Business or Condition of the
Company or Marketing. Except as disclosed in Section 3.22 of the Disclosure
Schedule, since December 31, 1994 no such intercompany accounts in excess of
$10,000 have been received or paid, and all settlements of such intercompany
accounts have been made, and all allocations of such intercompany expenses
have been applied, in the ordinary course of business and consistent with past
practice.
3.23 Bank Accounts. Section 3.23 of the Disclosure Schedule contains a
true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other
23
<PAGE> 02.01.029
financial institutions at which each of the Company and Marketing has an
account or safe deposit box or maintains a banking, custodial, trading, or
other similar relationship and a true and complete list and description of
each such account, box, and relationship, indicating in each case the account
number and the names of the officers, employees, agents, or other similar
representatives of the Company or Marketing transacting business with respect
thereto.
3.24 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Seller directly
with the Buyer, without the intervention of any Person on behalf of the Seller
in such manner as to give rise to any valid claim by any Person against the
Buyer or the Seller for a finder's fee, brokerage commission, or similar
payment.
3.25 Disclosure. Neither this Agreement nor any certificate furnished
by the Seller, the Company or Marketing to the Buyer in connection with this
Agreement or the transactions contemplated hereby contains any untrue
statement of a material fact by the Seller, the Company or Marketing or omits
to state a material fact by the Seller, the Company or Marketing necessary to
make the statements herein or therein not misleading in light of the
circumstances in which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer hereby represents and warrants to the Seller as follows:
4.1 Organization. The Buyer is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Indiana and has
fill corporate power and authority to enter into this Agreement, and to
perform its obligations under this Agreement. The Buyer is duly licensed,
qualified, or admitted to do business and is in good standing in all
jurisdictions in which the failure to be so licensed, qualified, or admitted
and in good standing, individually or in the aggregate with other such
failure, has or may reasonably be expected to have a material adverse
effect on the validity or enforceability of this Agreement, on the ability of
the Buyer to perform its obligations under this Agreement or on the Business
or Condition of the Buyer.
4.2 Authority. The Board of Directors of the Buyer has duly and
validly approved this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by the Buyer and the performance by
the Buyer of its obligations under this Agreement have been duly and validly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement constitutes a legal, valid, and binding obligation of the Buyer and
is enforceable against the Buyer in accordance with its terms, except to the
extent that enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium, or similar Laws now or hereafter
in effect relating to or limiting creditors' rights generally and the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court,
24
<PAGE> 02.01.030
or other similar Person before which any proceeding therefor may be brought.
4.3 No Conflicts or Violations. The execution and delivery of this
Agreement by the Buyer do not, and the performance by the Buyer of its
obligations under this Agreement will not:
(a) subject to obtaining the approvals contemplated by
Section 6.1 hereof, violate any term or provision of any Law or any
writ, judgment, decree, injunction, or similar order applicable to the
Buyer;
(b) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a
default under, any of the terms, conditions, or provisions of the
articles of incorporation or Bylaws of the Buyer;
(c) result in the creation or imposition of any Lien upon the
Buyer or any of its Assets and Properties that individually or in the
aggregate with any other Liens has or may reasonably be expected to
have a material adverse effect on the validity or enforceability of
this Agreement or on the ability of the Buyer to perform its
obligations under this Agreement;
(d) conflict with or result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
under, or give to any person any right of termination, cancellation,
acceleration, or modification in or with respect to, any Contract to
which the Buyer is a party or by which any of its Assets and Properties
may be bound and as to which any such conflicts, violations, breaches,
defaults, or rights individually or in the aggregate have or may
reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement or on the ability of the
Buyer to perform its obligations under this Agreement; or
(e) require the Buyer to obtain any consent, approval, or
action of, or make any filing with or give any notice to, any Person
except as contemplated in Sections 6.1 or 6.7, as disclosed in writing
to the Seller, or those which the failure to obtain, make, or give
individually or in the aggregate with other such failures has or may
reasonably be expected to have no material adverse effect on the
validity or enforceability of this Agreement or on the ability of the
Buyer to perform its obligations under this Agreement.
25
<PAGE> 02.01.031
4.4 Litigation.
(a) There are no actions, suits, investigations, or
proceedings pending against the Buyer, or (to the best knowledge of
the Buyer) threatened against the Buyer at law or in equity, in,
before, or by any Person, that individually or in the aggregate have or
may reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement, on the ability of the
Buyer to perform its obligations under this Agreement or on the
Business and Condition of the Buyer.
(b) Except as disclosed in Section 4.4 of the Disclosure
Schedule, there are no actions, suits, investigations, or proceedings
pending, or (to the best knowledge of the Buyer) threatened, against
Buyer or any of its respective Assets and Properties, at law or in
equity, in, before, or by any Person that individually involve a claim
or claims for any injunction or similar relief or for Damages exceeding
$25,000 or an unspecified amount of Damages.
(c) There are no writs, judgments, decrees, or similar orders
of any Person outstanding against Buyer that individually exceed
$10,000 or that individually or in the aggregate have or may reasonably
be expected to have a material adverse effect on the Business or
Condition of Buyer, and there are no injunctions or similar orders of
any Person outstanding against Buyer.
4.5 Purchase for Investment The Shares will be acquired by the Buyer
for its own account for the purpose of investment. The Buyer agrees that: it
will not offer, sell, pledge, hypothecate, or otherwise dispose of the shares
unless such offer, sale, pledge, hypothecation or other disposition is (i)
registered under the Securities Act of 1933 and any other applicable
securities laws, or (ii) in compliance with an opinion of counsel to the
Buyer, delivered to the Seller and reasonably acceptable to it, to the effect
that such offer, sale, pledge, hypothecation or other disposition does not
violate the Securities Act of 1933 or such other securities laws; and the
certificate(s) representing the Shares shall bear a legend evidencing the
restrictions or transfer set forth in the foregoing clause (a).
4.6 Capitalization. The authorized capital stock of Buyer consists
of 20,000,000 shares of common stock and 1,000,000 shares of preferred stock.
As of November 30, 1995, there were: issued and outstanding 5,459,573 shares
of common stock, of which 502,025 shares are in the treasury; stock options to
acquire 1,116,235 shares of common stock of which options to acquire 726,071
shares of common stock were exercisable; and warrants to acquire 593,790
shares of common stock, of which warrants to acquire 575,790 shares of common
stock were exercisable. No shares of preferred stock were outstanding, but
300,000 shares of Class 5 Convertible Cumulative Redeemable Preferred Stock
("Class 5 Preferred"), which is convertible into common stock, were designated
and reserved for issuance. Buyer is obligated to issue the Class 5 Preferred,
and such issuance has been approved pursuant to a final, non-appealable order
of the United States District Court, Southern District of Indiana,
Indianapolis Division. All outstanding shares of capital stock of Buyer have
been duly authorized and validly issued and are fully paid and nonassessable
26
<PAGE> 02.01.032
and free of preemptive rights. Except as set forth in this Section 4.6, there
are outstanding (a) no other shares of capital stock or other voting
securities of Buyer, (b) no securities of Buyer convertible into or
exchangeable for shares of capital stock or voting securities of Buyer, and
(c) no other options or other rights to acquire from Buyer, and no obligation
of Buyer to issue, any capital stock, voting securities or securities
convertible into or exchangeable for, or options or warrants to purchase,
capital stock or voting securities of Buyer (the items in clauses (a), (b) and
(c) being referred to, together with the common stock, collectively as the
"Buyer Securities"). There are no outstanding obligations of Buyer to
repurchase, redeem or otherwise acquire any of Buyer's Securities.
4.7 Taxes. Except as disclosed in Section 4.7 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) All Tax Returns required to be filed with respect to
Buyer have been duly and timely filed, and to the best of Buyer's
knowledge, all such Tax Returns are true and complete in all material
respects. The Buyer has duly and timely paid all Taxes that are due, or
claimed or asserted by any taxing authority to be due, from Buyer for
the periods covered by such Tax Returns or has duly provided for all
such Taxes in the Books and Records of Buyer and in accordance with
GAAP and SAP, including, without limitation, in the Financial
Statements. There are no Liens with respect to Taxes (except for Liens
with respect to real property Taxes not yet due) upon any of the Assets
and Properties of Buyer.
(b) With respect to any period for which Tax Returns have not
yet been filed, or for which Taxes are not yet due or owing, Buyer has
made due and sufficient current accruals for such Taxes in its Books
and Records and in accordance with SAP and GAAP, and such current
accruals through September 30, 1995 are duly and fully provided for in
the Financial Statements of Buyer for the period then ended.
(c) The United States federal income Tax Returns of Buyer and
of each affiliated group (within the meaning of the Code) of which
Buyer is or has been a member have not been audited or examined by the
IRS, and the statute of limitations for all periods through the year
1991 has expired. The state, local, and foreign income Tax Returns of
Buyer and of each affiliated or consolidated group of which Buyer is or
has been a member have not been audited or examined, and all statutes
of limitation for all applicable state, local, and foreign taxable
periods through the respective years specified in Section 4.7(c) of the
Disclosure Statement have expired. There are no outstanding
agreements, waivers, or arrangements extending the statutory period of
limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from Buyer for any taxable
period. The Buyer has previously delivered to the Seller true and
complete copies of each of the most recent audit reports relating to
the United States federal, state, local, and foreign income Taxes due
from Buyer and the United States federal, state, local, and foreign
income Tax Returns, for each of the last three taxable years, filed by
Buyer (insofar as such returns relate to Buyer) filed by any affiliated
or consolidated group of which Buyer was then a member.
27
<PAGE> 02.01.033
(d) No audit or other proceeding by any court, governmental
or regulatory authority, or similar Person is pending or (to the
knowledge of the Buyer) threatened with respect to any Taxes due from
Buyer or any Tax Return filed by or relating to Buyer. To the best
knowledge of Buyer, no assessment of Tax is proposed against Buyer or
any of its Assets and Properties.
(e) No election under any of Sections 108, 168, 338, 441, 463,
472, 1017, 1033, or 4977 of the Code (or any predecessor provisions)
has been made or filed by or with respect to Buyer or any of its Assets
and Properties. No consent to the application of Section 341(f)(2) of
the Code (or any predecessor provision) has been made or filed by or
with respect to Buyer or any of its Assets and Properties. No closing
agreement pursuant to Section 7121 of the Code (or any predecessor
provision) or any similar provision of any state, local, or foreign Law
has been entered into by or with respect to Buyer or any of its Assets
and Properties.
(f) Buyer has not agreed to nor is required to make any ad-
justment pursuant to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting method of Buyer,
and Buyer does not have any application pending with any taxing
authority requesting permission for any changes in any accounting
method of Buyer. To the best knowledge of Buyer, the IRS has not
proposed any such adjustment or change in accounting method.
(g) Buyer has not been or is not in violation (or with notice
or lapse of time or both, would be in violation) of any applicable Law
relating to the payment or withholding of Taxes. Buyer has duly and
timely withheld from employee salaries, wages, and other compensation
and paid over to the appropriate taxing authorities all amounts
required to be so withheld and paid over for all periods under all
applicable Laws.
(h) Buyer is not a party to, is not bound by, nor has any
obligation under, any Tax sharing Contract or similar Contract;
notwithstanding any disclosure contained in the Disclosure Schedule,
Buyer represents and warrants that, at the Closing, Buyer shall not be
a party to, be bound by or have any obligation under, any Tax sharing
Contract or similar Contract or arrangement. Buyer is not a foreign
person within the meaning of Section 1445(f)(3) of the Code.
(i) Buyer has not made any direct, indirect, or deemed
distributions that have been or could be taxed under Section 815 of the
Code.
(j) No material Liabilities have been proposed in connection
with any audit or other proceeding by any court, governmental or
regulatory authority, or similar Person with respect to any Taxes due
from Buyer or any Tax Return filed by or relating to Buyer.
28
<PAGE> 02.01.034
(k) Buyer is not a party to any agreement, contract, plan or
arrangement that has resulted, or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 2800 of the Code.
4.8 Compliance With Laws. Except as disclosed in Section 4.8 of the
Disclosure Schedule, Buyer is not in violation (or with or without notice or
lapse of time or both, would be in violation) of any term or provision of any
Law or any writ, judgment, decree, injunction, or similar order applicable to
Buyer or any of its respective Assets and Properties, the result of which
violation individually or violations in the aggregate has or may reasonably be
expected to have a material adverse effect on the Business or Condition of
Buyer. Without limiting the generality of the foregoing:
(a) Since January 1, 1995, Buyer has duly and validly filed
or caused to be so filed all reports, statements, documents,
registrations, filings, or submissions that were required by Law to be
filed with any Person and as to which the failure to so file,
individually in the aggregate with other such failures, has or may
reasonably be expected to have a material adverse effect on the
Business or Condition of Buyer; all such filings complied with
applicable Laws in all material respects when filed and, no material
deficiencies have been asserted by any Person with respect to any such
filings.
(b) The Buyer has previously delivered to the Seller the
reports reflecting the results of the most recent financial examination
of Standard Life Insurance Company of Indiana ("Standard Life") issued
by the State of Indiana. Except as disclosed in Section 4.8(b) of the
Disclosure Schedule, all material deficiencies or violations in such
report have been resolved to the satisfaction of the State of Indiana.
(c) Except as disclosed in Section 4.8(c) of the Disclosure
Schedule, all outstanding insurance and annuity Contracts issued,
reinsured, or underwritten by Standard Life are, to the extent required
under applicable Laws, on forms approved by the insurance regulatory
authority of the jurisdiction where issued or have been filed with and
not objected to by such authority within the period provided for
objection.
4.9 Employee Benefit Plans.
(a) Section 4.9 of the Disclosure Schedule contains a list of
each employee benefit plan (as defined in Section 3(3) of ERISA,
hereinafter referred to individually as a "Buyer Plan" and collectively
as the "Buyer Plans") pursuant to which Buyer has any material present
or future obligations or liabilities with respect to its employees or
former employees or their dependents or beneficiaries;
(b) Buyer has delivered or made available to Seller, or will
deliver or make available prior to the Closing, copies of the following
documents, as they may have been amended to the date hereof, embodying
or relating to Buyer Plans: (i) each of Buyer Plans listed in the
29
<PAGE> 02.01.035
Section 4.9 of the Disclosure Schedule, including all amendments
thereto, and any related trust agreements, group annuity contracts,
insurance policies or other funding agreements or arrangements; (ii)
the most recent determination letter, if any, from the Internal Revenue
Service with respect to the plans that are pension plans as defined in
Section 3(2) of ERISA (hereinafter referred to as "Buyer Pension
Plans"); (iii) current summary plan descriptions; and (iv) the most
recently filed annual return/report on Form 5500 for each of the Buyer
Plans.
(c) Except as disclosed in Section 4.9(c) of the Disclosure
Schedule: (i) the written terms of each of Buyer's Plans and any
related trust agreement, group annuity contract, insurance policy or
other funding arrangement are in substantial compliance with ERISA and
the Code, and each of Buyer's Plans has been administered in
substantial compliance with such requirements; (ii) each Buyer Plan
which is a Pension Plan meets the requirements of section 401(a) of the
Code and has been so qualified since it inception date and each trust
forming a part thereof is exempt from income tax pursuant to section
501(a) of the Code; (iii) no "prohibited transaction" (as defined in
section 4975 of the Code or section 406 or 407 of ERISA) has occurred
which could subject Buyer to any material tax or penalty under section
4975 of the Code or Title I of ERISA; (iv) as of the date of this
Agreement, there are no actions, suits, arbitrations or claims pending
(other than routine claims for benefits), legal, administrative or
other proceedings or governmental investigations pending or, to Buyer's
knowledge, threatened, against Buyer Plans or their assets; (v) all
contributions due and payable from Buyer with respect to each of the
Plans through September 30, 1995 have been made or are reflected on the
financial statements of Buyer and each of Buyer's Subsidiaries; (vi) no
Pension Plan which is a "single-employer plan," within the meaning of
Section 4001(a) (15) of ERISA, nor any single-employer plan of any
entity which is considered a predecessor of Buyer or one employer with
Buyer under section 4001 of ERISA or section 414 of the Code (a "Buyer
ERISA Affiliate") is subject to section 412 of the Code or Title IV of
ERISA; (vii) no Buyer Plan currently maintained by Buyer or a Buyer
ERISA Affiliate, and no other "employee benefit plan" under which Buyer
or a Buyer ERISA Affiliate has any liability or other obligation, is or
was a "multiple employer plan" (within the meaning of section 413(c) of
the Code) or a "multi-employer plan" (as defined in section 3(37) of
ERISA); viii) neither Buyer nor any of Buyer's ERISA Affiliates has
incurred any withdrawal liability under Subtitle E of Title IV of ERISA
with respect to a multi-employer plan; and (ix) neither Buyer nor any
of the Buyer's subsidiaries has any obligations for retiree health and
life benefits under any Buyer Plan.
(d) Section 4.9(d) of the Disclosure Schedule lists each
employment, severance or other similar contract, arrangement or policy
and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation or other
forms of incentive compensation or post retirement insurance,
compensation or benefits which (i) is not a Buyer Plan, and (ii) is
entered into, maintained or contributed to, as the case may be,
30
<PAGE> 02.01.036
by Buyer or any of the Buyer ERISA Affiliates. Such contracts, plans
and arrangements as are described above, copies of descriptions of all
of which have been furnished previously to Seller, are referred to
collectively herein as the "Buyer Benefit Arrangements." Each Buyer
Benefit Arrangement has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations that are applicable to such Buyer Benefit
Arrangement, except where the failure to maintain such Buyer Benefit.
Arrangement in such compliance would not have a Buyer material adverse
effect.
(e) Except as disclosed in Section 4.9(e) of the Disclosure
Schedule, Buyer is not a party to or subject to any collective
bargaining agreement with any union or any employment contract or
arrangement providing for annual future compensation of any officer,
consultant, director or employee.
4.10 Properties. Except as disclosed in Section 4 10 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below)
(a) Buyer has good and valid title to all debentures, notes,
stocks, securities, and other assets and that are owned by it free and
clear of all Liens.
(b) Buyer owns good and indefeasible title to, or has a valid
leasehold interest in, all real property used in the conduct of its
business, operations, or affairs or, with respect to Buyer, free and
clear of all Liens. All such real property, other than raw land, is in
good operating condition and repair and is suitable for its current
uses. No improvement on any such real property owned, leased, or held
by Buyer encroaches upon any real property of any other Person. Buyer
owns, leases, or has a valid right under Contract to use adequate means
of ingress and egress to, from, and over all such real property.
(c) Buyer owns good and indefeasible title to, or has a valid
leasehold interest in or has a valid right under Contract to use, all
tangible personal property that is used in the conduct of its business,
operations, or affairs, free and clear of all Liens. All such tangible
personal property is in good operating condition and repair and is
suitable for its current uses.
(d) Buyer has, and at all times after the Closing will have,
the right to use, free and clear of any royalty or other payment
obligations, claims of infringement or alleged infringement, or other
Liens, all marks, names, trademarks, service marks, patents, patent
rights, assumed names, logos, trade secrets, copyrights, trade names,
and service marks that are used in the conduct of Buyer's business,
operations, or affairs (of which a true and complete list and
description is disclosed in Section 4.10(d) of the Disclosure
Schedule), and all computer software, programs, and similar systems
owned by or licensed to Buyer or any Affiliate of Buyer or used in the
conduct of its business, operations, or affairs (of which a true and
complete list and description is disclosed in Section 4.10(d) of the
Disclosure Schedule). Buyer is not in conflict with or in violation or
infringement of, and Buyer has not received any notice of any conflict
31
<PAGE> 02.01.037
with or violation or infringement of or any claimed conflict with, any
asserted rights of any other Person with respect to any intellectual
property or any computer software, programs, or similar systems,
including, without limitation, any of such items disclosed in Section
4.10(d) of the Disclosure Schedule.
4.11 Contracts. Section 4.11 of the Disclosure Schedule (with
paragraph references corresponding to those set forth below) contains a true
and complete list. of each of the following Contracts or other documents or
arrangements (true and complete copies, or, if none, written descriptions, of
which have been made available to Seller, together with all amendments
thereto), to which Buyer is a party or by which any of its respective Assets
and Properties is or may be bound:
(a) all employment, agency, consultation, or representation
Contracts or other Contracts of any type (including, without
limitation, loans or advances) with any present officer, director,
employee, agent, consultant, or other similar representative of Buyer
(or former officer, director, employee, agent, consultant or similar
representative of Buyer, if there exists any present or future
liability with respect to such Contract, whether now existing or
contingent) (other than Contracts with consultants and similar
representatives who do not receive compensation of $50,000 or more per
year and other than employment or agency Contracts, not containing
terms which are unduly burdensome to Buyer, with agents who do not
receive compensation of $50,000 or more per year), and the name,
position, and rate of compensation of each such Person and the
expiration date of each such Contract, as well as all sick leave,
vacation, holiday, and other similar practices, procedures, and
policies of Buyer established or administered other than as Benefit
Plans;
(b) all Contracts with any Person containing any provision or
covenant limiting the ability of Buyer to engage in any line of
business or to compete with or to obtain products of services from any
Person or limiting the ability of any Person to compete with or to
provide products or services to Buyer;
(c) all partnership, joint venture, profit-sharing, or
similar Contracts with any Person (other than Benefit Plans);
(d) all Contracts relating to the borrowing of money by Buyer
or to the direct or indirect guarantee by Buyer of any obligation for
borrowed money in excess of $25,000 in the aggregate for Buyer or any
of its Affiliates, or any other Liability in respect of indebtedness of
any other Person, including without limitation any Contract relating to
the maintenance of compensating balances that are not terminable by
Buyer without penalty upon not more than sixty (60) calendar days'
notice, any line of credit or similar facility, the payment for
property, products, or services of any other Person even if such
property, products, or services are not conveyed, delivered, or
rendered, or the obligation to take-or-pay, keep-well, make-whole, or
maintain surplus or earnings levels or perform other financial ratios
or requirements; Section 4.11(d) of the Disclosure Schedule contains a
32
<PAGE> 02.01.038
true and complete list any requirements for consents or approvals of
creditors needed to consummate the transactions contemplated hereby;
(e) all leases or subleases of real property used in Buyer's
business, operations, or affairs, and all other leases, subleases, or
rental or use Contracts for which Buyer is liable;
(f) all Contracts relating to the future disposition or
acquisition of any investment in or security of any Person or of any
interest in any business enterprise (other than the disposition or
acquisition of investments in the ordinary course of business and
consistent with past practice);
(g) all Contracts or arrangements (including, without
limitation, those relating to the sharing or allocation of expenses,
personnel, services, or facilities) between or among Buyer and any of
its Affiliates;
(h) all outstanding proxies, powers of attorney, or similar
delegations of authority of Buyer;
(i) all Contracts for any product, service, equipment,
facility, or similar item that by their respective terms do not expire
or terminate or are not terminable by Buyer, without penalty or other
Liability, within six (6) months after December 31, 1995; and
(j) all other Contracts that involve the payment or potential
payment pursuant to the terms of such Contracts, by or to Buyer of more
than $10,000 individually or in the aggregate or that are otherwise
material to the Business or Condition of Buyer.
Each Contract disclosed or required to be disclosed in the Disclosure
Schedule pursuant to this Section is in full force and effect and constitutes
a legal, valid, and binding obligation of Buyer and of each other Person that
is a party thereto in accordance with its terms; and to the best knowledge of
Buyer, no party to such Contract is in violation or breach of or default.
under any such Contract (or with or without notice or lapse of time or both,
would be in violation or breach of or default under any such Contract). Except
as disclosed in Section 4.11 of the Disclosure Schedule (with a specific
reference to this sentence), the Buyer is not a party to or bound by any
Contract that was not entered into in the ordinary course of business and
consistent with past practice or that has or may reasonably be expected to
have, individually or in the aggregate with any other Contracts, a material
adverse effect on the Business or Condition of the Buyer. The Buyer is not a
party to or bound by any collective bargaining or similar labor Contract.
4.12 Licenses and Permits. Except as disclosed in Section 4.12 of the
Disclosure Schedule (with paragraph references corresponding to those set
forth below):
(a) Buyer owns or validly holds, all licenses, franchises,
permits, approvals, authorizations, exemptions, classifications,
certificates, registrations, and similar documents or instruments
33
<PAGE> 02.01.039
that are required for its business, operations, and affairs and that
the failure to so own or hold has or may reasonably be expected to have
a material adverse effect on its Business or Condition.
(b) All such licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates,
registrations, and similar documents or instruments are valid and in
full force and effect, and free of any restrictions imposed by any
Person.
4.13 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Buyer directly
with the Seller, without the intervention of any Person on behalf of the Buyer
in such manner as to give rise to any valid claim by any Person against the
Seller or the Buyer for a finder's fee, brokerage commission, or similar
payment, except for Conning & Company, which firm was engaged by Buyer and
whose fees shall be the sole responsibility of the Buyer.
4.14 Disclosure. Neither this Agreement nor any certificate furnished
by the Buyer to the Seller in connection with this Agreement or the
transactions contemplated hereby contains any untrue statement by the Buyer of
material fact or omits to state a material fact by the Buyer necessary to make
the statements herein or therein not misleading in light of the circumstances
in which they were made.
ARTICLE V
COVENANTS OF SELLER THE COMPANY AND MARKETING
The Seller, the Company and Marketing covenant and agree with the Buyer
that, at all times before the Closing, the Seller, the Company and Marketing
will comply with all of the covenants and provisions of this Article V, except
to the extent the Buyer may otherwise consent in writing or to the extent
otherwise required or permitted by this Agreement.
5.1 Lender and Regulatory Approvals. The Seller, the Company and
Marketing will take all commercially reasonable steps necessary or desirable,
and proceed diligently and in good faith and use all commercially reasonable
efforts to obtain, as promptly as practicable, all approvals and consents
required by the applicable Contract of any holder of indebtedness of the
Seller, the Company or Marketing; take all commercially reasonable steps
necessary or desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts to obtain, as promptly as practicable, all
approvals, authorizations, and clearances of governmental and regulatory
authorities required of the Seller, the Company or Marketing to consummate
the transactions contemplated hereby, and provide such other information and
communications to such governmental and regulatory authorities as the Buyer or
such authorities may reasonably request; and cooperate with the Buyer in
obtaining, as promptly as practicable, all approvals, authorizations, and
clearances of governmental, lender or regulatory authorities and others
required of the Buyer to consummate the transactions contemplated hereby,
including, without limitation, any required approvals of the
34
<PAGE> 03.01.001
State of Florida
Department of State
I certify from the records of this office that GEMCO NATIONAL, INC. is a
corporation organized under the laws of the State of Florida, filed on
May 11, 1993.
The document number of this corporation is P93000035479.
I further certify that said corporation has paid all fees and penalties
due this office through December 31, 1993, and its status is active.
I further certify that said corporation has not filed Articles of
Dissolution.
Given under my hand and the
Great Seal of the State of Florida,
at Tallahassee, the Capital, this the
Eighteenth Day of May, 1993
/s/ Jim Smith
GREAT SEAL OF THE STATE OF FLORIDA
Jim Smith
IN GOD WE TRUST
Secretary of State
<PAGE> 03.01.002
Exhibit "A"
ARTICLES OF INCORPORATION
OF
GEMCO NATIONAL, INC.
The undersigned, incorporator, for the purpose of forming a
corporation under the Florida Business Corporation Act, hereby
adopts the following Articles of Incorporation.
ARTICLE I NAME
The name of the corporation shall be:
GEMCO NATIONAL, INC.
ARTICLE II PRINCIPAL OFFICE
The mailing address of this corporation shall be:
7200 West Camino Real, Boca Raton, Florida 33433
ARTICLE III CAPITAL STOCK
The number of shares of stock that this corporation is authorized
to have outstanding at any one time is:
Thirty Million (30,000,000) Shares Par Value $.50 Per Share
ARTICLE IV INITIAL REGISTERED AGENT AND ADDRESS
Melvin C. Parker, 7200 West Camino Real, Boca Raton, Florida 33433
ARTICLE V INITIAL DIRECTORS
The name and address of the initial directors are:
Melvin C. Parker 7200 West Camino Real, Boca Raton, FL 33433
Ronald W. Hayes 7200 West Camino Real, Boca Raton, FL 33433
Donald F.U. Goebert 615 Willowbrook Lane, West Chester, PA 19382
Ernest D. Palmarella 310 Bldg.2. Radnor Corp. Ctr, Radnor, PA 19087
Jack L. Howard 2927 Montecito Avenue, Santa Rosa, CA 95404
ARTICLE VI INCORPORATOR
The name and street address of the incorporator to these Articles
of Incorporation is:
Melvin C. Parker 7200 West Camino Real, Boca Raton, FL 33433
<PAGE> 03.01.003
ARTICLE VII AFFILIATED TRANSACTIONS
The corporation expressly elects not to be subject to the Florida
Business Corporation Law, Affiliated Transactions Statute, Fla. ,
Stat. 1989, Section 607.0901(1989 Fla. Laws. C 89-154 Section 94),
as amended or as may hereinafter be amended
ARTICLE VIII CONTROL-SHARE ACQUISITIONS
The corporation expressly elects not to be subject to the Florida
Business Corporation Law, Control-Share Acquisition Statutes, Fla.
Stat. 1989, Sections 607.0902 and 607.0903 (1989 Fla. Laws, C. 89-
154 Section 95 and 96) , as amended or as may hereinafter be
amended .
The, undersigned as executed these Articles of Incorporation this
24th day of April, 1993
/s/Melvin L. Parker
Melvin L. Parker
Incorporator
<PAGE> 03.01.004
CERTIFICATE OF DESIGNATION
AGENT/REGISTERED OFFICE
Pursuant to the provisions of Section 607.0501, Florida Statutes,
the undersigned corporation, organized under the laws of the State
of Florida submits the following statement in designating the
registered office/registered agent, in the State of Florida.
l. The name of the corporation is:
GEMCO NATIONAL , INC.
2. The name and address of the registered agent and office is
Melvin C. Parker 7200 West Camino Real, Boca Raton, FL 33433
SIGNATURE /s/ Melvin C. Parker
Melvin C. Parker
TITLE: Incorporator
DATE: 4-25-93
HAVING BEEN NAMED AS REGISTERED AGENT AND TO ACCEPT SERVICE OF
PROCESS FOR THE ABOVE STATED CORPORATION AT THE PLACE DESIGNATED IN
THIS CERTIFICATE, I HEREBY ACCEPT THE APPOINTMENT AS REGISTERED AGENT
AND AGREE TO ACT IN THIS CAPACITY. I FURTHER AGREE TO COMPLY WITH THE
PROVISIONS OF ALL STATUTES RELATING TO THE PROPER AND COMPLETE PER-
FORMANCE OF MY DUTIES, AND I AM FAMILIAR WITH AND ACCEPT THE OBLIGA-
TIONS OF MY POSITION AS REGISTERED AGENT.
SIGNATURE /s/ Melvin C. Parker
DATE: 4-25-93
<PAGE> 03.01.005
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
GEMCO NATIONAL, INC.
In compliance with the requirements of Section 607.1006,
Florida Statutes, the undersigned corporation, desiring to amend
its Articles of Incorporation, does hereby certify:
l. The name of the corporation is GEMCO NATIONAL, INC.
2. The amendment so adopted is as follows:
"'RESOLVED, That Article I of the Articles of Incorporation
be amended to read as follows:
The name of the Corporation shall be:
INVESTORS INSURANCE GROUP, INC.
3. The date of the adoption of the amendment was June 11, 1993
4. The amendment was approved by the shareholders of the single
class of shares which the corporation has authority to issue and the
number of shares cast for the amendment was sufficient for approval.
IN WITNESS WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by its President and Secretary this
20 day of July, 1993.'
By: /s/ Melvin C. Parker
Melvin C. Parker President
Attest /s/ Richard T. Magsam
Richard Magsam Secretary
<PAGE> 03.02.001
ARTICLES of AMENDMENT
TO
ARTICLES of INCORPORATION
OF
INVESTORS INSURANCE GROUP, INC.
In compliance with the requirements of Section 607.1006, Florida
Statutes, the undersigned corporation, desiring to amend its Articles
of Incorporation does hereby certify:
1. The name of the Corporation is INVESTORS INSURANCE GROUP, INC.
2. The amendment so adopted is as follows:
"RESOLVED, that Article III of the Articles of Incorporation,
entitled "CAPITAL STOCK" be deleted in its entirety and replaced with the
following:
(A) The number of shares of stock that this Corporation is
authorized to have outstanding at any one time shall be
equal to Fifty Million (50,000,000) consisting of:
1. Twenty Million (20,000,000) Preferred Shares, no par value.
2. Thirty Million (30,000,000) Common Shares, par value $.50 per
share.
(B) The Board of Directors is authorized, subject to the
limitations prescribed by law and the provisions of this
Article III, to provide for the issuance of the shares of
Preferred Stock in series, and by filing an amendment pursuant
to section 607.0602 of the Florida Corporation Laws, to
establish from time to time the number of shares to be
included in such series, and to fix the designation, powers,
preferences and rights of the shares of such series and the
qualifications, limitations or restrictions thereof, without
shareholder action.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of
the following:
(a) The number of shares constituting that series and
the distinctive designation of that series;
(b) The dividend rate on the shares of that series, if
any, whether dividends shall be cumulative, and, if
so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends
on shares of that series;
<PAGE> 03.02.002
(c) Whether that series shall have voting rights, and
if so the terms of such voting rights;
(d) Whether that series shall have conversion
privileges, and, if so, the terms and conditions
of such conversion, including provision for
adjustment of the conversion rate in such events
as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions
of such redemption, including the date or dates
upon or after which they shall be redeemable, and
the amount per share payable in case of redemption,
which amount shall vary under different conditions
and at different redemption dates;
(f) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series,
and, if so, the terms and amount of such sinking fund;
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution
or winding up of the corporation, and the relative
rights of priority, if any, of payment of shares of
that series;
(h) Any other relative rights, preferences and limitations
of that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to
the same dividend period."
3. The date of the adoption of the amendment was November 17, 1995.
4. The amendment was approved by the shareholders of the single class of
shares which the corporation has authority to issue and the number of
shares cast for the amendment was sufficient for approval.
IN WITNESS WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by its President and Secretary this 9th
day of February, 1996.
By: /s/ Melvin C. Parker Attest: /s/ Susan F. Powell
-------------------- --------------------
Melvin C. Parker, President Susan F. Powell,
Assistant Secretary
(SEAL)
<PAGE> 03.03.001
CORPORATE RECORDS
OF
GEMCO NATIONAL, INC.
*****
INCORPORATED UNDER THE LAWS
OF THE
STATE OF FLORIDA
*****
LAW OFFICES
OF
MIRARCHI & PALMARELLA, P.C.
310 BUILDING 2
100 MATSONFORD ROAD
RADNOR, PENNSYLVANIA 19087
<PAGE> 03.03.002
BYLAWS
OF
GEMCO NATIONAL, INC.
(a Florida corporation)
ARTICLE I
OFFICES AND FISCAL YEAR
Section 1.01. REGISTERED OFFICE. The registered
office of the corporation shall be at 7200 West Camino Real, Boca
Raton, Florida 33433 until otherwise established by an amendment
of the articles or by the board of directors and a record of such
change is filed with the Department of State in the manner
provided by law.
Section 1.02. OTHER OFFICE. The corporation may also
have offices at such other places within or without Florida as
the board of directors may from time to time appoint or the
business of the corporation may require.
Section 1.03. FISCAL YEAR. The fiscal year of the
corporation shall begin on the 1st day of January in each year.
ARTICLE II
NOTICES - WAIVERS - MEETINGS GENERALLY
Section 2.01. MANNER OF GIVING NOTICE.
(a) General rule. Whenever written notice is
required to be given to any person under the provisions of the
Business Corporation Law or by the Articles or these bylaws, it
may be given to the person either personally or by sending
a copy thereof by first class or express mail, postage prepaid,
or by telecopier, to the address (or to the telex, TWX,
telecopier or telephone number) of the person appearing on the
books of the corporation or, in the case of directors,
supplied by the directors to the corporation for the purpose of
notice. If the notice is sent by mail, telegraph or courier
service, it shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or
with a telegraph office or courier service for delivery to that
person or, in the case of telex or TWX, when dispatched or, in
the case of telecopier, when received. A notice of meeting shall
specify the place, day and hour of the meeting any other
information required by any other provision of the Business
Corporation Law, the articles or these bylaws.
(b) Adjourned shareholder meetings. When a meeting
of shareholders is adjourned, it shall not be necessary to give
any notice of the adjourned meeting or of the business to
be transacted at an adjourned meeting, other than by announcement
at the meeting at which the adjournment is taken, unless the
<PAGE> 03.03.003
board fixes a new record date for the adjourned meeting.
Section 2.02 NOTICE OF MEETINGS OF BOARD OF
DIRECTORS. Notice of a regular meeting of the board of directors
need not be given. Notice of every special meeting of the board
of directors shall be given to each director by telephone or in
writing at least 48 hours (in the case of notice by telephone,
telex, TWX, telecopier, by telegraph, courier service or
express mail) or five days (in the case of notice by first
class mail) before the time at which the meeting is to be held.
Every such notice shall state the time and place of the meeting.
Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the board need be specified
in a notice of a meeting.
Section 2.03. NOTICE OF MEETINGS OF SHAREHOLDERS.
(a) General rule. Written notice of every meeting of
the shareholders shall be given by, or at the direction of, the
secretary to each shareholder of record entitled to vote at the
meeting at least ten (10) days but no more than sixty (60) days
prior to the date of the meeting.
If the secretary neglects or refuses to give notice of a meeting,
the person or persons calling the meeting may do so. In the case
of a special meeting of shareholders, the notice shall specify
the purpose or purposes for which the meeting is called.
(b) Notice of action by shareholders on bylaws. In
the case of a meeting of shareholders that has as one of its
purposes action on the bylaws, written notice shall be given to
each shareholder that the purpose, or one of the purposes, of the
meeting is to consider the adoption, amendment or repeal of the
bylaws. There shall be included in, or enclosed with, the notice
a copy of the proposed amendment or a summary of the changes to
be effected thereby.
Section 2.04. WAIVER OF NOTICE.
(a) Written waiver. Whenever any written notice is
required to be given under the provisions of the Business
Corporation Law, the articles or these bylaws, a waiver thereof
in writing, signed by the person or persons entitled to the
notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of the notice. Except as
otherwise required by this subsection, neither the business to be
transacted at, nor the purpose of, a meeting need be specified in
the waiver of notice of the meeting. In the case of a special
meeting of shareholders, the waiver of notice shall specify the
general nature of the business to be transacted.
(b) Waiver by attendance. Attendance of a person at
any meeting shall constitute a waiver of notice of the meeting
except where a person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting was not lawfully called or
convened.
<PAGE> 03.03.004
Section 2.05. MODIFICATION OF PROPOSAL CONTAINED IN
NOTICE. Whenever the language of a proposed resolution is
included in a written notice of a meeting required to be given
under the provisions of the Business Corporation Law or the
articles or these bylaws, the meeting considering the resolution
may without further notice adopt it with such clarifying or other
amendments as do not enlarge its original purpose.
Section 2.06. EXCEPTION TO REQUIREMENT OF NOTICE.
(a) General rule. Whenever any notice or
communication is required to be given to any person under the
provisions of the Business Corporation Law or by the articles or
these bylaws or by the terms of any agreement or other instrument
or as a condition precedent to taking any corporate action and
communication with that person is then unlawful, the giving of
the notice or communication to that person shall not be required.
(b) Shareholders without forwarding addresses.
Notice or other communications shall not be sent to any
shareholder with whom the corporation has been unable to
communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the
shareholder has otherwise failed to provide the corporation
with a current address, the corporation shall commence sending
notices and other communications to the shareholder in the same
manner as to other shareholders.
Section 2.07. USE OF CONFERENCE TELEPHONE AND SIMILAR
EQUIPMENT. One or more persons may participate in a meeting of
the board of directors or the shareholders of the corporation by
means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can
hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at the meeting.
ARTICLE III
SHAREHOLDERS
Section 3.01. PLACE OF MEETING. All meetings of the
shareholders of the corporation shall be held at the registered
office of the corporation unless another place is designated by
the board of directors in the notice of a meeting.
Section 3.02. ANNUAL MEETING. The board of directors
may fix the date and time of the annual meeting of the
shareholders, but if no such date and time is fixed by the board,
the meeting for any calendar year shall be held on the last
Thursday of June in such year, if not a legal holiday under the
laws of Florida, and, if a legal holiday, then on the next
succeeding business day, not a Saturday, at the principal office
of the company, and at said meeting the shareholders then
entitled to vote shall elect directors and shall transact such
other business as may properly be brought before the meeting. If
the annual meeting shall not have been called and held within six
months after the designated time, any shareholder may call the
meeting at any time thereafter.
<PAGE> 03.03.005
Section 3.03. SPECIAL MEETINGS.
(a) Call of special meetings. Special meetings of
the shareholders may be called at any time by the board of
directors or by the president or secretary at the written
request of the shareholders entitled to cast at least twenty-
five (25%) percent of the vote that all shareholders are
entitled to cast at the particular meeting.
(b) Fixing of time of meeting. At any time, upon
written request of any person who has called a special meeting,
it shall be the duty of the secretary to fix the time of the
meeting which shall be held not more than 60 days after the
receipt of the request. If the secretary neglects or refuses to
fix a time of the meeting, the person or persons calling the
meeting may do so.
Section 3.04. QUORUM AND ADJOURNMENT.
(a) General rule. A meeting of shareholders of the
corporation duly called shall not be organized for the
transaction of business unless a quorum is present. The presence
of shareholders entitled to cast at least a majority of the votes
that all shareholders are entitled to cast on a particular matter
to be acted upon at the meeting shall constitute a quorum for the
purposes of consideration and action on the matter. Shares of
the corporation owned, directly or indirectly, by it and
controlled, directly or indirectly, by the board of directors of
this corporation, as such, shall not be counted in determining
the total number of outstanding shares for quorum purposes at any
given time.
(b) Withdrawal of a quorum. The shareholders present
at a duly organized meeting can continue to do business until
adjournment notwithstanding the withdrawal of enough shareholders
to leave less than a quorum.
(c) Adjournment for lack of quorum. If a meeting
cannot be organized because a quorum has not attended, those
present may, except as provided in the Business Corporation Law,
adjourn the meeting to such time and place as they may determine.
(d) Adjournments generally. Any meeting at which
directors are to be elected shall be adjourned only from day to
day, or for such longer periods not exceeding fifteen (15) days
each as the shareholders present and entitled to vote shall
direct, until the directors have been elected. Any other regular
or special meeting may be adjourned for such period as the
shareholders present and entitled to vote shall direct.
(e) Electing directors at adjourned meeting. Those
shareholders entitled to vote who attend a meeting called for the
election of directors that has been previously adjourned for lack
of a quorum, although less than a quorum as fixed in this
section, shall nevertheless constitute a quorum for the purpose
of electing directors.
(f) Other action in absence of quorum. Those
shareholders entitled to vote who attend a meeting of
<PAGE> 03.03.006
shareholders that has been previously adjourned for one or more
periods aggregating at least fifteen (15) days because of an
absence of a quorum, although less than a quorum as fixed in this
section, shall nevertheless constitute a quorum for the purpose
of acting upon any matter set forth in the notice of the meeting,
if the notice states that those shareholders who attend the
adjourned meeting shall nevertheless constitute a quorum for the
purpose of acting upon the matter.
Section 3.05. ACTION BY SHAREHOLDERS. Except as
otherwise provided in the Business Corporation Law or the
articles or these bylaws, whenever any corporate action is to be
taken by vote of the shareholders of the corporation, it shall be
authorized by a majority of the votes cast at a duly organized
meeting of shareholders by the holders of shares entitled to vote
thereon.
Section 3.06. ORGANIZATION. At every meeting of the
shareholders, the chairman of the board, if there be one, or, in
the case of vacancy in office or absence of the chairman of the
board, the president, or a person appointed by the chairman of
the board or present, shall act as chairman of the meeting. The
secretary or, in the absence of the secretary, an assistant
secretary, or in the absence of both the secretary and assistant
secretaries, a person appointed by the chairman of the meeting,
shall act as secretary.
Section 3.07. VOTING RIGHTS OF SHAREHOLDERS. Unless
otherwise provided in the articles, every shareholder of the
corporation shall be entitled to one vote for every share
standing in the name of the shareholder on the books of the
corporation.
Section 3.08. VOTING AND OTHER ACTION BY PROXY.
(a) General rule.
(1) Every shareholder entitled to vote at a
meeting of shareholders or to express consent or dissent to
corporate action in writing without a meeting may authorize
another person to act for the shareholder by proxy.
(2) The presence of, or vote or other action at
a meeting of shareholders, or the expression of consent or
dissent to corporate action in writing, by a proxy of a
shareholder shall constitute the presence of, or vote or action
by, or written consent or dissent of the shareholder.
(3) Where two or more proxies of a shareholder
are present, the corporation shall, unless otherwise expressly
provided in the proxy, accept as the vote of all shares
represented thereby the vote cast by a majority of them and, if a
majority of the proxies cannot agree whether the shares
represented shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally among
those persons.
(b) Minimum requirements. Every proxy shall be
executed in writing by the shareholder or by the duly authorized
<PAGE> 03.03.007
attorney-in-fact of the shareholder and filed with the secretary
of the corporation. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other agreement
or any provision in the proxy to the contrary, but the revocation
of a proxy shall not be effective until written notice thereof
has been given to the secretary of the corporation. An unrevoked
proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A
proxy shall not be revoked by the death or incapacity of the
maker unless, before the vote is counted or the authority is
exercised, written notice of the death or incapacity is given to
the secretary of the corporation.
(c) Expenses. Unless otherwise restricted in the
articles, the corporation shall pay the reasonable expenses of
solicitation of votes, proxies or consents of shareholders by or
on behalf of the board of directors or its nominees for election
to the board, including solicitation by professional proxy
solicitors and otherwise.
Section 3.09. VOTING BY FIDUCIARIES AND PLEDGEES.
Shares of the corporation standing in the name of a trustee or
other fiduciary and shares held by an assignee for the benefit of
creditors or by a receiver may be voted by the trustee,
fiduciary, assignee or receiver. A shareholder whose shares are
pledged shall be entitled to vote the shares until the shares
have been transferred into the name of the pledgee, or a nominee
of the pledgee, but nothing in this section shall affect the
validity of a proxy given to a pledgee or nominee.
Section 3.10. VOTING BY JOINT HOLDERS OF SHARES.
(a) General rule. Where shares of the corporation
are held jointly or as tenants in common by two or more persons,
as fiduciaries or otherwise:
(1) if only one or more of such persons is
present in person or by proxy, all of the shares standing in the
names of such persons shall be deemed to be represented for the
purpose of determining a quorum and the corporation shall accept
as the vote of all the shares the vote cast by a joint owner or a
majority of them; and
(2) if the persons are equally divided upon
whether the shares held by them shall be voted or upon the manner
of voting the shares, the voting of the shares shall be divided
equally among the persons without prejudice to the rights of the
joint owners or the beneficial owners thereof among themselves.
(b) Exception. If there has been filed with the
secretary of the corporation a copy, certified by an attorney at
law to be correct, of the relevant portions of the agreement
under which the shares are held or the instrument by which the
trust or estate was created or the order of court appointing them
or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document
latest in date of operative effect so filed, and only those
persons, shall be entitled to vote the shares but only in
accordance therewith.
<PAGE> 03.03.008
Section 3.11. VOTING BY CORPORATIONS
(a) Voting by corporate shareholders. Any
corporation that is a shareholder of this corporation may vote by
any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of
the board of directors of the other corporation or provision
of its articles or bylaws, a copy of which resolution or
provision certified to be correct by one of its officers has
been filed with the secretary of this corporation, is
appointed its general or special proxy in which case that
person shall be entitled to vote the shares.
(b) Controlled shares. Shares of this corporation
owned, directly or indirectly, by it and controlled, directly or
indirectly, by the board of directors of this corporation, as
such, shall not be voted at any meeting and shall not be counted
in determining the total number of outstanding shares for voting
purposes at any given time.
Section 3.12. DETERMINATION OF SHAREHOLDERS OF
RECORD.
(a) Fixing record date. The board of directors may
fix a time prior to the date of any meeting of shareholders as a
record date for the determination of the shareholders entitled to
notice of, or to vote at, the meeting, which time, except in the
case of an adjourned meeting, shall be not more than seventy (70)
days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled
notwithstanding any transfer of shares on the books of the
corporation after record date fixed as provided in this
subsection. The board of directors may similarly fix a record
date for the determination of shareholders of record for any
other purpose. When a determination of shareholders of record
has been made as provided in this section for purposes of a
meeting, the determination shall apply to any adjournment thereof
unless the board fixes a new record date for the adjourned
meeting.
(b) Determination when a record date is not fixed.
If a record date is not fixed:
(1) The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the date next preceding the
day on which notice is given or, if notice is waived, at the
close of business on the day immediately preceding the day on
which the meeting is held.
(2) The record date for determining shareholders
entitled to express consent or dissent to corporate action in
writing without a meeting, when prior action by the board of
directors is not necessary, shall be the close of business on the
day on which the first written consent or dissent is filed with
the secretary of the corporation.
(3) The record date for determining shareholders
for any other purpose shall be at the close of business on the
<PAGE> 03.03.009
day on which the board of directors adopts the resolution
relating thereto.
Section 3.13. VOTING LISTS.
(a) General rule. The officer or agent having charge
of the transfer books for shares of the corporation shall make a
complete list of the shareholders entitled to vote at any meeting
of shareholders, arranged in alphabetical order, with the address
of and of the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof.
(b) Effect of list. Failure to comply with the
requirements of this section shall not effect the validity of any
action taken at a meeting prior to a demand at the meeting by any
shareholder entitled to vote thereat to examine the list. The
original share register or transfer book, or a duplicate thereof
kept in this Commonwealth, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share
registered or transfer book or to vote at any meeting of
shareholders.
Section 3.14. JUDGES OF ELECTION.
(a) Appointment. In advance of any meeting of
shareholders of the corporation, the board of directors may
appoint judges of election, who need not be shareholders, to act
at the meeting or any adjournment thereof. If judges of election
are not so appointed, the presiding officer of the meeting may,
and on the request of any shareholder shall, appoint judges of
election at the meeting. The number of judges shall be one or
three. A person who is a candidate for office to be filed at the
meeting shall not act as a judge.
(b) Vacancies. In case any person appointed as a
judge fails to appear or fails or refuses to act, the vacancy may
be filled by appointment made by the board of directors in
advance of the convening of the meeting or at the meeting by the
presiding officer thereof.
(c) Duties. The judges of election shall determine
the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, receive votes
or ballots, hear and determine all challenges and questions in
any way arising in connection with the right to vote, count and
tabulate all votes, determine the result and do such acts as may
be proper to conduct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties
impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of
all.
(d) Report. On request of the presiding officer of
the meeting, or of any shareholder, the judge shall make a report
<PAGE> 03.03.010
in writing of any challenge or question or matter determined by
them, and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence
of the facts stated therein.
Section 3.15. CONSENT OF SHAREHOLDERS IN LIEU OF
MEETING.
(a) Unanimous written consent. Any action required
or permitted to be taken at a meeting of the shareholders or of
a class of shareholders may be taken without a meeting if, prior
or subsequent to the action, a consent or consents thereto by all
of the shareholders who would be entitled to vote at a meeting
for such purpose shall be filed with the secretary of
the corporation.
(b) Partial written consent. Any action required or
permitted to be taken at a meeting of the shareholders or of a
class of shareholders may be taken without a meeting upon the
written consent of shareholders who would have been entitled to
cast the minimum number of votes that would be necessary to
authorize the action at a meeting at which all shareholders
entitled to vote thereon were present and voting. The consents
shall be filed with the secretary of the corporation. The action
shall not become effective until after at lest ten (10) days'
written notice of the action has been given to each shareholder
entitled to vote thereon who has not consented thereto.
Section 3.16. MINORS AS SECURITY HOLDERS. The
corporation may treat a minor who holds shares or obligations of
the corporation as having capacity to receive and to empower
others to receive dividends, interest, principal and other
payments or distributions, to vote or express consent or dissent
and to make elections and exercise rights relating to such shares
or obligations unless, in the case of payments or distributions
on shares, the corporate officer responsible for maintaining the
list of shareholders or the transfer agent of the corporation or,
in the case of payments or distribution son obligations, the
treasurer or paying officer or agent has received written notice
that the holder is a minor.
ARTICLE IV
BOARD OF DIRECTORS
Section 4.01. POWERS; PERSONAL LIABILITY.
(a) General rule. Unless otherwise provided by
statute all powers vested by law in the corporation shall be
exercised by or under the authority of, and the business and
affairs of the corporation shall be managed under the direction
of, the board of directors.
(b) Standard of care; justifiable reliance. A
director shall stand in fiduciary relation to the corporation and
shall perform his or her duties as a director, including duties
as a member of any committee of the board upon which the director
may serve, in good faith, in a manner the director reasonably
believes to be in the best interests of the corporation and with
<PAGE> 03.03.011
such care, including reasonable inquiry, skill and diligence, as
a person of ordinary prudence would use under similar
circumstances. In performing his or her duties, a director shall
be entitled to rely in good faith on information, opinions,
reports or statements, including financial statements and other
financial data, in each case prepared or presented by any of the
following:
(1) One or more officers or employees of the
corporation whom the director reasonably believes to be reliable
and competent in the matters presented.
(2) Counsel, public accountants or other persons
as to matters which the director reasonably believes to be within
the professional or expert competence of such person.
(3) A committee of the board upon which the
director does not serve, duly designated in accordance with law,
as to matters within its designated authority, which committee
the director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if
the director has knowledge concerning the matter in question that
would cause his or her reliance to be unwarranted.
(c) Consideration of factors. In discharging the
duties of their respective positions, the board of directors,
committees of the board and individual directors may, in
considering the best interests of the corporation, consider the
effects of any action upon employees, upon suppliers and
customers of the corporation and upon communities in which
offices or other establishments of the corporation are located,
and all other pertinent factors. The consideration of those
factors shall not constitute a violation of subsection (b).
(d) Presumption. Absent breach of fiduciary duty,
lack of good faith or self-dealing, actions taken as a director
or any failure to take any action shall be presumed to be in the
best interests of the corporation.
(e) Personal liability of directors.
(1) A director shall not be personally liable, as
such, for monetary damages for any action taken, or any failure
to take any action, unless:
(i) the director has breached or failed to
perform the duties of his or her officer under this section; and
(ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness; or
(iii) the director derived an improper
personal benefit from the breach or failure to perform his
duties; or
(iv) the director voted for or assented to an
unlawful distribution in violation of the articles of incorp-
oration or section 607.06401 of the Business Corporation law: or
<PAGE> 03.03.012
(v) the breach or failure to perform
constituted a violation of criminal law, unless the director had
no reasonable cause to believe his conduct was unlawful.
(2) The provisions of paragraph (1) shall not
apply to the responsibility or liability of a director for
payment of taxes pursuant to Local, State or Federal law.
(f) Notation of dissent. A director who is present
at a meeting of the board of directors, or of a committee of
the board, at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless his or
her dissent is entered in the minutes of the meeting or unless
his or her dissent is a written dissent to the action with the
secretary of the meeting before the adjournment thereof or
transmits the dissent in writing to the secretary of
the corporation immediately after the adjournment of the
meeting. The right to dissent shall not apply a director who
voted in favor of the action. Nothing in this section
shall bar a director from asserting that minutes of the
meeting incorrectly omitted his or her dissent if, promptly
upon receipt of a copy of such minutes, the director notifies
the secretary in writing, of the asserted omission or
inaccuracy.
Section 4.02. QUALIFICATION AND SELECTION OF
DIRECTORS.
(a) Qualifications. Each director of the corporation
shall be a natural person of full age who need not be a resident
of Florida or a shareholder of the corporation.
(b) Election of directors. Except as otherwise
provided in these bylaws, directors of the corporation shall be
elected by the shareholders. Each shareholder shall vote his
shares to elect himself and the other shareholders as directors.
In elections for directors, voting need not be by ballot, except
upon demand made by a shareholder entitled to vote at the
election and before the voting begins. The candidates receiving
the highest number of votes from each class or group of classes,
if any, entitled to elect directors separately up to the number
of directors to be elected by the class or group of classes shall
be elected. If at any meeting of shareholders, directors of more
than one class are to be elected, each class of directors shall
be elected in a separate election.
Section 4.03. NUMBER AND TERM OF OFFICE.
(a) Number. The board of directors shall consist of
five (5) directors.
(b) Term of office. Each director shall hold office
until the expiration of the term for which he or she was elected
and until a successor has been selected and qualified or until
<PAGE> 03.03.013
his or her earlier death, resignation or removal. A decrease in
the number of directors shall not have the effect of shortening
the term of any incumbent director.
(c) Resignation. Any director may resign at any time
upon written notice to the corporation. The resignation shall be
effective upon receipt thereof by the corporation or at such
subsequent time as shall be specified in the notice of
resignation.
Section 4.04. VACANCIES.
(a) General rule. Vacancies in the board of
directors, including vacancies resulting from an increase in the
number of directors, may be filled by a majority vote of the
remaining members of the board though less than a quorum, or by a
sole remaining director, and each person so selected shall be a
director to serve for the balance of the unexpired term, and
until a successor has been selected and qualified or until his or
her earlier death, resignation or removal.
(b) Action be resigned directors. When one or more
directors resign from the board effective at a future date, the
directors then in office, including those who have so resigned,
shall have power by the applicable vote to fill the vacancies,
the vote thereon to take effect when the resignations become
effective.
Section 4.05. REMOVAL OF DIRECTORS.
(a) Removal by the shareholders. The entire board of
directors, or any class of the board, or any individual director
may be removed from office without assigning any cause by the
vote of shareholders, or of the holders of a class or series of
shares, entitled to elect directors, or the class of directors.
In case the board or a class of the board or any one or more
directors are so removed, new directors may be elected at the
same meeting.
(b) Removal by the board. The board of directors may
declare vacant the office of a director who has been judicially
declared of unsound mind or who has been convicted of an offense
punishable by imprisonment for a term of more than one year or
if, within 60 days after notice of his or her selection, the
director does not accept the office either in writing or by
attending a meeting of the board of directors.
Section 4.06. PLACE OF MEETINGS. Meetings of the
board of directors may be held at such place within or without
Florida as the board of directors may from time to time appoint
or as may be designated in the notice of the meeting.
Section 4.07. ORGANIZATION OF MEETINGS. At every
meeting of the board of directors, the chairman of the board
shall preside. In the case of vacancy in the office or absence of
the chairman of the board, the president or in his absence, a
chairman chosen by the directors shall preside. The secretary or,
in the absence of the secretary an assistant secretary, or in the
<PAGE> 03.03.014
absence of the secretary and the assistant secretaries, any
person appointed by the chairman of the meeting, shall act as
secretary.
Section 4.08. REGULAR MEETINGS. Regular meetings of
the board of directors shall be held at such time and place as
shall be designated from time to time by resolution of the board
of directors.
Section 4.09. SPECIAL MEETINGS. Special meetings of
the board of directors shall be held whenever called by the
chairman or by two (2) or more of the directors.
Section 4.10. QUORUM OF AND ACTION BY DIRECTORS.
(a) General rule. A majority of the directors in office of
the corporation shall be necessary to constitute a quorum for the
transaction of business and the action of a majority of the
directors present and voting at a meeting at which a quorum is
present shall be the acts of the board of directors.
(b) Action by written consent. Any action required or
permitted to be taken at a meeting of the directors may be taken
without a meeting if, prior or subsequent to the action, a
consent or consents thereto by all of the directors in office is
filed with the secretary of the corporation.
Section 4.11. EXECUTIVE AND OTHER COMMITTEES.
(a) Establishment and powers. The board of directors
may, by resolution adopted by a majority of the directors in
office, establish one or more committees to consist of one or
more directors of the corporation. Any committee, to the extent
provided in the resolution of the board of directors, shall have
and may exercise all of the powers and authority of the board of
directors except that a committee shall not have any power or
authority as to the following:
(1) The submission to shareholders of any action
requiring approval of shareholders under the Business Corporation
Law.
(2) The creation or filling of vacancies in the
board of directors.
(3) The adoption, amendment or repeal of these
bylaws.
(4) The amendment or repeal of any resolution of
the board that by its terms is amendable or repealable only by
the board.
(5) Action on matters committed by a resolution
of the board of directors to another committee of the board.
(b) Alternate committee members. The board may
designate one or more directors as alternate members of any
committee who may replace any absent or disqualified member at
any meeting of the committee or for the purposes of any written
<PAGE> 03.03.015
action by the committee. In the absence of disqualification of a
member and alternate member or members of a committee, the member
or members thereof present at any meeting and not disqualified
from voting, whether or not constituting a quorum, may
unanimously appoint another director to act at the meeting in the
place of the absent or disqualified member.
(c) Term. Each committee of the board shall serve at
the pleasure of the board.
(d) Committee procedures. The term "board of
directors" or "Board," when used in any provision of these bylaws
relating to the organization or procedures of or the manner of
taking action by the board of directors, shall be construed to
include and refer to any executive or other committee of the
board.
Section 4.12. COMPENSATION. The board of directors
shall have the authority to fix compensation of directors for
their services as directors and a director may be a salaried
officer of the corporation.
ARTICLE V
OFFICERS
Section 5.01. OFFICERS GENERALLY.
(a) Number, qualification and designation. The
officers of the corporation shall be a president, a secretary, a
treasurer, and such other officers as may be elected in
accordance with the provisions of Section 5.03. Officers may but
need not be directors or shareholders of the corporation. The
president and secretary shall be natural persons of full age.
The treasurer may be a corporation, but if a natural person shall
be of full age. The board of directors may elect from among the
members of the board a chairman of the board and a vice chairman
of the board who shall be officers of the corporation. Any
number of offices may be held by the same person.
(b) Resignations. Any officer may resign at any time
upon written notice to the corporation. The resignation shall be
effective upon receipt thereof by the corporation or at such
subsequent time as may be specified in the notice of resignation.
(c) Bonding. The corporation may secure the fidelity
of any or all of its officers by bond or otherwise.
(d) Standard of care. Except as otherwise provided in
the articles, an officer shall perform his or her duties as an
officer in good faith, in a manner he or she reasonably believes
to be in the best interests of the corporation and with such
care, including reasonable inquiry, skill and diligence, as a
person of ordinary prudence would use under similar
circumstances. A person who so performs his or her duties shall
not be liable by reason of having been an officer of the
corporation.
<PAGE> 03.03.016
Section 5.02. ELECTION AND TERM OF OFFICE. The
officers of the corporation, except those elected by delegated
authority pursuant to Section 5.03, shall be elected annually by
the board of directors, and each such officer shall hold office
for a term of one year and until a successor has been selected
and qualified or until his or her earlier death, resignation or
removal.
Section 5.03. SUBORDINATE OFFICERS, COMMITTEES AND
AGENTS. The board of directors may from time to time elect such
other officers and appoint such committees, employees or other
agents as the business of the corporation may require, including
one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these
bylaws or as the board of directors may from time to time
determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain
or appoint employees or other agents, or committees thereof and
to prescribe the authority and duties of such subordinate
officers, committees, employees or other agents.
Section 5.04. VACANCIES. A vacancy in any office
because of death, resignation, removal, disqualification, or any
other cause, shall be filled by the board of directors or by the
officer or committee to which the power to fill such office has
been delegated pursuant to Section 5.03, as the case may be, and
if the office is one for which these bylaws prescribe a term,
shall be filled for the unexpired portion of the term.
Section 5.05. AUTHORITY. All officers of the
corporation, as between themselves and the corporation, shall
have such authority and perform such duties in the management of
the corporation as may be provided by or pursuant to resolution
or orders of the board of directors or in the absence of
controlling provisions in the resolutions or orders to the board
of directors, as may be determined by or pursuant to these
bylaws.
Section 5.06. THE CHAIRMAN OF THE BOARD.
The chairman of the board if there be one, or in the absence of
the chairman, the vice chairman of the board, shall preside at
all meetings of the shareholders and of the board of directors
and shall perform such other duties as may from time to time be
requested by the board of directors.
Section 5.07. THE PRESIDENT. The president shall be
the chief executive officer of the corporation and shall have
general supervision over the business and operations of the
corporation, subject however, to the control of the board of
directors. The president shall sign, execute, and acknowledge,
in the name of the corporation, deeds, mortgages, contracts or
other instruments authorized by the board of directors, except in
cases where the signing and execution thereof shall be expressly
delegated by the board of directors, or by these bylaws, to some
other officer or agent of the corporation; and, in general, shall
perform all duties incident to the office of president and such
other duties as from time to time may be assigned by the board of
directors.
<PAGE> 03.03.017
Section 5.08. THE SECRETARY. The secretary or an
assistant secretary shall attend all meetings of the shareholders
and of the board of directors and shall record all votes of the
shareholders and of the directors and the minutes of the meetings
of the shareholders and of the board of directors and of
committees of the board in a book or books to be kept for that
purpose; shall see that notices are given and records and reports
properly kept and filed by the corporation as required by law;
shall be the custodian of the seal of the corporation and see
that it is affixed to all documents to be executed on behalf of
the corporation under its seal; and, in general, shall perform
all duties incident to the office of secretary, and such other
duties as may from time to time be assigned by the board of
directors or the president.
Section 5.09. THE TREASURER. The treasurer or an
assistant treasurer shall have or provide for the custody of the
funds or other property of the corporation; shall collect and
receive or provide for the collection and receipt of moneys
earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as treasurer in
such banks or other places of deposit as the board of directors
may from time to time designate; shall, whenever so required by
the board of directors, render an account showing all
transactions as treasurer and the financial condition of the
corporation; and, in general, shall discharge such other duties
as may from time to time be assigned by the board of directors or
the president.
Section 5.10. SALARIES. The salaries of the officers
elected by the board of directors shall be fixed from time to
time by the board of directors or by such officer as may be
designated by resolution of the board. The salaries or other
compensation of any other officers, employees and other agents
shall be fixed from time to time by the officer or committee to
which the power to elect such officers or to retain or appoint
such employees or other agents has been delegated pursuant to
Section 5.03. No officer shall be prevented from receiving such
salary or other compensation by reason of the fact that the
officer is also a director of the corporation.
Section 5.11. DISALLOWED COMPENSATION. Any payments
made to an officer or employee of the corporation such as a
salary, commission, bonus, interest, rent, travel or
entertainment expenses incurred by him, which shall be disallowed
in whole or in part as a deductible expenses by the Internal
Revenue Service, shall be reimbursed by such officer or employee
to the corporation to the full extent of such disallowance. It
shall be the duty of the directors, as a Board, to enforce
payment of each such amount disallowed. In lieu of payment by
the officer or employee, subject to the determination of the
directors, proportionate amounts may be withheld from future
compensation payments until the amount owed to the corporation
has been recovered.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
<PAGE> 03.03.018
Section 6.01. SHARE CERTIFICATES. Certificates for
shares of the corporation shall be in such form as approved by
the board of directors, and shall state that the corporation is
incorporated under the laws of Florida, the name of the person to
whom issued, and the number and class of shares and the
designation of the series (if any) that the certificate
represents. The share register or transfer books and blank share
certificate shall be kept by the secretary or by any transfer
agent or registrar designated by the board of directors for that
purpose.
Section 6.02. ISSUANCE. The share certificates of
the corporation shall be numbered and registered in the
share register or transfer books of the corporation as they are
issued. They shall be signed by the president or a vice
president and by the secretary or an assistant secretary or the
treasurer or an assistant treasurer, and shall bear the
corporate seal, which may be a facsimile, engraved or printed;
but where such certificate is signed by a transfer agent or a
registrar the signature of any corporate officer upon such
certificate may be a facsimile, engraved or printed. In
case any officer who has signed, or whose facsimile signature
has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or
otherwise, before the certificate is issued, it may be issued
with the same effect as if the officer had not ceased to be
such at the date of its issue. The provisions of this
Section 6.02 shall be subject to any inconsistent or
contrary agreement at the time between the corporation and
any transfer agent or registrar.
Section 6.03. TRANSFER. Transfers of shares shall be
made on the share register or transfer books of the corporation
upon surrender of the certificate therefor, endorsed by the
person named in the certificate or by an attorney lawfully
constituted in writing.
Section 6.04. RECORD HOLDER OF SHARES. The
corporation shall be entitled to treat the person in whose name
any share or shares of the corporation stand on the books of the
corporation as the absolute owner thereof, and shall not be bound
to recognize any equitable or other claim to, or interest in,
such share or shares on the part of any other person.
Section 6.05. LOST, DESTROYED OR MUTILATED
CERTIFICATES. The holder of any shares of the corporation shall
immediately notify the corporation of any loss, destruction or
mutilation of the certificate therefor, and the board of
directors may, in its discretion, cause a new certificate or
certificates to be issued to such holder, in case of mutilation
of the certificate, upon the surrender of the mutilated
certificate or, in case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction
and, if the board of directors shall so determine, the deposit of
a bond in such form and in such sum, and with such surety or
sureties, as it may direct.
<PAGE> 03.03.019 ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
Section 7.01. INDEMNIFICATION. The corporation shall
indemnify each director, officer, employee and agent of the
corporation, his heirs, executors, administrators, and all other
persons whom the corporation is authorized to indemnify under the
provisions of the Business Corporation Law of the State of
Florida, to the fullest extent permitted by law, (a) against all
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with any action, suit or proceeding, whether
civil, criminal, administrative or investigative, or in
connection with any appeal therein, or otherwise, and (b) against
all expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of
any action or suit by or in connection with any appeal therein,
or otherwise; and no provisions of the bylaws is intended to be
construed as limiting, prohibiting, denying or abrogating any of
the general or specific powers or rights conferred under the
Business Corporation Law of the State of Florida upon the
Corporation to furnish, or upon any court to furnish, or upon any
court to award, such indemnification, or indemnification as
otherwise authorized pursuant to the Business Corporation Law of
the State of Florida or any other law now or hereafter in effect.
Section 7.02. INSURANCE. The Board of Directors of
the corporation may, in its discretion, authorize the corporation
to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the corporation as
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against
any liability asserted against him or incurred by him in any
such capacity , or arising out his status as such, whether or
not the corporation would have the power to indemnify him
against such liability under the provisions of Section 7.01 of
this Article VII.
Section 7.03. SCOPE OF INDEMNIFICATION. The
indemnification and advancement of expenses granted pursuant to
this Article VII shall not be exclusive or limiting of any other
rights to which any person seeking indemnification or advancement
of expenses may be entitled when authorized by (i) a resolution
of shareholders, (ii) a resolution of directors or (iii) an
agreement providing for such indemnification; provided that no
indemnification may be made to or on behalf of any such person if
a judgment or other final adjudication adverse to such person
establishes that his acts were committed in bad faith or were the
results of active and deliberate dishonesty and were material to
the cause of action so adjudicated, or that he personally gained
a financial profit or other advantage to which he was not legally
entitled.
Section 7.04. EFFECT OF AMENDMENT. No amendment,
modification or rescission of these bylaws shall be effective to
limit any person's right to indemnification with respect to any
alleged cause of action that occurs or other incident or matter
that occurs prior to the date on which such modification,
amendment or rescission is adopted.
<PAGE> 03.03.020
ARTICLE VIII
MISCELLANEOUS
Section 8.01. CORPORATE SEAL. The corporation seal
shall have inscribed thereon the name of the corporation, the
year of its organization and the words "Corporate Seal, Florida."
Section 8.01. CHECKS. All checks, notes, bills of
exchange or other orders in writing shall be signed by such
person or persons as the board of directors or any person
authorized by resolution of the board of directors may from time
to time designate.
Section 8.03. CONTRACTS.
(a) General rule. Except as otherwise provided in
the Business Corporation Law in the case of transactions that
require action by the shareholders, the board of directors may
authorize any officer or agent to enter into any contract or to
execute or deliver any instrument on behalf of the
corporation, and such authority may be general or confined to
specific instances.
(b) Statutory form of execution of instruments. Any
note, mortgage, evidence of indebtedness, contract or other
document, or any assignment or endorsement thereof, executed or
entered into between the corporation and any other person, when
signed by one or more officers or agents having actual or
apparent authority to sign it, or by the president or vice
president and secretary or assistant secretary or treasurer or
assistant treasurer of the corporation, shall be held to have
been properly executed for and on behalf of the corporation,
without prejudice to the rights of the corporation against any
person who shall have executed the instrument in excess of his or
her actual authority.
Section 8.04. INTERESTED DIRECTORS OR OFFICERS;
QUORUM.
(a) General rule. A contract or transaction between
the corporation and one or more of its directors or officers or
between the corporation and another corporation, partnership,
joint venture, trust or other enterprise in which one or more of
its directors or officers are directors or officers or have a
financial or other interest, shall not be void or voidable solely
for that reason, or solely because the director or officer is
present at or participates in the meeting of the board of
directors that authorizes the contract or transaction, or solely
because his, her or their votes are counted for that purpose, if:
(1) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed or
are known to the board of directors and the board authorizes the
contract or transaction by the affirmative votes of a majority of
the disinterested directors even though the disinterested
directors are less than a quorum;
<PAGE> 03.03.021
(2) the material facts as to his or her
relationship or interest and as to the contract or transaction
are disclosed or are known to the shareholders entitled to vote
thereon and the contract or transaction is specifically approved
in good faith by vote of those shareholders; or
(3) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified
by the board of directors or the shareholders.
(b) Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of
the board which authorizes a contract or transaction specified in
subsection (a).
Section 8.05. DEPOSITS. All funds of the corporation
shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries
as the board of directors may approve or designate, and all such
funds shall be withdrawn only upon checks signed by such one or
more officers or employees as the board of directors shall from
time to time determine.
Section 8.06. CORPORATE RECORDS.
(a) Required records. The corporation shall keep
complete and accurate books and records of account, minutes of
the proceedings of the incorporators, shareholders and directors
and a share register giving the names and addresses of all
shareholders and the number and class of shares held by each.
The share register shall be kept at either the registered office
of the corporation in Florida or at is principal place of
business wherever situated or at the office of its registrar or
transfer agent. Any books, minutes or other records may be in
written form or any other form capable of being converted into
written form within a reasonable time.
(b) Right of inspection. Every shareholder shall,
upon written verified demand stating the purpose thereof, have a
right to examine, in person or by agent or attorney, during the
usual hours for business for any proper purpose, the share
register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors and
to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to the interest of the person
as a shareholder. In every instance where an attorney or other
agent is the person who seeks the right of inspection, the demand
shall be accompanied by a verified power of attorney or other
writing that authorizes the attorney or other agent to so act on
behalf of the shareholder. The demand shall be directed to the
corporation at its registered office in Florida or at its
principal place of business wherever situated.
Section 8.07. FINANCIAL REPORTS. Unless otherwise
agreed between the corporation and a shareholder, the corporation
shall furnish to its shareholders annual financial statements,
including at least a balance sheet as of the end of each fiscal
year and a statement of income and expenses for the fiscal year.
The financial statements shall be prepared on the basis of
<PAGE> 03.03.022
generally accepted accounting principles, if the corporation
prepares financial statements for the fiscal year on that basis
for any purpose, and may be consolidated statements of the
corporation and one or more of its subsidiaries. The financial
statements shall be mailed by the corporation to each of its
shareholders entitled thereto within one hundred eight (180) days
after the close of each fiscal year and, after the mailing and
upon written request, shall be mailed by the corporation to any
shareholder or beneficial owner entitled thereto to whom a copy
of the most recent annual financial statements has not previously
been mailed. Statements that are audited or reviewed by a public
accountant shall be accompanied by the report of the accountant;
in other cases, each copy shall be accompanied by a statement of
the person in charge of the financial records of the corporation:
(1) Stating his reasonable belief as to whether
or not the financial statements were prepared in accordance with
generally accepted accounting principles and, if not, describing
the basis of presentation.
(2) Describing any material respects in which the
financial statements were not prepared on a basis consistent with
those prepared for the previous year.
Section 8.08. AMENDMENT OF BYLAWS. These bylaws may
be amended or repealed, or new bylaws may be adopted, either (i)
by vote of the shareholders at any duly organized annual or
special meeting of shareholders, or (ii) with respect to those
matters that are not by statute committed expressly to the
shareholders and regardless of whether the shareholders have
previously adopted or approved the bylaw being amended or
repealed, by vote of a majority of the board of directors of the
corporation in office at any regular or special meeting of
directors. Any change in these bylaws shall take effect when
adopted unless otherwise provided in the resolution effecting the
change. See Section 2.03(b) (relating to notice of action by
shareholders on bylaws).
<PAGE> 04.01.001
STOCK PURCHASE AGREEMENT
Among
GEMCO NATIONAL, INC.,
CORPORATE LIFE INSURANCE COMPANY
and
IIC, INC.
Relating to the
Capital Stock
of
IIC, INC. ,
INVESTORS INSURANCE CORPORATION
AND
WESTCHESTER REINSURANCE, LTD.
<PAGE> 04.01.002
TABLE OF CONTENTS
Page
RECITALS .................................................. 1
ARTICLE I REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF THE STOCKHOLDER..................... 1
1.1 Organization ..................................... 1
1.2 Subsidiaries ..................................... 2
1.3 Authority......................................... 2
1.4 Capital Structure................................. 2
1.5 No Distributions on Capital Stock................. 3
1.6 Financial Statements.............................. 3
1.7 Material Changes Since December 31, 1988.......... 4
1.8 Availability of Assets and Legality
of Use.......................................... 4
1.9 Title to Property................................. 4
1.10 Accounts Receivable............................... 4
1.11 Governmental Permits.............................. 5
1.12 Real Property and Leases.......................... 5
1.13 Insurance......................................... 6
1.14 Conduct of Business............................... 6
1.15 No Undisclosed Liabilities........................ 7
1.16 No Default, Violation or Litigation............... 7
1.17 Tax Liabilities................................... 7
1.18 Contracts......................................... 8
1.19 Employee Agreements............................... 9
1.20 Employee Relations................................ 9
1.21 Employee Retirement Income Security Act........... 9
1.22 Conflicts; Sensitive Payments..................... 10
1.23 Corporate Name.................................... 11
1.24 Trademarks and Proprietary Rights................. 11
1.25 No Omissions...................................... 11
1.26 Finders........................................... 11
1.27 Representations and Warranties
True on the Closing Date........................ 12
ARTICLE II REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF GEMCO............................. 12
2.1 Organization...................................... 12
2.2 Subsidiaries...................................... 12
2.3 Authority......................................... 12
2.4 Capital Structure................................. 13
2.5 Financial Statements.............................. 13
2.6 Material Changes Since December 31, 1988.......... 13
2.7 No Omissions...................................... 14
2.8 Finders........................................... 14
2.9 Representations and Warranties to Be
True on the Closing Date........................ 14
(i)
<PAGE> 04.01.003
ARTICLE III ACTION PRIOR TO THE CLOSING DATE..................... 14
3.1 Investigation........................................ 14
3.2 Confidential Nature of Information................... 15
3.3 Preserve Accuracy of Representations
and Warranties..................................... 15
3.4 Maintain IIC and the Company As a
Going Concern...................................... 16
3.5 Make No Material Change in IIC and
the Company........................................ 16
3.6 No Public Announcement............................... 17
ARTICLE IV PURCHASE PRICE AND CLOSING........................... 18
4.1 Closing Date......................................... 18
4.2 Transfer of Shares................................... 18
4.3 Issuance of Debentures and Warrants.................. 18
4.4 Delivery by the Stockholder.......................... 18
4.5 Delivery by GEMCO.................................... 18
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS
OF GEMCO........................................... 19
5.1 No Misrepresentation or Breach of
Covenants and Warranties............................ 19
5.2 No Changes in or Destruction of
Property............................................ 19
5.3 Legal Matters......................................... 19
5.4 Opinion of Counsel for the Stockholder................ 20
5.5 Net Capital and Surplus of the Company................ 22
5.6 Approval by Counsel................................... 22
5.7 Investment Representation............................. 22
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE STOCKHOLDER AND IIC.......................... 23
6.1 No Misrepresentation or Breach of
Covenants and Warranties............................ 23
6.2 No Changes in or Destruction of
Property............................................ 23
6.3 Legal Matters......................................... 23
6.4 Opinion of Counsel for GEMCO.......................... 23
6.5 Approval by Counsel................................... 25
6.6 Investment Representation............................. 25
ARTICLE VII TERMINATION........................................... 25
7.1 Termination
(ii)
<PAGE> 04.01.004
ARTICLE VIII SURVIVAL OF OBLIGATIONS;
INDEMNIFICATION..................................... 26
8.1 Survival of Obligations............................... 26
8.2 Indemnification....................................... 26
ARTICLE IX MISCELLANEOUS......................................... 28
9.1 Notices............................................... 28
9.2 Expenses.............................................. 28
9.3 Governing Law
9.4 Successors and Assigns................................ 28
9.5 Partial Invalidity.................................... 28
9.6 Waivers............................................... 28
9.7 Execution in Counterparts............................. 29
9.8 Titles and Headings................................... 29
9.9 Exhibits and Schedules................................ 29
9.10 Entire Agreement; Amendments and
Waivers............................................. 29
SIGNATURES ...................................................... 30
SCHEDULES:
1.1 Admitted Jurisdictions
1.6 Financial Statements of the Company and IIC
1.7 Material Changes Since December 31, 1988
1.8 Non-Available Assets; Non-Conforming Assets
1.12 Real Property and Leases
1.13 Insurance
1.14 Pending and Threatened Claims
1.16 Defaults; Violations; Litigation
1.17 Tax Sharing
1.18 Contracts
1.19 Employee Agreements
1.20 Employee Compensation
1.22 Conflicts; Sensitive Payments
1.24 Trademarks and Proprietary Rights
2.5 Financial Statements of GEMCO
(iii)
<PAGE> 04.01.005
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, made and entered into as of
the 31st day of March, 1989 (the "Agreement") among GEMCO
NATIONAL, INC., a corporation organized under the laws of New
York ("GEMCO"), CORPORATE LIFE INSURANCE COMPANY, a stock life
insurance company organized under the laws of Pennsylvania (the
"Stockholder") , which owns all of the issued and outstanding
shares (the "Shares") of capital stock of IIC, INC. ("IIC"), of
INVESTORS INSURANCE CORPORATION, a Delaware stock life insurance
company (the "Company") and WESTCHESTER REINSURANCE, LTD., a
Bermuda life insurance company ("Westchester Re") and IIC,
WITNESSETH :
WHEREAS, the Company is engaged in the business of issuing
various life insurance products;
WHEREAS, the Stockholder desires to transfer the Shares to
GEMCO in exchange for secured debentures (the "Debentures") and
warrants (the "Warrants") of GEMCO pursuant to the terms and
conditions set forth in this Agreement; and
WHEREAS, GEMCO desires to acquire the Shares from the
Stockholder in exchange for the Debentures and the Warrants on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, GEMCO and the Stockholder, in consideration
of the agreements, covenants and conditions contained herein and
intending to be legally bound hereby, hereby make the following
representations and warranties, give the following covenants and
agree as follows:
ARTICLE 1
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE STOCKHOLDER
As an inducement to GEMCO to enter into this Agreement
to consummate the transactions contemplated herein, the
Stockholder represents and warrants to GEMCO and agrees as
follows :
1.1 Organization. IIC and the Company are each
corporations duly organized, validly existing and in good
standing under the laws of the States of Oregon and Delaware,
respectively. Westchester Re is duly organized validly existing
and in good standing under the laws of Bermuda. IIC and
Westchester Re are not required to be qualified to transact
business as a foreign corporation in any other jurisdiction. The
Company is admitted to transact insurance business and is in good
-1-
<PAGE> 04.01.006
standing in each of the jurisdictions listed in Schedule 1.1
hereto. IIC, the Company and Westchester Re each have the
corporate power and authority and other authorizations necessary
or required in order for each to own or lease and operate its
respective properties and to carry on its respective business as
now conducted.
