SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30,1997 Commission file number 1-6028
LINCOLN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1140070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Berry Street, Fort Wayne, Indiana 46802-2706
(Address of Principal Executive Offices)
Registrant's telephone number (219) 455-2000
Common stock outstanding October 31, 1997 101,374,775
Indicate by check mark whether 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 periods that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The exhibit index to this report is located on page 19.
Page 1 of 328
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30 December 31
(000'S omitted) 1997 1996
ASSETS
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (cost 1997 - $22,979,144;
1996 - $23,250,897) ------------------ $24,253,418 $24,096,669
Equity (cost 1997 - $499,381;
1996 - $434,502) --------------------- 684,378 557,565
Mortgage loans on real estate ------------ 3,216,760 3,240,686
Real estate ------------------------------ 601,288 655,024
Policy loans ----------------------------- 754,240 734,773
Other investments ------------------------ 352,335 445,279
Total Investments ---------------------- 29,862,419 29,729,996
Investment in unconsolidated affiliates ---- 4,856 21,004
Cash and invested cash --------------------- 1,246,992 1,144,766
Property and equipment --------------------- 193,060 196,044
Deferred acquisition costs ----------------- 1,595,010 1,689,716
Premiums and fees receivable --------------- 240,899 237,345
Accrued investment income ------------------ 452,025 417,582
Assets held in separate accounts ----------- 36,762,309 28,809,137
Amounts recoverable from reinsurers -------- 2,295,230 2,328,514
Goodwill ----------------------------------- 403,157 351,707
Other intangible assets -------------------- 592,032 708,446
Other assets ------------------------------- 643,882 596,420
Discontinued operations-investment assets -- 4,433,287 4,314,968
Discontinued operations-other assets ------- 1,238,341 1,167,760
Total Assets ----------------------------- $79,963,499 $71,713,405
See notes to consolidated financial statements on pages 7 - 10.
<PAGE> 3
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
-CONTINUED-
September 30 December 31
(000's omitted) 1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance and Investment Contract Liabilities:
Insurance policy and claim reserves ------- $10,783,747 $10,457,896
Contractholder funds ---------------------- 20,438,945 21,165,410
Liabilities related to separate accounts -- 36,762,309 28,809,137
Total Insurance and Investment
Contract Liabilities ------------------- 67,985,001 60,432,443
Federal income taxes ---------------------- 84,967 161,501
Short-term debt --------------------------- 463,763 188,960
Long-term debt ---------------------------- 513,703 626,311
Minority interest - preferred securities
of subsidiary companies ----------------- 315,000 315,000
Other liabilities ------------------------- 1,809,498 1,417,377
Discontinued operations-insurance
liabilities ------------------------------ 3,627,828 3,650,805
Discontinued operations-other liabilities - 522,681 451,052
Total Liabilities ----------------------- 75,322,441 67,243,449
Shareholders' Equity:
Series A preferred stock
(9/30/97 liquidation value - $2,818) ----- 1,157 1,212
Common stock ------------------------------ 962,487 901,671
Retained earnings ------------------------- 3,045,958 3,085,028
Foreign currency translation adjustment --- 34,042 66,454
Net unrealized gain (loss) on securities
available-for-sale for continuing
operations ------------------------------- 420,811 279,161
Net unrealized gain (loss) on securities
available-for-sale for discontinued
operations ------------------------------- 176,603 136,430
Total Shareholders' Equity -------------- 4,641,058 4,469,956
Total Liabilities and
Shareholders' Equity ------------------- $79,963,499 $71,713,405
See notes to consolidated financial statements on pages 7 - 10.
<PAGE> 4
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended Three Months Ended
September 30 September 30
(000's omitted) 1997 1996 1997 1996
Revenue:
Insurance premiums ------------- $ 983,546 $1,148,159 $ 353,132 $ 411,529
Insurance fees ----------------- 533,936 437,773 189,545 150,339
Investment advisory fees ------- 152,334 134,954 51,871 44,959
Net investment income ---------- 1,665,655 1,516,939 548,470 519,988
Realized gain (loss) on
investments ------------------- 71,602 71,617 56,966 (703)
Other revenue and fees --------- 186,094 168,953 67,041 81,262
Total Revenue -------------- 3,593,167 3,478,395 1,267,025 1,207,374
Benefits and Expenses:
Benefits and settlement
expenses ---------------------- 2,149,555 1,980,881 730,357 700,504
Underwriting, acquisition,
insurance and other expenses -- 1,175,760 1,060,661 338,800 369,488
Interest and debt expense ------ 70,017 60,676 24,482 23,529
Total Benefits
and Expenses -------------- 3,395,332 3,102,218 1,093,639 1,093,521
Net Income From Continuing
Operations Before Federal
Income Taxes -------------- 197,835 376,177 173,386 113,853
Federal income taxes ----------- 37,886 114,472 48,499 30,897
Net Income From Continuing
Operations ---------------- 159,949 261,705 124,887 82,956
Discontinued Operations
(Net of income taxes):
Net income prior to disposal --- 134,886 109,072 46,367 36,354
Gain on sale ------------------- -- -- -- --
Net Income ----------------- $ 294,835 $ 370,777 $171,254 $119,310
Per Share Data:
Net Income From Continuing
Operations ---------------------- $1.55 $2.50 $1.22 $ .79
Discontinued Operations ---------- 1.30 1.05 .45 .35
Net Income ----------------- $2.85 $3.55 $1.67 $1.14
Cash Dividends on Common Stock --- $1.47 $1.38 $ .49 $ .46
See notes to consolidated financial statements on pages 7 - 10.
<PAGE> 5
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30
Number of Shares Amounts
(000's omitted from dollar amounts) 1997 1996 1997 1996
Preferred Stock:
(Shares authorized: 10,000,000)
Series A Preferred Stock:
Balance at
beginning-of-year -------- 36,885 40,646 $ 1,212 $ 1,335
Conversion into
common stock ------------- (1,659) (3,066) (55) (100)
Balance at September 30 - 35,226 37,580 1,157 1,235
Common Stock:
(Shares authorized: 800,000,000)
Balance at beginning-of-year - 103,658,575 104,185,117 901,671 904,754
Conversion of series A
preferred stock ------------ 13,272 24,528 55 100
Issued for benefit plans ----- 527,466 151,335 19,572 3,997
Issued for purchase of
subsidiary ----------------- 1,320,902 -- 68,688 --
Retirement of common stock --- (3,318,000) -- (27,499) --
Balance at September 30 - 102,202,215 104,360,980 962,487 908,851
Retained Earnings:
Balance at beginning-of-year - 3,085,028 2,760,440
Net income ------------------- 294,835 370,777
Realized gain (loss) on sale
of minority interest in
subsidiary ----------------- -- 34,371
Retirement of common stock --- (182,625) --
Cash dividends declared ------ (151,280) (143,443)
Balance at September 30 - 3,045,958 3,022,145
Foreign Currency Translation Adjustment:
Accumulated adjustment at
beginning-of-year ---------- 66,454 13,413
Change during the period ----- (32,412) 678
Balance at September 30 - 34,042 14,091
Net Unrealized Gain (Loss) on
Securities Available-for-Sale:
Balance at beginning-of-year - 415,591 698,180
Realized gain (loss) on sale
of minority interest in
subsidiary ----------------- -- (19,101)
Change during the period ----- 181,823 (337,528)
Balance at September 30 - 597,414 341,551
Total Shareholders' Equity
at September 30 ------- $4,641,058 $4,287,873
Common Stock (assuming conversion
of series A, preferred stock):
End of Period ----------- 102,484,023 104,661,620
Average for the Period -- 103,480,259 104,587,473
See notes to consolidated financial statements on pages 7 - 10.