1.2 Subsidiaries. IIC has no subsidiaries, except for the
Company. The Company has no subsidiaries, except for Westchester
Re.
1.3 Authority. This Agreement and the transactions
contemplated herein have been duly approved by all necessary
action on the part of the Stockholder. This Agreement, when
executed and delivered by the Stockholder and assuming the due
execution hereof by GEMCO, will constitute the valid, legal and
binding agreement of the Stockholder enforceable in accordance
with its terms. Neither the execution nor the delivery of this
Agreement nor the consummation of the transactions contemplated
herein, nor compliance with nor fulfillment of the terms and
provisions hereof, will (i) conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default
under the Articles of Incorporation or By-laws of the
Stockholder, any instrument, agreement, mortgage, judgment,
order, award, decree or other restrictions to which the
Stockholder is a party or by which the Stockholder is bound or
any statute or regulatory provisions affecting the Stockholder;
(ii) give any party to or with rights under any such instrument,
agreement, mortgage, judgment, order, award, decree or other
restriction the right to terminate, modify or otherwise change
the rights or obligations of the Stockholder under such
instrument, agreement, judgment, order, award, decree, mortgage
or other restriction or (iii) require the approval, consent or
authorization of or any filing with or notification to any
federal, state or local court, governmental authority or
regulatory body. The Stockholder has full power and authority to
sell, assign, transfer and deliver the Shares to GEMCO pursuant
to this Agreement and to do and perform all acts and things
required to be done by the Stockholder under this Agreement.
True and complete copies of the Certificate or Articles of
Incorporation and By-laws of IIC, the Company and Westchester Re
have been delivered to GEMCO
1.4 Capital Structure. The authorized capital stock of
IIC consists of 100 shares of common stock, par value $.0l per share,
of which 100 shares are issued and outstanding, and none of which
is held by IIC as treasury shares. The authorized capital stock
of the Company consists of 2,000,000 shares of common stock, par
value $1.00 per share, of which 1,500,000 shares are issued and
outstanding, and none of which is held by the Company as treasury
shares. Except for this Agreement, there are no agreements,
arrangements, options, warrants or other rights or commitments of
-2-
<PAGE> 04.01.007
any character relating to the issuance, sale, purchase or
redemption of any shares of capital stock of IIC, the Company or
Westchester Re, and no such agreements, arrangements, options,
warrants or other rights or commitments will be entered into or
granted between the date hereof and the Closing Date. All of the
outstanding shares of IIC, the Company and Westchester Re are
validly issued, fully paid and nonassessable with no liability
attaching to the ownership thereof, and are owned of record and
beneficially by the Stockholder, in the case of the shares of
IIC, by IIC, in the case of the Company, and by the Company, in
the case of Westchester Re, free and clear of any liens, claims,
encumbrances and restrictions of any kind; and the transfer and
delivery of the outstanding shares of IIC, the Company and
Westchester Re to GEMCO by the Stockholder as contemplated by
this Agreement will be sufficient to transfer good and marketable
record and beneficial title to such outstanding shares to GEMCO,
free and clear of liens, claims, encumbrances and restrictions of
any kind.
1.5 No Distributions on Capital Stock. Neither IIC,
Westchester Re nor the Company has ever purchased or redeemed any
shares of its respective outstanding capital stock and, since
December 31, 1988, neither IIC, Westchester Re nor the Company
has declared or paid any dividend or made any other distribution
in respect of its capital stock.
1.6 Financial Statements. Attached hereto as Schedule 1.6
are the balance sheets of IIC, the Company and Westchester Re as
of December 31, 1987 and 1988 and the related statements of
income and of changes in financial position for the periods then
ended, together with appropriate notes to such financial
statements. The balance sheets as of December 31, 1987 and 1988
and the related statements of income and changes in financial
position for the years then ended are accompanied by the report
thereon by McDade Abbott & Co., independent certified public
accountants. All of such financial statements are correct and
complete in all material respects and fairly present the
respective financial position of IIC, the Company and Westchester
Re as at the respective dates thereof and the results of their
respective operations, and their respective changes in financial
position, for the respective periods covered thereby, and, in the
case of IIC, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout
all periods, and, in the case of the Company, have been prepared
in conformity with accounting principles and practices prescribed
or permitted by the Delaware Insurance Department consistently
applied throughout all periods.
There is set forth in Schedule 1.6 hereto a correct and
complete list of all (i) accounts, borrowing resolutions and
deposit boxes maintained by IIC, Westchester Re or the Company at
any bank or other financial institution, (ii) the names of the
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<PAGE> 04.01.008
persons authorized to sign or otherwise act with respect thereto,
(iii) powers of attorney for IIC, Westchester Re or the Company,
(iv) deposits with regulatory agencies, (v) security given to
others in connection with insurance arrangements and
(vi) security held in connection with insurance agreements.
1.7 Material Changes Since December 31, 1988. Since
December 31, 1988, the respective businesses of IIC, Westchester
Re and the Company has been operated only in the ordinary course
and, whether or not in the ordinary course of business, other
than as disclosed in this Agreement or Schedule 1.7 or any other
schedule referred to herein, there has not been, occurred or
arisen (i) any material adverse change in the financial condition
of IIC, Westchester Re or the Company from that shown on the
December 31, 1988 balance sheets referred to in Section 1.6
hereof; (ii) any damage or destruction in the nature of a
casualty loss, whether covered by insurance or not, to any
property or business of IIC, Westchester Re or the Company which
is material to the financial condition, operations or business of
IIC, Westchester Re or the Company; (iii) any material increase
in any employee benefit plan listed in Schedule 1.19 hereto;
(iv) any amendment or termination of any agreement, or
cancellation or reduction of any debt owing to IIC, Westchester
Re or the Company or waiver or relinquishment of any right of
material value to IIC, Westchester Re or the Company or (V) any
other event, condition or state of facts of any character which
materially and adversely affects the results of operations or
business, financial condition or property of IIC, Westchester Re
or the Company.
1.8 Availability of Assets and Legality of Use. Except
as specified in Schedule 1.8 hereto, the assets respectively owned
or leased by IIC, Westchester Re or the Company constitute all of
the assets which are being used in its respective business, and
such assets are in good and serviceable condition, normal wear
and tear excepted, and suitable for the uses for which intended
and such assets and their uses conform in all material respects
to all applicable laws.
1.9 Title to Property. Except as shown on Schedule 1.8
hereto, IIC, Westchester Re and the Company each has good and
marketable title to all of its respective assets, including the
assets reflected on the December 31, 1988 balance sheets referred
to in Section 1.6 hereto, and all of the assets thereafter
acquired by either of them except to the extent that such assets
have thereafter been disposed of for fair value in the ordinary
course of business.
1.10 Accounts Receivable. All accounts receivable
reflected on the December 31, 1988 balance sheets referred to in
Section 1.6 hereto arising prior to the date hereof, and not
collected at the date hereof, have arisen from bona fide
-4-
<PAGE> 04.01.009
transactions in the ordinary course of business. None of such
receivables is subject to counter-claims or set-offs or is in
dispute and all of such accounts are good and collectible in the
ordinary course of business at the aggregate recorded amounts
thereof, subject in each case to the allowance for doubtful
accounts shown on such balance sheets. All accounts receivable
existing on the Closing Date will be good and collectible in the
ordinary course of business at the aggregate recorded amounts
thereof, net of any applicable allowance for doubtful accounts,
which allowance will be determined on a basis consistent with the
basis used in determining the allowance for doubtful accounts
reflected in the December 31, 1988 balance sheets referred to in
Section 1.6 hereof.
1.11 Governmental Permits. Except as set forth in Schedule
1.11 hereto, IIC, Westchester Re and the Company each possess all
licenses, permits and other authorizations necessary to own or
lease and operate its respective properties and to conduct its
respective business as now conducted. All of such licenses,
permits and authorizations are hereinafter collectively called
the "Permits". All Permits are in full force and effect and will
continue in effect after the date hereof and the Closing Date
without the consent, approval or act of, or the making of any
filing with, any governmental or regulatory agency, commission or
authority. IIC, Westchester Re and the Company are not, to the
best knowledge and belief of the Stockholder, in violation of the
terms of any Permit, and neither IIC, Westchester Re nor the
Company has received notice of any violation or claimed violation
thereunder.
1.12 Real Property and Leases. IIC, Westchester Re and
the Company do not own any real property except as set forth on
Schedule 1.12 hereto. Attached hereto as part of Schedule 1.12
are true and correct copies of every lease or agreement under
which IIC, Westchester Re or the Company is lessee or sublessee
of, or holds or operates, any real property owned by any third
party. Each of such leases and agreements is in full force and
effect and constitutes a legal, valid and binding obligation of
IIC, Westchester Re or the Company, as the case may be, and, to
the best of the knowledge of the Stockholder, the other parties
thereto. Neither IIC, Westchester Re nor the Company is in
default in any material respect under any such lease or agreement
nor has any event occurred which with the passage of time or
giving of notice would constitute such a default nor will IIC,
Westchester Re or the Company take any action or fail to take
required action between the date hereof and the Closing Date
which would permit any such default or event to occur. Except as
set forth on Schedule 1.12, none of such leases and agreements
requires the consent of any party thereto to the transactions
contemplated by this Agreement.
-5-
<PAGE> 04.01.010
1.13 Insurance. IIC, Westchester Re and the Company
maintain policies of fire and casualty, product and other
liability and other forms of insurance in such amounts and
against such risks and losses as are described on Schedule 1.13
hereto which lists and accurately describes all policies of
insurance that are or were owned, held or maintained by or for
the benefit of IIC, Westchester Re or the Company or under which
IIC, Westchester Re or the Company is or was a named insured from
January 1, 1987 to the date hereof, including policy numbers,
nature of coverage, limits, deductibles, carriers, premiums and
effective and termination dates, under which IIC, Westchester Re
or the Company has any remaining coverage. IIC, Westchester Re
and the Company have complied with each of such policies and has
not failed to give any notice or present any known claim
thereunder. IIC, Westchester Re and the Company will keep such
insurance in full force and effect through the Closing Date.
Neither IIC, Westchester Re nor the Company has received, and, to
the best knowledge of the Stockholder after due inquiry, no event
or omission has occurred which may cause it to receive, notice
that any such policies will be cancelled or will be reduced in
amount or scope.
1.14 Conduct of Business. (a) Schedule 1.14 hereto
lists all claims which are pending or, to the knowledge of the
Stockholder threatened, against IIC, Westchester Re or the
Company and correctly sets forth the data reflected therein. No
insurance carrier listed therein has denied coverage of any claim
listed opposite its name or accepted investigation of any such
loss or defense of any such claim under a reservation of rights.
The reserves established by IIC, Westchester Re and the Company
as of December 31, 1988 are adequate to cover IIC's, Westchester
Re's and the Company's liability, net of insurance coverage, for
all such claims.
(b) To the best knowledge of the Stockholder after
due inquiry, no employee, agent or representative of IIC,
Westchester Re or the Company has, in relation to the Company's
or Westchester Re's insurance business, at any time exceeded the
authority or abused or wrongfully exercised any discretion
granted to him with regard to the acceptance of business on
behalf of the Company or Westchester Re. Neither the Company nor
Westchester Re has failed to have underwritten any risk in
respect of which evidence of insurance coverage has been issued
and has not failed to obtain adequate insurance coverage thereof
and no risk has been accepted for which the Company may be
liable. The Company and Westchester Re have not exceeded any
authority granted to either of them by any party to bind it in
connection with the Company's or Westchester Re's business.
Without limiting the generality of the foregoing, no factual
basis exists for any claim against the Company or Westchester Re
based on any act or omission: (i) in the placing or failing to
place insurance coverage or any tiers or layers of insurance
-6-
<PAGE> 04.01.011
coverage, (ii) in advice given or representations made with
respect to (x) the availability or non-availability of insurance
coverage, the existence, adequacy, amount, scope or nature of any
such coverage, the acts or occurrences covered, deductibles or
required primary or co-insurance or (y) the financial condition
or rating of any insurance carrier or (iii) in the making of
declarations or furnishing of information to any insurance
carrier.
1.15 No Undisclosed Liabilities. Neither IIC, Westchester
Re nor the Company is subject to any material liability
(including unasserted claims) , absolute or contingent, which is
not shown or which is in excess of amounts shown or reserved for
in the December 31, 1988 balance sheets referred to in Section
1.6 hereto, other than liabilities of the same nature as those
set forth in such balance sheets and reasonably incurred in the
ordinary course of its respective business after December 31,
1988.
1.16 No Default, Violation or Litigation. Except as set
forth in Schedule 1.16 hereto, neither IIC, Westchester Re nor
the Company is in default in any material respect under any
agreement, lease or other document to which it is a party, or in
violation of any law, rule, order, writ, injunction or decree of
any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
Except as set forth and described in Schedules 1.14 and 1.16,
there are no lawsuits, proceedings, claims or governmental
investigations pending or, to the best knowledge of the
Stockholder, threatened against IIC, Westchester Re or the
Company or against the respective properties or businesses
thereof, and the Stockholder knows of no factual basis for any
such lawsuits, proceedings, claims or investigations and there is
no action, suit, proceeding or investigation pending, threatened
or contemplated which questions the legality, validity or
propriety of the transactions contemplated by this Agreement.
1.17 Tax Liabilities. The amounts reflected as liabilities
for taxes on the December 31, 1988 balance sheets referred to in
Section 1.6 hereof are sufficient for the payment of all unpaid
federal, state, county, local and foreign taxes of IIC,
Westchester Re and the Company accrued for or applicable to the
year ended on such balance sheet date and all years prior
thereto. All federal, state, county, local and foreign income,
use, excise, property, sales, business activity and other tax
returns which are required to be filed by or in respect of IIC,
Westchester Re or the Company up to and including the date hereof
have been filed and all taxes, including any interest and
penalties thereon, which have become due pursuant to such returns
or pursuant to any assessment have been paid and no extension of
the time for filing of any such return is presently in effect.
All such returns which have been filed or will be filed by or in
-7-
<PAGE> 04.01.012
respect of IIC, Westchester Re or the Company for any period
ending on or before the Closing Date are or will be true and
correct.
1.18 Contracts. Except as set forth in Schedule 1.18
hereto or any other schedule referred to herein, neither IIC,
Westchester Re nor the Company is a party to (i) any contract for
the purchase or sale of real property to or from any third party;
(ii) any contract for the lease or sublease of personal property
from or to any third party which provides for annual rentals in
excess of $50,000, or any group of contracts for the lease or
sublease of similar kinds of personal property from or to third
parties which provides in the aggregate for annual rentals in
excess of $50,000; (iii) any contract for the purchase or sale of
equipment, computer software, lists of clients, insurance
carriers or agents, or similar information, commodities,
merchandise, supplies, other materials or personal property or
for the furnishing or receipt of services which calls for
performance over a period of more than 60 days and involves more
than the sum of $50,000; (iv) any license agreement involving the
use of copyrights, franchises, licenses, trademarks, or
information owned by IIC, Westchester Re or the Company or
others; (v) any broker's representative, sales, agency or
advertising contract which is not terminable by IIC, Westchester
Re or the Company on notice of 30 days or less; (vi) any contract
involving the borrowing or lending of money or the guarantee of
the obligations of officers, directors, employees or others;
(vii) any agency, agent's, general agents, brokerage or expense
allowance agreements or any other agreements pursuant to which
IIC, Westchester Re or the Company has binding authority in the
placement of insurance coverage or is currently obligated to make
payments in connection with the sale of insurance; (viii) any
contract with the Stockholder or any person or entity related to
or affiliated with the Stockholder or (ix) any other contract,
whether or not made in the ordinary course of business, which is
material to the respective business or assets of IIC, Westchester
Re or 'the Company. Copies of all contracts and agreements
identified in Schedule 1.18 have been made available to GEMCO
No outstanding purchase commitment by IIC, Westchester Re or the
Company is in excess of its respective ordinary business
requirements or at a price in excess of the market price thereof
at the date thereof. Except as set forth in Schedule 1.18 or any
other schedule referred to herein, none of such contracts and
agreements will expire or be terminated or be subject to any
modification of terms or conditions by reason of the consummation
of the transactions contemplated by this Agreement. Neither IIC,
Westchester Re nor the Company is in default in any material
respect under the terms of any such contract nor is either in
default in the payment of any insurance premiums due to insurance
carriers nor any principal of or interest on any indebtedness for
borrowed money nor has any event occurred which with the passage
of time or giving of notice would constitute such a default by
-8-
<PAGE> 04.01.013
IIC Westchester Re or the Company and, to the best knowledge of
the Stockholder, no other party to any such contract is in
default in any material respect thereunder nor has any such event
occurred with respect to such party. Without the written consent
of GEMCO, the Stockholder will not cause or permit IIC,
Westchester Re or the Company to make any changes or
modifications in any of the foregoing, nor incur any further
obligations or commitments, nor make any further additions to its
properties, except in each case in the ordinary course of
business and as contemplated by this Agreement.
1.19 Employee Agreements. Listed on Schedule 1.19 hereto
are all plans, contracts and arrangements, oral or written,
including but not limited to union contracts and employee benefit
plans, whereunder either IIC, Westchester Re or the Company has
any obligations, other than obligations to make current wage or
salary payments terminable by IIC, Westchester Re or the Company
on notice of 30 days or less, to or on behalf of its officers,
employees, agents or consultants or their beneficiaries or
whereunder any of such persons owes money to IIC, Westchester Re
or the Company.
1.20. Employee Relations. Neither IIC, Westchester Re nor
the Company has engaged in any unfair labor practice, unlawful
employment practice or unlawful discriminatory practice in the
conduct of its respective business. IIC, Westchester Re and the
Company have complied in all respects with all applicable laws,
rules and regulations relating to wages, hours and collective
bargaining and has withheld all amounts required by agreement to
be withheld from the wages or salaries of employees. The
relations of each of IIC, Westchester Re and the Company with its
respective employees and agents are satisfactory and neither IIC,
Westchester Re nor the Company is a party to or affected by or
threatened with or, to the best knowledge of the Stockholder, in
danger of being a party to or affected by, any labor dispute
which materially interferes or would materially interfere with
the conduct of its respective business. There is set forth in
Schedule 1.20 hereto the name and total annual compensation,
including bonuses, payable to each of the officers, directors,
employees and agents of IIC, Westchester Re and the Company whose
total annual compensation, including bonuses, during the year
ended December 31, 1988 exceeded the sum of $60,000. Since
December 31, 1988, there has been no material increase in the
compensation payable to any of such officers, directors,
employees and agents, except as set forth in Schedule 1.20.
1.21 Employee Retirement Income Security Act. Schedule
1.19 contains a list of any "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, (ERISA) established or
maintained by IIC, Westchester Re or the Company or to which IIC,
Westchester Re or the Company has made any contributions.
-9-
<PAGE> 04.01.014
Neither IIC, Westchester Re nor the Company is required, and was
not required within the immediately preceding five years, to make
any contribution to any "multiemployer plan" within the meaning
of Section 3(37) of ERISA. Neither IIC, Westchester Re nor the
Company has any liability in respect of any employee benefit
plans established or maintained or to which contributions are or
were made by it to the Pension Benefit Guaranty Corporation
("PBGC") or to any beneficiary of such plans.
Except as set forth in Schedule 1.19, (a) no employee
pension benefit plan, as defined in Section 3(2) of ERISA,
maintained or contributed to by IIC, Westchester Re or the
Company or in respect of which IIC, Westchester Re or the Company
is considered an "employer" under Section 414 of the Internal
Revenue Code of 1986, as amended (the "Code"), (i) has incurred
any "accumulated funding deficiency", as defined in Section 412
of the Code (whether or not waived), or (ii) has incurred any
liability to PBGC, and (b) neither IIC, Westchester Re nor the
Company has breached any of the responsibilities, obligations or
duties imposed on it by ERISA with respect to any employee
pension benefit plan maintained by it, which breach has given
rise to, or will in the future give rise to, an obligation to pay
money. Except as set forth in Schedule 1.19, neither IIC,
Westchester Re, the Company nor any of its affiliates or, to the
best knowledge of the Stockholder, any "party in interest", as
defined in Section 3(14) of ERISA, in respect of any such plan
has engaged in any non-exempted prohibited transaction described
in Section 406 and 408 of ERISA or Section 4975 of the Code.
Except as set forth in Schedule 1.19, no reportable event, as
defined in Section 4043 of ERISA, has occurred with respect to
any employee pension benefit plan maintained or contributed to by
IIC, Westchester Re or the Company or in respect of which IIC,
Westchester Re or the Company is an employer under Section 414 of
the Code; and none of such plans has been terminated by the plan
administrator thereof or by the PBGC. None of IIC, Westchester
Re, the Company or its affiliates has incurred any liability
under ERISA. The original or a complete and correct copy of each
plan listed in Schedule 1.19 has been delivered to GEMCO
1.22 Conflicts; Sensitive Payments. There are (i) no
material situations involving the interests of the Stockholder
(except as listed in Schedule 1.18 or described in Schedule 1.22)
or, to the knowledge of the Stockholder, any officer or director
of IIC, Westchester Re or the Company which may be generally
characterized as a "conflict of interest", including, but not
limited to, the leasing of property to or from IIC, Westchester
Re or the Company or direct or indirect interests in the business
of competitors, suppliers or customers of IIC, Westchester Re or
the Company and (ii) no situations involving illegal payments or
payments of doubtful legality from corporate funds of IIC,
Westchester Re or the Company since June 15, 1982 to governmental
-10-
<PAGE> 04.01.015
officials or others which may be generally characterized as a
"sensitive payment".
1.23 Corporate Name. The Company owns and possesses, to
the exclusion of the Stockholder and its affiliates, all rights
to the use of the name Investors Insurance Corporation and any
name confusingly similar thereto in the operation of the
Company's present business or any other business similar to or
competitive with that being conducted by the Company, including,
but not limited to, the right to use such name in advertising,
1.24 Trademarks and Proprietary Rights, All trademarks,
trade names, copyrights and applications therefor which are owned
or used or registered in the name of or licensed to the Company
are listed and briefly described in Schedule 1.24. Other than as
specified in Schedule 1.24, no proceedings have been instituted
or are pending or threatened or, to the best knowledge of the
Stockholder, contemplated which challenge the validity of the
ownership by the Company of any of such trademarks, trade names,
copyrights or applications. The Company has not licensed anyone
to use any of the foregoing or any other technical know-how or
other proprietary rights of the Company and the Stockholder has
no knowledge of the infringing use of any such trademarks and
trade names or the infringement of any such copyrights by any
person except as set forth in Schedule 1.24. The Company owns
all trademarks, trade names, copyrights, processes and other
technical know-how and other proprietary rights now used in the
conduct of its business and has not received any notice of
conflict with the asserted rights of others except as specified
in Schedule 1.24.
1.25 No Omissions. None of the representations or
warranties of the Stockholder contained herein, none of the
information contained in the schedules referred to in this
Article I, and none of the other information or documents
furnished to GEMCO or its representatives by the Stockholder in
connection with this Agreement is false or misleading in any
material respect or omits to state a fact herein or therein
necessary to make the statements herein or therein not misleading
in any material respect. To the best knowledge of the
Stockholder, there is no fact which adversely affects, or in the
future is likely to adversely affect, the business or assets of
IIC, Westchester Re or the Company in any material respect which
has not been disclosed in writing to GEMCO
1.26 Finders. Neither IIC, Westchester Re, the Company nor
the Stockholder has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary. Neither IIC,
Westchester Re, the Company nor the Stockholder has any agreement
or obligation whatsoever with entities other than GEMCO regarding
any proposed acquisition of IIC, Westchester Re and the Company
-11-
<PAGE> 04.01.016
by any such entity and neither of them is engaged in any
negotiations with any such entity for any such acquisition,
1.27 Representations and Warranties to Be True on the
Closing Date. All of the representations and warranties set
forth in this Article 1 will be true and correct on the Closing
Date.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF GEMCO
As an inducement to the Stockholder to enter into this
Agreement and to consummate the transactions contemplated herein,
GEMCO represents and warrants to the Stockholder and agrees as
follows :
2.1 Organization. GEMCO is a corporation duly organized,
validly existing and in good standing under the laws of the State
of New York. GEMCO is qualified to transact business as a
foreign corporation in each jurisdiction where the failure to be
so qualified would have a material adverse effect on its
financial condition. GEMCO has the corporate power and authority
and other authorizations necessary or required in order for it to
own or lease and operate its properties and to carry on its
business as now conducted.
2.2 Subsidiaries. GEMCO has the following subsidiaries:
Unicap, Inc., Gemco Realty Colorado and Ampat Group Inc.
2.3 Authority. This Agreement and the transactions
contemplated herein have been duly approved by all necessary
action on the part of GEMCO This Agreement, when executed and
delivered by GEMCO and assuming the due execution hereof by the
Stockholder, will constitute the valid, legal and binding
agreement of GEMCO enforceable in accordance with its terms.
Neither the execution nor the delivery of this Agreement nor the
consummation of the transactions contemplated herein, nor
compliance with nor fulfillment of the terms and provisions
hereof, will (i) conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default under
the Certificate of Incorporation or By-laws of GEMCO, any
instrument, agreement, mortgage, judgment, order, award, decree
or other restriction to which GEMCO is a party or by which it is
bound or any statute or regulatory provisions affecting it;
(ii) give any party to or with rights under any such instrument,
agreement, mortgage, judgment, order, award, decree or other
restriction the right to terminate, modify or otherwise change
the rights or obligations of GEMCO under such instrument,
agreement, judgment, order, award, decree, mortgage or other
restriction or (iii) require the approval, consent or
-12-
<PAGE> 04.01.017
authorization of or any filing with or notification to any
federal, state or local court, governmental authority or
regulatory body. GEMCO has full power and authority to issue the
Debentures to the Stockholder pursuant to this Agreement and to
do and perform all acts and things required to be done by GEMCO
under this Agreement. True and complete copies of the
Certificate of Incorporation and By-laws of GEMCO have been
delivered to the Stockholder,
2.4 Capital Structure. The authorized capital stock of
GEMCO consists of 30,000,000 shares of common stock, par value
$.50 per share, of which 2,781,556 shares have been issued and
are outstanding and of which 150,000 shares are reserved for
issuance upon the exercise or conversion of outstanding options,
warrants or convertible securities. All of the outstanding
shares of GEMCO are validly issued, fully paid and nonassessable
with no liability attaching to the ownership thereof.
2.5 Financial Statements, Attached hereto as Schedule
2.5 are the balance sheets of GEMCO as of December 31, 1987 and 1988
and the related statements of operations and of changes in
financial position for the periods then ended, together with
appropriate notes to such financial statements. The balance
sheets as of December 31, 1987 and 1988 and the related
statements of operations and changes in financial position for
the years then ended are accompanied by the report thereon by
Peat, Marwick, Main & Co., independent certified public
accountants. All of such financial statements are correct and
complete in all material respects and fairly present the
financial position of GEMCO as at the respective dates thereof
and the results of its operations, and its changes in financial
position, for the respective periods covered thereby, and have
been prepared in conformity with generally accepted accounting
principles consistently' applied throughout all periods.
2.6 Material Changes Since December 31, 1986. Since
December 31, 1986, the business of GEMCO has been operated only
in the ordinary course and, whether or not in the ordinary course
of business, other than as disclosed in this Agreement or the
schedules referred to herein there has not been, occurred or
arisen (i) any material adverse change in the financial condition
of GEMCO from that shown on the balance sheet of GEMCO as of
December 31, 1988 referred to in Section 2.5 hereof; (ii) any
damage or destruction in the nature of a casualty loss, whether
covered by insurance or not, to any property or business of GEMCO
which is material or (iii) any other event, condition or state of
facts of any character which materially and adversely affects the
results of operations or business, financial condition or
property of GEMCO
2.7 No Omissions. None of the representations or
warranties of GEMCO contained herein, none of the information
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<PAGE> 04.01.018
contained in the schedules referred to in this Article II, and
none of the other information or documents furnished to the
Stockholder or its representatives by GEMCO in connection with
this Agreement is false or misleading in any material respect or
omits to state a fact herein or therein necessary to make the
statements herein or therein not misleading in any material
respect. To the best knowledge of GEMCO, there is no fact which
adversely affects, or in the future is likely to adversely
affect, the respective business or assets of GEMCO in any
material respect which has not been disclosed in writing to the
Stockholder.
2.8 Finders. GEMCO has not paid or become obligated to
pay any fee or commission to any broker, finder or intermediary.
GEMCO has no agreement or obligation whatsoever with entities
other than the Stockholder regarding any proposed acquisition
IIC or the Company by any such entity and neither of them is
engaged in any negotiations with any such entity for any such
acquisition.
2.9 Representations and Warranties to Be True on the
Closing Date. All of the representations and warranties set
forth in this Article II will be true and correct on the Closing
Date.
ARTICLE III
ACTION PRIOR TO THE CLOSING DATE
The parties covenant to take the following action between
the date hereof and the Closing Date:
3.1 Investigation.
(a) The Stockholder shall cause IIC, Westchester Re
and the Company to afford to the officers, employees and
authorized representatives including, without limitation,
independent public accountants and attorneys of GEMCO such access
during normal working hours to the offices, properties, business
and financial and other records of IIC, Westchester Re and the
Company as GEMCO shall deem necessary or desirable, and shall
furnish to GEMCO or its authorized representatives such
additional financial and operating and other data as shall be
reasonably requested, including all such information and data as
shall be necessary in order to enable GEMCO or its
representatives to verify to their satisfaction the accuracy of
the respective financial statements of IIC, Westchester Re and
the Company and the representations and warranties contained in
Article 1 of this Agreement. No investigation made by GEMCO or
its representatives, except to the extent of actual knowledge by
GEMCO of any inaccuracy or breach contained herein, shall affect
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<PAGE> 04.01.019
the representations and warranties of the Stockholder hereunder
or the liability of the Stockholder with respect thereto.
(b) GEMCO shall afford to the Stockholder and its
authorized representatives, including, without limitation, its
independent public accountants and attorneys such access during
normal working hours to the offices, properties, business and
financial and other records of GEMCO as the Stockholder shall
deem necessary or desirable, and shall furnish to the Stockholder
or its authorized representatives such additional financial and
operating and other data as shall be reasonably requested,
including all such information and data as shall be necessary to
enable the Stockholder or its representatives to verify to their
satisfaction the accuracy of the consolidated financial
statements of GEMCO and the representations and warranties
contained in Article II of this Agreement. No investigation made
by the Stockholder or its representatives, except to the extent
of actual knowledge by the Stockholder of any inaccuracy or
breach of the representations and warranties of GEMCO contained
herein, shall affect the representations and warranties of GEMCO
hereunder or the liability of GEMCO with respect thereto.
3.2 Confidential Nature of Information. GEMCO and the
Stockholder agree that, in the event that the transactions
contemplated herein shall not be consummated, each will treat in
confidence all documents, materials and other information which
either shall have obtained during the course of the negotiations
leading to this Agreement, the investigation of the other party
hereto and the preparation of this Agreement and other documents
relating to this Agreement, and shall return to the other party
all copies of non-public documents and materials which have been
furnished in connection therewith.
3.3 Preserve Accuracy of Representations and Warranties.
(a) The Stockholder shall refrain from taking any
action and shall cause IIC, Westchester Re and the Company to
refrain from taking any action which would render any
representation and/or warranty contained in Article 1 of this
Agreement inaccurate as of the Closing Date hereunder. The
Stockholder will promptly notify GEMCO of any lawsuits, claims,
proceedings or investigations that, to the knowledge of the
Stockholder, may be threatened, brought, asserted or commenced
against IIC, Westchester Re or the Company, their respective
officers or directors, or the Stockholder (i) involving in any
way the transactions contemplated by this Agreement or (ii) which
would, if determined adversely, have a material adverse impact on
the business, properties or assets of IIC, Westchester Re or the
Company.
(b) GEMCO shall refrain from taking any action which
would render any representation and/or warranty contained in
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<PAGE> 04.01.020
Article II of this Agreement inaccurate as of the Closing Date.
GEMCO will promptly notify the Stockholder of any lawsuits ,
claims, proceedings or investigations that, to the knowledge of
GEMCO, may be threatened, brought, asserted or commenced against
GEMCO or their respective officers and directors (i) involving in
any way the transactions contemplated by this Agreement or
(ii) which would, if determined adversely, have a material
adverse impact on the business, properties or assets of GEMCO
3.4 Maintain IIC and the Company As a Going Concern.
(a) The Stockholder shall cause IIC, Westchester Re
and the Company to conduct their respective businesses in
accordance with past practices and to use their best efforts to
maintain the respective business organization of IIC, Westchester
Re and the Company intact and preserve the good will of their
respective employees, clients and others having business
relations with them. The Stockholder shall cause IIC,
Westchester Re and the Company to provide GEMCO promptly with
interim monthly financial information and any other management
reports, as and when they shall become available.
(b) GEMCO shall conduct its business in accordance
with past practices and to use its best efforts to maintain the
business organization of GEMCO intact and preserve the good will
of its employees, clients and others having business relations
with it. GEMCO shall provide the Stockholder promptly with
interim monthly financial information and any other management
reports, as and when they shall become available.
3.5 Make No Material Change in IIC and the Company.
(a) Prior to the Closing Date, the Stockholder shall
not, without the prior written approval of GEMCO, cause or permit
IIC, Westchester Re or the Company to (i) make any material
change in the respective business or operations of IIC,
Westchester Re or the Company; (ii) make any material change in
the accounting policies applied in the preparation of the
financial statements referred to in Section 1.6 hereof; (iii)
declare any dividends on their respective issued and outstanding
shares of capital stock or make any other distribution of any
kind in respect thereof; (iv) issue, sell or otherwise distribute
more than 500,000 authorized but unissued shares of their
respective capital stock or effect any stock split or
reclassification of any such shares or grant or commit to grant
any option, warrant or other rights to subscribe for or purchase
or otherwise acquire any shares of capital stock of IIC,
Westchester Re or the Company or any security convertible or
exchangeable for any such shares; (v) purchase or redeem any of
the capital stock of IIC, Westchester Re or the Company;
(vi) incur or be liable for indebtedness to the Stockholder or
any of its subsidiaries or affiliates; (vii) make any material
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<PAGE> 04.01.021
change in the compensation of officers or key employees of IIC,
Westchester Re or the Company; (viii) enter into any contract,
license, franchise or commitment either than in the ordinary
course of business or waive any rights of substantial value;
(ix) make any donation to any charitable, civic, educational or
other eleemosynary institution in excess of donations made in
comparable past periods; (x) sell, transfer, lease or otherwise
dispose of any assets of IIC, Westchester Re or the Company that
are material to the respective business or operations of IIC,
Westchester Re or the Company, other than in the ordinary course
of business or (xi) enter into any other transaction affecting in
any material respect the respective business of IIC, Westchester
Re or the Company other than in the ordinary course of business
and in conformity with past practices or as contemplated by this
Agreement.
(b) Prior to the Closing Date, GEMCO shall not,
without the prior written approval of the Stockholder (i) make
any material change in the business or operations of GEMCO;
(ii) make any material change in the accounting policies applied
in the preparation of the financial statements referred to in
Section 2.5 hereof; (iii) declare any dividends on the issued and
outstanding shares of capital stock of GEMCO or make any other
distribution in respect thereof; (iv) issue, sell or otherwise
distribute more than 500,000 authorized but unissued shares of
the capital stock of GEMCO or effect any stock split or
reclassification of any such shares or grant or commit to grant
any option, warrant or other rights to subscribe for or purchase
or otherwise acquire any shares of capital stock of GEMCO or any
security convertible into or exchangeable for any such shares;
(v) purchase or redeem any of the capital stock of GEMCO;
(vi) incur or be liable for any indebtedness of GEMCO or any
subsidiary or affiliate of GEMCO; (vii) make any material change
in the compensation of officers or key employees of GEMCO;
(viii) enter into any contract, license, franchise or commitment
other than in the ordinary course of business or waive any rights
of substantial value; (ix) make any donation to any charitable,
civic, educational or other eleemosynary institution in excess of
donations made in comparable past periods; (x) sell, transfer,
lease or otherwise dispose of any assets of GEMCO that are
material to the business or operations of GEMCO, other than in
the ordinary course of business or (xi) enter into any other
transactions affecting in any material respect the business of
GEMCO other than in the ordinary course of business and in
conformity with past practices or as contemplated by this
Agreement.
3.6 No Public Announcement. Neither the Stockholder nor
GEMCO shall, without the approval of the other, make any press
release or other public announcement or filing concerning the
transactions contemplated by this Agreement, except as and to the
extent that any such party shall be so obligated by law, in which
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<PAGE> 04.01.022
case the other party shall be advised thereof and given an
opportunity to comment thereon.
ARTICLE IV
PURCHASE PRICE AND CLOSING
4.1 Closing Date. Subject to the fulfillment of the
conditions precedent specified in Articles V and VI hereof and as
soon as practicable following such fulfillment, the transactions
contemplated by this Agreement shall be consummated (the
"Closing") at the offices of Duane, Norris, & Heckscher, One
Franklin Plaza, Philadelphia, Pennsylvania 19102 or such other
place as agreed to by the parties. The date on which the Closing
is to take place is herein sometimes referred to as the "Closing
Date".
4.2 Transfer of Shares. On the Closing Date, GEMCO shall
receive from the Stockholder, and the Stockholder shall transfer
to GEMCO, the Shares in exchange for the Debentures and the
Warrants as specified in Section 4.3 hereof.
4.3 Issuance of Debentures and Warrants. In exchange for
the Shares, GEMCO shall (i) issue its Debentures in form of
Exhibit A hereto to the Company in the principal amount of
$8,000,000, (ii) issue the Warrants in the form of Exhibit a
hereto to purchase 1,000,000 shares of GEMCO Common Stock, (iii)
execute the pledge agreement (the "Pledge Agreement") in the form
of Exhibit C hereto and (iv) execute the cash collateral letter
(the "Letter") in the form of Exhibit D hereto.
4.4 Delivery by the Stockholder. In addition to the
deliveries called for by Article V hereof, the Stockholder shall
deliver to GEMCO certificates representing all of the Shares,
together with fully executed and witnessed stock powers in blank
attached thereto with signatures guaranteed by a bank or trust
company or a member firm of the New York Stock Exchange, Inc.
4.5 Delivery by GEMCO In addition to the deliveries
called for by Article VI hereof, GEMCO shall deliver to the
Stockholder a certificate or certificates representing the
Debentures, a certificate or certificates representing the
Warrants, the Pledge Agreement and the Letter.
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<PAGE> 04.01.023
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF GEMCO
The obligations of GEMCO under this Agreement to acquire the
Shares in exchange for the Debentures shall, at the option of
GEMCO, be subject to the satisfaction, on or prior to the Closing
Date, of the following conditions:
5.1 No Misrepresentation or Breach of Covenants and
Warranties. There shall have been no breach by the Stockholder
in the performance of any of its covenants and agreements herein,
each of the representations and warranties of the Stockholder
contained or referred to in this Agreement shall be true and
correct In all material respects on the Closing Date as though
made on the Closing Date and there shall have been delivered to
GEMCO a certificate or certificates to that effect, dated the
Closing Date and signed by the Stockholder.
5.2 No Changes in or Destruction of Property. Since
December 31, 1988, there shall have been (i) no material adverse
change in the condition, financial or otherwise, of IIC,
Westchester Re or the Company; (ii) no adverse federal, state or
local legislative or regulatory change affecting in any material
respect the respective services or business of IIC, Westchester
Re or the Company and (iii) the respective properties and assets
of IIC, Westchester Re or the Company shall not have been
materially damaged by fire, flood, casualty, act of God or the
public enemy or other cause, regardless of insurance coverage for
such damage, so as to impair in any material respect the ability
of IIC, Westchester Re or the Company to render services or
continue operations. There shall have been delivered to GEMCO a
certificate, dated the Closing Date, and signed by the
Stockholder (a) to the effect that since December 31, 1988 there
has been no such material adverse change as stated in clause (i)
hereof, and no such material damage as stated in clause (iii)
hereof and (b) further stating that nothing has come to the
Stockholder's attention which causes him to believe that since
December 31, 1988 there has occurred any adverse federal, state
or local legislative or regulatory change affecting in any
material respect the services or business of IIC, Westchester Re
or the Company.
5.3 Legal Matters. No action, suit, investigation or
proceeding shall have been instituted or threatened by any
person, corporation or governmental agency against GEMCO to
restrain, prohibit, collect damages arising out of or otherwise
challenge the legality or validity of the transactions
contemplated herein.
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<PAGE> 04.01.024
5.4 Opinion of Counsel for the Stockholder. GEMCO shall
have received from Duane, Morris & Heckscher, counsel for the
Stockholder, an opinion dated the Closing Date, in form and
substance satisfactory to GEMCO and its counsel, to the effect
that :
(a) Each of IIC and the Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware and IIC and the Company each has full
corporate power and authority to own or lease and operate its
respective properties and to carry on its respective business as
now conducted. The Company has no subsidiaries, except for
Westchester Re which is a corporation duly organized, validly
existing and in good standing under the laws of Bermuda.
(b) The authorized capital stock of the Company
consists of 2,000,000 shares of common stock, par value $1.00 per
share, of which 1,500,000 shares have been issued and are
outstanding and are owned beneficially and of record by IIC. The
authorized capital stock of IIC consists of 100 shares of common
stock, par value $.0l per share, of which l00 shares have been
issued and are outstanding and are owned beneficially and of
record by the Stockholder. The authorized capital stock of
Westchester Re consists of 250,000 shares of Common Stock, par
value $1.00 per share, of which 250,000 shares have been issued
and are outstanding and are owned beneficially and of record by
the Company. Except for this Agreement, to the knowledge of such
counsel there are no agreements, arrangements, options, warrants
or other rights or commitments of any character relating to the
issuance, sale, purchase or redemption of any shares of capital
stock of the Company, Westchester Re or IIC and all of the issued
and outstanding shares of Common Stock of the Company,
Westchester Re and IIC on the Closing Date are validly issued,
fully paid and nonassessable with no liability attaching to the
ownership thereof.
(c) This Agreement and the transactions contemplated
herein have been duly approved by all necessary action of the
Stockholder. This Agreement has been duly and validly executed
and delivered by the Stockholder and such Agreement, assuming the
due execution thereof by GEMCO, is the valid and binding
agreement of the Stockholder enforceable against the Stockholder
in accordance with its terms except as enforcement of such
Agreement may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights generally and that the
remedy of specific performance is subject to the discretion of
the court before which proceedings therefor are brought.
(d) The Stockholder and IIC have full power and
authority to execute and deliver this Agreement and to perform
their respective obligations hereunder. Neither the execution
and delivery of this Agreement, nor the consummation of the
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<PAGE> 04.01.025
transactions contemplated herein, nor compliance with and
fulfillment of the terms and provisions hereof (i) conflicts with
or results in the breach of the terms, conditions or provisions
of, or constitutes a default under, the Certificate of
Incorporation or the By-laws of the Stockholder, IIC, Westchester
Re or the Company or any agreement or instrument known to such
counsel to which IIC, Westchester Re, the Company or the
Stockholder is a party or by which any of them is bound;
(ii) gives any party to or with rights under any such agreement
or instrument the right to terminate, modify or otherwise change
the rights or obligations of the Stockholder, IIC, Westchester Re
or the Company under any such agreement or instrument or
(iii) requires the consent, approval or authorization of or any
filing with or notification to any federal, state or local court,
governmental authority or regulatory body not already obtained or
made, as the case may be.
(e) Such counsel do not know of any action, suit,
proceeding or investigation pending or threatened against the
Stockholder, IIC, Westchester Re or the Company, other than
actions, suits, proceedings or investigations described in
Schedules 1.14 or 1.16 hereto, which might result in a material
adverse change in the properties, business or assets or in the
condition, financial or otherwise, of IIC, Westchester Re or the
Company, or that any action, suit, proceeding or investigation is
pending or to their knowledge threatened which questions the
legality, validity or propriety of this Agreement or of any
action taken or to be taken by the Stockholder or IIC pursuant to
or in connection with this Agreement.
(f) To the best knowledge of such counsel's knowledge
after due investigation, the Stockholder, the Company and IIC are
the lawful owners of the Shares, free and clear of all adverse
claims, with unrestricted right and power to transfer and deliver
the Shares to GEMCO. The Stockholder, the Company and IIC have
executed and delivered to GEMCO such instruments as are
sufficient to vest good and marketable title to the Shares in
GEMCO.
(g) To such further effect with respect to legal
matters relating to this Agreement as GEMCO or its counsel may
reasonably request.
In giving such opinion, counsel for the Stockholder may
rely, as to matters of fact, upon certificates of officers of the
Stockholder, and as to matters relating to the law of any state
other than the State of Delaware, upon opinions of other counsel
satisfactory to them, provided that such counsel shall state that
they believe that they are justified in relying upon such
certificates and opinions and deliver copies thereof to GEMCO
prior to the Closing Date.
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<PAGE> 04.01.026
5.5 Net Capital and Surplus of the Company.
(a) At the Closing Date, the Company shall have a net
capital and surplus of not less than $4,500,000 calculated in
conformity with accounting principles and practices prescribed or
permitted by the Delaware Insurance Department and applied in the
compilation of the financial statements described in Section 1.6
herein and after deduction of all expenses of the Company in
effecting the transactions contemplated hereby.
(b) At the Closing, McDade & Abbott Co. shall deliver
to GEMCO a letter dated the Closing Date stating that as of a
specified date not more than five days prior to the date of such
letter, on the basis of a limited review but not an examination
in accordance with generally accepted auditing standards that
includes a reading of the latest available unaudited interim
financial statements of the Company, inquiries of certain
officers and other employees of the Company responsible for
financial and accounting matters and other specified procedures
and inquiries, nothing has come to their attention that would
cause them to believe that the capital and surplus of the Company
as of the specified date, calculated in conformity with
accounting principles and practices Prescribed or Permitted by
the Delaware Insurance Department was less than $4,500,000.
5.6 Approval by Counsel. All matters, proceedings,
Instruments and documents required to carry out this Agreement or
incidental thereto and all other relevant legal matters shall
have been approved at or before the Closing Date by Ernest D.
Palmarella, which approval shall not be unreasonably withheld.
5.7 Investment Representation, The Stockholder
acknowledges that the Debentures have not been registered under
the Securities Act of 1933, as amended (the "Act"), and agrees
that it is acquiring the Debentures, the Warrants and the Common
Stock underlying the Warrants for investment purposes only and
not with a view to any sale or other distribution thereof in a
manner that would violate the Act. The Stockholder consents to
the placement of the following legend on the certificate or
certificates representing the Debentures and the Warrants to be
issued to it:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM SUCH
REQUIREMENTS."
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<PAGE> 04.01.027
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND IIC
The obligations of the Stockholder and IIC under this
Agreement to transfer the Shares in exchange for the Debentures
shall, at the option of the Stockholder and IIC, be subject to
the satisfaction, on or prior to the Closing Date, of the
following conditions;
6.1 No Misrepresentation or Breach of Covenants and
Warranties. There shall have been no breach by GEMCO in the
performance of any of its covenants herein, each of the
representations and warranties of GEMCO contained or referred to
in this Agreement shall be true and correct in all material
respects on the Closing Date as though made on the Closing Date,
and there shall have been delivered to the Stockholder a
certificate or certificates to that effect, dated the Closing
Date and signed on behalf of GEMCO by the President of GEMCO.
6.2 No Changes in or Destruction of Property. Since
December 31, 1988 there shall have been (i) no material adverse
change in the condition, financial or otherwise, of GEMCO;
(ii) no adverse federal, state or local legislative or regulatory
change affecting in any material respect the services or business
of GEMCO and (iii) the properties and assets of GEMCO shall not
have been materially damaged by fire, flood, casualty, act of God
or the public enemy or other cause, regardless of insurance
coverage for such damage, so as to impair in any material respect
the ability of GEMCO to render services or continue operations.
There shall have been delivered to the Stockholder a certificate,
dated the Closing Date, and signed on behalf of GEMCO by its
President (a) to the effect that since December 31, 1988 there
has been no such material adverse change as stated in clause (i)
hereof, and no such material as stated in clause (iii) hereof and
(b) further stating that nothing has come to the Signer's
attention, in the course of his activities on behalf of GEMCO,
which causes him to believe that since December 31, 1988 there
has occurred any adverse federal, state or local legislative or
regulatory change affecting in any material respect the services
or business of GEMCO.
6.3 Legal Matters. No action, suit, investigation or
proceeding by any person, corporation or governmental agency
shall have been instituted or threatened against IIC, Westchester
Re, the Company or the Stockholder to restrain, prohibit, collect
damages arising out of or otherwise challenge the legality or
validity of the transactions contemplated herein.
6.4 Opinion of Counsel for GEMCO The Stockholder shall
have received from Ernest D. Palmarella, counsel for GEMCO, an
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<PAGE> 04.01.028
opinion dated the Closing Date, in form and substance
satisfactory to the Stockholder and its counsel, to the effect
that:
(a) GEMCO is a duly organized and validly existing
corporation in good standing under the laws of the State of New
York; and GEMCO has the corporate power and authority to
consummate the transactions as provided for herein.
(b) This Agreement, the Pledge Agreement and the
Letter (collectively the "Agreements"), the Debentures and the
Warrants and the transactions contemplated herein and therein
have been duly approved by all necessary corporate action on the
part of GEMCO and the Agreements, the Debentures and the Warrants
have been duly and validly executed and delivered by GEMCO; the
Agreements, the Debentures and the Warrants are the valid and
binding agreements of GEMCO enforceable against GEMCO in
accordance with their respective terms except as enforcement
thereof may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and
that the remedy of specific performance is subject to the
discretion of the court before which proceedings therefor are
brought.
(c) GEMCO has full power and authority to execute and
deliver the Agreements, the Debentures and the Warrants and to
perform its obligations thereunder. Neither the execution and
delivery of the Agreements, the Debentures or the Warrants nor
the consummation of the transactions contemplated herein and
therein, nor compliance with and fulfillment of the terms and
provisions hereof (i) conflicts with or results in the breach of
the terms, conditions or provisions of the governing instruments
of GEMCO or any agreement or instrument known to such counsel to
which GEMCO is a party or by which it is bound; (ii) gives any
party to or with rights under any such agreement or instrument
the right to terminate, modify or otherwise change the rights or
obligations of GEMCO under any such agreement or instrument or
(iii) requires the consent, approval or authorization of or any
filing with or notification to any federal, state or local court,
governmental authority or regulatory body not already obtained or
made, as the case may be.
(d) Such counsel do not know of any action, suit,
proceeding or investigation pending or threatened against GEMCO
other than actions, suits, proceedings or investigations
disclosed in a schedule hereto, which might result in a material
adverse change in the business, properties or assets or
conditions, financial or otherwise, of GEMCO or is pending, or
their knowledge, threatened, which questions the legality,
validity or propriety of the Agreements, the Warrants or the
Debentures or of any action taken or to be taken by the parties
-24-
<PAGE> 04.01.029
hereto pursuant to or in connection with the Agreements, the
Debentures or the Warrants.
(e) To such further effect with respect to legal
matters relating to the Agreements as the Stockholder or its
counsel may reasonably request.
In giving such opinion, Ernest D. Palmarella may rely, as
to matters of fact, upon certificates of officers of GEMCO and, as
to matters relating to the law of any jurisdiction other than the
Commonwealth of Pennsylvania upon the opinions of other counsel
satisfactory to them, provided that such counsel shall state that
they believe that they are justified in relying upon such
certificates and opinions and deliver copies thereof to the
Stockholder prior to the Closing Date.
6.5 Approval by Counsel. All matters, proceedings,
instruments and documents required to carry out this Agreement or
incidental thereto and all other relevant legal matters shall
have been approved at or before the Closing Date by counsel for
the Stockholder which approval shall not be unreasonably
withheld .
6.6 Investment Representation. GEMCO acknowledges that the
Shares have not been registered under the Act, and agrees that it
is acquiring the Shares for investment purposes only and not with
a view to any sole or other distribution thereof in a manner that
would violate the Act. GEMCO consents to the placement of the
legend set forth in Section 5.7 hereof on the certificates
representing the Shares to be issued to it.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement shall be terminated, and
there shall thereafter be no liability of any party to any other
party hereunder, at any time prior to the Closing Date:
(a) By the mutual consent of GEMCO and the
Stockholder.
(b) By GEMCO or the Stockholder, if the transactions
contemplated herein are not closed on or before September 30,
1989.
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<PAGE> 04.01.030
ARTICLE VIII
SURVIVAL OF OBLIGATIONS; INDEMNIFICATION
8.1 Survival of Obligations. All certifications,
representations and warranties respectively made herein by the
Stockholder and GEMCO and their respective obligations to be
performed pursuant to the terms hereof, shall survive the Closing
Date hereunder, notwithstanding any notice of any inaccuracy,
breach or failure to perform not waived in writing and
notwithstanding the consummation of the transactions contemplated
herein with knowledge of such inaccuracy, breach or failure. All
representations and warranties contained herein shall terminate
two years after the Closing Date; provided, that (i) the
representations and warranties contained in Section 1.17 hereof
shall expire four years after the Closing Date, or with respect
to any dispute with the Internal Revenue Service, upon the
earlier to occur of the following (x) such dispute's final
resolution and the payment of all taxes, interests and penalties
arising therefrom and (y) the expiration of the applicable
statute of limitations and (ii) the representations in Section
1.4 hereof shall not terminate.
8.2 Indemnification.
(a) The Stockholder agrees to indemnify and hold
harmless GEMCO and its subsidiaries, affiliates, successors and
assigns from and against any and all (x) liabilities, losses,
costs, deficiencies or damages ("Loss") and (y) reasonable
attorneys' and accountants' fees and expenses, court costs and
all other reasonable out-of-pocket expenses ("Expense") incurred
by GEMCO, in each case net of any insurance proceeds received and
retained by GEMCO in connection with or arising from (i) any
claim that the Stockholder did not convey to GEMCO good and
marketable title to all of the issued and outstanding capital
stock of the Company and IIC pursuant to this Agreement, (ii) any
breach by the Stockholder of any of its covenants in, or failure
of the Stockholder to perform any of its obligations under, this
Agreement or (iii) any breach of any warranty or the inaccuracy
of any representation of the Stockholder contained or referred to
in this Agreement or in any certificate delivered by or on behalf
of the Stockholder pursuant hereto.
(b) GEMCO agrees to indemnify and hold harmless the
Stockholder and its subsidiaries, affiliates, successors and
assigns from and against any and all Loss and Expense incurred by
the Stockholder in each case net of any insurance received and
retained by the Stockholder in connection with or arising from
(i) any breach by GEMCO of any of its covenants in, or any
failure of GEMCO to perform any of its obligations under, this
Agreement or (ii) any breach of any warranty or the inaccuracy of
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<PAGE> 04.01.031
any representation of GEMCO contained or referred to in this
Agreement or in any certificate delivered by or on behalf of
GEMCO pursuant hereto.
(c) No claim shall be made for indemnity pursuant
to this Section 8.2 until the aggregate amount of Loss and Expense
exceeds $50,000, but if the aggregate amount of such Loss and
Expense exceeds such amount, the person responsible therefor (an
"Indemnifying Person") shall be liable for all loss' and expense,
including such initial $50,000 amount, to the person incurring
such loss or expense (an "Indemnified Person")
(d) If any Indemnified Person has suffered or incurred
any Loss or incurred any Expense, the Indemnified Person shall so
notify the Indemnifying Person promptly in writing describing
such Loss or Expense, the amount thereof, if known, and the
method of computation of such Loss or Expense, all with
reasonable particularity and containing a reference to the
provisions of this Agreement or any certificate delivered
pursuant hereto in respect of which such Loss or Expense shall
have occurred. If any action at law or suit in equity is
instituted by or against a third party with respect to which any
Indemnified Person intends to claim any liability or expense as
Loss or Expense under this Section 8.2, such Indemnified Person
shall promptly notify the Indemnifying Person of such action or
suit.
(e) An Indemnified Person shall have the right to
conduct and control, through counsel of its choosing, any third
party claim, action or suit and may compromise or settle the
same, provided that any of the Indemnified Persons shall give the
Indemnifying Person advance notice of any proposed compromise or
settlement. The Indemnified Persons shall permit the
Indemnifying Person to participate in the defense of any such
action or suit through counsel chosen by it, provided that the
fees and expenses of such counsel shall be borne by the
Indemnifying Person. Any compromise or settlement with respect
to a claim for money damages effected after the Indemnifying
Person, by notice to the Indemnified Persons shall have
disapproved such compromise or settlement, shall discharge the
Indemnifying Person from liability with respect to the subject
matter thereof, and no amount in respect thereof shall be claimed
as Loss or Expense under this Section 8.2.
-27-
<PAGE> 04.01.032
ARTICLE IX
MISCELLANEOUS
9.1 Notices. All notices or other communications required
or permitted hereunder shall be in writing and shall be given by
confirmed telex or telecopy or registered mail addressed, if to
the Stockholder to: Corporate Life Insurance Company, 893 S.
Matlack Street, West Chester, Pennsylvania 19381, with a copy to
Frederick W. Dreher, Esq., Duane, Norris & Heckscher, One
Franklin Plaza, Philadelphia, Pennsylvania 19102 and if to GEMCO,
to Ernest D. Palmarella, Esq., Gemco National, Inc., 615
Willowbrook Lane, West Chester, Pennsylvania 19382.
9.2 Expenses. Each party hereto shall pay its own expenses
including, without limitation, legal and accounting fees and
expenses, incident to its negotiation and preparation of this
Agreement and to its performance and compliance with the
provisions contained herein.
9.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Pennsylvania, without regard to its rules on conflicts of law.
9.4 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; provided that the rights
of the Stockholder herein may not be assigned and the rights of
GEMCO may only be assigned to such other business organization
which shall succeed to substantially all the assets, liabilities
and business of GEMCO
9.5 Partial Invalidity. In case any one or more of the
provisions contained herein shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision
or provisions had never been contained herein unless the deletion
of such provision or provisions would result in such a material
change as to cause completion of the transactions contemplated
herein to be unreasonable.
9.6 Waivers. The Stockholder and GEMCO may, by written
instrument, extend the time for the performance of any of the
obligations or other acts of the other party and with respect to
this Agreement, (a) waive any inaccuracies in the representations
and warranties of the other party in this Agreement or in any
document delivered pursuant to this Agreement, (b) waive
compliance with any of the covenants of the other party contained
-28-
<PAGE> 04.01.033
in this Agreement and (C) waive the other party's performance of
any of its obligations set out in this Agreement.
9.7 Execution in Counterparts. This Agreement may be
executed in two or more counterparts, all of which shall be
considered one and the same agreement, and shall become a binding
agreement when one or more counterparts have been signed by each
of the parties and delivered to each of the other parties.
9.8 Titles and Headings. Titles and headings to Articles
and Sections herein are inserted for convenience of reference
only and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement.
9.9 Schedules. The schedules to this Agreement shall be
construed with and as an integral part of this Agreement to the
same extent as if the same had been set forth verbatim herein.
9.10 Entire Agreement; Amendments and Waivers. This
Agreement, including the schedules hereto, contains the entire
understanding of the parties hereto with regard to the subject
matter contained herein. The parties hereto, by mutual agreement
in writing, may amend, modify and supplement this Agreement. The
failure of any party hereto to enforce at any time any provision
of this Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party
thereafter to enforce each and every such provision. No waiver
of any breach of this Agreement shall be held to constitute a
waiver of any other or subsequent breach.
-29-
<PAGE> 04.01.034
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement the date first above written.
(SEAL) GEMCO NATIONAL, INC.
Attest :
/s/D. Ann Harper By:/s/
Secretary President
CORPORATE LIFE INSURANCE COMPANY
/s/
Secretary By:/s/
Aloysius J. Abel, President
(SEAL) IIC, INC.
Attest :
/s/
Secretary By:/s/Aloysius J. Abel, President
-30-
<PAGE> 04.02.001
THE SECURITIES THAT ARE: REPRESENTED BY THIS WARRANT AND THAT MAY
BE ACQUIRED UPON THE EXERCISE OF THIS WARRANT (THE "SECURITIES")
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY
OTHER JURISDICTION. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES
LAWS OF OTHER APPLICABLE JURISDICTIONS.
GEMCO NATIONAL, INC.
COMMON STOCK PURCHASE WARRANT
No. C-L March 31, 1989
THIS CERTIFIES that, for value received, Corporate Life
Insurance Company, or registered assigns, is entitled to
subscribe for and purchase from Gemco National, Inc. (the
"Corporation") all or any part of 1,000,000 shares of Common
Stock of the Corporation (the "Warrant Shares"), subject to
adjustment from time to time in accordance with Section 3 hereof,
at $2.00 per share (the "Warrant Price"), subject to adjustment
from time to time in accordance with Section 4 hereof and, as
such price may from time to time be so adjusted,(hereinafter
called the "Warrant Price per Share"), at any time or from time
to time on and after the date hereof up to and including March
31, 1997 (such period being hereinafter called the "Exercise
Period") .
SECTION l. Exercise of Warrant. The rights represented by
this Warrant may be exercised by the holder hereof, in whole at
any time or in part from time to time during the Exercise Period,
but not as to a fractional share of common stock, by the
surrender of this Warrant (properly endorsed) at the office of
the Corporation, at 615 Willowbrook Lane, West Chester,
Pennsylvania 19382 (or at such other office of the Corporation in
the United States of America as it may designate by notice in
writing to the holder hereof at the address of such holder
appearing on the books of the Corporation), and by payment to the
Corporation of the Warrant Price per Share for each share being
purchased in cash or by certified check. In the event of any
exercise of the rights represented by this Section 1, a
certificate for the shares of common stock so purchased,
registered in the name of the holder, shall be delivered to the
holder hereof within a reasonable time, not exceeding ten
<PAGE> 04.02.002
business days, after the rights represented by this Warrant shall
have been so exercised; and, unless this Warrant has expired, a
new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the
holder hereof within such time. The certificate for shares of
common stock issued upon exercise of this Warrant may bear
a restrictive legend similar to the legend set forth on the face of
this Warrant if counsel for the Corporation deems such legend to
be necessary under applicable securities laws. The person in
whose name any certificate for shares of common stock is issued
upon exercise of this Warrant shall for all purposes be deemed to
have become the holder of record of such shares on the date on
which this Warrant was surrendered and payment of the Warrant
Price per Share and any applicable taxes was made, irrespective
of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock
transfer books of the Corporation are closed, such person shall
be deemed to have become the holder of such shares at the close
of business on the next succeeding date on which the stock
transfer books are open.
SECTION 2. Covenants as to Common Stock. The Corporation
covenants and agrees that all shares of common stock that may be
issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be validly issued, fully paid and
non-assessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens and charges
with respect to the issue thereof. Without limiting the
generality of the foregoing, the Corporation covenants that it
will take all such other action as may be requisite to assure
that the stated or par value per share of the common stock is at
all times equal to or less than the then effective Warrant Price
per Share of the common stock issuable upon exercise of this
Warrant. The Corporation covenants and agrees that it will at
all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of its common stock to
provide for the exercise of the rights represented by this
Warrant.
SECTION 3. Adjustment of Number of Shares. Upon each
adjustment of the Warrant Price per Share as provided in Section
4, the holder of this Warrant shall thereafter be entitled to
purchase, at the Warrant Price per Share resulting from such
adjustment, the number of shares obtained by multiplying the
Warrant Price per Share in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product
thereof by the Warrant Price per Share resulting from such
adjustment .
<PAGE> 04.02.003
SECTION 4. Adjustment of Warrant Price per Share. The
Warrant Price per Share shall be subject to adjustment from time
to time as follows:
(i) If at any time during the Exercise Period any person
shall be issued or granted the right to purchase or receive any
shares of the Corporation's common stock without consideration or
for a consideration per share less than the Warrant Price per
Share then in effect immediately prior to the issuance or grant
of the right to purchase or receive such shares of common stock,
then, and thereafter successively upon each such new issuance or
grant, the Warrant Price per Share in effect immediately prior to
each such new issuance or sale shall forthwith be reduced to a
price determined by
Dividing
(A) an amount equal to the sum of (I) the total
number of shares of common stock outstanding and issuable upon
the exercise of then outstanding rights immediately prior to such
issuance or grant multiplied by the Warrant Price per Share in
effect immediately prior to such issuance or grant, plus (II) the
consideration, if any, received or receivable by the Corporation
upon such new issuance or grant
By
(B) the total number of shares of common stock
outstanding immediately after such issuance.
(ii) If, at any time during the Exercise Period, the
number of shares of common stock outstanding is increased by a
stock dividend payable in shares of common stock or by a
subdivision or split-up of shares of common stock, then,
immediately following the record date fixed for the determination
of holders of common stock entitled to receive such stock
dividend, subdivision or split-up, the Warrant Price per Share in
effect thereafter shall be determined by multiplying the Warrant
Price per Share times a fraction, the numerator of which is the
number of shares of common stock outstanding immediately prior to
such stock dividend, stock division or split-up on a fully
diluted basis and the denominator of which is the number of
shares of common stock outstanding immediately after such stock
dividend, stock division or split-up on a fully diluted basis.
(iii) If, at any time during the Exercise Period, the
number of shares of common stock outstanding is decreased by a
combination of the outstanding shares of common stock, then,
immediately following the record date for such combination, the
Warrant Price per Share in effect thereafter shall be determined
by multiplying the Warrant Price per Share times a fraction,
the numerator of which is the number of shares of common stock
<PAGE> 04.02.004
outstanding immediately prior to such combination on a fully
diluted basis and the denominator of which is the number of
shares of common stock outstanding immediately after such
combination on a fully diluted basis.
(iv) In case, at any time during the Exercise Period, of
any capital reorganization, or any reclassification of the stock
of the Corporation (other than a change in par value or from par
value to no par value or from no par value to par value or as a
result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the
Corporation with or into another corporation (other than a
consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any change in
the common stock) or of the sale of all or substantially all the
properties and assets of the Corporation as an entirety to any
other corporation or person, this Warrant shall, after such
reorganization, reclassification, consolidation, merger or sale,
be exercisable for the kind and number of shares of stock or
other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been
sold to which such holder would have been entitled if he had held
the common stock issuable upon the exercise hereof immediately
prior to such reorganization, reclassification, consolidation,
merger or sale, The provisions of this clause (vi) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales,
(v) Whenever the Warrant Price per Share shall be
adjusted as provided in this Section 4, the Corporation shall
forthwith prepare a statement showing the facts requiring such
adjustment and the Warrant Price per Share that shall be in
effect after such adjustment, The Corporation shall cause a copy
of such statement to be sent by first class mail, postage
prepaid, to each holder of this Warrant at his address appearing
on the Corporation's records.
(vi) The sale or other disposition of any common stock
theretofore held in the treasury of the Corporation shall be
deemed to be an issuance thereof.
(vii) The Corporation shall pay all documentary, stamp or
other taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon exercise of all or any part
of this Warrant; provided, however, that the Corporation shall
not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the
holder of this Warrant,
<PAGE> 04.02.005
SECTION 5. Transfer of Warrant. This Warrant and all
rights hereunder are transferable, in whole or in part at the
office of the Corporation at 615 Willowbrook Road, West Chester,
Pennsylvania 19382 (or at such other office of the Corporation in
the United States of America as it may designate by notice in
writing to the holder hereof at the address of the holder
appearing on the books of the Corporation) by the holder hereof
in person or by duly authorized attorney, upon surrender of this
Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that
this Warrant, when so endorsed in blank, shall be deemed
negotiable, and, when so endorsed the holder hereof may be
treated by the Corporation and all other persons dealing with
this Warrant as the absolute owner hereof for any purposes and as
the person entitled to exercise tie rights represented by this
Warrant, or to the transfer hereof on the books of the
Corporation any notice to the contrary notwithstanding; but until
each such transfer on such books, the Corporation may treat the
registered holder hereof as the owner hereof for all purposes.
SECTION 6. Exchange of Warrant. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at
the office of the Corporation designated hereunder for new
Warrants of like tenor representing in the aggregate the rights
to subscribe for and purchase the number of shares which may be
subscribed for and purchased hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number
of shares as shall be designated by said holder hereof at the
time of such surrender.
SECTION 7. Fractional Shares. Fractional shares shall not
be issued upon the exercise of this Warrant, but in any case
where the holder hereof would, except for the provisions of this
Section 7, be entitled under the terms hereof to receive a
fraction of a share upon the exercise of this Warrant, the
Corporation shall, upon the exercise of this Warrant, pay a sum
in cash equal to the product obtained by multiplying such
fraction by the fair market value of a share of the Corporation's
common stock as determined in good faith by the Corporation's
Board of Directors.
SECTION 8. Lost, Stolen, Mutilated or Destroyed Warrant.
If this Warrant is lost, stolen, mutilated or destroyed, the
Corporation may, on such terms as to indemnity or otherwise as it
may in its discretion impose (which shall, in the case of a
mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as the Warrant so lost,
stolen, mutilated or destroyed.
SECTION 9. Registration Under Securities Act of 1933.
(a) The Corporation agrees that if, at any time during the
Exercise Period the holder of this Warrant or the Warrant Shares
<PAGE> 04.02.006
who or which shall hold not less than 50% of the Warrants and/or
the Warrant Shares outstanding at such time and not previously
sold pursuant to this Section 5 request that the Corporation file
a registration statement under the Act Covering not less than 50%
of the Warrant Shares outstanding at such time and not so
previously sold, the Corporation will (i) promptly notify each of
the holders of the Warrants and/or the Warrant Shares that such
registration statement will be filed and that the Warrant Shares
which are then held, and/or may be acquired upon the exercise of
the Warrants, by such holders will be included in such
registration statement at such holders' request, (ii) cause such
registration statement to cover all Warrant Shares which it has
been so requested to include, (iii) use its best efforts to cause
such registration statement to become effective as soon as
practicable and (iv) take all other action necessary under any
federal or state law or regulation of any governmental authority
to permit all Warrant Shares which it has been so requested to
include in such registration statement to be sold or otherwise
disposed of, and will maintain such compliance with each such
federal and state law and regulation of any governmental
authority for the period necessary for such holders to effect the
proposed sale or other disposition. The Corporation shall be
required to effect a registration or qualification pursuant to
this Subsection 9(a) on one occasion only.
(b) The Corporation agrees that if, at any time and,
from time to time during the Exercise Period, the Board of
Directors of the Company shall authorize the filing of a
registration statement ( any such registration statement being
hereinafter called a "Subsequent Registration Statement") under
the Act (otherwise than pursuant to Subsection 9(a) hereof, or
other than a registration statement on Form S-B or other form
which does not include substantially the same information as
would be required in a form for the general registration of
securities) in connection with the proposed offer of any of its
securities by it or any of its shareholders, the Corporation
will, (i) promptly notify each of the holders of the Warrants
and/or the Warrant Shares that such Subsequent Registration
Statement will be filed and that the Warrant Shares which are
then held, and/or which may be acquired upon the exercise of the
Warrants, by such holders, will, at such holders' request, be
included in such Subsequent Registration Statement, (ii) include
in the securities covered by such Subsequent Registration
Statement all Warrant Shares which it has been so requested
to include, (iii) use its best efforts to cause such Subsequent
Registration Statement to become effective as soon as practicable
and (iv) take all other action necessary under any federal or
state law or regulation of any governmental authority to permit
all Warrant Shares which it has been so requested to include in
such Subsequent Registration Statement to be sold or otherwise
disposed of, and will maintain such compliance with each such
federal and state law and regulation of any governmental
<PAGE> 04.02.007
authority for the period necessary for the Holder and such
holders to effect the proposed sale or other disposition.
(c) Whenever the Corporation is required pursuant
to the provisions of this Section 9 to include Warrant Shares in
a registration statement the Corporation shall (i) furnish each
holder of any such Warrant Shares and each underwriter of such
Warrant Shares with such copies of the prospectus, including the
preliminary prospectus, conforming to the Act (and such other
documents as each such holder or each such underwriter may
reasonably request) in order to facilitate the sale or
distribution of the Warrant Shares, (ii) use its best efforts to
register or qualify such Warrant Shares under the blue sky laws
(to the extent applicable) of such jurisdiction or jurisdictions
as the holders of any such Warrant Shares and each underwriter of
Warrant Shares being sold by such holders shall reasonably
request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such holders and such
underwriters to consummate the sale or distribution in such
jurisdiction or jurisdictions in which such holders shall have
reasonably requested that the Warrant shares be sold.
(d) The Corporation shall pay all expenses incurred in
connection with any registration or other action pursuant to the
provisions of this Section other than underwriting discounts and
applicable transfer taxes relating to the Warrant Shares.
(e) The Corporation will indemnify the holders of
Warrant Shares which are included in each Subsequent Registration
Statement substantially to the same extent as they would
indemnify an underwriter of a public offering of common stock
pursuant to a customary underwriting agreement and such holders
will indemnify the Corporation with respect to information
furnished by them in writing to the Corporation for inclusion
therein substantially to the same extent as an underwriter would
indemnify a company.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by its duly authorized officers under its
corporate seal.
(SEAL) GEMCO NATIONAL, INC.
Attest :
/s/ D. Ann Harper /s/
<PAGE> 04.02.008
FORM OF SUBSCRIPTION
[To be signed only upon exercise of Warrant]
To Gemco National, Inc.:
The undersigned, the holder of the within Warrant,
hereby irrevocably elects to exercise the purchase right
represented by such Warrant for, and to purchase thereunder,
__________ shares of common stock of Gemco National, Inc, and
herewith tenders payment of $_____ in full payment of the
purchase price for such shares, and requests that the
certificates for such shares be issued in the name of, and
delivered to _________________________________ whose address is
_________________________________________________.
Dated :
(Signature)
(Address)
<PAGE> 04.02.009
FORM OF ASSIGNMENT
[To be signed only upon transfer of this Warrant]
For value received, the undersigned hereby sells,
assigns and transfers unto _____________________________ all
of the rights represented by the within Warrant to purchase
___________ shares of common stock of Gemco National, Inc. to
which the within Warrant relates, and appoints _______________
Attorney to transfer such right on the books of Gemco National,
Inc. with full power of substitution in the premises.
Dated :
(Signature)
(Address)
Signed in the presence of:
_______________________________
<PAGE> 04.03.001
FORM OF ASSIGNMENT
[To be signed only upon transfer of this Warrant]
For value received, the undersigned hereby sells,
assigns and transfers unto CHESTER COUNTY FUND INC. all of
the rights represented by the within Warrant to purchase
1,000,000 shares of common stock of Gemco National, Inc. to
which the within Warrant relates, and appoints _______________
Attorney to transfer such right on the books of Gemco National, Inc.
with full power of substitution in the premises.
Dated: March 5, 1991 Corporate Life Insurance Company
/s/ Charles S. Lunden
(Signature) Charles S. Lunden
Executive Vice President
893 South Matlock St. West Chester, PA
(Address)
Signed in the presence of:
/s/ Thomas W. Alesi
<PAGE> 04.04.001
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
by and among
INVESTORS INSURANCE GROUP, INC.
and
AAM CAPITAL PARTNERS, L.P.
<PAGE> 04.04.002
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
GLOSSARY OF DEFINED TERMS
Term Section Referenced
"Affiliate Transactions" Section 3.29
"Affiliate" Article I
"Affiliated Group" Article I
"Agreement" Introduction
"Board" Article I
"Certificate of Designation" Article I
"Claim" Section 9.2
"Closing" Article I
"Closing Date" Section 7.1
"Code" Article I
"Commission" Article I
"Corporation" Introduction
"Defense Notice" Section 9.2
"Employee Benefit Plans" Section 3.24
"Environmental and Safety Requirements" Article I
"ERISA" Article I
"Exchange Act" Section 4.6
"Financial Statements" Section 3.5
"GAAP" Article I
"IIC" Recitals
-i-
<PAGE> 04.04.003
"Included Assets" Section 3.16
"Indebtedness" Article I
"Indemnities" Section 9.2
"Investments" Section 3.9
"Latest Balance Sheet Date" Article I
"Leased Real Property" Section 3.12
"Lien" Article I
"Material Adverse Effect" Article I
"Material Contracts" Section 3.12
"Permits" Section 3.22
"Permitted Liens" Article I
"Person" Article I
"Plan Affiliate" Section 3.28
"Production Sources" Section 3.30
"Proprietary Rights" Article I
"Purchaser Indemnities" Section 9.2
"Purchasers" Introduction
"Real Property" Section 3.12
"Registration Agreement" Article I
"Reinsurance Treaties" Section 3.13
"Related Agreements" Article I
"Rules" Article I
"SAP" Article I
"Securities Act" Article I
"Series A Preferred Shares" Article I
-ii-
<PAGE> 04.04.004
"Shareholders Agreement" Article I
"Subsidiary" Article I
"Tax" Article I
"Tax Returns" Article I
"Third Party Claim" Section 9.2
"Voting Stock" Article I
-iii-
<PAGE> 04.04.005
INVESTORS INSURANCE GROUP, INC.
Series A Preferred Stock Purchase Agreement
This Series A Preferred Stock Purchase Agreement (this "Agreement")
is made as of April 26, 1996, by and between INVESTORS INSURANCE GROUP,
INC., a Florida corporation (the "Corporation") and each of the parties
listed on the Schedule of Purchasers attached hereto and who execute a
signature page to this Agreement from time to time in accordance with
Section 10.1 below (collectively, the "Purchasers").
RECITALS
A. The Corporation is an insurance holding company owning all
of the issued and outstanding capital stock of Investors Insurance
Corporation, a Delaware life insurance corporation ("IIC"), and Investors
Marketing Group, Inc., a Florida corporation.
B. The Purchasers desires to purchase from the Corporation,
and the Corporation desires to issue and sell to the Purchasers, up to
70,000 shares (but not less than 62,000 shares) of the Corporation's Series
A Preferred Stock, no par value, at a purchase price of $100.00 per share,
for an aggregate purchase price of up to $7,000,000.00.
AGREEMENTS
In consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
ARTICLE I
Definitions
As used in this Agreement:
"Affiliate" as applied to any Person means any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. The term "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to vote 10% or more of the Voting Stock (or in the
case of a Person which is not a corporation, 10% or more of the ownership
interest, beneficial or otherwise) of such Person or otherwise to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of Voting Stock or other ownership interest, by
contract or otherwise. All of the Corporation's executive officers, 10%
shareholders, directors, Subsidiaries, joint ventures and partners shall be
deemed to be Affiliates of the Corporation for purposes of this Agreement.
-1-
<PAGE> 04.04.006
"Affiliated Group" means an affiliated group as defined in Section
1504 of the Code (or analogous combined, consolidated or unitary group
defined under state, local or foreign income Tax law).
"Board" means the Board of Directors of the Corporation.
"Certificate of Designation" means the Certificate of Designation
in the form attached as Exhibit A hereto.
"Closing" means the closing of the sale and purchase of the
Series A Preferred Shares pursuant to this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Environmental and Safety Requirements" means all applicable
federal, state and local laws, rules, regulations, ordinances and
requirements relating to public health and safety, worker health and safety
and pollution and protection of the environment, all as amended or
hereafter amended.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or any
successor authority) that are applicable as the date of determination,
consistently applied.
"Indebtedness" means at a particular time, without duplication,
(a) indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which any Person is liable, contingently
or otherwise, as obligor or otherwise (other than trade payables and other
current liabilities incurred in the ordinary course of business) or any
commitment by which any Person assures a creditor against loss, including
contingent reimbursement obligations with respect to letters of credit, (b)
indebtedness guaranteed in any manner by any Person, including guarantees
in the form of an agreement to repurchase or reimburse, (c) obligations
under capitalized leases in respect of which obligations any Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or
in respect of which obligations any Person assures a creditor against loss
and (d) any unsatisfied obligation of any Person for "withdrawal liability"
to a "multiemployer plan" as such terms are defined under ERISA.
"Latest Balance Sheet Date" shall be December 31, 1995.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the nature thereof),
any sale of receivables with recourse against the Corporation or any
Affiliate, any filing or agreement to file a financing statement as debtor
under the Uniform Commercial Code or any similar statute other than to
-2-
<PAGE> 04.04.007
reflect ownership by a third party of property leased to the Corporation or
any Subsidiaries under a lease which is not in the nature of a conditional
sale or title retention agreement, or any subordination arrangement in
favor of another Person (other than any subordination arising in the
ordinary course of business).
"Material Adverse Effect" means a material adverse effect on the
business, operations, assets or financial condition of a Person taken as a
whole.
"Permitted Liens" means:
(a) Tax liens with respect to Taxes not yet due
or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been
established in accordance with GAAP;
(b) Deposits or pledges made in connection
with, or to secure payment of, utilities or similar
services, workers' compensation, unemployment insurance, old
age pensions or other social security obligations;
(c) Purchase money security interests in any
property acquired by the Corporation or a Subsidiary;
(d) Mechanics', materialmen's or contractors'
liens or encumbrances or any similar lien or restriction;
and
(e) Easements, rights-of-way, restrictions and
other similar charges and encumbrances not interfering with
the ordinary conduct of the business of the Corporation and
its Subsidiaries or detracting from the value of the
Corporation's consolidated assets.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department,
agency or political subdivision thereof.
"Proprietary Rights" means all patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not
reduced to practice); all trademarks, service marks, trade names and
corporate names; all registered and unregistered statutory and common law
copyrights; all registrations, applications and renewals for any of the
foregoing; all trade secrets, confidential information, ideas, formulae,
compositions, know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, improvements, proposals, technical and computer data,
documentation and software, financial, business and marketing plans, and
franchisee, customer and supplier lists and related information
and all other proprietary rights.
"Registration Agreement" means the Registration Rights Agreement by
and between the Corporation and the Purchasers in the form of Exhibit B
attached hereto.
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<PAGE> 04.04.008
"Related Agreements" means the Registration Agreement and the
Shareholders Agreement.
"Rules" means any applicable law, statute, rule, regulation, order,
permit, judgment, ruling, injunction, decree or other decision of any court
or other tribunal or any governmental entity or agency.
"SAP" means the accounting practices prescribed or permitted for
life insurance companies by the Delaware Commissioner of Insurance and by
the insurance laws and regulations of the State of Delaware, as such laws
and regulations may be amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Shares" means shares of the Corporation's
Series A Preferred Stock, no par value, to be sold to the Purchasers
pursuant to this Agreement.
"Shareholders Agreement" means the Shareholders Agreement by and
between the Corporation, the Purchasers and certain shareholders of the
Corporation in the form of Exhibit C attached hereto.
"Subsidiary" means any corporation of which the shares of stock
having a majority of the general voting power in electing the board of
directors are, at the time as of which any determination is being made,
owned by the Corporation either directly or indirectly through
Subsidiaries.
"Tax" means any federal, state, local or foreign income, gross
receipts, premium, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock, social security, unemployment, disability, payroll, license,
employee or other withholding, or other tax, of any kind whatsoever,
including any interest, penalties or additions to tax or additional amounts
in respect of the foregoing; the foregoing shall include any transferee or
secondary liability for a Tax and any liability assumed by agreement or
arising as a result of being (or ceasing to be) a member of any Affiliated
Group (or being included (or required to be included) in any Tax Return
relating thereto).
"Tax Returns" means returns, declarations, reports, claims for
refund, information returns or other documents (including any related or
supporting schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or collection of any
Taxes of any party or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
"Voting Stock" of any Person means securities of any class or
classes of such Person the holders of which are ordinarily, in the absence
of contingencies, entitled to elect a majority of the directors of such
Person.
-4-
<PAGE> 04.04.009
ARTICLE II
Authorization and Sale of Series A Preferred Shares
2.1 Authorization. The Corporation will, prior to the Closing,
(a) cause the Board to adopt, pursuant to authority obtained at the annual
meeting of the Corporation's shareholders on November 17, 1995, the
Certificate of Designation, and (b) authorize the issuance to the
Purchasers of the Series A Preferred Shares.
2.2 Sale of Series A Preferred Shares to the Purchasers. Subject
to the satisfaction of the terms and conditions herein set forth and in
reliance upon the respective representations and warranties of the parties
set forth herein or in any document delivered pursuant hereto, the
Corporation agrees to sell to the Purchasers, free and clear of any Liens,
and the Purchasers agrees to purchase from the Corporation, at the Closing,
up to 70,000 (but not less than 62,000) Series A Preferred Shares for the
aggregate purchase price of up to $7,000,000.00, in the amounts set forth
on the Schedule of Purchasers attached hereto.
2.3 Use of Proceeds. The proceeds from the sale of the Series
A Preferred Shares hereunder shall be used to (i) pay expenses incurred or
to be reimbursed by the Corporation in connection with the transactions
contemplated hereby, (ii) make a capital contribution by the Corporation to
the capital and/or surplus of IIC of at least $5,500,000 and (iii) increase
the capital of the Corporation.
ARTICLE III
Representations and Warranties of the Corporation
As a material inducement to the Purchasers to enter into this
Agreement and to purchase the Series A Preferred Shares hereunder, the
Corporation hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing. The Corporation is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida. The Corporation has the requisite legal and corporate
power and authority to own all the properties owned by it, and to conduct
its business as presently being conducted and as proposed to be conducted
by it. The Corporation is duly qualified to do business in those
jurisdictions listed in Schedule 3.1. The Corporation does not own or
lease property or engage in any activity in any jurisdiction which might
require its qualification to do business as a foreign corporation in any
jurisdiction not listed on Schedule 3.1. Except as set forth on Schedule
3.1, the Corporation does not have any ownership interest in any other
Person.
3.2 Corporate Power. The Corporation has all requisite legal
and corporate power and authority to enter into this Agreement and the
Related Agreements, to issue and sell the Series A Preferred Shares and to
carry out and perform its obligations under the terms of this Agreement and
-5-
<PAGE> 04.04.010
the Related Agreements. Except as set forth in Section 3.3 below, no
permits, approvals or consents of or notifications to (a) any governmental
entities or (b) any other Persons are necessary in connection with the
execution, delivery and performance by the Corporation of this Agreement
and the Related Agreements and the consummation by the Corporation of the
transactions contemplated hereby and thereby.
3.3 Transaction Not a Breach. Neither the execution and
delivery of this Agreement or any of the Related Agreements by the
Corporation nor the performance by it of the transactions contemplated
hereby or thereby will:
(a) violate or conflict with or result in a
breach of any provision of any Rule binding on the
Corporation, any Subsidiary or any of their respective
properties, or conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) constitute a default under the organizational
documents of the Corporation or any Subsidiary, or of any
of the Material Contracts listed or required to be listed
on Schedule 3.12 or the Reinsurance Treaties listed or
required to be listed or Schedule 3.13-A;
(c) constitute an event which would permit any
party to terminate, or accelerate the maturity of any
Indebtedness or other obligation under, any Material
Contract listed or required to be listed on Schedule 3.12
or the Reinsurance Treaties listed or required to be
listed on Schedule 3.13-A;
(d) result in the creation or imposition of any
Lien upon the Corporation's or any Subsidiary's capital
stock or assets; or
(e) require any authorization, consent, approval,
exemption or other action by or notice to any court or
administrative or governmental body pursuant to the
organizational documents of the Corporation or any
Subsidiary or any Rules, except for any filings or
approvals required pursuant to the Delaware Insurance
Holding Company System Registration Chapter, the
California Insurance Holding Company System Regulatory Act
and such filings, authorization orders and approvals as
may be required of state and local governmental
authorities which are specified in Schedule 3.3 hereto.
3.4 Capitalization. Schedule 3.4 sets forth the entire
authorized capital stock and the total number of issued and outstanding
shares of capital stock of the Corporation and each Subsidiary. All of the
outstanding shares of capital stock of the Corporation and each Subsidiary
are validly issued, fully paid and non-assessable and are owned,
beneficially and of record, by those Persons and in the amounts set forth
on Schedule 3.4. Except as set forth on Schedule 3.4, neither the
Corporation nor any Subsidiary: (i) has outstanding any stock or other
securities convertible into or exchangeable for shares of its capital stock
or containing profit participation features, (ii) has outstanding any
options, warrants or rights to subscribe for or to purchase its capital
-6-
<PAGE> 04.04.011
stock or any stock or securities convertible into or exchangeable for its
capital stock, (iii) is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital
stock or any warrants, options or other rights to acquire its capital
stock, (iv) has any voting agreements, voting trusts or other agreements
(including, without limitation, contractual or statutory preemptive rights
or cumulative voting rights), commitments or understandings with respect to
the voting or transfer of its capital stock or (v) owns or holds any rights
to acquire any shares of stock or other security or interest in any other
Person. The Series A Preferred Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and validly
issued, fully paid, non-assessable and free and clear of all Liens.
3.5 Financial Statements. Schedule 3.5 contains the following
financial statements of the Corporation and the Subsidiaries (the
"Financial Statements"):
(a) the audited consolidated financial
statements of the Corporation and its Subsidiaries for the
twelve month period ended December 31, 1995;
(b) the unaudited consolidated financial
statements of the Corporation and its Subsidiaries for the
three month period ended March 31, 1996;
(c) the audited statutory financial statements
of IIC for the twelve month period ended December 31,
1995; and
(d) the unaudited statutory financial
statements of IIC for the three month period ended March
31, 1996.
Each of the Financial Statements is complete and correct in all
material respects, is consistent with the books and records of the
Corporation and the Subsidiaries (which, in turn, are accurate and complete
in all material respects) and fairly presents the Corporation's and the
Subsidiaries' financial condition, assets and liabilities, as applicable,
as of their respective dates and the results of operations and cash flows
for the periods related thereto in accordance with GAAP (or, with respect
to IIC, SAP) consistently applied throughout the periods covered thereby;
except that the unaudited financial statements as listed above lack
footnote disclosure otherwise required by GAAP (or SAP), none of which, if
provided, would reflect a material adverse change in the operations or
financial condition of the Corporation or any Subsidiary.
3.6 Conduct in Ordinary Course. Except as set forth on
Schedule 3.6 or otherwise as specifically provided in this Agreement, since
the Latest Balance Sheet Date, the Corporation and each Subsidiary has
conducted its business only in the ordinary course of business consistent
with past custom and practice, and has incurred no liabilities other than
in the ordinary course of business consistent with past custom and practice
and there has been no material adverse change in the assets, condition
(financial or otherwise), operating results, employee, policyholder or
producer relations or business of the Corporation or any Subsidiary.
Without limitation of the foregoing and except as set forth on Schedule
3.6, since the Latest Balance Sheet Date, neither the Corporation nor any
Subsidiary has:
-7-
<PAGE> 04.04.012
(a) sold, assigned or transferred any of the
assets of its business, except for sales of investments in
the ordinary course of business, or mortgaged, pledged or
subjected them to any Lien, charge or other restriction,
except for Permitted Liens;
(b) sold, assigned, transferred, abandoned or
permitted to lapse any licenses or permits thereof, or any
of the Proprietary Rights or other intangible assets, or
disclosed any material proprietary confidential information
to any person, granted any license or sublicense of any
rights under or with respect to any Proprietary Rights or
waived any other rights of material value except for such
sales, assignments, transfers, abandonments, lapses,
licenses, sublicenses, disclosures or waivers which,
individually or in the aggregate, would not be likely to
have a Material Adverse Effect;
(c) made or granted any material increase in, or
amended or terminated, any existing Employee Benefit Plan
or adopted any new Employee Benefit Plan, or entered into
any new collective bargaining agreement;
(d) conducted its cash management customs and
practices (including the timing of collection of
receivables and payment of payables and other current
liabilities) and maintained its books and records other
than in the usual and ordinary course of business
consistent with past custom and practice;
(e) made any loans or advances to, or guarantees
for the benefit of, or entered into any transaction with
any agent, broker or production source, employee, officer
or director other than in the ordinary course of business;
(f) suffered any extraordinary loss, damage,
destruction or casualty loss to its business, whether or
not covered by insurance and whether or not in the ordinary
course of business;
-8-
<PAGE> 04.04.013
(g) received notification that any material
production source, reinsurer or policyholder will stop or
decrease in any material respect the rate of business done
with the Corporation which has had or is likely to have a
Material Adverse Effect;
(h) received notification that any reinsurer will
increase rates, decrease limits, reduce ceding commissions or
change coinsurance percentages with respect to the terms and
rating structure of any reinsurance or coinsurance agreements
with the Corporation or any Subsidiary, which has had or is
likely to have a Material Adverse Effect;
(i) declared, set aside or paid any dividend or
distribution of cash or other property to any shareholder (in
its capacity as such) or purchased, redeemed or otherwise
acquired any shares of its capital stock, or made any other
payments to any shareholder (in its capacity as such);
(j) amended or authorized the amendment of its
organizational documents;
(k) entered into any other material transaction,
other than in the ordinary course of business consistent with
past custom and practice;
(l) issued any notes, bonds or other debt securities,
or any equity securities, or any securities (debt or equity)
convertible into, exchangeable for or exercisable for any
equity securities;
(m) made any substantial change in the nature of its
investment portfolio; or
(n) committed to do any of the foregoing.
3.7 Litigation and Regulatory Investigations. Except as set
forth in Schedule 3.7, there is no suit, action, proceeding, investigation,
claim, consent decree, agreement with regulatory authorities, unresolved
regulatory inquiry or order pending or, to the knowledge of the Corporation,
threatened against or by the Corporation, any Subsidiary, any Employee Benefit
Plan or the assets thereof (or, to the knowledge of the Corporation, pending
or threatened against any of the officers, directors or key employees of the
Corporation or any Subsidiary with respect to its business or proposed
business activities or against a fiduciary, plan administrator or other person
responsible for an Employee Benefit Plan or the assets thereof), to which the
Corporation, any Subsidiary or any Employee Benefit Plan is a party (as a
defendant, a third party defendant, a plaintiff or a third party plaintiff),
which is likely to have, individually or in the aggregate, a Material Adverse
Effect, before any court, or before any governmental department, commission,
board, agency, or instrumentality; nor, to the knowledge of the Corporation,
is any such action, proceeding or investigation more likely than not to occur.
Except as set forth on Schedule 3.7, neither the Corporation, any Subsidiary
nor any Employee Benefit Plan is subject to any judgment, order or decree of
any court or governmental agency; none of the Corporation, any Subsidiary nor
any Employee Benefit Plan has received any written opinion or memorandum from
legal counsel retained by the Corporation, any Subsidiary or an Employee
-9-
<PAGE> 04.04.014
Benefit Plan to the effect that any of them is exposed, from a legal
standpoint, to any material liability which is likely to have a Material
Adverse Effect; and none of the Corporation, any Subsidiary nor any Employee
Benefit Plan is engaged in any legal action to recover monies due it or for
damages sustained by it.
3.8 Absence of Undisclosed Liabilities. Neither the Corporation
nor any Subsidiary has any material debts, liabilities or obligations of any
nature (whether accrued, absolute, contingent, direct, indirect, perfected,
inchoate, unliquidated or otherwise and whether due or to become due) arising
out of transactions entered into at or prior to the Closing, or any
transaction, series of transactions, action or inaction at or prior to the
Closing, or any state of facts or condition existing at or prior to the
Closing (regardless of when such liability or obligation is asserted),
including but not limited to liabilities or obligations on account of Taxes or
governmental charges or penalties, interest or fines thereon or in respect
thereof, except (a) to the extent specifically reflected and accrued for or
reserved against in the Financial Statements, (b) for liabilities specifically
delineated on Schedule 3.8, or (c) as of the Closing, for liabilities and
obligations which have arisen after the Latest Balance Sheet Date in the
ordinary course of business consistent with past custom and practice (none of
which is a liability resulting from breach of contract, breach of warranty,
tort, infringement, claim or lawsuit).
3.9 Investments. IIC's 1995 Annual Statement, previously provided
to Purchasers, hereto contains a complete list of all stocks, bonds or other
securities, or any other equity or proprietary interest in any corporation,
partnership, joint venture, business enterprise or other entity of any nature
whatsoever, owned, directly or indirectly, by IIC (collectively, the
"Investments") as of December 31, 1995. Schedule 3.9 sets forth a complete
list of any changes in the IIC Investments since December 31, 1995. Except as
disclosed in Schedule 3.9, all of the Investments constitute admitted assets
on IIC's Financial Statements.
3.10 Reserves. Without limiting the generality of Section 3.5,
all information made available by the Corporation to the Purchasers with
respect to the determination of the policy and contract reserves and other
liabilities of IIC is true, correct and complete in all material respects.
The policy and contract reserve and liability amounts presented in IIC's
Financial Statements (i) are computed in accordance with commonly accepted
actuarial standards consistently applied and are fairly stated in accordance
with sound actuarial principles; (ii) are based on actuarial assumptions which
are in accordance with or more conservative than those typically applied by
the actuarial profession for similar lines of business; and (iii) meet the
adequacy and other requirements of the insurance laws of the State of Delaware
in all material respects.
3.11 Taxes. Except as reserved for on the Financial Statements,
all Taxes due and payable by the Corporation and each Subsidiary have been
paid in full. The liability for Taxes of the Corporation and each Subsidiary
reflected in the Financial Statements is sufficient in all material respects
to provide for all interest, penalties, assessments or deficiencies which, as
of the date hereof, were due and unpaid and the appropriate accrual for other
unpaid Taxes not yet due. The Corporation and each Subsidiary has timely
filed all federal, state, county, local and foreign tax returns which it is
required to have filed, and such returns are complete and correct in all
material respects. Any deficiencies proposed as a result of any governmental
-10-
<PAGE> 04.04.015
audits have been paid or settled, and there are no present disputes as to
Taxes payable by the Corporation or any Subsidiary. There are no unexpired
waivers by the Corporation or any Subsidiary of any statute of limitations
with respect to any Taxes, and neither the Corporation nor any Subsidiary is a
party to any action or proceedings by any governmental authority for the
collection or assessment of Taxes.
3.12 Material Contracts. Schedule 3.12 is a correct and complete
list of every material contract, agreement, covenant not-to-compete,
relationship or commitment, written or oral, to which the Corporation or any
Subsidiary is a party or by which it is bound which requires aggregate future
payments in excess of $100,000, including leases for the Leased Real Property
and for the leased personal property described in Section 3.14 below, but
excluding (i) direct insurance policies or contracts issued by IIC in the
ordinary course of business to parties unrelated to the Corporation or its
Affiliates, and (ii) reinsurance treaties and agreements whereby IIC is a
cedant (addressed in Section 3.13 hereof) (the "Material Contracts"). Schedule
3.12 further includes an indication as to which of the Material Contracts
involve (as a party or otherwise) a member of IIC's "Insurance Holding Company
System" (as such term is defined in Section 5001 of the Delaware Insurance
Holding Company System Registration Chapter). Correct and complete copies of
the Material Contracts previously have been furnished to the Purchasers.
Neither the Corporation nor any Subsidiary is in default, nor has any event
occurred which with the giving of notice or the passage of time or both would
constitute a default, under any Material Contract or any other obligation
owed by the Corporation or any Subsidiary, which default would, either
individually or together with such other defaults, have a Material Adverse
Effect, and, to the knowledge of the Corporation, no event has occurred which
with the giving of notice or the passage of time or both would constitute a
default by any other party to any such Material Contract or obligation.
3.13 Reinsurance Treaties and Agreements. Schedule 3.13 hereto
contains a list of all reinsurance treaties or agreements (including
facultative agreements) whereby IIC has ceded any liability or potential
liability relating to any insurance policy and under which IIC may recover
with respect to currently pending or future claims submitted to it
("Reinsurance Treaties"). True and complete copies of all Reinsurance
Treaties, as amended to date, have been provided to the Purchasers. All
Reinsurance Treaties are in full force and effect and are enforceable in
accordance with their terms. Neither IIC nor any other party to the
Reinsurance Treaties is in default or alleged to be in default under the terms
of thereof, and there exists no condition which, after notice or lapse of time
or both, would constitute a default thereunder. IIC has given all notice
required under the Reinsurance Treaties with respect to claims submitted to
IIC. Except as provided for in the Financial Statements, or as disclosed in
Schedule 3.13 hereto, all reinsurance represented by the Reinsurance Treaties
is fully and absolutely collectible and represents an admitted asset or a
contra-liability of IIC. Except as disclosed in Schedule 3.13, neither the
Corporation nor IIC believes or has notice that any party to any of the
Reinsurance Treaties will be unable or unwilling to meet its contractual
obligations to the Corporation. Except as specifically indicated in Schedule
3.13, no consent from any assuming reinsurer under any of the Reinsurance
Treaties is required in order for the Corporation to validly and effectively
sell the Series A Preferred Shares to the Purchasers as provided hereunder.
The consummation of the transactions which are to take place at the Closing
will not affect IIC's rights under the Reinsurance Treaties or result in the
cancellation or termination of any of the Reinsurance Treaties.
-11-
<PAGE> 04.04.016
3.14 Real Property. Neither the Corporation nor any Subsidiary
owns any real property. All leases of real property leased or used by the
Corporation and the Subsidiaries and utilized in their respective businesses,
including all such leases with related parties or Affiliates, are listed on
Schedule 3.14, correct and complete copies of which previously have been
furnished to the Purchaser. Except as set forth on Schedules 3.12 and 3.14,
neither the lessee, nor to the knowledge of the Corporation, the lessor, is in
default under any of the leases to which the Corporation or any Subsidiary is
a party and no event has occurred which with the giving of notice or the
passage of time or both could constitute a default by lessee under any of such
leases. To the knowledge of the Corporation, neither the lessor nor the
lessee is in default under any of the leases for real property used by the
Corporation or any Subsidiary and no event has occurred which with the giving
of notice or the passage of time or both could constitute a default
by lessee under any of such leases.
3.15 Personal Property. Schedule 3.15 is a correct and complete
list of (a) all fixed assets owned or leased by, in the possession of, or used
by the Corporation or the Subsidiaries in connection with their respective
businesses and (b) all other tangible and intangible personal property, rights
and assets owned or leased by, in the possession of, or used by the
Corporation or the Subsidiaries in connection with their respective
businesses, in each case which have a current fair market value in excess of
$25,000 individually or, with respect to similar or related properties $50,000
in the aggregate, and are material to the operation of the Corporation's or
any Subsidiary's business (except property sold or otherwise disposed of in
the ordinary course of business consistent with past custom and practices and
except inventory and Proprietary Rights), which list indicates the location of
such items. Either the Corporation or a Subsidiary has good and marketable
title to, or a valid leasehold interest in, each item listed on Schedule 3.15,
in each case, free and clear of any Liens, except for Liens for current
property taxes not yet due and payable and Liens disclosed on Schedule 3.15.
The property listed on Schedule 3.15 constitutes all tangible or intangible
property, rights and assets necessary for the conduct by the Corporation
and the Subsidiaries of their respective businesses as now conducted or
currently proposed to be conducted. Such personal property is in good
condition and repair and none of such personal property requires any repair or
replacement except for maintenance in the ordinary course of business. Except
as set forth in Schedule 3.15, none of the personal property listed on
Schedule 3.15 is held under any lease, security agreement, conditional sales
contract or other title retention or security arrangement or is located other
than on the premises of the Corporation or a Subsidiary.
3.16 Title to Assets. The assets of IIC ("Included Assets")
consist of all of the assets reflected in the Financial Statement of IIC dated
as of December 31, 1995, other than assets liquidated or disposed of in the
ordinary course of IIC's business after December 31, 1995, and assets acquired
in the ordinary course of IIC's business since December 31, 1995. All
assets which are not reflected on the balance sheet contained in IIC's
December 31, 1995 Financial Statement are described in Schedule 3.16 hereto.
At the date of the Closing, IIC will have good and absolute title to all of
the Included Assets, free and clear of all liens, claims and encumbrances, and
free and clear of all restrictions on sale or transfer, including any
conditional sale or other title retention agreement, or rights of first
refusal, except for (i) liens with respect to current taxes not delinquent,
(ii) such limitations, restrictions and encumbrances as arise by law or
regulation with respect to assets on deposit with regulatory authorities and
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<PAGE> 04.04.017
(iii) as disclosed in Schedule 3.16.
3.17 Compliance with Applicable Laws and Regulations. Except
as disclosed in Schedule 3.17 neither the Corporation nor any Subsidiary is in
violation of any law, rule, regulation, licensing, requirement, consent decree
or order applicable to it or the conduct, ownership, use, occupancy or
operation of its business or the Real Property, which violation would have a
material adverse effect on the financial condition or results of operation of
the Corporation or any of its Subsidiaries, nor has the Corporation or any
Subsidiary received notice (written or oral) of any such violation thereof.
True and complete copies of all agreements with insurance producers, agents,
brokers, third party administrators, managing general agents, reinsurance
intermediaries, underwriting agents or adjusters, as amended to date, have
been provided to the Purchasers. The terms and conditions of all such
agreements are in material compliance with applicable law and regulation, and,
where required by law or regulation, have been filed with and approved by
appropriate regulatory authorities. Each insurance policy form, certificate
of insurance and application form, and all written advertising materials,
illustrations and rates in use by IIC, the use or issuance of which requires
filing or approval, have been appropriately filed (whether by IIC or by an
appropriate rating bureau to which IIC belongs) with, and if necessary
approved by, the Delaware Department of Insurance, the department of
insurance in other jurisdictions in which IIC operates and/or any and all
other applicable regulatory agencies. All such rates, policy forms,
certificates, applications and advertising materials are in material
compliance with all applicable insurance laws, rules and regulations.
3.18 Intellectual Property. Schedule 3.18 contains a complete
and correct list of all registered Proprietary Rights owned by the Corporation
or any Subsidiary and all pending applications for the registration of other
Proprietary Rights owned or filed by the Corporation or any Subsidiary.
Schedule 3.18 also contains a complete and correct list of all trade or
corporate names used by the Corporation or any Subsidiary and a complete
and correct list of all licenses and other rights granted by the Corporation
or any Subsidiary to any third party with respect to Proprietary Rights and
licenses and other rights granted by any third party to the Corporation or any
Subsidiary. Except as set forth on Schedule 3.18, to the best of the
Corporation's knowledge, (a) each of the Corporation and the Subsidiaries owns
and possesses all right, title and interest in and to, or has a valid license
to use, all of the Proprietary Rights necessary for the operation of its
business as presently conducted; (b) no claim by any third party contesting
the validity, enforceability, use or ownership of any such Proprietary Rights
has been made, is currently outstanding or, to the knowledge of the
Corporation, threatened, and, to the knowledge of the Corporation, there is no
reasonable basis for any such claim; (c) neither the Corporation, any
Subsidiary nor any registered agent of the Corporation or any Subsidiary has
received any notices of, nor is aware of any reasonable basis for an
allegation of, any infringement or misappropriation by, or conflict with, any
third party with respect to such Proprietary Rights, nor has the Corporation,
any Subsidiary or any registered agent of the Corporation or any Subsidiary
received any claims of infringement or misappropriation of or other conflict
with any Proprietary Rights of any third party; and (d) neither the
Corporation nor any Subsidiary has infringed, misappropriated or otherwise
violated any Proprietary Rights of any third parties, and is not aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the Corporation's or any Subsidiary's business as
presently conducted or as currently proposed by the Corporation or any
Subsidiary to be conducted.
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<PAGE> 04.04.018
3.19 No Illegal Payments. Since March 31, 1989, and to the
Corporation's knowledge at any time preceding March 31, 1989, neither the
Corporation nor any Subsidiary has made or committed to make any payments for
illegal political contributions or made any bribes, kickback payments or other
illegal payments.
3.20 Insurance Policies. Schedule 3.20 is a correct and complete
list and description, including policy numbers, of all self-insurance programs
and insurance policies owned by the Corporation and the Subsidiaries, correct
and complete copies of which policies have previously been delivered to the
Purchaser. Such policies are in full force and effect, and neither the
Corporation nor any Subsidiary is in default under any of them. Neither the
Corporation nor any Subsidiary has received any notice of cancellation or
intent to cancel or increase or intent to increase premiums with respect to
such insurance policies nor, to the knowledge of the Corporation, is there any
basis for any such action. Schedule 3.20 also contains a list of all pending
claims with any insurance company and any instances within the previous three
years of a denial of coverage of the Corporation or any Subsidiary by any
insurance company.
3.21 Bank Accounts. Schedule 3.21 is a complete and correct list
of each bank in which the Corporation or any Subsidiary has an account or safe
deposit box, the number of each such account or box and the names of all
persons authorized to draw thereon or to have access thereto.
3.22 Licenses and Permits. The Corporation and each Subsidiary
holds, all the permits, licenses, franchises and approvals of governmental
authorities and agencies necessary or desirable for the current conduct,
ownership, use, occupancy or operation of its business or the Real Property,
all of which are identified on Schedule 3.22 (the "Permits"). The Corporation
and each Subsidiary is in compliance in all material respects with such
Permits, all of which are in full force and effect, and neither the
Corporation nor any Subsidiary has received any notices (written or oral) to
the contrary.
3.23 Regulatory Authority of IIC. IIC has all regulatory authority
necessary to carry on its business as currently conducted. The Purchasers
previously have been provided with an accurate copy of the Company's current
Certificate of Authority from the State of Delaware. Such Certificate of
Authority is valid and effective, and IIC currently has all of the authority
specified therein. Schedule 3.23 hereto contains a list of all jurisdictions
in which IIC is authorized or eligible to conduct its insurance business
and/or maintains a valid and effective Certificate of Authority from the
applicable insurance regulatory departments, indicating the extent of such
authority, and any date upon which such authority is subject to expiration
without regulatory action. Schedule 3.23 contains a list of all jurisdictions
in which applications for new or amended licenses, Certificates of Authority
or other eligibility for IIC are pending, and a description of the current
status of each. Except as disclosed in Schedule 3.23, IIC (i) has not had any
license, Certificate of Authority, eligibility or other governmental or
regulatory authorization, approval or listing, or application therefor,
denied, revoked, suspended or limited, and (ii) has not received any notice
from any governmental or regulatory authority of any specific fact or
condition which remains uncured and which, if left uncured, could result in
the denial, revocation, suspension, limitation or non-renewal of any license,
Certificate of Authority, eligibility, approval or listing. The information
presented in Schedule 3.23 is a true, complete and accurate summary of all
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<PAGE> 04.04.019
insurance regulatory authority currently possessed by IIC.
3.24 Employee Benefit Plans. Except as set forth in Schedule
3.24, neither the Corporation nor any Plan Affiliate has maintained,
sponsored, adopted, made contributions to or obligated itself to make
contributions to or to pay any benefits or grant rights under or with respect
to any "Employee Pension Benefit Plan" (as defined in Section 3(2) of ERISA),
"Employee Welfare Benefit Plan" (as defined in Section 3(1) of ERISA),
"multi-employer plan" (as defined in Section 3(37) of ERISA), plan of deferred
compensation, medical plan, life insurance plan, long-term disability plan,
dental plan or other plan providing for the welfare of any of the
Corporation's or any Subsidiary's employees or former employees or
beneficiaries thereof, personnel policy (including but not limited to vacation
time, holiday pay, bonus programs, moving expense reimbursement programs and
sick leave), excess benefit plan, bonus or incentive plan (including but not
limited to stock options, restricted stock, stock bonus and deferred bonus
plans), salary reduction agreement, change-of-control agreement, employment
agreement, consulting agreement or any other benefit, program or contract
(collectively, "Employee Benefit Plans"), whether or not written or pursuant
to a collective bargaining agreement, which could give rise to or result in
the Corporation or such Plan Affiliate having any debt, liability, claim or
obligation of any kind or nature, whether accrued, absolute, contingent,
direct, indirect, known or unknown, perfected or inchoate or otherwise and
whether or not due or to become due. Correct and complete copies of all
Employee Benefit Plans previously have been furnished to the Purchasers. The
Employee Benefit Plans are in substantial compliance with governing documents
and agreements and with applicable laws.
3.25 Health, Safety and Environment. To the best of the
Corporation's knowledge, no facts, events or conditions with respect to the
past or present operations or facilities of the Corporation, any Subsidiary or
their respective businesses exist which could reasonably be expected to
interfere with or prevent continued compliance with, or could give rise to any
common law or statutory liability or otherwise form the basis of any claim,
action, suit, proceeding, hearing or investigation against or involving the
Corporation, any Subsidiary or their respective businesses under any
Environmental and Safety Requirement based on any such fact, event or
circumstance, including, without limitation, liability for cleanup costs,
personal injury or property damage.
3.26 Salaries. Schedule 3.26 is a true, complete and correct list
setting forth as of the Latest Balance Sheet Date (i) the names and current
compensation rate and compensation of all individuals employed by the
Corporation or any Subsidiary on a salaried basis whose base salary and bonus
was, or will be, in the aggregate in excess of $50,000 per annum, (ii) the
names and current compensation rate of all individuals employed by the
Corporation or any Subsidiary on an hourly or piecework basis and (iii) the
names and total annual compensation paid by the Corporation or any Subsidiary
for all production sources or other independent contractors who render
services on a regular basis to the Corporation or any Subsidiary whose current
annual compensation paid by the Corporation or any Subsidiary is in excess of
$50,000. Except as set forth in Schedule 3.26, no person listed thereon will
have received any bonus or increase in compensation since the Latest Balance
Sheet Date, and there has been no "general increase" in the compensation or
rate of compensation payable to any employees of the Corporation or any
Subsidiary since such date, nor since that date has there been any promise to
the employees listed on Schedule 3.26 orally or in writing of any bonus or
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<PAGE> 04.04.020
increase in compensation, whether or not legally binding, except for increases
in the ordinary course of business consistent with past compensation practices
and obligations incurred under existing bonus, insurance, pension or other
employee benefit plans described on Schedule 3.24. Since the Latest Balance
Sheet Date there has not been any other material change in the information
disclosed in Schedule 3.26.
3.27 Personnel Agreements, Plans and Arrangements. Except as
listed in Schedule 3.26 and 3.27, neither the Corporation nor any Subsidiary
is a party to or obligated in connection with its business with respect to any
(a) outstanding contracts with current or former employees, agents, brokers,
reinsurers, intermediaries, consultants, advisers, sales representatives,
independent contractors, or dealers, or (b) collective bargaining agreements
or contracts with any labor union or other representative of employees or any
employee benefits provided for by any such agreement, correct and complete
copies of which previously have been furnished to the Purchasers. Except as
set forth in Schedule 3.27, no strike, union organizational activity,
allegation, charge or complaint of employment discrimination or other similar
occurrence has occurred or is pending or, to the knowledge of the Corporation,
threatened against the Corporation or any Subsidiary, nor does the Corporation
know any basis for any such allegation, charge, or complaint. To the
knowledge of the Corporation, the Corporation and each Subsidiary has complied
in all material respects with all applicable laws relating to the employment
of labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and
other taxes. Except as set forth in Schedule 3.27, there are no
administrative charges or court complaints pending or, to the knowledge of the
Corporation, threatened against the Corporation or any Subsidiary before the
U.S. Equal Employment Opportunity Commission or any state or federal court or
agency concerning alleged employment discrimination or any other matters
relating to the employment of labor.
3.28 Workers Compensation. To the knowledge of the Corporation,
Schedule 3.28 sets forth all expenses, obligations, duties and liabilities
relating to any claims by employees and former employees (including dependents
and spouses) of the Corporation or any Subsidiary or any Person with whom the
Corporation or a Subsidiary constitutes all or part of a controlled group (as
defined) in Section 5.15 of the Code ("Plan Affiliate") (or predecessors) made
since January 1, 1995, and the extent of any specific accrual on or reserve
therefor set forth on the Financial Statements, for (a) costs, expenses and
other liabilities under any workers compensation laws, regulations,
requirements or programs and (b) any other medical costs and expenses. Except
as set forth on Schedule 3.28, to the knowledge of the Corporation, no claims,
injuries, fact, event or condition exists which would give rise to a material
claim by employees and former employees (including dependents and spouses) of
the Corporation or Plan Affiliates under any workers compensation laws,
regulations, requirements or programs or for any other medical costs and
expenses.
3.29 Affiliate Transaction. Schedule 3.29 sets forth the parties
to and the date, nature and amount of each transaction involving the transfer
of any cash, property or rights to or from the Corporation or any Subsidiary
from, to or for the benefit of any Affiliate or former Affiliate of the
Corporation or any Subsidiary ("Affiliate Transactions") during the period
commencing January 1, 1992 through the date hereof and any existing
commitments of the Corporation or any Subsidiary to engage in the future in
any Affiliate Transactions. Each Affiliate Transaction was effected on terms
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<PAGE> 04.04.021
no less favorable to the Corporation or any Subsidiary than those which would
have been established in an arms-length negotiation, except as disclosed on
Schedule 3.29.
3.30 Production Sources. Except as set forth on Schedule 3.30,
neither the Corporation nor any Subsidiary has ever treated any of its
independent producers, agents or brokers ("Production Sources") as an employee
for any period and has never been required to file any federal tax returns for
any of the Production Sources. Furthermore, the Corporation represents and
warrants that the information provided to the Purchasers relating to the
relationship between the Corporation, the Subsidiaries and the Production
Sources set forth on Schedule 3.30 is complete and accurate in all respects.
3.31 Interest in Production Sources, etc. Except as set forth
in Schedule 3.31, neither the Corporation nor any of its Affiliates has any
direct or indirect interest in any of the Corporation's or any Subsidiary's
competitors, production sources, reinsurers or policyholders or in any Person
from whom or to whom the Corporation leases any real or personal property
in any other Person with whom the Corporation has any business relationship.
3.32 No Misrepresentation. None of the representations and
warranties of the Corporation set forth in this Agreement, in any of the
certificates, schedules, lists, documents, exhibits, or other instruments
delivered, or to be delivered, to the Purchasers as contemplated by any
provision hereof (including, without limitation, the Related Agreements),
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading. To the knowledge of the Corporation, there is no material fact
which has not been disclosed to the Purchasers which materially adversely
affects or could reasonably be anticipated to materially adversely affect its
business or the Corporation's ability to consummate the transactions
contemplated hereby.
ARTICLE IV
Representations and Warranties of the Purchasers
As a material inducement to the Corporation to enter into this
Agreement and to sell the Series A Preferred Shares hereunder, each Purchaser
hereby represents and warrants to the Corporation, solely with respect to
itself, as follows:
4.1 Organization and Standing. Such Purchaser is a limited
partnership or a corporation, as applicable, duly organized, validly existing
and in good standing under the laws of its state of incorporation.
4.2 Authorization; Power. Such Purchaser has all requisite
legal power to enter into this Agreement and the Related Agreements, and to
carry out and perform its obligations under the terms of this Agreement and
the Related Agreements. All action on the part of such Purchaser, its general
partner and the directors and shareholders of its general partner or its
directors and shareholders, as applicable, necessary for the authorization,
execution, delivery and performance by such Purchaser of this Agreement and
the Related Agreements, and the consummation of the transactions contemplated
hereby and thereby, and for the authorization, issuance and delivery of the
Series A Preferred Shares, has been taken. This Agreement and the Related
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<PAGE> 04.04.022
Agreements are legal, valid and binding obligations of such Purchaser,
enforceable against such Purchaser in accordance with their terms.
4.3 No Violation. Neither the execution and delivery of this
Agreement and the Related Agreements, the consummation of the transactions
provided for herein and therein or contemplated hereby and thereby, nor the
fulfillment by such Purchaser of the terms hereof or thereof, will (with or
without notice or passage of time or both) (a) conflict with or result in a
breach of any provision of the limited partnership agreement or the
certificate of limited partnership or the charter documents, as applicable, of
such Purchaser, (b) result in a default, give rise to any right of
termination, cancellation or acceleration, or require any consent or approval
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, loan, license, agreement, lease or other instrument or obligation
to which such Purchaser is a party or by which it or any of its assets may be
bound or (c) violate any Rules.
4.4 Purchase for Investment. Such Purchaser will acquire the Series
A Preferred Shares, for investment and not with a view to distribute all or
any part thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act. Such Purchaser acknowledges that
the Series A Preferred Shares have not been registered under the Securities
Act and, except as provided in the Registration Agreement, the Corporation is
under no obligation to file a registration statement with the Commission with
respect to the Series A Preferred Shares.
4.5 Purchaser Qualifications. Such Purchaser is an "accredited
investor" as such term is defined under Rule 501 adopted by the Commission
under the Securities Act.
4.6 Future Disposition. Such Purchaser will not, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any of the Series A Preferred Shares (or solicit any offers to buy,
purchase, or otherwise acquire or take a pledge of any of the Series A
Preferred Shares), except in compliance with the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations under the Securities Act and the Exchange Act.
ARTICLE V
Pre-Closing Covenants
During the period from the date of this Agreement and continuing until
the Closing, each of the parties hereto respectively agrees that (except as
expressly contemplated or permitted by this Agreement or the Related
Agreements or to the extent that the Purchasers or the Corporation, as the
case may be, shall otherwise consent in writing):
5.1 No Transfer or Inconsistent Action. The Corporation shall
not sell, transfer or otherwise dispose of or in any way encumber any shares
of its capital stock or take any action inconsistent with the approval and
consummation of this Agreement or the Related Agreements or the transactions
contemplated hereby and thereby.
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<PAGE> 04.04.023
5.2 Conduct of Business in Ordinary Course. The Corporation
and the Subsidiaries shall carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use all reasonable efforts to preserve intact its present
business organization, keep available the services of their present officers
and employees and preserve their relationships with policyholders, producers,
reinsurers and others having business dealings with them, to the end that
their goodwill and ongoing businesses shall not be impaired in any material
respect at the Closing. Specifically, except in the ordinary course of
business, as required by any Rules, as required by contractual obligations
existing on the date hereof, or as specifically required by this Agreement:
(a) neither the Corporation nor any Subsidiary will
(i) increase in any manner the base compensation of, or enter
into any new bonus or incentive agreement or arrangement with,
any of employees, (ii) pay or agree to pay any additional
pension, retirement allowance or other employee benefit to any
such employee, whether past or present, (iii) enter into any
new employment, severance, consulting, or other compensation
agreement with any existing employee, or (iv) otherwise amend
or enter into a new Employee Benefit Plan or amend or enter
into a new collective bargaining agreement;
(b) the Corporation and the Subsidiaries will (i)
maintain all the Real Property owned, used or leased by any of
them in good repair, order and condition (without making any
material alterations thereto), (ii) maintain and keep in full
force existing insurance, (iii) maintain all licenses,
qualifications and authorizations to do business in each
jurisdiction in which they are so licensed, qualified or
authorized, (iv) maintain their records in the usual, regular
and ordinary manner on a basis consistent with past practices,
(v) maintain current underwriting, investment, actuarial,
financial reporting and accounting practices and policies, and
the assumptions underlying such practices and policies, and
the current methods of calculating any bad debt, contingency
or other reserve for financial reporting purposes or for other
accounting purposes (including, without limitation, any
practice, policy, assumption or method relating to or
affecting the determination of investment income, reserves or
other similar amounts or operating ratios with respect to
expenses, losses or lapses), and (vi) perform and comply with
their respective obligations under all the Material Contracts;
(c) IIC will (i) maintain its investment portfolio in
a manner consistent with current practices, (ii) cause all
reserves and other similar amounts with respect to the
insurance and annuity policies and contracts established or
reflected on IIC's Financial Statements to be (A) established
and reflected on an basis consistent with those reserves and
other similar amounts and reserving methods followed by IIC at
December 31, 1995 (B) good, sufficient and adequate (under
GAAP) to cover the total amount of all reasonably anticipated
matured and unmatured benefits, dividends, losses, claims,
expenses and other liabilities of IIC under all insurance and
annuity policies and contracts pursuant to which IIC has or
will have any liability (including, without limitation, any
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<PAGE> 04.04.024
liability arising under or as a result of any reinsurance,
coinsurance or other similar contract); and (iii) continue to
own assets that qualify as legal reserve assets under all
applicable insurance Rules in an amount at least equal to the
required reserves of IIC and other similar amounts;
(d) IIC will not: (i) appoint any general agents or
otherwise delegate any substantial business functions or
operations (except as a function or operation already may be
delegated), or (ii) revise or alter any existing reinsurance
or coinsurance agreement;
(e) neither the Corporation nor any Subsidiary will
(i) sell, lease, transfer or otherwise dispose of any of its
assets, (ii) create or permit to exist any new Lien on its
assets, (iii) enter into any joint venture, partnership or
other similar arrangement or form any other new arrangement
for the operation of its assets, (iv) make any new commitments
for capital expenditures, (v) issue any notes, bonds or other
debt securities, or any equity securities, or any securities
(debt or equity) convertible into, exchangeable for or
exercisable for any equity securities; and
(f) the Corporation and the Subsidiaries will comply
with all Rules (other than Rules being contested in good faith
by appropriate proceedings) except in those instances in which
the failure to comply with such Rule is not reasonably likely,
individually or in the aggregate, to have a Material Adverse
Effect.
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<PAGE> 04.04.025
5.3 No Breach of Representations, Warranties or Covenants. No
party hereto shall undertake any action or fail to take any action that will
result in a breach of the representations, warranties and covenants hereto
made by such party, and such representations, warranties and covenants shall
be made again as of the Closing (except for representations or warranties that
are made by their terms as of a specified date, which shall be true and
correct in all material respects as of the specified date).
5.4 Public Announcements. No party will issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the transactions contemplated hereby; provided, however,
that nothing herein will prohibit any party from issuing or causing
publication of any such press release or public announcement to the extent
that such party determines such action to be required by law, in which case
the party making such determination will, if practicable in the circumstances,
use reasonable efforts to allow the other parties reasonable time to comment
on such release or announcement in advance of its issuance. To the extent
feasible, all press releases or other announcements or notices regarding the
transactions contemplated by this Agreement shall be made jointly by the
parties.
5.5 No Solicitations. No party hereto shall, nor shall any of
them authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by any of them to, solicit, initiate or encourage
(including by way of furnishing information), or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving the
Corporation or any Subsidiary, or any proposal or offer to acquire in any
manner a material equity interest in, or a material portion of the assets of,
the Corporation or any Subsidiary, other than the transactions contemplated by
this Agreement or agree to or endorse any such proposal, or engage in any
negotiations or discussions with any person relating to any such proposal.
Each party shall promptly advise the other parties orally and in writing of
any inquiries regarding, or offers of, any such proposal.
5.6 Advise of Changes; Filings. The parties hereto shall
promptly advise one another orally and in writing of any change or event
having, or which, insofar as can reasonably be foreseen, could have, a
Material Adverse Effect on the Corporation or any Subsidiary. The parties
shall promptly make available copies of all filings made with any state,
federal or local governmental entity in connection with this Agreement and
the transactions contemplated hereby and thereby, including, but not limited
to, any materials submitted in connection with the Delaware Insurance Holding
Company System Registration Chapter and the California Insurance Holding
Company System Regulatory Act.
5.7 Regulatory Filings. As soon as possible following the
execution and delivery of this Agreement, each party shall make such filings
and registrations, and provide such notices as may be required to consummate
the transactions contemplated in this Agreement, including, but not limited
to, filings or registrations for consent or approval of the Delaware and
California Departments of Insurance and the departments of insurance of any
other states which the parties hereto may determine. Thereafter, each party
shall file or cause to be filed as promptly as practicable all related
requested supplemental information. The parties hereto will make such
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<PAGE> 04.04.026
filings and use all reasonable efforts to obtain the governmental approvals
referred to in Section 3.3. The Corporation and its Subsidiaries shall
provide the Purchasers with any information the Purchasers reasonably may
request in connection with the filings, registrations and notices described
above.
5.8 Best Efforts. The parties will use their best efforts, to
secure fulfillment of all of the conditions precedent to the parties
obligations hereunder.
5.9 Financing; Due Diligence Upon the Corporation's request,
Purchasers agree to provide the corporation with a written report of the
status of its financing efforts (as set forth in Section 6.12 below) and of
the status and results of its due diligence (as set forth in Section 6.7
below).
ARTICLE VI
Conditions Precedent to the Closing
The obligation of the Purchasers to purchase the Series A Preferred
Shares at the Closing is subject to the fulfillment to its satisfaction of
each of the following conditions:
6.1 Representations and Warranties Correct. The representations and
warranties of the Corporation set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement, and as of
the Closing as though made on and as of the Closing Date, (in each case,
except to the extent such representations are by their express provisions made
as of a specified date, in which case they shall be true and correct in all
material respects as of the specified date), and the Purchasers shall have
received a certificate signed on behalf of the Corporation by the chief
executive officer of the Corporation to such effect and such certificate
shall be deemed to be a representation and warranty of the Corporation only as
of the time immediately preceding the Closing.
6.2 Performance. The Corporation shall have performed all
obligations required to be performed by it under this Agreement at or prior to
the Closing, and the Purchasers shall have received a certificate signed on
behalf of the Corporation by the chief executive officer of the Corporation to
such effect.
6.3 Regulatory Approvals. As of the Closing, the Purchasers shall
have obtained the approval of the Delaware and California Departments of
Insurance with respect to the purchase of Series A Preferred Shares by the
Purchasers hereunder. All other regulatory consents or approvals which may be
required in the context of the transactions contemplated in this Agreement
shall have been obtained.
6.4 No Material Adverse Change. There shall have been no
material adverse change in the assets, condition (financial or otherwise),
operating results, employee, customer or supplier relations, or business
activities of the Corporation.
6.5 Proceedings and Documents. As of the Closing, all corporate and
other proceedings in connection with the transactions contemplated hereby and
by the Related Agreements, and all documents and instruments incident to such
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<PAGE> 04.04.027
transactions, shall be satisfactory in form and substance to the Purchasers,
and the Purchasers shall have received at or prior to the Closing all such
documents as it shall have reasonably requested.
6.6 Qualifications. As of the Closing, all authorizations, approvals
or permits of, or filings with, any governmental authority, including state
securities or "Blue Sky" offices, that are required by law in connection with
the lawful sale and issuance of the Series A Preferred Shares shall have been
duly obtained by the Corporation, and shall be effective as of the
Closing.
6.7 Due Diligence. The Purchasers and its advisers, including
legal counsel, shall have completed its due diligence review of the
Corporation and its business with results reasonably satisfactory to the
Purchasers.
6.8 Expenses. At Closing, the Corporation shall have reimbursed
the Purchasers for its expenses and out-of-pocket costs incurred in connection
with their negotiation of this Agreement and the Related Agreements,
documentation of the transactions contemplated hereunder and thereunder and
closing costs, including without limitation, reasonable attorneys' fees
and expenses, in an amount not to exceed $150,000 in the aggregate..
6.9 Election of Directors. Upon the Closing, the Board shall
consist of seven (7) directors, three (3) of whom shall have been nominated by
the Purchasers as the holders of the Series A Preferred Shares.
6.10 No Restricted Actions. As of the Closing, neither the
Corporation nor any of the Subsidiaries shall have taken any action that would
require the consent of the holders of a majority of the Series A Preferred
Shares pursuant to Paragraph 4B(3) of the Certificate of Designation, other
than actions taken prior to the date of this Agreement, without having
obtained the prior consent of the Purchasers.
6.11 Schedules. The Corporation shall have delivered the Schedules
to this Agreement to the Purchasers no later than May 15, 1996, which
Schedules shall be reasonably satisfactory to the Purchasers.
6.12 Financing. AAM Capital Partners, L.P. shall have transferred
its rights hereunder to purchase at least 50,000 of the Series A Preferred
Shares as set forth herein to Persons that become Purchasers under this
Agreement.
6.13 Chester County Warrants. The warrants issued to Chester
County Fund, Inc. by the Corporation, exercisable for 1,000,000 shares of
Common Stock, shall have been cancelled, for shares of common stock of the
Corporation not to exceed 250,000 shares.
ARTICLE VII
Closing; Delivery
7.1 Closing. The closing of the transactions contemplated
hereby will take place at 10:00 a.m. on June 30, 1996 (the "Closing Date"), at
the offices of Katten Muchin & Zavis, unless another date or place is agreed
to in writing by the Purchasers and the Corporation; provided, however, that
either the Purchasers or the Corporation may extend the Closing Date until
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<PAGE> 04.04.028
not later than July 30, 1996, upon providing written notice thereof to the
other party.
7.2 Delivery. At the Closing, the Corporation will deliver to
the Purchasers certificates for the Series A Preferred Shares duly executed
and registered in the name of the Purchasers as set forth on the Schedule of
Purchasers attached hereto, against payment by the Purchasers of the purchase
price therefore by check drawn on a United States domiciled bank payable to
the order of the Corporation or by wire transfer of funds to an account
designated by the Corporation.
7.3 Compliance Certificate. At the Closing, the Corporation shall
have delivered to the Purchasers those certificates of the Corporation
required by Sections 6.1 and 6.2 above.
7.4 Secretary's Certificate. At the Closing, the Corporation
shall have delivered to the Purchasers copies of each of the following, in
each case certified by the applicable Person to be in full force and effect on
the date of the Closing:
(a) the articles of incorporation or other applicable
incorporation documents of the Corporation and each Subsidiary
as of the Closing (together with the Certificate of Designation)
which documents shall be certified by the Secretary of State of
the applicable state of incorporation as of a date not more than
twenty days prior to the Closing;
(b) a long-form good standing certificate with respect
to the Corporation and each Subsidiary certified by the Secretary
of State of the applicable state of incorporation as of a date
not more than twenty days prior to the Closing;
(c) good standing certificates with respect to the
Corporation and each Subsidiary certified by the Secretaries of
State of the states (other than their respective states of
incorporation) in which the conduct of their respective
businesses require each of them to be in good standing, in each
case as of a date not more than twenty days prior to the Closing;
(d) the by-laws of the Corporation and each Subsidiary,
acceptable in form and substance to the Purchasers; and
(e) resolutions of the Board, and, as necessary, the
Corporation's shareholders, the form and substance of which are
satisfactory to the Purchasers, authorizing the adoption and
execution of the Certificate of Designation, and authorizing the
execution, delivery and performance of this Agreement and the
Related Agreements, and the transactions contemplated hereby and
thereby, including the issuance and sale of the Series A
Preferred Shares to the Purchasers.
7.5 Registration Agreement. At or prior to the Closing, the
Corporation and the Purchasers shall have executed and delivered the
Registration Agreement.
7.6 Shareholders Agreement. At or prior to the Closing, the
Corporation, the Purchasers and all of the Corporation's shareholders that are
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<PAGE> 04.04.029
also officers or directors of the Corporation shall have executed and
delivered the Shareholders Agreement.
7.7 Legal Opinion. At the Closing, the Corporation shall have
delivered to the Purchasers the opinion of Palmarella & Sweeney, P.C. counsel
to the Corporation, dated the date of Closing, addressed to the Purchasers and
in the form and substance reasonably acceptable to the Purchasers.
7.8 Consents. At the Closing, the Corporation shall have
delivered to the Purchasers evidence that all consents, approvals,
authorizations of or notifications to any third parties (including
governmental agencies), including, but not limited to, any relating to the
Delaware and California Departments of Insurance for which the Corporation is
responsible, required to consummate the transactions contemplated hereby have
been obtained by the Corporation.
7.9 Financing Fee. At the Closing, the Corporation shall pay
to AAM Capital Partners, L.P., in immediately available funds, a financing fee
equal to four percent (4%) of the aggregate purchase price for the Series A
Preferred Shares sold hereunder.
7.10 Other Documents. At the Closing, the Corporation shall
have delivered to the Purchasers such other documents and instruments as the
Purchasers or their counsel reasonably shall deem necessary to consummate the
transactions contemplated hereby.
All documents delivered by Corporation shall be in form and substance
reasonably satisfactory to Katten Muchin & Zavis, counsel for the Purchasers.
ARTICLE VIII
Termination
8.1 Termination. This Agreement may be terminated at any time
prior to the Closing, whether before or after approval of the matters
presented in connection herewith, by the Corporation or the Purchasers:
(a) by mutual consent;
(b) by the Purchasers (i) if there has been a
material breach of any representation, warranty, covenant or
agreement on the part of the Corporation set forth in this
Agreement, which breach has not been cured, in the case of a
representation or warranty, prior to the Closing or, in the
case of a covenant or agreement, within 30 days following
receipt by the breaching party of notice of such breach, or
(ii) if any permanent injunction or other order of a court or
other competent authority preventing the consummation of the
sale of the Series A Preferred Shares shall have become final
and non-appealable;
(c) by the Corporation (i) if there has been a
material breach of any representation, warranty, covenant or
agreement on the part of the Purchasers set forth in this
Agreement, which breach has not been cured, in the case of a
representation or warranty, prior to the Closing or, in the
case of a covenant or agreement, within 30 days following
receipt by the breaching party of notice of such breach, or
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<PAGE> 04.04.030
(ii) if any permanent injunction or other order of a court or
other competent authority preventing the consummation of the
sale of the Series A Preferred Shares shall have become final
or nonappealable; or
(d) by either of the Purchasers or the Corporation if
the Closing shall not have been consummated on or before July
30, 1996, or if the Purchasers shall not have successfully
obtained approvals or consents of the Delaware and California
Departments of Insurance pursuant to the Delaware Insurance
Holding Company System Registration Chapter and the California
Insurance Holding Company System Regulatory Act, respectively;
provided, further, that the right to terminate this Agreement
under this Section 8.1(d) shall not be available to any party
whose willful failure to fulfill any material obligation under
this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date.
8.2 Effect of Termination. The parties hereto agree that if
this Agreement is terminated by the Corporation (other than pursuant to
Section 8.1(c)(i) or Section 8.1(d) above) or by the Purchasers pursuant to
Section 8.1(b)(i) the Purchasers believe that it is impossible to accurately
determine the amount of damages it would incur by virtue of such termination,
and consequently the Corporation shall, within three business days following
notification of such a termination, pay to the Purchasers $250,000 as
liquidated damages, and the obligations of the parties pursuant to this
Agreement shall then cease.
ARTICLE IX
Indemnification
9.1. Expenses. The Corporation agrees to pay on demand: (a) all
costs and expenses of compliance with all agreements and conditions contained
in this Agreement and in the Related Agreements; (b) the reasonable fees,
expenses and disbursements of counsel to the Purchasers in connection with the
administration of this Agreement and the Related Agreements and any amendments
hereto or thereto, waivers hereof and thereof and consents hereunder and
thereunder; (c) all other reasonable out-of-pocket expenses incurred by the
Purchasers in connection with the performance of this Agreement and the
Related Agreements by the Purchasers after the Closing; and (d) all costs and
expenses (including reasonable attorney's fees and costs) incurred by the
Purchasers or any holder of Series A Preferred Shares arising out of or in
connection with the enforcement or preservation of any rights under this
Agreement and the Related Agreements.
9.2. General Indemnity.
(a) The Corporation agrees to indemnify, pay and hold the
Purchasers and its Affiliates and any subsequent holder of any
Series A Preferred Shares, and the partners, officers, directors,
employees and agents of the Purchasers and their respective Affiliates
and such holders (collectively called the "Purchaser Indemnitees"),
harmless from and against, any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs,
expenses and disbursements of any kind or nature whatsoever including,
without limitation, the fees and disbursements of counsel for such
-26-
<PAGE> 04.04.031
Purchaser Indemnities in connection with any investigative,
administrative or judicial proceeding, whether or not such Indemnities
shall be designated a party thereto), which may be imposed on,
incurred by, or asserted against such Indemnitee, in any manner
relating to or arising out of the transactions contemplated by this
Agreement and the ownership of any Series A Preferred Shares (a
"Claim"), except that the Corporation shall have no obligation
hereunder to a Purchaser Indemnitee with respect to any such
indemnified liabilities arising from the negligence, gross negligence
or wilful misconduct of such Purchaser Indemnitee, its directors,
officers, employees, affiliates and/or agents. If any indemnity
provided for in the preceding sentence is not available solely because
it is found to be contrary to public policy or otherwise unlawful,
then the Corporation and the Purchaser Indemnities shall contribute to
the amount payable in such proportion as is appropriate to reflect the
relative faults and benefits and any other relevant equitable
considerations. Each Purchaser Indemnitee shall reimburse the
Corporation for any amounts paid to such Purchaser Indemnitee by the
Corporation pursuant to this Section 9.2 with respect to claims by the
Corporation against such Purchaser Indemnitee which are finally
determined by a court of competent jurisdiction in favor of the
Corporation against such Purchaser Indemnitee.
(b) In the event that subsequent to the Closing any Purchaser
Indemnitee asserts a claim for indemnification or receives notice of
the assertion of any claim or of the commencement of any action or
proceeding by any entity who is not a party to this Agreement or an
Affiliate of a party to this Agreement (including, but not limited to
any domestic or foreign court or governmental authority, federal,
state or local) (a "Third Party Claim") against such Purchaser
Indemnitee, against which the Corporation is required to provide
indemnification under this Agreement, the Purchaser Indemnitee shall
promptly give written notice together with a statement of any
available information regarding such claim to the Corporation within
fifteen (15) days after learning of such claim (or within such shorter
time as may be necessary to give the Corporation a reasonable
opportunity to respond to such claim). The Corporation shall have the
right, upon written notice to the Purchaser Indemnitee (the "Defense
Notice") within thirty days (30) after receipt of notice of such
Third Party Claim, which notice by the Corporation shall specify the
counsel it will appoint to defend such claim, to conduct at its
expense the defense against such claim in its own name, or if
necessary in the name of the Purchaser Indemnitee; provided, however,
that the Purchase Indemnitee shall have the right to approve the such
defense Counsel, which approval shall not be unreasonably withheld.
In addition, if the Corporation shall have elected not to conduct the
defense of the subject Third Party Claim, the Purchaser Indemnitee
shall have the right to conduct such defense in good faith and to
compromise and settle the claim without prior consent of the
Corporation and the Corporation will be liable for all costs,
expenses, settlement amounts or other losses paid or incurred in
connection therewith.
(c) If the Corporation elects to conduct the defense of
the subject Third Party Claim, the Purchaser Indemnitee will cooperate
with and make available to the Corporation such assistance and
materials as it may reasonably request, all at the expense of the
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<PAGE> 04.04.032
Corporation, and the Purchaser Indemnitee shall have the right at its
expense to participate in the defense assisted by counsel of its own
choosing. If the defense of the Third Party Claim by the Corporation
is nonetheless having a materially disruptive effect on the business
or operations of the Purchaser Indemnitee or the existence of the
Third Party Claim is otherwise having a material adverse effect on the
business, operations or financial condition of the Purchaser
Indemnitee, then the Corporation shall exercise good faith efforts to
settle such Third Party Claim. Without the prior written consent of
the Purchaser Indemnitee, the Corporation will not enter into any
settlement of any Third Party Claim or cease to defend against such
claim, if pursuant to or as a result of such settlement or cessation,
(i) injunctive or other equitable relief would be imposed against the
Purchaser Indemnitee, or (ii) such settlement or cessation would lead
to liability or create any financial or other obligation on the part
of the Purchaser Indemnitee for which the Purchaser Indemnitee is not
entitled to indemnification hereunder.
ARTICLE X
Miscellaneous
10.1 Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto, whether so
expressed or not. In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for the benefit of the
Purchasers or holders of Series A Preferred Shares are also for the benefit
of, and enforceable by, any subsequent holders of such Series A Preferred
Shares. Notwithstanding anything to the contrary contained herein, the
Purchasers may not transfer or assign any of their rights hereunder without
the consent of the Corporation, except that AAM Capital Partners, L.P. may
transfer such rights with respect to up to 50,000 of the Series A Preferred
Shares prior to the Closing to any Person that becomes a Purchaser hereunder.
10.2 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
10.3 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
10.4 Notices. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other address as any party hereto designates by written
notice to the other party, and shall be deemed to have been given upon
delivery, if delivered personally, three days after mailing, if mailed, or one
business day after delivery to the courier, if delivered by overnight courier
service:
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<PAGE> 04.04.033
If to the Corporation, to:
Investors Insurance Group, Inc.
7200 West Camino Real
Suite 203
Boca Raton, Florida 33433
Attention: Chief Executive Officer
with a copy to:
Palmarella & Sweeney, P.C.
310 Building 2
100 Matsonford Road
Radnor, Pennsylvania 19087
Attention: Ernest D. Palmarella
If to the Purchasers, to:
AAM Capital Partners, L.P.
30 N. LaSalle Street, 36th Floor
Chicago, Illinois 60602
Attention: Richard A. Veed
Francis S. Wilson, III
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Michael P. Goldman, Esq.
10.5 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Delaware applicable to contracts made and wholly to be performed in
that state.
10.6 Final Agreement. This Agreement, together with the Related
Agreements and all other agreements entered into by the parties hereto,
constitutes the complete and final agreement of the parties concerning the
matters referred to herein, and supersedes all prior agreements and
understandings.
10.7 Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts together shall constitute
one instrument.
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<PAGE> 04.04.034
10.8 No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be used
against any party.
10.9 Consent to Amendments; Waivers. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written agreement of the Corporation and holders of a
majority of the Series A Preferred Shares. Any waiver, permit, consent or
approval of any kind or character on the part of any such holder of any
provisions or conditions of this Agreement must be made in writing and shall
be effective only to the extent specifically set forth in such writing.
10.10 Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement for two
years (except for the representation and warranties made pursuant to Sections
3.1, 3.2,3.3 and 3.4, which shall survive indefinitely and the representation
and warranties made pursuant to Sections 3.7 and 3.11, which shall survive
until the expiration of the applicable statue of limitations) and any
investigation made at any time by or on behalf of the Purchasers or holders of
Series A Preferred Shares.
10.11 Exhibits and Schedules. All exhibits and schedules hereto are
an integral part of this Agreement.
10.12 Finders' Fees. Each party warrants to the other that it has not
employed or used the services of or incurred any liability to any broker or
finder in connection with the transaction contemplated by this Agreement.
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<PAGE> 04.04.035
The parties hereto have executed this Agreement on the date
first set forth above.
THE CORPORATION:
INVESTORS INSURANCE GROUP, INC.
By:_________________________
Melvin C. Parker,
Its: President and Chief
Executive Officer
PURCHASERS:
AAM CAPITAL PARTNERS, L.P.
By: AAM PARTNERS, L.P., its
General Partner
By: AAM Investment Banking
Group, Ltd.
its General Partner
By: VEED CORP.
its General Partner
By: _________________________
Richard A. Veed,
President
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<PAGE> 04.04.036
EXHIBITS AND SCHEDULES
Schedules
Schedule of Purchasers
3.1 Organization
3.3 Required Consents
3.4 Capitalization
3.5 Financial Statements
3.6 Ordinary Course Exceptions
3.7 Litigation
3.8 Undisclosed Liabilities
3.9 Investments
3.12 Material Contracts
3.13 Reinsurance Treaties
3.14 Real Property
3.15 Personal Property
3.16 Title to Assets
3.17 Compliance with Laws
3.18 Proprietary Rights
3.20 Insurance Policies
3.21 Bank Accounts
3.22 Licenses and Permits
3.23 Regulatory Authority
3.24 Employee Benefit Plans
3.26 Salaries
3.27 Personnel Agreements
3.28 Workers Compensation
3.29 Affiliate Transactions
3.30 Production Sources
3.31 Interest in Production Sources
Exhibits
A Form of Certificate of Designation
B Form of Registration Agreement
C Form of Shareholders Agreement
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<PAGE> 04.04.037
SCHEDULE OF PURCHASERS
Number of
Name and Address Series A Preferred Shares Purchase Price
AAM CAPITAL PARTNERS, L.P.
30 N. LaSalle Street, 36th Floor
Chicago, Illinois 60602
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<PAGE> 04.04.038
EXHIBIT A
CERTIFICATE OF THE DESIGNATIONS, PREFERENCES AND RELATIVE RIGHTS
OF THE SERIES A PREFERRED STOCK, NO PAR VALUE, OF
INVESTORS INSURANCE GROUP, INC.
Pursuant to Section 607.0602 of the Florida Corporation Law
We, the undersigned, [______________] and [______________], being the
President and Secretary, respectively, of INVESTORS INSURANCE GROUP, INC., a
corporation organized under the laws of the State of Florida (hereinafter
called the "Corporation"), in accordance with Section 607.0602 of the Florida
Corporation Law, DO HEREBY CERTIFY that the Board of Directors of the
Corporation (the "Board") duly adopted the following resolution on
[_____________], 1996:
NOW, THEREFORE, BE IT RESOLVED, that the Corporation issue and sell up
to 70,000 shares of preferred stock designated as Series A Preferred Stock
(the "Series A Preferred Stock"), at a price equal to $100.00 per share, the
Series A Preferred Stock to have the powers, preferences and rights and the
qualifications, limitations and restrictions as follows:
Part 1. Dividends.
A. General Obligation. When and as declared by the
Corporation's board of directors out of funds legally available therefore and
to the extent permitted under the Florida Corporation Law, the Corporation
will pay preferential cumulative dividends to the holders of the Series A
Preferred Stock as provided in this Part 1. Except as otherwise provided
herein, dividends on each share of Series A Preferred Stock will accrue on a
daily basis at the rate of 8% per annum of the Liquidation Value thereof plus
accumulated and unpaid dividends thereon from and including the date of
issuance of such share of Series A Preferred Stock to and including the
earlier of (i) the date of any liquidation, dissolution or winding up of the
Corporation, (ii) the date on which such share of Series A Preferred Stock is
converted into Common Stock (at which point such dividends shall have been
forfeited pursuant to Part 5A(7) below) or (iii) the date on which such share
of Series A Preferred Stock is redeemed in accordance with Part 3 hereof.
Such dividends will accrue whether or not they have been declared and whether
or not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The date on which the Corporation
initially issues any share of Series A Preferred Stock will be deemed to be
its "date of issuance" regardless of the number of times transfer of
such share of Series A Preferred Stock is made on the stock
records maintained by or for the Corporation and regardless of
the number of certificates which may be issued to evidence such
share of Series A Preferred Stock.
B. Dividend Reference Dates. To the extent not paid on
December 31 of each year, beginning December 31, 1996 (the "Dividend Reference
Dates"), all dividends which have accrued on each share of Series A Preferred
Stock outstanding during the three-month period (or other period in the case
of the initial Dividend Reference Date) shall compound and be accumulated and
<PAGE> 04.04.039
shall remain accumulated dividends with respect to each such share of Series A
Preferred Stock until paid.
C. Distribution of Partial Dividend Payments. If at any time
the Corporation pays less than the total amount of dividends then accrued with
respect to the Series A Preferred Stock, such payment will be distributed
ratably among the holders of the Series A Preferred Stock on the basis of the
number of shares of Series A Preferred Stock owned by each such holder.
D. Preference. The Corporation shall not, without the prior
written consent of the holders of a majority of the shares of Series A
Preferred Stock then outstanding, pay or declare any dividend or distribution
on any Junior Securities (other than Common Stock) at any time when
accumulated dividends on the Series A Preferred Stock have not been paid in
full.
E. Participation in Common Stock Dividends. In the event
that the Corporation declares a dividend or distribution on the Common Stock,
the holders of the Series A Preferred Stock and the holders of the Common
Stock shall share pro rata (based, in the case of holders of Series A
Preferred Stock, on the number of shares of Common Stock which each holder of
Series A Preferred Stock would be entitled to receive upon conversion of
its Series A Preferred Stock into Common Stock) in such dividend
or distribution.
Part 2. Liquidation.
A. Preference. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Series A Preferred Stock will be entitled to be paid, before any
distribution or payment is made upon any Common Stock, an amount in cash equal
to the aggregate Liquidation Value of all shares of Series A Preferred Stock
outstanding plus all accrued and unpaid dividends thereon. The Corporation
will mail written notice of any liquidation, dissolution or winding
up to each record holder of Series A Preferred Stock not less than thirty (30)
days prior to the effective date thereof, and each holder of Series A
Preferred Stock shall have the opportunity to convert its Series A Preferred
Stock into Common Stock under Part 5 hereof if it so desires. At the option
of a holder of Series A Preferred Stock, with respect to its shares of Series
A Preferred Stock, the consolidation or merger of the Corporation into or with
any other corporation or corporations, or the sale, lease or transfer by the
Corporation of all or substantially all of its assets, will be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Part 2 and Part 1A above.
B. Insufficient Funds. If upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets available for distribution to the shareholders of the
Corporation (the "Distributable Funds") shall be insufficient to permit the
payment to the holders of Series A Preferred of the full preferential amount
set forth in Paragraph 2A above, then the Distributable Funds shall be
distributed to the holders of Series A Preferred, ratably in proportion to the
number of Series A Preferred Shares held by each such holder on the date of
liquidation, dissolution or winding up of the Corporation.
<PAGE> 04.04.040
Part 3. Redemptions.
A. Optional Redemption. Each holder of Series A
Preferred Stock may require the Corporation to redeem all or part of its
Series A Preferred Stock at any time on or after December 31, 2001 in
accordance with this Part 3 and at a price per share of Series A Preferred
Stock equal to the Redemption Price (the "Redemption Right"). Any holder of
Series A Preferred Stock may exercise the Redemption Right by delivering to
the Corporation and each other holder of Series A Preferred Stock a written
notice (a "Redemption Notice") stating such holder's intention to exercise the
Redemption Right and the number of such holder's shares of Series A Preferred
Stock to be redeemed. The Corporation shall be obligated to redeem the total
number of shares of Series A Preferred Stock specified in any Redemption
Notice in a series of two annual redemptions, the first of such redemptions to
occur at least thirty (30) days following the Corporation's receipt of the
Redemption Notice and the second of such redemptions to occur on the first
anniversary of the first of such redemptions (each a "Redemption Date"). Each
holder of Series A Preferred Stock receiving a Redemption Notice shall
have the right, exercisable by written notice delivered to the Corporation
within ten (10) days after receipt of such Redemption Notice, to request that
any or all of such other holder's shares of Series A Preferred Stock be
redeemed on the Redemption Dates together with the shares of Series A
Preferred Stock of the holder who delivered the Redemption Notice.
B. Redemption Price. For each share of Series A
Preferred Stock which is to be redeemed on any Redemption Date, the
Corporation will be obligated to pay to the holder thereof (upon surrender by
such holder at the Corporation's principal office of the certificate
representing such share of Series A Preferred Stock) an amount in immediately
available funds (the "Redemption Price") equal to the Liquidation Value
thereof plus all accrued but unpaid dividends thereon. If the funds of the
Corporation legally available for redemption of Series A Preferred Stock on
any Redemption Date are insufficient to redeem the total number of shares of
Series A Preferred Stock to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of shares
of Series A Preferred Stock ratably among the holders of such shares to be
redeemed based upon each shareholder's aggregate investment in the Series A
Preferred Stock plus all accrued but unpaid dividends thereon. Thereafter,
when additional funds of the Corporation are legally available for the
redemption of Series A Preferred Stock, such funds will be used to redeem the
balance of the shares of Series A Preferred Stock which the Corporation
became obligated to redeem on such Redemption Date but which it has not
redeemed (such redemptions to be made on a monthly basis).
C. Reissuance of Certificates. In the event that fewer
than the total number of shares of Series A Preferred Stock represented by any
certificate are redeemed in any installment, a new certificate representing
the number of unredeemed shares of such of Series A Preferred Stock will be
issued to the holder thereof without cost to such holder promptly after
surrender of the certificate representing the redeemed shares of Series A
Preferred Stock.
<PAGE> 04.04.041
D. No Rights After Redemption. No share of Series A
Preferred Stock is entitled to any dividends declared after the date on
which the Redemption Price of such share of Series A Preferred Stock is paid
to the holder thereof. On such date all rights of the holder of such share of
Series A Preferred Stock shall cease, and such share of Series A Preferred
Stock shall no longer be deemed to be outstanding.
E. Redeemed or Otherwise Acquired Shares. Any share of
Series A Preferred Stock that is redeemed or otherwise acquired by the
Corporation shall be considered an authorized but unissued share of Series A
Preferred Stock.
F. Events of Noncompliance.
(1) An Event of Noncompliance shall be deemed to have
occurred:
(a) If the Corporation fails to pay dividends
that had been declared by the Board (with the consent of
at least one Series A Director and for which funds were
legally available at the time of such declaration) on the
Series A Preferred Stock (and such failure continues for
a period of fifteen (15) days);
(b) If the Corporation fails to make any
redemption payment with respect to the Series A Preferred
Stock that it is obligated to make hereunder (and such
failure continues for a period of fifteen (15) days);
(c) If the Corporation breaches or otherwise
fails to perform or observe any other covenant or
agreement contained herein or in the Stock Purchase
Agreement or the Related Agreements (as such term is
defined in the Stock Purchase Agreement) and such failure
to perform or observe a covenant or agreement is not
cured within thirty (30) days after the Corporation
receives notice of the occurrence thereof;
(d) If any representation, warranty or
information contained in the Stock Purchase Agreement or
required to be furnished to any holder of the Series A
Preferred Stock pursuant to the Stock Purchase Agreement,
or any writing furnished by the Corporation to any holder
of the Series A Preferred Stock, is false or misleading
in any material respect on the date made or furnished;
(e) If the Corporation or any Subsidiary (as
such term is defined in the Stock Purchase Agreement)
makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or
decree is entered adjudicating the Corporation or
any Subsidiary bankrupt or insolvent; or any order for
<PAGE> 04.04.042
relief with respect to the Corporation or any Subsidiary
is entered under the United States Bankruptcy Code or
under the Delaware Insurance Code; or the Corporation or
any Subsidiary petitions or applies to any tribunal for
the appointment of a custodian, trustee, receiver,
conservator, rehabilitator or liquidator of the
Corporation or any Subsidiary, or of any substantial part
of the assets of the Corporation or any Subsidiary, or
commences any proceeding (other than a proceeding for the
voluntary liquidation and dissolution of any Subsidiary)
relating to the Corporation or any Subsidiary under any
bankruptcy reorganization, arrangement, insolvency,
readjustment of debt, conservation, rehabilitation,
dissolution or liquidation law of any jurisdiction; or
any such petition or application is filed, or any such
proceeding is commenced, against the Corporation or any
Subsidiary and either (x) the Corporation or any such
Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (y) such
petition, application or proceeding is not dismissed
within ninety (90) days;
(f) If any money judgment, writ or warrant of
attachment, or similar process involving an amount in any
individual case in excess of $250,000 or an amount in the
aggregate in excess of $500,000 is entered or filed
against the Corporation or any of its Subsidiaries or any
of their respective assets and remains undischarged,
unvacated, unbonded or unstayed for a period of ninety
(90) days; or
(g) If the Corporation or any Subsidiary
defaults in the performance of any obligation or
obligations (other than with the consent of at least two
Series A Directors), if the effect of such default is to
cause an amount having an individual principal amount in
excess of $250,000 or having an aggregate principal
amount in excess of 500,000 to become due prior to its
stated maturity or to permit the holder or holders of
such obligation or obligations to cause an amount having
an individual principal amount in excess of $250,000 or
having an aggregate principal amount in excess of
$500,000 to become due prior to its stated maturity.
(2) If an Event of Noncompliance of the type described in
Paragraph 3F(1)(e) above shall have occurred, the Corporation shall become
obligated to immediately redeem all of the Series A Preferred Stock
outstanding at a price per share equal to the Liquidation Value thereof plus
all accrued and unpaid dividends thereon, without any demand or other action
on the part of the holders thereof.
(3) If an Event of Noncompliance of the type described
in Paragraph 3F(1)(b) above shall have occurred, then the holders of Series A
Preferred Stock, voting as a separate class, will have the special right (in
addition to any other voting rights such holders may have) to elect that
<PAGE> 04.04.043
number of directors to the Board that would constitute a majority of the Board
at such time. Whenever such special right has vested, it may be exercised at
any special meeting of the Corporation's shareholders as provided below or by
written consent of the holders of a majority of the shares of Series A
Preferred Stock then outstanding in accordance with the Florida Corporation
Law. If exercised by written consent, then the office of such persons
designated in the written consent who were theretofore directors shall
terminate and the entire Board shall consist of a majority of members elected
by the holders of Series A Preferred Stock, voting as a separate class,
pursuant to the written consent and the remainder of the members previously
elected by the holders of the Common Stock. If such an Event of Noncompliance
exists, then upon the written request of the holders of a majority of the
shares of Series A Preferred Stock, a proper officer of the Corporation will
call as promptly as possible a special meeting of the Corporation's
shareholders for the purpose of electing directors. If such meeting has not
been called by a proper officer of the Corporation within thirty (30) days
after personal service of said written request upon the secretary of the
Corporation or within thirty-five (35) days after mailing the same by
registered mail addressed to the secretary of the Corporation at its principal
office, then the holders of record of a majority of the shares of Series A
Preferred Stock at the time outstanding may designate in writing one of their
number to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the notice required
for annual meetings of shareholders and will be held at the Corporation's
principal office, or at such other place designated by such holders. Any
holder of Series A Preferred Stock so designated will be given access to the
stock record books of the Corporation for the purpose of causing meetings of
shareholders to be called pursuant to these provisions. Upon the convening of
such meeting, the office of all persons who were theretofore directors of the
Corporation shall terminate and the entire Board shall consist of those
members elected at the meeting, the majority of which shall be elected by the
holders of a majority of the shares of Series A Preferred Stock, voting as a
separate class, and the remainder of which shall be elected by the holders of
a majority of the shares of Common Stock, voting as a separate class. The
special right of the holders of the Series A Preferred Stock provided for in
this Paragraph 3C shall continue for one year from the date the Event of
Noncompliance giving rise to such right ceases to exist, but may be invoked
again if, and only if, an additional Event of Noncompliance of the type
described in Paragraph 3F(1)(b) above occurs. Any director elected pursuant
to these special rights may be removed, and any vacancy in the board existing
at such time when this special voting power is vested can be filled, by
written consent or at another special meeting in accordance with these
provision.
(4) If any Event of Noncompliance (other than of the
type described in Paragraph 3F(1)(b) or Paragraph 3F(1)(e) above) shall have
occurred, the holders of a majority of the shares of Series A Preferred Stock
then outstanding may demand by written notice delivered to the Corporation
immediate redemption of all or any portion of the Series A Preferred Stock
owned by such holder or holders at the Redemption Price. The Corporation
shall give prompt written notice of any such election to the other holders of
Series A Preferred Stock (but in any event within five days after the receipt
of the initial demand for redemption), and each such other holder may demand
immediate redemption of all or any portion of such holder's shares of
Series A Preferred Stock by giving written notice thereof to the Corporation
<PAGE> 04.04.044
within seven (7) days after receipt of the Corporation's notice. If any
holder or holders of the Series A Preferred Stock demands immediate redemption
of all or any portion of such holder's shares of Series A Preferred Stock
pursuant to the terms of this Paragraph 3F, the Corporation shall pay to such
holder or holders the aggregate Redemption Price of the shares of Series A
Preferred Stock requested to be redeemed by such holder or holders within ten
(10) days after receipt of the initial demand for redemption; provided that if
at any time after the requisite number of holders of shares of Series A
Preferred Stock shall have demanded immediate redemption pursuant to this
Paragraph 3F, the Corporation shall pay all accrued and unpaid dividends on
the Series A Preferred Stock and make all redemption payments (if any) with
respect to the Series A Preferred Stock which it shall have been obligated
to make otherwise than pursuant to this Paragraph 3F, and all other Events of
Noncompliance shall be remedied or waived by such holders, then, and in every
such case, such holders may, by written notice to the Corporation, rescind and
annul such demand for immediate redemption and its consequences.
Part 4. Voting Rights.
A. Voting Rights. Except as otherwise required by law
and as provided by Paragraph 4B below, the holders of the Series A Preferred
Stock will be entitled to vote with the holders of the Common Stock on each
matter submitted to a vote of the Corporation's shareholders, with each share
of Series A Preferred Stock having a number of votes equal to the number of
votes possessed by the number of shares of Common Stock into which such share
of Series A Preferred Stock is convertible as of the record date for the
determination of shareholders entitled to vote on such matter.