<PAGE> 6
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
(000's omitted) 1997 1996
Operating Activities:
Net income from continuing operations ------------ $159,949 $ 261,705
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred acquisition costs ------------------- 350 40,345
Premiums and fees receivable ----------------- (3,555) (208,784)
Accrued investment income -------------------- (34,443) (12,071)
Policy liabilities and accruals -------------- 124,855 (146,448)
Contractholder funds ------------------------- 524,545 1,186,819
Amounts recoverable from reinsurers ---------- 33,283 (61,419)
Federal income taxes ------------------------- (138,295) (278)
Provisions for depreciation ------------------ 43,626 33,231
Amortization of goodwill and other
intangible assets --------------------------- 153,145 55,902
Realized (gain) loss on investments ---------- (71,602) (71,206)
Other (used in) ------------------------------ 144,823 (151,166)
Net Adjustments ---------------------------- 776,732 664,925
Net Cash Provided by Continuing Operations - 936,681 926,630
Net Cash Provided by (Used in)
Discontinued Operations --------------------- 7,799 (9,607)
Net Cash Provided by Operating Activities -- 944,480 917,023
Investing Activities:
Securities-available-for-sale:
Purchases -------------------------------------- (8,045,600) (9,708,300)
Sales ------------------------------------------ 7,279,137 8,737,107
Maturities ------------------------------------- 1 084,569 749,353
Purchase of other investments -------------------- (1,595,145) (1,823,037)
Sale or maturity of other investments ------------ 1,647,524 1,580,528
Sale of subsidiaries (discontinued operations) --- -- --
Increase (decrease) in cash collateral
on loaned securities --------------------------- 126,818 159,774
Other -------------------------------------------- 60,377 (126,265)
Net Cash Provided by (Used in)
Investing Activities ---------------------- 557,680 (430,840)
Financing Activities:
Principal payments on long-term debt ------------- (113,550) (9,766)
Issuance of long-term debt ----------------------- 943 1,715
Net increase (decrease) in short-term debt ------- 274,804 (197,576)
Issuance of preferred securities of
subsidiary companies ---------------------------- -- 315,000
Universal life and investment contract deposits -- 775,128 817,653
Universal life and investment
contract withdrawals --------------------------- (1,994,749) (1,636,782)
Common stock issued for benefit plans ------------ 19,572 3,997
Retirement of common stock ----------------------- (210,124) --
Proceeds from sale of minority interest
in subsidiary ----------------------------------- -- 215,481
Dividends paid to shareholders ------------------- (151,958) (143,373)
Net Cash Used in Financing Activities ------ (1,399,934) (633,651)
Net Increase (Decrease) in Cash------------- 102,226 (147,468)
Cash at Beginning-of-Year -------------------------- 1,144,766 1,452,170
Cash at September 30 ----------------------- $1,246,992 $1,304,702
See notes to consolidated financial statements on pages 7 - 10.
<PAGE> 7
LINCOLN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements include Lincoln National
Corporation ("LNC") and its majority-owned subsidiaries. Less than majority-
owned entities in which LNC has at least a 20% interest are reported on the
equity basis. These unaudited consolidated statements have been prepared in
conformity with generally accepted accounting principles, except that they do
not contain complete notes. However, in the opinion of management, these
statements include all normal recurring adjustments necessary for a fair
presentation of the results. These financial statements should be read in
conjunction with the financial statements and the related notes included in
LNC's latest annual report on Form 10-K for the year ended December 31, 1996.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1997.
2. Federal Income Taxes
The effective tax rate on net income is lower than the prevailing corporate
federal income tax rate. The difference for both 1997 and 1996 resulted
principally from tax-exempt investment income.
3. Earnings Per Share
Earnings per share is computed based on the average number of common shares
outstanding (103,480,259 and 104,587,473 for the first nine months of 1997 and
1996, respectively) after assuming conversion of the series A preferred stock.
Financial Accounting Standard 128 entitled "Earnings per Share" ("FAS 128")
which was issued in February 1997, is required to be adopted on December 31,
1997. The impact of FAS 128 on the calculation of earnings per share for the
nine months ended September 30, 1997 and 1996 is not material.
4. Discontinued Operations
On June 9, 1997, LNC announced that it agreed to sell its 83.3% ownership in
American States Financial Corporation for $2.65 billion (including the
repayment of $300 million of intercompany debt). As this sale resulted in an
exit from the property-casualty business (previously a business segment), the
financial data from the units being sold is shown as discontinued operations in
the accompanying financial statements. June 9, 1997 is the measurement date
for purposes of reporting the units sold as discontinued operations. The gain
on sale resulting from the October 1, 1997 closing will be reported with
discontinued operations in the fourth quarter of 1997. The estimated gain on
sale is $1.220 billion ($775 million after-tax). LNC expects to invest the
proceeds from this sale to expand its other businesses (see note 7 on page 9)
and also may repurchase up to $500 million of its own common stock as
authorized by the Board of Directors in June of 1997.
Earnings from discontinued operations were as follows:
Nine Months Ended Three Months Ended
September 30 September 30
(in millions) 1997 1996 1997 1996
Revenue -------------------------- $1,538.5 $1,490.9 $524.7 $477.5
Benefits and Expenses ------------ 1,363.6 1,363.6 463.6 434.2
Pre-tax Net Income ------------ 174.9 127.3 61.1 43.3
Federal Income Taxes ------------- 40.0 18.2 14.7 6.9
Net Income -------------------- $ 134.9 $ 109.1 $ 46.4 $ 36.4
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Change in Estimate for Disability Income Reserve
During the second quarter of 1997, LNC completed an in-depth review of
experience on its disability income business. As a result of this study, LNC's
Reinsurance segment strengthened its disability income reserve by $92.8
million, wrote-off deferred acquisition costs of $71.1 million and reduced
related assets by $36.1 million. Combined, these actions reduced net income
for the second quarter of 1997 by $130.0 million or $1.25 share ($200 million
pre-tax).
6. Contingencies
Disability Income Claims. The liability for disability income claims net of
the related asset for amounts recoverable from reinsurers at September 30, 1997
and December 31, 1996 is a net liability of $1.650 billion and $1.561 billion,
respectively, excluding deferred acquisition costs. The September 30, 1997
amount includes a special addition in the second quarter 1997 (see note 5 on
page 8). If incidence levels and/or claim termination rates fluctuate
significantly from the assumptions underlying the reserves, adjustments to
reserves could be required in the future. Accordingly, this liability may
prove to be deficient or excessive. However, it is management's opinion that
such future development will not materially affect the consolidated financial
position of LNC. LNC reviews reserve levels on an on-going basis.
United Kingdom Pension Products. Operations in the U.K. include the sale of
pension products to individuals. Regulatory agencies have raised questions as
to what constitutes appropriate advice to individuals who bought pension
products as an alternative to participation in an employer sponsored plan. In
cases of inappropriate advice, an extensive investigation may have to be done
and the individuals put in a position similar to what would have been attained
if they had remained in the employer sponsored plan. At September 30, 1997 and
December 31, 1996 liabilities of $82.2 million and $86.7 million, respectively,
had been established for this issue. These liabilities, which are net of
expected recoveries, have been established for the estimated cost of this issue
following regulatory guidance as to activities to be undertaken. These
liabilities were booked net of expected recoveries of $33.4 million and $31.4
million respectively, from previous owners of companies acquired over the last
few years as specified in the indemnification clauses of the purchase
agreements. These liabilities and recoveries are based on various estimates
that are subject to considerable uncertainty. Accordingly, these liabilities
may prove to be deficient. However, it is management's opinion that such
future development will not materially affect the consolidated financial
position of LNC.