B. Class Voting Rights.
(1) Subject to the special voting rights of the Series
A Preferred Stock set forth in Paragraph 3F(3) above, the Corporation's board
of directors shall be elected as follows:
(a) For as long as any shares of Series A
Preferred Stock are outstanding, the Board shall consist
of seven members and the holders of the Series A
Preferred Stock will have the special right, voting
separately as a single class (with each share of such
series of Series A Preferred Stock being entitled
to the number of votes possessed by the number of shares
of Common Stock into which such share of such series of
Series A Preferred Stock is convertible) and to the
exclusion of all other classes of the Corporation's
stock, to elect three (3) of the members of the board of
directors of the Corporation (the "Series A Directors")
and the holders of Common Stock will have the special
right, voting separately as a single class and to the
exclusion of all other classes of the Corporation's
stock, to elect three (3) members of the board of
directors of the Corporation (the "Common Stock
Directors"). The holders of Common Stock shall also have
the special right, voting separately as a single class
<PAGE> 04.04.045
and to the exclusion of all other classes of the
Corporation's stock, to remove any Common Stock Director.
The holders of Series A Preferred Stock shall also
have the special right, voting separately as a single
class and to the exclusion of all other classes of the
Corporation's stock, to remove any Series A Director.
(b) The holders of the Series A Preferred Stock
and the Common Stock, voting together as a single class
(with each share of Series A Preferred Stock having a
number of votes equal to the number of votes possessed by
the number of shares of Common Stock into which such
share of Series A Preferred Stock is convertible as of
the record date for the determination of shareholders
entitled to vote on such matter), shall have the right to
elect the seventh member of the board of directors of
the Corporation. The holders of the Series A Preferred
Stock and the Common Stock shall also have the right,
voting together as a single class (with each share of
Series A Preferred Stock having the number of votes set
forth in the immediately preceding sentence), to remove
any individuals elected to such directorship.
(c) Any and all committees of the Board shall
have as its members the same number of Common Stock
Directors and Series A Directors and the director elected
pursuant to Paragraph 4B(1)(b) above.
(2) The special right of the holders of Series A
Preferred Stock to elect and remove directors contained in Paragraph
4B(1)(a) may be exercised either at a special meeting of the holders of Series
A Preferred Stock called as provided below, at any annual or special meeting
of the shareholders of the Corporation, or by written consent of the holders
of Series A Preferred Stock in lieu of a meeting. The directors to be elected
by the holders of the Series A Preferred Stock pursuant to Paragraph 4B(1)(a)
shall serve for terms extending from the date of their election and
qualification until the time of the next succeeding annual meeting of
shareholders (unless sooner removed) and until their successors have been
elected and qualified.
At any time when the holders of Series A Preferred Stock have the special
voting rights set forth in Paragraph 4B(1)(a), the secretary of the
Corporation shall, upon the written request of the holders of record of shares
of Series A Preferred Stock having at least 10% of the votes possessed by the
then outstanding Series A Preferred Stock, call a special meeting of
the holders of Series A Preferred Stock for the purpose of electing or
removing directors. Such meeting shall be held at the earliest practicable
date at the Corporation's principal office or at such other place designated
by the holders of Series A Preferred Stock having at least 10% of the votes
possessed by the then outstanding Series A Preferred Stock. If such meeting
shall not be called by a proper officer of the Corporation within ten (10)
days after personal service of said written request upon the secretary of the
Corporation or within twenty (20) days after mailing the same to the secretary
<PAGE> 04.04.046
of the Corporation at the Corporation's principal office, then the holders of
record of Series A Preferred Stock having at least 10% of the votes possessed
by the then outstanding Series A Preferred Stock may designate in writing one
of their number to call such meeting at the expense of the Corporation, and
such meeting may be called by such persons so designated upon the shortest
legally permissible notice. Any holders of Series A Preferred Stock so
designated shall have access to the stock books of the Corporation for the
purpose of calling a meeting of the shareholders pursuant to these provisions.
At any shareholders meeting at which the holders of Series A Preferred Stock
shall have the special right, voting separately as a single class, to elect or
remove directors as provided in Paragraph 4B(1)(a), the presence, in person or
by proxy, of the holders of record of shares of Series A Preferred Stock
having a majority of the votes possessed by the then outstanding Series A
Preferred Stock shall be required to constitute a quorum of the Series A
Preferred Stock for such election or removal. At any such meeting or
adjournment thereof, the absence of a separate quorum of the Series A
Preferred Stock shall not prevent the election of those directors to be
elected at such meeting, other than the directors to be elected by holders of
the Series A Preferred Stock pursuant to Paragraph 4B(1)(a). In the absence
of a separate quorum of the Series A Preferred Stock, the holders of record of
shares representing a majority of the voting power present in person or by
proxy of the Series A Preferred Stock shall have power to adjourn the meeting
for the election of directors which the holders of Series A Preferred
Stock are entitled to elect from time to time without notice other than
announcement at the meeting.
A vacancy in the directorships to be elected by the holders of the Series A
Preferred Stock pursuant to Paragraphs 4B(1)(a) may be filled only by vote or
written consent in lieu of a meeting of the holders of the Series A Preferred
Stock having a majority of the votes possessed by the then outstanding shares
of Series A Preferred Stock acting separately as a single class and to the
exclusion of all other classes of the Corporation's stock.
(3) In addition, for as long as at least 14,000 shares
of Series A Preferred Stock remain outstanding, the board of directors of the
Corporation shall not take any of the following actions without the
affirmative vote of at least one Series A Director, and, to the extent any of
the following actions require shareholder consent, such consent shall not be
deemed given without the affirmative vote of the holders of a majority
of the shares of Series A Preferred Stock then outstanding, voting as a
separate class:
(a) Dividends. Directly or indirectly declare
or pay, or permit any Subsidiary which is not a wholly
owned Subsidiary to declare or pay, any dividends, or
make or permit any Subsidiary which is not a wholly
owned Subsidiary to make, any distributions upon any of
its equity securities, other than dividends declared pro
rata on shares of the Corporation's Common Stock and
Series A Preferred Stock (as provided in Part 1D above);
(b) Redemptions. Directly or indirectly
<PAGE> 04.04.047
redeem, purchase or otherwise acquire, or permit any
Subsidiary to directly or indirectly redeem, purchase or
otherwise acquire, any of the Corporation's or any
Subsidiary's equity securities, except as required by the
terms of the Series A Preferred Stock and other than
pursuant to an Approved Stock Plan;
(c) Security Issuances. Authorize, issue, or
enter into any agreement providing for the issuance
(contingent or otherwise) by the Corporation or any of
its Subsidiaries of, (x) any notes or debt securities
containing equity features (including, without
limitation, any notes or debt securities convertible
into or exchangeable for equity securities, issued in
connection with the issuance of equity securities or
containing profit participation features) or (y) any
equity securities (or any securities convertible into or
exchangeable for any equity securities), other than
pursuant to any Approved Stock Plan;
(d) Mergers. Merge or consolidate with any
Person or permit any Subsidiary to merge or consolidate
with any Person (other than, in the case of a wholly
owned Subsidiary, with or into the Corporation or any
other wholly owned Subsidiary);
(e) Sale of Assets. Sell, lease or otherwise
dispose of, or permit any Subsidiary to sell, lease or
otherwise dispose of, 10% or more of the consolidated
assets of the Corporation and its wholly owned
Subsidiaries (computed on the basis of book value,
determined in accordance with GAAP) in any transaction or
series of related transactions;
(f) Cessions. Permit IIC to enter into any
reinsurance agreements, loss portfolio transfers or
cessions constituting 20% or more of the outstanding
policy and contract reserves and liabilities of IIC,
other than the renewal of existing reinsurance contracts;
(g) Liquidations. Liquidate, dissolve or
effect a recapitalization or reorganization in any form
of transaction;
(h) Charter Amendments. Make or authorize any
amendment to the Corporation's articles of incorporation
or by-laws, or any Subsidiary's organizational documents,
or file any resolution of the Board, or of the Board of
Directors of any Subsidiary, with the Secretary of State
or any other incorporation agency in the state in which
it is organized;
(i) Affiliate Transactions. Enter into, or
permit any Subsidiary to enter into, any transaction with
any of its or any Subsidiary's Affiliates, except for
<PAGE> 04.04.048
normal employment arrangements and benefit programs on
reasonable terms;
(j) Loans, Guarantees and Investments. Make or
permit any Subsidiary to make any loans or advances to,
guarantees for the benefit of, or investments in, any
Person, except for (w) reasonable advances to employees
in the ordinary course of business, (x) investments
having a stated maturity not greater than one year from
the date of such investment in (A) obligations of the
United States government or any agency thereof or
obligations guaranteed by the United States government,
(B) certificates of deposit of any commercial bank having
combined capital and surplus of at least $550 million or
(C) commercial paper with a rating of at least "Prime 1"
by Moody's Investors Service, Inc., (y) deposits of
amounts not to exceed $100,000 in an account or accounts
maintained in federally insured banks or other financial
institutions, and (z) with respect to IIC, investments in
compliance with the Delaware Insurance Code, other than
those provisions authorizing investments in subsidiaries
or affiliates (as such terms are defined in the Delaware
Insurance Code);
(k) Fiscal Year. Change the fiscal year of the
Corporation or any Subsidiary;
(l) Other Business. Enter into (directly or
indirectly through a new Subsidiary), or permit any
Subsidiary to enter into, the ownership, active
management or operation of any business other than the
underwriting and marketing of life insurance and annuity
business and activities ancillary thereto;
(m) Subsidiaries. Establish or acquire any
Subsidiaries or sell any shares of equity securities or
rights to acquire equity securities of any Subsidiary;
(n) Indebtedness. Create, incur, assume or
suffer to exist, or permit the Corporation and its
Subsidiaries, taken as a whole, to create, incur, assume
or suffer to exist, Indebtedness in an aggregate amount
exceeding $1,000,000 at any time outstanding, except (x)
trade debt incurred in the normal course of business, (y)
Indebtedness secured by Liens permitted under Paragraph
4B(3)(p) below and (z) Indebtedness, if any, provided
for in the Corporation's annual budget approved by the
Board;
(o) Capital Expenditures. Make, or permit the
Corporation and its Subsidiaries, taken as a whole, to
make, any capital expenditure or series of related
capital expenditures (including, without limitation,
payments with respect to capitalized leases) or any other
acquisition of assets, in excess of $500,000 during any
<PAGE> 04.04.049
one fiscal year, unless such capital expenditure shall
have been specifically provided for in the annual budget
approved by the Board;
(p) Related Agreements. Amend, modify or waive
any provision of any of the Related Agreements, fail to
enforce the provisions of any of the Related Agreements
or avail itself of all rights and remedies thereunder;
(q) Liens. Create, assume or permit, or permit
any Subsidiary to create, assume or permit, any Lien upon
any of its properties or assets, whether now owned or
hereafter acquired, except (w) Liens existing as of the
date hereof as disclosed in the Stock Purchase Agreement,
(x) any Lien existing on any asset prior to the
acquisition thereof by the Corporation and not created in
contemplation of such event, (y) any Lien created on
any real property or equipment in connection with the
leasing of such real property or equipment, and (z)
Permitted Liens;
(r) Leases. Enter into, or permit any
Subsidiary to enter into, any leases or other rental
agreements (excluding capitalized leases) under which the
amount of the aggregate lease payments for all such
agreements exceeds $250,000 on a consolidated basis for
any twelve-month period;
(s) Restrictive Agreements. Become subject to,
or permit any of its Subsidiaries to become subject to,
any agreement or instrument, which by its terms would
(under any circumstances) restrict the Corporation's
right to perform any of its obligations pursuant to the
terms of the Stock Purchase Agreement, the Related
Agreements, this Certificate of Designation or the
Corporation's by-laws (including, without limitation, all
obligations relating to payment of dividends on and
making redemptions of the Series A Preferred Stock);
(t) Employee Arrangements. Enter into, modify
or amend (or permit any Subsidiary to enter into, modify
or amend) any employment agreements, make any guarantee
with respect to any obligation of an employee of the
Corporation or any of its Subsidiaries, or hire, fire,
materially change the responsibilities or duties, or
alter the compensation (including salary, bonus,
automobile allowances or other benefits) of any employee
of the Corporation or any of its Subsidiaries whose
annual compensation is greater than $100,000, or fix or
alter any compensation of any director of the Corporation
or any Subsidiary.
(u) Budgets. Approve, ratify or substantially
change the annual operating budget of the Corporation and
its Subsidiaries, including without limitation, the
<PAGE> 04.04.050
capital expenditures, additions or improvements, proposed
plant expansions or expenditures related to new product
development to be made by the Corporation or Subsidiaries
for the year;
(v) Contracts or Commitments. Enter into or
ratify any contract or commitment that requires aggregate
expenditures or receipts by the Corporation or any
Subsidiaries in excess of $250,000;
(w) Public Offering. Consummate any Public
Offering of the Corporation's or any Subsidiary's equity
or debt securities, or securities into which such
securities have been exchanged or converted;
(x) Bankruptcy, Etc. Make an assignment for the
benefit of creditors or admit in writing the
Corporation's or any Subsidiary's inability to pay its
debts generally as they become due; or petition or apply
to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or a
Subsidiary, or of any substantial part of the assets of
the Corporation or a Subsidiary, or commence any
proceeding (other than a proceeding for the voluntary
liquidation and dissolution of a Subsidiary) relating to
the Corporation or a Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction;
(y) Auditors; Legal Counsel. Engage or
terminate any individual or firm that provides
accounting, financial or legal advice to the Corporation
or any Subsidiaries;
(z) Board Committees. Designate any committee
of the Board; or
(aa) Acquisitions; Joint Ventures. Acquire, or
permit any Subsidiary to acquire, any interest in any
Person or enter into, or permit any Subsidiary to enter
into, any joint venture.
<PAGE> 04.04.051
Part 5. Conversion.
A. Conversion Procedure.
(1) At any time and from time to time, any holder of
shares of Series A Preferred Stock may convert all or any portion of
such shares (including any fraction of a share) held by such holder into the
number of shares of the Corporation's Common Stock computed by multiplying the
number of shares of Series A Preferred Stock to be converted times $100 per
share and dividing the result by the Series A Conversion Price (as defined
in Paragraph 5B below).
(2) Each conversion of Series A Preferred Stock will
be deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing the Series A Preferred
Stock to be converted have been surrendered at the principal office of the
Corporation. At such time as such conversion has been effected, the rights of
the holder of such Series A Preferred Stock as such holder will cease and the
Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock are to be issued upon such conversion will be deemed to
have become the holder or holders of record of the shares of Common Stock
represented thereby.
(3) As soon as possible after a conversion has been
effected, the Corporation will deliver to the converting holder:
(a) a certificate or certificates representing
the number of shares of Common Stock issuable by reason
of such conversion in such name or names and such
denomination or denominations as the converting holder
has specified;
(b) the amount payable under Paragraph 5A(6)
below with respect to such conversion; and
(c) a certificate representing any shares of
Series A Preferred Stock which were represented by the
certificate or certificates delivered to the Corporation
in connection with such conversion but which were not
converted.
(4) The issuance of certificates for shares of Common
Stock upon conversion of Series A Preferred Stock will be made without
charge to the holders of such Series A Preferred Stock in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Common Stock. Upon conversion of any share
of Series A Preferred Stock, the Corporation will take all such actions as
are necessary in order to insure that the Common Stock issued as a result of
such conversion is validly issued, fully paid and nonassessable.
<PAGE> 04.04.052
(5) The Corporation will not close its books against
the transfer of Series A Preferred Stock or of Common Stock issued or issuable
upon conversion of Series A Preferred Stock in any manner which interferes
with the timely conversion of Series A Preferred Stock.
(6) If any fractional interest in a share of Common
Stock would, except for the provisions of this Paragraph 5A(6), be deliverable
upon any conversion of the Series A Preferred Stock, the Corporation, in lieu
of delivering the fractional share therefor, shall pay an amount to the holder
thereof equal to the Market Price of such fractional interest as of the date
of conversion.
(7) Upon conversion of shares of Series A Preferred
Stock into Common Stock pursuant to this Paragraph 5A, the holder of such
shares of Series A Preferred Stock shall forfeit its right to receive any
accrued but unpaid dividends on such shares.
(8) Notwithstanding any other provision hereof, if a
conversion of Series A Preferred Stock is to be made in connection with a
Public Offering, the conversion of any shares of Series A Preferred Stock may,
at the election of the holder of such shares, be conditioned upon the
consummation of the Public Offering in which case such conversion shall not be
deemed to be effective until the consummation of the Public Offering.
(9) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the Series A
Preferred Stock, such number of shares of Common Stock issuable upon the
conversion of all outstanding Series A Preferred Stock. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance).
<PAGE> 04.04.053
B. Conversion Price.
(1) Initial Conversion Price. The initial "Conversion
Price" will be $1.00. In order to prevent dilution of the conversion rights
granted under this subdivision, the Conversion Price will be subject to
adjustment pursuant to this Paragraph 5B.
(2) Adjustment for Dilutive Events. If and whenever on
or after the original date of issuance of the Series A Preferred Stock the
Corporation issues or sells, or in accordance with Paragraph 5C below is
deemed to have issued or sold, any shares of Common Stock for consideration
per share less than the Conversion Price in effect immediately prior to the
time of such issue or sale (a "Dilutive Event"), then forthwith upon the
occurrence of any such Dilutive Event the Conversion Price will be reduced so
that the Conversion Price in effect immediately following the Dilutive Event
will equal the quotient derived by dividing (i) the sum of (x) the product
derived by multiplying the Conversion Price in effect immediately prior to
such Dilutive Event times the number of shares of Common Stock Deemed
Outstanding immediately prior to such Dilutive Event, plus (y) the
consideration, if any, received by the Corporation pursuant to such Dilutive
Event, by (ii) the number of shares of Common Stock Deemed Outstanding
immediately after such Dilutive Event; provided, however, that there shall be
no adjustment in the Conversion Price as a result of any issuance or sale (or
deemed issuance or sale) pursuant to (i) an Approved Stock Plan or (ii)
the issuance of Common Stock, the proceeds of which are being used to redeem
or retire all shares of Series A Preferred Stock then outstanding.
C. Effect on Conversion Prices of Certain Events.
(1) For purposes of determining the adjusted
Conversion Price pursuant to Paragraph 5B above the following events shall be
deemed to be an issuance and sale of Common Stock by the Corporation and the
"Common Stock Deemed Outstanding" shall be the number of shares of Common
Stock actually issued and outstanding plus the number of shares of Common
Stock deemed outstanding as a result of the following events as set forth
below:
(a) Issuance of Rights or Options. If (i) the
Corporation in any manner grants any rights or options to
subscribe for or to purchase shares of Common Stock or
any securities convertible into or exchangeable for
shares of Common Stock (such rights or options referred
to herein as "Options" and such convertible or
exchangeable stock or securities referred to herein as
"Convertible Securities") and (ii) the Price Per Share of
shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of such
Convertible Securities is less than the Conversion Price
in effect immediately prior to the time of the granting
of such Options, then (x) the total maximum amount of
such Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total
maximum number of Convertible Securities issuable upon
the exercise of such Options will be deemed to be Common
Stock issued and sold by the Corporation, (y) the
consideration received pursuant to the Dilutive Event
<PAGE> 04.04.054
will equal the Price Per Share times the number of shares
of Common Stock so deemed issued and sold by the
Corporation and (z) the number of shares of Common Stock
so deemed issued and sold by the Corporation shall be
included in the Common Stock Deemed Outstanding. For
purposes of this Paragraph 5C(1)(a), the "Price Per
Share" will be determined by dividing (i) the total
amount, if any, received or receivable by the Corporation
as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration
payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No further
adjustment of the Conversion Price will be made when
Convertible Securities are actually issued upon the
exercise of such Options or when Common Stock is actually
issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If (i)
the Corporation in any manner issues or sells any
Convertible Securities and (ii) the Price Per Share of
shares of Common Stock issuable upon such conversion or
exchange is less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then
(x) the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible
Securities will be deemed to be Common Stock issued and
sold by the Corporation, (y) the consideration received
pursuant to the Dilutive Event will equal the Price Per
Share times the number of shares of Common Stock so
deemed issued and sold by the Corporation and (z) the
number of shares of Common Stock so deemed issued and
sold by the Corporation shall be included in the Common
Stock Deemed Outstanding. For the purposes of this
Paragraph 5C(1)(b), the "Price Per Share" will be
determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No further
adjustment of the Conversion Price will be made when
Common Stock is actually issued upon the conversion or
exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments to the
Conversion Price had been or are to be made pursuant to
Paragraph 5C(1)(a) above, no further adjustment of the
<PAGE> 04.04.055
Conversion Price will be made by reason of such issue or
sale.
(c) Change in Option Price or Conversion Rate.
If at any time there is a change in (i) the purchase
price provided for in any Options, (ii) the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities, or (iii) the rate
at which any Convertible Securities are convertible into
or exchangeable for Common Stock, then the Conversion
Price in effect at the time of such change will be
readjusted to the Conversion Price which would have been
in effect had those Options or Convertible Securities
still been outstanding at the time of such change
provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may
be, at the time such Options or Convertible Securities
were initially granted, issued or sold; provided that if
such adjustment would result in an increase of the
Conversion Price then in effect, such adjustment will not
be effective until thirty (30) days after written notice
thereof has been given by the Corporation to all holders
of the Series A Preferred Stock.
(2) For purposes of determining the adjusted Series A
Conversion Price under Paragraph 5B, the following will be applicable:
(a) Treatment of Expired Options and
Unexercised Convertible Securities. Upon the expiration
of any Option or the termination of any right to convert
or exchange any Convertible Security without the exercise
of any such Option or right, the Series A Conversion
Price then in effect hereunder will be adjusted to the
Series A Conversion Price which would have been in effect
at the time of such expiration or termination had such
Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination,
never been issued.
(b) Calculation of Consideration Received. If
any shares of Common Stock, Option or Convertible
Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor or
the Price Per Share, as the case may be, will be deemed
to be the net amount received or to be received,
respectively, by the Corporation therefor. In case any
shares of Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received
by the Corporation or the non-cash portion of the Price
Per Share, as the case may be, will be the fair value of
such consideration received or to be received,
respectively, by the Corporation therefor; except where
such consideration consists of securities, in which case
the amount of consideration received or to be received,
respectively, by the Corporation will be the Market Price
thereof as of the date of receipt. If any shares of
Common Stock, Options or Convertible Securities are
<PAGE> 04.04.056
issued in connection with any merger in which the
Corporation is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of
the non-surviving corporation as is attributable to such
shares of Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash and securities will be
determined jointly by the Corporation and the holders of
a majority of the outstanding shares of Series A
Preferred Stock. If such parties are unable to reach
agreement within a reasonable period of time, the fair
value of such consideration will be determined by an
independent appraiser jointly selected by the Corporation
and the holders of a majority of the outstanding shares
of Series A Preferred Stock.
(c) Integrated Transactions. In case any
Option is issued in connection with the issuance or sale
of other securities of the Corporation, together
comprising one integrated transaction in which no
specific consideration is allocated to such Option by the
parties thereto, the Option will be deemed to have been
issued for a consideration of $.01.
(d) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not
include shares owned or held by or for the account of the
Corporation or any Subsidiary, and the disposition of any
shares so owned or held will be considered an issue or
sale of Common Stock.
(e) Record Date. If the Corporation takes a
record of the holders of Common Stock for the purpose of
entitling them (I) to receive a dividend or other
distribution payable in Common Stock, Options or
Convertible Securities or (II) to subscribe for or
purchase Common Stock, Options or Convertible Securities,
then such record date will be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or
purchase, as the case may be.
D. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares
of Common Stock into a greater number of shares, the Series A Conversion Price
in effect immediately prior to such subdivision will be proportionately
reduced, and if the Corporation at any time combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Series A Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
E. Reorganization, Reclassification, Consolidation,
Merger or Sale.
<PAGE> 04.04.057
(1) Corporation Survives. Upon the consummation of an
Organic Change (other than a transaction in which the Corporation is not the
surviving entity) the terms of the Series A Preferred Stock shall be deemed
modified, without payment of any additional consideration therefor, so as to
provide that upon the conversion of shares of Series A Preferred Stock
following the consummation of such Organic Change, the holder of such shares
of Series A Preferred Stock shall have the right to acquire and receive (in
lieu of or in addition to the shares of Common Stock acquirable and receivable
prior to the Organic Change) such shares of stock, securities or assets as
such holder would have received if such holder had converted its shares of
Series A Preferred Stock into Common Stock immediately prior to such Organic
Change, in each case giving effect to any adjustment of the Conversion Price
made after the date of consummation of the Organic Change. All other terms of
the Series A Preferred Stock shall remain in full force and effect following
such an Organic Change. The provisions of this Paragraph 5E(1) shall
similarly apply to successive Organic Changes.
(2) Corporation Does Not Survive. The Corporation
shall not enter into an Organic Change that is a transaction in which the
Corporation is not the surviving entity unless the surviving entity shall
issue new securities, without payment of any additional consideration
therefor, with terms that provide that upon the conversion of such securities
following the consummation of such Organic Change, the holder of such
securities shall have the right to acquire and receive (in lieu of or in
addition to the shares of Common Stock acquirable and receivable prior to the
Organic Change) such shares of stock, securities or assets as such holder
would have received if such holder had converted its shares of Series A
Preferred Stock into Common Stock immediately prior to such Organic Change,
in each case giving effect to any adjustment of the Conversion Price of
such new securities made after the date of consummation of the Organic Change
on an equivalent basis to the adjustments provided for the Conversion Price
herein. All other terms of the new securities shall be equivalent to the
terms of the Series A Preferred Stock provided for herein. The provisions of
this Paragraph 5E(2) shall similarly apply to successive Organic Changes.
F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Part 5 but not expressly provided for
by such provisions, then the Board will make an appropriate adjustment in the
Series A Conversion Price so as to protect the rights of the holders of the
Series A Preferred Stock; provided, however, that, no such adjustment will
increase any Conversion Price as otherwise determined pursuant to this
Part 5 or decrease the number of shares of Common Stock issuable upon
conversion of each share of Series A Preferred Stock.
G. Notices.
(1) Immediately upon any adjustment of the Series A
Conversion Price, the Corporation will give written notice thereof to all
holders of Series A Preferred Stock.
(2) The Corporation will give written notice to all
holders of Series A Preferred Stock at least twenty (20) days prior to the
date on which the Corporation closes its books or takes a record (a) with
respect to any dividend or distribution upon Common Stock, (b) with respect to
any pro rata subscription offer to holders of Common Stock or (c) for
determining rights to vote with respect to any Organic Change, dissolution or
liquidation.
<PAGE> 04.04.058
(3) The Corporation will also give written notice to the
holders of Series A Preferred Stock at least twenty (20) days prior to the
date on which any Organic Change will take place.
H. Mandatory Conversion. The Corporation may require the
conversion of all of the outstanding Series A Preferred Stock upon the closing
of a firm commitment underwritten Public Offering of shares of the
Corporation's Common Stock in which (i) the net proceeds received by the
Corporation will be at least $10,000,000 and (ii) the price per share paid by
the public for such shares will be at least $4.00 (based on the Common Stock
as constituted on the date of issuance of the Series A Preferred Stock and
appropriately adjusted for any stock dividend or stock split or in connection
with any combination of shares, recapitalization, merger, consolidation
or other reorganization). Any such mandatory conversion shall only be
effected at the time of and subject to the closing of the sale of such shares
pursuant to such Public Offering and upon written notice of such mandatory
conversion delivered to all holders of Series A Preferred Stock at least
twenty (20) but not more than forty (40) days prior to such closing.
Part 6. Purchase Rights.
If at any time the Corporation distributes, grants or sells
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to all record holders of any class of Common
Stock (the "Purchase Rights"), then each holder of Series A Preferred Stock
will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
conversion of such holder's Series A Preferred Stock immediately before the
date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the distribution,
issue or sale of such Purchase Rights.
Part 7. Pre-Emptive Rights.
If the Corporation authorizes the issuance and sale of any
Additional Securities, the Corporation will offer to sell to the holders of
Series A Preferred Stock, and each holder of Series A Preferred Stock may
elect to purchase, up to that number of Additional Securities such that
following such purchase, the holder is able to maintain the same percentage
ownership (on a fully-diluted basis) of the outstanding shares of Common Stock
of the Corporation which such holder possessed by virtue of its ownership of
shares of Series A Preferred Stock (or Common Stock issued upon the conversion
thereof) immediately prior to the issuance and sale of the Additional
Securities. Holders of Series A Preferred Stock will be entitled to purchase
the Additional Securities at the same price and upon the same terms as such
securities are being offered to any other Persons; provided that, if such
Persons are to pay for such Additional Securities in whole or in part with
consideration other than cash, then the Board shall make a good faith
determination of the fair market value of such non-cash consideration and the
holders of the Series A Preferred Stock will be entitled to pay cash equal to
the fair market value of the non-cash consideration such holders would
<PAGE> 04.04.059
otherwise pay hereunder in the purchase of such Additional Securities.
Notwithstanding the foregoing, a holder of Series A Preferred Stock will not
be permitted to exercise its rights under this Part 7 unless such holder
agrees to purchase all securities offered as a package or unit in the issuance
of the Additional Securities. The Corporation must give written notice of the
issuance of Additional Securities, which notice shall set forth the price
and other terms of such issuance, to the holders of Series A Preferred Stock
no later than thirty (30) days following the issuance date of the Additional
Securities (the "Issuance Date"). Upon receipt of such notice, the holders
may exercise the right granted by this Part 7 by giving written notice to the
Corporation within thirty (30) days following receipt of the aforesaid notice,
which written notice from a holder shall specify the number of Additional
Securities being purchased by such holder, and be accompanied by a cashier's
or certified check in the full amount of the price for the Additional
Securities being purchased. The Corporation shall promptly make delivery to
such holders of certificates for the Additional Securities or other securities
upon execution of such documents and instruments as shall govern the issuance
of such Additional Securities or other securities. Notwithstanding the
foregoing, if a holder of Series A Preferred Stock shall exercise its
rights under this Part 7, such holder shall not be required to pay for the
Additional Securities purchased by it unless and until all other parties have
paid for their Additional Securities. In addition, if a holder of Series A
Preferred Stock shall exercise its rights under this Part 7 following the
Issuance Date, then such holder shall be deemed to have owned the Additional
Securities purchased by it as of the Issuance Date for the purpose of any
benefits of ownership relating to such Additional Securities, including the
right to receive cash or stock dividends declared or other distributions, to
participate in a merger or reorganization or to reflect any reclassification
of Additional Securities between the Issuance Date and the date upon which
such holder purchases the Additional Securities.
Part 8. Financial Statements and Other Information. For as
long as any Series A Preferred Stock remain outstanding, the Corporation will
deliver to each holder of Series A Preferred Stock:
A. Audited Financial Statements. As soon as practicable
after the end of each fiscal year of the Corporation, and in any event within
one hundred and twenty (120) days thereafter, consolidated and consolidating
balance sheets of the Corporation and its Subsidiaries, as at the end of such
year, and consolidated and consolidating statements of operations and
sources and uses of funds of the Corporation and its Subsidiaries, for such
fiscal year, prepared in accordance with GAAP (as defined in the Stock
Purchase Agreement) and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and, in the
case of the consolidated statements, certified, without qualification by BDO
Seidman or another nationally recognized independent public accountants
selected by the Corporation and acceptable to the holders of Series A
Preferred Stock;
B. Interim Financial Statements. As soon as practicable
after the end of each quarter and in any event within thirty (30) days
thereafter, consolidated and consolidating balance sheets of the Corporation
and its Subsidiaries as of the end of such period, and consolidated and
<PAGE> 04.04.060
consolidating statements of operations of the Corporation and its Subsidiaries
for such period and for the current fiscal year to date, prepared in
accordance with GAAP and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, together with a comparison
of such statements to the Corporation's budget, subject to changes resulting
from normal year-end audit adjustments, all in reasonable detail and certified
by the principal financial officer of the Corporation;
C. IIC Financial Information. As soon as practicable (i)
after the end of each calendar year and quarter, as applicable, and in any
event by the date on which filing is required with the Delaware Department of
Insurance, the Annual Statement and Quarterly Statement of IIC (as defined in
the Stock Purchase Agreement) with respect to such period, and any related
actuarial opinion and report, management's discussion and analysis, risk-based
capital report, statutory audit report and IRIS ratio results, and (ii) after
the end of each month, and in any event within thirty (30) days thereafter,
the internal statutory financial statements of IIC.
D. Budget. Not less than thirty (30) days prior to the
commencement of each fiscal year, an annual business plan, including a budget
and detailed financial projections for the Corporation and its Subsidiaries,
for each month during such period, all in reasonable detail, together with
underlying assumptions and approved by a majority of the entire board of
directors of the Corporation and the holders of a majority of the Series A
Preferred Stock then outstanding;
E. Auditors' Reports. Promptly upon receipt thereof,
copies of all other reports, if any, submitted to the Corporation by
independent public accountants in connection with any annual or interim audit
of the books of the Corporation and its Subsidiaries made by such accountants;
F. Lender Information. A copy of each financial
statement, report, notice or communication that the Corporation or any
Subsidiary delivers to any of their lenders or creditors;
G. Insurance Holding Company System Filings. Promptly
upon filing or notice thereof, a copy of each registration, notice or
other filing made by IIC or a member of its Insurance Holding Company System
pursuant to the Delaware Insurance Holding Company System Registration Chapter
or the California Insurance Holding Company System Regulatory Act;
H. Litigation. Promptly upon the Corporation's learning
thereof, notice of any litigation, suit or administrative proceeding that
could reasonably be expected to have a Material Adverse Effect (as defined in
the Stock Purchase Agreement) on the Corporation or any Subsidiary, whether or
not the claim is considered by the Corporation to be covered by insurance;
I. Regulatory Correspondence. Promptly upon receipt
thereof, a copy of any and all correspondence from regulatory authorities
<PAGE> 04.04.061
alleging violations by or relating to IIC.
J. Default. Promptly upon the occurrence thereof notice
of any failure of the Corporation or any Subsidiary to duly observe or perform
any covenant, condition or agreement required to be performed by the
Corporation or a Subsidiary under this Agreement, the Related Agreements or
this Certificate of Designation, including an Event of Noncompliance under
this Certificate of Designation;
K. Material Adverse Developments. Promptly upon the
occurrence thereof, notice of any event which has had, or could reasonably be
expected to have, a Material Adverse Effect on the Corporation or any
Subsidiary, including, without limitation, the institution or threat of any
material litigation or investigation with respect to the Corporation or any
Subsidiary or any material disputes with customers; and
L. Other Information. With reasonable promptness, all
press releases issued by the Corporation or any Subsidiary, any filings made
with the Commission by the Corporation or any Subsidiary and such other data
and information as from time to time may be reasonably requested by the
holders of Series A Preferred Stock or such other data as the Corporation may
from time to time furnish to any of the holders of its securities or
its directors in their capacities as such.
M. Accounting. The Corporation will maintain and will
cause each of its Subsidiaries to maintain a system of accounting established
and administered in accordance with GAAP and all financial statements or
information delivered under this Part 8 will be prepared in accordance with
GAAP, with the exception of financial statements of IIC which are prepared in
accordance with SAP (as defined in the Stock Purchase Agreement).
N. Insurance. The Corporation agrees to maintain or
cause to be maintained, with financially sound and reputable insurers rated A
or above by A.M. Best, insurance with respect to its assets and business and
the assets and business of its Subsidiaries against loss or damage of the
kinds customarily insured against by similarly situated corporations of
established reputation engaged in the same or similar businesses, in adequate
amounts, and at the request of any holder of Series A Preferred Stock shall
furnish such holder with evidence of the same. The Corporation further agrees
to cause to be maintained, with financially sound and reputable insurers rated
A or above by A.M. Best, term life insurance payable to the Corporation on the
life of Melvin C. Parker in the amount of at least $2,000,000.
O. Payment of Taxes and Other Obligations. The
Corporation agrees to pay or cause to be paid all taxes, assessments and
other governmental charges levied upon any of its assets or those of its
Subsidiaries or in respect of its or their respective franchises, businesses,
premium, income or profits, and all claims for work, labor or materials, which
if unpaid might become a Lien upon any asset of the Corporation or any
Subsidiary, before the same become delinquent, except that (unless and until
foreclosure, sale or other similar proceedings shall have been commenced) no
<PAGE> 04.04.062
such charge need be paid if being contested in good faith and by appropriate
measures promptly initiated and diligently conducted if (a) such reserve or
other appropriate provision, if any, as shall be required by sound
accounting practice shall have been made therefor, and (b) such contest does
not have a Material Adverse Effect on the Corporation or any Subsidiary or the
ability of the Corporation or any Subsidiary to pay any Indebtedness and no
assets are in imminent danger of forfeiture.
P. Compliance With Laws. The Corporation agrees to use
its best efforts to comply, and shall use its best efforts to cause each
Subsidiary to comply, with all laws, rules, regulations, judgments, orders and
decrees of any governmental or regulatory authority applicable to it and its
respective assets, including, but not limited to, those of Delaware and
California relating to the insurance business of IIC, and with all contracts,
and agreements to which it is a party or shall become a party, and to perform
all obligations which it has or shall incur the violation of which could have
a Material Adverse Effect on the Corporation or any Subsidiary.
Q. Preservation of Corporate Existence and Property;
Operations. The Corporation agrees to preserve, protect, and maintain, and
cause each Subsidiary to preserve, protect, and maintain, (a) its corporate
existence, and (b) all rights, franchises, accreditations, privileges, and
properties the failure of which to preserve, protect, and maintain could have
a Material Adverse Effect on the Corporation or any Subsidiary. The
Corporation and its Subsidiaries will comply with all material agreements and
contracts, including, without limitation, all leases and loan agreements and
all covenants and conditions in this Certificate of Designation, including,
but not limited to, the consent requirements set forth in Paragraph
4B(3) of this Certificate of Designation.
Part 9. Registration of Transfer.
The Corporation will keep at its principal office a register
for the registration of the Series A Preferred Stock. Upon the surrender of
any certificate representing Series A Preferred Stock at such place, the
Corporation will, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares of Series A Preferred Stock represented by the surrendered certificate.
Each such new certificate will be registered in such name and will represent
such number of shares of Series A Preferred Stock as is requested by the
holder of the surrendered certificate and will be substantially identical in
form to the surrendered certificate; provided, however, that any transfer
shall be subject to any applicable restrictions on the transfer of such
shares and the payment of any applicable transfer taxes, if any, by the
holder thereof.
Part 10. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing shares of Series A Preferred Stock, and in the case of
<PAGE> 04.04.063
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is an
institutional investor its own agreement will be satisfactory), or, in the
case of any such mutilation, upon surrender of such certificate, the
Corporation will (at its expense) execute and deliver in lieu of such
certificate a new certificate of like kind representing the number of shares
of Series A Preferred Stock represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed
or mutilated certificate.
Part 11. Definitions.
"Additional Securities" means (i) any capital stock of the
Corporation, whether now authorized or not, (ii) any rights, options or
warrants to purchase any such capital stock, or to purchase any securities
that are or may become convertible into any such capital stock, and (iii) any
securities convertible into any such capital stock; provided, however, that
Additional Securities shall not include (a) Common Stock issued upon the
conversion of the Series A Preferred Stock, (b) securities offered pursuant to
a Public Offering, (c) securities issued pursuant to an Approved Stock Plan,
(d) securities issued as a dividend on, subdivision of or other distribution
in respect of all outstanding shares of Common Stock and Series A Preferred
Stock (pro rata as if the Series A Preferred Stock had been converted intro
shares of Common Stock), (e) securities issued upon the conversion, exercise
or exchange of any option, warrant or convertible security issued as or in
connection with a previous issuance of Additional Securities or (f) securities
issued pursuant to the acquisition of another corporation by the Corporation
by merger, purchase of substantially all of the assets of such other
corporation, or by other reorganization whereby the Corporation ends up
owning, directly or indirectly, greater than fifty percent (50%) of the voting
power of the outstanding stock of such other corporation.
"Affiliate" as applied to any Person means any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. The term "control" (including, with correlative meanings,
the terms "controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of the
power to vote 10% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 10% or more of the ownership interest, beneficial
or otherwise) of such Person or otherwise to direct or cause the direction of
the management and policies of that Person, whether through the ownership of
Voting Stock or other ownership interest, by contract or otherwise. All of the
Corporation's executive officers, 10% shareholders, directors, Subsidiaries,
joint ventures and partners shall be deemed to be Affiliates of the
Corporation for purposes of this Agreement.
"Approved Stock Plan" shall mean collectively, all contracts,
plans or agreements which have been approved by the board of directors of the
Corporation, pursuant to which the Corporation's securities representing up to
an aggregate of [______] [10%] shares of Common Stock (on a fully diluted
basis) may be issued to employees, officers, directors, consultants or
other service providers of the Corporation.
<PAGE> 04.04.064
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or any successor
authority) that are applicable as the date of determination, consistently
applied.
"Indebtedness" shall mean at a particular time, without
duplication, (a) indebtedness for borrowed money or for the deferred purchase
price of property or services in respect of which any Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business)
or any commitment by which any Person assures a creditor against loss,
including contingent reimbursement obligations with respect to letters of
credit, (b) indebtedness guaranteed in any manner by any Person, including
guarantees in the form of an agreement to repurchase or reimburse, (c)
obligations under capitalized leases in respect of which obligations any
Person is liable, contingently or otherwise, as obligor, guarantor or
otherwise, or in respect of which obligations any Person assures a creditor
against loss and (d) any unsatisfied obligation of any Person for "withdrawal
liability" to a "multiemployer plan" as such terms are defined under ERISA.
"Junior Securities" means any of the Corporation's equity
securities other than the Series A Preferred Stock.
"Liens" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Corporation or any
Affiliate, any filing or agreement to file a financing statement as debtor
under the Uniform Commercial Code or any similar statute other than to reflect
ownership by a third party of property leased to the Corporation or any
Subsidiaries under a lease which is not in the nature of a conditional sale or
title retention agreement, or any subordination arrangement in favor of
another Person (other than any subordination arising in the ordinary course of
business).
"Liquidation Value" of any share of Series A Preferred Stock
as of any particular date will be equal to $100.00 (adjusted for any
divisions, whether by stock split, stock dividend or otherwise, or
combinations, whether by reverse stock split or otherwise, of the shares of
Series A Preferred Stock).
"Market Price" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
security is not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on
any day such security is not quoted in the NASDAQ System, the average of the
<PAGE> 04.04.065
highest bid and lowest asked prices on such day in the domestic over-the-
counter market as reported by the National Quotation Bureau, Incorporated, or
any similar successor organization, in each such case averaged over a period
of twenty-one (21) days consisting of the day as of which "Market Price" is
being determined and the twenty (20) consecutive business days prior to such
day. If at any time such security is not listed on any securities exchange or
quoted in the NASDAQ System or the over-the-counter market, the "Market
Price" will be the fair value thereof determined jointly by the Corporation
and the holders of a majority of the Series A Preferred Stock. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value will be determined by an independent appraiser jointly selected by
the Corporation and the holders of a majority of the Series A Preferred Stock.
"Organic Change" means any capital reorganization,
reclassification, consolidation, merger, lease, or sale of all or
substantially all of the Corporation's assets to another Person which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for shares of Common Stock.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.
"Permitted Liens" means:
(a) Tax liens with respect to taxes not yet due or
which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been
established in accordance with GAAP;
(b) Deposits or pledges made in connection with,
or to secure payment of, utilities or similar services,
workers' compensation, unemployment insurance, old age
pensions or other social security obligations;
(c) Purchase money security interests in any
property acquired by the Corporation or a Subsidiary;
(d) Mechanics', materialmen's or contractors'
liens or encumbrances or any similar lien or restriction; and
(e) Easements, rights-of-way, restrictions and
other similar charges and encumbrances not interfering with
the ordinary conduct of the business of the Corporation and
its Subsidiaries or detracting from the value of the
Corporation's consolidated assets.
"Public Offering" means any offering by the Corporation of its
equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any
<PAGE> 04.04.066
comparable statement under any similar federal statute then in force; provided
that a Public Offering will not include an offering made in connection with a
business acquisition.
"Stock Purchase Agreement" means that certain Series A
Preferred Stock Purchase Agreement by and among the Corporation and certain
investors named therein providing for the initial issuance of the Series A
Preferred Stock.
"Subsidiary" means any corporation of which the shares of
stock having a majority of the general voting power in electing the board of
directors are, at the time as of which any determination is being made, owned
by the Corporation either directly or indirectly through Subsidiaries.
"Voting Stock" of any Person means securities of any class or
classes of such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the directors of such Person.
Part 12. Amendment and Waiver.
No amendment, modification or waiver will be binding or
effective with respect to any provision of this Certificate of Designation
without the prior written consent of the holders of a majority of the shares
of Series A Preferred Stock outstanding at the time such action is taken. No
change in the terms hereof may be accomplished by merger or consolidation of
the Corporation with another corporation unless the Corporation has
obtained the prior affirmative vote or written consent of the holders of a
majority of the shares of Series A Preferred Stock then outstanding.
Part 13. Notices.
Except as otherwise expressly provided, all notices referred
to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested, postage prepaid and shall be deemed
to have been delivered when so mailed (i) to the Corporation, at its principal
executive offices and (ii) to any shareholder, at such holder's address as
it appears in the stock records of the Corporation (unless otherwise indicated
in writing by any such holder).
<PAGE> 04.04.067
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation
to be executed by its President and attested by its Secretary this ____ day of
___________, 1996.
INVESTORS INSURANCE GROUP, INC.
______________________________
President
ATTEST:
____________________________
, Secretary
<PAGE> 04.04.068
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
by and among
INVESTORS INSURANCE GROUP, INC.
and
[PURCHASERS]
<PAGE> 04.04.069
REGISTRATION RIGHTS AGREEMENT
GLOSSARY OF DEFINED TERMS
Term Section Referenced
"Agreement" ............................................... Introduction
"Commission" .............................................. Sectional
"Common Stock" ............................................ Sectional
"Corporation" ............................................. Introduction
"Demand Registrations" .................................... Section 2.1
"Exchange Act" ............................................ Section 1
"Maximum Contribution Amount" ............................. Section 7.1
"Piggy back Registration" ................................. Section 3.1
"Purchasers" .............................................. Introduction
"Registrable Shares" ...................................... Section 1.1
"Registration Expenses" ................................... Section 6.1
"Securities Act" .......................................... Section 1.1
"Shares" .................................................. Recitals
"Stock Purchase Agreement" ................................ Recitals
i
<PAGE> 04.04.070
INVESTORS INSURANCE GROUP, INC.
Registration Rights
Agreement
This Registration Rights Agreement (this "Agreement") is made
as of [__________], 1996 by and among INVESTORS INSURANCE GROUP, INC., a
Florida corporation (the "Corporation") and each of the purchasers listed on
the Schedule of Purchasers attached hereto and who executes a signature page
to this Agreement (collectively, the "Purchasers").
RECITALS
A. The Purchasers have agreed to purchase certain shares
of the Corporation's Series A Preferred Stock (the "Shares") pursuant to that
Series A Preferred Stock Purchase Agreement dated as of April ___, 1996 (the
"Stock Purchase Agreement") and the execution and delivery of this Agreement
is a condition precedent to the consummation of the transactions contemplated
by the Stock Purchase Agreement.
B. The Corporation deems it desirable to enter into this
Agreement in order to induce the Purchasers to purchase the Shares pursuant to
the Stock Purchase Agreement.
AGREEMENTS
In consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Definitions. As used in this Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Corporation's common stock, par value
$.50 per share.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Registrable Shares" means at any time (i) any shares of
Common Stock then outstanding which were issued upon conversion of the Shares;
(ii) any shares of Common Stock then issuable upon conversion of the then
outstanding Shares; (iii) any shares of Common Stock then outstanding which
were issued as, or were issued directly or indirectly upon the conversion or
exercise of other securities issued as, a dividend or other distribution
with respect or in replacement of any shares referred to in (i) or (ii); and
(iv) any shares of Common Stock then issuable directly or indirectly upon the
conversion or exercise of other securities which were issued as a dividend or
other distribution with respect to or in replacement of any shares referred to
in (i) or (ii); provided, however, that Registrable Shares shall not include
any shares which have been registered pursuant to the Securities Act or which
have been sold to the public pursuant to Rule 144 of the Commission under the
Securities Act. For purposes of this Agreement, a person will be deemed to be
<PAGE> 04.04.071
a holder of Registrable Shares whenever such person has the then-existing
right to acquire such Registrable Shares (by conversion or otherwise), whether
or not such acquisition actually has been effected.
"Securities Act" means the Securities Act of 1933, as amended.
2. Demand Registration.
2.1 Requests for Registration. Subject to the
terms of this Agreement (including Section 2.2 below), at any time after
January 1, 1997 the holders of at least fifty one percent (51%) of the then
outstanding Registrable Shares may request registration under the Securities
Act of all or part of their Registrable Shares on Form S-1 or any similar
long-form registration or, if available, on Form S-2 or S-3 or any similar
short-form registration. Within ten (10) days after receipt of any request
pursuant to this Section 2.1, the Corporation will give written notice of such
request to all other holders of Registrable Shares and will include in such
registration all Registrable Shares with respect to which the Corporation has
received written requests for inclusion within fifteen (15) days after
delivery of the Corporation's notice. All registrations requested pursuant to
this Section 2.1 are referred to herein as "Demand Registrations." All Demand
Registrations shall be underwritten public offerings for all cash
consideration.
2.2 Demand Registrations. The holders of the
Registrable Shares will be entitled to request two (2) Demand Registrations
in which the Corporation will pay all Registration Expenses; provided that the
anticipated proceeds of each such Demand Registrations (net of underwriters'
discounts and commissions) shall equal or exceed $2,000,000. A registration
will not count as a Demand Registration (i) until it has become effective
(unless such Demand Registration has not become effective due solely to the
fault of the holders of Registrable Shares to be included in such
registration), and (ii) unless the holders of the Registrable Shares are able
to register and sell at least ninety percent (90%) of the Registrable Shares
requested to be included in such registration (unless such Registrable Shares
are not registered and not sold due solely to the fault of the holders of such
Registrable Shares); provided, however, that in any event the Corporation
will pay all Registration Expenses in connection with any registration
initiated as a Demand Registration.
2.3 Preemption. The Corporation will have the
right to preempt any Demand Registration with a primary registration by
delivering written notice of such intention to the holders of Registrable
Shares who have requested such Demand Registration within fifteen (15) days
after the Corporation has received a request for such registration. In the
ensuing primary registration, the holders of Registrable Shares will have such
piggyback registration rights as are set forth in Section 3 hereof. Upon the
Corporation's preemption of a requested Demand Registration, such requested
registration will not count as one of the permitted Demand Registrations.
2.4 Priority. If other securities are to be
included in a Demand Registration which is an underwritten offering and the
managing underwriters advise the Corporation in writing that in their opinion
the total number of Registrable Shares and other securities requested to be
included in such offering would have an adverse affect on the ability of the
underwriters to effect the underwriting or the pricing thereof, the
Corporation will include in such registration, (i) first, the Registrable
2
<PAGE> 04.04.072
Shares requested to be included in such Demand Registration, pro rata
among the holders of such securities on the basis of the number of Registrable
Shares which are owned by such holders, and (ii) second, other securities to
be included in such Demand Registration.
2.5 Restrictions. The Corporation will not be
obligated to effect any Demand Registration within nine months after the
effective date of a previous Demand Registration. The Corporation may
postpone for up to three (3) months the filing or the effectiveness of a
registration statement for a Demand Registration if the Corporation reasonably
believes that such Demand Registration would have an adverse effect on any
proposal or plan by the Corporation or any of its subsidiaries to engage
in any acquisition of assets (other than in the ordinary course of business)
or any merger, consolidation, tender offer or other significant transaction.
3. Piggyback Registration.
3.1 Right to Piggyback. Whenever the Corporation
proposes to register any of its securities under the Securities Act (other
than pursuant to a Demand Registration hereunder and except on Form S-4, S-8
or any successor form) and the registration form to be used may be used for
the registration of any Registrable Shares (a "Piggyback Registration"), the
Corporation will give prompt written notice to all holders of the Registrable
Shares of its intention to effect such a registration and will include
in such registration all Registrable Shares (in accordance with the priorities
set forth in Sections 3.2 and 3.3 below) with respect to which the Corporation
has received written requests for inclusion within fifteen (15) days after the
delivery of the Corporation's notice.
3.2 Priority on Primary Registrations. If a
Piggyback Registration is an underwritten primary registration on behalf
of the Corporation and the managing underwriters advise the Corporation in
writing that in their opinion the total number of Registrable Shares and other
securities requested to be included in such offering would have an adverse
affect on the ability of the underwriters to effect the underwriting or the
pricing thereof, the Corporation will include in such registration, (i)
first, the securities that the Corporation proposes to sell, (ii) second, the
Registrable Shares requested to be included in such registration, pro rata
among the holders of such Registrable Shares on the basis of the number of
shares which are owned by such holders, and (iii) third, other securities
requested to be included in such registration.
3.3 Priority on Secondary Registrations. If a
Piggyback Registration is an underwritten secondary registration on behalf
of holders of the Corporation's securities and the managing underwriters
advise the Corporation in writing that in their opinion the total number of
Registrable Shares and other securities requested to be included in such
offering would have an adverse affect on the ability of the underwriters to
effect the underwriting or the pricing thereof, the Corporation will include
in such registration, (i) first, the securities requested to be included
therein by the holders requesting such registration and the Registrable Shares
requested to be included in such registration, pro rata among the holders of
such securities on the basis of the number of shares of Common Stock or
Registrable Shares which are owned by such holders, and (ii) second, other
securities requested to be included in such registration.
3
<PAGE> 04.04.073
3.4 Other Registrations. If the Corporation has
previously filed a registration statement with respect to Registrable Shares
pursuant to Section 2 or pursuant to this Section 3, and if such previous
registration has not been withdrawn or abandoned, the Corporation will not
file or cause to be effected any other registration of any of its equity
securities or securities convertible or exchangeable into or exercisable for
its equity securities under the Securities Act (except on Form S-8 or any
successor form), whether on its own behalf or at the request of any holder or
holders of such securities, until a period of at least 180 days has elapsed
from the effective date of such previous registration.
4. Holdback Agreements.
4.1 Holders' Agreements. Each holder of
Registrable Shares agrees not to effect any public sale or distribution of
equity securities of the Corporation, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven (7) days
prior to, and during the ninety (90) days following, the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registrable Shares are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
4.2 Corporation's Agreements. The Corporation
agrees (i) not to effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven (7) days prior to, and during the ninety
(90) days following, the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of
such underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public
offering otherwise agree, and (ii) to cause each holder of at least one
percent (1%) (on a fully diluted basis) of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities
to agree not to effect any public sale or distribution of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
5. Registration Procedures. Whenever the holders of
Registrable Shares have requested that any Registrable Shares be registered
pursuant to this Agreement, the Corporation will use its best efforts to
effect the registration and sale of such Registrable Shares in accordance with
the intended method of disposition thereof and, pursuant thereto, the
Corporation will as expeditiously as possible:
(a) prepare and file with the Commission a
registration statement with respect to such Registrable Shares and use its
best efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus, or any
amendments or supplements thereto, the Corporation will furnish copies of all
such documents proposed to be filed to the counsel or counsels for the sellers
of the Registrable Shares covered by such registration statement);
(b) prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus(es) used in connection therewith as may be necessary to keep such
4
<PAGE> 04.04.074
registration statement effective for a period of not less than nine months and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable
Shares such number of copies of such registration statement, each amendment
and supplement thereto, the prospectus(es) included in such registration
statement (including each preliminary prospectus) and such other documents as
such seller may reasonably request in order to facilitate the disposition of
the Registrable Shares owned by such seller;
(d) use its best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws
of such jurisdictions as any seller reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Shares owned by such seller (provided that the Corporation will
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction);
(e) notify each seller of such Registrable
Shares, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in such registration statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Corporation will prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Shares,
such prospectus will not contain any untrue statement of a material fact or
omit to state any fact necessary to make the statements therein not
misleading;
(f) cause all such Registrable Shares to
be listed on each securities exchange on which similar securities issued by
the Corporation are then listed;
(g) provide a transfer agent and registrar
for all such Registrable Shares not later than the effective date of such
registration statement;
(h) enter into such customary agreements
(including underwriting agreements in customary form) and take all such
other actions as the holders of a majority of the Registrable Shares being
sold or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares (including, without
limitation, effecting a stock split or a combination of shares), subject to
any required shareholder approval;
(i) make available for inspection by any
seller of Registrable Shares, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Corporation, and
cause the Corporation's officers, directors, employees and independent
5
<PAGE> 04.04.075
accountants to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) advise each seller of such Registrable
Shares, promptly after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the Commission suspending the effectiveness
of such registration statement or the initiation or threatening of any
proceeding for such purpose and promptly use all reasonable efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such stop order
should be issued;
(k) at least forty eight (48) hours prior
to the filing of any registration statement or prospectus, or any amendment or
supplement to such registration statement or prospectus, furnish a copy
thereof to each seller of such Registrable Shares and refrain from filing any
such registration statement, prospectus, amendment or supplement to which
counsel selected by the holders of a majority of the Registrable Shares being
registered shall have reasonably objected on the grounds that such document
does not comply in all material respects with the requirements of the
Securities Act or the rules and regulations thereunder, unless, in the case of
an amendment or supplement, in the opinion of counsel for the Corporation the
filing of such amendment or supplement is reasonably necessary to protect the
Corporation from any liabilities under any applicable federal or state law
and such filing will not violate applicable laws; and
(l) at the request of any seller of such
Registrable Shares in connection with an underwritten offering, furnish on the
date or dates provided for in the underwriting agreement: (i) an opinion of
counsel, addressed to the underwriters and the sellers of Registrable Shares,
covering such matters as such underwriters and sellers may reasonably request,
including such matters as are customarily furnished in connection with an
underwritten offering; and (ii) a letter or letters from the independent
certified public accountants of the Corporation addressed to the underwriters
and the sellers of Registrable Shares, covering such matters as such
underwriters and sellers may reasonably request, in which letter(s) such
accountants shall state, without limiting the generality of the foregoing,
that they are independent certified public accountants within the meaning of
the Securities Act and that in their opinion the financial statements and
other financial data of the Corporation included in the registration
statement, the prospectus(es), or any amendment or supplement thereto, comply
in all material respects with the applicable accounting requirements of the
Securities Act.
6. Registration Expenses.
6.1 Corporation's Expenses. All expenses incident
to the Corporation's performance of or compliance with this Agreement,
including without limitation all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Corporation and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the
Corporation (all such expenses being herein called "Registration Expenses"),
will be borne by the Corporation.
6.2 Holder's Expenses. Notwithstanding anything
6
<PAGE> 04.04.076
to the contrary contained herein, each holder of Registrable Shares will pay
all attorney fees and disbursements for counsel they retain in connection with
the registration of Registrable Shares, except that the Corporation will
reimburse the holders of Registrable Shares for the reasonable fees and
disbursements of one counsel chosen by the holders of at least fifty one
percent (51%) of such Registrable Shares in connection with a Demand
Registration.
7. Indemnification.
7.1 By the Corporation. The Corporation agrees to
indemnify, to the extent permitted by law, each holder of Registrable
Shares, its officers and directors and each person who controls such holder
(within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses (including without limitation, reasonable
attorney's fees) caused by any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the
Corporation by such holder or by a Series A Director (as defined in the
Certificate of Designation for the Shares), in each case expressly for use
therein, or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Corporation has furnished such holder with a sufficient number of copies of
the same. The payments required by this Section 7.1 will be made periodically
during the course of the investigation or defense, as and when bills are
received or expenses incurred.
7.2 By Each Holder. In connection with any
registration statement in which a holder of Registrable Shares is
participating, each such holder will furnish to the Corporation in writing
such information and affidavits as the Corporation reasonably requests for use
in connection with any such registration statement or prospectus and, to the
extent permitted by law, will indemnify the Corporation, its directors and
officers and each person who controls the Corporation (within the meaning of
the Securities Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto, or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that
such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder; provided that the obligation
to indemnify will be several, not joint and several, among such holders of
Registrable Shares and the liability of each such holder of Registrable Shares
will be in proportion to and limited to the net amount received by such
holder from the sale of Registrable Shares pursuant to such registration
statement.
7.3 Procedure. Any person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party.
7
<PAGE> 04.04.077
If such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld). An indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel
for all parties indemnified by such indemnifying party with respect to such
claim, unless in the reasonable judgment of any indemnified party a conflict
of interest may exist between such indemnified party and any other
of such indemnified parties with respect to such claim.
7.4 Survival. The indemnification provided for
under this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling person of such indemnified party and will survive the
transfer of securities. The Corporation also agrees to make such provisions
as are reasonably requested by any indemnified party for contribution to such
party in the event the Corporation's indemnification is unavailable for any
reason.
7.5 Contribution. If for any reason the
indemnification provided for in Sections 7.1 or 7.2 hereof is unavailable to
an indemnified party as contemplated thereby, the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect not only the relative benefits received by the indemnified party
and the indemnifying party, but also the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable
considerations. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7.5 were determined by pro
rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding sentence. Notwithstanding the provisions of this Section 7.5, an
indemnifying party that is a selling holder of Registrable Securities shall
not be required to contribute, in the aggregate, any amount in excess of such
holder's Maximum Contribution Amount. A selling holder's "Maximum
Contribution Amount" shall equal the excess of (i) the aggregate proceeds
received by such holder pursuant to the sale of such Registrable Shares (net
of payment of all expenses) over (ii) the aggregate amount of damages that
such holder has otherwise been required to pay by reason of untrue or alleged
untrue statement or omission or alleged omission contained in a Registration
Statement filed by the Corporation. No party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any party who was not guilty of
fraudulent misrepresentation.
8. Compliance with Rule 144. In the event that the
Corporation (a) registers a class of securities under Section 12 of the
Exchange Act, (b) issues an offering circular meeting the requirements of
Regulation A under the Securities Act or (c) commences to file reports under
Section 13 or 15(d) of the Exchange Act, then at the request of any holder who
proposes to sell securities in compliance with Rule 144 of the Commission,
the Corporation will (i) forthwith furnish to such holder a written statement
of compliance with the filing requirements of the Commission as set forth in
Rule 144, as such rule may be amended from time to time and (ii) make
available to the public and such holders such information as will enable the
holders to make sales pursuant to Rule 144.
9. Participation in Underwritten Registrations. No
8
<PAGE> 04.04.078
person may participate in any registration hereunder which is underwritten
unless such person (i) agrees to sell its securities on the basis provided in
any underwriting arrangements approved by such person or persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the
terms of such underwriting arrangements.
10. Miscellaneous.
10.1 No Inconsistent Agreements. The Corporation
will not hereafter enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Shares in this Agreement.
10.2 Adjustments Affecting Registrable Shares. The
Corporation will not take any action, or permit any change to occur, with
respect to its securities which would adversely affect the ability of the
holders of Registrable Shares to include such Registrable Shares in a
registration undertaken pursuant to this Agreement or which would adversely
affect the marketability of such Registrable Shares in any such registration,
including, without limitation, effecting a stock split or combination of
shares.
10.3 Other Registration Rights. Except as provided
in this Agreement, the Corporation will not hereafter grant to any person or
persons the right to request the Corporation to register any equity securities
of the Corporation, or any securities convertible or exchangeable into or
exercisable for such securities, without the prior written consent of the
holders of at least fifty one percent (51%) of the Registrable Shares.
10.4 Successors and Assigns. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto,
whether so expressed or not. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of the Purchasers or holders of Shares are also for the benefit
of, and enforceable by, any subsequent holders of such Shares.
10.5 Severability. Whenever possible, each
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
10.6 Descriptive Headings. The descriptive
headings of this Agreement are inserted for convenience of reference only and
do not constitute a part of and shall not be utilized in interpreting this
Agreement.
10.7 Notices. Any notices required or permitted to
be sent hereunder shall be delivered personally or mailed, certified mail,
return receipt requested, or delivered by overnight courier service to the
following addresses, or such other address as any party hereto designates by
written notice to the Corporation, and shall be deemed to have been given upon
delivery, if delivered personally, three days after mailing, if mailed, or one
9
<PAGE> 04.04.079
business day after delivery to the courier, if delivered by overnight courier
service:
If to the Corporation, to:
Investors Insurance Group, Inc.
7200 West Camino Real
Suite 203
Boca Raton, Florida 33433
Attention: Chief Executive Officer
with a copy to:
Palmarella & Sweeney, P.C.
310 Building 2
100 Matsonford Road
Radnor, Pennsylvania 19087
Attention: Ernest D. Palmarella
If to the Purchasers, to:
AAM Capital Partners, L.P.
30 N. LaSalle Street, 36th Floor
Chicago, Illinois 60602
Attention: Richard A. Veed
Francis S. Wilson, III
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Michael P. Goldman, Esq.
10.8 Governing Law. All questions concerning the
construction, validity and interpretation of this Agreement, and the
performance of the obligations imposed by this Agreement, shall be governed by
the laws of the State of Delaware applicable to contracts made and wholly to
be performed in that state.
10.9 Final Agreement. This Agreement, together
with the Stock Purchase Agreement and all other agreements entered into
by the parties hereto pursuant to the Stock Purchase Agreement, constitutes
the complete and final agreement of the parties concerning the matters
referred to herein, and supersedes all prior agreements and understandings.
10.10 Execution in Counterparts. This Agreement may
be executed in any number of counterparts, each of which when so executed and
10
<PAGE> 04.04.080
delivered shall be deemed an original, and such counterparts together shall
constitute one instrument.
10.11 No Strict Construction. The language used in
this Agreement will be deemed to be the language chosen by the parties hereto
to express their mutual intent, and no rule of strict construction will be
used against any party.
10.12 Consent to Amendments; Waivers. Except as
otherwise expressly provided herein, the provisions of this Agreement may
be amended or waived at any time only by the written agreement of the
Corporation and holders of a majority of the Registrable Shares. Any waiver,
permit, consent or approval of any kind or character on the part of any such
holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in
such writing.
The parties hereto have executed this Agreement on the date first set
forth above.
THE CORPORATION:
INVESTORS INSURANCE GROUP, INC.
By: ______________________________
Its:_____________________________
PURCHASERS:
AAM CAPITAL PARTNERS, L.P.
By: AAM PARTNERS, L.P., its
General Partner
By: AAM Investment Banking Group,
Ltd. its General Partner
By:_____________________________
Its:_____________________________
[OTHER SIGNATURE BLOCKS TO COME]
11
<PAGE> 04.04.081
SCHEDULE OF PURCHASERS
Name and Address Number of Registrable Shares
AAM CAPITAL PARTNERS, L.P.
30 N. LaSalle Street, 36th Floor
Chicago, Illinois 60602
[OTHERS TO COME]
12
<PAGE> 04.04.082
EXHIBIT C
SHAREHOLDERS AGREEMENT
by and among
INVESTORS INSURANCE GROUP, INC.
and
[PREFERRED SHARE HOLDERS]
and
[COMMON SHARE HOLDERS]
<PAGE> 04.04.083
SHAREHOLDERS AGREEMENT
GLOSSARY OF DEFINED TERMS
Term Section Referenced
"Agreement" ................................................... Introduction
"Authorization Date" .......................................... Section 2.3
"Available Shares" ............................................ Section 2.3
"Buyer" ....................................................... Section 3
"Common Share Holder" ......................................... Section 1
"Common Shares" ............................................... Section 1
"Common Stock" ................................................ Section 1
"Corporation" ................................................. Introduction
"Disposing Holder" ............................................ Section 2.3
"Exempt Transfer" ............................................. Section 2.2
"Offered Shares" .............................................. Section 2.3
"Preferred Share Holder" ...................................... Section 1
"Preferred Shares" ............................................ Recitals
"Public Offering" ............................................. Section 1
"Public Transfer" ............................................. Section 2.2
"Sale Notice" ................................................. Section 2.3
"Stock Purchase Agreement" .................................... Recitals
"Transfer" .................................................... Section 1
-i-
<PAGE> 04.04.084
INVESTORS INSURANCE GROUP, INC.
Shareholders Agreement
This Shareholders Agreement (this "Agreement"), is made as of
, 1996 by and among INVESTORS INSURANCE GROUP, INC., a Florida
corporation (the "Corporation"), each of the parties listed on the Schedule of
Preferred Share Holders attached hereto and who executes a signature page to
this Agreement, and each of the parties listed on the Schedule of Common Share
Holders attached hereto and who executes a signature page to this Agreement.
RECITALS
A. The Preferred Share Holders have agreed to purchase certain
shares of the Corporation's Series A Preferred Stock (the "Preferred Shares")
pursuant to that Series A Preferred Stock Purchase Agreement dated as of April
___, 1996 (the "Stock Purchase Agreement") and the execution and delivery of
this Agreement is a condition precedent to the consummation of the
transactions contemplated by the Stock Purchase Agreement.
B. The Corporation and the Common Share Holders deem it desirable
to enter into this Agreement in order to induce the Preferred Share Holders to
purchase the Preferred Shares.
AGREEMENTS
In consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Definitions. As used in this Agreement:
"Common Share Holder" means any holder (or deemed holder) of Common
Shares who is a party to this Agreement or is a successor and assign or
subsequent holder of such Common Shares.
"Common Shares" means shares of Common Stock held by Common Share
Holders that have not been sold pursuant to a registration statement effective
with the Securities and Exchange Commission. For the purposes of this
Agreement, any Common Share Holder will be deemed to own, in addition to any
Common Shares such Common Share Holder actually owns, any Common Shares which
would then be directly or indirectly issuable upon the conversion or exercise
of any other securities owned by such Common Share Holder and such other
securities shall be deemed to represent such Common Shares.
"Common Stock" means the Corporation's common stock, par value
$.50 per share
<PAGE> 04.04.085
"Preferred Share Holder" means any holder (or deemed holder) of
Preferred Shares who is a party to this Agreement or is a successor and assign
or subsequent holder of Preferred Shares as contemplated by Section 8 below.
"Public Offering" means any offering of Common Shares to the public
pursuant to an effective registration statement under, or the sale to the
public of Common shares pursuant to Rule 144 promulgated under, the Securities
Act of 1933, as amended, or any comparable statement under any similar federal
statute then in force.
"Transfer" means any direct or indirect sale, disposition, assignment,
pledge, hypothecation, encumbrance or other transfer.
2. Restrictions on Transfer.
2.1 Restrictive Legend. Any certificate representing
Common Shares will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET
FORTH IN A SHAREHOLDERS AGREEMENT BETWEEN THE CORPORATION AND THE
ORIGINAL HOLDER DATED AS OF __________, 1996. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE CORPORATION'S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
2.2 Exempt Transfers. No Common Share Holder will
Transfer any Common Shares, except (a) in compliance with Sections 2.3
and 3 of this Agreement, (b) for Transfers from Chester County Fund, Inc. to
its stockholders, or (c) with respect to Common Share Holders that are
individuals, Transfers of Common Shares pursuant to applicable laws of descent
and distribution or the Transfer to a trust whose sole trustee during his or
her lifetime is such Common Share Holder and whose beneficiaries are
(i) a Common Share Holder during his or her lifetime, (ii) his or her spouse
or one or (iii) more of his or her descendants and, (each of the foregoing, an
Exempt Transfer"); provided that in each case the restrictions contained in
this Section 2.2 will continue to be applicable to Common Shares following
such Exempt Transfer (other than Transfers by Chester County Fund, Inc. to its
stockholders other than Donald Goebert) and, in each case, the transferee of
such Common Shares (other than stockholders of Chester County Fund other than
Donald Goebert) will have agreed in writing to be bound by the terms and
conditions of this Agreement applicable to the Common Share Holder.
Notwithstanding anything to the contrary contained herein, a Common Share
Holder may Transfer Common Shares pursuant to a Public Offering and pursuant
to the sale of such Common Shares to the public pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended (each a "Public
Transfer").
2.3. Right of First Refusal. Prior to making any Transfer
other than an Exempt Transfer or a Public Transfer, a Common Share Holder (the
"Disposing Holder") will deliver a written notice (the "Sale Notice") to the
Corporation and the Preferred Share Holders, disclosing in reasonable detail
the identity of the prospective transferee(s), the Common Shares proposed to
2
<PAGE> 04.04.086
be Transferred (the "Offered Shares") and the terms and conditions of the
proposed Transfer. The Disposing Holder agrees not to consummate any such
Transfer until the parties to the Transfer have been finally determined
pursuant to this Section 2.3 (the "Authorization Date"). The Preferred Share
Holders may elect to purchase all or a portion of the Offered Shares upon the
same terms and conditions as those set forth in the Sale Notice by delivering
a written notice of such election to the Corporation and the Disposing Holder
within thirty (30) days after the receipt of the Sale Notice by the Preferred
Share Holders. If more than one Preferred Share Holder elects to purchase the
Offered Shares, they may do so pro rata based on the number of Preferred
Shares held by each of them or in such other proportions as they may agree.
If the Preferred Share Holders elect to purchase less than all of the Offered
Shares (the "Available Shares"), the Corporation may elect to purchase all or
a portion of the Available Shares upon the same terms and conditions as those
set forth in the Sale Notice by delivering a written notice of such election
to the Disposing Holder within thirty-five (35) days after the receipt of the
Sale Notice by the Corporation. The Preferred Share Holders and/or the
Corporation will be given up to twenty (20) days from the date of such
election to consummate such purchase and sale. If the Preferred Share Holders
and/or the Corporation have not elected to purchase all of the Offered Shares
within thirty-five (35) days of the delivery of the Sale Notice, or have so
elected to purchase such shares but have not consummated the purchase of
such shares within fifty-five (55) days of the delivery of the Sale Notice,
the Disposing Holder may, subject to the provisions of Section 2.2 above and
Section 3 below, Transfer the Offered Shares not purchased by the Preferred
Share Holders and/or the Corporation, at a price and on terms no more
favorable to the transferee(s) thereof than those specified in the Sale
Notice, during the 60-day period immediately following the Authorization
Date. Any Common Shares not transferred within such 60-day period will be
subject to the provisions of this Section 2.3 upon subsequent Transfer.
3. Co-Sale Right. If any Common Share Holder shall Transfer any
Common Shares pursuant to a bona fide offer to a third party (the "Buyer"),
other than pursuant to a Public Transfer, then such Common Share Holder shall
notify the Preferred Share Holders, in writing, of such offer and its terms
and conditions. Upon receipt of such notice, each of the Preferred Share
Holders shall have the right to sell to the Buyer, in lieu of the sale to the
Buyer by the Common Share Holder, that number of shares of Common Stock equal
to the product attained by multiplying (a) the number of shares of Common
Stock held by such Preferred Share Holder (or issuable upon conversion of the
Preferred Shares held by such Preferred Share Holder) times, (b) the quotient
derived by dividing (i) the number of Common Shares which otherwise would have
been sold by such Common Share Holder to the Buyer by (ii) the aggregate of
total number of Common Shares held by such Common Share Holder and the total
number of shares of Common Stock held by all of the Preferred Share Holders
(or issuable upon conversion of the Preferred Shares). The Preferred Share
Holders' right to sell pursuant to this Section 3 can be exercised by delivery
of a written notice to the selling Common Share Holder within twenty (20) days
following the delivery of the notice to the Preferred Share Holders of the
sale to Buyer by such Common Share Holder.
4. Election of Directors; Meetings. Subject to and as may be
limited from time to time by the special voting rights of the Preferred Shares
upon the occurrence of certain Events of Noncompliance under the Certificate
of Designation (as defined in the Stock Purchase Agreement), each Common Share
Holder and each Preferred Share Holder agrees to take all action necessary
3
<PAGE> 04.04.087
including, without limitation, the voting of their shares of stock of the
Corporation, the execution of written consents, the calling of special
meetings, the removal of directors, the filling of vacancies on the
Corporation's Board of Directors, the waiving of notice and the attending of
meetings, so as to cause the Board of Directors of the Corporation to be
comprised of seven directors, (i) three nominees selected by the holders
of a majority of the Common Stock, and (ii) four nominees selected by the
holders of a majority of the shares of Common Stock issued or issuable upon
conversion of the Preferred Shares (one of which shall initially be Melvin C.
Parker).
5. Representations and Warranties.
5.1 Of the Common Share Holders. Each Common Share Holder
represents and warrants to the Preferred Share Holders the following with
respect to himself, herself or itself, as the case may be:
(a) Authorization. All corporate action on the
part of the Common Share Holder, its directors and shareholders necessary
for the authorization, execution, delivery and performance by such Common
Share Holder of this Agreement has been taken. This Agreement is a legal,
valid and binding obligation of such Common Share Holder, enforceable against
such Common Share Holder in accordance with its terms.
(b) No Violation. The execution and delivery of
this Agreement will not (with or without notice or passage of time or both)
(i) conflict with or result in a breach of any provision of the charter
documents of such Common Share Holder, (ii) result in a default, give rise to
any right of termination, cancellation or acceleration, or require any consent
or approval, under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, loan, factoring arrangement, license, agreement,
lease or other instrument or obligation to which such Common Share Holder is a
party or by which it or any of its assets may be bound or (iii) violate any
law, judgment, order, writ, injunction, decree, statute, rule or regulation of
any court, administrative agency, bureau, board, commission, office,
authority, department or other governmental entity applicable to such Common
Share Holder or any of its assets.
(c) Registration. All of the Common Shares held
by such Common Share Holder have been registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
5.2 Of the Preferred Share Holders. Each Preferred Share
Holder represents and warrants to the Common Share Holders the following with
respect to himself, herself or itself, as the case may be:
(a) Authorization. All corporate or partnership
action on the part of the Preferred Share Holder, its general partners,
directors and shareholders, as applicable, necessary for the authorization,
execution, delivery and performance by such Preferred Share Holder of this
Agreement has been taken. This Agreement is a legal, valid and binding
obligation of such Preferred Share Holder, enforceable against such Preferred
Share Holder in accordance with its terms.
(b) No Violation. The execution and delivery of
4
<PAGE> 04.04.088
this Agreement will not (with or without notice or passage of time or
both) (i) conflict with or result in a breach of any provision of the
partnership or charter documents, as applicable, of such Preferred Share
Holder, (ii) result in a default, give rise to any right of termination,
cancellation or acceleration, or require any consent or approval, under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
loan, factoring arrangement, license, agreement, lease or other instrument or
obligation to which such Preferred Share Holder is a party or by which it or
any of its assets may be bound or (iii) violate any law, judgment, order,
writ, injunction, decree, statute, rule or regulation of any court,
administrative agency, bureau, board, commission, office, authority,
department or other governmental entity applicable to such Preferred Share
Holder or any of its assets.
6. Term. This Agreement will terminate on the date on which
eighty percent (80%) of the Preferred Shares have been redeemed in full in
accordance with the terms of the Certificate of Designation.
7. Consent to Amendments; Waivers. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written agreement of the Corporation, Common Share
Holders holding not less than fifty one percent (51%) of the Common Shares
then held by such Common Share Holders and Preferred Share Holders holding not
less than fifty one percent (51%) of the Common Stock issued or issuable upon
conversion of the Preferred Shares then held by such Preferred Share Holders.
Any waiver, permit, consent or approval of any kind or character on the part
of any such holder of any provisions or conditions of this Agreement must be
made in writing and shall be effective only to the extent specifically set
forth in such writing.
8. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto, whether so
expressed or not. In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for the benefit of the
Preferred Share Holders are also for the benefit of, and enforceable by, any
subsequent holders of Preferred Shares.
9. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
10. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
11. Notices. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other address as any party hereto designates by written
notice to the Corporation, and shall be deemed to have been given upon
5
<PAGE> 04.04.089
delivery, if delivered personally, three days after mailing, if mailed, or one
business day after delivery to the courier, if delivered by overnight courier
service:
If to the Corporation, to:
Investors Insurance Group, Inc.
7200 West Camino Real
Suite 203
Boca Raton, Florida 33433
Attention: Chief Executive Officer
with a copy to:
Palmarella & Sweeney, P.C.
310 Building 2
100 Matsonford Road
Radnor, Pennsylvania 19087
Attention: Ernest D. Palmarella
If to the Preferred Share Holders, to:
AAM Capital Partners, L.P.
30 N. LaSalle Street, 36th Floor
Chicago, Illinois 60602
Attention: Richard A. Veed
Francis S. Wilson, III
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Michael P. Goldman, Esq.
If to the Common Share Holders, to those addresses set forth on
the Schedule of Common Share Holders hereto.
12. Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Delaware applicable to contracts made and wholly to be performed in
that state.
6
<PAGE> 04.04.091
13. Schedules. All schedules hereto are an integral part of
this Agreement.
14. Final Agreement. This Agreement, together with the Stock
Purchase Agreement and all other agreements entered into by the parties hereto
pursuant to the Stock Purchase Agreement, constitutes the complete and final
agreement of the parties concerning the matters referred to herein, and
supersedes all prior agreements and understandings.
15. Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts together shall constitute
one instrument.
16. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties hereto to express
their mutual intent, and no rule of strict construction will be used against
any party.
The parties hereto have executed this Agreement on the date first set
forth above.
THE CORPORATION:
INVESTORS INSURANCE GROUP, INC.
By:
Its:
PREFERRED SHARE HOLDERS:
AAM CAPITAL PARTNERS, L.P.
By: AAM PARTNERS, L.P., its
General Partner
By: AAM Investment Banking
Group, Ltd. its General
Partner
By:
Its:
[OTHER SIGNATURE BLOCKS TO COME]
COMMON SHARE HOLDERS:
[SIGNATURE BLOCKS TO COME]
7
<PAGE> 04.04.091
SCHEDULE OF PREFERRED SHARE HOLDERS
Name and Address Number of Preferred Shares
AAM CAPITAL PARTNERS, L.P.
30 N. LaSalle Street, 36th Floor
Chicago, Illinois 60602
[OTHERS TO COME]
8
<PAGE> 04.04.092
SCHEDULE OF COMMON SHARE HOLDERS
Name and Address Number of Common Shares
[TO COME]
9
<PAGE> 10.01.001
GEMCO NATIONAL, INC.
INCENTIVE STOCK OPTION PLAN
l. Purposes of the Plan. The purposes of this
Incentive Stock Option Plan are to attract and retain the best
available personnel for positions of substantial
responsibility, to provide additional incentive to all
Employees of the Company or any Parent or Subsidiary of the
Company which now exists or hereafter is organized or acquired
by or acquires the Company, and to promote the success of the
business of the Company. Options granted hereunder are
intended to constitute incentive stock options within the
meaning of Section 422A of the Code.
2. Definitions. As used herein, the following
definitions shall apply:
(a) "Board" or "Board of Directors" shall mean the
board of directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of
1954,as amended.
(c) "Common Stock" shall mean the $.50 par value
common stock of the Company.
(d) "Company" shall mean Gemco National, Inc.
(e) "Committee" shall mean the committee appointed
by the Board in accordance with Paragraph (a) of
Section 4 of this Plan, or the Board if either no such
<PAGE> 10.01.002
committee shall have been appointed, or if appointed
shall no longer be in existence.
(f) "Employee" shall mean any person, including an
officer who is a director, employed (whether full-time
or part-time) by the Company or any Parent or
Subsidiary of the Company which now exists or hereafter
is organized or acquired by or acquires the Company.
(g) "Executive Committee" shall mean the Executive
Committee of the Company appointed by the Board.
(h) "Option" shall mean a stock option granted
pursuant to this Plan.
(i) "Optionee" shall mean an Employee who receives
an Option.
(j) "Parent" shall mean a "parent corporation," as
defined in Sections 425(e) and (g) of the Code.
(k) "Plan" shall mean this Incentive Stock Option
Plan of the Company.
(l) "Subsidiary" shall mean a "subsidiary
corporation," as defined in Sections 425(f) and (g) of
the Code.
3. Stock Subject to the Plan. There shall be reserved
for issue upon the exercise of Options to be granted from time
to time under this Plan an aggregate of 200,000 shares of the
Common Stock of the Company, which shares may be granted in
whole or in part as the Board of Directors or the Executive
-2-
<PAGE> 10.01.003
Committee shall from time to time determine from authorized
but unissued shares of the Common Stock or issued shares of
the Common Stock which shall have been reacquired by the
Company. If an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased
shares covered thereby shall (unless this Plan shall have
terminated or have been terminated) be added to the shares
otherwise available for Options which may be granted in
accordance with the terms of this Plan.
4. Administration of the Plan.
(a) Procedural Rules.
(1) This Plan shall be administered by the
Board; provided, however, that the Board may appoint a
Committee consisting of not less than three members of the
Board to administer this Plan on behalf of the Board, subject
to such terms and conditions as the Board may prescribe. Once
appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time, the Board
may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause),
appoint new members in substitution therefor, fill vacancies
however caused, and remove all members of the Committee and
thereafter directly administer this Plan. A majority of the
entire Committee shall constitute a quorum, and the action of
a majority of the members present shall be deemed the action
-3-
<PAGE> 10.01.004
of the Committee. In addition, any decision or determination
reduced to writing and signed by all of the members of the
Committee shall be as fully effective as if it had been made
by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary to keep minutes of its
meetings and may make such rules and regulations for the
conduct of its business as it shall deem advisable.
(2) No officer who is a Director shall be
eligible to receive an Option unless either (a) the granting
of such Option shall be approved by the Board, a majority of
whom shall be disinterested Directors, and a majority of the
disinterested Directors acting on the matter shall approve the
grant; or (b) the granting of such Option shall be approved by
the Committee, all of the members of which shall be
disinterested Directors. For the purpose of this Section
4(a)(2), a "disinterested Director" shall be any Director who
shall not on the date of approval or at any time within the
year prior thereto have been eligible to receive an Option
under the Plan.
(b) Powers of the Committee. Subject to the
provisions of this Plan, the Committee shall have authority:
to interpret this Plan; to prescribe, amend, and rescind rules
and regulations relating to this Plan; and to make all other
determinations deemed necessary or advisable for the
administration of this Plan.
-4-
<PAGE> 10.01.005
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be
final and binding on all Optionees and any other holders of
any Options granted under this Plan.
5. Persons to whom Options May be Granted. Options
may be to any Employee who does not own more than 10% of the
total combined voting power of all classes of stock of the
Company or of any Parent or Subsidiary of the Company.
6. Number of Shares to be Covered by Options Granted
to Employees. The number of shares of Common Stock covered by
any Option shall be determined by the Board or Committee, as
the case may be, provided that no Employee may receive in any
calendar year Options under the Plan or any other plan within
the meaning of Section 422A(b) of the Code of the Company or
any Parent or Subsidiary of the Company covering shares of
Common Stock which have an aggregate Fair Market Value
(determined as of the date of the Options are granted) in
excess of $100,000. The Fair Market Value of any share of
Common Stock at any date shall be: (a) if the Common Stock
shall then be listed on an exchange or exchanges, the last
reported sales price per share on the day prior to such date
on the principal exchange on which it is traded, or if no sale
was made on such day on such principal exchange, at the
closing reported bid once on such day on such exchange; or
(b) if the Common Stock shall not then be listed on an
-5-
<PAGE> 10.01.006
exchange, the average of the closing bid and asked prices per
share for the Common Stock in the over-the-counter market as
quoted on NASDAQ on the day prior to such date; or (c) if the
Common Stock shall not be listed on an exchange or quoted on
NASDAQ, an amount determined in good faith by the Board or
Committee, as the case may be.
7. Factors to be Considered in Granting Options. In
making any proposal as to Employees to whom Options shall be
granted and as to the number of shares to be covered by such
Options, the Board of Directors or Committee, as the case may
be, shall take into account the duties of the respective
persons, their present and potential contributions to the
success of the Company, or any Parent or Subsidiary of the
Company, the extent and value of their services to the Company
or any Parent or Subsidiary of the Company, and such other
factors as they shall deem relevant in connection with
accomplishing the purpose of the Plan.
8. Term of Plan. This Plan shall become effective
upon its adoption by the Board or its approval by vote of the
holders of a majority of the outstanding shares of the Company
entitled to vote on the adoption of the Plan, whichever is
earlier. It shall continue in effect for a term of ten years
unless sooner terminated under Section 17 of this Plan.
9. Term of Option. No Option shall be exercisable
after the expiration of the earliest of: (i) ten years after
-6-
<PAGE> 10.01.007
the date the Option is granted; (ii) three months after the
date the Optionee's employment with the Company terminates, if
such termination is for any reason other than permanent
disability or death; or (iii) one year after the date the
Optionee's employment with the Company terminates if such
termination is a result of death or permanent disability;
provided, however, that the option agreement for any Option
may provide for shorter periods in each of the foregoing
instances. For the purpose of this Section 9, "permanent
disability" shall mean a disability of the type defined in
Section 105(d)(4) of the Code.
10. Option Prices. The purchase price of the shares of
the Common Stock which shall be covered by each Option shall
be determined by the Board or Executive Committee or
Committee, as the case may be, but in no event shall the
purchase price be less than the Fair Market Value of the
shares on the date the Option is granted. The purchase price
shall be paid in full in United States dollars upon exercise
of an Option in cash, by check or, at the discretion of the
Board and upon such terms and conditions as the Board shall
approve, by transferring to the Company for redemption shares
of the Common Stock of the Company at their Fair Market
Value. Shares of Common Stock transferred to the Company upon
exercise of options shall not increase the number of shares
available for issuance under the Plan.
-7-
<PAGE> 10.01.008
11. Exercise of Option. No Option shall be exercisable
during the lifetime of the Optionee by any person other than
the Optionee. Any Option shall be exercisable at such times
and under such conditions as shall be permissible under the
terms of this Plan and the agreement evidencing the Option.
An Option may not be exercised for fractional shares of the
Common Stock of the Company. An Option shall be deemed to be
exercised when written notice of such exercise has been given
to the Company in accordance with the terms of the Option by
the person entitled to exercise the Option and full payment
for the shares with respect to which the Option is exercised
has been received by the Company. Until stock certificates
have been issued (as evidenced by an appropriate entry on the
books of the Company or of a duly authorized transfer agent of
the Company), each applicable Optionee shall have no right to
vote or receive dividends or any other rights of a stockholder
notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other rights for which the
record date is prior to the date the stock certificates are
issued except as provided in Section 14 of this Plan.
12. Transferability of Options. No Option shall be
transferable by the Optionee otherwise than by will or the
laws of descent and distribution.
13. Prior Outstanding Option. No Option granted under
this Plan shall be exercisable to any extent at any time while
-8-
<PAGE> 10.01.009
there is "outstanding" any incentive stock option which was
granted before the granting of such Option to the Optionee by
the Company or any Subsidiary or Parent of the Company or any
predecessor corporation of the Company or Parent or
Subsidiary. For the purpose of this Section 13, an Option
shall be "outstanding" until such time as the Option is
exercised in full or expires by reason of lapse of time.
14. Adjustments Upon Changes in Capitalization.
(a) If all or any portion of an Option is exercised
subsequent to any stock dividend, split-up, recapitalization,
combination, or exchange of shares, merger, consolidation,
acquisition of property or stock, separation, reorganization
or other similar change or transaction of or by the Company,
as a result of which shares of any class shall be issued in
respect of outstanding shares of the Common Stock covered by
Options hereunder or shares of the Common Stock covered by
Options hereunder shall be changed into the same or a
different number of shares of the same or another class or
classes, the person or persons so exercising such an Option
shall receive, for the aggregate option price payable upon
such exercise of the Option, the aggregate number and class of
shares equal to the number and class of shares he would have
had on the date of exercise had the shares been purchased for
the same aggregate price at the date the Option was granted
and had not been disposed of, taking into consideration any
-9-
<PAGE> 10.01.010
such stock dividend, split-up, recapitalization, combination,
or exchange of shares, merger, consolidation, acquisition of
property or stock, separation, reorganization, or other
similar change or transaction; provided, however, that no
fractional share shall be issued upon any such exercise, and
the aggregate price paid shall be appropriately reduced on
account of any fractional share not issued.
(b) In the event of any such change in the shares,
the aggregate number and class of shares remaining available
under the Plan shall be equal to the number and class of
shares which a person, to whom an Option for all remaining
available shares had been granted on the date preceding such
change, would be entitled to receive as provided in this
Section 14.
(c) For purposes of this Section 14, an adjustment
is appropriate only where such adjustment merely reflects a
change in capitalization within the meaning of Treasury
Regulation Section l.422-2(b)(3) or a corporate transaction
within the meaning of Treasury Regulation Section 1.425-l(a)(l)
(II) and which does not constitute a modification, extension,
or renewal of the Option within the meaning of Section 425(h)
of the Code.
15. Option Agreements. Each Option granted under this
Plan shall be evidenced by an agreement in such form and
containing such provisions (subject to and limited by the
-10-
<PAGE> 10.01.011
terms of this Plan) as the Board or Executive Committee or
Committee shall from time to time approve. Agreements
evidencing the Options need not be identical.
16. Time of Granting Options; Effective Date of Options.
The date of grant of an Option under this Plan shall, for all
purposes, be the date which the Board or Executive Committee
or Committee shall specify when authorizing the grant, or if
no such date shall be specified, the date on which the Board
or Committee by resolution authorizes the grant. No Option
shall be effective, however, until the date the Optionee
executes and delivers to the Company the written option
agreement required under Section 15 of this Plan, and the
failure of the Optionee to execute and deliver the written
option agreement within fifteen days of the date the Company
provides the Optionee with such agreement shall terminate the
Optionee's right to receive such Option, as if such Option
shall not have been granted.
17. Termination and Amendment of This Plan. This Plan
shall terminate ten years after its adoption by the Board of
Directors, and an Option shall not be granted under this Plan
after that date. This Plan may at any time or from time to
time be terminated, modified, or amended by the stockholders
of the Company by the affirmative vote of a majority in
interest of the Common Stock. The Board of Directors may at
any time and from time to time modify or amend this Plan to
-11-
<PAGE> 10.01.012
conform to any change in the law, or in any other respect;
provided, however, that no such modification or amendment of
the Board shall change:
(a) the provisions hereof relating to the
determination of persons to whom Options may be granted,
(b) the provisions hereof relating to adjustments
to be made upon changes in capitalization.
The termination or any modification or amendment of this
Plan shall not, without the prior consent of any Optionee,
affect his rights under an Option theretofore granted to him.
18. Investment Representation. Any person who is
issued Options or shares underlying any Option pursuant to
this Plan will be required to represent and acknowledge that
the securities being purchased thereby will be purchased for
investment and with no present intention of making any
disposition or sale thereof unless a current registration
statement is effective for the underlying shares under the
Securities Act of 1933, as amended ("Registration
Statement"). He will be further required to acknowledge that
he has been advised that the underlying shares, which are to
be issued upon exercise of the Option, have not been
registered for sale pursuant to the Securities Act of 1933, as
amended, and that the securities constitute "restricted
securities" as that term is used in Rules 144 and 237 adopted
under the Securities Act of 1933. Any person issued stock
- 12 -
<PAGE> 10.01.013
under this Plan will be further required to sign an investment
representation to that effect, and any stock issued pursuant
to this Plan shall contain an investment legend to that effect
unless such shares are covered by a current Registration
Statement.
19. Reservation of Shares. The Company, during the
term of this Plan, will at all times reserve and keep
available such number of shares as shall be sufficient to
satisfy the requirements of this Plan. The inability of the
Company to obtain from any regulatory body having jurisdiction
authority deemed by the Company's counsel to be necessary to
the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the
nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
- 13 -
<PAGE> 10.02.001
GEMCO NATIONAL, INC.
INCENTIVE STOCK OPTION PLAN
Effective June 18, 1992
<PAGE> 10.02.002
l. Definitions ................................................. 2
2. Purpose ..................................................... 2
3. Administration .............................................. 2
4 Shares Subject to Plan ...................................... 3
5. Eligible Employees .......................................... 3
6. Restrictions on Eligibility ................................. 3
7. Allotment of Shares ......................................... 3
8. Grant of Option ............................................. 3
9. Option Price ................................................ 3
10. Option Period ............................................... 4
11. Termination of Option ....................................... 4
12. Rights in Event of Termination
Death ....................................................... 5
13. Payment and Notice of Exercise .............................. 5
14. Exercise of Option .......................................... 6
15. Changes in Capital Structures, Inc .......................... 6
16. Nontransferability .......................................... 6
17. Re-Issuance of Shares ....................................... 6
18. Interpretation .............................................. 6
19 Term of Plan, Amendment, Discontinuance ..................... 6
20. Effect of the Plan, etc. .................................... 6
<PAGE> 10.02.003
GEMCO NATIONAL. INC.
INCENTIVE STOCK OPTION PLAN
1. Definitions. As used herein, the following terms shall have
the following meanings:
(a) "Board" shall mean the Board of Directors of Gemco
National, Inc..
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended. Reference herein to specific sections of the Code shall
include references to any successor provisions to such sections.
(c) "Committee" shall mean the committee appointed by the
Board pursuant to Section 3. of this Plan to administer this Plan.
(d) "Company" shall mean Gemco National, Inc..
(e) "Effective Date" shall mean the date this Plan is
approved by the stockholders of Gemco National, Inc., as provided in
Section 19. hereof.
(f) "Option Period" shall mean the period during which an
option granted under this Plan shall be exercisable, as set forth in
Section 10. hereof.
(g) "Subsidiary", for purposes of this Plan, shall mean
any corporation (or similar organization) of which the Company owns,
directly or indirectly, more than 50% of the total voting power of
all classes of stock entitled to vote therein.
2. Purpose. The purpose of this plan is to increase the
interest in the welfare of the Company of those employees of the Company
and/or its subsidiaries who have made valuable contributions to the
business of the Company, to furnish such employees with an incentive to
continue their services to the Company , and to attract able personnel
to the employ of the Company through the grant to such employees of
options to purchase shares of the Company's Common Stock. The Company
intends that options granted pursuant to the provisions of this Plan will
qualify as "incentive stock options" within the meaning of Section 422
of the Code.
<PAGE> 10.02.004
3. Administration. This Plan shall be administered by the Board or a
committee (the "Committee") of not less than two (2) members of the Board.
Members of the Committee shall be appointed, and vacancies shall be filled, by
the Board. No member of the Board or Committee shall participate in any action
by the Board or Committee which allots or grants options to him personally.
4. Shares Subject to Plan. Options may be granted from time to time
under this Plan providing for the purchase of not more than five hundred
thousand (500,000) shares of the common stock, par value fifty cents ($.50)
per share, of the Company ("Common Stock"), as constituted on the Effective
Date (subject to adjustment pursuant to Section 15.), plus such number of such
shares as may become available for reissuance pursuant to Section 17. Shares
of authorized and unissued Common Stock reacquired by the Company and held in
its Treasury, as from time to time determined by the Board, may be issued upon
exercise of options granted under this Plan.
5. Eligible Employees. Except as provided in Section 6. hereof,
employees of the Company who are designated by the Board or the Committee
shall be eligible to be granted options under this Plan. Said designated
employee shall hereinafter be referred to as "Participant".
6. Restrictions on Eligibility No option shall be granted under
this Plan to any employee who, immediately before the option is granted, owns
stock possessing more than ten (10%) percent of the total combined voting
power of all classes of stock of (i) the Company or (ii) any of the Company's
subsidiaries (within the meaning of Section 422(b)(6) of the Code and the
Treasury Regulations thereunder), unless (a) at the time of such grant the
option price is at least one hundred ten (110%) percent of the fair market
value of the shares represented by such option on that date, and (b) such
option is not exercisable after the expiration of five (5) years from the date
of grant.
7. Allotment of Shares. The grant of an option to an eligible employee
under this Plan shall not be deemed either to entitle such employee to, or to
disqualify such employee from, participation in any other grant of options
under this Plan.
8. Grant of Option. Except as otherwise provided in Section 6.,
options may be granted under this Plan from time to time prior to the
expiration of 10 years from the Effective Date. The aggregate fair market
value (determined as of the date such options are granted) of the stock with
respect to which incentive stock options are exercisable for the first time
by such Participant in any calendar year under all stock option plans of the
Company and its subsidiaries shall not exceed one hundred thousand ($100,000)
dollars, or such other amount as may be specified from time to time in
Section 422(d)(l) of the Code. Grants under this Plan shall be made only by
resolution adopted by the Board or the Committee. The grant of an option
under this Plan shall commence to have legal force and effect at the time of
adoption by the Board or the Committee of the resolutions making the grant,
and the employee to whom such option is granted shall become a Participant
in this Plan at such time.
3
<PAGE> 10.02.005
9. Option Price. Except as otherwise provided in Section 6., the price
at which the Common Stock may be purchased upon the exercise of an option
granted under this Plan shall be fixed by the Board or the Committee but
shall be not less than the fair market value of such shares on the date on
which the option is granted. The fair market value of such shares shall be
determined in accordance with the provisions of the Code and Treasury
Regulations promulgated thereunder.
10. Option Period. Subject to the provisions of Section 14. below,
an option granted under this Plan may be exercised during the period (the
"Option Period") which begins on the date the option is granted (or such
other time as may be determined by the Committee as set forth in the
resolutions evidencing the grant of the option) and which ends
(a) on the earlier of
(i) the expiration of 10 years (5 years in the case of
an employee described in Section 6.) after the date the option is granted; or
(ii) the termination of the Participant's employment
with the Company (within the meaning of Section 422(a)(2) of the Code) for
any reason unless otherwise provided in Section 12. of this Plan; or
(b) such shorter period of time as may be determined by the
Board or the Committee, as set forth in the resolution evidencing the grant
of the option.
11. Termination of Option. All rights to exercise an option granted
under this Plan shall terminate at the end of the Option Period, as described
in Section 10. above.
12. Rights in Event of Termination of Service. Retirement. Disability
or Death. If a Participant terminates from service with Company, retires from
the Company on or after attainment of age 65, has his employment by the
Company terminated due to disability (within the meaning of Section 22(e)(3)
of the Code, as determined by the Board or the Committee) or dies without
having fully exercised an option granted under this Plan, the Participant,
his representative or custodian (in the event of his incompetency), or the
executors, administrators, legatees or distributees of his estate (in the
event of his death) shall have the right, for a period of three (3) months
after the date of his termination of service, retirement or death or for a
period of one (1) year after the date of his termination of employment due
to disability, to exercise the unexercised and unexpired portion, if any,
of such option, in whole or in part, to the same extent that the Participant
could have exercised such option before the expiration of such three-month
or one-year period had the Participant continued to be an employee of the
Company.
13. Payment and Notice of Exercise. Full payment of the purchase
price for shares purchased upon the exercise, in whole or in part, of an
option granted under this Plan shall be made at the time of such exercise.
The purchase price may be paid for with cash, stock in the
4
<PAGE> 10.02.006
Company, or a combination thereof. No such shares shall be issued or
transferred to a Participant until full payment therefor has been made and
the Participant has delivered his written Notice of Exercise of the
respective options to the Company at its principal office, and a Participant
who is not already a shareholder at the time of the issue shall have none of
the rights of a shareholder until shares are issued or transferred to him.
14. Exercise of Option. Unless the Board or Committee otherwise
directs, the Participant shall have the right as of the original date of
grant to purchase one hundred (100%) percent of the shares of Common Stock
which are the subject of his option. Options granted under this Plan shall
otherwise be exercisable during the Option Period at such times, in such
amounts, in accordance with such terms and conditions, and subject to such
restrictions as may be determined by the Board or Committee, and as are set
forth in the resolutions and the Notice of Grant evidencing a Participant's
exercise of such options. In no event shall an option be exercised or shares
be issued pursuant to an option if any applicable laws shall not have been
conformed with or if requisite approval or consent of any governmental
authority having jurisdiction over the exercise of the options or the issue
and sale of the Common Stock shall not have been secured, unless in the
opinion of counsel for the Company, the exercise or issuance is exempt from
the obligation to obtain such approval or consent. Each Participant shall
agree not to offer, sell, pledge, hypothecate or otherwise transfer any
shares of Common Stock purchased pursuant to the exercise of an option
granted under this Plan unless the shares have been registered under
applicable federal and state securities laws or unless the proposed
transaction is exempt from such registration in the opinion of counsel for
the Company. Each Participant shall, at the time of purchase of shares of
Common Stock upon the exercise of an option, if requested by the Company
upon advice of its counsel that the same is necessary or desirable, deliver
to the Company his written representation that he is purchasing the shares
for his own account for investment and not with a view to public distribution
or with any present intention of reselling any of such shares, and deliver
such other written representations as may be reasonably requested by the
Company to assure compliance with applicable laws. If a Participant so
requests, shares purchased upon the exercise of any option may be issued in
or transferred into the name of the Participant and another person jointly
with right of survivorship.
15. Changes in Capital Structures. Inc. In the event of the
payment of any dividend payable in, or the making of any distribution of,
Common Stock of the Company to holders of record of Common Stock of the
Company, which increases the outstanding Common Stock of the Company by more
than twenty-five (25%) percent during the period any option granted under
this Plan is outstanding or in the event of any stock split, combination of
shares, recapitalization or other similar change in the authorized capital
stock of the Company during such period or in the event of the merger or
consolidation of the Company into or with any other corporation or the
reorganization, dissolution, liquidation or winding up of the Company during
such period, Participants shall be entitled, upon the exercise of any
unexercised option held by them, to receive such new, additional or other
shares of stock of any class, or other property (including cash), as they
would have been entitled to receive as a matter of law in connection with
such payment, distribution, stock split, combination, recapitalization, as
the case may be, had they held the shares of the Common Stock being
purchased upon exercise of such option on
5
<PAGE> 10.02.007
the record date set for such payment or distribution or on the date of such
stock split, combination, recapitalization, change, merger, consolidation,
reorganization, dissolution or liquidation, and the option price under any
such option shall be appropriately adjusted. In case any such event shall
occur during the term of this Plan, the number of shares that may be
optioned and sold under this Plan as provided in Section 4. shall be
appropriately adjusted. The decision of the Board or the Committee, with
respect to all such adjustments shall be conclusive.
16. Nontransferbility. Options granted under this Plan shall
not be transferable other than by will or by the laws of descent and
distribution, and shall be exercisable only by the Participant or by
Participant's heirs or personal representatives in accordance with Section
12. of this Plan.
17. Re-Issuance of Shares. Any shares of Common Stock which,
by reason of the expiration of an option or otherwise, are no longer subject
to purchase pursuant to an option this Plan shall be available for
re-issuance under this Plan.
18. Interpretation. The Board or the Committee shall interpret
this Plan and prescribe, amend or rescind rules and regulations relating to
it and make any and all other determinations necessary or advisable for its
administration.
19. Term of Plan. Amendment. Discontinuance. This Plan shall
be or has been submitted for approval by the holders of at least a majority
of the shares called for that purpose within twelve months before or after
adoption of the Plan by the Board. Upon stockholder approval, the Plan shall
be deemed effective and adopted as of such date. This Plan, unless sooner
terminated or discontinued by the Board pursuant to this Section 19., shall
expire on the tenth anniversary of the Effective Date (except to the extent
necessary for administration of options exercisable but unexercised on that
date), and no options shall be granted under this Plan after that date. The
Board may terminate or discontinue this Plan at any time and may suspend
this Plan or amend or modify this Plan in any respect at any time or from
time to time, without the approval of the stockholders, except that the
number of shares of Common Stock that may be optioned and sold under this
Plan, as provided in Section 4., above, may not be changed (except pursuant
to Section 15., above) and the class of eligible employees to whom options
may be granted, as provided in Sections 5. and 6. above, may not be modified
without the approval of the Board or the Committee. No action of the Board,
the Committee or stockholders may alter or impair the rights of a Participant
under any option theretofore granted to him without his consent to such
action.
20. Effect of the Plan. etc. Neither the adoption of this
Plan nor any action of the Board or Committee, shall be deemed to give any
employee any right to be granted an option to purchase Common Stock of the
Company or any other fights hereunder unless and until the Board or Committee
shall have adopted a resolution granting such employee an option, and then
6
<PAGE> 10.02.008
only to the extent and on such terms and conditions as may be set forth in
such resolution; the terms and conditions of options granted under this Plan
may differ from one another as the Board or Committee shall at its discretion
determine, as long as all options granted under the Plan satisfy the
requirements in this Plan.
Date Adopted by Board: March 25, 1992
Date Approved by Shareholders: June 18, 1992
Effective Date: June 18, 1992
7
<PAGE> 10.03.001
I hereby exercise the Stock Option (the "Option") granted to me by
INVESTORS INSURANCE GROUP, INC. ("IIG") as evidenced on the reverse side.
and elect to purchase _______________ shares (the "Shares").
In connection with this purchase of the Shares, I hereby represent,
warrant, covenant, agree and acknowledge as follows:
1. I am purchasing the Shares solely for my own account without a
view to the distribution or resale thereof, and I do not have any contract
undertaking agreement or arrangement to sell or otherwise transfer or
dispose of any of the Shares in any manner to any person.
2. I will not sell, transfer or otherwise dispose of any of the
Shares (or any of my interests therein), in any manner, unless at the time
of any such sale, transfer or disposition: (a) Registration (as hereinafter
defined) under the Securities Act (as hereinafter defined) and under the
Applicable Laws (as hereinafter defined) is in effect with respect to the
Shares to be sold, transferred or disposed of, and I comply with all the
requirements of the Securities Act and the Applicable Laws with respect to
the proposed transaction; or (b) Counsel to IIG has provided an opinion that
the proposed sale, transfer or disposition does not require Registration
under the Securities Act or the Applicable Laws. As used herein: the term
"Registration" means registration under the Securities Act and, with respect
to the Applicable Laws, such registration thereunder (or, with respect to
any of the Applicable Laws which do not provide for registration, such
compliance therewith which is similar to Registration) which has then
resulted in statutory or administrative authorization for the proposed
transaction, the term "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations thereunder; and the term "Applicable
Laws" means any applicable state securities laws, the Securities Exchange
Act of 1934, as amended, and the rules and regulations under the foregoing.
3. The Shares are not being sold to me pursuant to Registration under
the Securities Act. Any Registration under the Applicable Laws will not
authorize sales, transfers or dispositions thereof by me. Neither IIG nor
any other person has any obligation or intention to effect Registration of
the Shares for sale, transfer or disposition by me under the Securities Act
or the Applicable Laws, or to take any action or provide any information
(including, without limitation, the filing of reports or the publication of
information required by Rule 144 under the Securities Act) which would make
available
any exemption from the Registration requirements of the Securities Act or
the Applicable Laws. I must therefore hold the Shares indefinitely unless a
subsequent Registration or exemption therefrom is available and is obtained.
No federal or state agency has reviewed the transaction set forth herein or
approved or disapproved the Shares for investment or any other purpose. The
Shares are being sold to me in reliance upon a specific exemption from the
Registration requirement of the Securities Act, if available, which depends,
in part, upon the accuracy of the representations, warranties and agreements
by me set forth herein. I agree that the exercise of this Option is
conditioned upon the availability of such exemption based upon the opinion
of Counsel to IIG.
4. The following legend will be placed on the face of any certificates
representing the Shares purchased hereunder, and stop-transfer instructions
will be issued to any transfer agent of such Shares to insure compliance with
the provisions of the Plan and of the Securities Act and the Applicable Laws:
<PAGE> 10.03.002
These Shares have not been registered under the Securities Act of
1933, as amended, or under applicable state securities laws, and
they may not be offered, sold, pledged, hypothecated or otherwise
transferred in the absence of (1) effective registration under all
such laws or (2) an opinion of counsel to the Corporation that
such registration is not required.
5. I can bear the economic risk of the purchase of the Shares sold
hereby, have no need for liquidity in this investment, and have such
knowledge and experience in financial and business matters that I am capable
of evaluating the merits and risks of the purchase and of the investment in
the Shares.
6. Prior to the execution of this Notice: (a) I have been provided
with full and free access and opportunity to inspect, review, examine and
inquire about books, records and information (financial and otherwise) of
IIG. including financial statements and material agreements, contracts,
corporate records and other documents respecting IIG, its business and
affairs, and I have made such inspection, review, examination and inquiry
as I have deemed appropriate; and (b) I have been offered the reasonable
opportunity to ask such questions and obtain such additional information
concerning IIG and its business and affairs as I have requested so as to
verify the accuracy of the information obtained as result of my
investigation.
7. Neither IIG nor any other person has made any representation or
warranty of any kind respecting IIG, its business and affairs, except as
expressly set forth herein. My decision to purchase the Shares has been made
solely on the basis of the inspection, review, examination and inquiry
referred to in Section 6 hereof.
(Signature of Agent)
DATE:
<PAGE> 10.04.001
Agreement: INVE0001
an Automatic Annuity
Reinsurance Agreement
Between: Investors Insurance Corporation
of Delaware
with administrative offices
in Jacksonville, Florida
And: Republic-Vanguard Life
Insurance Company
of Dallas, Texas
<PAGE> 10.04.002
TABLE OF CONTENTS
A. REINSURANCE COVERAGE 2
B. PLACING AND MAINTAINING REINSURANCE IN EFFECT 4
C. PAYMENTS BY REINSURED 4
D. PAYMENTS BY REINSURER 4
E. TERMS OF REINSURANCE 5
F. UNUSUAL EXPENSES AND ADJUSTMENTS 5
G. POLICY CHANGES 6
H. ERRORS 6
I. AUDIT OF RECORDS AND PROCEDURES 7
J. ARBITRATION 7
K. SPECIAL PROVISIONS 7
L. INSOLVENCY 8
M. PARTIES TO AGREEMENT 8
N. EFFECTIVE DATE 9
o. AGREEMENT 9
P. PAYMENTS UPON TERMINATION OF REINSURANCE 9
Q. DURATION OF AGREEMENT 9
R. SEVERALTY OF PROVISIONS 9
S. EXECUTION 10
T. SCHEDULES 11
I. SCHEDULE I 11
II. SCHEDULE II 12
III. SCHEDULE III 13
IV. SCHEDULE IV 15
<PAGE> 10.04.003
REINSURANCE AGREEMENT
Between
INVESTORS INSURANCE CORPORATION
of
Delaware
hereinafter referred to as "INVESTORS",
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of
Dallas, Texas
hereinafter referred to as "RVL"
A. REINSURANCE COVERAGE
l. The Annuity policies issued or accepted as reinsurance by INVESTORS as
described in Schedule I shall be reinsured with RVL on a coinsurance
basis in the percentage described in Schedule II.
2. The reinsurance provided under this Agreement shall cover the portion
of the risk under the policies as specified in Schedule II.
3. The liability or RVL shall begin simultaneously with that of INVESTORS
but not prior to the effective date of this Agreement. Reinsurance
with respect to any policy shall not be in force unless issuance and
delivery of the policy constituted the doing of business in a
jurisdiction in which INVESTORS was properly licensed.
4. Reinsurance hereunder shall follow the forms of the original company.
5. A condition precedent for this Agreement to take effect is that
INVESTORS and RVL must each not be in receivership, suspension or
liquidation by any insurance department. INVESTORS represents and
warrants to RVL that INVESTORS is a corporation organized and existing
under the corporation and insurance laws of the state of domicile, as
specified in the heading paragraph of this Agreement and is in good
standing under these laws. RVL represents and warrants to INVESTORS
that RVL is a corporation organized and existing under the corporation
and insurance laws of the State of Texas and is in good standing under
these laws. RVL further represents and warrants that it is duly
licensed, admitted or authorized as an insurer and/or reinsurer under
the laws of the state of domicile or INVESTORS.
6. The reinsurance under this Agreement with respect to any policy shall
be maintained in force without reduction so long as and to the extent
that the liability of INVESTORS under such policy reinsured hereunder
remains in force without reduction, unless reinsurance is terminated
or reduced as provided herein.
7. INVESTORS shall notify RVL immediately, in writing, of any and all
investigations of INVESTORS or its principal officers or shareholders
conducted by a federal, state or local governmental or regulatory
agency, other than routine examinations by one or more state insurance
departments.
-2-
<PAGE> 10.04.004
B. PLACING AND MAINTAINING REINSURANCE IN EFFECT
l. To effect reinsurance with respect to policies in force on the
effective date of this Agreement, INVESTORS shall pay to RVL on the
date of the execution of this Agreement all initial net reinsurance
premium as described in Section C, paragraph 1.
2. To effect reinsurance on new policies and maintain reinsurance in
effect, INVESTORS shall pay to RVL when received a net reinsurance
premium equal to the excess of the gross reinsurance premiums described
in Section C, paragraph 2, over the policy expense allowances referenced
in Section D, paragraph 2.
3. Setoff
Any debits or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favor of or against
either INVESTORS or RVL with respect to this Agreement (to the extent
that netting of balances under a single treaty may be construed by
third parties to constitute setoff) are deemed mutual debts or credits,
as the case may be, and shall be set off dollar for dollar, and only
the balance shall be allowed or paid, regardless of the solvency of
either party.
C. PAYMENTS BY REINSURED
l. The initial net reinsurance premium payable pursuant to Section B shall
be the Premiums less the sum of all Coinsurance Allowances and Benefits
Paid on the inforce business to be reinsured adjusted for interest to
the date of payment at a mutually agreeable rate of interest.
2. INVESTORS shall pay RVL its share of first-year and renewal gross
premiums under this agreement.
D. PAYMENTS BY REINSURER
1. Benefits
RVL shall pay to INVESTORS RVL's share of the gross amounts of all
benefits paid by INVESTORS with respect to the portions of the policies
reinsured hereunder (including but not limited to death benefits,
annuity benefit payments, lump sum cash surrenders, nursing home
benefits, any Accidental Death Benefits and any Waiver of Premium
Benefits), and RVL shall participate in all surrender and annuity option
benefits.
2. Policy Expense Allowances
RVL shall pay INVESTORS the full amount of the Policy Expense Allowances
(including an implicit Premium Tax Reimbursement) as defined in Schedule
IV.
3. State Premium Taxes
State premium taxes shall not be separately reimbursed under this
Agreement.
<PAGE> 10.04.005
4. Experience Refund
RVL shall not pay INVESTORS an experience refund under this Agreement.
5. Policy Loans
RVL shall participate in any policy loans made to policyholders with
respect to the portion of the policies reinsured hereunder.
E. TERMS OF REINSURANCE
1. Expenses
RVL shall bear no part of the expenses incurred in connection with the
policies reinsured hereunder, except as otherwise provided herein.
2. Amounts Due REINSURER or REINSURED
(a) Except as otherwise specifically provided herein, all amounts
due to be paid to either RVL or INVESTORS shall be determined
on a net basis. If such amounts cannot be determined at such
date on an exact basis, such payments may be paid on an estimated
basis and any final adjustments are to be made with interest
within 10 days after the end of the month.
(b) Subject to any limitations imposed by applicable statutes or
regulation, any payment which either INVESTORS or RVL shall be
obligated to pay the other may be paid net of any amount which
is then due and unpaid under this Agreement.
3. Accounting Period
The accounting period for this Agreement shall be a calendar month.
INVESTORS and RVL shall each reconcile the reinsurance transactions
hereunder as prescribed in Schedule III at the end of each calendar
month.
4. Reports
Periodic Reports as prescribed in Schedule III shall be provided by
INVESTORS to RVL within ten (10) days of the end of each calendar month.
F. UNUSUAL EXPENSES AND ADJUSTMENTS
l. Any unusual expenses incurred by INVESTORS in defending or investigating
a claim for policy liability or rescinding a policy reinsured hereunder
shall be participated in by RVL in the same proportion as its reinsurance
bears to the total insurance under such policy.
2. For purposes of this Agreement (but not as a limitation on under
paragraph 1), it is agreed that penalties, attorney's fees, and interest
imposed automatically be statute against INVESTORS or original company
and arising solely out of a judgement rendered against INVESTORS or
original company in a suit for policy benefits reinsured hereunder shall
be considered unusual expenses.
<PAGE> 10.04.006
3. In no event, however, shall the following categories of expenses or
liabilities be considered for purposes of this Agreement as unusual
expenses:
(a) routine investigative or administrative expenses;
(b) expenses incurred in connection with a dispute or contest rising
out of conflicting claims of entitlement to policy proceeds or
benefits which INVESTORS admits are payable;
(c) expenses, fees, settlements, or judgments arising out of or in
connection with claims against INVESTORS or original company for
punitive or exemplary damages; and
(d) expenses, fees, settlements, or judgments arising out of or in
connection with claims made against INVESTORS or original
company and based on alleged or actual bad faith, failure to
exercise good faith, or tortuous conduct.
4. Any assessments from guaranty funds paid by INVESTORS which are based on
the gross premium writings of INVESTORS without reduction for premiums
ceded under this reinsurance treaty shall be participated in by RVL in
the proportion that reinsured premium under this treaty bears to the
total gross premiums of INVESTORS. RVL may reduce its liability by its
proportion of any amounts recoverable, such as reductions or rebates of
taxes, licenses or fees, by INVESTORS due to guaranty fund assessments.
5. In the event that the amount of liability provided by a policy or
policies reinsured hereunder is increased or reduced because of a
misstatement of age or sex, the reinsurance hereunder shall increase
or reduce proportionately.
6. Punitive Damages
RVL does not indemnify and shall not be liable for any of the extra-
contractual or punitive damages of INVESTORS or the extra-contractual or
punitive liability of INVESTORS of any kind whatsoever resulting from,
but not limited to: negligent, reckless or intentional wrongs; fraud;
oppression; bad faith, or strict liability. The following liabilities
are examples of liabilities that are excluded from this Agreement:
damages for emotional distress and punitive or exemplary damages.
G. POLICY CHANGES
1. If a change is made in the terms and condition of a policy issued by the
original company including, but not limited to, a change in the current
"cost of insurance" rates on the policy, or a change in the method used
to calculate the reserves on the policy, and such change affects the
risk reinsured hereunder in respect of such policy, INVESTORS shall
notify RVL promptly of such change.
2. For purposes of this Agreement, any such change shall be deemed to be
the issuance of a new policy form by the original company. RVL shall
inform INVESTORS whether RVL will include such new policy form under
this Agreement, or will terminate or modify the reinsurance hereunder
in respect of such policy.
H. ERRORS
<PAGE> 10.04.007
1. If either INVESTORS or RVL shall unintentionally fail to perform any
obligation under this agreement or perform an obligation incorrectly,
such error shall be corrected by restoring both INVESTORS and RVL to the
positions they would have occupied had no such error occurred.
I. AUDIT OF RECORDS AND PROCEDURES
1. RVL and INVESTORS each shall have the right to audit, at the office of
the other, all records and procedures relating to reinsurance under this
Agreement. Further, INVESTORS agrees to complete, at the reasonable
request of RVL and in a manner acceptable to RVL a process confirming the
existence of policies reinsured under this Agreement.
J. ARBITRATION
1. It is the intention of the parties that the customs and usages of the
business of reinsurance shall be given full effect in the interpretation
of this Agreement. The parties shall act in all things with the highest
good faith. A dispute or difference between the parties with respect to
the operation or interpretation of this Agreement on which an amicable
understanding cannot be reached shall be decided by arbitration. The
arbitrators are empowered to decide all questions or issues and shall
be free to reach their decisions from the standpoint or equity and
customary practices of the insurance and reinsurance Industry rather than
from that of strict law.
2. To initiate arbitration, a party shall send by certified mail, return
receipt requested, to the other party's home office a notice demanding
arbitration. The notice shall include the issues for decision and the
remedies sought. The party receiving the notice shall thereafter have
thirty days within which to respond in writing.
3. There shall be three arbitrators who shall be active or retired officers
of life insurance companies other than the contracting companies or their
affiliates. Each of the contracting companies shall appoint one of the
arbitrators and these two arbitrators shall select the third. In the
event that either contracting company should fail to choose an arbitrator
within thirty days after the response to the demand for arbitration, the
other contracting company may choose two arbitrators, who shall in turn
choose a third arbitrator before entering arbitration. If the two
arbitrators are unable to agree upon the selection of a third arbitrator
within thirty days following their appointment, each arbitrator shall
nominate three candidates within ten days thereafter, two of whom the
other shall decline and the decision shall be made by drawing lots.
4. The arbitrators shall decide by a majority of votes and from their
written decision there can be no appeal. The cost of arbitration,
including the fees of the arbitrators, shall be borne by the losing party
unless the arbitrators decide otherwise.
K. SPECIAL PROVISIONS
1. As long as the capital and surplus of INVESTORS is less than 5% of
admitted assets, or $10 million if greater, INVESTORS shall obtain prior
written approval from RVL before releasing assets by way of stockholder
dividends or any other payments to a parent or affiliated company except
for reasonable management expenses and fees.
<PAGE> 10.04.008
2. INVESTORS shall obtain prior written approval of RVL before selling off
any of the subject business or ceding out any subject or other business
within its normal retention.
3. INVESTORS shall place the assets corresponding to retained Reserve on the
subject business in a separately identifiable account. The separately
identifiable account shall include investment grade securities consistent
with the investment strategy developed in accordance with paragraph 5 b)
of this Section, and must exclude mortgages, real estate and affiliated
investments of INVESTORS or its principal owners.
4. INVESTORS agrees to include within its Reserves the present value of any
excess of its renewal expenses on the subject business over the renewal
coinsurance allowance provided to INVESTORS under Schedule IV of this
Agreement.
5. A Product Management Committee shall be formed to advise INVESTORS on
product and investment issues. The Committee shall consist of 2 persons,
one representing INVESTORS and one representing RVL with voting interests
proportional to tie respective relative interests of the two parties in
the subject business. On the issues listed below, each party shall have
a veto:
a) selection of an investment advisor to manage the funds of both
parties; and
b) development of an investment strategy; and
c) development of a credited rate methodology; and
d) development of recommendations on credited interest rates.
INVESTORS would not be bound to follow the advice of the Committee, but
failure to do so would permit RVL to exercise its rights under paragraph
6 of this Article.
6. If INVESTORS should fail to follow any of the above provisions of this
Article, RVL shall have the right to adjust the terms of the reinsurance
L. INSOLVENCY
1. In the event of the insolvency of INVESTORS, all reinsurance shall be
payable directly to the liquidator, receiver, or statutory successor of
INVESTORS, without diminution or increase because of the insolvency of
INVESTORS.
2. In the event of insolvency of INVESTORS, the liquidator, receiver, or
statutory successor shall give RVL written notice of the pendency of a
claim on a policy reinsured within a reasonable time after such claim is
filed in the insolvency proceeding. During the pendency of any such
claim, RVL may investigate such claim and interpose in the name of
INVESTORS (its liquidator, receiver or statutory successor), but at its
own expense, in the proceeding where such claim is to be adjudicated any
defense or defenses which RVL may deem available to INVESTORS or its
liquidator, receiver or statutory successor.
<PAGE> 10.04.009
3. The expense thus incurred by RVL shall be chargeable, subject to court
approval, against INVESTORS as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to
INVESTORS solely as a result of the defense undertaken by RVL. Where two
or more reinsurers are participating in the same claim and a majority in
interest elect to interpose a defense or defenses to any such claim, the
expense shall be apportioned in accordance with the terms of the
reinsurance agreement as though such expenses had been incurred by
INVESTORS.
4. Any debts or credits, matured or unmatured, liquidated or unliquidated,
in favor of or against either INVESTORS or RVL with respect to this
Agreement or with respect to any other claim of one party against the
other are deemed mutual debts or credits, as the case may be, and shall
be set off, and only the balance shall be allowed or paid.
M. PARTIES TO AGREEMENT
1. This is an Agreement for indemnity reinsurance solely between
INVESTORS and RVL. The acceptance of reinsurance hereunder shall not
create any right or legal relation whatever between RVL and the
original company (if other than INVESTORS), the insured or the
beneficiary under any policy reinsured hereunder, and the original
company shall be and remain solely liable to such insured or
beneficiary under any such policy.
2. This Agreement may not be assigned by either party without the written
permission of the other party. However, RVL reserves the right to
retrocede the reinsurance assumed under this Agreement.
N. EFFECTIVE DATE
1. The effective date of this Agreement is October 1, 1991.
O. AGREEMENT
1. This Agreement represents the entire contract between INVESTORS and
RVL and supersedes, with respect to its subject, any prior oral or
written agreement.
P. PAYMENTS UPON TERMINATION OF REINSURANCE
1. RVL will consider any request for recapture of the reinsurance
hereunder by INVESTORS, and any payments upon termination may be
negotiated at that time.
Q. DURATION OF AGREEMENT
l. This Agreement may be terminated at any time by either RVL or
INVESTORS upon ninety (90) days written notice with respect to
reinsurance not yet placed in force.
2. At the end of any accounting period, this Agreement shall
automatically terminate if none of the policies hereunder are in
force.
R. SEVERALTY OF PROVISIONS
<PAGE> 10.04.010
1. If any provisions of this Agreement be declared null and void by a
regulatory authority in any jurisdiction within which either party
operates, the remaining provisions shall nevertheless continue to have
full force and effect.
>
S. EXECUTION
IN WITNESS WHEREOF the said
INVESTORS INSURANCE CORPORATION
of
Delaware
and the said
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of
Dallas, Texas
have by their respective officers executed this Agreement (INVEOOO1) in
duplicate on the dates shown below.
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
/s/ Melvin c. Parker /s/Alan Ryder
By Alan K. Ryder
President Vice-President
Title Title
12-13-91 12-13-91
Date Date
Dallas, Texas Dallas, Texas
Location Location
/s/Susan F. Powell
Witness Witness
<PAGE> 10.04.011
T. SCHEDULE
1. SCHEDULE I
A. CONTRACTS SUBJECT TO REINSURANCE
1. INVESTORS' Guaranteed Annuity flexible premium deferred annuity,
policy forms and GA/IIC-0490-5 issued in Missouri on or after
January 1, 1991, and
2. INVESTORS' Guaranteed Annuity flexible premium deferred annuity,
policy forms and GA/IIC-0490-5 issued in other states on or after
October I, 1991.
B. SCHEDULE OF DOCUMENTS AND DECLARATIONS RELIED UPON BY RVL
1. Third Quarter 1991 and full year 1990 Annual Statement of INVESTORS.
2. INVESTORS declares that there was no outstanding surplus relief
reinsurance as of the date of execution.
<PAGE> 10.04.012
II. SCHEDULE II
A COINSURANCE PERCENTAGES
Calendar Period of Issue Jurisdiction Quota Share Reinsured
1991 and later Missouri 80%
October 1, 1991 and later Other 80%
<PAGE> 10.04.013
Ill. SCHEDULE Ill
A. PART A. SUMMARY OF MONETARY TRANSACTIONS
l. Initial Premium
2. Gross Incurred Premium
3. Premiums - other Reinsurance
4. Net Incurred Premium [(2) - (3)]
5. Policy Expense Allowances
5a. Unusual Expenses
6. Surrender Payments
7. Annuity Benefits
8. Annuity Benefits - other Reinsurance
9. Net Annuity Benefit [(7) - (8)]
10. Death Benefits
11. Death Benefits - other Reinsurance
12. Net Death Benefits [(10) - (11)]
13. Total Reserve, End of Period
14. Excess Interest Reserve, End of Period
15 Coinsurance Reserve, End of Period for policies with bail-out
provisions
16. Coinsurance Reserve, End of Period for policies without
bail-out provisions
17. Total Coinsurance Reserve, End of Period
<PAGE> 10.04.014
B. PART B. SUMMARY OF MONETARY TRANSACTIONS
l. Due REINSURER
Premiums (1) + (4)
Total Due REINSURER
2. Due REINSURED
Policy Expense Allowances (5)
Unusual Expenses (5a)
Surrender Payments (6)
Net Annuity Benefits (9)
Net Death Benefits (12)
Total Due REINSURED
3. Net Reinsurance Premium Due REINSURER 1 less 2
<PAGE> 10.04.015
IV. SCHEDULE IV
A. POLICY EXPENSE ALLOWANCES
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1991 14.2% 0.015%
Thereafter 12.2% 0.015%
<PAGE> 10.05.001
ADDENDUM NO.1
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
with Administrative Offices in Jacksonville, Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective January 1, 1993, Article F Paragraph 6, Punitve Damages, is
replaced by the following paragraph:
6. Hold Harmless and Indemnification
Investors hereby undertakes and agrees to hold harmless and indemnify RVL
against any and all claims, losses, costs, and expenses of any kind or
character whatsoever, including but not limited to: (i) reasonable
attorneys fees and expenses, (ii) punitive, exemplary, non-contractual or
extra-contractual damages, (iii) judgments in excess of policy limits, and
(iv) any fines, fees, and/or assessments imposed by any state or federal
administrative or regulatory agency, arising out of or in any way connected
with (i) the marketing, management, and administration of any policies of
insurance issued hereunder, and/or (ii)) the conduct and performance of
Investors hereunder.
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
/s/Melvin C. Parker /s/Courtland C. Smith
By By
Title: President Title: Asst. Vice President
Date: April 13, 1993 Date: April 15, 1993
Location: Boca Raton, Florida Location: Dallas, Texas
/s/ Milagros Ramos /s/ Gary Yee Lee
Witness Witness
<PAGE> 10.06.001
ADDENDUM NO. 2
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
with Administrative Offices in Jacksonville, Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective December 1, 1993, Article T Schedule I Paragraph A, Contracts
Subject To Reinsurance, is replaced by the following paragraph:
I. SCHEDULE I
A. CONTRACTS SUBJECT TO REINSURANCE
I. INVESTORS Guaranteed Annuity flexible premium deferred annuity, policy
forms GA/IIC-0490 and GA/IIC-0490-5 issued in Missouri on or after
January 1, 1991, and
2. INVESTORS' Guaranteed Annuity flexible premium deferred annuity,
policy forms GA/IIC-0490 and GA/IIC-049O-5 issued in other states
on or after October 1, 1991.
3. INVESTORS' American Annuity flexible premium deferred annuity, policy
form AA/IIC-0993 issued on or after December 1, 1993.
Effective December 1, 1993, Article T Schedule IV is replaced by the following
paragraph:
IV. SCHEDULE IV
A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1991 14.2% 0.015%
Thereafter 12.2% 0.015%
For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana,
and Arizona on or after January 1, 1994 until the earlier of June 30, 1994 or
the date on which the American Annuity is approved in the state, the Allowance
as a percentage of Premium shall be 13.7%.
<PAGE> 10.06.002
B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1993 & later 13.0% 0.015%
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
/s/ Richard T. Magsam /s/ Courtland C. Smith
By By
Title: Senior Vice President Asst. VP
Date: 3/14/94 Date: 3/17/94
Location: Jacksonville, Fl Location: Dallas, Tx
/s/ Linda R. Willis /s/ Gary Lee
Witness Witness
<PAGE> 10.07.001
ADDENDUM NO.3
to
REINSURANCE AGREEMENT INVEOOO1
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
with Administrative Offices in Jacksonville, Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective March 1, 1994, Article T Schedule IV is replaced by the following
paragraph:
IV. SCHEDULE IV
A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1991 14.2% 0.015%
Thereafter 12.2% 0.015%
For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana,
and Arizona on or after January 1, 1994 until the earlier of June 30, 1994
or the date on which the American Annuity is approved in the state, the
Allowance as a percentage of Premium shall be 13.7%.
For issues with a 3% guaranteed rate in the states where the American Annuity
is approved, the Allowance as a percentage of Premium shall be 9.2%.
B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1993 & later 13.0% 0.015%
<PAGE> 10.07.002
ADDENDUM NO.3
to
REINSURANCE AGREEMENT INVEOOO1
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
/s/ Richard T. Magsam Courtland C. Smith
By By
Title: Senior Vice President Title: Asst VP
Date: 3/14/94 Date: 3/17/94
Location: Jacksonville, Fl. Location: Dallas, Tx
/s/ Linda R. Willis /s/ Gary Lee
Witness Witness
<PAGE> 10.08.001
ADDENDUM NO. 4
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE with
Administrative Offices in Jacksonville, Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective April 1, 1994, Article T Schedule IV is replaced by the following
paragraph:
IV. SCHEDULE IV
A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1991 14.2% 0.015%
Thereafter 12.2% 0.015%
For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana,
and Arizona on or after January 1, 1994 through March 31, 1994, the Allowance
as a percentage of Premium shall be 13.7%.
For all issues sold as the Guaranteed Annuity on or after April 1, 1994 the
Allowance as percentage of Premium shall be 13.0%.
Effective March 1, 1994 through March 31, 1994, for issues sold as the "Bonus
Annuity", with a 3% guaranteed rate in the states where the American Annuity
is approved, the Allowance as a percentage of Premium shall be 9.2%.
Effective April 1, 1994, for issues sold as the "Bonus Annuity", with a 3%
guaranteed rate in the states where the American Annuity is approved, the
Allowance as a percentage of Premium shall be 10.0%.
B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1993 & later 13.0% 0.015%
<PAGE> 10.08.002
ADDENDUM NO. 4
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
/s/ Richard T. Magsam /s/ Courtland C. Smith
By By
Title: Senior Vice President Title: Asst. VP
Date: 5/5/94 Date: 5/11/94
Location: Jacksonville, Florida Location: Dallas, Texas
/s/ Linda R. Willis /s/ Gary Lee
Witness Witness
<PAGE> 10.09.001
ADDENDUM NO. 5
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
with Administrative Offices in Jacksonville, Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective April 1, 1994, Article T Schedule IV is replaced by the following
paragraph:
IV. SCHEDULE IV
A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY
Allowance
Allowance and as a % of
as a % of End-of Month
Issue Year Premium Account Value
1991 14.2% 0.015%
Thereafter 12.2% 0.015%
For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana,
and Arizona on or after January 1, 1994 through March 31, 1994, the Allowance
as a percentage of Premium shall be 13.7%.
For all issues sold as the Guaranteed Annuity on or after April 1, 1994 the
Allowance as a percentage of Premium shall be 13.0%.
Effective March 1, 1994 through March 31, 1994, for issues sold as the "Bonus
Annuity", with a 3% guaranteed rate in the states where the American Annuity
is approved, the Allowance as a percentage of Premium shall be 9.2%.
Effective April 1, 1994, for issues sold as tile "Bonus Annuity", with a 3%
guaranteed rate in the states where the American Annuity is approved, the
Allowance as a percentage of Premium shall be 10.0%.
B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY
Allowance
Allowance and as a % of
as a % of End-of-Month
Issue Year Premium Account Value
1993 & later 13.0% 0.015%
Effective August 1, 1994, for issues sold as the "Bonus American Annuity",
with a 3% guaranteed rate, the Allowance as a percentage of Premium shall be
10.0%.
<PAGE> 10.09.002
ADDENDUM NO. 5
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
/s/ Susan F. Powell /s/ John Brill
By By
Title: Exec. V.P. Title: V.P.
Date: 12/30/94 Date: 12/29/94
Location: Jacksonville, Fl. Location: Dallas, Tx.
/s/ Pete S. Maury /s/ James F. Allen
Witness Witness
<PAGE> 10.10.001
ADDENDUM NO. 6
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
with Administrative Offices in Jacksonville, Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective October 1, 1994, Schedule II is amended as follows:
II. SCHEDULE II
A. COINSURANCE PERCENTAGES
Calendar Period of Issue Jurisdiction Quota Share Reinsured
1991 and later Missouri 80%
October 1, 1991 and later Other 80%
October 1, 1994 All States 90%
<PAGE> 10.10.002
ADDENDUM NO. 6
to
REINSURANCE AGREEMENT INVE0001
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
/s/ Richard T. Magsam /s/ John Brill
By By
Title: Senior Vice President V.P.
Date: 1/25/95 Date: 1/23/95
Location: Jacksonville, Fl Location: Dallas, Tx
/s/ Linda R. Willis /s/ Gordan Jardin
Witness Witness
<PAGE> 10.11.001
ADDENDUM NO.7
to
REINSURANCE AGREEMENT INVEOOO1
between
INVESTORS INSURANCE CORPORATION OF
DELAWARE
with Administrative Offices in Jacksonville,
Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective March 27, 1995, Schedule II of the Agreement shall be replaced by
the attached Schedule II, which is amended to include the assumption
of policies issued by Investors Insurance Corporation to Kansas residents
and/or policyowners.
IN WITNESS WHEREOF, the parties have executed this Addendum in duplicate on
the dates and places set forth below:
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
Jacksonville, Florida Dallas Texas
April 13, 1995 April 10, 1995
- -------------------------- ------------------------
Date Date
/s/ Susan F. Powell /s/ John Brill
- -------------------------- ------------------------
By By
Executive Vice President Vice President
- -------------------------- ------------------------
Title Title
/s/ M. Rae Walker /s/ Andrew Jarmil
- -------------------------- ------------------------
Witness Witness
<PAGE> 10.11.002
SCHEDULE II
A. COINSURANCE PERCENTAGES
Calendar Period of Issue Jurisdiction Quota Share Reinsured
- --------------------------- ---------------- --------------------
1991 and later Missouri 80%
October 1, 1991 and later Other, except Kansas 80%
October 1, 1994 and later All States, except Kansas 90%
B. ASSUMPTION OF DIRECT POLICIES
Assumption by
Calendar Period of Issue Jurisdiction Republic-Vanguard Life
- ------------------------ ---------------- ----------------------
1990 - 1994: 13 Policies Kansas 100%
Effective March 27, 1995
- - see attached listing of policies
and Certificates of Assumption
<PAGE> 10.11.003
KANSAS OWNER RESIDENTS
POLICY YEAR POLICY OWNER OWNER TOT. PRE. ACT AGT
STATUS ISS'D NUMBER WAKE CITY RECEIVED NO. NAME
I 90 2000167 GERARDY HANOVER $15,000.00 211-0042 J. MCGOVERN
I 90 2000247 MEADOWS WICHITA 7,794.05 211-0321 R. MEADOWS
I 91 2002369 TROWER NEWTON 46,000.00 211-0961 T. FULTON
I 91 2003076 SEJKOM SUMMERWIEL 85,199.73 211-0051 S. GOHDE
I 92 2004376 IRWIN OWECO 100,000.00 411-0460 E. HARGRAVES
I 92 2004481 PUCKETT PARSONS 40,000.00 411-0620 P. WYER
I 92 2004622 MCHENRY COFFEYVILLE 30,000.00 411-4243 R. KOESTER
I 92 2005236 MCCARTY INDRPENDENCE11,431.48 211-4243 R. KOESTER
I 92 3001766 MCCARTY IUDEPENDEUCE70,115.60 211-4243
I 92 2005755 TILTON SHARON SPRGS 5,000.00 412-0026 K. NIECE
I 92 3002225 MCVEIGH WICHITA CITY29,092.08 415-0028 S. RAASCH
I 93 2006209 NOBLE KIOWA 25,000.00 211-0470 A. KOENEMAN
I 94 6001001 GROB OVERLAND PRK12,000.00 211-0230 L. KOESTER
TOTAL IN FORCE: 13
TOTAL SURRENDERS (S). 1
TOTAL DEATHS (K): 1
GRAND TOTAL 15
TOTAL PRODUCTION: $566,633.94
<PAGE> 10.11.004
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 6001001
Insured: JEAN GROB
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida. is hereby assumed by
Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms of the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.005
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2004481
Insured: CHARLES E. AND LILLIE M. PUCKETT TRUST
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and
be entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms of the assumption agreement.
Any claims or policyholder services arising after he effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office or the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.006
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2002369
Insured: PEARL TROWER
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms or the assumption agreement.
Any claims of policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/_______________________
<PAGE> 10.11.007
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2000167
Insured: CATHERINE M. GERARDY
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida is hereby assumed by
Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event
Investors Insurance Corporation remains liable to you notwithstanding the
terms of the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY,c/o Policyholder Services, 3030 Hartley Road,
Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.008
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2005755
Insured: R. VIRGINIA TILTON
Effective Date: March 27, 1995
This is to Certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed by
Republic-Vanguard Life Insurance Company, Dallas, Texas on the same terms and
under the same conditions as if such policy/certificate had been continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges hereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms of the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services 3030 Hartley Road,
Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.009
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2005236
Insured: MARY MCCARTY
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms or the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.010
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 3001766
Insured: MARY McCARTY
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed by
Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms or the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office or ale
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.011
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part or the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2004622
Insured: LNEAVIE MCHENRY
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed by
Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms of the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road
Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.012
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2004376
Insured: THE L. DALE AND OPAL B. IRWIN TRUST
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you not withstanding the
terms of the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of die
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.013
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/certificate No.: 2003076
Insured: LESTER SEJORKA
EffectiveDate: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms or the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road
Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.014
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2000247
Insured: DALLAS L. MEADOWS
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms or the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.015
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 3002225
Insured: RICK MCVEIGH
Effective Date: March 27, 1995
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms or the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC-VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.11.016
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
2727 Turtle Creek Boulevard
Dallas, Texas 75219
CERTIFICATE OF ASSUMPTION
To be attached to and made a part of the following policy/certificate assumed
by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard,
Dallas, Texas 75219.
Policy/Certificate No.: 2006209
Insured: GILBERT G. NOBLE
Effective Date: March 27, 1995.
This is to certify that the above designated policy/certificate heretofore
issued by Investors Insurance Corporation, a Delaware Corporation with
administrative offices in Jacksonville, Florida, is hereby assumed
by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms
and under the same conditions as if such policy/certificate had continued in
force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY shall carry out the terms of such policy/certificate and be
entitled to all rights and privileges thereof as existed prior to such
assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Any policy statements or notices as may be required by law or contract will
be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY.
Please be advised that you retain all rights with respect to your policy
against Investors Insurance Corporation in the event Republic-Vanguard Life
Insurance Company is unable to fulfill its obligations. In such event,
Investors Insurance Corporation remains liable to you notwithstanding the
terms of the assumption agreement.
Any claims or policyholder services arising after the effective date hereof
from coverage afforded by said policy/certificate should be sent to REPUBLIC-
VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley
Road, Jacksonville, Florida 32257 or call (800) 749-6992.
IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this
instrument to be signed by its President and Secretary at the office of the
Company in Dallas, Texas as of March 27, 1995.
REPUBLIC VANGUARD LIFE INSURANCE
COMPANY
By:/s/
<PAGE> 10.12.001
ADDENDUM NO. 8
to
REINSURANCE AGREEMENT INVEOOO1
between
INVESTORS INSURANCE CORPORATION OF DELAWARE
with Administrative Offices in Jacksonville, Florida
and
REPUBLIC-VANGUARD LIFE INSURANCE COMPANY
of Dallas, Texas
Effective May 1, 1995, Schedule II of the Agreement shall be replaced by the
attached Schedule II, which is amended to change Republic-Vanguard Life
Insurance Company's coinsurance quota share.
IN WITNESS THEREOF, the parties have executed this Addendum in duplicate on
the dates and places set forth below:
INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE
INSURANCE COMPANY
Jacksonville, Florida Dallas, Texas
6/15/95
Date Date
Susan Powell John Brill
By By
Exec. Vice Pres
Title Title
Rae Walker
Witness Witness
<PAGE> 10.12.002
SCHEDULE II
A. COINSURANCE PERCENTAGES Quota Share
Calendar Period of lssue Jurisdiction Reinsured
January 1, 1991 - September 30, 1994 Missouri 80%
October 1, 1991 - September 30, 1994 Other, except Kansas 80%
October 1, 1994 - April 30, 1995 All States, except Kansas 90%
May 1, 1995 and later All States, except Kansas 100%
B. ASSUMPTION OF DIRECT POLICIES
Assumption by
Calendar Period of issue Jurisdiction Republic-Vanguard Life
1990 - 1994: 13 Policies Kansas 100%
- - see attached listing of Effective March 27, 1995
policies and Certificates
of Assumption
INVEOOOI - ADD 8 5/1/95
<PAGE> 10.13.001
Agreement: INVEWLOl
an Automatic and Facultative
Life Reinsurance Agreement
Between: Investors Insurance Corporation
of Delaware
with administrative offices
in Jacksonville, Florida
And: Winterthur Life Re
Insurance Company
of Dallas, Texas
Reinsurance Agreement
<PAGE> 10.13.002
TABLE OF CONTENTS
A. Reinsurance Coverage 3
B. Procedures to Effect Reinsurance 6
C. WLR's Liability 7
D. Conditional Receipt or Interim Liability 8
E. Extracontractual Liabilities 9
F. Amounts and Plans of Reinsurance 10
G. Reinsurance Premiums 11
H. Reinsurance Allowances 12
I. Accounting and Billing 13
J. Taxes and Assessments 14
K. Special Provisions 15
L. Claims 16
M. Changes and Adjustments 18
N. Errors and Omissions 20
O. Audit of Records and Procedures 21
P. Arbitration 22
Q. Insolvency 23
R. Parties to Agreement 24
S. Entire Agreement 25
T. Duration and Termination of Agreement 26
U. Severalty of Provisions 27
V. Effective Date and Execution 28
W. Definitions 29
X. List of Exhibits 30
<PAGE> 10.13.003
REINSURANCE AGREEMENT
Between
INVESTORS INSURANCE CORPORATION
of
Delaware
hereinafter referred to as "INVESTORS",
and
WINTERTHUR LIFE RE INSURANCE COMPANY
of
Dallas, Texas
hereinafter referred to as "WLR"
A. Reinsurance Coverage
1. Automatic Reinsurance
1.1 This Agreement covers Investors individual life insurance issued on
the plans and policy forms specified in Exhibit 1. INVESTORS shall
reinsure this business automatically with WLR, and WLR agrees to
accept this business provided the business meets the following
requirements:
(a) The policy is issued according to Investors' then existing
regular and customary new risk underwriting rules and
guidelines specified in Exhibit 3.
(b) The mortality rating is from Standard (100%) to Table 4
(200%), inclusive.
(c) Maximum issue age is 80 years.
(d) The proposed insured is a citizen or permanent resident of the
United States or Canada whose surname begins with a letter in
the range specified in Exhibit 1 and resides in a state where
INVESTORS is duly licensed.
(e) Each risk has not been submitted to WLR or any other reinsurer
for facultative reinsurance.
(f) INVESTORS retains the full percentage or amount specified in.
Exhibit 2, either on previous insurance or insurance
currently applied for.
(g) The face amount of life insurance applied for in all
companies, including Investors' current application, when
added to the face amount then in force on the life, does not
exceed the jumbo limits specified in Exhibit 2.
(h) To the best of INVESTORS' knowledge, the policy applied for
with INVESTORS does not constitute the second replacement
policy of existing in force coverage within
<PAGE> 10.13.004
two years of issue or the third replacement of existing in
force coverage within five years.
(i) The maximum amount to be issued automatically does not exceed
the combined retention and binding limits specified in Exhibit
2.
1.2 Where INVESTORS has more than one Agreement with WLR, the total amount
per life automatically ceded to WLR under all Agreements combined
shall not exceed the automatic binding limits available to INVESTORS
under the terms of the Agreement with the highest binding authority.
1.3 The items in Exhibit 3 shall form a part of this Agreement and any
material change in these rules and guidelines shall be subject to the
approval of WLR before being applied to the policies and supplementary
benefits covered by this Agreement.
2. FACULTATIVE REINSURANCE
2.1 If the insurance applied for does not meet the automatic requirements
specified in A 1, or if the INVESTORS so chooses, INVESTORS may submit
an application for facultative reinsurance to WLR as provided in B 2.
3. Forms and Manuals
3.1 INVESTORS agrees to file with WLR copies of all appropriate policy
forms, rider forms, rate manuals, retention schedules, application
forms, conditional receipts, temporary insurance agreements, binders,
underwriting questionnaires, authorization forms for release of
medical information and other related material. If new materials are
published, or changes are made in the material already filed,
INVESTORS agrees to promptly provide WLR with copies of such
materials.
3.2 INVESTORS hereby declares that its forms, practices, and procedures
are in compliance with current MIB (Medical Information Bureau)
regulations.
3.3 INVESTORS and WLR shall mutually agree on the underwriting manual or
manuals to be used as reference materials for reinsurance covered
under this Agreement. INVESTORS agrees to notify WLR in writing of any
changes or intent to change underwriting reference manuals.
<PAGE> 10.13.005
4. Exclusions
4.1 WLR will not participate in an enhancement of any policy provisions in
the business reinsured under this Agreement unless agreed to in
writing by WLR prior to the granting of the enhancement.
4.2 INVESTORS and WLR agree that any new business issued in any of the
following situations is excluded from this Agreement, unless agreed to
in writing by WLR and specifically included under the terms of this
Agreement by amendment:
(a) External exchange programs
(b) Internal exchange programs
(c) Group coverages and/or group conversions
(d) Guaranteed to issue programs
(e) Mortality rating give up programs
(f) Underwriting performed outside of usual and customary industry
home office surroundings and standards; for example, at so
called underwriting fairs.
4.3 Any plans, riders, or supplementary benefits not specified in Exhibit
1 shall be excluded from this Agreement.
<PAGE> 10.13.006
B. Procedures to Effect Reinsurance
1. Automatic Reinsurance
1.1 When the initial premium on a policy eligible for automatic
reinsurance has been received by INVESTORS, INVESTORS shall within
twenty (20) days following the close of each calendar month submit
reinsurance information as specified in Exhibit 5 to WLR.
2. Facultative Reinsurance
2.1 When facultative reinsurance is being applied for, INVESTORS shall
complete a reinsurance application form as specified in Exhibit 4 and
send it along with any and all information it has on the risk,
including specifically but not limited to, copies of the application,
medical examiner's reports, attending physician's statements,
inspection reports, and other papers bearing on the insurability of
the risk, even if this information is received after final assessment
of the risk. INVESTORS shall clearly indicate the amount of risk it
wishes to reinsure including any benefits.
2.2 Upon completion of underwriting, WLR shall promptly notify INVESTORS
of its decision and classification of the risk.
2.3 Any offer made by WLR will be valid for sixty (60) days unless WLR
accepts a request to extend this period.
2.4 Upon acceptance of WLR'S offer of facultative reinsurance, INVESTORS
shall complete and send to WLR a reinsurance advice form as specified
in Exhibit 4.
2.5 When the initial premium on a policy that involves facultative
reinsurance is received by INVESTORS, INVESTORS will complete the same
procedure as for automatic risks in paragraph B 1.1 above.
2.6 If INVESTORS does not accept WLR'S offer for reinsurance, INVESTORS
shall complete and send to WLR a reinsurance advice form as specified
in Exhibit 4.
<PAGE> 10.13.007
C. WLR's Liability
1. Automatic Reinsurance
1. The liability of WLR on any automatic reinsurance under this Agreement
begins and ends at the same time as that of INVESTORS.
2. Facultative Reinsurance
2.1 The liability of WLR on any facultative reinsurance under this
Agreement begins and ends at the same time as that of INVESTORS,
provided that WLR has been advised in writing that WLR's offer has
been accepted by INVESTORS, and such notice is rendered within the
period as described in paragraph B 2.3.
2.2 If a claim occurs prior to Investors' receipt of WLR's underwriting
decision, then WLR shall complete its normal underwriting process and
communicate its underwriting assessment to INVESTORS. The WLR's
liability shall be limited in such cases to the smallest of:
(a) the limit specified for interim liability cover in D 2;
(b) WLR'S actual assessment; or
(c) the amount for which WLR would have been bound by INVESTORS
in the event of a tie between/among multiple facultative
reinsurer assessments; for example, first reinsurance offer
received by INVESTORS;
2.3 The liability of WLR for risks submitted facultatively to other
reinsurers shall be deemed to have never been in effect when INVESTORS
accepts another reinsurer's offer.
<PAGE> 10.13.008
D. Conditional Receipt or Interim Liability
1. For claims admitted by WLR that have arisen under the conditional
receipt or interim receipt coverage (as evidenced by a copy of such
receipt in the format shown in Exhibit 6), the liability of WLR shall
not exceed the lesser of:
(a) Investors' liability under the conditional or interim receipt
minus Investors' full, normal retention had the life in
question been underwritten as Standard, where Investors
retention shall include any net amounts then retained by
INVESTORS under other policies;
(b) the automatic reinsurance binding limit in this Agreement as
specified in Exhibit 2; or
(c) the sum of four hundred thousand dollars ($400,000).
2. If a life proposed for insurance is uninsurable under INVESTORS'
rules, limits and standards for the plan and amount applied for, then
INVESTORS shall promptly return any payment taken with the
application. In the event that INVESTORS does not promptly return
such payment, the maximum liability of the WLR shall not exceed its
pro rata share of such payment as that share is determined under D 1
(a).
<PAGE> 10.13.009
E. Extracontractual Liabilities
1. WLR shall not be liable for extracontractual damages or penalties,
including but not limited to punitive, compensatory, statutory, bad
faith, or other damages which may arise from the acts or omissions of
INVESTORS in its conduct with its own insured, policyholder,
beneficiary or assignee of the policy or with other persons.
(a) "Punitive Damages" are those damages which are awarded as a
penalty, the amount of which is not governed, nor fixed by
statute;
(b) "Statutory Penalties" are those amounts which are awarded as a
penalty, but fixed in amount by statute;
(c) "Compensatory Damages" are those amounts which are awarded to
compensate for actual damages sustained, and are not awarded
as a penalty, nor fixed in amount by statute;
(d) "Bad Faith Damages" are those amounts which are awarded to
compensate for implied damages sustained, which are awarded as
a penalty, the amount of which is not governed nor fixed by
statute.
<PAGE> 10.13.010
F. Amounts and Plans of Reinsurance
1. Plans
1.1 This Agreement covers INVESTORS' individual life insurance and
supplementary benefits issued on the plans and policy forms specified
in Exhibit 1.
2. Amounts
2.1 WLR shall reinsure face amounts in excess of INVESTORS' retention
limit as specified in Exhibit 2 paragraph 2 on a coinsurance basis up
to the limits specified in Exhibit 2 paragraphs 1 and 3.
<PAGE> 10.13.011
G. Reinsurance Premiums
1.1 Premiums for reinsurance under this Agreement will be computed on the
basis of the rates shown in Exhibit 7.
1.2 Whenever reinsurance under this Agreement is reduced or terminated,
WLR will refund the unearned reinsurance premium, including the annual
policy fee, if any, paid to the WLR.
1.3 If the Premium Waiver Benefit is applicable In the event of
Disability of policyholder, INVESTORS will continue to pay WLR
premiums as specified in Exhibit 1 for all coverages which continue
during disability, notwithstanding any payments made by WLR to
INVESTORS under the provisions of this Agreement.
<PAGE> 10.13.012
H. Reinsurance Allowances
1. WLR shall grant INVESTORS commissions and allowances at the rates
shown in Exhibit 7. The first year commission and allowance shall
reimburse INVESTORS for the costs it incurs in issuing the policies
reinsured under this Agreement.
2. If INVESTORS modifies the benefits or premium rates for a plan
reinsured tinder this Agreement, WLR shall have the right to change
the allowances payable under this Agreement.
<PAGE> 10.13.013
I. Accounting and Billing
1. Reinsurance Premiums
1.1 The reinsurance premiums are due on the issue date of the policy and
on each subsequent premium payment date under the policy and payable
to WLR on a monthly basis as premiums are received by the INVESTORS.
2. Billing
2.1 INVESTORS will submit every month to WLR a listing of new business,
changes and terminations, and a statement of amounts payable in a
manner which substantially complies with specifications in Exhibit 5.
2.2 The net balance is due to WLR within thirty (30) days of the date of
the statement. If a balance is due to INVESTORS, WLR will remit its
payment within thirty (30) days of statement.
3. Late Payment
3.1 Any overdue balance due either party bears interest from the end of a
30 day period following receipt of the monthly billing. The interest
for the period from 1 to 30 days will be the then current prime
interest rate as quoted in the Wall Street Journal as of the end of
the 30 day period following receipt of the monthly billing. For each
additional month after 30 days that a balance remains unpaid, interest
will be calculated using the above rate plus 1%.
3.2 The payment of reinsurance premiums shall be a condition precedent to
the continuation of liability of WLR under this Agreement. If any
premium remains unpaid for more than ninety (90) days after the due
date, WLR may send to INVESTORS a formal demand for immediate payment.
If INVESTORS does not comply with this demand within thirty (30) days,
then WLR may cancel any unpaid reinsurance cessions for non-payment of
premium; however, any unpaid premiums to the time of cancellation
would be due with interest.
<PAGE> 10.13.014
J. Taxes and Assessments
1. INVESTORS shall bear the sole responsibility for payment of all taxes
incurred by INVESTORS during the normal course of its business
activities.
2. Any assessments from guaranty funds paid by INVESTORS which are based
on the gross premium writings of INVESTORS without reduction for
premiums ceded under this Agreement shall be participated in by WLR in
the proportion the reinsurance premium under this Agreement bears to
the total gross premium of INVESTORS. WLR may reduce its liability by
its proportion of any amounts recoverable, such as reductions or
rebates of taxes, licenses or fees, by Investors due to its guaranty
fund assessments.
<PAGE> 10.13.015
K. SPECIAL PROVISIONS
1. As long as the capital and surplus of INVESTORS is less than 5% of
admitted assets, or $10 million if greater, INVESTORS shall obtain
prior written approval from WLR before releasing assets by way of
stockholder dividends or any other payments to a parent or affiliated
company except for reasonable management expenses and fees.
2. INVESTORS shall obtain prior written approval of WLR before selling
off any of the subject business or ceding out any subject or other
business within its normal retention.
3. INVESTORS shall place the assets corresponding to retained Reserve on
the subject business in a separately identifiable account. The
separately identifiable account shall include investment grade
securities, and shall exclude mortgages, real estate and affiliated
investments of INVESTORS or its principal owners.
4. INVESTORS agrees to include within its Reserves the present value of
any excess of its renewal expenses on the subject business over the.
renewal coinsurance allowance provided to INVESTORS under Schedule IV
of this Agreement.
5. A Business Management Committee shall be formed to advise INVESTORS at
least monthly on advertising, marketing, product, surplus and expense
issues. The Committee shall consist of 2 persons, one representing
INVESTORS and one representing WLR with voting interests proportional
to the respective relative interests of the two parties in the subject
business. On the issues listed below, each party shall have a veto:
a) development of surplus enhancement goals and targets taking
into account industry risk based capital and other requirements; and
b) development of a business management and surplus growth
strategy.
Voting interests shall be proportional to the respective
relative interests of the parties on all other issues; for example, on
development of recommendations for the monitoring and management of
expenses, affiliate transfers, stockholder dividends and other
disbursements.
INVESTORS would not be bound to follow the advice of the Committee,
but failure to do so would permit WLR to exercise its rights under the
provisions of this Agreement, including but not limited to paragraph 7
of this Article.
6. Both parties agree to provide each other, on a timely basis, with all
statutory statements, annual reports and SEC filings that they make
from time to time.
7. If INVESTORS should fail to follow any of the above provisions of this
Article, WLR shall have the right to adjust the terms of the
reinsurance for the subject business, with respect to: (a) first
year and renewal commissions and expense allowances payable on future
new business; and (b) renewal allowances payable on inforce business,
but not to an extent that would in any way threaten the solvency of
INVESTORS or its viability as a going concern.
<PAGE> 10.13.016
L. Claims
1. Notice
1.1 INVESTORS shall promptly notify WLR of each claim for insurance
benefits reinsured under this Agreement and provide WLR with copies of
the proof of death and claim when requesting payment for reinsurance
benefits on disability insurance. For reinsurance of risk involving
more than one insured individual, INVESTORS shall notify WLR of each
death as soon as possible after it has occurred and provide WLR with
copies of the proof of death immediately after such proof has been
received.
2. Settlement
2.1 WLR shall be liable to INVESTORS for the reinsurance benefits under
this Agreement to the same extent that INVESTORS is liable to the
claimant for the underlying insurance benefits, and all reinsurance
under this Agreement shall be subject to the terms and conditions of
the policy on which the liability of INVESTORS is based. Payment of
reinsurance benefits on a death claim under this Agreement shall
follow the mode of settlement under the policy.
3. Claims Within Contestable Period
3.1 Upon receipt by INVESTORS, copies of all investigation reports and
other relevant papers obtained in connection with the claim shall be
sent immediately to WLR. Any settlement made by INVESTORS shall be
binding on WLR.
3.2 When the claim occurs within the contestable period and the amount
retained represents less than twenty five (25) percent of the
contestable portion of the full insurance benefit provided by all
policies on the life issued by INVESTORS or if INVESTORS has retained
less than its regular maximum limit of risk retention on the basic
plan or supplementary benefits and riders, INVESTORS shall submit
copies of all of the required claims papers as they are obtained and
shall await WLR'S recommendation before admitting any liability or
making any settlement with the claimant. WLR shall review the claim
papers as they are received and make a recommendation within five (5)
working days after receipt of all of the necessary information.
4. Other Contested Claims
4.1 For all other claims, INVESTORS shall immediately notify WLR of any
intention to contest the insurance for any reinsurance under this
Agreement, or to assert defenses to a claim for benefits on such
insurance, and submit copies of all of the documents obtained in
connection with the claim to WLR for review.
4.2 Should any claim be settled on a compromise basis, WLR shall
participate in the compromise in proportion to its respective
liability under the policy or policies reinsured if WLR has agreed to
join in the contest. WLR shall pay its proportionate share of the
usual and unusual expenses of the contest in addition to its
proportionate share of the liability on the claim.