Marketing and Compliance Issues. Regulators continue to focus on market
conduct and compliance issues. Under certain circumstances companies operating
in the insurance and financial services markets have been held responsible for
providing incomplete or misleading sales materials and for replacing existing
policies with policies that were less advantageous to the policyholder. LNC's
management continues to monitor the company's sales materials and compliance
procedures and is making an extensive effort to minimize any potential
liability. Due to the uncertainty surrounding such matters, it is not possible
to provide a meaningful estimate of the range of potential outcomes at this
time; however, it is management's opinion that such future development will not
materially affect the consolidated financial position of LNC.
Group Pension Annuities. The liabilities for guaranteed interest and group
pension annuity contracts, which are no longer sold by LNC, are supported by a
single portfolio of assets that attempts to match the duration of these
liabilities. Due to the long-term nature of group pension annuities and the
resulting inability to exactly match cash flows, a risk exists that future cash
flows from investments will not be reinvested at rates as high as currently
earned by the portfolio. Accordingly, these liabilities may prove to be
deficient or excessive. However, it is management's opinion that such future
development will not materially affect the consolidated financial position of
LNC.
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Personal Accident Programs. Certain "excess of loss personal accident
reinsurance" programs created in the London market have produced pre-tax losses
totaling approximately $20 million in the last two years. If recent experience
continues or deteriorates further, future losses on these programs could be
significant. LNC is investigating the way the programs were designed and
evaluating all legal and other remedies which may exist to minimize future
losses. It is not possible to provide a meaningful estimate of the range of
potential liability (recovery) at this time.
Legal Proceedings. LNC and its subsidiaries are involved in various pending or
threatened legal proceedings arising from the conduct of business. Most of
this litigation is routine in the ordinary course of business. In some
instances, these proceedings include claims for unspecified or substantial
damages and similar types of relief in addition to amounts for alleged
contractual liability or requests for equitable relief. After consultation
with legal counsel and a review of available facts, it is management's opinion
that the ultimate liability, if any, under these suits will not have a material
adverse effect on the consolidated financial condition of LNC. Two lawsuits
are not routine. They involve alleged fraud in the sale of interest sensitive
universal and whole life insurance policies and purport to be class actions,
although the court has not certified a class in either case. Plaintiffs seek
unspecified damages and penalties for themselves and on behalf of the putative
class.
While the relief sought in these cases is substantial, they are in the early
stages of litigation and it is premature to determine their materiality.
Management intends to defend these suits vigorously. The amount of liability
which may arise as a result of these suits, if any, cannot be reasonably
estimated at this time and no provision for loss has been made in LNC's
financial statements.
7. Acquisition of Individual Life Insurance and Annuity Business
On July 28, 1997, LNC announced that it signed a definitive agreement to
acquire a block of individual life insurance and annuity business from CIGNA
Corporation for approximately $1.4 billion. The total cash commitment for this
acquisition will be slightly higher than the $1.4 billion because of expenses
associated with the purchase and capital that will be added to the Life
Insurance and Annuities segment to support this business. This transaction,
which is expected to close in the fourth quarter of 1997, will be accounted for
using purchase accounting. The operating results generated by this block of
business after the closing date will be included in LNC's consolidated
financial statements. As of September 30, 1997, this block of business had
liabilities, measured on a statutory basis, of $5.5 billion that will become
LNC's obligations at the time of closing. LNC will also receive assets,
measured on a historical statutory basis, equal to the liabilities. For the
year ended December 31, 1996 this block produced premiums, fees and deposits of
$1.3 billion and net income of $80 million. This financial data is on the
basis of generally accepted accounting principles, and is prior to any
adjustments that will be required by purchase accounting.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Disclosures about Segments of an Enterprise and Related Information
Financial Accounting Standard 131 entitled "Disclosures about Segments
of an Enterprise and Related Information" ("FAS 131") issued in June 1997, was
adopted by LNC in the second quarter of 1997 on a retroactive basis, as
permitted. Under FAS 131 segments are defined on the same basis that the
company is managed versus the product or market approach previously used. For
LNC this redefinition involved moving LNC's major United Kingdom operation from
within the Life Insurance and Annuities segment into a separate segment
entitled "Lincoln UK." Data shown for all prior periods has been restated to
conform to the current period presentation. The following tables show the
revised financial data by segment:
Nine Months Year Ended Year Ended
Ended Dec 31, Dec 31,
(in millions) September 30,1997 1996 1995
Revenue:
Life Insurance and Annuities ----------- $2,064.6 $2,563.1 $2,615.3
Lincoln UK ----------------------------- 314.8 393.2 351.5
Reinsurance ---------------------------- 1,024.4 1,561.0 1,362.4
Investment Management ------------------ 199.2 210.2 145.2
Other Operations
(includes consolidating adjustments) -- (9.8) 6.1 112.1
Total -------------------------------- $3,593.2 $4,733.6 $4,586.5
Net income (loss) from continuing
operations before Federal income taxes:
Life Insurance and Annuities ----------- $ 279.6 $346.7 $378.1
Lincoln UK ----------------------------- 75.1 101.5 72.5
Reinsurance ---------------------------- (84.7) 131.1 (65.5)
Investment Management ------------------ 15.8 32.4 33.8
Other Operations
(includes interest expense) ----------- (88.0) (107.6) (4.5)
Total -------------------------------- $ 197.8 $504.1 $414.4
Federal income taxes (credits):
Life Insurance and Annuities ----------- $ 69.4 $ 95.7 $104.1
Lincoln UK ----------------------------- 24.4 35.5 26.8
Reinsurance ---------------------------- (29.6) 45.4 (23.5)
Investment Management ------------------ 9.9 17.0 16.2
Other Operations ----------------------- (36.2) (45.9) (10.6)
Total -------------------------------- $ 37.9 $147.7 $113.0
Net income (loss) from continuing operations:
Life Insurance and Annuities ----------- $ 210.2 $251.0 $274.0
Lincoln UK ----------------------------- 50.7 66.0 45.7
Reinsurance ---------------------------- (55.1) 85.7 (42.0)
Investment Management ------------------ 5.9 15.4 17.6
Other Operations
(includes interest expense) ----------- (51.8) (61.7) 6.1
Total Net Income from Continuing
Operations -------------------------- 159.9 356.4 301.4
Discontinued Operations ---------------- 134.9 157.2 180.8
Total Net Income --------------------- $ 294.8 $513.6 $482.2
Assets (End of Period):
Life Insurance and Annuities ----------- $60,208.9 $53,089.3 $45,791.4
Lincoln UK ----------------------------- 7,924.0 7,331.8 6,114.1
Reinsurance ---------------------------- 5,321.3 5,196.1 5,220.3
Investment Management ------------------ 709.1 623.4 616.2
Other Operations ----------------------- 128.6 (9.9) (170.6)
Sub-total ---------------------------- 74,291.9 66,230.7 57,571.4
Discontinued Operations ---------------- 5,671.6 5,482.7 5,686.3
Total -------------------------------- $79,963.5 $71,713.4 $63,257.7
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
The pages to follow review LNC's results of consolidated operations and
financial condition. Historical financial information is presented and
analyzed. Where appropriate, factors that may affect future financial
performance are identified and discussed. Actual results could differ
materially from those indicated in forward-looking statements due to, among
other specific changes currently not known, subsequent significant changes in:
the company (e.g., acquisitions and divestitures), financial markets (e.g.,
interest rates and securities markets), legislation (e.g., taxes and product
taxation), regulations (e.g., insurance and securities regulations), acts of
God (e.g., hurricanes, earthquakes and storms), other insurance risks (e.g.,
policyholder mortality and morbidity) and competition.