<PAGE> 10.13.017
4.3 In the event that WLR does not deem it advisable to contest the claim,
WLR shall notify INVESTORS of such decision within five (5) working
days after receipt of all of the necessary information. WLR shall then
discharge all of its liability by paying to INVESTORS the full current
amount under the cession. Upon such discharge, WLR shall not be liable
for any portion of any further expenses incurred subsequently in
contesting the claim, and shall not benefit from a reduced or
compromised settlement.
5. Expenses
5.1 For the purpose of Article L, the usual expenses of the contest shall
be the legal and investigative expenses that are incurred in
rescinding the policy or litigating the claim. Unusual expenses of
the contest shall be penalties, attorney's fees and interest imposed
automatically by statute against INVESTORS and arising solely out of a
judgement rendered against INVESTORS in a suit for policy benefits.
5.2 WLR shall not be liable for any portion of any routine investigative
or administrative expenses incidental to settlement of claims and any
expense incurred in connection with a dispute or contest arising out
of conflicting claims of entitlement to policy proceeds or benefits
which INVESTORS admits are payable.
6. Misstatement of Age or Sex
6.1 If the amount of insurance provided by any policy or policies
reinsured under this Agreement is increased or reduced because of a
misstatement of age or sex which is established after the death
of the insured individual, WLR shall share in the increase or
reduction in the proportion that the net liability of WLR bears to the
total of the net liability of INVESTORS and the net liability of
all reinsurers, including WLR, immediately prior to such increase or
reduction.
6.2 The reinsurance under this Agreement shall be restructured from
commencement on the basis of the adjusted amounts using premiums and
reserves for the correct age or sex. The adjustment for the
difference in reinsurance premiums and any associated commissions or
allowances, dividends, policy value or reserves shall be made without
any interest.
<PAGE> 10.13.018
M. Changes and Adjustments
1. Change Information
1.1 INVESTORS agrees to promptly furnish WLR with information on any
changes or adjustments affecting policies reinsured under this
Agreement as specified in Exhibit 5.
2. Reductions and Terminations
2.1 Reinsurance amounts are calculated in terms of coverages on the life
of a person. If any of Investors' policies or riders on the person
are reduced or terminated, the reinsurance in force will be reduced by
the corresponding amount. The reduction will not be applied to force
INVESTORS to resume more than its regular retention limit at the time
of the reduction for the age at issue, mortality rating and form of
the policy or policies for which reinsurance is being terminated. The
reduction first shall be applied to reinsurance, if any, on the
particular policy reduced. If the reduction exceeds the amount of
reinsurance on that policy, the reduction shall then be applied to
reinsurance on other policies on that life in the order in which the
policies were effected, the first effected shall be the first
terminated or reduced. If reinsurance has been ceded to more than one
reinsurer, the reduction in WLR's reinsurance will be in proportion to
the reduction in the total. After the proportion has been determined,
the rules above will be used.
3. Increases in Insurance
3.1 On any non-contractual increase in insurance or reunderwriting,
including changes in rating or class, on an existing policy that is
reinsured with WLR on an automatic basis and will continue to
be so reinsured, underwriting evidence consistent with Investors rules
must be submitted to WLR for WLR's information. If the policy is
reinsured with WLR on a facultative basis or will be so reinsured in
the future, underwriting evidence satisfactory to WLR shall be
obtained by INVESTORS and submitted to WLR for approval.
4. Reinstatements
4.1 Automatic reinsurance. If a policy that was reduced, terminated, or
lapsed is reinstated by INVESTORS under its regular rules, the
reinsurance will be reinstated automatically to the amount that would
be in force had the policy not been reduced, terminated, or lapsed.
4.2 Facultative reinsurance. If a policy on which INVESTORS retained
fifty percent (50%) or more of the risk at issue was reduced,
terminated, or lapsed, then reinstatement of reinsurance shall be
accomplished in the same way as automatic reinsurance under paragraph
M 4.1 above. If INVESTORS has retained less than fifty percent (50%)
of the risk at issue then reinstatement of the reinsurance shall
require prior approval of WLR.
<PAGE> 10.13.019
4.3 Whenever reinsurance under this Agreement is reinstated, INVESTORS
will pay WLR its proportionate part of the reinsurance premium plus
interest; based on the premiums with interest payable by the
policyholder from the date of lapse to the reinsurance premium due
date next following reinstatement. Thereafter, reinsurance premiums
will be payable in accordance with Article I.
5. Nonforfeiture Benefits
5.1 WLR is liable for the same form and term of nonforfeiture benefit as
provided for in the policy issued by INVESTORS for an amount
corresponding to the amount reinsured.
6. Contractual Conversions and Exchanges
6.1 In the event of a contractual conversion or exchange, understood to
be one which requires no evidence of insurability, WLR of the
original policy shall reinsure the risk resulting from such
conversion or exchange at agreed upon reinsurance conversion or
exchange rates on the YRT basis defined in Exhibit 8. The reinsured
Net Amount at Risk on the policy resulting from such conversion or
exchange shall not exceed the current reinsured Net Amount at Risk on
the policy or policies being converted or exchanged. If, however, the
conversion or exchange results in an increase in the risk, the amount
of increase shall be subject to evidence of insurability.
7. Non-Contractual Exchanges
7.1 If WLR is the reinsurer of the original policy, non-contractual
exchanges shall be subject to evidence if insurability. Reinsurance
premiums for the risk resulting from the exchange shall be agreed
upon.
7.2 If a reinsurer other than WLR is the reinsurer of the original policy,
non-contractual exchanges shall be subject to evidence of insurability
and shall be submitted to WLR as facultative new business.
8. Increase in Retention
8.1 INVESTORS may increase its limits of retention on new business being
issued at any time by giving advance written notice to WLR of the new
limits of retention and the effective date of such new retention
schedule.
9. Recapture
9.1 If INVESTORS increases its limits of retention, it may recapture
a corresponding amount of the reinsurance in force under this
Agreement on all persons where INVESTORS has maintained its
maximum limit of retention as detailed in Exhibit 2. No .
reinsurance, however, shall be recaptured under this provision before
the end of the twentieth (20th) policy year, and no reinsurance may be
recaptured where INVESTORS retained less than its maximum retention in
effect at the time the policy was issued.
<PAGE> 10.13.020
9.2 If INVESTORS elects to recapture, it will notify WLR in writing within
ninety (90) days from the effective date of its increase in retention.
At the next anniversary (or the twentieth (20) anniversary, if later)
of Investors' policy, the reinsurance will be reduced to increase the
total retained by INVESTORS to its new maximum. If reinsurance on any
policy for any person is reduced under this provision, all must be
reduced. If two or more reinsurers have reinsurance on the same
person, WLR's share of the reduction will be in proportion to its
share of the total reinsurance on the person.
N. Errors and Omissions
1. If either INVESTORS or WLR shall unintentionally perform an obligation
incorrectly under this Agreement or unintentionally fail to perform an
obligation required by this Agreement, such error or omission shall be
corrected by restoring both INVESTORS and WLR to the positions they
would have occupied bad no such error or omission occurred.
2. This provision shall apply only to misunderstandings, oversights or
clerical errors relating to the administration of reinsurance covered
by this Agreement.
3. Any negligent or deliberate acts of commission or omission by one
party to this Agreement are the responsibility of that party and its
liability insurer, if any, but not that of the other party to the
Agreement.
4. For business reported but not covered under the provisions of this
Agreement, WLR shall be obligated only for the return of premiums
paid.
<PAGE> 10.13.021
O. Audit of Records and Procedures
1. WLR and INVESTORS each shall have the right, upon two weeks' prior
notice (or any other time frame mutually agreed upon by the parties),
to audit, at the office of the other, all records and procedures
relating to reinsurance under this Agreement. This audit may be
performed by WLR or its designated representative and INVESTORS or its
designated representative. Further, INVESTORS agrees to complete, at
the reasonable request of WLR and in a manner acceptable to WLR, a
process confirming the existence of policies reinsured under this
Agreement.
<PAGE> 10.13.022
P. Arbitration
1. It is the intention of the parties that the customs and usages of the
business of reinsurance shall be given full effect in the
interpretation of this Agreement. The parties shall act in all things
with the highest good faith. A dispute or difference between the
parties with respect to the operation or interpretation of this
Agreement on which an amicable understanding cannot be reached shall
be decided by arbitration. The arbitrators are empowered to decide all
questions or issues and shall be free to reach their decisions from
the standpoint of equity and customary practices of the insurance and
reinsurance industry rather than from that of strict law. All matters
of interpretation of law shall be construed in accordance with the
laws of the state in which the administrative offices of INVESTORS are
located. The board of arbitration shall meet in the city in which the
administrative offices of INVESTORS are located.
2. To initiate arbitration, a party shall send by certified mail, return
receipt requested, to the other party's home office a notice demanding
arbitration. The notice shall include the issues for decision and the
remedies sought. The party receiving the notice shall thereafter have
thirty days within which to respond in writing.
3. There shall be three arbitrators who shall be active or retired
officers of life insurance companies other than the contracting
companies or their affiliates. An arbitrator may not be a present or
former employee, officer, attorney, or consultant of INVESTORS or WLR
or either's affiliates.
4. Each of the contracting companies shall appoint one of the arbitrators
and these two arbitrators shall select the third. In the event that
either contracting company should fail to choose an arbitrator within
thirty days after the response to the demand for arbitration, the
other contracting company may choose two arbitrators, who shall in
turn choose a third arbitrator before entering arbitration. If the two
arbitrators are unable to agree upon the selection of a third
arbitrator within thirty days following their appointment, each
arbitrator shall nominate three candidates within ten days thereafter,
two of whom the other shall decline and the decision shall be made by
drawing lots.
5. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article, and communications shall be made by INVESTORS to each of the
reinsurers constituting the one party, provided that nothing therein
shall impair the rights of such reinsurers to assert several, rather
than joint, defenses or claims, nor be construed as changing the
liability of the reinsurers under the terms of this Agreement from
several to joint.
6. The arbitrators shall decide by a majority of votes and from their
written decision there can be no appeal. The cost of arbitration,
including the fees of the arbitrators, shall be borne by the losing
party unless the arbitrators decide otherwise.
<PAGE> 10.13.023
Q. Insolvency
1. In the event of the insolvency of INVESTORS, all reinsurance shall be
payable directly to the liquidator, receiver, or statutory successor
of INVESTORS, without diminution or increase because of the insolvency
of INVESTORS or because the liquidator, receiver, conservator or
statutory successor of INVESTORS has failed to pay all or part of any
claim.
2. In the event of insolvency of INVESTORS, the liquidator, receiver, or
statutory successor shall give WLR written notice of the pendency of a
claim on a policy reinsured within a reasonable time after such claim
is filed in the insolvency proceeding. During the pendency of any such
claim, WLR may investigate such claim and interpose in the name of
INVESTORS (its liquidator, receiver or statutory successor), but at
its own expense, in the proceeding where such claim is to be
adjudicated any defense or defenses which WLR may deem available to
INVESTORS or its liquidator, receiver or statutory successor.
3. The expense thus incurred by WLR shall be chargeable, subject to court
approval, against INVESTORS as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue to
INVESTORS solely as a result of the defense undertaken by WLR. Where
two or more reinsurers are participating in the same claim and a
majority in interest elect to interpose a defense or defenses to any
such claim, the expense shall be apportioned in accordance with the
terms of the Agreement as though such expenses had been incurred by
INVESTORS .
4. Any debts or credits, matured or unmatured, liquidated or
unliquidated, in favor of or against either INVESTORS or WLR with
respect to this Agreement or with respect to any other claim of
one party against the other are deemed mutual debts or credits, as the
case may be, and shall be set off, and only the balance shall be
allowed or paid.
5. In the event that WLR shall execute and file articles of dissolution
or the Insurance Department of WLR'S state of jurisdiction shall be
directed to liquidate WLR pursuant to an order of liquidation,
reinsurance hereunder shall, at the option of INVESTORS, be terminated
as of a date concurrent with or subsequent to the filing of the
articles of dissolution or the issuance of the order of liquidation,
as selected by the INVESTORS. The terminated reinsurance may be
retained by INVESTORS for its account or ceded to another reinsurer at
its sole option. Termination under this paragraph shall be subject to
the provisions of the Texas Insurance Code. The scope of this
paragraph and the option of INVESTORS to terminate pursuant hereto
shall not be limited or otherwise affected by any other provision of
this Agreement.
<PAGE> 10.13.024
R. Parties to Agreement
1. This is an Agreement for indemnity reinsurance solely between
INVESTORS and WLR. The acceptance of reinsurance hereunder shall not
create any right or legal relation whatever between WLR and the
original company (if other than INVESTORS), the insured or the
beneficiary under any policy reinsured hereunder, and the original
company shall be and remain solely liable to such insured or
beneficiary under any such policy.
2. This Agreement may not be assigned by either party without the written
permission of the other party. However, WLR reserves the right to
retrocede the reinsurance assumed under this Agreement on an indemnity
reinsurance basis.
<PAGE> 10.13.025
S. Entire Agreement
This Agreement represents the entire contract between INVESTORS and
WLR and supersedes, with respect to its subject, any prior oral or
written agreement.
<PAGE> 10.13.026
T. Duration and Termination of Agreement
1. This Agreement may be terminated with respect to new business by
either party giving the other party 90 days written notice prior to
the effective date of termination. During the ninety day period
following a notice of termination, new business shall continue to be
reinsured on then existing terms.
2. Coverage for underlying business ceded under this Agreement on or
prior to the effective date of termination shall remain in full force
and effect until expiration or cancellation of such business,
whichever first occurs. However, it is understood and agreed that if
coverage for the underlying business is terminated for any reason,
coverage under this Agreement shall expire automatically at the same
time and in the same manner for the terminated business.
3. At the end of any accounting period, this Agreement shall
automatically terminate if none of the policies subject to the
Agreement remains in force and neither party owes the other any
payment or act.
<PAGE> 10.13.027
U. Severalty of Provisions
1. If any provisions of this Agreement be declared null and void by a
regulatory authority in any jurisdiction within which either party
operates, the remaining provisions shall nevertheless continue to have
full force and effect.
<PAGE> 10.13.028
V. Effective Date and Execution of Agreement
This Agreement will be effective for all eligible policies applied for on and
after May 1, 1993.
IN WITNESS OF THE AGREEMENT which is detailed in the Provisions and attached
Exhibits, the PARTIES have had their respective officers execute this
Agreement in duplicate below.
INVESTORS WLR
Jacksonville, Fl. Dallas, Texas
Location Location
8/31/93 8/31/93
Date Date
/s/ Melvin C. Parker /s/
By By
President & CEO President
Title Title
/s/ Susan F. Powell /s/ John Brill
Witness Witness
<PAGE> 10.13.029
W. Definitions
Agreement
This document in its entirety including amendments and
exhibits which details the terms and conditions under which
business is to be conducted. Also known as the treaty.
Automatic
Risks that the ceding company is obligated to cede and the
reinsurer is obligated to accept under the terms of the
Agreement.
Cedant
The company that cedes risks to the reinsurer; the direct
writing company.
Cede
To transfer to another insurer a specified portion of the
insurance written by an insurer.
Facultative
Reinsurance of a single policy, where the assessment and
review of the risk is performed by the reinsurer. The ceding
company has the option to cede and the reinsurer has the
option to accept.
Reassurer
The reinsurance company; reinsurer.
Reinsurance
Transaction where an insurance company agrees to indemnify
another insurance company for a specified portion of risks it
has issued.
YRT
Refers to Yearly Renewable Term method of charging premiums
for reinsurance Reinsurance Agreement
<PAGE> 10.13.030
X. List of Exhibits
1. Plans of Insurance and Supplementary Benefits
Surnames of Subject Business
Reliances of WLR
2. Business Ceded
Investors' Retention
Automatic Binding
Jumbo Limits
3. New Business Underwriting Guidelines and Requirements
4. Facultative Reinsurance Application and Advice Form
5. Reinsurance Reporting Requirements
6. Investors' Application, Forms, and Conditional Receipt
7. Original Policy Premium Rates
Commissions and Allowances
8 YRT Rates for Contractual Exchanges and Conversions
<PAGE> 10.13.031
EXHIBIT 1
Plans of Insurance and Supplementary Benefits
Surnames of Subject Business
Reliances of WLR
1. Plans of Insurance and Supplementary Benefits
1.1 INVESTORS' Accelerated Benefit Whole Life Policy, form WL-1/93, issued
on or after May 1, 1993.
2. Surnames of Subject Business
2.1 A-Z.
3. Reliances of WLR
3.1 Full year 1991 and 1992 Annual Statements of INVESTORS.
3.2 INVESTORS declares that there was no outstanding surplus relief
reinsurance as of the date of execution.
<PAGE> 10.13.032
EXHIBIT 2
Business Ceded
Investors' Retention
Automatic Binding
Jumbo Limits
1. Business Ceded
1.1 An 80% quota share of each insured life up to INVESTORS' retention
limit shown below and 100% of any excess.
2. Retention Limits of INVESTORS
2.1 Life - $100,000. A 20% quota share would be retained on each insured
life up to a maximum issue amount of $500,000.
2.2 Supplementary Benefits - Not Applicable
3. Amounts at Which Automatic Binding Can Occur
3.1 Life
3.1.1 Issue ages 50 - 65 Up to and including $50,000
Issue ages 66 - 80 Up to and including $25,000
Larger cases would be submitted subject to facultative consideration
by WLR.
3.1.2 The maximum rating is Table 4 (200%) or $10 of flat extra or
combination assuming that each $10 of flat extra corresponds to +100%
of tabular extra mortality.
3.2 Supplementary Benefits
3.2.1 Not Applicable
4. Jumbo Limit
4.1. The all-company issue and inforce participation limit shall be
$100,000. Larger cases would be submitted subject to facultative
consideration by WLR.
<PAGE> 10.13.033
EXHIBIT 3
New Business Underwriting Guidelines and Requirements
<PAGE> 10.13.034
ACCELERATED BENEFIT LIFE
UNDERWRITING GUIDELINES
AMOUNTS OF INSURANCE
$ 5,000- $ 25,001
$50,001 +
AGE $ 25,000 $ 50,000
50 - 64 NON-MEDICAL NON-MEDICAL PARAMEDICAL/
APS APS H.O.S.
INTERVIEW* INTERVIEW* FULL BLOOD
PROFILE
ABS
INTERVIEW*
65 - 75 NON-MEDICAL PARAMEDICAL/ PARAMEDICAL/
APS H.O.S. H.O.S.
INTERVIEW FULL BLOOD FULL BLOOD
PROFILE PROFILE
EKG** EKG
APS APS
INTERVIEW INTERVIEW
76 - 8O PARAMEDICAL/ PARAMEDICAL/ PARAMEDICAL/
H.O.S. H.O.S. H.O.S.
FULL BLOOD FULL BLOOD FULL BLOOD
PROFILE PROFILE PROFILE
EKG** EKG** EKG
APS ABS APS
INTERVIEW INTERVIEW INTERVIEW
* Request phone interview if applicant is age 60-64 and is retired or
unemployed.
** Not required if EKG was performed by a personal M.D. within one
year of the date of the application and medical history is otherwise
negative.
FACULTATIVE AMOUNTS = $25,001 +
UWGUIDEl . DDS
<PAGE> 10.13.035
INVESTORS INSURANCE CORPORATION
ACCELERATED BENEFIT LIFE
IMPAIRMENT GUIDELINES
APPLICATION SHOULD NOT BE TAKEN ON ANY PERSON WITH
THE FOLLOWING MEDICAL HISTORY
. Heart attack, Coronary Bypass Surgery or Angioplasty within the last six
months.
. Stroke or Carotid Endarterectomy within die last six months.
. Cancer other than basal cell skin cancer within the last three years.
. Diabetes with evidence of peripheral vascular, heart or kidney disease.
More than mild Chronic Obstructive Pulmonary Disease (COPD). or Emphysema.
. Alzheimer's disease.
. Parkinson's disease, onset prior to age 60.
. Cirrhosis of the liver.
. Alcoholism less than five years in recovery.
. Illegal Drug use within the last five years.
. Kidney failure or dialysis.
. Any history of major organ transplant (heart, kidney, liver, etc.)
. Current confinement to a long-term care facility.
. AIDS, AIDS related complex, HIV positive.
. Any anticipated/or scheduled major surgery.
UNDERWRITING GUIDELINES
FACE AMOUNT LIMITS
AGES NON-MEDICAL PARAMEDICAL EXAM I H.O.S.
50 - 64 $5,000 - $50,000 Not required
65 - 75 $5,000 - $25,000 $25,001 - $50,000*
76 - 80 --------- $5,000 - $25,000*
*for amounts exceeding this face amount, please call Home Office Underwriting
Department.
NOTE: Attending Physician's Statement will he requested by Home Office
Underwriting Department as needed.
In many cases, a phone interview with the applicant maybe necessary prior to
issuance of policy.
<PAGE> 10.13.036
MALE NONSMOKER MALE SMOKER
$5,000- $10,000- AGE LAST $5,000- $10,000-
$9,999 $24,999 $25,000 BIRTHDAY $9,999 $24,999 $25,000+
44.00 34.00 29.00 50 52.00 41.00 34.00
45.00 35.00 30.00 51 54.00 43.00 36.00
46.00 36.00 31.00 52 56.00 45.00 38.00
48.00 38.00 33.00 53 58.00 47.00 40.00
49.00 39.00 34.00 54 60.00 49.00 42.00
50.00 40.00 35.00 55 62.00 51.00 44.00
52.00 42.00 37.00 56 64.00 53.00 46.00
54.00 44.00 39.00 57 66.00 55.00 48.00
55.00 45.00 40.00 58 69.00 58.00 51.00
57.00 47.00 42.00 59 72.00 61.00 54.00
59.00 49.00 44.00 60 75.00 64.00 57.00
61.00 51.00 46.00 61 79.00 68.00 61.00
64.00 54.00 49.00 62 83.00 72.00 65.00
67.00 57.00 52.00 63 87.00 76.00 69.00
69.00 59.00 54.00 64 91.00 80.00 73.00
72.00 62.00 57.00 65 95.00 84.00 77.00
75.00 65.00 60.00 66 100.00 89.00 82.00
78.00 68.00 63.00 67 106.00 95.00 88.00
82.00 72.00 67.00 68 113.00 102.00 95.00
86.00 76.00 71.00 69 120.00 109.00 102.00
90.00 80.00 75.00 70 128.00 117.00 110.00
94.00 84.00 79.00 71 137.00 126.00 119.00
99.00 89.00 84.00 72 146.00 135.00 128.00
105.00 95.00 90.00 73 156.00 145.00 138.00
112.00 102.00 97.00 74 168.00 157.00 150.00
120.00 110.00 105.00 75 182.00 171.00 164.00
128.00 118.00 113.00 76 197.00 186.00 179.00
136.00 126.00 121.00 77 213.00 202.00 195.00
146.00 136.00 131.00 78 229.00 218.00 211.00
155.00 145.00 140.00 79 245.00 234.00 227.00
165.00 155.00 150.00 80 262.00 251.00 244.00
<PAGE> 10.13.037
GUAR GUAR GUAR GUAR GUAR GUAR
AGE LAST 5TH YEAR 10TH YEAR 20TH YEAR 5TH YEAR 10TH YEAR 20TH YEAR
BIRTHDAY CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE
50 48.74 144.76 361.15 150.25 368.72 661.11
51 50.91 150.84 373.06 150.88 370.45 663.44
52 53.10 157.06 384.99 151.40 372.17 665.73
53 55.34 163.39 396.80 151.88 373.84 667.88
54 57.71 169.81 408.34 152.54 375.45 669.30
55 60.21 176.30 419.52 153.36 377.01 671.42
56 62.84 182.85 430.34 154.33 378.50 672.78
57 65.53 189.49 440.31 155.28 379.98 673.88
58 68.19 196.23 451.06 156.02 381.46 674.37
59 70.74 203.09 461.17 156.41 382.98 675.80
60 73.10 210.04 471.19 156.32 384.49 676.43
61 75.74 217.39 481.34 156.78 386.60 678.01
62 80.61 226.62 492.52 161.65 391.87 680.95
63 85.65 235.73 503.27 166.50 396.77 683.61
64 90.97 244.55 513.39 171.55 401.13 685.84
65 96.60 253.00 522.78 176.83 404.91 687.58
66 102.45 261.04 531.46 182.19 408.10 688.85
67 108.34 268.69 539.55 187.34 410.76 689.75
68 113.99 276.06 547.28 191.86 413.04 690.48
69 119.09 283.28 554.97 195.34 415.12 691.29
70 123.51 290.42 563.16 197.67 417.11 692.68
71 127.29 297.50 572.59 199.00 419.05 695.30
72 130.62 304.44 584.28 199.68 420.91 700.06
73 133.90 311.06 599.64 200.34 422.52 708.21
74 137.57 317.21 620.29 201.60 426.76 721.13
75 141.86 322.52 647.58 203.74 424.58 739.87
76 146.75 327.91 682.17 206.71 425.02 764.81
77 151.93 332.61 723.16 210.06 425.20 794.97
78 156.82 337.12 766.89 213.01 425.33 827.22
79 160.79 341.82 803.67 214.80 425.79 853.90
80 163.53 347.43 1,000.00 215.08 427.33 1,000.00
<PAGE> 10.13.038
FEMALE NONSMOKER FEMALE SMOKER
$5,000- $10,000 AGE LAST $5,000-
$9,999 $24,999 $25,000+ BIRTHDAY $9,999 $24,000 $25,000+
29.00 19.00 14.00 50 44.00 33.00 26.00
32.00 22.00 17.00 51 45.00 34.00 27.00
35.00 25.00 20.00 52 46.00 35.00 28.00
38.00 28.00 23.00 53 48.00 37.00 30.00
41.00 31.00 26.00 54 50.00 39.00 32.00
44.00 34.00 29.00 55 52.00 41.00 34.00
45.00 35.00 30.00 56 54.00 43.00 36.00
46.00 36.00 31.00 57 56.00 45.00 38.00
48.00 38.00 33.00 58 58.00 47.00 40.00
49.00 39.00 34.00 59 60.00 49.00 42.00
50.00 40.00 35.00 60 62.00 51.00 44.00
52.00 42.00 37.00 61 64.00 53.00 46.00
54.00 44.00 39.00 62 66.00 55.00 48.00
55.00 45.00 40.00 63 69.00 58.00 51.00
57.00 47.00 42.00 64 72.00 61.00 54.00
59.00 49.00 44.00 65 75.00 64.00 57.00
61.00 51.00 46.00 66 79.00 68.00 61.00
64.00 54.00 49.00 67 83.00 72.00 65.00
67.00 57.00 52.00 68 87.00 76.00 69.00
69.00 59.00 54.00 69 91.00 80.00 73.00
72.00 62.00 57.00 70 95.00 84.00 77.00
75.00 65.00 60.00 71 100.00 89.00 82.00
78.00 68.00 63.00 72 106.00 95.00 88.00
82.00 72.00 67.00 73 113.00 102.00 95.00
86.00 76.00 71.00 74 120.00 109.00 102.00
90.00 80.00 75.00 75 128.00 117.00 110.00
94.00 84.00 79.00 76 137.00 126.00 119.00
99.00 89.00 84.00 77 146.00 135.00 128.00
105.00 95.00 90.00 78 156.00 145.00 138.00
112.00 102.00 97.00 79 168.00 157.00 150.00
120.00 110.00 105.00 80 182.00 171.00 164.00
<PAGE> 10.13.039
GUAR GUAR GUAR GUAR GUAR GUAR
AGE LAST 5TH YEAR 10TH YEAR 20TH YEAR 5TH YEAR 10TH YEAR 20TH YEAR
BIRTHDAY CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE
50 34.48 111.67 309.87 132.74 350.14 638.06
51 36.49 117.97 324.25 134.83 354.99 663.81
52 38.66 124.68 339.16 137.12 360.14 669.75
53 41.10 131.72 354.42 139.92 365.39 675.72
54 43.88 139.04 369.87 143.37 370.65 681.58
55 47.01 146.57 385.37 147.40 375.74 687.25
56 50.44 154.33 400.84 151.78 380.71 692.65
57 54.08 162.35 416.27 156.21 385.60 697.81
58 57.76 170.69 431.67 160.23 390.47 702.74
59 61.31 179.44 447.08 163.44 395.44 707.48
60 64.68 188.60 462.50 165.81 400.52 712.09
61 67.91 198.17 477.83 167.53 405.69 716.52
62 71.12 208.08 492.96 168.92 410.90 720.74
63 74.58 218.23 507.72 170.61 416.06 724.71
64 78.51 223.49 521.97 173.02 421.05 723.37
65 83.02 238.74 535.62 176.31 425.76 731.67
66 88.14 248.99 548.72 180.44 430.26 734.72
67 96.30 261.32 562.55 190.17 438.06 739.16
68 105.54 273.58 575.93 199.31 445.38 743.31
69 112.52 285.75 589.03 207.35 452.19 747.29
70 120.01 297.81 602.20 214.02 458.53 751.40
71 126.98 309.70 615.86 219.42 464.40 756.08
72 133.56 321.32 631.04 223.89 469.79 761.95
73 140.09 332.52 648.47 228.06 474.63 769.87
74 146.90 343.22 669.47 232.46 478.94 780.82
75 154.17 353.39 695.19 237.37 428.74 795.69
76 161.36 363.05 726.23 242.71 486.11 814.90
77 169.70 372.27 761.93 248.11 489.14 837.85
78 177.20 381.19 799.40 252.93 491.97 826.35
79 183.93 390.09 830.59 256.66 494.90 882.50
80 189.66 399.50 1,000.00 259.08 498.48 1,000.00
PREMIUM MODE FACTORS FOR OTHER THAN ANNUAL PREMIUMS: Semi Annual .6%
Quarterly .3%
Monthly PAC .09%
** CASH AND REDUCED PAID-UP VALUES ARE BASED ON THE COMMISSIONERS 1980
STANDARD ORDINARY MALE OR FEMALE MORTALITY TABLE WITH INTEREST AT 6.25%
SAMPLE PREMIUM CALCULATION FOR: NON-SMOKING MALE, AGE 60,
$10,000 FACE AMOUNT, MONTHLY PAC
10 (UNITS) X $49.00 (COST PER $1,000) = $490.00 X .09 = $44.10
<PAGE> 10.13.040
EXHIBIT 4
Facultative Reinsurance Application and Advice Form
<PAGE> 10.13.041
WINTERHUR
Winterthur Life Reinsurance P.O. BOX 650327 Telephone 214-559-1800
Dallas, Texas 75265-0337 Telefax 274-522-8477
Telex 570-100-7488
Reinsurance Application - Cession Form
[] Facultative [] YRT [] Conversion
[] Automatic [] Coinsurance [] Guaranteed Insurability Option
Insured Name (last/first/middle) Sex Date of Birth
1. []male []female
2. []male []female
Res. state Age Age Basis
1. [] NB [] LB []Jt.
2. [] NB [] LB []Jt.
Smoker Type
[]Non-smoker []Smoker []Pref-Nonsm []Pref-Smoker []Aggregate______
Currency Aviation Risk
[] US-$ [] Can-$ [] No [] Yes
Status Base Policy Rider Disability Waiver Accidental Death
Previous In Force
Previous Retention
Current Application/Cession
Current Retention
Reinsurance Required
1. Valid M.I.B. Authorization is assumed to be in your possession. If not,
please explain under remarks.
2. If application is submitted elsewhere, please list companies under remarks.
3. If this is an exchange, conversion, or GIO, please list original policy
number and date, and additional details under remarks.
Remarks
Outstanding Requirements
Ceding Company Underwriting Assessment
By Date Telephone
Do not write in this space
Page 1 Mail this copy with the underwriting papers. (Facultative only)
[] Winterhur Life Reinsurance Corporation of North America
[] Republic-Vanguard Life Insurance Company
<PAGE> 10.13.042
Reinsurance Application -Cession Form
[] Facultative []YRT [] Conversion
[] Automatic []Coinsurance [] Guaranteed Insurability
Option
Insured Name (Last/First/Middle) Sex Date of Birth
1. []Male []Female
2. []Male []Female
Res. State Age Age Basis
1. [] NB [] LB []Jt.
2. [] NB [] LB []Jt.
Smoker Type
[] Nonsmoker [] Smoker [] Pref-nonsm [] Pref-Smoker [] Aggregate
Currency Aviation
[] US-$ [] Can-$ [] No [] Yes
Status Base Policy Rider Disability Waiver Accidental Death
Previous In Force
Previous Retention
Current Application/Cession
Current Retention
Reinsurance Required
1. Valid M.I.B. Authorization is assumed to be in your possession. If not,
please explain under remarks.
2. If application is submitted elsewhere, please list companies under remarks.
3. If this is an exchange, conversion, or GIO, please list original policy
number and date, and additional details under remarks.
Remarks
Outstanding Requirements
Ceding Company Underwriting Assessment
By Date Telephone
Reinsurance not required []Filed as incompleted []Amount placed within our
retention
[]Policy not placed []Reinsurance placed
elsewhere
Plan Name Policy Number Policy Date Table Rating Flat Extra
Base- $ Yrs.
Rider- $ Yrs.
Reinsurance Risk Year/age Risk Amount Year/Age Risk Amount
Amounts- optional
(to report manual values)
(Do not fill out)
Treaty# Plan-Base Rider Cession#
Page 2-Mail this copy when policy is placed (Facultative/Automatic)
[] Winterhur Life Reinsurance Corporation of North America
[] Republic-Vanguard Life Insurance Company
<PAGE> 10.13.043
Reinsurance Application-Cession Form
[]Facultative []YRT []Conversion
[]Automatic []Coinsurance []Guaranteed Insurability Option
Insured Name (Last/First/Middle) Sex Date of Birth
1. []Male[]Female
2. []Male[]Female
Res. State Age Age Basis
1. [] NB [] LB [] Jt.
2. [] NB [] LB [] Jt.
Smoker Type
[]Nonsmoker []Smoker []Pref-Nonsm []Pref-Smoker []Aggregate
Currency Aviation Risk
[] US-$ [] Can-$ [] No [] Yes
Status Base Policy Rider Disability Waiver Accidental Death
Previous In Force
Previous Retention
Current Application/Cession
Current Retention
Reinsurance Required
1. Valid M.I.B. Authorization is assumed to be in your possession. If not,
please explain under remarks.
2. If application is submitted elsewhere, please list companies under remarks.
3. If this is an exchange, conversion, or GIO, please list original policy
number and date, and additional details under remarks.
Remarks
Outstanding Requirements
Ceding Company Underwriting Assessment
By Date Telephone
Reinsurance not required []Filed as incomplete []Amount placed within
our retention
[]Policy not placed []Reinsurance placed
elsewhere
Plan Name Policy Number Policy Date Table Rating Flat Extra
Base - $ Yrs.
Rider- $ Yrs.
Reinsurance Risk Amounts- Year/Age Risk Amount Year/Age Risk Amount
optional
(Do not fill out)
Treaty# Plan-Base Rider Cession#
Page 3 Retain this copy for your records.
[] Winterhur Life Reinsurance Corporation of North America
[] Republic-Vanguard Life Insurance Company
<PAGE> 10.13.044
EXHIBIT 5
Reinsurance Reporting Requirements
Please see attachments.
<PAGE> 10.13.045
Winterthur Life Re
Reporting Requirements - Individual Policy Business
Self-Administered by Ceding Company
New Business Report (monthly)
- Last Name
- First Name (or at least first initial)
- Middle Initial (optional)
- Sex
- Date of Birth
- State of Birth (optional)
- State of Residence
- Social Security Number (optional)
- Plan (if code, need listing of codes and plan names; specify if rider)
- Policy Issue Date Reinsurance Effective Date)
- Original Policy Number
- Issue Age
- Female Setback Age (optional)
- Age Basis
- Smoker Classification
- Underwriting Type (automatic/facultative)
- Original Policy Amount (optional)
- Reinsurance Amount (total pool and/or our share)
- Table Extra Rating
- Flat Extra Premium (rate and duration)
- Disability Waiver of Premium Benefit Amount (if reinsured)
- Accidental Death Benefit Amount (if reinsured)
Transactional Report - Adjustments and Terminations (monthly)
- Original Policy Number (if more than one record per policy #, supply
plan code/insured's name)
- Type of Transaction
- Effective Date of Transaction
- Details on adjustments (new risk amount, etc.)
Account Summary (monthly)
- Premiums (single, first year, renewal)
- Commissions and Allowances (single first year, renewal)
- Claims Settlements
- Claims Expenses
- Other Benefit Payments
- Premium Taxes
- Other Expenses
- Other Treaty Specific Items
<PAGE> 10.13.046
Winterthur Life Re
Reporting Requirements - Individual Policy Business
Self-Administered by Ceding Company (cont'd.)
Policy Exhibit (monthly)
- Beginning Inforce Balance (Policy Count and Risk Amount)
- New Business
- Reinstatements
- Increases in Risk Amount
- Cancellations (Not Takens)
- Deaths
- Lapses
- Surrenders
- Conversions
- Decreases in Risk Amount
- Recaptures
- Ending Inforce Balance
Reserve Report (monthly or quarterly)
- Information required for Statutory and GAAP Reserves.
Inforce Report (semi-annual/annual)
- Detail listing of all inforce reinsurance cessions,
- Required monthly or quarterly if no transactional monthly policy data
is available.
<PAGE> 10.13.047
EXHIBIT 6
Investors' Application, Forms, and Conditional Receipt
<PAGE> 10.13.048
EXHIBIT 7
Original Policy Premium Rates
Commissions and Allowances
7.1. Original Policy Premium Rates
Please see the attached pages.
7.2. Commissions and Expenses
7.2.1. Life Insurance - Standard premiums (Nonsmoker and Smoker)
Policy Commission
Year as a Percent of Premium
1 145%*
2-10 17%
11 on 15%
* In the event that a lapse occurs when the earned allowances are in
excess of earned premium the first 13 policy months, the amount of such
excess shall be returned to WLR.
B. Substandard Extra Premiums [Subject to review by WLR]
For substandard table extras and for (permanent) flat extras payable
for more than five years, allowances will be the same as those shown for
standard ratings.
For flat extras for aviation hazards and for (temporary) flat extras
payable for five years or less, the allowances will be 10% in all years.
<PAGE> 10.13.049
EXHIBIT 8
YRT Rates for Contractual Exchanges or Conversions
<PAGE> 10.14.001
LINCOLN
NATIONAL
HEALTH & CASUALTY
INSURANCE COMPANY
SPECIFIC EXCESS LIABILITY
REINSURANCE AGREEMENT NO. G-650001
effective December 1, 1992,
between
LINCOLN NATIONAL HEALTH & CASUALTY INSURANCE COMPANY
Fort Wayne, Indiana
(hereinafter referred to as "Lincoln")
and
INVESTORS INSURANCE CORPORATION
Wilmington, Delaware
(hereinafter referred to as the "Reinsured")
Form 14800-INVESTORS CORP.
<PAGE> 10.14.002
TABLE OF CONTENTS
TITLE ARTICLE
Definitions 1
Schedule of Reinsurance 2
Limitations of Reinsurance Coverage 3
Premium Rates and Payment 4
Settlement of Claims 5
Reports and Records 6
Arbitration 7
Insolvency and Cessation of Operations 8
Offset 9
General Provisions 10
Effective Date, Duration, and Termination 11
Execution of Agreement 12
ENDORSEMENTS
None
Form 14800 (TC)
<PAGE> 10.14.003
ARTICLE 1
DEFINITIONS
1.1. "Acute Care Services" means those services which are necessary to
treatment of an unstable medical condition caused by the onset of a
or injury which places the patient's health in severe jeopardy and
requires immediate medical attention.
Acute Care Services do not include healthcare or other services which
are for custodial care, or services which assist in or are intended to
improve the usual activities of daily living.
Acute Care Services do not include skilled nursing or rehabilitative
services (including but not limited to treatments for motor function or
mobility, physical therapy or psychotherapies) unless such services are
provided concurrent with and incidental to Acute Care Services.
1.2. "Agreement" means this Reinsurance Agreement.
1.3. "Agreement Year" means that twelve (12) month period of time beginning
on the Effective Date, or any anniversary of the Effective Date, and
ending at 12:01 a.m. on that same numbered day in the next calendar
year, but in no event shall an Agreement Year continue past the
termination of this Agreement.
1.4. "Approved Fixed Procedural Fee" means a predetermined fee for a
described healthcare procedure.*
1.5. "Approved Fixed Procedural Fee Hospital" means an acute care hospital
which has contractually agreed with the Reinsured to provide services on
an Approved Fixed Procedural Fee basis, which fee or fees Lincoln has
approved before services are provided to an Insured.*
1.6. "Covered Payments" means payments made by the Reinsured for benefits
allowable under a policy or policies and reinsured under this Agreement.
To be reinsured under this Agreement, Covered Payments must be Incurred
while this Agreement is in force.
1.7. "Deductible" means the amount of Covered Payments which the Reinsured
must incur per Insured per Agreement Year before benefits become payable
under this Agreement. The amount of the Deductible is stated in the
Schedule of Reinsurance
1.8. "Effective Date" means the effective date of this Agreement, as set
forth in Section 11.1.
1.9. "Eligible Hospital Services" means Acute Care Services that are Eligible
for Medicare and that:
a. are prescribed, directed, or authorized by a physician; and
b. are rendered to an Insured who is registered as a bed patient in
any facility, including a home health care environment, if
Lincoln is notified and gives its written consent.
Eligible Hospital Services shall not include charges of physicians or
surgeons.
Form 14801(1).INVESTORS CORP.
<PAGE> 10.14.004
1.10. "Incur" or "Incurred" means the date services are rendered to an
Insured or supplies are provided.
1.11. "Insured" means a person insured under a policy or policies issued by
the Reinsured
1.12. "Lincoln" means Lincoln National Health & Casualty Insurance Company,
Fort Wayne, Indiana.
1.13. "Per-Diem" means a fixed, per-day charge for healthcare services.*
1.14. "Per-Diem Hospital" means an acute care hospital which has
contractual]y agreed with the Reinsured to provide services on the
Per-Diem basis.*
1.15. "Reinsured" means the entity or part thereof named as such on the
first page of this Agreement.
1.16. "Reasonable and Customary" means those charges which Lincoln
determines do not exceed the amount usually charged by providers
within the same geographical area for services, treatment, or
materials, taking into account the nature of the illness involved.
1.17. "Schedule of Reinsurance" means Article 2 of this Agreement, including
any amendments thereto. By the payment of the premium indicated on a
Schedule of Reinsurance, the Reinsured shall be deemed to have
accepted the terms thereof.
* Only Refers to Organ Transplant Claims
/s/ SFP
Form 14801(2)-INVESTORS CORP.
<PAGE> 10.14.005
ARTICLE 2
SCHEDULE OF REINSURANCE
2.1. REINSURANCE COVERAGE
a. The Reinsured agrees to cede, and Lincoln agrees to reinsure,
Hospital Services provided under the Reinsured's policy or
policies, subject to the following terms and the limitations of
Article 3.
b. The following policy forms issued by the Reinsured are subject
reinsurance as set forth in this Agreement.
Description Form Number
Fully Insured Medicare
Supplement MSA-AA
MSC-AA also, any state
MSF-AA variations/ same
benefit. /s/ SFP
2.2. DEDUCTIBLE (per Insured per Agreement Year)
Medicare Supplement: $150,000
2.3. PREMIUM RATE (per Insured per Month)
Medicare Supplement: $.15, with a minimum first year premium of
$25,000; minimum second year premium of $50,000
At the end of the first Agreement Year, Lincoln will determine the
total premium paid for that Agreement Year. If this figure is
less than the minimum premium indicated, then the Reinsured agrees
to remit to Lincoln the difference between the total premium paid
and the minimum first year premium.
If, at the end of the second Agreement Year, the total premium
paid for the first and second Agreement Years as determined by
Lincoln is less than the minimum second year premium, then the
Reinsured agrees to remit to Lincoln the difference between the
total premium paid for the first and second Agreement Years and
the minimum second year premium.
2.4. COINSURANCE
a. Lincoln shall indemnify the Reinsured for Covered Payments in
excess of the Deductible at the percentage rate indicated.
(1.) Human Organ, Human Tissue, or Bore Marrow Transplants
(excluding all expenses Incurred in the acquisition of any
replacement organ)
Per-Diem or Approved Fixed Procedural Fee: 80%
All Other: 50%
(2) All Other Covered Procedures
100%
Form 14802(1)-INVESTORS CORP.
<PAGE> 10.14.006
When Covered Payments for an Insured are Incurred on more than
one of the above bases, Lincoln shall apply the indicated
coinsurance rates to the applicable charges.
b. When an Insured undergoes a continuous confinement in two (2)
or more hospitals for which the coinsurance percentages in
Section 2.4.a. are different, the Deducible shall be
apportioned between the Covered Payments Incurred in each
hospital in the proportion that those payments bear to the
total of the Covered Payments for the continuous confinement.
2.5. DEDUCTIBLE CARRYOVER
Any Covered Payments made by the Reinsured during the last thirty-one
(31) days of an Agreement Year for which no benefits were payable
under this Agreement because the Deductible had not been satisfied for
that Agreement Year may be applied to the Deductible for the
succeeding Agreement Year.
2.6. PER-DIEM AND/OR APPROVED FIXED PROCEDURAL FEE HOSPITALS
Except as otherwise indicated in this article, expenses Incurred at
hospital having Per-Diem and/or Approved Fixed Procedural Fee
arrangements with the Reinsured shall be reimbursed on the basis of
the hospital's Fee-for-Service Charges, but in an amount which does
not exceed the Per-Diem rate or the Approved Fixed Procedural Fee
(whichever is applicable) in effect as of the effective date of this
Schedule of Reinsurance, unless Lincoln has agreed in writing to a
change in such rate.
2.7. ENDORSEMENTS
Endorsements in force as of the effective date of this Schedule of
Reinsurance are:
None
Form 14802(1)-INVESTORS CORP.
<PAGE> 10.14.007
ARTICLE 3
LIMITATIONS OF REINSURANCE COVERAGE
3.1. The maximum lifetime reinsurance indemnity payable under this
Agreement for any one Insured shall not exceed Two Million Dollars
($2,000,000).
3.2. Nothing in this Agreement shall create any right or legal relationship
between Lincoln and any Insured. The Reinsured is responsible for
providing all services to its Insureds, compensation of all liability
to its Insureds, and payment of all expenses to its Insureds. Lincoln
shall have no responsibility or obligation to provide any direct
services or make any direct payment for services or expenses to
any Insureds.
3.3. All claims for reinsurance benefits are subject to the Deductible
conditions in force for the Agreement Year in which they are Incurred.
3.4. No payment will be made by Lincoln to the Reinsured under this
Agreement, except for charges which are Reasonable and Customary.
3.5. No payment will be made by Lincoln to the Reinsured under this
Agreement for expenses Incurred in the acquisition of any replacement
organ for use in an organ transplant.
3.6. In the event that a Covered Payment could be indemnified under more
than one provision of this Agreement, the provision providing the
least indemnity shall apply.
3.7. Reinsurance for Eligible Hospital Services:
a. shall not exceed the approved Health Care Financing
Administration's Medicare Diagnosis-Related Group (DRG) amount
with regard to the Covered Payments of Medicare Members;
b. shall be limited during each continuous period of hospital
confinement to an average of One Thousand Five Hundred Dollars
($1,500) per day of hospital stay, not including operating room
charges and post-operative charges on the day of a surgical
procedure; and
c. shall not include physician charges while hospitalized or
otherwise.
3.8. No payment will be made by Lincoln to the Reinsured for Covered
Payments which exceed the Reinsured's actual liability on any claim.
a. For purposes of this section "actual liability" means the amount
actually paid by the Reinsured less any rebates, recapture, recovery,
or adjustment of the amount which the Reinsured has paid.
b. If the Reinsured receives a rebate, recapture, recovery, or adjustment
on any claim which Lincoln has already paid under this Agreement, the
following will apply in the order set forth:
(1.) the Reinsured's actual liability will be determined as set
forth in 3.8.a. above;
Form 14803(l)-INVESTORS CORP.
<PAGE> 10.14.008
(2.) the Reinsured's Deductible will be applied to the actual
liability;
(3.) the Reinsured's coinsurance will be applied liability to
determine the amounts payable Lincoln; and
(4.) if it is determined that Lincoln made payment which exceeds
the Reinsured's actual liability, the Reinsured will reimburse
Lincoln for the amount of such overpayment.
3.9. The following shall be excluded from the definition of Covered
Payments and from reinsurance benefits hereunder:
a. expenses or salaries paid to nonprofessional or professional
employees of the Reinsured;
b. any amount paid by the Reinsured for punitive or exemplary damages
or for compensatory damages;
c. any amount paid by the Reinsured or awarded to any Insured for
damages arising out of the conduct of the Reinsured in the
processing, investigation, trial, or settlement of any claim or
due to the failure to pay or to any delay in payment of any
benefits under the Reinsured's policy or policies;
d. any statutory penalty imposed upon the Reinsured; and
e. any administrative expenses or expenses defined as non-
reimburseable elsewhere in this Agreement.
3.10. Lincoln shall not be liable for, and the Reinsured shall hold harmless
and indemnify Lincoln for, any of the following:
a. professional liability or liability for any act or omission,
tortious or otherwise, in connection with any services rendered to
any person or group of persons by the Reinsured or any group,
entity, or person employed by or affiliated in any manner with the
Reinsured;
b. liability assumed by the Reinsured in excess of the Reinsured's
policy or policies, including liability under any contract other
than the Reinsured's policy or policies;
c. expenses or losses for which the Reinsured has released any person
or entity from its legal liability;
d. liabilities which have no monetary value;
e. liabilities, expenses, or losses which are based upon non-
compliance or violation of any federal or state statute, rule, or
regulation;
f. expenses which are paid or payable to any Insured under Subchapter
XVIII (Medicare) or Subchapter XIX (Medicaid) of the Social
Security Act of 1965, including any amendments thereto, unless
Medicare or Medicaid coverage is specified in the Schedule of
Reinsurance;
Form 148O3(2)-INVESTORS CORP.
<PAGE> 10.14.009
g. expenses for which the Reinsured receives any payment or reduction
in charges due to a coordination of benefits provision in the
Reinsured's policy or policies or because of any right of
subrogation;
h. liability due to war or act of war;
i. liability for replacement of equipment, furniture, or supplies
which are not Eligible Hospital Services; and
j. liability for any expenses or awards resulting from negligence by
any party which causes a failure of any equipment used in the
treatment of an Insured.
Form 14803(3)-INVESTORS CORP.
<PAGE> 10.14.010
ARTICLE 4
PREMIUM RATES AND PAYMENT
4.1. The premiums to be paid by the Reinsured to Lincoln for reinsurance
coverage under this Agreement are Payable monthly and shall be based
on the number of Insureds enrolled as of the first day of each month.
The amount of the premium per Insureds per month shall be as set forth
in the Schedule]e of Reinsurance
4.2. The Reinsured shall submit to Lincoln with each premium payment a
statement prepared by the Reinsured which lists as accurately as
possible the number of Insureds for that month and which adjusts the
prior month's report to reflect the actual number of Insureds such
prior month. Each statement shall be signed by an authorized official
of the Reinsured.
4.3. Premiums are due on the first day of the month for which reinsurance
coverage is to be provided.
4.4. All premiums are payable to Lincoln at its Home Office in Fort Wayne,
Indiana, or at any other location specified by Lincoln.
4.5. If any premium is not paid within thirty-one (31) days after it is
due, this Agreement shall automatically terminate at midnight of the
31st day after the premium due date; provided, however, that the
Reinsured shall remain liable to Lincoln for all unpaid premiums,
including the premium for that 31-day period.
4.6. The amount of premium charged per Insured shall remain unchanged for
an Agreement Year, except that Lincoln may adjust the premium during
any Agreement Year to reflect any Material Change as defined in
Section 10.6. of this Agreement.
4.7. Lincoln shall have the right to change the premium at the end of each
Agreement Year upon providing written notice of such change to the
Reinsured at least thirty-one (31) days prior to the end of the
Agreement Year.
Form 14804(1)-INVESTORS CORP.
<PAGE> 10.14.011
ARTICLE 5
SETTLEMENT OF CLAIMS
5.1. NOTICE OF CLAIM
The Reinsured shall make every effort to give Lincoln written notice
of any claim or potential claim which it may assert under this
Agreement within thirty-one (31) days from the date on which the
claim is Incurred or potential claim is discovered, or as soon
thereafter as is reasonably possible.
b. Lincoln shall NOT be liable for any claim for which it has not
received written notice within one (1) year from the end of the
Agreement Year in which the claim was Incurred.
c. The Reinsured shall report to Lincoln the names and claim amounts
for those Insureds who have received eligible services which exceed
seventy-five percent (75%) of the Deductible.
5.2. CLAIM FORMS
Lincoln shall furnish the Reinsured with a supply of claim forms to be
used in filing a claim. If such forms are not provided to the Reinsured
within fifteen (15) days after Lincoln's receipt of notice of claim,
the Reinsured may file proof of loss by providing Lincoln with a
written statement that:
a. gives the nature and extent of the loss for which claim is made; and
b. is furnished to Lincoln within the time limit stated in Section 5.3.
below.
5.3. PROOF OF LOSS
a. The Reinsured must make every effort to file a completed proof of
loss within one (1) year from the end of the Agreement Year in which
the claim was Incurred; except as indicated in Section 5.2., a
completed proof of loss shall consist of a claim form, including an
itemization of the expenses involved, and copies of the various
bills.
b. If a claim is made under Section 1.1O.b. of this Agreement, the
claim form must be accompanied by a detailed medical report.
5.4. PAYMENT OF CLAIMS
Subject to the terms and conditions of this Agreement, Lincoln shall
make payment to the Reinsured within ninety (90) days of its receipt of
a completed proof of loss.
Form 14805(2)-INVESTORS CORP.
<PAGE> 10.14.012
ARTICLE 6
REPORTS AND RECORDS
6.1. The Reinsured shall report to Lincoln any Material Change, as defined
in Section 10.6 of this Agreement. The Reinsured shall use its best
efforts to provide such report to Lincoln at least thirty-one (31)
days before the effective date of the change, or as soon thereafter
as is reasonably possible. Lincoln shall not be liable for any
increase in coverage in the event the Reinsured fails to properly
notify Lincoln of such changes.
6.2. The Reinsured shall keep a record of the monthly enrollment of
Insureds under each policy and the eligible services received by
each insured while covered under this Agreement. Such record shall
be kept during the time this Agreement is in effect and for a two
(2) year period after the termination of this Agreement.
6.3. The Reinsured's books and records, to the extent permitted by law,
shall be made available to Lincoln for inspection and audit at any
time during normal business hours during the time this Agreement is
in effect and for a two (2) year period after the termination of
this Agreement.
6.4. All information disclosed to Lincoln by the Reinsured or to the
Reinsured by Lincoln, either in the course of conducting negotiations
or as a result of complying with the terms and conditions of this
Agreement, shall be considered to be confidential information by both
the Reinsured and Lincoln. The submission of this Agreement to any
state department of insurance or any federal agency shall not be
considered a violation.
Form 14806(1)-INVESTORS CORP.
<PAGE> 10.14.013
ARTICLE 7
ARBITRATION
It is the intention of the Reinsured and Lincoln that the customs and
practices of the insurance and reinsurance industry shall be given full effect
in the operation and interpretation of this Agreement. The parties agree to
act in all things with the highest good faith. If the Reinsured and Lincoln
cannot mutually resolve a dispute which arises out of or relates to this
Agreement, however, the dispute shall be decided through arbitration as set
forth below. The arbitrators shall base their decision on the terms
and conditions of this Agreement plus, as necessary, on the customs and
practices of the insurance and reinsurance industry, rather than solely on a
strict interpretation of applicable law. There shall be no appeal from the
decision of the arbitrators, except that either party may petition a court
having jurisdiction over the parties and the subject matter to reduce the
arbitrators' decision to judgment.
The parties intend this article to be enforceable in accordance with the
Federal Arbitration Act (9 U.S.C. Section 1, et seq.), including any
amendments to that Act which are subsequently adopted. In the event that
either party refuses to submit to arbitration as required above, the other
party may request a United States Federal District Court to compel arbitration
in accordance with the Federal Arbitration Act. Both parties consent to the
jurisdiction of such court to enforce this article and to confirm and enforce
the performance of any award of the arbitrators.
PROCEDURES
7.1. To initiate arbitration, either the Reinsured or Lincoln shall notify
the other party in writing of its desire to arbitrate, stating the
nature of its dispute and the remedy sought. The party to which the
notice is sent shall respond to the notification in writing within ten
(10) days of its receipt.
7.2. The arbitration hearing shall be before a panel of three arbitrators,
each of whom must be a present or former officer of an insurance
company or a health maintenance organization. An arbitrator may not be
a present or former officer, attorney, or consultant of the Reinsured
or Lincoln or either's affiliates.
7.3. The Reinsured and Lincoln shall each name five (5) candidates to serve
as an arbitrators The Reinsured and Lincoln shall each choose one
candidate from the other party's list, and these two candidates shall
serve as the first two arbitrators. If one or more candidates so
chosen shall decline to serve as an arbitrator, the party which named
such candidate shall add an additional candidate to its list, and the
other party shall again choose one candidate from the list. This
process shall continue until two arbitrators have been chosen and have
accepted. The Reinsured and Lincoln shall each present their initial
lists of five (5) candidates by written notification the other party
within twenty-five (25) days of the date of the mailing of the
notification initiating the arbitration. Any subsequent additions to
the list which are required shall be presented within ten (10) days of
the date the naming party receives notice that a candidate that has
been chosen declines to serve.
Form 14807(1)-INVESTORS CORP.
<PAGE> 10.14.014
7.4. The two arbitrators shall then select the third arbitrator from the
eight (8) candidates remaining on the lists of the Reinsured and
Lincoln within fourteen (14) days of the acceptance of their .
positions as arbitrators. If the two arbitrators cannot agree on the
choice of a third, then this choice shall be referred back to the
Reinsured and Lincoln. The Reinsured and Lincoln shall take turns
striking the name of one of the remaining candidates from the initial
eight (8) candidates until only one candidate remains. If the
candidate so chosen shall decline to serve as the third arbitrator,
the candidate whose name was stricken last shall be nominated as the
third arbitrator. This process shall continue until a candidate has
been chosen and has accepted. This candidate shall serve as the third
arbitrator. The first turn at striking the name of a candidate shall
belong to the party that is responding to the other party's initiation
of the arbitration. Once chosen, the arbitrators are empowered to
decide all substantive and procedural issues by a majority of votes.
7.5. It is agreed that each of the three arbitrators should be impartial
regarding the dispute and should resolve the dispute on the basis
described in this article of the Agreement. Therefore, at no time will
either the Reinsured or Lincoln contact or otherwise communicate with
any person who is to be or has been designated as a candidate to serve
as an arbitrator concerning the dispute, except upon the basis of
jointly drafted communications provided by both the Reinsured and
Lincoln to inform those candidates actually chosen as arbitrators of
the nature and facts of the dispute. Likewise, any written or oral
arguments provided to the arbitrators concerning the dispute shall be
coordinated with the other party and shall be provided simultaneously
to the other party or shall take place in the presence of the other
party. Further, at no time shall any arbitrator be informed that the
arbitrator has been named or chosen by one party or the other
7.6. The arbitration hearing shall be held on the date and at the location
fixed by the arbitrators. In no event shall this date be later than
six (6) months after the appointment of the third arbitrator. As soon
as possible, the arbitrators shall establish prearbitration procedures
as warranted by the facts and issues of the particular case. At least
ten (10) days prior to the arbitration bearing, each party shall
provide the other party and the arbitrators with a detailed statement
of the facts and arguments it will present at the arbitration hearing.
The arbitrators may consider any relevant evidence; they shall give
the evidence such weight as they deem it entitled to after
consideration of any objections raised concerning it. The party
initiating the arbitration shall have the burden of proving its case
by a preponderance of the evidence. Each party may examine any
witnesses who testify at the arbitration hearing. Within twenty (20)
days after the end of the arbitration hearing, the arbitrators shall
issue a written decision. In their decision, the arbitrators shall
apportion the costs of arbitration, which shall include but not be
limited to their own fees and expenses, as they deem appropriate.
<PAGE> 10.14.015
ARTICLE 8
INSOLVENCY AND CESSATION OF OPERATIONS
8.1. DEFINITIONS
a. For purposes of this Agreement, "insolvent or insolvency" shall
mean that a determination has been made by a court of competent
jurisdiction that either the Reinsured or Lincoln is insolvent.
The date of insolvency shall be the date such court approves an
order of rehabilitation or liquidation.
b. A cessation of operations will be deemed to occur if either the
Reinsured or Lincoln stop the active conduct of their normal
business or cease to service their existing clients or Insureds.
8.2. NOTICES
It is the obligation of each party to this Agreement to send notice of
its date of insolvency or date of cessation of operations to the other
party immediately upon the happening of either event.
8.3. TERMINATION
a. In the event that Lincoln should become insolvent or cease
operations, this Agreement shall terminate as of the date of such
insolvency or cessation of business.
b. In the event that the Reinsured should become insolvent or cease
operations, this Agreement shall terminate on the earlier of the
date of the Reinsured's insolvency or cessation of operations,
except as provided elsewhere in this Agreement.
8.4. CLAIMS
a. In the event of the insolvency of the Reinsured, Lincoln may
investigate any claim arising after such insolvency and interpose,
at its own expense in the name of the Reinsured, any defense or
defenses which Lincoln deems available to the Reinsured. The
expense thus paid by Lincoln shall be chargeable, subject to court
approval, against the Reinsured or its successors as part of the
expense of liquidation, to the extent of a proportionate share of
the benefit which may accrue to the Reinsured solely as a result
of the defense undertaken by Lincoln.
b. Upon the insolvency of the Reinsured, all reinsurance payable
under this Agreement shall be payable directly statutory successor
of the Reinsured insolvency of the Reinsured.
Form 14808(1).INVESTORS CORP.
<PAGE> 10.14.016
ARTICLE 9
OFFSET
Any debts or credits, matured or unmatured, liquidated or unliquidated,
regardless of when they arose or were incurred, in favor of or against either
the Reinsured or Lincoln with respect to this Agreement or any other agreement
between the parties, shall be offset and only the balance allowed or paid. If
either the Reinsured or Lincoln is under formal delinquency proceedings, this
right of offset shall be subject to the laws of the state exercising primary
jurisdiction over such delinquency proceedings.
Form 148O9(l)-1NVESTORS CORP.
<PAGE> 10.14.017
ARTICLE 10
GENERAL PROVISIONS
10.1. This Agreement, including endorsements and attachments, if any,
constitutes the entire Reinsurance Agreement between the parties.
10.2. This Agreement shall not be assigned without the express written
consent of both parties.
10.3. This Agreement may be amended at any time, but only by the mutual
consent of the parties, as evidenced by a written amendment signed
by officers of both the Reinsured and Lincoln. Any such amendment
shall be binding upon the Reinsured and Lincoln and deemed an
integral part of this Agreement.
10.4. If the Reinsured elects to change the coverage provided policies
under it's policy or policies in a manner which may have a
significant impact under this Agreement, Lincoln's liability
hereunder shall not change, unless Lincoln has given advance,
written approval of any such change.
10.5. With respect to any payment made by Lincoln under this Agreement,
Lincoln shall be subrogated to all of the Reinsured's rights to
recover such payment against any Insured, person, or organization, and
the Reinsured shall execute and deliver any required documents or
instruments and do whatever is necessary to preserve and secure such
rights. Any recovery made by the Reinsured shall be paid to Lincoln
to the extent of payment made by Lincoln under this Agreement.
10.6. The Reinsured shall report to Lincoln any Material Change. A "Material
Change" is a change which may have a significant economic impact on
Lincoln's liability under this Agreement. A Material Change shall
include, but not be limited to, the following:
a. the Reinsured's acquisition of the assets and liabilities of any
company, corporation, or foundation;
b. the Reinsured's acquisition by, coming under the control of,
merged with, any other company, corporation, or foundation; or
c. changes in:
(1.) Chief Executive Officer (CEO), Chief Operating; Officer (COO),
or Chief Financial Officer (CEO); or
(2.) majority ownership of the Reinsured
Form 14810(l)-INVESTORS CORP.
<PAGE> 10.14.018
ARTICLE 11
EFFECTIVE DATE, DURATION, AND TERMINATION
11.1. EFFECTIVE DATE AND DURATION
a. This Agreement shall be effective as of December 1, 1992.
b. This Agreement shall continue in effect from the Effective Date
until it is terminated.
11.2. TERMINATION
a. As specified in Article 4, this Agreement shall terminate
automatically if premiums are not paid.
b. As specified in Article 8, this Agreement shall terminate upon
insolvency or cessation of operations of either the Reinsured or
Lincoln.
c. Lincoln may terminate this Agreement in the event of a Material
Change, as defined in Section 10.6., by giving the Reinsured
thirty-one (31) days written notice of its intent to so terminate.
d. Either party may terminate this Agreement at the end of any
Agreement Year by giving the other party written notice of such
intention to terminate at least thirty-one (31) days prior to the
end of such Agreement Year.
e. Termination of this Agreement shall not terminate the rights or
liabilities of either the Reinsured or Lincoln arising during any
period when this Agreement was in effect; provided, however, that
nothing herein shall be construed to extend Lincolns liability for
reimbursement under this Agreement for any service Incurred after
the date of termination of this Agreement, except as specifically
agreed to in any Endorsement hereto.
Form 14R11(1)INVESTORS CORP.
<PAGE> 10.14.019
ARTICLE 12
EXECUTION OF AGREEMENT
IN WITNESS WHEREOF, the Reinsured and Lincoln have, by their respective
officers, executed and delivered this Agreement, in duplicate, effective from
the date set out in Article 11.
INVESTORS INSURANCE CORPORATION
By /s/ Melvin C. Parker By /s/ Susan F. Powell
Title President Title Sr. Vice Pres.
Date 4/19/93 Date 4/16/93
LINCOLN NATIONAL HEALTH & CASUALTY INSURANCE COMPANY
By /s/ By /s/
Vice President Assistant Secretary
Date 5/7/93 Date 5/7/93
Form 14812(1)-INVESTORS CORP.
<PAGE> 10.15.001
AGREEMENT FOR REINSURANCE
Among
INVESTORS INSURANCE CORPORATION
Wilmington, Delaware;
and
NEW ERA LIFE INSURANCE COMPANY and
NEW ERA LIFE INSURANCE COMPANY OF THE MIDWEST
Houston, Texas
<PAGE> 10.15.002
AGREEMENT FOR REINSURANCE
THIS AGREEMENT FOR REINSURANCE ("Agreement"), dated as of January __,
1996, is entered into by and among INVESTORS INSURANCE CORPORATION, a
Delaware stock life insurance company (the "Company"), and NEW ERA LIFE
INSURANCE COMPANY, a Texas stock life insurance company ("New Era") and NEW
ERA LIFE INSURANCE COMPANY OF THE MIDWEST, an Indiana stock life insurance
company ("New Era Midwest"), hereinafter collectively referred to as the
"Reinsurer".
WHEREAS, the Company is the issuer of certain individual deferred
annuity Contracts (as defined herein) identified by policy form number and/or
plan code at Schedule 1.13 hereto; and
WHEREAS, the Company desires to sell, transfer and cede certain of its
contractual obligations and risks under the Contracts to the Reinsurer, and
the Reinsurer desires to purchase, acquire, assume and reinsure such
contractual obligations and risks pursuant to the terms of, first, a
Coinsurance Reinsurance Agreement between the Company and New Era in the form
shown at Schedule 1.8 hereto, and ultimately, the Assumption Reinsurance
Agreement shown at Schedule 1.2 hereto; and
WHEREAS, the Company will undertake to provide certain support services
with respect to the Contracts on behalf of the Reinsurer for a period of time
following the closing under this Agreement and, thereafter New Era shall
undertake and assume full responsibility for such support services pursuant to
the terms of a certain Administrative Services Agreement between the Company
and New Era in the form shown at Schedule 1.26 hereto;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, and in reliance upon the representations, warranties,
conditions and covenants herein contained, and intending to be legally bound
hereby, the Company and the Reinsurer do hereby agree as follows:
ARTICLE I: Definitions
Capitalized terms used in this Agreement, but not defined in this Article
I, shall have the meaning given them in the other articles of this Agreement.
The following capitalized words and terms shall have the following meanings
when used in this Agreement:
I.1 Assumed Contract. Each Contract that has been reinsured and
assumed by the Reinsurer pursuant to the terms of the Assumption Agreement.
I.2 Assumption Agreement. The Assumption Reinsurance Agreement to be
entered into between the Company and the Reinsurer pursuant to the provisions
of Section 2.1 of this Agreement, which shall be in the form shown at Schedule
1.2 hereto.
Agreement for Reinsurance
Page 1
<PAGE> 10.15.003
I.3 Assumption Certificate. The certificate to be issued by the
Reinsurer to the Contractholder of any Coinsured Contract that is reinsured by
the Reinsurer under the Assumption Agreement, and which is substantially in
the form provided in the Assumption Agreement.
I.4 Assumption Effective Date. The date upon which the Coinsured
Contracts are to be assumed by the Reinsurer under the Assumption Agreement.
Such date, determined on a state-by-state basis, shall not be later than
December 31, 2000, and shall be subject to the receipt by the Reinsurer of all
Required Assumption Approvals and Required Assumption Consents in each such
state.
I.5 Books and Records. All original files and records in the
possession or under the control of the Company related to the Contracts,
including, but not limited to policy files, claims files and underwriting
files, policy form files (including all files relating to the filing and
approval of policy forms, applications and riders with insurance regulatory
authorities); rate filings and actuarial data developed or utilized by the
Company or on its behalf in support of premium rates charged under the
Contracts; and premium tax records and reports for the Contracts covering any
period prior to the Transition Date.
I.6 Closing. The closing of the transactions contemplated in Article
II of this Agreement, including the transfer of the Settlement Amount which
shall take place at the offices of the Company, 7200 West Camino Real, Boca
Raton, Florida 33433, unless the parties agree to close by facsimile
transmission and wire transfer.
I.7 Closing Date. The date upon which the Closing shall take place,
which shall be (a) January 30, 1996; or (b) the fifth business day following
the receipt of the last of the Required Closing Date Approvals, or at such
other date and time as the parties may mutually agree in writing.
I.8 Coinsurance Agreement. The Coinsurance Reinsurance Agreement to
be entered into between the Company and New Era pursuant to the provisions of
Section 2.1 of this Agreement, which shall be in the form shown at Schedule
1.8 hereto.
I.9 Coinsurance Effective Date. The date upon which the coinsurance
of the Contracts by New Era under the terms of the Coinsurance Agreement shall
be effective, which shall be 11:59 p.m. Central time, on December 31, 1995.
I.10 Coinsured Contract. Each Contract reinsured by New Era under the
Coinsurance Agreement; provided, however, that New Era shall not reinsure any
Contract that is the subject matter of pending litigation or an attorney
demand letter threatening litigation against the Company as of the Transition
Date. New Era agrees to reinsure under the Coinsurance Agreement any Contract
that is the subject matter of pending litigation or any attorney demand letter
threatening litigation against the Company on the Transition Date that has
been successfully settled or concluded by the Company after the Transition
Date and which remains in force; provided, however, that the Company shall use
its best efforts to compromise or settle all disputes involving
Agreement for Reinsurance
Page 2
<PAGE> 10.15.004
Contracts that are the subject matter of pending litigation or any attorney
demand letter threatening litigation against the Company on the Transition
Date in such a way that such Contracts will not remain in force upon the
conclusion or settlement of such disputes.
I.11 Company Service Period. The period of time from the Coinsurance
Effective Date until the Transition Date, during which the Company shall be
required to provide Support Services in connection with the Contracts under
the terms of the Services Agreement
I.12 Contractholder. Any individual or entity which is the owner of a
Contract or which has the right to terminate or lapse the Contract, effect
changes of beneficiary, coverage limits, add or terminate persons covered
under such Contract or direct any other policy changes in such Contract.
I.13 Contracts. All of those individual deferred annuity contracts
issued by the Company that are (i) identified by policy form number and/or
plan code at Schedule 1.13 hereto, and (ii) which are in force and effect as
of the Coinsurance Effective Date.
I.14 Excluded Liabilities. Any claims or liability under, in
connection with or with respect to the Contracts (a) subject to Section 4.6 of
the Coinsurance Agreement, for Taxes (as defined in the Coinsurance Agreement)
payable with respect to premiums earned or received on Contracts in force in
all periods prior to the Assumption Effective Date; (b) for "bad faith",
punitive, exemplary or other extra-contractual damages that are based upon,
relate to or arise out of any act, error or omission of the Company or any of
its officers, directors, agents or employees, whether intentional or
otherwise, which occurred prior to the Transition Date; or (c) subject to
Section 4.7 of the Coinsurance Agreement; arising from participation in any
guaranty fund, insolvency fund, plan, pool, association or other similar
organization and which is based on premiums earned or received on Contracts in
force in any period prior to the Assumption Effective Date.
I.15 Novation. The substitution of the Reinsurer for the Company
under an Assumed Contract with the result that the Reinsurer becomes directly
liable to the Contractholder of the Assumed Contract and the Company's
liability to the Contractholder under the Assumed Contract is extinguished.
I.16 Producer. Any agent, broker, representative, or subagent of any
person (i) having a Producer Agreement with the Company and (ii) being
entitled to receive any Producer Payments from the Company for the
solicitation, sale, marketing, production or servicing of any of the
Contracts.
I.17 Producer Agreement. Any written agreement, contract,
understanding or arrangement between the Company and any Producer, including
any assignments of compensation thereunder, and relating to the solicitation,
sale, marketing, production or servicing of any of the Contracts.
Agreement for Reinsurance
Page 3
<PAGE> 10.15.005
I.18 Producer Payments. Any expense allowance, commission, override
commission, service fee or other compensation payable by the Company to a
Producer pursuant to a Producer Agreement.
I.19 Reinsurance Agreements. Collectively, the Assumption Agreement
and the Coinsurance Agreement.
I.20 Reinsurance Allowance. An amount calculated upon the average
Statutory Reserves and Liabilities established by the Reinsurer under the
Reinsurance Agreements with respect of the Contracts for any period on and
after the Coinsurance Effective Date. During years 1996 through 2000, the
Reinsurance Allowance shall be in an amount equal to one percent (1.0%) of the
average Statutory Reserves and Liabilities established by the Reinsurer with
respect of the Contracts ("Negative Reinsurance Allowance"), and shall be
calculated and paid by the Company to the Reinsurer on a quarterly basis in
accordance with the provisions of Section 2.6. During years 2001 through
2005, the Reinsurance Allowance shall be in an amount equal to two percent
(2.0%) of the average Statutory Reserves and Liabilities established by the
Reinsurer with respect of the Contracts ("Positive Reinsurance Allowance"),
and shall be calculated and paid by the Reinsurer to the Company on a
quarterly basis in accordance with the provisions of Section 2.6.
I.21 Required Assumption Approvals. The approvals of any insurance
regulatory authorities that may be required in connection with the reinsurance
of any of the Coinsured Contracts by the Reinsurer on an assumption
reinsurance basis pursuant to the terms and provisions of the Assumption
Agreement, including the approval of the Assumption Certificates to be issued
by the Reinsurer to the Contractholders of any Assumed Contracts.
I.22 Required Assumption Consents. Any consent of any Contractholder
to the assumption of a Coinsured Contract by the Reinsurer on an assumption
reinsurance basis that may be required under applicable insurance laws or
regulations in any jurisdiction where the Coinsured Contracts were issued or,
as applicable, where such Contractholders reside.
I.23 Required Closing Date Approvals. The approval of any insurance
regulatory authorities that may be required for the reinsurance of the
Contracts by New Era pursuant to the terms and provisions of the Coinsurance
Agreement.
I.24 Service Fees. Amounts payable by the Reinsurer to the Company
for Support Services under the terms of the Services Agreement.
I.25 Service Notice. The notice to be sent by New Era to the
Contractholders of the Coinsured Contracts in the form provided in the
Services Agreement
I.26 Services Agreement. The Administrative Services Agreement
between the Company and New Era shown at Schedule 1.26 hereto.
I.27 Settlement Amount. The amount of the payment to be made by the
Company to
Agreement for Reinsurance
Page 4
<PAGE> 10.15.006
New Era at Closing pursuant to the terms of the Coinsurance Agreement.
I.28 Statutory Reserves and Liabilities. The sum of all of the
reserves and claims liabilities required to be maintained by the Company for
the Contracts calculated consistent with (i) the reserve requirements,
statutory accounting rules and actuarial principles applicable to the Company
under the law of each state in which the Contracts were issued or delivered
including, without limitation, the minimum valuation and non-forfeiture laws
and regulations of such states, and (ii) otherwise in accordance with the
methodologies used by the Company to calculate the reserves and claims
liabilities for the Contracts for purposes of the Company's year-end 1994
financial statement and quarterly financial statement for the most recent
quarterly period ended September 30, 1995.
I.29 Support Services. The services to be provided in connection with
the Coinsured Contracts under the Services Agreement.
I.30 Transition Date. The date upon which New Era shall undertake to
perform all Support Services in connection with the Contracts under the terms
and provisions of the Services Agreement.
ARTICLE II: Reinsurance
II.1 Reinsurance of Transferred Contracts. Subject to the terms and
conditions of this Agreement, on or before the Closing Date, the Company and
the Reinsurer shall enter into the Reinsurance Agreements. At the Closing,
New Era shall reinsure the Contracts pursuant to the Coinsurance Agreement,
effective as of the Coinsurance Effective Date, and the Company, in
consideration of New Era's reinsurance of the Contracts, shall pay the
Settlement Amount to the Reinsurer.
II.2 Entry into Services Agreement. Subject to the terms and
conditions of this Agreement, on or before the Closing Date, the Company and
New Era shall enter into the Services Agreement.
II.3 Transfer of Books and Records. On the Transition Date, the
Company shall transfer the Books and Records relating to the Contracts to the
Reinsurer.
II.4 Regulatory Approvals. The Company shall be responsible for
obtaining all Required Closing Date Approvals of the Delaware Insurance
Department and any other states, as applicable, on or before the Closing Date.
The Reinsurer shall be responsible for obtaining all other Required Closing
Date Approvals and, on and after the Closing Date, all Required Assumption
Approvals and Required Assumption Consents.
II.5 Assignment of Producer Agreements. On the Closing Date, the
Company shall assign, transfer, set over and convey to the Reinsurer all of
the Company's rights, liabilities and
Agreement for Reinsurance
Page 5
<PAGE> 10.15.007
obligations with respect to the Contracts under the Producer Agreements
(excluding, however, any such rights, liabilities or obligations that relate
to any period prior to the Coinsurance Effective Date), and the Reinsurer
shall undertake and agree to assume and perform, effective as of the
Coinsurance Effective Date, the obligations of the Company to pay any Producer
Payments due such Producers from the Company pursuant to any Producer
Agreement with respect to premiums collected and received by the Reinsurer or
for Reinsurer's account under the Contracts for any periods on and after the
Coinsurance Effective Date; provided, however, that from the Closing Date to
the Transition Date, the Company will continue to pay Producer Payments to
Producers on behalf of and for the account of the Reinsurer, and shall not be
required to provide the Reinsurer with a listing of Producers until the
Transition Date, unless otherwise agreed to between the parties. If required
by law or regulatory authorities, the Company shall cooperate with the
Reinsurer to cause the appointment of Producers as agents of the Reinsurer for
the purpose of paying such Producer Payments. Any liability for compensation
to Producers not set forth in the Producer Agreements furnished by the Company
to the Reinsurer shall remain the obligation of the Company, and the Reinsurer
shall be indemnified and held harmless by the Company for any compensation to
Producers in excess of that set forth in the Producer Agreements.
II.6 Calculation and Payment of Reinsurance Allowance. Within forty-
five (45) days after the end of each calendar quarter beginning with the first
quarter of 1996, the Reinsurer shall calculate the average Statutory Reserves
and Liabilities established with respect of the Contracts reinsured under the
Reinsurance Agreements during the calendar quarter then ended, using
accounting and actuarial methods, practices and assumptions consistent with
the Company's calculation of the Statutory Reserves and Liabilities with
respect of the Contracts as provided in this Agreement, and the Reinsurance
Allowance based upon such Statutory Reserves and Liabilities. For each
quarter falling in years 1996 through 2000, the Company shall pay the
Reinsurer, within five (5) days of receipt of the Reinsurer's calculations,
one-fourth (25.0%) of the Negative Reinsurance Allowance calculated by the
Reinsurer for such quarter, which may be credited toward and offset by the
Company against any Service Fees due the Company from the Reinsurer during
such quarter under the terms of the Services Agreement. For each quarter
falling in years 2001 through 2005, the Reinsurer shall pay the Company,
within forty-five (45) days after the end of each calendar quarter during such
years, one-fourth (25.0%) of the Positive Reinsurance Allowance, which may be
credited toward and offset by the Reinsurer against any amounts due the
Reinsurer from the Company under the terms of the Reinsurance Agreements. If
the Company disputes the Reinsurer's calculations of the average Statutory
Reserves and Liabilities or the Reinsurance Allowance for any quarter, the
calculation shall be referred to an independent actuary who is a fellow in the
Society of Actuaries mutually agreed upon by the parties, whose calculations
of the average Statutory Reserves and Liabilities and Reinsurance Allowance
for such quarter shall be binding upon the parties. Any payment required to
be made hereunder based upon the calculations of an independent actuary shall
bear interest at the rate of seven percent (7.0%) per annum from the date such
payment was originally due under the provisions of this Section 2.6 until
paid. Any fees or expenses charged by the independent actuary for making and
furnishing such calculations shall be shared equally by the Company and the
Reinsurer.
Agreement for Reinsurance
Page 6
<PAGE> 10.15.008
ARTICLE III: Company Representations and Warranties
The Company hereby represents and warrants to the Reinsurer as follows:
III.1 Company's Corporate Existence and Authority. The Company is a
stock life insurance company organized, existing and in good standing under
the laws of the State of Delaware, and the execution, delivery and performance
of this Agreement, the Reinsurance Agreements and the Services Agreement by
the Company have been duly authorized by all necessary corporate action on the
part of the Company. This Agreement has been duly and validly executed and
delivered to the Reinsurer by the Company and constitutes the valid and
legally binding obligation of the Company, enforceable in accordance with its
terms. To the best of the Company's knowledge, the execution, delivery and
performance by the Company of this Agreement does not and will not:
III.1.1 Conflict with or result in any breach or violation of or
any default under (or give rise to any right of termination, cancellation or
acceleration under) the bylaws or certificate of incorporation of the Company
or any note, bond, mortgage, indenture, lease, license, permit, agreement or
other instrument or obligation to which the Company is a party or by which the
Company is or may be bound.