On June 9, 1997, LNC announced that it had agreed to sell its 83.3% ownership
in American States Financial Corporation. The financial data for these
operations has been designated as "Discontinued Operations" for all historical
and current periods shown in the accompanying financial statements. Following
the completion of the sale on October 1, 1997, LNC recorded an estimated gain
of $775 million, net of federal income taxes. As a result of this sale the
fourth quarter of 1997 and subsequent quarters will show reduced operating
earnings. The amount of the reduction will depend on the timing and placement
of the proceeds from disposition. In the short run, the proceeds are expected
to be invested in liquid securities, used to pay down short-term debt and to
repurchase LNC common stock (see discontinued operations note on page 7). It
is expected that the bulk of the proceeds will ultimately be used to make
acquisitions of additional companies or blocks of business (life insurance,
annuities, investment management). Note 7 on page 9 references an acquisition
that will use the bulk of the proceeds.
REVIEW OF CONSOLIDATED OPERATIONS
The discussion that follows focuses on net income from continuing
operations for the nine months ended September 30, 1997 compared to the results
for the nine months ended September 30, 1996. The factors affecting the
current quarter to prior year quarter comparisons are essentially the same as
the year-to-date factors except as noted.
Insurance Premiums
Life and annuity premiums for the first nine months of 1997 decreased
$15.6 million or 3% compared with the first nine months of 1996. This decrease
is the net result of increases in business volume from the Life Insurance &
Annuities segment, being more than offset by a reduction in the premiums for
the Reinsurance and Lincoln UK segments. Health premiums decreased $149.1
million or 25% for the first nine months of 1997 compared with the first nine
months of 1996 as a result of decreased volumes of business in the Reinsurance
segment.
Insurance Fees
Insurance fees in the Life Insurance & Annuities and Lincoln UK segments
from universal life, other interest-sensitive life insurance contracts and
variable life insurance contracts increased $96.2 million or 22% compared with
the first nine months of 1996. This increase was the result of increases in
the volume of transactions, the fourth quarter 1996 purchase of a block of
group tax-qualified annuity business and a market-driven increase in the value
of existing customer accounts upon which some of the fees are based.
Investment Advisory Fees
Investment advisory fees increased by $17.4 million or 13% for the first
nine months of 1997 as a net result of increased volumes of business being
offset by lower participation fees than were experienced in a strong first half
of 1996.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION (continued)
REVIEW OF CONSOLIDATED OPERATIONS (continued)
Net Investment Income
Net investment income increased $148.7 million or 10% when compared with
the first nine months of 1996. This increase is the result of a 8% increase in
mean invested assets, an increase in the overall yield on investments from
7.43% to 7.48% (all calculations on a cost basis) and the relative impact of
the adjustment of discount on mortgage-backed securities. Net investment
income for the first nine months of 1997 included a charge of $.7 million
versus a charge of $8.0 million in the first nine months of 1996 from the
recurring adjustment of discount on mortgage-backed securities. The increase
in mean invested assets is the result of increased volumes of business in the
Life Insurance & Annuities and Reinsurance segments.
Realized Gain on Investments
The first nine months of 1997 and 1996 each had pre-tax realized gain on
investments of $71.6 million. These gains, which are net of related deferred
acquisition costs, amounts needed to satisfy policyholder commitments and
capital gains expenses, were the result of net gains on sales of investments,
less some modest write-downs and provisions for losses. Securities available-
for-sale that were deemed to have declines in fair value that are other than
temporary were written down. Also, write-downs and allowances on select
mortgage loans on real estate, real estate and other investments are
established when the underlying value of the property is deemed to be less than
the carrying value.
The pre-tax write-down of securities available-for-sale for the first nine
months of 1997 and 1996 were each $10.3 million. The fixed maturity securities
to which these write-downs apply were generally of investment grade quality at
the time of purchase, but were classified as "below investment grade" at the
time of the write-downs. During the first nine months of 1997, LNC released
$2.3 million in reserves on real estate and mortgage loans on real estate
versus a pre-tax charge of $2.6 million in the first nine months of 1996.
Other Revenue
Other revenue increased $17.1 million or 10% when compared to the first
nine months of 1996 as the result of increased volumes of fee income from the
Lincoln UK and Investment Management segments.
Insurance Benefits and Settlement Expenses
Life and annuity benefits and settlement expenses increased $106.8 million
or 7% when compared with the first nine months of 1996. This increase is the
result of increases in business volume from the Life Insurance and Annuities
segment. Health benefits increased $61.9 million or 13% for the first nine
months of 1997 when compared with the first nine months of 1996 as a net result
of decreased volumes of business being more than offset by additions to the
reserves for the disability income business within the Reinsurance segment (see
note 5 on page 7).
Underwriting, Acquisition, Insurance and Other Expenses
This expense increased $115.1 million or 11% for the first nine months of
1997 compared with the first nine months of 1996. The primary driver behind
this increase, beyond the general inflation rate, was the additional operating
expenses associated with 1) the block of tax-qualified annuity business
acquired in the fourth quarter of 1996 in the Life Insurance and Annuities
segment and 2) the acquisition of Voyageur Fund Managers, Inc. in the
Investment Management segment and the write-off of deferred acquisition costs
associated with the disability income business (see note 5 on page 8).
Interest and Debt Expense
Interest and debt expense increased $9.3 million or 15% as compared with
the first nine months of 1996. This was the net result of reduced interest
expense due to the use of short-term debt to retire a portion of the long-term
debt and increases in the average short-term debt outstanding. Interest on
short-term debt is expected to decrease in the fourth quarter of 1997 compared
to the first three quarters of 1997 due to a reduction in the average short-
term debt during that period due to the application of proceeds from the sale
of a subsidiary (see note 4 on page 7).
Federal Income Taxes
Federal income taxes for the first nine months of 1997 decreased from
$114.5 million in 1996 to $37.9 million in 1997. The decrease in federal
income taxes is a result of a decrease in pre-tax earnings and a reduction in
the effective tax rate for LNC's United Kingdom affiliate which resulted from
the decision to indefinitely reinvest its earnings.
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION (continued)
REVIEW OF CONSOLIDATED OPERATIONS (continued)
Summary
Net income for the first nine months of 1997 was $294.8 million or $2.85
per share compared with $370.8 million or $3.55 per share in the first nine
months of 1996. Excluding realized gain on investments and discontinued
operations LNC earned $115.9 million for the first nine months of 1997 compared
with $216.1 million for the first nine months of 1996. The primary factor
causing this decrease was the addition to the disability income reserve within
the Reinsurance segment (see note 5 on page 8). Net income for the fourth
quarter of 1997 will include the gain on sale of discontinued operations. As
indicated in note 4 on page 7, this one time gain is expected to be
approximately $775 million which converts to approximately $7.55 per share. As
noted in the introduction to Management's Discussion and Analysis (see page 11)
there will be a reduction in earnings from operations in the fourth quarter of
1997 due to the absence of earnings from the operations that were sold.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION
Investments
The total investment portfolio increased $132.4 million in the first nine
months of 1997. This is the net result of fixed annuity contractholders opting
to transfer funds to variable annuity contracts being more than offset by
increases from the purchases of investments from cash flow generated by the
business segments and the increase in the fair value of securities available-
for-sale.
The quality of LNC's fixed maturity securities portfolio as of September
30, 1997 was as follows:
Treasuries and AAA 27.1% BBB 29.1%
AA 7.3% BB 3.3%
A 28.5% Less than BB 4.7%
As of September 30, 1997, $1.9 billion or 8% of fixed maturity securities
was invested in below investment grade securities (less than BBB). This
represents 6.5% of the total investment portfolio. These percentages are
approximately 1% higher than have been reported earlier in 1997. This increase
is related to the fact that the operations moved to discontinued operations
included a minimal amount of below investment grade securities. This
percentage is expected to be lower once the proceeds of sale are received and
invested. The interest rates available on these below investment grade
securities are significantly higher than are available on other corporate debt
securities. Also, the risk of loss due to default by the borrower is
significantly greater with respect to such below investment grade securities
because these securities are generally unsecured, often subordinated to other
creditors of the issuer and issued by companies that usually have high levels
of indebtedness. LNC attempts to minimize the risks associated with these
below investment grade securities by limiting the exposure to any one issuer
and by closely monitoring the credit worthiness of such issuers. During the
nine months ended September 30, 1997, the aggregate cost of such investments
purchased was $1.6 billion. Aggregate proceeds from such investments sold were
$1.1 billion, resulting in a net realized pre-tax gain of $62.8 million.
LNC's entire fixed maturity and equity securities portfolio is classified
as "available-for-sale" and is carried at fair value. Changes in fair value,
net of related deferred acquisition costs, amounts required to satisfy
policyholder commitments and taxes, are charged or credited directly to
shareholders' equity.
As of September 30, 1997, mortgage loans on real estate and real estate
represented 10.8% and 2.0% of LNC's total investment portfolio. As of
September 30, 1997, the underlying properties supporting the mortgage loans on
real estate consisted of 21.6% in commercial office buildings, 28.9% in retail
stores, 22.2% in apartments, 14.6% in industrial buildings, 4.3% in
hotels/motels and 8.4% in other. In addition to the dispersion by property
type, the mortgage loan portfolio is geographically diversified throughout the
United States.
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
Impaired loans along with the related allowance for losses are as follows:
September 30 December 31
(in millions) 1997 1996
Impaired loans with allowance for losses --------- $107.8 $ 71.9
Allowance for losses ----------------------------- (6.4) (12.4)
Impaired loans with no allowance for losses ------ -- 2.3
Net Impaired Loans ----------------------------- $101.4 $ 61.8
Impaired loans with no allowance for losses are a result of 1) direct
write-downs or 2) collateral dependent loans where the fair value of the
collateral is greater than the recorded investment in the loan.
A reconciliation of the mortgage loan allowance for losses for these
impaired mortgage loans is as follows:
Nine Months Ended September 30 (in millions) 1997 1996
Balance at beginning of year --------------------- $12.4 $ 29.6
Provisions for losses ---------------------------- 2.2 2.5
Releases due to sales ---------------------------- (4.8) (1.6)
Releases due to foreclosures --------------------- (3.4) (.4)
Balance at End of Period ----------------------- $ 6.4 $30.1
The average recorded investment in impaired loans and the interest income
recognized on impaired loans were as follows:
Nine Months Ended September 30 (in millions) 1997 1996
Average recorded investment in impaired loans ---- $ 86.1 $161.4
Interest income recognized on impaired loans ----- 6.1 11.2
All interest income on impaired loans was recognized on the cash basis of
income recognition.
As of September 30, 1997 and 1996, LNC had restructured loans of $38.9
million and $62.5 million, respectively. LNC recorded $2.8 million and $4.2
million interest income on these restructured loans for the nine months ended
September 30, 1997 and 1996, respectively, as compared to interest income of
$3.9 million and $4.9 million that would have been recorded according to their
original terms.
As of September 30, 1997, LNC did not have any future commitments to lend
funds for non-accrual, restructured or other problem loans.
Fixed maturity securities available-for-sale, mortgage loans on real
estate and real estate that were non-income producing for the nine months ended
September 30, 1997 were not significant.
Cash and Invested Cash
Cash and invested cash increased by $102.2 million in the first nine
months of 1997. This increase is the result of a portion of the operating cash
flow being invested temporarily in short-term investments pending the placement
of funds in longer term investments.
Deferred Acquisition Costs
Deferred acquisition costs decreased $94.7 million during the first nine
months of 1997 as the net result of increases related to new business being
more than offset by the second quarter 1997 write-off of such costs in
conjunction with the strengthening of disability income reserves (see note 5 on
page 8).
Premiums and Fee Receivable
Premiums and fees receivable increased $3.6 million in the first nine
months of 1997 as the net result of increased volumes of business in the
Investment Management segment being partially offset by a decrease in the
Reinsurance segment.
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
Assets Held in Separate Accounts
This asset account as well as the corresponding liability account
increased by $8.0 billion in the first nine months of 1997, reflecting an
increase in annuity funds under management. This increase resulted from new
deposits, market appreciation and the continuation of fixed annuity
contractholders opting to transfer funds to variable annuity contracts.
Goodwill
The increase in the amount is the net result of additions related to the
purchase of a subsidiary being more than the on-going amortization for the nine
months ended September 30, 1997.
Other Intangible Assets
The decrease is the net result of additions related to the purchase of a
subsidiary being more than offset by the on-going amortization and an
adjustment to the Lincoln UK amount to more closely conform this segment to the
classification used for LNC's U.S. operations.
Other Assets
The increase in other assets of $47.5 million is the result of having a
higher receivable related to investment securities sold in the last few days of
the third quarter of 1997 versus the end of 1996.
Total Liabilities
Total liabilities from continuing operations increased by $8.0 billion in
the first nine months of 1997. The primary item underlying this increase is
the increase of $8.0 billion in the liabilities related to separate accounts.
As noted above, the increase in separate accounts related to increased levels
of business and the acquisition of the block of group tax-qualified annuity
business in the Life Insurance and Annuities segment. The reduction in
contractholder funds is the net result of new deposits being more than offset
by the withdrawal of guaranteed interest contract funds because of the decision
to exit this business. Increases in the other liability categories essentially
offset the reduction in contractholder funds. LNC's liabilities includes some
contingency items (see note 6 on page 8).
Shareholders' Equity
Total shareholders' equity increased $171.1 million in the first nine
months of 1997. Excluding the increase of $181.8 million related to an
increase in the unrealized gains on securities available-for-sale,
shareholders' equity decreased $10.7 million. This decrease was the net result
of increases due to $294.8 million from net income, $68.7 million from issuance
of common stock to purchase a subsidiary company and $19.6 million from the
issuance of common stock related to benefit plans, being more than offset by
the repurchase of common shares ($210.1 million), a decrease in the accumulated
foreign exchange gain ($32.4 million) and the declaration of dividends to
shareholders ($151.3 million).
Derivatives
As discussed in note 7 to the consolidated financial statements for the
year ended December 31, 1996 (see page 59 of LNC's Form 10-K), LNC has entered
into derivative transactions to reduce its exposure to fluctuations in interest
rates, the widening of bond yield spreads over comparable maturity U.S.