III.1.2 Subject to obtaining any Required Closing Date
Approvals, violate any law, order, rule, or regulation applicable to the
Company.
III.2 Sufficiency of Statutory Reserves and Liabilities. The Statutory
Reserves and Liabilities shall be calculated by the Company (for purposes of
the Settlement Amount payment to be made at Closing) in accordance with
generally accepted actuarial principles and practices that are (i) consistent
with those called for under the terms and provisions of the Contracts and (ii)
meet the requirements of the insurance laws and regulations of each of the
states in which the Contracts have been issued or delivered including, without
limitation, the minimum valuation and non-forfeiture laws and regulations of
such states.
III.3 Contract Forms. Each policy, amendment, rider and form used in
connection with the Contracts has been properly approved or deemed approved by
appropriate insurance regulatory authorities, and any of these items issued to
Contractholders have been validly issued on approved forms in compliance, in
all material respects, with applicable state insurance laws and regulations,
and the Company has provided or has agreed to provide the Reinsurer with true,
correct and complete specimen copies of all forms representing the Contracts.
III.4 Accuracy of Books and Records. To the best of the Company's
knowledge, information and belief, all of the Books and Records of the Company
relating to the Contracts and which will be transferred by the Company to the
Reinsurer pursuant to the terms and provisions of this Agreement are current,
complete and accurate in all material respects.
III.5 Premium Taxes. Subject to Sections 4.6 and 4.7 of the
Coinsurance Agreement,
Agreement for Reinsurance
Page 7
<PAGE> 10.15.009
the Company has paid, or will cause to be paid, all premium taxes and guaranty
fund assessments due with respect to the Contracts for all periods prior to
the Assumption Effective Date.
III.6 Reinsurance Coverage. There are no contracts, agreements or
treaties of reinsurance between the Company and any other person which cover
any risks associated with the Contracts.
III.7 Validity of Producer Agreements. All obligations of the Company
to make any Producer Payments to Producers in connection with the Contracts
are set forth in written Producer Agreements, true, correct and complete
copies of which have been furnished by the Company to the Reinsurer, and the
Company is not liable for any compensation to any Producers with respect to
the Contracts except to the extent set forth in the Producer Agreements.
III.8 Compliance with Law. The Company has, to the best of its
knowledge, information and belief, conducted its business, including, without
limitation, the sale, issuance and administration of the Contracts, in
compliance with all applicable laws (including, without limitation, insurance
laws and federal and state laws), statutes, ordinances, rules, governmental
regulations, writs, injunctions, judgments, decrees or orders of any
governmental instrumentality or court.
III.9 Litigation Against Company. Except as disclosed on Schedule 3.9
hereto, there are no actions, suits, investigations or proceedings pending or
(to the best knowledge of the Company) threatened against the Company at law
or in equity, in, before, or by any person (i) that involve any of the
Contracts or (ii) that individually or in the aggregate have or may reasonably
be expected to have a material adverse effect on the validity or
enforceability of this Agreement or the transactions contemplated hereby.
III.10 Company's Brokers. Except as set forth on Schedule 3.10 hereto,
all negotiations relating to this Agreement and the transactions contemplated
hereby by or on behalf of Company have been carried out by the Company
directly with the Reinsurer, without the intervention of any person acting on
behalf of the Company in such a manner as to give rise to any valid claim by
any other person against the Reinsurer for payment of a finder's fee,
brokerage commission or similar payment.
III.11 Company Disclosure. To the best of the Company's knowledge,
information and belief, no warranty or representation by the Company in this
Agreement nor in any writing furnished or to be furnished by the Company to
the Reinsurer pursuant hereto or in connection herewith contains or will
contain any untrue statement of a material fact or omits, or will fail to
state, any material fact necessary to make the statements contained herein or
therein not misleading.
Agreement for Reinsurance
Page 8
<PAGE> 10.15.010
ARTICLE IV: Reinsurer Representations and Warranties
The Reinsurer represents and warrants to the Company as follows:
IV.1 Reinsurer's Corporate Existence and Authority. New Era is a
stock life insurance company duly organized, validly existing and in good
standing under the laws of the State of Texas and is duly qualified to
transact life, accident and health insurance in each of the jurisdictions
listed on Schedule 4.1 hereto. New Era Midwest is a stock life insurance
company duly organized, validly existing and in good standing under the laws
of the State of Indiana and is duly qualified to transact life, accident and
health insurance in each of the jurisdictions listed on Schedule 4.1 hereto.
The execution, delivery and performance of this Agreement, the Reinsurance
Agreements and the Services Agreement by the Reinsurer have been duly
authorized by all necessary corporate action on the part of the Reinsurer.
This Agreement has been duly and validly executed and delivered to the Company
by the Reinsurer and constitutes the valid and legally binding obligation of
the Reinsurer, enforceable in accordance with its terms. The execution,
delivery and performance by the Reinsurer of this Agreement does not and will
not:
IV.1.1 Conflict with or result in any breach or violation of or
any default under (or give rise to any right of termination, cancellation or
acceleration) the bylaws or certificate of incorporation of the Reinsurer or
any note, bond, mortgage, indenture, lease, license, permit, agreement or
other instrument or obligation to which the Reinsurer is a party or by which
the Reinsurer is or may be bound.
IV.1.2 Subject to obtaining any Required Closing Date Approvals,
violate any law, order, rule, or regulation applicable to the Reinsurer.
IV.2 Litigation Against Reinsurer. There are no actions, suits,
investigations or proceedings pending or (to the best knowledge of the
Reinsurer) threatened against the Reinsurer at law or in equity, in, before,
or by any person, that individually or in the aggregate have or may reasonably
be expected to have a material adverse effect on the validity or
enforceability of this Agreement or the transactions contemplated hereby.
IV.3 Reinsurer's Brokers. Except as set forth at Schedule 4.3 hereto,
all negotiations relating to this Agreement and the transactions contemplated
hereby have been carried out by the Reinsurer directly with the Company,
without the intervention of any person on behalf of the Reinsurer in such
manner as to give rise to any valid claim by any other person against the
Company for a finder's fee, brokerage commission or similar payment.
IV.4 Reinsurer Disclosure. No warranty or representation by the
Reinsurer in this Agreement or in any writing furnished or to be furnished to
the Company by the Reinsurer pursuant hereto or in connection herewith
contains or will contain any untrue statement of a material fact or omits or
will fail to state any material fact necessary to make the statements herein
or therein not
Agreement for Reinsurance
Page 9
<PAGE> 10.15.011
misleading.
ARTICLE V: Covenants of the Parties
The Company and the Reinsurer hereby covenant and agree as follows:
V.1 Maintenance of Business by the Company. From the date of this
Agreement until the Closing Date, the Company shall (a) carry on its business
in the ordinary course and consistent with past practice, using reasonable
efforts, equivalent in all material respects to those business methods and
practices historically followed by the Company, to maintain its relationships
with those customers, Contractholders, Producers and others with whom it has
business relationships with respect to the Contracts; (b) preserve intact the
Company's present business organization, reputation and Contractholder
relations; (c) maintain all licenses, qualifications and authorizations of the
Company to do business in each jurisdiction in which it is presently licensed,
qualified or authorized; and (d) use reasonable efforts, equivalent in all
material respects to those business methods and practices historically
followed by the Company, to service and conserve the Contracts and maintain
them in full force and effect.
V.2 No Change in Reserving Contracts, Methods or Assumptions.
Except as provided in the subsections to this Section 5.2, prior to the
Closing Date, the Company (i) shall make no material change in its
underwriting, rewriting or reserving policies, practices or procedures
applicable to the Contracts, and (ii) will not issue any new policies on any
of the forms of the Contracts listed at Schedule 1.13 hereto.
V.2.1 In providing Support Services in connection with the
Contracts during the Company Service Period under the terms of the Services
Agreement, the Company shall be permitted to process and allow reinstatements,
renewals, the exercise of purchase options under, or the exercise of
contractual conversion rights under, the Contracts if and to the extent
required by the provisions of the Contracts (collectively, the "Permitted
Transactions"). If a Permitted Transaction is, under the terms of a Contract,
conditioned upon evidence of insurability, Company will (i) require such
evidence of insurability and (ii) secure the Reinsurer's prior written
approval of the Permitted Transaction before processing such Permitted
Transaction.
V.2.2 Except for Permitted Transactions under Section 5.2.1, the
Reinsurer shall neither reinsure nor assume any new policies issued by the
Company after the Closing Date unless it shall expressly agree to do so in
writing.
V.3 Reinsurance Coverage. From and after the Closing Date, the
Company covenants and agrees that it will not, except for the reinsurance
contemplated by this Agreement, enter into any contracts, agreements or
treaties of reinsurance with any other person which cover or purport to cover
any risks associated with the Coinsured Contracts.
V.4 Continued Access to Books and Records Retained by the Company.
In addition to the Books and Records transferred to the Reinsurer pursuant to
Agreement for Reinsurance
Page 10
<PAGE> 10.15.012
the provisions of Section 2.3 of this Agreement, the Company shall retain
historical Books and Records relating to the Contracts in accordance with
Company's generally applicable records retention policies, as in effect at the
date hereof, including, without limitation, advertising materials, complaint
files, loss ratio data, closed claims files, and other records relating to the
Coinsured Contracts or representing compilations of data with respect thereto
("Retained Books and Records"). On and after the Closing Date, the Company
shall provide the Reinsurer with access to all non-privileged information in
the possession or control of the Company which pertains to, and which the
Reinsurer reasonably requests in connection with, any claim, loss or
obligation arising out of any of the Coinsured Contracts. Such access shall
be provided by the Company during normal business hours of the Company as
reasonably requested by the Reinsurer or its employees, accountants,
actuaries, attorneys and other agents for any reasonable purpose including,
without limitation, the preparation or examination of tax returns and
financial statements, the review of payment and claims procedures, the
adequacy of established reserves, the compliance by the Company with any
obligations it has under this Agreement, the Reinsurance Agreements or the
Services Agreement, and the conduct of any litigation or regulatory dispute
resolution, whether pending or threatened, concerning the sale of Contracts,
or the servicing of the Contracts by the Company prior to the Transition Date.
V.5 Notice of Actions Received by the Company. On and after the
Closing Date, the Company shall promptly provide the Reinsurer with notice of
any demand letters, summonses, complaints, petitions, notices of litigation
and complaints, notices and inquiries or other correspondence from insurance
regulatory authorities received by the Company with respect to any of the
Contracts and which pertain to any obligations of the Reinsurer to indemnify
the Company or hold it harmless under this Agreement, the Reinsurance
Agreements or the Services Agreement.
V.6 Continued Access to Books and Records Transferred to the
Reinsurer. On and after the Transition Date and continuing to the applicable
Assumption Effective Date, the Reinsurer agrees to provide the Company with
access to all information in the possession or control of the Reinsurer which
the Company reasonably requests in connection with the Coinsured Contracts.
Such access shall be provided by the Reinsurer during normal business hours of
the Reinsurer as may reasonably be requested by the Company or its employees,
accountants, actuaries, attorneys or other agents for any reasonable purpose
including, without limitation, the preparation or examination of tax returns
and financial statements, the review of payment and claims procedures, the
adequacy of established reserves, the compliance by the Reinsurer with any
obligations it has under this Agreement, the Reinsurance Agreements or the
Services Agreement, and the conduct of any litigation or regulatory dispute
resolution, whether pending or threatened, concerning the sale of the
Coinsured Contracts or the servicing of the Coinsured Contracts by the
Reinsurer following the Transition Date.
V.7 Notice of Actions Received by the Reinsurer. On and after the
Closing Date, the Reinsurer shall promptly provide the Company with notice of
any demand letters, summonses, complaints, petitions or notices of litigation
received by the Reinsurer with respect to any of the Coinsured Contracts and
which pertain to any obligations of the Company to indemnify the Reinsurer
Agreement for Reinsurance
Page 11
<PAGE> 10.15.013
or hold it harmless under this Agreement, the Reinsurance Agreements or the
Services Agreement.
V.8 Unfair Practices. The Company shall cooperate with the
Reinsurer in preserving and exercising all legal and contractual rights that
may be available to the Company against any person who shall unlawfully
"twist", rewrite, or solicit the lapse or termination of, any of the Coinsured
Contracts, or who shall otherwise engage in any unfair or deceptive acts or
practices in connection with the Coinsured Contracts, which acts or practices
have caused or may result in injury to Reinsurer's commercial interests.
Company shall have the right to approve any action proposed to be taken by, on
behalf of, or in the name of, Company under this Section 5.8, which approval
shall not be unreasonably withheld. Reinsurer shall indemnify, defend and
hold Company harmless of, from and against any Losses (as defined at Article
IX hereof) incurred by Company as a result of actions taken by or at request
of Reinsurer under this Section 5.8.
V.9 Regulatory Filings and Approvals. The parties will take all
commercially reasonable steps necessary or desirable, and shall proceed
diligently and in good faith, to obtain as promptly as practicable all
approvals, authorizations and clearances of governmental and regulatory
authorities required of the Company and the Reinsurer to consummate the
transactions contemplated in this Agreement, the Reinsurance Agreements and
the Services Agreement, including, without limitation, the Required Assumption
Approvals and the Required Closing Date Approvals, and shall cooperate with
each other and provide such information and communications to such
governmental and regulatory authorities as the party responsible for obtaining
such approvals may reasonably request.
V.10 HSR Act Filings. If required by law, the Company and the
Reinsurer shall, as promptly as practicable, file any Notification and Report
Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the rules of the Federal Trade Commission
("FTC") thereunder, with the FTC and the Antitrust Division of the U.S.
Department of Justice (the "Antitrust Division") in connection with
the transactions contemplated by this Agreement and the Reinsurance
Agreements, and shall use their best efforts to respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division
for additional information or documentation. Each of the Company and the
Reinsurer will furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of
necessary filings or submissions to any governmental or regulatory agency,
including, without limitation, any filings necessary under the provisions of
the HSR Act.
V.11 Conduct Pending Closing. From the date of this Agreement to
the Closing Date, (a) the Company shall use its best efforts to conduct its
affairs in such a manner so that, except as otherwise contemplated or
permitted by this Agreement, the Reinsurance Agreements and the Services
Agreement, the representations and warranties of the Company contained in
Article III hereof shall continue to be true and correct in all material
respects on and as of the Closing Date as if made on and as of the Closing
Date; (b) the Reinsurer shall use its best efforts to conduct its affairs in
such a manner so that, except as otherwise contemplated or permitted by this
Agreement,
Agreement for Reinsurance
Page 12
<PAGE> 10.15.014
the Reinsurance Agreements and the Services Agreement, the representations and
warranties of the Reinsurer contained in Article IV hereof shall continue to
be true and correct in all material respects on and as of the Closing Date as
if made on and as of the Closing Date; (c) the Company shall notify the
Reinsurer promptly of any event, condition or circumstance occurring from the
date hereof through the Closing Date that would constitute a material
violation or breach of this Agreement by the Company; and (d) the Reinsurer
shall notify the Company promptly of any event, condition or circumstance
occurring from the date hereof through the Closing Date that would constitute
a material violation or breach of this Agreement by the Reinsurer.
V.12 Further Assurances. Subject to the terms and conditions of this
Agreement, the Company and the Reinsurer will use their best efforts to take,
or cause to be taken, all actions or to do, or cause to be done, all things or
execute any documents reasonably necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement, the
Reinsurance Agreements and the Services Agreement. On and after the Closing
Date, the Company and the Reinsurer will take all appropriate action and
execute any documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the provisions hereof,
the Reinsurance Agreements or the Services Agreement.
V.13 Use by the Reinsurer of the Company's Name, Logo or Service
Marks. Except as otherwise agreed upon in writing, the Reinsurer has not
acquired by means of this Agreement, the Reinsurance Agreements or the
Services Agreement or by any other means, the right to use the name,
"Investors Insurance Corporation," or any of the Company's service marks,
trademarks, designs or logos related to that name. The Reinsurer agrees that
it will not use such name, service marks, trademarks, designs or logos unless
the Company shall have agreed in writing to such use; provided, however, that
the Reinsurer may utilize existing forms of the Contracts in processing
Permitted Transactions under the Contracts after the Transition Date.
V.14 Communications with Contractholders. All communications with
Contractholders by either the Company or the Reinsurer in connection with the
reinsurance of the Contracts by the Reinsurer under the Reinsurance
Agreements, including without limitation the Assumption Certificates and the
Service Notices, or the servicing of the Contracts under the Services
Agreement, shall be in such form as shall be mutually agreed upon by the
parties hereto prior to any release thereof, except for communications with
Contractholders as required to service the Contracts in the ordinary course of
business. The Company and the Reinsurer agree to cooperate fully and
promptly regarding the preparation and distribution of any such communications
to Contractholders.
V.15 Expenses. Except as otherwise specifically provided in this
Agreement, the parties hereto shall each bear their own respective expenses
incurred in connection with the preparation, execution and performance of this
Agreement, the Reinsurance Agreements and the Services Agreement, including
without limitation all fees and expenses of counsel, actuaries and
accountants.
Agreement for Reinsurance
Page 13
<PAGE> 10.15.015
ARTICLE VI: Conditions to Closing
VI.1 Conditions to the Reinsurer's Obligations to Close.
The obligation of the Reinsurer to close the transactions contemplated under
this Agreement shall be subject to the fulfillment of the following
conditions, any one or more of which may be waived by the Reinsurer to the
extent permitted by law:
VI.1.1 Receipt of All Required Closing Date Approvals. All
Required Closing Date Approvals shall have been received, and the Company
shall have delivered to the Reinsurer a copy of any Required Closing Date
Approval issued by the Delaware Insurance Department.
VI.1.2 Truth of Representations and Warranties of Company. The
representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date, and the Company shall have delivered to the Reinsurer a certificate,
dated as of the Closing Date and executed by a duty authorized executive
officer of the Company, to such effect.
VI.1.3 Performance of Covenants and Obligations of Company. The
Company shall have performed and complied with all agreements, covenants,
obligations and conditions required by this Agreement to be so performed or
complied with by the Company at or before the Closing, and the Company shall
have delivered to the Reinsurer a certificate, dated as of the Closing Date
and executed by a duly authorized executive officer of the Company, to such
effect.
VI.1.4 Receipt of the Settlement Amount. The Settlement Amount
shall have been paid to the Reinsurer in the form and manner provided in the
Coinsurance Agreement.
VI.1.5 Execution and Delivery of Agreements. The Reinsurance
Agreements and the Services Agreement shall have been executed by a duly
authorized executive officer of the Company and delivered to the Reinsurer.
VI.1.6 Delivery of Listing of Contracts. The Company shall have
delivered to the Reinsurer a final listing of the Contracts to be reinsured by
the Reinsurer under the Reinsurance Agreements.
VI.2 Conditions to the Company's Obligations to Close. The
obligation of the Company to close the transactions contemplated under this
Agreement shall be subject to the fulfillment of the following conditions, any
one or more of which may be waived by the Company to the extent permitted by
law:
VI.2.1 Receipt of All Required Closing Date Approvals. All
required Closing Date Approvals shall have been obtained.
VI.2.2 Truth of Representations and Warranties of Reinsurer.
The representations and warranties of the Reinsurer contained in this
Agreement shall be true and correct in all material
Agreement for Reinsurance
Page 14
<PAGE> 10.15.016
respects on and as of the Closing Date, and the Reinsurer shall have delivered
to the Company a certificate, dated as of the Closing Date and executed by a
duly authorized executive officer of the Reinsurer, to such effect.
VI.2.3 Performance of Covenants and Obligations of Reinsurer.
The Reinsurer shall have performed and complied with all agreements,
covenants, obligations and conditions required by this Agreement to be so
performed or complied with by the Reinsurer at or before the Closing, and the
Reinsurer shall have delivered to the Company a certificate, dated on the
Closing Date and executed by a duly authorized executive officer of the
Reinsurer, to such effect.
VI.2.4 Execution and Delivery of Agreements. The Reinsurance
Agreements and the Services Agreement shall have been executed by a duly
authorized executive officer of the Reinsurer and delivered to Company.
ARTICLE VII: Survival of Representations and Warranties
Except as otherwise expressly provided herein or therein, the
representations and warranties made by the Company and the Reinsurer in this
Agreement, the Reinsurance Agreements and the Services Agreement, or in any
certificate delivered by the Company or the Reinsurer pursuant hereto or
thereto, shall survive for a period of two years following the Closing Date.
ARTICLE VIII: Arbitration
VIII.1 Agreement to Arbitrate. All disputes between the Reinsurer and
the Company arising under this Agreement, the Reinsurance Agreements and the
Services Agreement on which an amicable understanding cannot be reached will
be decided by arbitration between the parties at a location to be mutually
agreed upon between the parties or as designated by the arbitrators if
agreement as to a location cannot be reached by the parties. Notwithstanding
any other provision of this Article VIII, if either the Reinsurer or the
Company seeks, consents to, or acquiesces in the appointment of or otherwise
becomes subject to any trustee, receiver, liquidator or conservator (including
any state insurance regulatory agency or authority acting in such a capacity),
the other party shall not be obligated to resolve any claim, dispute or cause
of action under this Agreement by arbitration. Notwithstanding any other
provision of this Article VIII, nothing contained in this Agreement shall
require arbitration of any issue for which equitable or injunctive relief,
including specific performance, is sought.
VIII.2 Method. To initiate arbitration, either party shall notify the
other in writing in the manner set forth in this Agreement for sending notices
to the parties of its desire to arbitrate, stating the nature of the dispute
and the remedy sought, and designating an arbitrator. The party to which the
notice is sent shall respond thereto in writing within thirty (30) days of its
receipt of such notice. In such response, the party shall also assert any
claim, defense and other dispute it may have against the party initiating
arbitration, and which arises out of or relates in any way to this
Agreement for Reinsurance
Page 15
<PAGE> 10.15.017
Agreement, the Reinsurance Agreements or the Services Agreement, and designate
its arbitrator. If the second party fails to respond within the time period
set forth in this Section 8.2, or fails to designate its arbitrator in its
response, the party initiating arbitration shall appoint a second arbitrator.
The two arbitrators shall select a third arbitrator within thirty (30) days of
the designation of the second arbitrator. If they are unable to agree upon
the selection of the third arbitrator, they shall, within such period, each
name three (3) individuals of whom the other shall decline two (2), and the
decision of the third arbitrator shall be determined by drawing lots from the
two remaining designees. All arbitrators shall be active or retired officers
of life or health insurance companies and be disinterested in the outcome of
the arbitration. The arbitrators shall have the power to determine all
procedural rules for the conduct of the arbitration, including but not limited
to the production and inspection of documents, the examination of witnesses
and any other matter relating to the conduct of the arbitration. The
arbitrators shall interpret this Agreement, the Reinsurance Agreements and the
Services Agreement as an honorable engagement and not merely as legal
obligations between the parties. They shall reach their decision from the
standpoint of equity and the customs and practices of the insurance industry,
and may abstain from following the strict rules of law. The costs of the
arbitration (except legal fees of the parties) shall be split equally between
the parties, unless the arbitrators shall otherwise require in their award.
Each party shall pay its own legal fees in connection with the arbitration,
unless the arbitrators award legal fees and expenses of the prevailing party
as part of any award. Except as otherwise specifically provided herein, the
arbitration shall be conducted in accordance with rules established by the
American Arbitration Association. The decision, in writing, of the
arbitrators shall be rendered within forty-five (45) days after the conclusion
of the arbitration hearing, and shall be final and binding upon both of the
parties. Judgment may be entered upon the final decision of the arbitrators
in any court having jurisdiction.
ARTICLE IX: Indemnification
IX.1 Indemnification Under Reinsurance Agreements. The parties agree
to indemnify and defend each other and hold each other harmless against all
claims, losses, liabilities, damages, deficiencies, diminution in value, costs
and expenses, including interest, penalties, punitive or extracontractual
damages, and reasonable attorneys fees and disbursements ("Loss" or "Losses")
arising under or in relation to the Contracts as and to the extent provided
under the Reinsurance Agreements.
IX.2 Indemnification Under this Agreement. In addition to the
indemnification provided at Section 9.1 of this Agreement:
IX.2.1 The Company agrees to indemnify the Reinsurer and hold it
harmless from and against Losses based upon or arising out of (i) Company's
material breach of any representation, warranty, covenant or agreement under
this Agreement, and (ii) any Excluded Liabilities.
IX.2.2 The Reinsurer agrees to indemnify the Company and hold it
harmless from
Agreement for Reinsurance
Page 16
<PAGE> 10.15.018
and against Losses based upon or arising out of Reinsurer's material breach of
any representation, warranty, covenant or agreement under this Agreement.
IX.3 Notice of Claim. As soon as reasonably possible, but in no event
subsequent to thirty (30) days after receipt by an indemnified party hereunder
of written notice of any demand, claim or circumstances which, upon the lapse
of time, would give rise to a claim or the commencement (or threatened
commencement) of any action, proceeding or investigation (a "Claim") that may
result in a Loss, such indemnified party shall give notice thereof ("Claims
Notice") to the indemnifying party. The Claims Notice shall describe the
Claim in reasonable detail, and shall indicate the amount (estimated, if
necessary) of the Loss that has been or may be suffered by such indemnified
party. The failure of the indemnified party to give the Claims Notice within
in the time provided for herein shall not affect the indemnifying party's
obligation under this Article IX except if, and then only to the extent that,
such failure materially prejudices the indemnifying party or its ability to
defend such Claim.
IX.4 Opportunity to Defend. Within thirty (30) days of receipt of any
Claims Notice given pursuant to Section 9.3, the indemnifying party shall
notify the indemnified party in writing of the acceptance of or objection to
the Claim and whether the indemnifying party will indemnify the indemnified
party and defend the same at the expense of the indemnifying party with
counsel selected by the indemnifying party (who shall be approved in writing
by the indemnified party, such approval not to be unreasonably withheld);
provided that the indemnified party shall at all times have the right to fully
participate in the defense of the Claim at its own expense or, as provided
hereinbelow, at the expense of the indemnifying party. Failure by the
indemnifying party to object in writing with such thirty (30) day period shall
be deemed to be acceptance of the Claim by the indemnifying party. In the
event that the indemnifying party objects to a Claim within said thirty (30)
days or does not object but fails to vigorously defend and appears to be
unable or unwilling to meet its indemnification obligations hereunder, the
indemnified party shall have the right, but not the obligation, to undertake
the defense, and to compromise and/or settle (in the exercise of reasonable
business judgment) the Claim, all at the risk and expense (including, without
limitation, reasonable attorneys fees and expenses) of the indemnifying party.
Except as provided in the preceding sentence, the indemnified party shall not
compromise and/or settle any Claim without the prior written consent of the
indemnifying party. If the Claim is one that cannot by its nature be defended
solely by the indemnifying party, the indemnified party shall make available
all information and assistance that the indemnifying party may reasonably
request, provided that any associated expense shall be paid by the
indemnifying party.
IX.5 Limitation on Indemnification. Neither party shall be entitled
to indemnification unless the party seeking indemnification makes claim
therefor pursuant to the procedures set forth in Section 9.3 of this
Agreement.
ARTICLE X: Termination
X.1 Termination. This Agreement may be terminated as provided in
this Section 10.1.
Agreement for Reinsurance
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<PAGE> 10.15.019
X.1.1 This Agreement may be terminated at any time before the
Closing, by mutual written agreement of the Company and the Reinsurer.
X.1.2 Reinsurer may terminate this Agreement at any time prior
to closing for material breach by Company of any of the terms or conditions of
this Agreement or for failure of any condition to closing, the satisfaction of
which is solely within Company's control.
X.1.3 Company may terminate this Agreement at any time prior to
closing for material breach by Reinsurer of any of the terms or conditions of
this Agreement or for failure of any condition to closing, the satisfaction of
which is solely within Reinsurer's control.
X.1.4 Either Company or Reinsurer may terminate this Agreement
at any time prior to closing for failure of any condition to closing, the
satisfaction of which is not within either Company or Reinsurer's control, or
otherwise chargeable to any act or omission to act on the part of either
party.
X.1.5 Either Company or Reinsurer may terminate this Agreement
if closing hereunder has not occurred by January 31, 1996.
X.2 Effect of Termination. If this Agreement is terminated pursuant
to Sections 10.1.1, 10.1.4 or 10.1.5, this Agreement will forthwith become
null and void, and there will be no liability on the part of the Company or
the Reinsurer to the other hereunder. In the event of termination under
Sections 10.1.2 or 10.1.3, the parties shall be deemed to have reserved all
of their respective rights and remedies hereunder and at law or in equity.
ARTICLE XI: Miscellaneous Provisions
XI.1 Notice. Any and all notices and other communications required
or permitted under this Agreement shall be in writing and shall be deemed to
have been duly given when (i) mailed by United States overnight express mail,
(ii) sent by facsimile or telecopy machine, followed by confirmation mailed by
overnight express mail, or (iii) delivered in person to the parties at the
following addresses:
If to the Company, to:
Investors Insurance Corporation
7200 West Camino Real
Boca Raton, Florida 33433
Attention: Melvin C. Parker, President
FAX No.: (407) 391-0316
Agreement for Reinsurance
Page 18
<PAGE> 10.15.020
With a copy to (which shall not constitute notice):
Palmarella & Sweeney, P.C.
100 Matsonford Road
Suite 310, Building 2
Radnor, Pennsylvania 19087
Attention: Ernie Palmarella, Esquire
FAX No.: (610) 687-8830
If to the Reinsurer, to:
New Era Life Insurance Company
200 West Lake Park Boulevard
P.O. Box 4884
Houston, Texas 77210-4884
Attention: Bill S. Chen, FSA, Ph.D., President & CEO
FAX No.: (713) 368-7286
With a copy to (which shall not constitute notice):
Winstead Sechrest & Minick, P.C.
910 Travis Street Suite 1700
Houston, Texas 77002-5895
Attention: David D. Knoll, Esquire
FAX No.: (713) 951-3800
Either party may change the names on addresses where notice is to be given by
providing notice to the other party of such change in accordance with this
Section 11.1.
XI.2 Entire Agreement. This Agreement, including the Exhibits and
Schedules thereto including without limitation the Reinsurance Agreements and
the Services Agreement, constitutes the sole and entire agreement of and among
the parties hereto with respect to the subject matter hereof, and supersedes
all prior discussions and agreements among the parties with respect to the
subject matter hereof, which are merged with and into this Agreement.
XI.3 Assignment. This Agreement shall not be assigned by any of the
parties hereto without the prior written approval of the other parties.
XI.4 Waivers and Amendments. Any term or condition of this Agreement
may be waived at any time by the party that is entitled to the benefit
thereof. Such waiver must be in writing and must be executed by an executive
officer of such party. A waiver on one occasion will not be deemed to be a
waiver of the same or any other term or condition on a future occasion. This
Agreement may be modified or amended only by a writing duly executed by an
executive officer of the Company and the Reinsurer, respectively.
Agreement for Reinsurance
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<PAGE> 10.15.021
XI.5 No Third Party Beneficiaries. The terms and provisions of this
Agreement are intended solely for the benefit of the Company and the Reinsurer
and their permitted successors and assigns, and it is not the intention of the
parties to confer rights as a third-party beneficiary to this Agreement upon
any other person.
XI.6 Public Announcements. At all times at or before the Closing, the
Company and the Reinsurer will each consult with the other before issuing or
making any reports, statements or releases to the public with respect to this
Agreement or the transactions contemplated hereby and will use good faith
efforts to obtain the other party's approval of the form, content and timing
of any public report, statement or release to be made solely on behalf of a
party. If the Company and the Reinsurer are unable to agree upon or approve
the form, content and timing of any such public report, statement or release
and such report, statement or release is, in the opinion of legal counsel to
the party, required by law or by legal disclosure obligations, then such party
may make or issue the legally required report, statement or release.
XI.7 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Texas, without regard to its
conflicts of law doctrine.
XI.8 Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all
of which shall constitute one and the same instrument.
XI.9 Headings. The headings in this Agreement have been inserted for
convenience and do not constitute matter to be construed or interpreted in
connection with this Agreement.
Agreement for Reinsurance
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<PAGE> 10.15.022
XI.10 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law or if
determined by a court of competent jurisdiction to be unenforceable, and if
the rights or obligations of the Company or the Reinsurer under this Agreement
will not be materially and adversely affected thereby, such provision shall be
fully severable, and this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of this Agreement shall remain in full
force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
INVESTORS INSURANCE CORPORATION
By: Melvin C. Parker
Title: President
NEW ERA LIFE
INSURANCE COMPANY
By: Bill S. Chen, FSA, PhD.
Title: President & CEO
NEW ERA LIFE INSURANCE
COMPANY OF THE MIDWEST
___________________________________
By: Bill S. Chen, FSA, Ph.D.
Title: President & CEO
HO953460171
011696ddk4
9826-31
Agreement for Reinsurance
Page 21
<PAGE> 10.15.023
TABLE OF CONTENTS
Page
ARTICLE I: Definitions 1
1.1 Assumed Contract 1
1.2 Assumption Agreement 2
1.3 Assumption Certificate 2
1.4 Assumption Effective Date 2
1.5 Books and Records 2
1.6 Closing 2
1.7 Closing Date 2
1.8 Coinsurance Agreement 2
1.9 Coinsurance Effective Date 2
1.10 Coinsured Contract 2
1.11 Company Service Period 3
1.12 Contractholder 3
1.13 Contracts 3
1.14 Excluded Liabilities 3
1.15 Novation 3
1.16 Producer 3
1.17 Producer Agreement 4
1.18 Producer Payments 4
1.19 Reinsurance Agreements 4
1.20 Reinsurance Allowance 4
1.21 Required Assumption Approvals 4
1.22 Required Assumption Consents 4
1.23 Required Closing Date Approvals 4
1.24 Service Fees 5
1.25 Service Notice 5
1.26 Services Agreement 5
1.27 Settlement Amount 5
1.28 Statutory Reserves and Liabilities 5
1.29 Support Services 5
1.30 Transition Date 5
ARTICLE II: Reinsurance 5
2.1 Reinsurance of Transferred Contracts 5
2.2 Entry into Services Agreement 5
2.3 Transfer of Books and Records 6
2.4 Regulatory Approvals 6
2.5 Assignment of Producer Agreements 6
2.6 Calculation and Payment of Reinsurance Allowance 6
i
<PAGE> 10.15.024
ARTICLE III: Company Representations and Warranties 7
3.1 Company's Corporate Existence and Authority 7
3.2 Sufficiency of Statutory Reserves and Liabilities 7
3.3 Contract Forms 8
3.4 Accuracy of Books and Records 8
3.5 Premium Taxes 8
3.6 Reinsurance Coverage 8
3.7 Validity of Producer Agreements 8
3.8 Compliance with Law 8
3.9 Litigation Against Company 8
3.10 Company's Brokers 8
3.11 Company Disclosure 9
ARTICLE IV: Reinsurer Representations and Warranties 9
4.1 Reinsurer's Corporate Existence and Authority 9
4.2 Litigation Against Reinsurer 9
4.3 Reinsurer's Brokers 10
4.4 Reinsurer Disclosure 10
ARTICLE V: Covenants of the Parties 10
5.1 Maintenance of Business by the Company 10
5.2 No Change in Reserving Contracts, Methods or
Assumptions 10
5.3 Reinsurance Coverage 11
5.4 Continued Access to Books and Records
Retained by the Company 11
5.5 Notice of Actions Received by the Company 11
5.6 Continued Access to Books and Records
Transferred to the Reinsurer 11
5.7 Notice of Actions Received by the Reinsurer 12
5.8 Unfair Practices 12
5.9 Regulatory Filings and Approvals 12
5.10 HSR Act Filings 12
5.11 Conduct Pending Closing 13
5.12 Further Assurances 13
5.13 Use by the Reinsurer of the Company's
Name, Logo or Service Marks 13
5.14 Communications with Contractholders 13
5.15 Expenses 14
ARTICLE VI: Conditions to Closing 14
6.1 Conditions to the Reinsurer's Obligations to
Close 14
6.1.1 Receipt of All Required Closing Date
Approvals 14
6.1.2 Truth of Representations and
Warranties of Company 14
6.1.3 Performance of Covenants and
Obligations of Company 14
6.1.4 Receipt of the Settlement Amount 14
6.1.5 Execution and Delivery of Agreements 15
6.1.6 Delivery of Listing of Contracts 15
ii
<PAGE> 10.15.025
6.2 Conditions to the Company's Obligations to Close 15
6.2.1 Receipt of All Required Closing Date
Approvals 15
6.2.2 Truth of Representations and
Warranties of Reinsurer 15
6.2.3 Performance of Covenants and
Obligations of Reinsurer 15
ARTICLE VII: Survival of Representations and Warranties 15
ARTICLE VIII: Arbitration 16
8.1 Agreement to Arbitrate 16
8.2 Method 16
ARTICLE IX: Indemnification 17
9.1 Indemnification Under Reinsurance Agreements 17
9.2 Indemnification Under this Agreement 17
9.3 Notice of Claim 17
9.4 Opportunity to Defend 17
9.5 Limitation on Indemnification 18
ARTICLE X: Termination 18
10.1 Termination 18
10.2 Effect of Termination 19
ARTICLE XI: Miscellaneous Provisions 19
11.1 Notice 19
11.2 Entire Agreement 20
11.3 Assignment 20
11.4 Waivers and Amendments 20
11.5 No Third Party Beneficiaries 20
11.6 Public Announcements 20
11.7 Governing Law 21
11.8 Counterparts 21
11.9 Headings 21
11.10 Severability 21
iii
<PAGE> 10.15.026
Schedule 1.2
ASSUMPTION REINSURANCE AGREEMENT
(attached)
<PAGE> 10.15.027
Schedule 1.8
COINSURANCE AGREEMENT
(attached)
<PAGE> 10.15.028
Schedule 1.13
CONTRACTS
Contract No./Plan Code
EPB, EP5, EWP
HPB, HP5, HWP
IPB, IP5, IWP
KPB, KP5, KWP
NPB, NP5, NWP
PPB, PP5, PWP
RPB, RP5, RWP
SPB, SP5, SWP
TPB, TP5, TWP
Statutory reserve as of December 31, 1995 is $76,306,929.
<PAGE> 10.15.029
Schedule 1.26
ADMINISTRATIVE SERVICES AGREEMENT
(attached)
<PAGE> 10.15.030
Schedule 3.9
SCHEDULE OF LITIGATION AGAINST COMPANY
None
<PAGE> 10.15.031
Schedule 3.10
LISTING OF COMPANY'S BROKERS
None
<PAGE> 10.15.032
Schedule 4.1
NEW ERA LIFE INSURANCE COMPANY JURISDICTIONS IN
WHICH LICENSED
Alabama Mississippi
Arizona New Mexico
Colorado North Carolina
Delaware Oklahoma
Florida South Carolina
Georgia South Dakota
Indiana Texas
Louisiana Utah
NEW ERA LIFE INSURANCE COMPANY
OF THE MIDWEST
JURISDICTIONS IN WHICH LICENSED
Alaska Louisiana
California Missouri
Colorado Ohio
Florida Oklahoma
Illinois Tennessee
Indiana Texas
Kentucky Wisconsin
<PAGE> 10.15.033
Schedule 4.3
LISTING OF REINSURER'S BROKERS
Martin Teller
Search Information Services
21044 Sherman Way, Suite 214
Canoga Park, California 91303
<PAGE> 10.16.001
MANAGEMENT AND SERVICE AGREEMENT
THIS AGREEMENT (hereinafter referred to as "Agreement") is
hereby made effective this 1st day of January, 1993 between
INVESTORS INSURANCE CORPORATION, a Corporation organized under the
laws of Delaware (hereinafter referred to as "IIC"), and GEMCO
NATIONAL, INC. a corporation organized under the laws of the State
of New York (hereinafter referred to as "Gemco").
WHEREAS: IIC is a life insurance company licensed to sell Product
in the twenty-one (21) States; and
WHEREAS: Gemco has the experience and personnel to render
management and the services to IIC and has established a
distribution system of Brokerage Agents for the brokerage and sale
of Products; and
WHEREAS: The parties named above are desirous of reaching an
agreement with regard to management and other services and also as
to the brokerage and sale of Product through the use of Gemco's
brokerage and distribution systems.
NOW. THEREFORE: in consideration of mutual covenants and
agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
confessed and acknowledged, the Parties hereto mutually understand
and agree as follows, to wit:
ARTICLE 1: MANAGEMENT AND OTHER SERVICES
A. IIC recognizes that Gemco has the expertise and personnel
to assist IIC in the development and expansion of its business. IIC
<PAGE> 10.16.002
agrees that during the term of this Agreement that it will purchase
all of the below services from Gemco. Gemco agrees that during the
term of this Agreement that it will provide through its personnel,
facilities and network off independent service providers, the
services required by IIC to management and expand IIC's business.
The services contemplated to be sold and purchased hereunder are as
follows:
(1) Senior Management Services
(a) Coordinate policy decisions
(b) Manage the business hierarchy
(c) Focus decision making personnel
(2) Accounting Services
(a) General Accounting
(i) Maintain general ledger
(ii) Maintain accounts receivable/payable
(iii) Handle all financial reporting
(b) Investment Accounting
(i) Maintain investment reporting system
(ii) Handle all investment reporting
(3) General Administrative Services
(i) Personal and payroll services
(ii) Office equipment and supplies - inventory
and supply
(iii) Miscellaneous office services
(4) Insurance Administrative Services
(a) New Business Services
(i) Underwriting
(ii) Prepare and issue policies
(b) Policyholder Service
(i) Maintain policies in force
(ii) Handle policyholder inquirers
(iii) Process policy claims, changes, etc.
(c) Agent Services
(i) Process new agent licenses
(ii) Maintain agent records
(5) Obtain and Coordinate External Professional Services
(a) Legal services
(b) Accounting services
(c) Actual services
(d) Investment advisor services
(e) Reinsurance company services
(B) Gemco agrees that all information obtained by it in the course
of rendering the aforementioned services shall at all times
<PAGE> 10.16.003
remain confidential. IIC's written permission shall be required to
release any information to non-affiliated persons or entities.
Notwithstanding the above, Gemco shall be free to release
information to any government agency, bureau or other office upon
proper request and nothing herein shall prevent Gemco from
releasing any information in furtherance of its duties to provide
the services hereunder.
(C) Nothing herein shall prevent or prohibit Gemco from
providing management and other services to any other person or
entity provided, however, such duties do not interfere with Gemco's
obligations under this Agreement.
ARTICLE 2: AGREEMENT TO BROKER AND SELL
A. IIC agrees that Gemco and any of its affiliated Brokerage
Agents shall have a right to broker and sell Product as herein
defined, in all states in which Product has been approved for sale,
subject to the terms and conditions of this Agreement. Gemco agrees
that any other brokerage agent not affiliated with Gemco shall have
the right to broker and sell Product as defined herein, subject to
the terms and conditions of this Agreement. Nothing contained
herein will prevent IIC from withdrawing Product from the
marketplace at it's sole discretion with five (5) days written
notice to Gemco. Except for commissions due and owing to Gemco, IIC
shall have no obligation to Gemco whatsoever for IIC's withdrawal
of the Product from the market.
B. IIC hereby authorizes Gemco to recruit Brokerage Agents
on behalf of IIC to broker and sell Product.
<PAGE> 10.16.004
C. Gemco agrees to process Brokerage Agent contracts and to
forward the same to IIC. IIC hereby agrees to file licensing
applications and to pay the required licensing fees in the home
states of the applicants recruited by Gemco for the express purpose
of obtaining the necessary insurance license.
D. IIC shall have the absolute and unconditional right to
terminate any Brokerage Agent recruited by Gemco upon written
notice, provided such termination is not being made principally for
the purpose of limiting or inhibiting Gemco's ability to broker and
sell product.
E. Gemco will use its best effort to insure that Brokerage
Agents recruited by it are properly licensed to sell Product and
that these Brokerage Agents maintain all required licenses for the
brokering and sale of Product. Gemco hereby agrees to indemnify and
hold harmless IIC for any losses, damages, fines, penalties or any
other costs incurred by IIC as a result of any Brokerage Agent
recruited by Gemco not being properly licensed, failing to maintain
required licenses, unless such failure is due to the acts, error or
omission of IIC or its agents (other than those Brokerage Agents
appointed at the request of Gemco or employees).
F. IIC will furnish to Gemco the same production reports and
commission statements it customarily supplies to its other national
brokerage agents. These reports will be sent to Gemco on the sane
basis IIC sends such reports to its Brokerage Agents. Other special
reports will be provided by IIC and Gemco as mutually agreed by the
parties.
<PAGE> 10.16.005
G. Nothing contained herein shall authorize Gemco to alter,
modify, change, waive, any forfeiture of, or waive performance of, any
terms, rates or conditions of the IIC's policies or contracts;
extend the time for payment of premiums or other monies due to IIC; make
representation not strictly in accordance with either provisions of
the policies and contracts issued by IIC; make settlement or agreement in
writing or otherwise regarding the settlement of any claims being handled
against IIC unless specifically authorized by IIC in writing to do so;
incur any expense or obligation of any kind or nature in the name of or on
behalf of IIC without first obtaining the expressed written authority of
IIC in each case; fail to return or cause to be returned to an applicant
the total sum collected by Gemco from such applicant when the same is
returnable to such applicant; bind or obligate IIC or subject IIC to any
liability, except as expressly provided herein; act as spokesman for IIC in
any proceeding or inquiry by any governmental or regulatory authority
having jurisdiction; or do or perform any other act or thing not expressly
authorized herein.
H. IIC hereby agrees to design, develop and prepare all
policy forms and sales materials required in connection with product to be
offered by IIC and to be brokered and sold pursuant to this Agreement. IIC
will be responsible for the total costs of policy forms, applications,
Brokerage Agent contract and all sales promotional materials provided by
IIC to Gemco. Gemco will be responsible for the total advertising costs of
postcard mailings to prospective agents. Gemco shall bear and pay all
expenses incurred by it in the performance of this section unless IIC has
agreed in writing to do so otherwise.
<PAGE> 10.16.006
I. Gemco hereby agrees that it will comply with the rules of
IIC generally applicable to IIC's Brokerage Agents and any
applicable statutes and governmental regulations relating to
advertising, publicity releases and the use of written or printed
material pertaining to IIC product, financial condition or
statement concerning production. Gemco will use its best efforts to
see that misleading or incomplete comparisons are not made by their
affiliated Brokerage Agents or Employees, orally or by any
circular, advertising matter or literature. Gemco will not permit
or cause IIC's name or Product name to be used in any
advertisement, circular or literature without prior written
authorization from IIC.
J. Gemco and IIC hereby agree and understand that the lists
of Brokerage Agents and Insureds and their addresses are
information of a confidential nature and the same shall be held in
confidence by Gemco and IIC. Gemco and IIC hereby agree and
understand that the lists referred to herein are to remain
available to all Parties during the term of this Agreement. The
Brokerage Agents contracted to IIC by or through Gemco are deemed
a part of Gemco's selling organization.
K. No Party to this Agreement shall at any time during the
term of this Agreement or thereafter knowingly solicit replacement
or reassurance of any Product unless mutually agreed upon by the
Parties for specific Product.
<PAGE> 10.16.007
L. IIC shall at no time during the term of this Agreement or
for two (2) years immediately following its expiration or
termination, directly or indirectly, for itself or another person,
knowingly solicit, divert or take away Brokerage Agents recruited
by Gemco by this Agreement unless IIC and Gemco otherwise agree.
IIC shall at not time during the term of this Agreement or for two
(2) years immediately following its expiration or termination,
directly or indirectly, for itself or another person, knowingly
solicit, divert or take away any Officer, director or Key Employee
of any Brokerage Agent affiliated with Gemco.
M. Gemco hereby agrees that it shall at no time during the
term of this Agreement or for two (2) years immediately following
its expiration or termination, directly or indirectly, for itself
or another person, knowingly solicit, divert or take away Brokerage
Agents of IIC who specialize in the brokering and sale or Product,
unless the Parties hereto otherwise agree. Gemco hereby agrees that
it shall at not time during the term of this Agreement or for two
(2) years immediately following its expiration or termination,
directly or indirectly, for themselves or another person, knowingly
solicit, divert or take away any Officer, Director, Key Employee or
Agent of any Brokerage Agent affiliated with IIC, unless the
Parties hereto otherwise agree. The restrictions contained shall
not apply to Brokerage Agents recruited by Gemco. Gemco hereby
agrees that it will not, during the aforementioned period, engage
in any systematic approach or solicitation of any IIC brokering
and/or sales organization.
<PAGE> 10.16.008
N. IIC hereby agrees it will not pay to Brokerage Agents not
affiliated with Gemco a commission on Product greater than the
amount of commission on Product paid to Brokerage Agents affiliated
with Gemco unless agreed to by Gemco. IIC and Gemco hereby agree
that the stated percentage herein can be adjusted from time to time
by written agreement signed by both parties.
O. For the purpose of this Section 2., the following
definitions shall apply:
(1) BROKERAGE AGENT: Persons or organizations who are
duly licensed under contract to Gemco to sell Product for IIC.
(2) PRODUCT: All annuity policies brokered and sold by
IIC.
(3) GROSS PREMIUMS: All premiums collected by IIC for
the sale of Product.
(4) NET PREMIUMS: Gross premiums collected by IIC less
any premiums refunded by IIC for any reason as a result of the
cancellation by IIC of any policy which is a Product.
(5) REFUNDABLE COMMISSIONS: Commissions paid by IIC
with respect to Product on which collected premiums were refunded
for any reason by IIC to the purchaser of Product.
ARTICLE 3: RELATIONSHIP
A. IIC and Gemco are independent contractors. Nothing
contained in this Agreement or in any course of dealing between IIC
and Gemco, whether in the past or currently, shall be construed or
interpreted to create an employer-employee relationship between IIC
<PAGE> 10.16.009
and Gemco. Further, IIC and Gemco agree that neither party has
enticed the other into entering this Agreement, and that IIC and
Gemco have not suggested, demanded, or even encouraged either party
to limit or reduce their dealings with any other third parties.
Specifically, Gemco agrees that IIC had actually encouraged Gemco
to maintain all of it's company relationships in recognition of an
independent contractors need for the availability of a variety of
companies and products necessary to operated a successful national
brokering agency.
B. Gemco shall be free to choose the persons and entities
from whom it shall designate to provide the services hereunder and
from whom applications for Product are solicited and as to the
time, place and manner of solicitation and the conducting and
completion of the services. Gemco shall observe, the applicable
statutes and governmental regulations pertaining to the conduct of
business in the various jurisdictions.
C. IIC and Gemco shall have full and free access at the home
office of the other reasonable notice during normal business hours
to inspect all books, records, files and personnel directly related
to the services provided hereunder and the Products sold hereunder,
including but not limited to all production records and service
records .
D. Gemco hereby agrees to indemnify and hold harmless IIC
for any losses, damages, fines, penalties or any other costs
incurred by IIC as a result of any acts or omissions to act of
Gemco's officers, employees and independent service providers.
<PAGE> 10.16.010
ARTICLES 4: TERMINATION
A. Term: This Agreement shall be effective as of January
1, 1993. This Agreement shall remain in effect until December 31,
1995. This Agreement shall automatically be renewed for successive
one (1) year periods unless either party gives the other party
sixty (60) days written notice of termination prior to the end of
each term or period.
B. Other: This Agreement may be terminated prior to the
time specified in Subsection A. above, under any of the following
circumstances:
(i) By any Party to this Agreement giving at any
time ten (10) business days written notice if there is a material
breach of this Agreement, which written notice shall specify the
reasons for the termination. This Agreement shall not terminate but
continue in effect if the material breach is cured prior to the
expiration of the ten (10) day notice period. If the material
breach is not cured within the ten (10) day notice period, the non-
breaching party can immediately terminate this Agreement by
providing the breaching party notice of the immediate termination
within seven (7) days of the expiration of the ten (10) day notice
period.
(ii) By any Party to this Agreement without notice
or delay in the event of bankruptcy, insolvency or receivership of
any Party to this Agreement or in the event of an assignment for
the benefit of creditors by any Party to this Agreement.
(iii) By IIC if Gemco wrongfully withholds funds
<PAGE> 10.16.011
belonging to any applicants; or if Gemco intentionally and
willfully fails to comply with the laws, rules or regulations of
any governmental or regulatory authority having any jurisdiction.
(iv) Change in control of Gemco.
(v) Any continuous activity by Gemco or any
Brokerage Agent which violates any insurance law or regulation or
is detrimental to the reputation or business of IIC determined by
IIC in its sole discretion after Gemco fails to correct such
activity or activity of its brokerage agent within 10 days after
written notice from IIC to correct or cease such activity.
C. No termination shall affect the rights of Gemco to any
compensation due to it pursuant to this Agreement.
D. In the event of the expiration or termination of this
Agreement, Gemco agrees to deliver all IIC property to IIC and to
repay any existing indebtedness to IIC and conversely IIC shall pay
any indebtedness it may then owe to Gemco including, without
limitation, all payments due under Article 5. This contract shall
automatically terminate in the event Gemco ceases to do business as
a corporation, in which case all compensation due and thereafter
becoming due to Gemco shall be payable to its successor or duly
appointed representative.
ARTICLE 5: COMPENSATION
A. For the management and other services provided hereunder,
IIC shall pay Gemco a monthly fee, to be determined annually based
on budget projections of covered expenses, payable on the last day
of each month. In addition, IIC shall reimburse Gemco for its out-
of-pocket costs and expenses it incurs to perform the services hereunder
<PAGE> 10.16.012
upon submission of an itemized account in forms prescribed by IIC.
B. IIC shall pay a commission on Product sold by Brokerage
Agents recruited by Gemco twice monthly (for annuity product) and
monthly (for life and health products) to Gemco. The Commission
will be calculated by taking all contributions/premiums which have
been collected by IIC on sales of Product as of the close of
business on the 15th (for annuity only) and the last day (for
annuity, life and health products) of each month respectively less
all refundable Commissions on which Gemco had been paid a
commission as of the close of business on the 15th (for annuity
product) and last day (for annuity, life and health products) of
each month respectively.
COMMISSION SCHEDULE FOR ANNUITY PRODUCT
ANNUITANT'S/OWNER'S
AGE AT TIME OF
CONTRIBUTION COMMISION
AGES INITIAL ADDITIONAL
0-75 CONTRIBUTION CONTRIBUTION
$ 2,000.00 - $ 4,999.99 1.0% 2.0%
$ 5,000.00 - $ 24,999.99 2.0% 2.0%
$25,000.00 - $1,000.000.00 1.0% 1.0%
0%
AGES
76-80
$ 2,000.00 - $ 24,999.99 1.0% 1.0%
$25,000.00 - $1,000,000.00 .5% .5%
COMMISSION SCHEDULE FOR HEALTH PRODUCT
RENEWAL RENEWAL
RENEWAL RENEWAL
1ST YEAR YRS.2-6 YEARS AFTER 6 YEARS
5% 5% 0%
<PAGE> 10.16.013
COMMISSION SCHEDULE FOR LIFE PRODUCT
RENEWAL RENEWAL FOR
1ST YEAR YRS. 2-10 YRS AFTER 10 YEARS
6% 10% 0%
IIC has the option to revise this Commission schedule from time to
time for the sale of future Product.
C. If this Agreement expires or is terminated for any reason other
than a material breach by Gemco, IIC hereby agrees to pay Gemco commission
referred to in subsection B of this Article 5 for the one (1) year period
following such expiration or termination for policies issued from the
applications for Product generated by Brokerage Agents Recruited by Gemco.
D. All Brokerage Agents recruited by Gemco shall not be the
subject of any general systematic approach or solicitation by IIC,
independently of Gemco, for further the purpose of brokering and selling
Product. IIC hereby further agrees that it will not pay any Brokerage Agent
recruited by Gemco any producing commission in excess of the commission
paid to IIC's Agents generally. The restrictions contained in this
Subsection D. Article 5 shall continue for two (2) year period
immediately following the expiration or termination of this Agreement.
E. In the event IIC is required for any reason to return
previously collected premiums from the sale of Product, IIC shall return
the premium previously collected directly to the purchaser of the Product
contract. The Commission paid to Gemco under Article 5.3 as a result of
collected premium which IIC is required to
<PAGE> 10.16.014
return shall promptly be returned to IIC by Gemco or the same may be
deducted by IIC by Gemco or the same may be deducted by IIC from any
commission payable to Gemco.
F. (i) For Annuity Policies, if a policyholder/owner or
annuitant dies within one hundred eighty days (180) days of the contract
effective date counting from the effective date, all commission paid to
Gemco for such policy will be returned to IIC immediately. Gemco agrees
that upon such an occurrence it will become immediately liable to repay IIC
such commission or the same may be deducted by IIC from any commission
payable to Gemco and IIC has the right to pursue any legal action to
recover any such commission for Gemco. Gemco agrees to reimburse IIC for
costs it incurs, including reasonable attorney's fees, in any action by IIC
to enforce Gemco obligations under this Agreement: (ii) For Life and
Health Policies, if coverage is terminated on a policyholder/owner
and a premium refund is required, all unearned commission will be returned
to IIC immediately on a pro rate basis. Gemco agrees that upon such an
occurrence it will become immediately liable to repay IIC such commission
or the same may be deducted by IIC from any commission payable to Gemco and
IIC has the right to pursue any legal action to recover any such commission
from Gemco. Gemco agrees to reimburse IIC for costs it incurs, including
reasonable attorney's fees, in any action by IIC to enforce Gemco's
obligations under this Agreement.
ARTICLE 6: NOTICE
All notices, requests, demands and other communications called
<PAGE> 10.16.015
for in this Agreement shall be in writing and shall be deemed to have duly
given when personally delivered or five (5) days after being mailed by
United States certified or registered mail, postage prepaid, addressed to
the Parties, their successors in interest or their assigns, at the
following addresses or at such other addresses as the Parties may designate
by written notice in the manner aforesaid:
If to IIC:
Susan F. Powell
Senior Vice President
INVESTORS INSURANCE CORPORATION
3030 Hartley Road
Suite 390
Jacksonville, Florida 32257
If to Gemco:
Mr. Melvin C. Parker
President
GEMCO NATIONAL, INC.
7200 West Camino Real
Suite 203
Boca Raton, Florida 33433
ARTICLE 7: LEGAL PROCEEDINGS
Each party shall promptly notify the other Party of any
complaint, legal proceeding, process, suit, hearings, threats of
suit, subpoena or any other form of legal process from any state
insurance department or otherwise in connection with any
transaction covered by this Agreement. Each Party to this Agreement
agrees to indemnify and hold the other party harmless for any and
all monetary damages, costs and expenses, including reasonable
attorney's fees, incurred by the other party for any legal action
pending or threatened wherein the liability is solely the result of
<PAGE> 10.16.016
an act or failure the act of the other party. Neither party shall have the
authority to institute legal proceedings on behalf of the party without
approval in advance by the other party in writing.
SECTION 8: DELEGATION OF DUTIES
Gemco may delegate any function to be performed by it hereunder to
any wholly owned subsidiary or affiliate, or to a third party service
provider, provided it obtains the written consent of IIC to such
delegation. Any such delegation shall not, however, relieve Gemco of it's
obligations under this Agreement.
SECTION 9: ENTIRE AGREEMENT
This Agreement and any documents required to be delivered
pursuant to the terms hereof present the entire agreement of the Parties
hereto with respect to the subject matter hereof superseding all
prior commitments of any kind. This Agreement may not be amended or
supplemented, nor may any rights hereunder be waived except in writing
signed by all of the Parties hereto. The failure of Gemco or IIC to enforce
any provision of this Agreement or any regulation they may promulgate shall
not constitute a waiver thereof .
ARTICLE 10: APPLICABLE LAW
This Agreement will be interpreted under the laws of the State
of Florida in Duval County. IIC and Gemco shall abide by all that laws of
any federal, state and city government, department or bureau having
jurisdiction or supervision over the service to be provided hereunder the
Product to be sold hereunder and the conduct of such business.
<PAGE> 10.16.017
ARTICLE 11: PARTIAL INVALIDITY .
If any term or provision of this Agreement or any application
thereof shall be invalid or unenforceable, the remainder of this Agreement
and any other application of such provision shall not be affected thereby.
ARTICLE 12: WAIVER
The waiver by IIC hereto of any breach or default shall not
constitute a waiver of any different or subsequent breach or default.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the date first written above.
INVESTORS INSURANCE CORPORATION
By:/s/ Susan F. Powell
Susan F. Powell
Senior Vice President
GEMCO NATIONAL, INC.
By:/s/ Melvin C. Parker
Melvin C. Parker
President
<PAGE> 10.17.001
MANAGEMENT AGREEMENT
THIS AGREEMENT is hereby made effective thin 10th day of June, 1994,
between INVESTORS INSURANCE GROUP, Inc. a Florida Corporation,
(hereinafter referred to as "IIG") and INVESTORS MARKETING GROUP, INC., a
Florida Corporation (hereinafter referred to as "IMG") .
WHEREAS, IIG has the experience and personnel to render management
and services to IMG and
WHEREAS, IMG, is the National Marketing Agency for various insurance
companies;
WHEREAS IIG provides marketing and recruitment services for IMG; and
WHEREAS, the parties hereto are desirous of reaching an agreement with
regard to management and other related services.
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
1. MANAGEMENT AND OTHER SERVICES. IIG shall provide the following
services to IMG to assist IMG in the furtherance of its duties as National
Marketing Agency. IMG agrees that will purchase the below services from IIG.
IIG agrees that during the term of this Agreement that it will provide through
its personnel facilities and network of independent service providers the
services required by IMG. The services contemplated to be sold and purchased
hereunder are as follows:
(1) Senior Management Services
(a) Coordinate policy decisions
(b) Manage the business hierarchy
(c) Focus decision making personnel
(2) Accounting services
(a) General Accounting
(i) Maintain general ledger
(ii) Maintain accounts receivable/payable
(iii)Handle all financial reporting
(b) Investment Accounting
(i) Maintain investment reporting system
(ii) Handle all investment reporting
<PAGE> 10.17.002
(3) General Administrative services
(i) Personal and payroll services
(ii) Office equipment and supplies - inventory
and supply
(iii)Miscellaneous office services
(4) Insurance Administrative Services
(a) New Business Services
(i) Underwriting
(ii) Prepare and issue policies
(b) Policyholder Service
(i) Maintain policies in force
(ii) Handle policyholder inquiries
(iii)Process policy claims, changes, etc.
(c) Agent services
(i) Process new agent licensee
(ii) Maintain agent records
(5) Obtain and Coordinate External Professional Services
(a) Legal services
(b) Accounting services
(c) Actual services
(d) Investment advisor services
(e) Reinsurance company services
(B) IIG agrees that all information obtained by it in the course of
rendering the aforementioned services shall at all times remain confidential.
IMG'S written permission shall be required to release any information to non-
affiliated persons or entities. Notwithstanding the above, IIG shall be free
to release information to any government agency, bureau or other office upon
proper request and nothing herein shall prevent IIG from releasing any
information in furtherance of its duties to provide the services hereunder.
(C) Nothing herein shall prevent or prohibit IIG from providing
management and other services to any other person or entity provided, however,
such duties do not interfere with IIG's obligations under this Agreement.
ARTICLE 2: RELATIONSHIP
A. IMG and IIG are independent contractors. Nothing contained in
this Agreement or in any course of dealing between IMG and IIG, whether in the
past or currently, shall be construed or interpreted to create an employer-
employee relationship between IMG's and IIG's employees and agents.
<PAGE> 10.17.003
B. IMG and IIG shall have full and free access at the home office of
the other reasonable notice during normal business hours to inspect all books,
records, files and personnel directly related to the services provided
hereunder.
C. IIG hereby agrees to indemnify and hold harmless IMG for any losses
damages, fines, penalties or any other costs incurred by IMG as a result of
any acts or omissions to act of IIG's officers, employees and independent
service providers.
ARTICLES 3: TERMINATION
A. Term: This Agreement shall be effective as of June 10, 1994. This
Agreement shall remain in effect until December 31, 1995. This Agreement shall
automatically be renewed for successive one (1) year periods unless either
party gives the other party sixty (60) days written notice of termination
prior to the and of each term or period.
B. Other: This Agreement may be terminated prior to the time specified
in Subsection A. above, under any of the following circumstances:
(i) By any Party to this Agreement giving at any time ten
(10) business days written notice if there is a material breach of this
Agreement, which written notice shall specify the reasons for the termination.
This Agreement shall not terminate but continue in effect if the material
breach is cured prior to the expiration of the ten (10) day notice period. If
the material breach is not cured within the ten (10) day notice period, the
non-breaching party can immediately terminate this Agreement by providing the
breaching party notice of the immediate termination within seven (7) days of
the expiration of the ten (10) day notice period .
(ii) By any Party to this Agreement without notice or delay in
the event of bankruptcy insolvency or receivership of any Party to this
Agreement or in the event of an assignment for the benefit of creditors by any
Party to this Agreement.
<PAGE> 10.17.004
(iii) Change in control of IIG.
C. No termination shall affect the rights of IIG to any compensation
due to it pursuant to this Agreement.
D. In the event of the expiration or termination of Agreement, IIG
agrees to deliver all IIG property to IMG and this to repay any existing
indebtedness to IMG and conversely IMG shall pay any indebtedness it may then
owe to IIG including, without limitation, all payments due under Article 4.
This contract shall automatically terminate in the event IIG ceases to do
business as a corporation, in which case all compensation due and thereafter
becoming due to IIG shall be payable to its successor or duly appointed
representative .
ARTICLE 4 COMPENSATION
For the management and other services provided hereunder IMG shall pay
IIC a monthly fee, to be determined annually based on budget projections of
covered expenses, payable on the last day of each month. In addition, IMG
agrees to pay IIG additional income for extraordinary services rendered
hereunder. IMG shall reimburse IIG for its out-of-pocket costs and expenses it
incurs to perform the services hereunder upon submission of an itemized
account in forms prescribed by INS.
ARTICLE 5: NOTICE
All notices, requests, demands and other communications called for in
this Agreement shall be in writing and shall be deemed to have duly given when
personally delivered or five (5)) days after being mailed by United States
certified or registered mail, postage prepaid, addressed to the Parties, their
successors in interest or their assigns, at the following addresses or at
such other addresses as the Parties may designate by written notice in the
manner aforesaid:
<PAGE> 10.17.005
If to IMG:
Susan F. Powell
Senior Vice President
INVESTORS MARKETING GROUP, INC.
3030 Hartley Road
suite 390
Jacksonville, Florida 32257
If to IIG :
Mr. Melvin c. Parker
President
INVESTORS INSURANCE GROUP, INC.
7200 West Camino Real
suite 203
Boca Raton, Florida 33433
ARTICLE 6: LEGAL PROCEEDINGS
Each party shall promptly notify the other Party of any complaint, legal
proceeding, process, suit, hearings, threats of suit, subpoena or any other
form of legal process from any state insurance department or otherwise in
connection with any transaction covered by this Agreement. Each Party to
this Agreement agrees to indemnify and hold the other party harmless for any
and all monetary damages, costs and expense, including reasonable attorney's
fees, incurred by the other party for any legal action pending or threatened
wherein the liability is solely the result of an act or failure the act of the
other party. Neither party shall have the authority to institute legal
proceedings on behalf of the party without approval in advance by the other
party in writing.
SECTION 7: DELEGATION OF DUTIES
IIG may delegate any function to be performed by it hereunder to any
wholly owned subsidiary or affiliate, or to a third party service provider,
provided it obtains the written consent of IMG to such delegation. Any such
delegation shall not, however, relieve IIG of it's obligations under this
Agreement.
<PAGE> 10.17.006
SECTION 8: ENTIRE AGREEMENT
This Agreement and any documents required to be delivered pursuant to the
terms hereof present the entire agreement of the Parties hereto with respect
to the subject matter hereof superseding all prior commitments of any
kind. This Agreement may not be amended or supplemented, nor may any rights
hereunder be waived except in writing signed by all or the Parties hereto. The
failure of IIG or IMG to enforce any provision of this Agreement or any
regulation they may promulgate shall not constitute a waiver thereof .
ARTICLE 9: APPLICABLE LAW
This Agreement will be interpreted under the laws of the state of
Florida in Duval County. IMG and IIG shall abide by all that laws of any
federal, state and city government, department or bureau having jurisdiction
or supervision over the service to be provided hereunder the Product to be
sold hereunder and the conduct of such business.
ARTICLE 10: PARTIAL INVALIDITY
If any term or provision of this Agreement or any application thereof
shall be invalid or unenforceable, the remainder of this Agreement and any
other application or such provision shall not be affected thereby.
ARTICLE 11: WAIVER
The waiver by IMG hereto of any breach or default shall not constitute a
waiver of any different or subsequent breach or default.
<PAGE> 10.17.007
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
as of the date first written above.
INVESTORS MARKETING GROUP, INC.
By:
Susan F. Powell
Senior Vice President
INVESTORS INSURANCE GROUP, INC.
By:
Melvin C. Parker
President
<PAGE> 10.18.001
122091
INDEPENDENT CONTRACTOR AGREEMENT
AGREEMENT made this 30th day of December, 1991, between
Investors Insurance Corporation, a corporation organized and existing under
the laws of the State of Delaware, with its principal office in
Jacksonville, Florida (hereinafter referred to as the "Corporation") and
Donald F. U. Goebert (hereinafter referred to as "Contractor").
WHEREAS, the Corporation desires to engage the services of
Contractor as an independent contractor on the terms and conditions
hereafter provided in this Agreement; and
WHEREAS, the Contractor desires to render services to the
Corporation;
NOW THEREFORE, in consideration of the promises and
covenants hereinafter set forth, the parties hereto intending to be legally
bound, hereby agree as follows;
1. Engagement. The Corporation hereby engages the
services of Contractor and Contractor hereby accepts such engagement upon
the terms and conditions set forth herein.
2. Term. This Agreement shall commence on January 1,
1992 and shall remain in full force and effect until terminated by either
the Corporation or Contractor by giving the other party written notice of
such termination; at least ninety (90) days prior to the effective date of
such termination a
3. Services. Contractor is engaged as an
independent contractor to perform consulting and management services in
regard to Corporation's investments. The services rendered by Contractor
hereunder shall be provided to the Corporation at such times as may be
agreed to by Contractor and the Corporation. The method to complete the
services shall be at the sole and exclusive option of Contractor,
4. Compensation. Contractor shall receive
compensation for Contractor's services in such amounts as Contractor and
Corporation shall agree to from time to time. Initially, Contractor shall
receive an annual compensation of One Hundred Thousand ($100,000.00)
dollars payable in equally bi-monthly installments.
5. Status as Independent Contractor. Contractor is
retained and employed by the Corporation only for the purposes and to the
extent set forth in this Agreement. Contractor's relationship to the
Corporation shall, during the period of this Agreement, be that of an
independent contractor and not that of an employee of the Corporation.
6. Taxes. All federal and state income and employment
taxes, similar obligations and withholdings, including but not limited to
social security taxes, shall remain the sole responsibility of Contractor.
<PAGE> 10.18.002
E-19
7. Expenses. Corporation shall reimburse Contractor for
any expenses incurred by Contractor in the ordinary course of performing
services hereunder upon Contractor's presentation of an itemized account of
such expenses in the form approved by Corporation.
8. Employee Benefits. Contractor shall not be entitled to
participate in any plans or arrangements of the Corporation pertaining to
or in connection with any employee benefit, including pension or profit
sharing plans and health benefit plans.
9. Business and Financial Records. All business and
financial records pertaining to the business of the Corporation shall at
all times be the property of the Corporation.
10. Confidentiality Requirement. All written material or
otherwise communicated material, data, computer programs or other property,
tangible or intangible relating to Corporation's business or to
Corporation's products customers, agents, brokers and other sources of
business and all proprietary rights, including copyrights, trademarks and
service marks (hereinafter all of the above, collectively "Information")
shall at all times be the property of the Corporation. Contractor shall
forever keep confidential all Information obtained during the course of
Contractor's engagement with Corporation and Contractor shall not directly
or indirectly for Contractor or with others use or disclose such
Information for purposes other than performance of Contractor's duties
hereunder, without the prior written consent of the Corporation.
11. Contractual Obligations. Contractor agrees that
Contractor shall not, unless authorized to do so by the Corporation, make,
draw, accept or endorse any contract, lease, promissory note or other
instrument requiring the payment of money by the Corporation, nor
pledge the credit of the Corporation.
12. Entire Agreement. This Agreement supersedes any and
all other Agreements, either oral or in writing, between the parties to
this Agreement with respect to the subject matter contained herein or
necessarily implied hereby.
13. Modification. No change or modification of this Agreement
shall be valid unless the same be in writing and signed by all of the
parties hereto.
14. Binding Effect. This Agreement shall be binding upon the
parties, heirs, legal representatives, successors and assigns of the
respective parties.
15. Invalid Provision. The invalidity or unenforceability
of any particular provision of this Agreement shall render the remainder of
the Agreement to be construed in all respects as if such invalid or
unenforceable provision was omitted.
16. Interpretation. The validity of this Agreement and any of
its terms and provisions, as well as the rights and duties of the parties
to this Agreement, shall be governed by the laws of the State of Florida.
2
<PAGE> 10.18.003 E-2O
17. Assignment. This Agreement shall be binding and
shall inure to the successors and assigns of the Corporation. This
Agreement, being for the personal services of Contractor, shall not be
assignable or subject to anticipation by Contractor.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first written above.
INVESTORS INSURANCE CORPORATION
ATTEST:
By:
Susan F. Powell, Secretary Melvin C. Parker, President
Witness Donald F.U. Goebert, Contractor
3
<PAGE> 10.19.001
TERMINATION OF INDEPENDENT CONTRACTOR AGREEMENT
This Termination Agreement made effective the 1st day July, 1994 by
and between INVESTORS INSURANCE CORPORATION, a corporation organized and
existing under the laws of the State of Delaware, with its executive office
in Jacksonville, Florida (hereinafter referred to as "Corporation") and
DONALD F. U. GOEBERT (hereinafter referred to as "Contractor").
WHEREAS, the Corporation and the Contractor entered into an
Independent Contractor Agreement dated December 31, 1991 which permits
either party to terminate the Agreement with ninety (90) day written
notice; and
WHEREAS, the Corporation no longer desires to engage the services
of Contractor; and
WHEREAS, the Contractor no longer desires to render consulting and
management services to the Corporation.
NOW THEREFORE, in consideration of the promises and covenants
hereinafter set forth, the parties hereto intending to be legally bound
hereby agree as follows:
The Independent contractor Agreement, dated December 31, 1991,
shall be terminated effective at 12:00 midnight on June 30, 1994.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
Attest: INVESTORS INSURANCE CORPORATION
Susan F. Powell, Secretary Melvin C. Parker, President
Witness Donald F.U. Goebert, Contractor
E-33
<PAGE> 10.20.001
INDEPENDENT CONTRACTOR AGREEMENT
AGREEMENT made effective the 1st day of July, 1994, between
Investors Insurance Group, Inc., a corporation organized and existing
under the laws of the State of Florida, with its principal office in Boca
Raton, Florida, (hereinafter referred to as the "Corporation") and Donald F.
U. Goebert (hereinafter referred to as "Contractor").
WHEREAS, the Corporation desires to engage the services of
Contractor as an independent contractor on the terms and conditions
hereafter provided in this Agreement; and
WHEREAS, the Contractor desires to render services to the
Corporation;
NOW THEREFORE, in consideration of the promises and covenants
hereinafter set forth, the parties hereto intending to be legally bound,
hereby agree as follows:
1. Engagement. The Corporation hereby engages the services
of Contractor and Contractor hereby accepts such engagement upon the terms
and conditions set forth herein.
2. Term. This Agreement shall commence on July 1, 1994 and
shall remain in full force and effect until terminated by either the
Corporation or Contractor by giving the other party written notice of
such termination, at least ninety (90) days prior to the effective date
of such termination.
3. Services. Contractor shall provide such consulting and
management services as are required by the Corporation and its affiliates
and agreed to by Contractor, including, but not limited to providing
professional advice regarding investments and financial opportunities,
providing consultation on proposed sales and purchases of assets,
performing management and supervisory duties, providing counsel to
management, officers and directors of Corporation and affiliates,
analyzing and reporting on financial aspects of transactions, coordinating
development projecting, analyzing legal issues confronting the Corporation
and its affiliates and initiating mergers and acquisitions. The services
rendered by Contractor hereunder shall be provided to the Corporation or
its affiliates at such times as may be agreed to by Contractor and the
Corporation. The method to complete the services shall be at the sole and
exclusive option of Contractor.
4. Duties. Contractor shall devote to the Corporation all of
the time, attention, and energy necessary for him to perform all the duties
for which he is contracted, including but not limited to providing prompt
and professional consulting and management services, at such times as
Contractor and Corporation may agree, and supervising and coordinating
efforts of support staff in the performance of such services. Contractor
shall evaluate and determine the most efficient method to complete such
services, which determination shall be made at Contractor's sole and
absolute discretion.
<PAGE> 10.20.002
5. Compensation. Contractor shall receive compensation
for Contractor's services in such amounts as Contractor and Corporation
shall agree to from time to time. Initially,, Contractor shall receive an
annual compensation of One Hundred Thousand ($100,000.00) dollars payable
in equal bi-monthly installments. At the option of Corporation, the
aforesaid compensation may be payable by one or more subsidiaries of the
Corporation.
6. Status as Independent Contractor. Contractor is retained
and employed by the only for the purposes and to the extent set forth in
this Agreement. Contractor's to the Corporation shall, during the period
of this Agreement, be that of an contractor and not that of an employee of
the Corporation.
7. Taxes. All federal and state income and employment taxes,
similar obligations and withholdings, including but not limited to social
security taxes, shall remain the sole responsibility of Contractor. If
Contractor is deemed an Employee by any taxing authority or government
agency. contractor agrees to indemnify the Corporation for any taxes,
penalties
or interest imposed upon the Corporation by such taxing authority or other
government agency, whether as a result of compromise, litigation or consent
by the Corporation.
8. Expenses. Corporation shall reimburse Contractor for any
expenses incurred by Contractor in the ordinary course of performing
services hereunder upon Contractor's presentation of an itemized account
of such expenses in the form approved by Corporation.
9. Vacation. Contractor shall not be entitled to pay for
vacation or sick leave from his duties as an independent contractor.
Periods of absence may be arranged as mutually convenient.
10. Employee Benefits Contractor shall not be entitled to
participate in any plans or arrangements of the Corporation pertaining to
or in connection with any employee benefit, including pension or profit
sharing plans and health benefit plans.
11. Business and Financial Records. All business and financial
records pertaining to the business of the Corporation and its affiliates
shall at all times be the property of the Corporation.
12. Confidentiality Requirement. All written material or
otherwise communicated material, data, computer programs or other property,
tangible or intangible relating to Corporation's or its affiliates'
businesses or to Corporation's or its affiliates' products, customers,
agents, brokers and other sources of business and all proprietary rights,
including copyrights, trademarks and service marks (hereinafter all of the
above, collectively "Information") shall at all times be the property of
the Corporation or its affiliates, as the case may be. Contractor shall
forever keep confidential all Information obtained during the course of
Contractor's engagement with Corporation and Contractor shall not directly
or indirectly for Contractor or with others use or disclose such
information for purposes other than performance of Contractor's duties
hereunder, without the prior written consent of the Corporation and/or its
<PAGE> 10.20.003
affiliates in each instance.
13. Contractual Obligations. Contractor agrees that
Contractor shall not, unless authorized to do so by the Corporation, make,
draw, accept or endorse any contract, lease, promissory note or other
instrument requiring the payment of money by the Corporation, nor pledge
the credit of the Corporation.
14. Notice. Any notice required to be given under this
Agreement shall be in writing and sent by registered mail, postage prepaid
to the addresses set forth below unless a party designates another address
by written notice to the other patty.
To Corporation:
Investors Insurance Group, Inc.
7200 West Camino Real, Suite 203
Boca Raton, Florida 33433
To Donald F.U. Goebert:
615 Willowbrook Lane
West Chester, PA 19382
15. Arbitration. Any dispute, including a claimed breach of
terms hereof, arising out of or in connection with this Agreement shall be
resolved by arbitration conducted by the American Arbitration Association
for West Chester, Pennsylvania in accordance with its rules then in
existence. The arbitrators shall not contravene or vary in any respect
any of the terms or provisions of this Agreement. The award of the
arbitrators shall be final and binding upon the parties thereto, their
heirs, legal representative, successors and assigns and judgment upon
such award may be entered in any court having jurisdiction thereof.
16. Conflict of Counsel. In preparation of this Agreement and
in connection therewith and related matters, Palmarella & Sweeney, P.C.
and Ernest D. Palmarella, Esquire (collectively "Counsel") is, was or
may be considered to have been in a position of conflict of interest which
may continue, and the same is understood and nevertheless agreed to and the
parties hereto have been so advised with respect thereto and with respect to
their own right to counsel with respect to all of the above. Notwithstanding
such advice, each party to this Agreement has determined to continue to
retain counsel's services in connection with the within described
transaction. In light of the foregoing, the parties waive and release
any claims which they may have arising from any such conflict of interest.
17. Entire Agreement. This Agreement supersedes any and all
other Agreements, either oral or in writing, between the parties to this
Agreement with respect to the subject matter contained herein or
necessarily implied hereby.
<PAGE> 10.20.004
18. Modification. No change or modification of this Agreement
shall be valid unless the same be in writing and signed by all of the
parties hereto.
19. Binding Effect. This Agreement shall be binding upon the
parties, heirs, legal representatives, successors and assigns of the
respective parties.
20. Invalid Provision. The invalidity unenforceability of
any particular provision remainder of the Agreement to be construed in
all respects provision was omitted.
21. Interpretation. The validity of this Agreement and any
of its terms and provisions, as well as the rights and duties of the
parties to this Agreement, shall be governed by the laws of the State of
Florida.
22. Assignment. This Agreement shall be binding and shall inure
to the successors and assigns of the Corporation. This Agreement being for
the personal services of Contractor, shall not be assignable or subject to
anticipation by Contractor.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first written above.
INVESTORS INSURANCE GROUP, INC.
ATTEST:
/s/ Susan F. Powell By: /s/ Melvin C. Parker
Susan F. Powell Melvin C. Parker, President
Assistant Secretary
/s/ Donald Goebert
Witness Donald F.U. Goebert, Contractor
<PAGE> 10.21.001
TERMINATION OF INDEPENDENT CONTRACTOR AGREEMENT
This Termination Agreement made effective the 31st day of March,
1996 by and between INVESTORS INSURANCE GROUP, INC., a corporation
organized and existing under the laws of the State of Florida with its
executive office in Boca Raton, Florida (hereinafter referred to as
"Corporation") and DONALD F.U. GOEBERT (hereinafter referred to as
"Contractor").