Government obligations and foreign exchange risks (hedged transactions).
Changes in the value of these derivatives are generally offset by changes in
the value of the items being hedged. Modifications to LNC's derivative
strategy are initiated periodically upon review of the company's overall risk
assessments. During the first nine months of 1997, LNC has made modifications
in its derivative positions as follows:
1. Decreased its use of interest rate cap agreements that are used to
hedge its annuity business from the effect of fluctuating interest
rates from $5.5 billion notional to $5.1 billion notional.
2. Added $1.1 billion in notional amount of swaptions to hedge a
portfolio of interest rate sensitive assets.
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
3. Terminated the remaining $147.7 million face amount of long
financial futures contracts that were hedging the anticipated
purchase of a portfolio of assets to support the group tax-qualified
annuity business acquired in October of 1996. The termination of
these futures contracts resulted in total losses of $1.8 million,
of which, $1.7 million were recognized and $100,000 were deferred.
4. Entered into an interest rate swap with a notional amount of $10
million. This swap is part of a replication trade, which will
result in a higher bond yield for LNC.
5. Decreased its use of foreign exchange forward contracts that are
hedging the foreign currency risk of its portfolio of foreign
bonds from $251.6 million notional to $234.0 million notional.
The termination of these foreign exchange forward contracts
resulted in the recognition of gains of $30.2 million.
6. Terminated the $50.2 million notional amount of foreign currency
options that were outstanding at year end. The terminations of
these foreign currency options resulted in net gains of $200,000.
LNC generally limits its selection of counterparties that are obligated
under these derivative contacts to counterparties that have an A credit rating
or above.
Liquidity and Cash Flow
Liquidity refers to the ability of an enterprise to generate adequate
amounts of cash from its normal operations to meet cash requirements with a
prudent margin of safety. Because of the interval of time from receipt of a
deposit or premium until payment of benefits or claims, LNC and other insurers
employ investment portfolios as an integral element of operations. By
segmenting its investment portfolios along product lines, LNC enhances the
focus and discipline it can apply to managing the liquidity as well as the
interest rate and credit risk of each portfolio commensurate with the profile
of the liabilities. For example, portfolios backing products with less certain
cash flows and/or withdrawal provisions are kept more liquid than portfolios
backing products with more predictable cash flows.
The consolidated statements of cash flows on page 6, indicates that
operating activities provided cash of $944.5 million during the first nine
months of 1997. This statement also classifies the other sources and uses of
cash by investing activities and financing activities and discloses the total
amount of cash available to meet LNC's obligations.
Although LNC generates adequate cash flow to meet the needs of its normal
operations, periodically LNC may issue debt or equity securities to fund
internal expansion, acquisitions, investment opportunities and the retirement
of LNC's debt and equity. As of September 30, 1997 LNC has a shelf
registration with an unused balance of $600 million that would allow LNC to
issue debt or equity securities. As of September 30, 1997 LNC also had an
unused balance of $185 million related to a registration that included the
right to offer various forms of hybrid securities. Finally, cash funds are
available from LNC's revolving credit agreement which provides for borrowing up
to $750 million.
Transactions such as those described in the preceding paragraph that
occurred recently include LNC's purchase and retirement of 3,318,000 and
694,582 shares of common stock at a cost of $210.1 million and $35.0 million in
the first nine months of 1997 and fourth quarter of 1996, respectively. The
3,318,000 shares purchased in 1997 includes 2,739,100 shares at a cost of
$179.6 million that have been purchased since the June 1997 board authorization
(see note 4 on page 7). In the period from October 1, 1997 through October 31,
1997 an additional 900,200 shares were purchased at a cost of $63.4 million.
After subtracting the purchases through October 31, LNC has an open
authorization to pay out an additional $257.0 million to repurchase LNC common
stock. Also, LNC issued 1,320,902 shares of common stock in April 1997 valued
at $68.7 million to purchase a subsidiary company. Finally, in the second
quarter of 1997, LNC repurchased and retired $86.7 million of its long-term
debt at a cost of $98.1 million. This retirement of long-term debt resulted in
additional short-term debt which is expected to be repaid as noted below.
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
Based on the terms of the sale of a subsidiary (see discontinued
operations note on page 7), LNC received $2.65 billion on October 1, 1997. LNC
and its subsidiaries will use approximately $445 million of these proceeds to
pay the taxes related to the sale and, as noted above, up to $500 million to
purchase LNC common stock. The remaining balance will be applied to pay off a
portion of LNC's short-term debt and invested for general corporate purposes
pending the purchase of additional subsidiary companies or blocks of business.
As shown in note 8 (see page 10), LNC has signed an agreement to purchase a
block of individual life and annuity business from CIGNA Corporation for
approximately $1.4 billion. Select transactions as noted occurred in advance
of the October 1, 1997 closing of the sale of this subsidiary and as a result
short-term debt was higher as of September 30, 1997 than it was as of June 30,
1997 or December 31, 1996.
PART II - OTHER INFORMATION AND EXHIBITS
Items 1, 2, 3, 4 and 5 of this Part II are either inapplicable or are
answered in the negative and are omitted pursuant to the instructions to
Part II.
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits of the Registrant are included in this report.
(Note: The number preceding the exhibit corresponds to the specific
number within Item 601 of Regulation S-K.)
02 Second Amended and Restated Asset Transfer and Acquisition
Agreement Dated July 27, 1997
11 Computation of Per Share Earnings
12 Historical Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) During the quarter ended September 30, 1997, a Form 8-K was filed
with the Commission regarding LNC's press release announcing its
signing of a definitive agreement to acquire a block of individual
life insurance and annuity business from CIGNA Corporation. This
filing received a filing date of July 30, 1997.
<PAGE> 18
SIGNATURE PAGE
Pursuant to the requirements 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.