WHEREAS, the Corporation and Contractor entered into an Independent
Contractor Agreement dated July 1, 1994 (the "Agreement") which permits
either party to terminate the Agreement with ninety (90) days written
notice, and which notice has been waived by both parties;
WHEREAS, the Corporation no longer desires to engage the services
of Contractor; and
WHEREAS, the Contractor no longer desires to render consulting
services to the Corporation.
NOW, THEREFORE, in consideration of the promises and covenants
herein set forth, the parties hereto, intending to be legally bound
hereby, agree as follows:
Termination of Agreement. The Independent Contractor Agreement,
dated July 1, 1994 shall be terminated effective at 12:00 midnight on
March 31, 1996.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
Attest: INVESTORS INSURANCE GROUP, INC.
/s/ Susan F. Powell By: /s/ Melvin C. Parker
- ------------------------- ------------------------------
Susan F. Powell, Secretary Melvin C. Parker, President
/s/ Donald F. U. Goebert
- ------------------------- ------------------------------
Witness Donald F.U. Goebert,
Contractor
<PAGE> 10.22.001 E-39
123091
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT executed on the 30th day of December,
1991, by and between INVESTORS INSURANCE CORPORATION, a corporation
organized and existing under the laws of the State of Delaware, having its
principal office at Jacksonville, Florida, (hereinafter referred to as
"Employer") and RONALD W. HAYES (hereinafter referred to as "Employee").
WITNESSETH:
WHERAS, the Employer has determined that it is to the
advantage and interest of the Employer to employ the unique experience,
ability and services of Employee from the effective date hereof; and
WHEREAS, the Employee desires to accept employment with the
Employer upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and agreements herein and intending to be legally bound hereby,
the parties mutually agree as follows:
1. Duties. During the period of employment, Employee
shall devote Employee's best efforts, attention and energy necessary for
Employee to perform the duties required by the Employer and by the terms of
this Agreement or otherwise inherent in Employee's job description.
<PAGE> 10.22.002 E-40
2. Term. This Employment Agreement shall be effective January
and shall continue until terminated as provided herein. Either party shall
have the right to terminate this Agreement by giving the other party
written notice of such termination, at least ninety (90) days prior to the
effective date of such termination.
3. Compensation. In exchange for the services and duties to be
performed hereunder, Employee shall receive such compensation as agreed to
by Employer and Employee from time to time. Initially, Employee shall
receive a monthly compensation equal to ten thousand ($10,000.00) dollars
payable in equal installments every 2 weeks.
4. Fringe Benefits. During the term of this Agreement, the
Employee shall be entitled to all fringe benefits offered generally to the
Employer's employees; subject to the participation requirements of such
plans. Nothing herein contained shall prohibit Employee from waiving
participation in any such benefit plans.
5. Business Expenses. The Employee is authorized to incur
reasonable, ordinary and necessary business expenses on behalf of the
Employer. The Employer will reimburse the Employee for the expenses
incurred pursuant to this paragraph, unless such expenses have been paid
directly by the Employer, upon presentation by the Employee of an
itemized account of such expenditures in a manner prescribed by the
Employer.
6. Vacation and Sick Leave. The Employee shall be entitled to
such vacation and sick leave as agreed to with Employer from time to time.
7. Business and Financial Records. All business and financial
records of Employer pertaining to Employer's products, customers, agents,
brokers and sources of business shall at all times be the property of
Employer.
2
<PAGE> 10.22.003 E-41
8. Confidentiality Requirement. All written or otherwise
communicated material, data, computer programs or other property, tangible
or intangible relating to Employer's business or to Employer's products,
customers, agents, brokers and other sources of business and all
proprietary rights, including copyrights, trademarks and service marks
(hereinafter all of the above, collectively "Information") shall at all
times be the property of the Employer. Employee shall forever keep
confidential all Information obtained during the course of Employee's
employment with Employer and Employee shall not directly or indirectly for
Employee or with others use or disclose such Information for purposes other
than the performance of Employee's duties hereunder, without the prior
written consent of the Employer.
9. Contractual Obligations. The Employee agrees that Employee
shall not, unless authorized to do so by the Employer, make, draw, accept
or endorse any contract, lease, promissory note, or other instrument
requiring the payment of money by the Employer, nor pledge the credit of
the Employer.
10. Governing Law. This Agreement shall be interpreted in
accordance with, and the rights of the parties hereto shall be determined,
by the laws of the State of Florida.
11. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators and permitted assigns. Notwithstanding the
foregoing, this Agreement is a personal service contract, and shall
not be assigned or transferred, in whole or in part, by Employee
12. Severability. If any provision of this Agreement is held
invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity or enforceability of the other provisions hereof, all
of which are hereby declared severable,
3
<PAGE> 10.22.004 E-42
13. Headings. The headings used in this Agreement are solely
for convenience of reference and shall not affect its interpretation.
14. Modification and Amendments. This Agreement represents the
entire understanding between the parties with respect to the subject matter
set forth herein or necessarily implied hereby. This Agreement may not be
modified unless in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
INVESTORS INSURANCE CORPORATION
Attest:___________ By:_________________
Susan F. Powell, Secretary Melvin C. Parker, President
Witness Ronald W. Hayes, Employee
4
<PAGE> 10.23.001
TERMINATION OF EMPLOYMENT CONTRACT
This Termination Agreement made effective the 1st day of July, 1994
by and between INVESTORS INSURANCE CORPORATION a corporation organized and
existing under the laws of the State of Delaware with its executive office
in Jacksonville, Florida (hereinafter referred to as "Corporation") and
RONALD W. HAYES (hereinafter referred to as "Employee").
WHEREAS, the Corporation and Employee entered into an Employment
Contract dated December 30, 1991, which permits either party to terminate
the Agreement with ninety (90) days written notice; and
WHEREAS, the Corporation no longer desires to employ the Employee;
and
WHEREAS, the Employee no longer desires to render services to the
Corporation.
NOW, THEREFORE, in consideration of the promises and covenants
herein set forth, the parties hereto, intending to be legally bound hereby,
agree as follows;
The Employment Agreement, dated December 30, 1991, shall be
terminated effective at 12:00 midnight on June 30, 1994.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
Attest: INVESTORS INSURANCE CORPORATION
By:
Susan F. Powell, Secretary Melvin C. Parker, President
Witness Ronald W. Hayes, Employee
E-1
<PAGE> 10.24.001
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made effective the 1st day of July, 1994, between
Investors Insurance Group, Inc., a corporation organized and existing under
the laws of the State of Delaware, with its principal office in Boca Raton,
Florida (hereinafter referred to as the "Corporation") and Ronald W. Hayes
(hereinafter referred to as "Appointee").
WITNESSETH:
WHEREAS, the Corporation has determined that it is to the advantage and
interest of the Corporation to appoint the Appointee as Chairman of the Board
of Directors of the Corporation from the effective date hereof; and
WHEREAS, the Appointee desires to accept such appointment by the
corporation upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein and intending to e legally bound hereby, the parties
mutually agree as follows:
1. Services. Appointees shall provide such services as are required
by the Corporation and its subsidiaries and agreed to by Appointee, including,
but not limited to, participating in mergers and acquisitions, raising
capital, interacting with management, officers and directors of the
Corporation, assisting with shareholder relations of the Corporation, and
insurance department relations of its subsidiaries, overseeing the
<PAGE> 10.24.002
Corporation marketing efforts, and undertaking the duties and responsibilities
inherent in Appointee's position as Chairman of the Board of Directors.
2. Duties. As Chairman of the Board of Directors for the corporation,
Appointee shall devote is best efforts and all of the time, attention and
energy necessary for Appointee to perform the duties required by the
corporation and by the terms of this Agreement or otherwise inherent in
Appointee's position.
3. Compensation and Benefits
3.1 Salary. The corporation shall pay Appointee an annual salary of
$120,000.00, payable in equal Installments every two weeks, commencing on July
1, 1994 for services performed for and on the behalf of the corporation and
its subsidiaries and related companies. Additionally, the Corporation shall
pay Appointee's health insurance as the premiums become due.
3.2 Fringe Benefits. Appointee shall be entitled to participate
in the Simplified Employee Pension plan established by the Corporation, to
the extent that Appointee's position, tenure, salary, age, health and other
qualifications make Appointee eligible to participate
3.3 Reimbursement of Expenses. The Corporation shall reimburse
Appointee for all reasonable travel, entertainment and other expenses incurred
or paid by Appointee in connection with, or related to, the performance of
Appointee's duties, responsibilities or services under this Agreement, upon
presentation by the Appointee or documentation, expense statements, vouchers
<PAGE> 10.24.003
and/or such other supporting information as the Corporation may request.
4. Term. Employment Agreement shall be effective July 13, 1994 and
shall continue until terminated as provided herein. Either party shall have
the right to terminate this Agreement by giving the other party written notice
of such termination, at least thirty (30) days prior to the effective date of
such termination.
5. Business and Financial Records. All business and financial
records at the Corporation pertaining to the corporation's products,
customers agents, brokers and sources of business shall at all times be the
property of the corporation.
6. Confidentiality Requirement. All written or otherwise communicated
material, data, computer programs or other property tangible or intangible
relating to the corporation's business or the corporation's products,
customers, agents, brokers and other sources or business and all
proprietary rights, including copyrights, trademarks and service marks
(hereinafter all of the above collectively "Information") shall at times the
property of the Corporation. Appointee shall forever keep confidential all
Information obtained during the course of Appointee's employment with the
Corporation and Appointee shall not directly or indirectly for Appointee or
with others use or disclose such Information for purposes other than the
performance of Appointee's duties hereunder, without the prior written
consent of the Corporation.
<PAGE> 10.24.004
7. Contractual Obligations. The Corporation agrees that Appointee shall
not, unless authorized to do so by the Corporation, make, draw, accept or
endorse any contract, lease, promissory note, or other instrument requiring
the payment of money by the corporation, nor pledge the credit at the
Corporation.
8. Governing Law. This Agreement shall be interpreted in accordance
with, and the rights of the parties hereto shall be determined, by the laws of
the state of Florida.
9. Assignment. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators and permitted assigns. Notwithstanding the foregoing, this
Agreement is a personal service contract by appointment, and shall not be
assigned or transferred, in whole or in part, by Appointee.
10. Severability. If any provision of this Agreement is held invalid
or unenforceable such invalidity or unenforceability shall not affect the
validity or enforceability of the other provision hereof all of which are
hereby declared severable.
11. Headings. The headings used in this Agreement are solely for
convenience of reference and shall not affect its interpretation .
12. Modifications and Amendments. This Agreement represents the entire
understanding between the parties with respect to the subject matter set forth
herein or necessarily implied hereby. This Agreement may not be modified
unless in writing signed by the party against whom enforcement at any waiver,
change, modification or discharged is sought.
<PAGE> 10.24.005
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
INVESTORS INSURANCE GROUP, INC.
Attest: By:
Susan Powell Melvin C. Parker
Assistant Secretary President
Ronald W. Hayes, Appointee
Witness
<PAGE> 10.25.001
TERMINATION OF EMPLOYMENT AGREEMENT
This Termination Agreement made effective the 15th day of March, 1996 by
and between INVESTORS INSURANCE GROUP, INC., a corporation organized and
existing under the laws of the State of Florida with its executive office in
Boca Raton, Florida (hereinafter referred to as "Corporation") and RONALD W.
HAYES (hereinafter referred to as "Appointee").
WHEREAS, the Corporation and Appointee entered into an Employment
Agreement dated July 1, 1994 (the "Agreement") whereby Appointee was employed
as Chairman of the Board of Directors of the Corporation;
WHEREAS, The Agreement permits either party to terminate the Agreement
with thirty (30) days written notice, and which notice has been waived by
both parties;
WHEREAS, the Corporation no longer desires to employ the Appointee as
Chairman of the Board; and
WHEREAS, the Appointee no longer desires to serve as Chairman of the
Board.
NOW, THEREFORE, in consideration of the promises and covenants herein
set forth, the parties hereto, intending to be legally bound hereby, agree
as follows:
1. Termination of Agreement. The Employment Agreement, dated July 1,
1994 shall be terminated effective at 12:00 midnight on March 15,
1996.
2. Resignation. Appointee shall tender his resignation as Chairman
of the Board of Directors of Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
Attest: INVESTORS INSURANCE GROUP, INC.
/s/ Susan F. Powell /s/ Melvin C. Parker
- --------------------------- -----------------------------
Susan F. Powell, Secretary Melvin C. Parker, President
/s/ /s/ Ronald W. Hayes
- --------------------------- ----------------------------
Witness Ronald W. Hayes, Appointee
<PAGE> 10.26.001
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective the 1st day of
July, 1993, between Investors Insurance Corporation, a Delaware corporation
with its principal executive offices at 3030 Hartley Road, Suite 390,
Jacksonville, Florida 32257, (the "Company"), and Melvin C. Parker, residing
at 6443 Via Rosa Road, Boca Raton, Florida ("Employee") superseding and
terminating all prior written and oral Employment Agreements between Company
and Employee.
INTRODUCTION
The Company desires to continue to employ Employee, and Employee desires
to continue to be employed by the Company. In consideration of the mutual
covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Term of Employment. The Company hereby continues to employ Employee
and Employee hereby accepts the continuation of Employee's employment
with the Company upon the terms set forth in this Agreement for a
period commencing on July 1, 1993 and continuing until terminated
as provided herein, in accordance with the provisions of Section 4.
2. Title Capacity. Employee shall serve as President and Chief
Executive Officer of the Company and shall have such authority as
is delegated to Employee by the Board of Directors.
Employee hereby accepts the continuation of Employee's employment
and agrees to undertake the duties and responsibilities inherent in
Employee's position and such other duties and responsibilities as
<PAGE> 10.26.002
the Board of Directors shall from time to time reasonably assign
to Employee. Employee agrees to devote Employee's entire business
time to the business and interest of the Company, the parent of
Company and those companies affiliated with either during the
Employment Period and Employee agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the
Company and any changes therein which may be adopted from time to
time by the Company.
3. Compensation and Benefits.
3.1 Salary. The Company's parent, Investors Insurance Group, Inc.
(formerly Gemco National, Inc.), shall pay Employee an annual
salary of $208,000.00, payable in equal installments every two
weeks, commencing on July 1, 1993 for services performed for
and on behalf of the Company, the Company's parent and its
subsidiaries and related companies. No compensation hereunder
shall be paid to Employee if Employee exceeds the number of
days of vacation leave and/or sick and disability leave which
Employee is the entitled to receive. Such salary shall be
increased by such amounts as the Board of Directors shall, in its
absolute discretion, deem appropriate.
3.2 Incentive Compensation. An amount equal to ten (10%) percent
of the net marketing commissions paid by the Company to the
Company's parent, Investors Insurance Group, Inc. (formerly
Gemco National, Inc.). Net marketing commissions represent
commissions paid by the Company to the Company's parent for
marketing services, pursuant to any present or future marketing
agreement, oral or written, existing between the Company and
<PAGE> 10.26.003
Company's Parent, less air expenses incurred by the Company's
Parent related to such marketing services. No compensation
hereunder will be paid to Employee if Employee exceeds the
number of days of vacation leave and/or sick and disability
leave which Employee is then entitled to receive.
3.3 Fringe Benefits. Employee shall be entitled to participate in
all benefit programs that the Company or its parent establishes
and makes available to their employees generally, if any, to
the extent that Employee's position, tenure, salary, age,
health and other qualifications make Employee eligible to
participate. The Employee shall be entitled to paid vacation
each year in accordance with Company policy, to be taken at
such times as may be approved by the Board of Directors or its
designee. The Employee shall be entitled to paid sick and
disability leave in accordance with Company policy.
3.4 Reimbursement of Expenses. The Company shall reimburse
Employee for all reasonable travel, entertainment and other
expenses incurred or paid by Employee in connection with, or
related to, the performance of Employee's duties,
responsibilities or services under this Agreement, upon
presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting information
as the Company may request.
4. Employment Termination. The employment of Employee by the
Company pursuant to this Agreement shall terminate upon the
occurrence of any of the following:
4.1 Written notice by either Employer or Employee, sixty (60)
days prior to anticipated date of departure.
<PAGE> 10.26.004
4.2 At the election of the Company, for cause, immediately upon
written notice from the Company to the Employee. For the
purposes of this Section 4.2, cause for termination shall
be deemed to include only (a) acts of dishonesty, (b) acts
involving moral turpitude, (c) drug or alcohol abuse if
Employee fails to seek appropriate counseling or fails to
complete a prescribed counseling program, (d) malfeasance
in office and (e) material failure of Employee to comply
with the terms of this Agreement;
4.3 Thirty (30) days after the disability of the Employee. As
used in this Agreement, the term "Disability" shall mean
the inability of the Employee, due to a physical or mental
disability, for a period of ninety (90) days, whether or
not consecutive, during any twelve (12) month period to
perform the services required of Employee pursuant to this
Agreement. A determination of disability shall be made by
a physician satisfactory to both Employee and the Company,
provided that, if Employee and the Company do not agree on a
physician, Employee and the Company shall each select a
physician and these two together shall select a third
physician, whose determination as to disability shall be
binding on all parties.
5. Effect of Termination.
5.1 Termination for Cause. In the event that Employee's
employment is terminated for cause pursuant to Section 4.2,
the Company shall pay Employee the compensation and benefits
otherwise payable to Employee under Section 3.1 through the
last day of Employee's actual employment hereunder.
<PAGE> 10.26.005
5.2 Termination for Disability. If Employee's employment is
terminated by disability pursuant to Section 4.3, the
Company shall pay to the Employee, the compensation due
the Employee up to the date Employee ceased performing
services for Company plus the number of sick days Employee
is then entitled to receive.
5.3 Termination for Death. If Employee's employment is
terminated by death, the Company shall pay the estate of
Employee, the compensation which would otherwise be payable
to Employee up to the date of Employee's death if Employee
is then receiving compensation from the Company.
6. Non-Competition.
6.1 Employee agrees that, during the Employment Period and for
a period of time equal to the duration of Employee's
employment with the Company, but in no instance to exceed
two (2) years after the termination of the Employment
Period for any reason
(a) Employee will not directly or indirectly, as an employee
of any person or entity (whether or not engaged in
business for profit, or as an individual, proprietor,
partner, stockholder, officer, director, joint venturer,
investor, lender or in any other capacity whatsoever
(otherwise than as the holder of a non-controlling
investment in any publicly traded securities), compete
with the business of the Company, Company's parent or
any of their subsidiaries or affiliated companies;
(b) Employee will not recruit or solicit any employee of
the Company, Company's parent or their subsidiaries and
affiliated companies or otherwise induce any employee
<PAGE> 10.26.006
to leave the employment of the Company, Company's parent
or their subsidiaries and affiliated companies to become
an employee of or otherwise become associated with
Employee or any firm, corporation, business or
institution with which Employee is or may become
associated; and
(c) Employee will not solicit or divert the business or
patronage of any of the customers or accounts of the
Company, Company's parent or their subsidiaries and
affiliated companies or prospective customers or
accounts of the aforementioned, which were contracted,
solicited or served by the Employee while Employee was
employed by the Company.
As used in this Agreement, "compete" or "competition",
or any variation thereof, means the Employee's
engagement or participation in, or furnishing of aid or
assistance in connection with, the distribution, sale,
marketing or rendering of products or services of the
type or kind distributed, sold, marketed or rendered
by the Company, Company's parent or any of their
subsidiaries or affiliated companies at the termination
of the Employment Period, including those products or
services that the Company, Company's parent or any of
their subsidiaries or affiliated companies, as the case
may be, was in the process of developing or designing
for distribution, sale, marketing or rendering at such
time.
6.2 The parties to this Agreement consider the restrictions
contained herein reasonable. If, however, such restrictions
<PAGE> 10.26.007
are found by any court having jurisdiction to be unreasonable
because they are (or one of them is, as the case may be)
overly broad, then such restriction(s) will nevertheless
remain effective, but shall be considered amended in
whatever manner is considered reasonable by that court,
and as so amended shall be enforced.
6.3 If there is any breach by the Employee of any of the
covenants contained in this Section 6., the damage to the
Company, Company's parent or their subsidiaries or
affiliated companies will be substantial, although difficult
to ascertain, and money damages will not afford the injured
party an adequate remedy. Therefore, if any breach occurs,
in addition to such other remedies as may be provided by
law, the Company, the Company's parent or subsidiaries or
affiliated companies, as the case may be, has the right to
specific performance of the covenants of the Employee
contained in this Agreement by way of temporary or permanent
injunctive relief.
7. Non-Disclosure. Employee agrees not to disclose to any third
party, or to use for Employee's own benefit or for the benefit
of any third party, any trade secrets or confidential or other
proprietary information relating to the products, services,
markets, customers, suppliers or current or planned business
operations of the Company, Company's parent, their subsidiaries
and affiliated companies without the Company's prior written
consent. Employee further agrees that all documents, notes,
letters, records, models, prototypes, computer programs and other
tangible and intangible evidence of such trade secrets or
confidential or other proprietary information are the sole and
<PAGE> 10.26.008
exclusive property of the Company, Company's parent, their
subsidiaries and affiliated companies; that Employee shall
surrender all such evidence in Employee's possession or control to
the Company upon the termination of the Employment Period or at any
other time upon request and that Employee shall not retain or use
any copies or summaries thereof.
8. Inventions, Improvements, Copyrights, Ideas and Similar Creative
Property.
Employee agrees that any inventions, improvements or ideas which
Employee may make or conceive, and any copyrightable subject matter
of which Employee may be the author, either solely or jointly with
others, which Employee makes, conceives, or authors during the
period of Employee's employment with the Company,shall be the
property of the Company, Company's parent, a subsidiary or
affiliated company, as the case may be, and that Employee will
promptly disclose all such inventions, improvements, ideas and
material to the Company, Company's parent, subsidiary or affiliate,
as the case may be, and that on request, Employee will execute all
applications, assignments, and other papers necessary to enable the
Company, Company's parent, subsidiary or affiliate to obtain full
protection and title in all countries to such inventions,
improvements, ideas and matter.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, postage
prepaid, by registered mail return receipt requested, or when
delivered by a nationally recognized overnight delivery service
issuing a receipt, addressed to the other party at the address
shown above, or at such other address or addresses as either party
<PAGE> 10.26.009
shall designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine
or neuter forms, and the singular forms of nouns and pronouns
shall include the plural, and vice versa.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject
matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
13. Governing law. This Agreement shall be construed, interpreted
and enforced In accordance with the laws of the State of Florida.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective
successors and assigns, including any corporation with which or
into which the Company may be merged or which may succeed to its
assets or business, provided however, that the obligations of
the Employee are personal and shall not be assigned by Employee.
15. Miscellaneous.
15.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by the Company
on any one occasion shall be effective only in that instance
and shall not be construed as a bar or waiver of any right on
any other occasion.
15.2 The captions of the Sections of this Agreement are for
convenience of reference only and in no way define, limit
or affect the scope or substance of any Section of this
Agreement.
<PAGE> 10.26.010
15.3 In the case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality
and enforceability of the remaining provisions shall in no
way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
INVESTORS INSURANCE CORPORATION
ATTEST
/s/ Susan F. Powell By: /s/ Ronald W. Hayes
- ------------------------- ---------------------
Susan F Powell, Secretary Ronald W. Hayes
Chairman of the Board
Witness:
/s/ Glenn Thigpen EMPLOYEE:
- ----------------------- /s/ Melvin C Parker
Glenn Thigpen --------------------
Melvin C. Parker
<PAGE> 10.27.001
112594
DEFERRED COMPENSATION PLAN
AGREEMENT made effective this 12th day of December, 1994
between INVESTORS INSURANCE GROUP, INC., a corporation organized and
existing under the laws of the State of Florida (hereinafter called the
"Company"), and MELVIN C. PARKER (hereinafter called the "Employee").
WHEREAS, Employee has provided services for and on behalf
of the Company for many years, has served as an officer and director of the
Company and has performed such duties in a capable and efficient manner,
resulting in substantial growth of the Company; and
WHEREAS, the Company desires to retain the services
performed by Employee, and
WHEREAS, the Employee desires to remain in the employ of
the Company, provided that Company agrees to pay Employee, or his
beneficiary, certain amounts all in accordance with the terms and
conditions hereinafter set forth.
NOW THEREFORE in consideration of the foregoing and in
consideration of the mutual promises contained herein, and intending to be
legally bound, the parties agree as follows:
1. Continuation of Employment. Employee shall continue
in the employ of the Company, upon the same terms as heretofore, until his
death, retirement or disability.
2. Definitions. For purposes of this Agreement the
following terms shall have the meaning set forth below, unless their
context clearly indicates to the contrary.
(a) Retirement. Employee shall be considered in
retirement at such time as he ceases to perform services for Company and he
has attained age 60.
(b) Disability. Disability means inability of Employee
to perform the substantial and material duties as an Employee of Company
for a period exceeding six (6) months in any twelve (12) consecutive month
period.
3. Payments Upon Retirement. Disability or Death.
(a) Upon Employee's retirement, disability or death,
the Company shall pay to the Employee, if living, otherwise to the
<PAGE> 10.27.002
Employee's designated beneficiary such amount then existing in the Trust
Account established pursuant to the Trust, attached hereto and made a part
hereof as Exhibit "A".
(b) On December 1st each year, the Company shall set aside for
Employee Eight Thousand Five Hundred ($8,500.00) Dollars in the Trust. The
Trustee shall invest the Trust funds at the direction of Employee.
(c) The amounts held in Trust pursuant to Section 3(a) shall be
paid in full to Employee or his named beneficiary within thirty (30) days
of Employee's death, disability or retirement.
4. No Interest in Fund by Employee. Neither the Employee nor any
beneficiary of the Employee shall have any interest in accrued sums which
are so segregated in Trust and such funds shall at all times remain assets
of the Company subject to the claims of its general creditors.
5. Assignment. Neither Employee, his beneficiaries or their
estates shall have any right to commute, encumber, or dispose of the right
to receive payments hereunder. Except as expressly permitted hereunder, the
payments and the right thereto are expressly declared to be non-assignable
and non-transferable.
6. Reorganization. The Company shall not merge or consolidate
with any other corporation until such corporation expressly assumes this
contract and becomes obligated to perform all of the duties of the Company
herein set forth.
7. Waiver. The failure of either party to insist, in any one
or more instances, upon performance of any of the terms and conditions of
this Agreement shall not be construed as a waiver or relinquishment of any
right granted hereunder or of the future performance of any such term,
covenant or condition, but the obligations of either party with respect
thereto shall continue in full force and effect.
8. Modification. This Agreement contains the entire
understanding between the parties with respect to the subject matter set
forth herein or necessarily implied hereby. The Agreement may not be
modified unless in writing signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
9. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Florida.
2
<PAGE> 10.27.003
10. Benefit. This Agreement shall be binding upon the
parties hereto, their heirs, executors, administrators, or successors.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date and year first above written.
INVESTORS INSURANCE GROUP, INC.. ATTEST:
By:_______________________
Ernest D. Palmarella, Susan F. Powell,
Vice President Assistant Secretary
Witness Melvin C. Parker, Employee
3
<PAGE> 10.27.004
Exhibit "A"
TRUST UNDER DEFERRED COMPENSATION PLAN
This Agreement made this 12th day of December, 1994 by and between
INVESTORS INSURANCE GROUP, INC. ("Company") and JACK L. HOWARD and RONALD
W. HAYES ("Trustees ").
WHEREAS , Company has adopted a Deferred Compensation Plan
(hereinafter referred to as the "Plan") for its President, Melvin C. Parker
(hereinafter referred to as "Employee").
WHEREAS , Company wishes to establish a trust (hereinafter referred
to as "Trust") and to contribute to the Trust assets that shall be held
therein, subject to the claims of Company's creditors in the event of
Company's Insolvency, as herein defined, until paid to Employee or his
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS , it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan as an unfunded plan maintained for the purpose of providing pension
benefits for a select group of management or highly compensated
employees for purpose of Title I of the Employee Retirement Income Security
Act of 1974;
WHEREAS , it is the intention of Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the
meeting of liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised , held and disposed of as follows:
Section 1. Establishment or Trust
(a) Company hereby deposits with Trustee in an amount equal to
the sum of eight thousand five hundred ($8,500.00) dollars, which shall
become the principal of the Trust to be held, administered and disposed of
by Trustee as provided in this Trust Agreement. On December 1st of each
year commencing December 1, 1994, Company shall deposit with Trustee
the aforementioned sum subject to the termination provisions of the Plan.
(b) The Trust hereby established shall be revocable by Company.
(c) The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart B, part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended,
and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereof shall
be held separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of the Plan and general creditors as
<PAGE> 10.27.005
herein set forth. Employee shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Employee and his beneficiaries against Company. Any
assets held by the Trust will be subject to the claims of Company's general
creditors under federal and state law in the event of Insolvency, as
defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other properly in trust
with Trustees to augment the principal to be held, administered and
disposed of by Trustees as provided in this Trust Agreement. Neither
Trustees nor Employee or his beneficiaries shall have any right to compel
such additional deposits.
Section 2. Payments to Employee and his Beneficiaries.
(a) Trustees shall make payments to the Employee or his
beneficiaries in accordance with the Plan. The Trustees shall make
provision for the reporting and withholding of any federal, state or local
taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plan and shall pay amounts withheld
to the appropriate taxing authorities or determine that such amounts have
been reported, withheld and paid by Company.
(b) The entitlement of Employee or his beneficiaries to
benefits under the Plan shall be determined by Company or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) Company may make payment of benefits directly to Employee
or his beneficiaries as they become due under the terms of the Plan.
Company shall notify Trustees of its decision to make payment of benefits
directly prior to the time amounts are payable to Employee or his
beneficiaries. In addition if the principal of the Trust, and any earnings
thereon, are not sufficient to make payment as it falls due, the Trustees
shall notify Company that principal and earnings are not sufficient.
Section 3. Trustees Responsibility Regarding Payments to Trust
Beneficiary when Company is Insolvent.
(a) Trustees shall cease payment of benefits to Employee or his
beneficiaries if the Company is Insolvent. Company shall be considered
"insolvent" for purposes of this Trust-Agreement if (i) Company is unable
to pay its debts as they become due, or (ii) Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At the time during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust
shall be subject to the claims of general creditors of Company under
federal and state law as set forth below.
2
<PAGE> 10.27.006
(1) The Board of Directors of Company shall have the duty to
inform Trustees in writing of Company's insolvency. If a person claiming to
be a creditor of Company alleges in writing to Trustees that Company has
become insolvent, Trustees shall determine whether Company is Insolvent
and, pending such determination, Trustees shall discontinue payment of
benefits to Plan Participants or his beneficiaries.
(2) Unless Trustees have actual knowledge of Company's
insolvency, or have received notice from Company or a person claiming to be
a creditor alleging that Company is Insolvent, Trustees shall have no duty
to inquire whether Company's solvency as may be furnished to Trustees and
that provide Trustees with a reasonable basis for making a determination
concerning Company's solvency.
(3) If at any time Trustees have determined that Company is
Insolvent, Trustees shall discontinue payments to Employee or his
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Employee or his beneficiaries to pursue their
rights as general creditors of Company with respect to benefits due under
the Plan or otherwise.
(4) Trustees shall resume the payment of benefits to Employee
or his beneficiaries in accordance with Section 2 of this Trust Agreement
only after Trustees has determined that Company is not Insolvent (or is no
longer insolvent).
(c) Provided that there are sufficient assets, if Trustees
discontinue the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resume such payments, the first payment following
such discontinuance shall include the aggregate amount of all payments due
to Employee or his beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to
Employee or his beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.
Section 4. Investment Authority.
Trustees will invest in securities (including stock or rights to
acquire stock) or obligations issued by Company. All rights associated with
assets of the Trust shall be exercised by Trustees of the person designated
by Trustees at the written direction of Employee or his beneficiaries.
Section 5. Disposition of Income.
During the term of this Trust, all income received by the Trust,
net of taxes, if any, shall be accumulated and reinvested.
3
<PAGE> 10.27.007
Section 6. Accounting by Trustees.
Trustees shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required
to be made including such specific records as shall be agreed upon in
writing between Company and Trustees. Within thirty (30) days following the
close of each calendar year and within thirty (30) days after the removal
or resignation of Trustees, Trustees shall deliver to Company a written
account of their administration of the Trust during such year or during the
period from the close of the last preceding year to the date of such
removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the
cost or net proceeds of such purchases or sales (accrued interest paid or
receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date
of such removal or resignation, as the case may be.
Section 7. Responsibility of Trustees.
(a) Trustees shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person
acting in like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims, provided,
however, that Trustees shall incur no liability to any person for any
action taken pursuant to a direction, request or approval given by Employee
which is contemplated by, and in conformity with, the terms of the Plan or
this Trust and is given in writing by Employee. In the event of a dispute
between Company and any other party, Trustees may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If Trustees undertake or defend any litigation arising in
connection with this Trust, Company agrees to indemnify Trustees against
Trustees' costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable
for such payments. If Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, Trustees may obtain payment from
the Trust.
(c) Trustees may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or
obligations hereunder.
(d) Trustees may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to assist
them in performing any of their duties or obligations hereunder.
(e) Trustees shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance policy is held as
an asset of the Trust, Trustee shall have no power to name a beneficiary of
the policy other than the Trust, to assign the policy (as distinct from
<PAGE> 10.27.008
conversion of the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any borrowing against
such policy.
(f) However, notwithstanding the provisions of Section 7(e)
above, Trustees may loan to Company the proceeds of any borrowing against
an insurance policy held as an asset of the Trust.
(g) Notwithstanding any powers granted to Trustees pursuant to
this Trust Agreement or to applicable law, Trustees shall not have any
power that could give this Trust the objective of carrying on a business
and dividing the gains therefrom, within the meaning of section
301.7701-2 of the Procedure and Administrative Regulations promulgated
pursuant to the Internal Revenue Code.
Section 8. Compensation and Expenses of Trustees.
Company shall pay all administrative fees and expenses. If not so
paid, the fees and expenses shall be paid from the Trust. Trustees shall
serve hereunder without compensation.
Section 9. Resignation and Removal of Trustees.
(a) Trustees may resign at any time by written notice to
Company, which shall be effective ten (10) days after receipt of such
notice unless Company and Trustees agree otherwise.
(b) Trustees may be removed by Company on thirty (30) days
notice or upon shorter notice accepted by Trustees.
(c) Upon resignation or removal of a Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred to the
remaining Trustee, if any, and the successor Trustee(s). The transfer shall
be completed within sixty (60) days after receipt of notice of resignation,
removal or transfer, unless Company extends the time limit.
(d) If a Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 10, hereof, by the effective date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no
such appointment has been made, Trustees may apply to a court of
competent jurisdiction for appointment of a successor or for instructions.
All expenses of Trustees in connection with the proceeding shall be allowed
as administrative expenses of the Trust.
Section 10. Appointment of Successor.
(a) If a Trustee resigns or is removed in accordance with
Section 9(a) or (b) hereof, Company may appoint any third party, as a
successor to replace Trustee upon resignation or removal. The appointment
shall be effective when accepted in writing by the new Trustee, who
5
<PAGE> 10.27.009
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor
Trustee to evidence the transfer.
(b) If a Trustee resigns or is removed pursuant to the provisions
of Section 9(e) hereof and selects a successor Trustee, Trustee may appoint
any third party such as a bank trust department or other party that may be
granted corporate trustee powers under state law. The appointment of a
successor Trustee shall be effective when accepted in writing by the new
Trustee. The new Trustee shall have all the rights and powers of the former
Trustee, including ownership fights in Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the
successor Trustee to evidence the transfer.
(c) The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at the time it becomes
successor Trustee.
Section 11. Amendment or Termination.
(a) This Trust may be amended by a written instrument executed
by Trustees and Company.
(b) The Trust shall not terminate until the date on which
Employee and his beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan, unless sooner revoked in accordance with Section
1(b) hereof. Upon termination of the Trust any assets remaining in the
Trust shall be returned to Company.
(c) Upon written approval of Employee or beneficiaries entitled
to payment of benefits pursuant to the terms of the Plan, Company may
terminate this Trust prior to the time all benefit payments under the Plan
have been made. All assets in the Trust at termination shall be retired to
Company.
Section 12. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law
shall be effective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to Employee and his beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
6
<PAGE> 10.27.010
Section 13. Effective Date.
The effective date of this Trust Agreement shall be December 12,
1994.
IN WITNESS WHEREOF, the parties hereto have executed this Trust
Agreement the day and year first above written.
INVESTORS INSURANCE GROUP, INC. ATTEST:
By: ___________________________
Ernest D. Palmarella, Susan F. Powell,
Vice President Assistant Secretary
Jack L. Howard, Trustee
Ronald W. Hayes, Trustee
<PAGE> 10.28.001
April 19, 1996
Mr. Melvin C. Parker
Investors Insurance Group, Inc.
7200 West Camino Real
Boca Raton, FL 33433
Dear Mr. Parker:
The purpose of this letter is to inform you that the Board of
Directors of Investors Insurance Group, Inc. (the "Company"), have resolved
to grant you monthly compensation in the amount of two thousand five
hundred ($2,500.00) dollars for serving in the position of Chairman of the
Board of the Company.
This Commitment on the part of the Company shall be effective as of
March 15, 1996 and shall continue in effect until the next annual meeting
of the Board of Directors or until your earlier resignation or removal as
acting Chairman of the Board. Monthly payments in the gross amount of
$2,500 shall be made payable to you commencing retroactively as of March 1,
1996.
If this Commitment is acceptable to you, please not your acceptance
by signing below and returning your executed acceptance to the Company.
ATTEST: INVESTORS INSURANCE GROUP, INC.
/s/ Susan F. Powell By: /s/ Donald F. U. Goebert,
- -------------------- -----------------------------
Susan F. Powell Donald F. U. Goebert,
Vice President
AGREED AND ACCEPTED this 19 day of April, 1996.
/s/ Melvin C. Parker
- --------------------- ------------------------
Melvin C. Parker
<PAGE> 10.29.001
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective the 1st day of
July ,1993, between Investors Insurance Corporation, a Delaware corporation
with its principal executive offices at 3030 Hartley Road, Suite 390,
Jacksonville, Florida 32257, (the "Company"), and Susan F. Powell, residing
at 2957 Magnolia Road South, Orange Park, Florida 32065 ("Employee")
superseding and terminating all prior written and oral Employment Agreements
between Company and Employee.
INTRODUCTION
The Company desires to continue to employ Employee, and Employee desires
to continue to be employed by the Company. In consideration of the mutual
covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged
by the parties hereto, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Term of Employment. The Company hereby continues to employ
Employee and Employee hereby accepts the continuation of
Employee's employment with the Company upon the terms set forth
in this Agreement for a period commencing on July 1, 1993 and
continuing until terminated as provided herein, in accordance
with the provisions of Section 4.
2. Title Capacity. Employee shall serve as Executive Vice
President, Secretary and Chief Operating Officer of the Company
and shall have such authority as is delegated to Employee by the
Board of Directors.
Employee hereby accepts the continuation of Employee's
employment and agrees to undertake the duties and
<PAGE> 10.29.002
responsibilities inherent in Employee's position and such other
duties and responsibilities as the Board of Directors shall
from time to time reasonably assign to Employee. Employee agrees
to devote Employee's entire business time to the business and
interest of the Company, the parent of Company and those
companies affiliated with either during the Employment Period
and Employee agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company
and any changes therein which may be adopted from time to time
by the Company.
3. Compensation and Benefits.
3.1 Salary. The Company's parent, Investors Insurance Group,
Inc. (formerly Gemco National, Inc.), shall pay Employee
an annual salary of $114,400.00, payable in equal
installments every two weeks, commencing on July 1, 1993
for services performed for and on behalf of the Company,
the Company's parent and its subsidiaries and related
companies. No compensation hereunder shall be paid to
Employee if Employee exceeds the number of days of vacation
leave and/or sick and disability leave which Employee is
the entitled to receive. Such salary shall be increased by
such amounts as the Board of Directors shall, in its
absolute discretion, deem appropriate.
3.2 Incentive Compensation. An amount equal to three (3%)
percent of the net marketing commissions paid by the Company
to the Company's parent, Investors Insurance Group, Inc.
(formerly Gemco National, Inc.). Net marketing commissions
represent commissions paid by the Company to the Company's
parent for marketing services, pursuant to any present or
<PAGE> 10.29.003
future marketing agreement, oral or written, existing
between the Company and Company's Parent, less all expenses
incurred by the Company's Parent related to such marketing
services. No compensation hereunder will be paid to
Employee if Employee exceeds the number of days of vacation
leave and/or sick and disability leave which Employee is
then entitled to receive.
3.3 Fringe Benefits. Employee shall be entitled to participate
in all benefit programs that the Company or its parent
establishes and makes available to their employees
generally, if any, to the extent that Employee's position,
tenure, salary, age, health and other qualifications make
Employee eligible to participate. The Employee shall be
entitled to paid vacation each year in accordance with
Company policy, to be taken at such times as may be
approved by the Board of Directors or its designee. The
Employee shall be entitled to paid sick and disability
leave in accordance with Company policy.
3.4 Reimbursement of Expenses. The Company shall reimburse
Employee for all reasonable travel, entertainment and other
expenses incurred or paid by Employee in connection with,
or related to, the performance of Employee's duties,
responsibilities or services under this Agreement, upon
presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting
information as the Company may request.
4. Employment Termination. The employment of Employee by the
Company pursuant to this Agreement shall terminate upon the
occurrence of any of the following:
<PAGE> 10.29.004
4.1 Written notice by either Employer or Employee, sixty (60)
days prior to anticipated date of departure.
4.2 At the election of the Company, for cause, immediately
upon written notice from the Company to the Employee. For
the purposes of this Section 4.2, cause for termination
shall be deemed to include only (a) acts of dishonesty, (b)
acts involving moral turpitude, (c) drug or alcohol abuse
if Employee fails to seek appropriate counseling or fails
to complete a prescribed counseling program, (d) malfeasance
in office and (e) material failure of Employee to comply
with the terms of this Agreement;
4.3 Thirty (30) days after the disability of the Employee. As
used in this Agreement, the term "Disability" shall mean
the inability of the Employee, due to a physical or mental
disability, for a period of ninety (90) days, whether or not
consecutive, during any twelve (12) month period to perform
the services required of Employee pursuant to this
Agreement. A determination of disability shall be made
by a physician satisfactory to both Employee and the
Company, provided that if Employee and the Company do not
agree on a physician, Employee and the Company shall each
select a physician and these two together shall select a
third physician, whose determination as to disability shall
be binding on all parties.
5. Effect of Termination.
5.1 Termination for Cause. In the event that Employee's
employment is terminated for cause pursuant to Section 4.2,
the Company shall pay Employee the compensation and
<PAGE> 10.29.005
benefits otherwise payable to Employee under Section 3.1
through the last day of Employee's actual employment
hereunder.
5.2 Termination for Disability. If Employee's employment is
terminated by disability pursuant to Section 4.3, the
Company shall pay to the Employee, the compensation due the
Employee up to the date Employee ceased performing services
for Company plus the number of sick days Employee is then
entitled to receive.
5.3 Termination for Death. If Employee's employment is
terminated by death, the Company shall pay the estate of
Employee, the compensation which would otherwise be payable
to Employee up to the date of Employee's death if Employee
is then receiving compensation from the Company.
6. Non-Competition.
6.1 Employee agrees that, during the Employment Period and for
a period of time equal to the duration of Employee's
employment with the Company, but in no instance to exceed
two (2) years after the termination of the Employment
Period for any reason.
(a). Employee will not directly or indirectly, as an
employee of any person or entity (whether or not
engaged in business for profit), or as an individual,
proprietor, partner, stockholder, officer, director,
joint venturer, investor, lender or in any other
capacity whatsoever (otherwise than as the holder
of a non-controlling investment in any publicly traded
securities), compete with the business of the Company,
Company's parent or any of their subsidiaries or
<PAGE> 10.29.006
affiliated companies;
(b) Employee will not recruit or solicit any employee of
the Company, Company's parent or their subsidiaries
and affiliated companies or otherwise induce any
employee to leave the employment of the Company,
Company's parent or their subsidiaries and affiliated
companies to become an employee of or otherwise become
associated with Employee or any firm, corporation,
business or institution with which Employee is or may
become associated; and
(c) Employee will not solicit or divert the business or
patronage of any of the customers or accounts of the
Company, Company's parent or their subsidiaries and
affiliated companies or prospective customers or
accounts of the aforementioned, which were contracted,
solicited or served by the Employee while Employee was
employed by the Company.
As used in this Agreement, "compete" or "competition",
or any variation thereof, means the Employee's
engagement or participation in, or furnishing of aid
or assistance in connection with, the distribution,
sale, marketing or rendering of products or services
of the type or kind distributed, sold, marketed or
rendered by the Company, Company's parent or any of
their subsidiaries or affiliated companies at the
termination of the Employment Period, including those
products or services that the Company, Company's
parent or any of their subsidiaries or affiliated
companies, as the case may be, was in the process of
<PAGE> 10.29.007
developing or designing for distribution, sale,
marketing or rendering at such time.
6.2 The parties to this Agreement consider the restrictions
contained herein reasonable. If, however, such restrictions
are found by any court having jurisdiction to be
unreasonable because they are (or one of them is, as the
case may be) overly broad, then such restriction(s) will
nevertheless remain effective, but shall be considered
amended in whatever manner is considered reasonable by that
court, and as so amended shall be enforced.
6.3 If there is any breach by the Employee of any of the
covenants contained in this Section 6., the damage to the
Company, Company's parent or their subsidiaries or
affiliated companies will be substantial, although difficult
to ascertain, and money damages will not afford the injured
party an adequate remedy. Therefore, if any breach occurs,
in addition to such other remedies as may be provided by
law, the Company, the Company's parent or subsidiaries or
affiliated companies, as the case may be, has the right to
specific performance of the covenants of the Employee
contained in this Agreement by way of temporary or permanent
injunctive relief.
7. Non-Disclosure. Employee agrees not to disclose to any third
party, or to use for Employee's own benefit or for the benefit
of any third party, any trade secrets or confidential or other
proprietary information relating to the products, services,
markets, customers, suppliers or current or planned business
operations of the Company, Company's parent, their subsidiaries
and affiliated companies without the Company's prior written
<PAGE> 10.29.008
consent. Employee further agrees that all documents, notes,
letters, records, models, prototypes, computer programs and other
tangible and intangible evidence of such trade secrets or
confidential or other proprietary information are the sole and
exclusive property of the Company, Company's parent, their
subsidiaries and affiliated companies; that Employee shall
surrender all such evidence in Employee's possession or control
to the Company upon the termination of the Employment Period or
at any other time upon request and that Employee shall not
retain or use any copies or summaries thereof.
8. Inventions, Improvements, Copyrights, Ideas and Similar Creative
Property.
Employee agrees that any inventions, improvements or ideas which
Employee may make or conceive, and any copyrightable subject
matter of which Employee may be the author, either solely or
jointly with others, which Employee makes, conceives, or authors
during the period of Employee's employment with the Company,
shall be the property of the Company, Company's parent, a
subsidiary or affiliated company, as the case may be, and that
Employee will promptly disclose all such inventions,
improvements, ideas and material to the Company, Company's
parent, subsidiary or affiliate, as the case may be, and that
on request, Employee will execute all applications, assignments,
and other papers necessary to enable the Company, Company's
parent, subsidiary or affiliate to obtain full protection and
title in all countries to such inventions, improvements, ideas
and matter.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal
<PAGE> 10.29.009
delivery or upon deposit in the United States Post Office,
postage prepaid, by registered mail return receipt requested, or
when delivered by a nationally recognized overnight delivery
service issuing a receipt, addressed to the other party at the
address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with
this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns and
pronouns shall include the plural, and vice versa.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior
agreements and understandings, whether written or oral, relating
to the subject matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Florida.
14. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective
successors and assigns, including any corporation with which or
into which the Company may be merged or which may succeed to its
assets or business, provided however, that the obligations of
the Employee are personal and shall not be assigned by Employee.
15. Miscellaneous.
15.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by the Company
<PAGE> 10.29.010
on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver
of any fight on any other occasion.
15.2 The captions of the Sections of this Agreement are for
convenience of reference only and in no way define, limit
or affect the scope or substance of any Section of this
Agreement.
15.3 In the case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity,
legality and enforceability of the remaining provisions
shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
INVESTORS INSURANCE CORPORATION
ATTEST:
/s/ Richard T. Magsam By: /s/ Melvin C. Parker
- ---------------------------- ---------------------------
Richard T. Magsam Senior Melvin C. Parker, President
Vice President
Witness: EMPLOYEE:
/s/ Glenn Thigpen /s/ Susan F. Powell
- ------------------- -------------------------
Susan F. Powell
<PAGE> 10.30.001
090293
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective the 1st day of
July, 1993, between Investors Insurance Corporation, a Delaware corporation
with its principal executive offices at 3030 Hartley Road, Suite 390,
Jacksonville, Florida 32257, (the "Company"), and Richard T. Magsam, residing
at 11208 Chester Lake Road West, Jacksonville, Florida 32256 ("Employee")
superseding and terminating all prior written and oral Employment Agreements
between Company and Employee.
INTRODUCTION
The Company desires to continue to employ Employee, and Employee
desires to continue to be employed by the Company. In consideration of the
mutual covenants and promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the parties hereto, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Term of Employment. The Company hereby continues to employ
Employee and Employee hereby accepts the continuation of Employee's employment
with the Company upon the terms set forth in this Agreement or a period
commencing on July 1, 1993 and continuing until terminated as provided herein,
in accordance with the provisions of Section 4.
2. Title Capacity. Employee shall serve as Senior Vice President,
Treasurer and Chief Financial Officer of the Company and shall have such
authority as is delegated to Employee by the Board of Directors.
<PAGE> 10.30.002
Employee hereby accepts the continuation of Employee's employment and
agrees to undertake the duties and responsibilities inherent in Employee's
position and such other duties and responsibilities as the Board of Directors
shall from time to time reasonably assign to Employee. Employee agrees to
devote Employee's entire business time to the business and interest of the
Company, the parent of Company and those Companies affiliated with either
during the Employment Period and Employee agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the Company and
any changes therein which may be adopted from time to time by the Company.
3. Compensation and Benefits.
3. 1 Salary. The Company's parent, Investors Insurance Group, Inc.
(formerly Gemco National, Inc.), shall pay Employee an annual salary of
$80,000.00, payable in equal installments every two weeks, commencing on July
1, 1993 for services performed for and on behalf of the Company, the Company's
parent and its subsidiaries and related companies. No compensation hereunder
shall be paid to Employee if Employee exceeds the number of days of vacation
leave and/or sick and disability leave which Employee is the entitled to
receive. Such salary shall be increased by such amounts as the Board of
Directors shall, in its absolute discretion, deem appropriate.
3.2 Incentive Compensation. An amount equal to two and 1/2
(2.5%) percent of the net marketing commissions paid by the Company to the
Company's parent, Investors Insurance Group, Inc. (formerly Gemco National,
Inc.). Net marketing commissions represent commissions paid by the Company to
the Company's parent for marketing services, pursuant to any present or future
marketing agreement, oral or written, existing between the Company and
Company's Parent, less all expenses incurred by the Company's Parent related
to such marketing services. No compensation hereunder will be paid to Employee
if Employee exceeds the number of days of vacation leave and/or sick and
disability leave which Employee is then entitled to receive.
2
<PAGE> 10.30.003
3.3 Fringe Benefits. Employee shall be entitled to participate
in all benefit programs that the Company or its parent establishes and makes
available to their employees generally, if any, to the extent that Employee's
position, tenure, salary, age, health and other qualifications make Employee
eligible to participate. The Employee shall be entitled to paid vacation each
year in accordance with Company policy, to be taken at such times as may be
approved by the Board of Directors or its designee. The Employee shall be
entitled to paid sick and disability leave in accordance with Company policy.
3.4 Reimbursement of Expenses. The Company shall reimburse
Employee for all reasonable travel, entertainment and other expenses incurred
or paid by Employee in connection with, or related to, the performance of
Employee's duties, responsibilities or services under this Agreement, upon
presentation by the Employee of documentation, expense statements, vouchers
and/or such other supporting information as the Company may request.
4. Employment Termination. The employment of Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any
of the following:
4.1 Written notice by either Employer or Employee, sixty
(60) days prior to anticipated date of departure.
4.2 At the election of the Company, for cause, immediately
upon written notice from the Company to the Employee. For the purposes of this
Section 4.2, cause for termination shall be deemed to include only (a) acts of
dishonesty, (b) acts involving moral turpitude, (c) drug or alcohol abuse if
Employee fails to seek appropriate counseling or fails to complete a
prescribed counseling program, (d) malfeasance in office and (e) material
failure of Employee to comply with the terms of this Agreement;
3
<PAGE> 10.30.004
4.3 Thirty (30) days after the disability of the Employee. As used
in this Agreement, the term "Disability" shall mean the inability of the
Employee, due to a physical or mental disability, for a period of ninety (90)
days, whether or not consecutive, during any twelve (12) month period to
perform the services required of Employee pursuant to this Agreement. A
determination of disability shall be made by a physician satisfactory to both
Employee and the Company, provided that, if Employee and the Company do not
agree on a physician, Employee and the Company shall each select a physician
and these two together shall select a third physician, whose determination as
to disability shall be binding on all parties.
5. Effect of Termination.
5.1 Termination for Cause. In the event that Employee's
employment is terminated for cause pursuant to Section 4.2, the Company shall
pay Employee the compensation and benefits otherwise payable to Employee under
Section 3.1 through the last day of Employee's actual employment hereunder.
5.2 Termination for Disability. If Employee's employment
is terminated by disability pursuant to Section 4.3, the Company shall pay to
the Employee, the compensation due the Employee up to the date Employee ceased
performing services for Company plus the number of sick days Employee is then
entitled to receive.
5.3 Termination for Death. If Employee's employment is
terminated by death, the Company shall pay the estate of Employee, the
compensation which would otherwise be payable to Employee up to the date of
Employee's death if Employee is then receiving compensation from the Company.
4
<PAGE> 10.30.005
6. Non-Competition.
6.1 Employee agrees that, during the Employment Period and for a
period of time equal to the duration of Employee's employment with the
Company, but in no instance to exceed two (2) years after the termination of
the Employment Period for any reason -
(a) Employee Will not directly or indirectly, as an employee of
any person or entity (whether or not engaged in business for
profit), or as an individual, proprietor, partner,
stockholder, officer, director, joint venturer, investor,
lender or in any other capacity whatsoever (otherwise than as
the holder of a non-controlling investment in any publicly
traded securities), compete with the business of the Company,
Company's parent or any of their subsidiaries or affiliated
companies;
(b) Employee will not recruit or solicit any employee of the
Company, Company's parent or their subsidiaries and affiliated
companies or otherwise induce any employee to leave the
employment of the Company, Company's parent or their
subsidiaries and affiliated companies to become an employee of
or otherwise become associated with Employee or any firm,
corporation, business or institution with which Employee is or
may become associated; and
(c) Employee will not solicit or divert the business or patronage
of any of the customers or accounts of the Company, Company's
parent or their subsidiaries and affiliated companies or
prospective customers or accounts of the aforementioned, which
were contracted, solicited or served by the Employee while
Employee was employed by the Company.
5
<PAGE> 10.30.006
As used in this Agreement, "compete" or "competition", or any
variation thereof, means the Employee's engagement or participation in, or
furnishing of aid or assistance in connection with, the distribution, sale,
marketing or rendering of products or services of the type or kind
distributed, sold, marketed or rendered by the Company, Company's parent or
any of their subsidiaries or affiliated companies at the termination of the
Employment Period, including those products or services that the Company,
Company's parent or any of their subsidiaries or affiliated companies, as the
case may be, was in the process of developing or designing for distribution,
sale, marketing or rendering at such time.
6.2 The parties to this Agreement consider the
restrictions contained herein reasonable. If, however, such restrictions are
found by any court having jurisdiction to be unreasonable because they are (or
one of them is, as the case may be) overly broad, then such restriction(s)
will nevertheless remain effective, but shall be considered amended in
whatever manner is considered reasonable by that court, and as so amended
shall be enforced.
6.3 If there is any breach by the Employee of any of the
covenants contained in this Section 6., the damage to the Company, Company's
parent or their subsidiaries or affiliated companies will be substantial,
although difficult to ascertain, and money damages will not afford the injured
party an adequate remedy. Therefore, if any breach occurs, in addition to such
other remedies as may be provided by law, the Company, the Company's parent or
subsidiaries or affiliated companies, as the case may be, has the right to
specific performance of the covenants of the Employee contained in this
Agreement by way of temporary or permanent injunctive relief.
6
<PAGE> 10.30.007
7. Non-Disclosure. Employee agrees not to disclose to any third
party, or to use for Employee's own benefit or for the benefit of any third
party, any trade secrets or confidential or other proprietary information
relating to the products, services, markets, customers, suppliers or current
or planned business operations of the Company, Company's parent, their
subsidiaries and affiliated companies without the Company's prior written
consent. Employee further agrees that all documents, notes, letters, records,
models, prototypes, computer programs and other tangible and intangible
evidence of such trade secrets or confidential or other proprietary
information are the sole and exclusive property of the Company, Company's
parent, their subsidiaries and affiliated companies; that Employee shall
surrender all such evidence in Employee's possession or control to the Company
upon the termination of the Employment Period or at any other time upon
request and that Employee shall not retain or use any copies or summaries
thereof.
8. Inventions. Improvements. Copyrights. Ideas and Similar
Creative Property. Employee agrees that any inventions, improvements or ideas
which Employee may make or conceive, and any copyrightable subject matter of
which Employee may be the author, either solely or jointly with others, which
Employee makes, conceives, or authors during the period of Employee's
employment with the Company, shall be the property of the Company, Company's
parent, a subsidiary or affiliated company, as the case may be, and that
Employee will promptly disclose all such inventions, improvements, ideas and
material to the Company, Company's parent, subsidiary or affiliate, as the
case may be, and that on request, Employee will execute all applications,
assignments, and other papers necessary to enable the Company, Company's
parent, subsidiary or affiliate to obtain full protection and title in all
countries to such inventions, improvements, ideas and matter.
7
<PAGE> 10.30.008
9. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, postage prepaid, by
registered mail return receipt requested, or when delivered by a nationally
recognized overnight delivery service issuing a receipt, addressed to the
other party at the address shown above, or at such other address or addresses
as either party shall designate to the other in accordance with this Section
10. Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular forms of nouns and pronouns shall include the
plural, and vice versa.
11. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of
this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Florida.
14. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of both parties and their respective successors
and assigns, including any corporation with which or into which the Company
may be merged or which may succeed to its assets or business, provided
however, that the obligations of the Employee are personal and shall not be
assigned by Employee.
8
<PAGE> 10.30.009
15. Miscellaneous.
15.1 No delay or omission by the Company in exercising any right
under this Agreement shall operate as a waiver of that or any other right. A
waiver or consent given by the Company on any one occasion shall be effective
only in that instance and shall not be construed as a bar or waiver of any
right on any other occasion.
15.2 The captions of the Sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope
or substance of any Section of this Agreement.
15.3 In the case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability
of the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
INVESTORS INSURANCE CORPORATION
ATTEST:
By:__________________________________
Susan F. Powell, Secretary Melvin C. Parker, President
Witness: EMPLOYEE:
Richard T. Magsam
9
<PAGE> 10.31.001
March 13, 1995
Mr. Melvin C. Parker
President and Chief Executive Officer
Investors Insurance Group, Inc.
7200 West Camino Real, Suite 203
Boca Raton, Florida 33433
Dear Mel:
Please accept this letter as notice of my resignation as Vice President,
Secretary and Treasurer of Investors Insurance Group, Inc. and as Senior
Vice President and Treasurer of IIC, Inc. and Investors Insurance
Corporation. The effective date of my resignations will be March 31, 1995.
I would like to take this opportunity to thank you and the Board of
Directors for the opportunity to serve the Investors Insurance operation
for the past three plus years. However, I believe it is time to broaden my
expertise outside the annuity area to enhance my future career potential.
I would like to wish you and the Company the best of luck in the current
endeavor to obtain some much needed capital. I am sure everything will come
together and that under your guidance, Investors Insurance will continue to
flourish in the expanding annuity marketplace.
Sincerely,
/s/ Richard T. Magsam
- ---------------------
Richard T. Magsam, CPA
<PAGE> 10.32.001
INDEMNITY AGREEMENT
AGREEMENT, dated June 10, 1994 between INVESTORS INSURANCE GROUP,
INC. (the "Corporation"), organized and incorporated under the laws of the
state of Florida and MELVIN C. PARKER ("Indemnitee") .
W I T N E S S E T H:
WHEREAS, the Corporation formed a new subsidiary corporation known
as Investors Marketing Group, Inc. (hereinafter referred to as "IMG") under
the laws of State of Florida;
WHEREAS, the corporation owns one hundred (100%) percent of
all common stock of IMG;
WHEREAS, the corporation has requested that IMG appoint Indemnitee
as a Director, President and Treasurer of IMG; and
WHEREAS, in order to induce Indemnitee to serve as director or
officer of IMG, the Corporation has determined that it is in best interest
to enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and in
consideration of the mutual promises contained herein, and intending
to be legally bound, the parties agree as follows:
FIRST: Indemnification. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee from and against any and all judgments,
fines, amounts paid in settlement and expenses, including attorneys'
fees, actually and reasonably, incurred as a
<PAGE> 10.32.002
result of or in connection with any threatened pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative or as a result of or in connection with any appeal therein,
(other than an action by or in the right of IMG and/or the Corporation
unless a court of competent jurisdiction approves the right to
indemnification), or is threatened to be made a party or as a result of
or by reason of the fact that Indemnitee is, was or at any time becomes a
director or officer of IMG, or is or was serving or at any time served
another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, in any capacity at the request of IMG or
Corporation, whether or not arising out of any breach of
Indemnitee's fiduciary duty, under any state or federal law or otherwise,
as a director or officer of IMG and/or as a director, officer, employee or
agent of such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. Indemnity, pursuant to this
Article FIRST, shall be paid by the corporation only to the extent the
aggregate of losses to be indemnified exceeds the amount of such losses for
which Indemnitee is actually paid from INC or pursuant to any insurance
purchased and maintained by the Corporation or IMG for the benefit of
Indemnitee. There shall be no indemnity hereunder if judgment or
other final adjudication establishes that the Indemnitee's act or
failure to act were material to the cause of action so adjudicated
and constitute: a violation of criminal law, unless the Indemnitee
had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful; a transaction
<PAGE> 10.32.003
from which the Indemnitee derived an improper personal benefit; in the case
where Indemnitee is a director, a circumstance under which the liability
provisions of subsection 607.0834 of the Florida Statutes are applicable;
wilful misconduct or a conscious disregard for the best interests of IMG in
a proceeding by or in the right of IMG to procure a judgment in its favor
or in a proceeding by or in the right of a shareholder; or a failure to act
in good faith and in a manner he reasonably believed to be not in or
opposed to the best interests of IMG and/or the Corporation. The
termination of any such civil or criminal action or proceeding by judgment
order settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create any presumption that Indemnitee acted in bad
faith or was dishonest. For purposes of this Agreement, (1) IMG and/or the
Corporation shall be deemed to have requested Indemnitee to serve in a
capacity with respect to an employee benefit plan where the performance by
Indemnitee of the duties to IMG and/or the corporation also imposes duties
on, or otherwise involves services by, Indemnitee to the plan or
participants or beneficiaries of the plan and (2) action taken or omitted
by Indemnitee with respect to an employee benefit plan in the performance
of Indemnitee's duties for a purpose reasonably believed by Indemnitee
to be either in the interest of IMG and/or the Corporation or in the
interest of the participants or beneficiaries of the plan shall not be
deemed to be in bad faith or dishonest.
SECOND: Continuation of Indemnity. All agreements and
<PAGE> 10.32.004
obligations of the Corporation contained herein shall continue during the
period Indemnitee shall serve as a director or officer of IMG and
thereafter so long as Indemnitee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding whether civil,
criminal or investigative, by reason of the fact that Indemnitee was a
director or officer of IMG or served at the request of IMG in any capacity
in any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise .
THIRD: Notification and Defense of Claim. Within ten (lO)
days after receipt by Indemnitee of notice of the commencement of any
action, suit, or proceeding, Indemnitee will, if a claim in respect thereof
is to be made against IMG under this agreement, notify the corporation of
the commencement thereof, but the omission to so notify the Corporation
will not relieve it from any liability which it may have to Indemnitee
otherwise than under this Agreement. With respect to any such action, suit
or proceeding as to which Indemnitee notifies the corporation of the
commencement thereof:
A. The corporation will be entitled to participate therein
at its own expense; and,
B. Except as otherwise provided below, the Corporation jointly
with any other indemnifying party similarly notified will be entitled to
assume the defense thereof, with counsel satisfactory to Indemnitee.
After notice from the corporation to Indemnitee of its election so to
assume the defense thereof, the
<PAGE> 10.32.005
Corporation will not be liable to Indemnitee under this Agreement for any
legal or other expenses subsequently incurred by Indemnitee in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ his own
counsel in such action, suit or proceeding, but the fees and expenses of
such counsel incurred after notice from the Corporation of its assumption
of the defense thereof shall be at the expense of Indemnitee unless (l)
the employment of counsel by Indemnitee has been authorized by the
corporation in connection with the defense of such action, (2) Indemnitee
shall have reasonably concluded that there may be a conflict of interest
among IMG, the Corporation and/or Indemnitee in the conduct of the defense
of such action. In no event shall the Corporation be liable for the
expenses of more than one counsel for Indemnitee in connection with any
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. The
Corporation shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Corporation or as to which
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between IMG and/or the Corporation and Indemnitee with respect to
the defense of such action.
C. Anything in this Agreement to the contrary
notwithstanding, the Corporation shall not be liable to indemnify
Indemnitee for any amounts paid in settlement of any action or claim
effected without the written consent of IMG and/or the
<PAGE> 10.32.006
Corporation. IMG and/or the Corporation shall not settle any action or
claim in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither IMG and/or the
Corporation nor Indemnitee will unreasonably withhold consent to any
proposed settlement.
FOURTH: Advancement and Repayment of Expenses. In the event
of any threatened or pending action, suit or proceeding which may give rise
to a right of indemnification from the Corporation to Indemnitee pursuant
to this Agreement, the Corporation shall pay, on demand, in advance of the
final disposition thereof any and all expenses of the Indemnitee hereunder,
other than (a) those expenses for which Indemnitee is not entitled to
indemnification pursuant to Article THIRD hereof or due to a final
judgement that Indemnitee's act or failure to act constituted willful
misconduct or recklessness or that indemnification is not lawful and (b)
those expenses for which Indemnitee has been paid under any insurance
purchased and maintained by the Corporation for the benefit of Indemnitee.
The Corporation shall make such payments upon receipt of (1) a written
request by Indemnitee for payment of such expenses, (2) an undertaking by
or on behalf or Indemnitee to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the
Corporation hereunder, and (3) satisfactory evidence as to the amount of
such expenses. Indemnitee's written certification together with a copy of
the statement paid or to be paid by the Indemnitee shall constitute
satisfactory evidence as to the amount of such expenses.
<PAGE> 10.32.007
FIFTH: Enforcement.
A. The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
corporation hereby in order to induce Indemnitee to continue as a director
and/or officer of IMG and acknowledges that Indemnitee is relying upon this
Agreement in continuing in such capacity.
B. In the event Indemnitee is required to bring any action
to enforce rights or to collect moneys due under this Agreement and
is successful in such action, the Corporation shall reimburse Indemnitee
for all costs and expenses, including attorneys' fees, incurred by
Indemnitee in connection with such action.
SIXTH: Indemnification Hereunder Not Exclusive. The rights
to indemnification and advancement of expenses granted to Indemnitee
under this Agreement shall not be deemed exclusive of, or in limitation of,
any other rights to which indemnitee may now or hereafter be entitled under
the laws of the State of Florida or other governing state statute, IMG's
Certificate of Incorporation or By-Laws, as now in effect or as may
hereafter be amended, any agreement, any vote of shareholders or directors,
or otherwise.
SEVENTH: Miscellaneous.
A. All communications hereunder shall be in writing and
shall be sent by registered or certified mail, return receipt requested
Communications intended for the Corporation, shall be addressed to the
Corporation, attention of its President, at its principal office, or at
such other address of which the Corporation shall have given notice to
Indemnitee in the manner herein
<PAGE> 10.32.008
provided. Communication intended for Indemnitee shall be addressed to
Indemnitee at his present home address or at such other address of which
Indemnitee shall have given notice to the Corporation in the manner herein
provided.
B. In the event that any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in
effect, and if any provision is inapplicable to any party on circumstance,
it shall nevertheless remain applicable to all other parties and
circumstances.
C. This Agreement constitutes the entire understanding among the
parties with respect to the subject matter hereof and no waiver or
modification of the terms hereof shall be valid unless in writing signed by
the party to be charged and only to the extent therein set forth.
D. This Agreement shall be binding upon Indemnitee and upon the
Corporation, its successors and assigns and shall inure to the benefit of
Indemnitee his or her heirs, personal representatives and assigns and to
the benefit of the corporation, its successors and assigns.
E. The captions appearing in this Agreement. are inserted only as
a matter of convenience and for reference and in no way define, limit or
describe the scope and intent of this Agreement or any of the provisions
hereof.
F. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Florida applicable to contracts
made and to be performed wholly within said State without
<PAGE> 10.32.009
giving effect to conflict of laws principles thereof, unless the
Corporation, its successors or assigns are domesticated in another state at
the time of occurrence of any act or failure to act that gives rise to a
claim for indemnification hereunder. In such case, the Agreement shall be
governed by and construed in accordance with the laws of such State of
domestication.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement the day and year first above written.
ATTEST: INVESTORS INSURANCE GROUP, INC.
/s/ Susan F. Powell By:/s/ Ernest D. Palmarella
Ernest D. Palmarella
Vice President
/s/ Melvin C. Parker
MELVIN C. PARKER, Indemnitee
Agreed an Accepted:
By: /s/ Melvin C. Parker
Melvin C. Parker, President
of IMG
<PAGE> 10.33.001
INDEMNITY AGREEMENT
AGREEMENT, dated JUNE 10, 1994 between INVESTORS INSURANCE
GROUP, INC. (the "Corporation"), organized and incorporated
under the laws of the State of Florida and SUSAN F. POWELL ("Indemnitee")
W I T N E S S E T H
WHEREAS, the corporation formed a new subsidiary corporation
known as Investors Marketing Group, Inc. (hereinafter referred to as
"IMG") under the laws of State of Florida;
WHEREAS, the Corporation owns one hundred (100%) percent of
all common stock of IMG;
WHEREAS, the Corporation has requested that IMG appoint
Indemnitee as Secretary of IMG; and
WHEREAS, in order to induce Indemnitee to serve as an officer
of IMG, the Corporation has determined that it is in its best interest to
enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and in
consideration of the mutual promises contained herein, and
intending to be legally bound, the parties agree as follows:
FIRST: Indemnification. The Corporation hereby agrees to hold
harmless and indemnify Indemnitee from and against any and all judgments,
fines, amounts paid in settlement and expenses, including
attorneys' fees, actually and reasonably, incurred as a
<PAGE> 10.33.002
result of or in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative or as a result of or in connection with any appeal therein,
(other than an action by or in the right of IMG and/or the Corporation
unless a court of competent jurisdiction approves the right to
indemnification), or is threatened to be made a party or as a result of
or by reason of the fact that Indemnitee is, was or at any time becomes a
director or officer of IMG, or is or was serving or at any time served
another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, in any capacity at the request of IMG or
corporation, whether or not arising out of any breach of
Indemnitee's fiduciary duty, under any state or federal law or otherwise,
as a director or officer of IMG and/or as a director, officer, employee
or agent of such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. Indemnity, pursuant to this
Article FIRST, shall be paid by the Corporation only to the extent the
aggregate of losses to be indemnified exceeds the amount of such losses
for which Indemnitee is actually paid from IMG or pursuant to any
insurance purchased and maintained by the Corporation or IMG for the
benefit of Indemnitee. There shall be no indemnity hereunder if judgment
or other final adjudication establishes that the Indemnitee's act or
failure to act were material to the cause of action so adjudicated
and constitute: a violation of criminal law, unless the Indemnitee
had reasonable cause to believe her conduct was lawful or had no
reasonable cause to believe her conduct was unlawful; a transaction
<PAGE> 10.33.003
from which the Indemnitee derived an improper personal benefit; in the
case where Indemnitee is a director, a circumstance under which the
liability provisions of subsection 607.0834 of the Florida Statutes are
applicable; wilful misconduct or a conscious disregard for the best
interests of IMG in a proceeding by or in the right of IMG to procure a
judgment in its favor or in a proceeding by or in the right of a
shareholder; or a failure to act in good faith and in a manner she
reasonably believed to be not in or opposed to the best interests of IMG
and/or the corporation. The termination of any such civil or criminal
action or proceeding by judgment order settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not create any
presumption that Indemnitee acted in bad faith or was dishonest. For
purposes of this Agreement, (1) IMG and/or the Corporation shall be
deemed to have requested Indemnitee to serve in a capacity with respect
to an employee benefit plan where the performance by Indemnitee of the
duties to IMG and/or the corporation also imposes duties on, or otherwise
involves services by, Indemnitee to the plan or participants or
beneficiaries of the plan and (2) action taken or omitted by Indemnitee
with respect to an employee benefit plan in the performance of
Indemnitee's duties for a purpose reasonably believed by Indemnitee
to be either in the interest of IMG and/or the Corporation or in the
interest of the participants or beneficiaries of the plan shall not
be deemed to be in bad faith or dishonest .
SECOND: Continuation of Indemnity. All agreements and
<PAGE> 10.33.004
obligations of the Corporation contained herein shall continue during the
period Indemnitee shall serve as a director or officer of IMG and
thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether
civil, criminal or investigative, by reason of the fact that Indemnitee
was a director or officer of IMG or served at the request of IMG in any
capacity in any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise .
THIRD: Notification and Defense of claim. Within ten (10)
days after receipt by Indemnitee of notice of the commencement of
any action, suit, or proceeding, Indemnitee will, if a claim in respect
thereof is to be made against IMG under this agreement, notify the
Corporation of the commencement thereof, but the omission to so notify
the corporation will not relieve it from any liability which it may have
to Indemnitee otherwise than under this Agreement. with respect to any
such action, suit or proceeding as to which Indemnitee notifies the
Corporation of the commencement thereof:
A. The corporation will be entitled to participate therein at
its own expense; and,
B. Except as otherwise provided below, the corporation jointly
with any other indemnifying party similarly notified will be entitled
to assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the corporation to Indemnitee of its
election so to assume the defense thereof, the Corporation will not be
<PAGE> 10.33.005
liable to Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense
thereof other than reasonable costs of investigation or as otherwise
provided below. Indemnitee shall have the right to employ her
own counsel in such action, suit or proceeding, but the fees and expenses
of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Indemnitee
unless (1) the employment of counsel by Indemnitee has been authorized by
the corporation in connection with the defense of such action, (2)
Indemnitee shall have reasonably concluded that there may be a conflict
of interest among IMG, the Corporation and/or Indemnitee in the conduct
of the defense of such action. In no event shall the Corporation be
liable for the expenses of more than one counsel for Indemnitee in
connection with any action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. The Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which Indemnitee shall have reasonably concluded
that there may be a conflict of interest between IMG and/or the
Corporation and Indemnitee with respect to the defense of such action.
C. Anything in this Agreement to the contrary
notwithstanding, the corporation shall not be liable to indemnify
Indemnitee for any amounts paid in settlement of any action or
claim effected without the written consent of IMG and/or the
<PAGE> 10.33.006
Corporation. IMG and/or the Corporation shall not settle any action or
claim in any manner which would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Neither IMG and/or the
corporation nor Indemnitee will unreasonably withhold consent to any
proposed settlement.
FOURTH: Advancement and Repayment of Expenses. In the event
of any threatened or pending action, suit or proceeding which may give
rise to a right of indemnification from the Corporation to Indemnitee
pursuant to this Agreement, the corporation shall pay, on demand, in
advance of the final disposition thereof any and all expenses of the
Indemnitee hereunder, other than (a) those expenses for which Indemnitee
is not entitled to indemnification pursuant to Article THIRD hereof or
due to a final judgement that Indemnitee's act or failure to act
constituted willful misconduct or recklessness or that indemnification
is not lawful and (b) those expenses for which Indemnitee has been paid
under any insurance purchased and maintained by the Corporation for the
benefit of Indemnitee. The corporation shall make such payments upon
receipt of (1) a written request by Indemnitee for payment of such
expenses, (2) an undertaking by or on behalf of Indemnitee to repay such
amount if it shall ultimately be determined that she is not entitled to
be indemnified by the Corporation hereunder, and (3) satisfactory
evidence as to the amount of such expenses. Indemnitee's written
certification together with a copy of the statement paid or to be paid by
the Indemnitee shall constitute satisfactory evidence as to the amount of
such expenses.
<PAGE> 10.33.007
FIFTH: Enforcement .
A. The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Corporation hereby in order to induce Indemnitee to continue as a
director and/or officer of IMG and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
B. In the event Indemnitee is required to bring any action
to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Corporation shall reimburse Indemnitee for
all costs and expenses, including attorneys' fees, incurred by Indemnitee
in connection with such action.
SIXTH: Indemnification Hereunder Not Exclusive. The rights
to indemnification and advancement of expenses granted to
Indemnitee under this Agreement shall not be deemed exclusive of, or in
limitation of, any other rights to which Indemnitee may now or hereafter
be entitled under the laws of the State of Florida or other governing
state statute, IMG's certificate of Incorporation or By-Laws, as now in
effect or as may hereafter be amended, any agreement, any vote of
shareholders or directors, or otherwise.
SEVENTH: Miscellaneous.
A. All communications hereunder shall be in writing and
shall be sent by registered or certified mail, return receipt requested
Communications intended for the corporation, shall be addressed to the
Corporation, attention of its President, at its principal office, or at
such other address of which the Corporation shall have given notice to
Indemnitee in the manner herein
<PAGE> 10.33.008
provided. Communication intended for Indemnitee shall be addressed
to Indemnitee at her present home address or at such other address
of which Indemnitee shall have given notice to the Corporation in
the manner herein provided.
B. In the event that any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement
shall remain in effect, and if any provision is inapplicable to any
party or circumstance, it shall nevertheless remain applicable to
all other parities and circumstances.
C. This Agreement constitutes the entire understanding among
the parties with respect to the subject matter hereof and no waiver
or modification of the terms hereof shall be valid unless in writing
signed by the party to be charged and only to the extent therein set
forth.
D. This Agreement shall be binding upon Indemnitee and upon
the Corporation, its successors and assigns and shall inure to the
benefit of Indemnitee her heirs, personal representatives and assigns and
to the benefit of the Corporation, its successors and assigns .
E. The captions appearing in this Agreement are inserted
only as a matter of convenience and for reference and in no way
define, limit or describe the scope and intent of this Agreement or
any of the provisions hereof.
F. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida applicable to
contracts made and to be performed wholly within said State without
<PAGE> 10.33.009
giving effect to conflict of laws principles thereof, unless the
Corporation, its successors or assigns are domesticated in another
state at the time of occurrence of any act or failure to act that
gives rise to a claim for indemnification hereunder. In such case,
the Agreement shall be governed by and construed in accordance with
the laws of such State of domestication.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement the day and year first above written.
ATTEST: INVESTOR INSURANCE GROUP, INC.
Karla K. Steinmetz By:/s/ Melvin C. Parker
Melvin C. Parker,
President
/s/ Susan F. Powell
Susan F. Powell, Indemnitee
Agreed and Accepted:
By: /s/ Melvin C. Parker
Melvin C. Parker, President
of IMG
<PAGE> 18.01.001
KPMG Peat Marwick LLP
Suite 2700, Independent Square Telephone 904 354 5671 Telefax 904 350 1260
One Independent Drive
P.0. Box 190
Jacksonville, FL 32201-0190
July 5, 1995
Investors Insurance Group, Inc.
Boca Raton, Florida
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Investors Insurance Group,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1994, and
have reported thereon under date of June 30, 1995. The aforementioned
consolidated financial statements and our audit report thereon are included
in the Company's annual report on Form 10-K for the year ended December 31,
1994. As stated in note 1 to those financial statements, effective January
1, 1994 the Company changed its method of accounting for excess ceding
commissions received for ceding annuity contracts having insignificant
insurance risk from immediate recognition to deferral and amortization over
the life of the related contracts, and indicates that the Company has decided
to adopt this approach to be more consistent with the accounting treatment
followed by other insurance companies with similar products. In accordance
with your request, we have reviewed and discussed with Company officials the
circumstances and business judgment and planning upon which the decision to
make this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes
of Investors Insurance Group, Inc.'s compliance with the requirements of the
Securities and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting
is preferable in the Company's circumstances.
Very truly yours,
/s/ KPMG Peat Marwick LLP
<PAGE> 21.01.001
Investors Insurance Group, Inc.
Listing of Subsidiaries
December 31, 1995
Name State of Incorporation
IIC, Inc. Oregon
Investors Insurance Corporation Delaware
Investors Marketing Group, Inc. Florida
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 149,231,000
<DEBT-CARRYING-VALUE> 9,504,000
<DEBT-MARKET-VALUE> 10,556,000
<EQUITIES> 366,000
<MORTGAGE> 564,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 160,619,000
<CASH> 11,372,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 42,468,000
<TOTAL-ASSETS> 574,486,000
<POLICY-LOSSES> 518,504,000
<UNEARNED-PREMIUMS> 5
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 518,504,000
<NOTES-PAYABLE> 8,000,000
0
0
<COMMON> 1,384,000
<OTHER-SE> 44,000
<TOTAL-LIABILITY-AND-EQUITY> 574,486,000
1,660,000
<INVESTMENT-INCOME> 11,598,000
<INVESTMENT-GAINS> 1,090,000
<OTHER-INCOME> 912,000
<BENEFITS> 10,529,000
<UNDERWRITING-AMORTIZATION> 1,351,000
<UNDERWRITING-OTHER> 3,897,000
<INCOME-PRETAX> (517,000)
<INCOME-TAX> (136,000)
<INCOME-CONTINUING> (381,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (381,000)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