LINCOLN NATIONAL CORPORATION
By /S/ Richard C. Vaughan
Richard C. Vaughan,
Executive Vice President and
Chief Financial Officer
/S/ Donald L. Van Wyngarden
Donald L. Van Wyngarden,
Second Vice President and Controller
Date November 12, 1997
<PAGE> 19
LINCOLN NATIONAL CORPORATION
Exhibit Index for the Report on Form 10-Q
for the Quarter Ended September 30, 1997
Exhibit Number Description Page Number
02 Second Amended and Restated Asset 20
Transfer and Acquisition Agreement
Dated as of July 27, 1997
11 Computation of Per Share Earnings 326
12 Historical Ratio of Earnings to
Fixed Charges 327
27 Financial Data Schedule 328
<PAGE> 20
SECOND AMENDED AND RESTATED
ASSET TRANSFER AND ACQUISITION AGREEMENT
By and Among
CIGNA CORPORATION,
CONNECTICUT GENERAL CORPORATION,
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
CIGNA LIFE INSURANCE COMPANY,
LINCOLN NATIONAL CORPORATION,
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY,
and
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Dated as of July 27, 1997
<PAGE> TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.01. Definitions . . . . . . . . . . . . . . . . . . . . . 2
Adjusted Statutory Reserves and Other Statutory
Liabilities . . . . . . . . . . . . . . . . . . . . 2
Administrative Services Agreements. . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . 2
Allocable Amount. . . . . . . . . . . . . . . . . . . 2
Ancillary Agreements. . . . . . . . . . . . . . . . . 2
Annual Rate . . . . . . . . . . . . . . . . . . . . . 3
Antitrust Division. . . . . . . . . . . . . . . . . . 3
Applicable Law. . . . . . . . . . . . . . . . . . . . 3
Asserted Liability. . . . . . . . . . . . . . . . . . 3
Assignable Licensed Principally Used Software . . . . 3
Assigned and Assumed Contracts. . . . . . . . . . . . 3
Assumed Liabilities . . . . . . . . . . . . . . . . . 3
Band 1 Employee . . . . . . . . . . . . . . . . . . . 3
Band 2 Employee . . . . . . . . . . . . . . . . . . . 3
Benefit Plans . . . . . . . . . . . . . . . . . . . . 3
Benefits Affected Employee. . . . . . . . . . . . . . 3
Benefits Effective Date . . . . . . . . . . . . . . . 3
Bill of Sale. . . . . . . . . . . . . . . . . . . . . 3
Books and Records . . . . . . . . . . . . . . . . . . 3
Brokers . . . . . . . . . . . . . . . . . . . . . . . 4
Brokers and Agents. . . . . . . . . . . . . . . . . . 4
Business. . . . . . . . . . . . . . . . . . . . . . . 4
Business Day. . . . . . . . . . . . . . . . . . . . . 4
CA. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Ceding Commissions. . . . . . . . . . . . . . . . . . 4
CFA . . . . . . . . . . . . . . . . . . . . . . . . . 4
CFA Closing . . . . . . . . . . . . . . . . . . . . . 4
CIGNA . . . . . . . . . . . . . . . . . . . . . . . . 4
CIGNA Non-Compete . . . . . . . . . . . . . . . . . . 4
Claims Notice . . . . . . . . . . . . . . . . . . . . 4
CLIC. . . . . . . . . . . . . . . . . . . . . . . . . 4
CLIC Administrative Services Agreement. . . . . . . . 4
CLIC Indemnity Reinsurance Agreement. . . . . . . . . 5
Closing . . . . . . . . . . . . . . . . . . . . . . . 5
Closing Balance Sheet . . . . . . . . . . . . . . . . 5
Closing Date. . . . . . . . . . . . . . . . . . . . . 5
COBRA . . . . . . . . . . . . . . . . . . . . . . . . 5
Code. . . . . . . . . . . . . . . . . . . . . . . . . 5
COLI Business . . . . . . . . . . . . . . . . . . . . 5
Commission. . . . . . . . . . . . . . . . . . . . . . 5
Connecticut SAP . . . . . . . . . . . . . . . . . . . 5
Contract Employees. . . . . . . . . . . . . . . . . . 5
Effective Date. . . . . . . . . . . . . . . . . . . . 5
Elections . . . . . . . . . . . . . . . . . . . . . . 5
Environmental Laws. . . . . . . . . . . . . . . . . . 6
ERISA . . . . . . . . . . . . . . . . . . . . . . . . 6
Estimated Statutory Carrying Value. . . . . . . . . . 6
Externally Managed Funds. . . . . . . . . . . . . . . 6
Final Balance Sheet . . . . . . . . . . . . . . . . . 6
403(b) Contract . . . . . . . . . . . . . . . . . . . 6
FTC . . . . . . . . . . . . . . . . . . . . . . . . . 6
GAAP. . . . . . . . . . . . . . . . . . . . . . . . . 6
General Account Liabilities . . . . . . . . . . . . . 6
General Account Other Insurance Assets. . . . . . . . 6
General Account Reserves. . . . . . . . . . . . . . . 7
General Assignment and Assumption Agreement . . . . . 7
Hazardous Materials . . . . . . . . . . . . . . . . . 7
HIPAA . . . . . . . . . . . . . . . . . . . . . . . . 7
HSR Act . . . . . . . . . . . . . . . . . . . . . . . 7
Income Tax Regulations. . . . . . . . . . . . . . . . 7
Indemnified Party . . . . . . . . . . . . . . . . . . 7
Indemnifying Party. . . . . . . . . . . . . . . . . . 7
Indemnity Reinsurance Agreements. . . . . . . . . . . 7
Indiana SAP . . . . . . . . . . . . . . . . . . . . . 7
Initial Portfolio . . . . . . . . . . . . . . . . . . 7
Insurance Contracts . . . . . . . . . . . . . . . . . 7
Interim CIGNA Financial Statements. . . . . . . . . . 8
Interim LLANY Financial Statements. . . . . . . . . . 8
Interim Purchaser Financial Statements. . . . . . . . 8
Internally Managed Funds. . . . . . . . . . . . . . . 8
Investment Assets . . . . . . . . . . . . . . . . . . 8
IRS . . . . . . . . . . . . . . . . . . . . . . . . . 8
July 18 Letter. . . . . . . . . . . . . . . . . . . . 8
knowledge . . . . . . . . . . . . . . . . . . . . . . 8
Lender. . . . . . . . . . . . . . . . . . . . . . . . 8
License Agreement . . . . . . . . . . . . . . . . . . 8
Licensed Generally Used Software. . . . . . . . . . . 9
Licensed Principally Used Software. . . . . . . . . . 9
LLANY . . . . . . . . . . . . . . . . . . . . . . . . 9
LLANY Administrative Services Agreement . . . . . . . 9
LLANY Indemnity Reinsurance Agreement . . . . . . . . 9
LNC . . . . . . . . . . . . . . . . . . . . . . . . . 9
Loss and Losses . . . . . . . . . . . . . . . . . . . 9
material or material adverse effect on the Business . 9
Mortgage Loans. . . . . . . . . . . . . . . . . . . .10
NAIC. . . . . . . . . . . . . . . . . . . . . . . . .10
NASD. . . . . . . . . . . . . . . . . . . . . . . . .10
New York Contract Closing Date Investment Assets. . .10
New York Contracts. . . . . . . . . . . . . . . . . .10
New York SAP. . . . . . . . . . . . . . . . . . . . .10
1940 Act. . . . . . . . . . . . . . . . . . . . . . .10
90-Day Treasury Rate. . . . . . . . . . . . . . . . .10
Non-New York Contract Closing Date Investment Assets.10
Non-New York Contracts. . . . . . . . . . . . . . . .10
Office Lease Agreement. . . . . . . . . . . . . . . .10
Office Sub-Lease Agreements . . . . . . . . . . . . .10
Opinion . . . . . . . . . . . . . . . . . . . . . . .10
Other Statutory Assets. . . . . . . . . . . . . . . .11
Owned Generally Used Software . . . . . . . . . . . .11
Owned Principally Used Software . . . . . . . . . . .11
Parent. . . . . . . . . . . . . . . . . . . . . . . .11
Parent Subsidiaries . . . . . . . . . . . . . . . . .11
Pension Plans . . . . . . . . . . . . . . . . . . . .11
Permits . . . . . . . . . . . . . . . . . . . . . . .11
Person. . . . . . . . . . . . . . . . . . . . . . . .11
Post-Closing Contracts. . . . . . . . . . . . . . . .11
premiums. . . . . . . . . . . . . . . . . . . . . . .11
Pro Forma Financial Statements. . . . . . . . . . . .11
Proposed Balance Sheet. . . . . . . . . . . . . . . .11
Purchase Price. . . . . . . . . . . . . . . . . . . .11
Purchaser . . . . . . . . . . . . . . . . . . . . . .11
Purchaser Administrative Services Agreement . . . . .11
Purchaser Financial Statements. . . . . . . . . . . .12
Purchaser Indemnitees . . . . . . . . . . . . . . . .12
Purchaser Indemnity Reinsurance Agreement . . . . . .12
Purchaser Key People. . . . . . . . . . . . . . . . .12
Purchaser's Defined Benefit Plan. . . . . . . . . . .12
Purchaser's 401(k) Plans. . . . . . . . . . . . . . .12
Purchaser's Money Purchase Plan . . . . . . . . . . .12
Purchaser's Retiree Welfare Plans . . . . . . . . . .12
Qualified Contract. . . . . . . . . . . . . . . . . .12
Qualified Plans . . . . . . . . . . . . . . . . . . .12
Real Estate Assets. . . . . . . . . . . . . . . . . .12
Retained Liabilities. . . . . . . . . . . . . . . . .12
Securities Act. . . . . . . . . . . . . . . . . . . .14
Section 5.31 Policies . . . . . . . . . . . . . . . .14
Section 10.04 Purchaser Obligation. . . . . . . . . .14
Section 10.04 Seller Obligation . . . . . . . . . . .14
Seller. . . . . . . . . . . . . . . . . . . . . . . .14
Seller Financial Statements . . . . . . . . . . . . .14
Seller Indemnitees. . . . . . . . . . . . . . . . . .14
Seller Key People . . . . . . . . . . . . . . . . . .14
Seller Parties. . . . . . . . . . . . . . . . . . . .15
Seller Separate Accounts. . . . . . . . . . . . . . .15
Seller's Deferred Compensation Plan . . . . . . . . .15
Seller's Defined Benefit Plan . . . . . . . . . . . .15
Seller's 401(k) Plan. . . . . . . . . . . . . . . . .15
Seller's Money Purchase Plan. . . . . . . . . . . . .15
Separate Account Liabilities. . . . . . . . . . . . .15
Settlement Agreements . . . . . . . . . . . . . . . .15
Severance Costs . . . . . . . . . . . . . . . . . . .15
Statutory Carrying Value. . . . . . . . . . . . . . .15
Stock Purchase Agreement. . . . . . . . . . . . . . .15
Subsidiary. . . . . . . . . . . . . . . . . . . . . .15
Subsidiary Stock. . . . . . . . . . . . . . . . . . .15
Suitable Employment . . . . . . . . . . . . . . . . .15
Taxes . . . . . . . . . . . . . . . . . . . . . . . .16
Taxing Authority. . . . . . . . . . . . . . . . . . .16
Third Party Accountant. . . . . . . . . . . . . . . .16
Third Party Claimant. . . . . . . . . . . . . . . . .16
Transferred Assets. . . . . . . . . . . . . . . . . .16
Transferred Contracts . . . . . . . . . . . . . . . .17
Transition Services Agreement . . . . . . . . . . . .17
25% Premium Threshold . . . . . . . . . . . . . . . .17
WARN Act. . . . . . . . . . . . . . . . . . . . . . .17
Welfare Plans . . . . . . . . . . . . . . . . . . . .17
ARTICLE II
TRANSFER AND ACQUISITION OF ASSETS. . . . . . . . . . . . . .17
2.01. Cash Consideration. . . . . . . . . . . . . . . . . .17
2.02. Acquisition of Transferred Assets and Assumption of
Assumed Liabilities. . . . . . . . . . . . . . . .17
2.03. Place and Date of Closing; Balance Sheets;
Closing Date Transfers of Investment Assets
and Cash . . . . . . . . . . . . . . . . . . . . . 18
2.04. Post-Closing Adjustments. . . . . . . . . . . . . . .20
2.05. Closing Items . . . . . . . . . . . . . . . . . . . .22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER . . . . .23
3.01. Organization, Standing and Authority of CIGNA, Parent,
Seller and CLIC. . . . . . . . . . . . . . . . . .23
3.02. Authorization. . . . . . . . . . . . . . . . . . . . .23
3.03. Actions and Proceedings. . . . . . . . . . . . . . . .24
3.04. No Conflict or Violation . . . . . . . . . . . . . . .24
3.05. Governmental Consents and Approvals. . . . . . . . . .25
3.06. Computer Software and Intellectual Property. . . . . .25
3.07. Brokerage and Financial Advisers . . . . . . . . . . .26
3.08. Compliance with Laws . . . . . . . . . . . . . . . . .26
3.09. Permits, Licenses and Franchises . . . . . . . . . . .26
3.10. Insurance Contracts. . . . . . . . . . . . . . . . . .26
3.11. Regulatory Filings . . . . . . . . . . . . . . . . . .28
3.12. Brokers and Agents . . . . . . . . . . . . . . . . . .28
3.13. Reinsurance. . . . . . . . . . . . . . . . . . . . . .29
3.14. Conduct of Business. . . . . . . . . . . . . . . . . .29
3.15. Absence of Certain Changes . . . . . . . . . . . . . .29
3.16. Other Sale Arrangements. . . . . . . . . . . . . . . .29
3.17. Seller Separate Accounts and Underlying Funds. . . . .29
3.18. Assigned and Assumed Contracts . . . . . . . . . . . .30
3.19. Employees. . . . . . . . . . . . . . . . . . . . . . .30
3.20. Employee Benefit Plans; ERISA. . . . . . . . . . . . .31
3.21. Labor Relations and Employment . . . . . . . . . . . .34
3.22. Transferred Assets . . . . . . . . . . . . . . . . . .34
3.23. Contracts. . . . . . . . . . . . . . . . . . . . . . .35
3.24. GAAP Financial Statements. . . . . . . . . . . . . . .36
3.25. Statutory Statements . . . . . . . . . . . . . . . . .37
3.26. Tax Matters. . . . . . . . . . . . . . . . . . . . . .37
3.27. Transition Services Agreement. . . . . . . . . . . . .38
3.28. Pro Forma Financial Statements . . . . . . . . . . . .38
3.29. Cash Flow Testing. . . . . . . . . . . . . . . . . . .38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LNC, PURCHASER AND LLANY. .38
4.01. Organization and Standing. . . . . . . . . . . . . . .38
4.02. Authorization. . . . . . . . . . . . . . . . . . . . .39
4.03. Actions and Proceedings. . . . . . . . . . . . . . . .39
4.04. No Conflict or Violation . . . . . . . . . . . . . . .39
4.05. Governmental Consents and Approvals. . . . . . . . . .40
4.06. Brokerage and Financial Advisers . . . . . . . . . . .40
4.07. Compliance with Laws . . . . . . . . . . . . . . . . .40
4.08. Permits, Licenses and Franchises . . . . . . . . . . .40
4.09. SAP Financial Statements . . . . . . . . . . . . . . .41
4.10. Statutory Statements . . . . . . . . . . . . . . . . .41
4.11. Absence of Certain Changes . . . . . . . . . . . . . .42
4.12. Qualified Institutional Buyer. . . . . . . . . . . . .42
4.13. Sufficient Funds . . . . . . . . . . . . . . . . . . .42
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . .42
5.01. Conduct of Business. . . . . . . . . . . . . . . . . .42
5.02. Certain Transactions . . . . . . . . . . . . . . . . .44
5.03. Investigations; Pre-Closing Access . . . . . . . . . .44
5.04. Post-Closing Access. . . . . . . . . . . . . . . . . .45
5.05. HSR Act Filings. . . . . . . . . . . . . . . . . . . .45
5.06. Consents and Reasonable Efforts. . . . . . . . . . . .46
5.07. Representations and Warranties . . . . . . . . . . . .47
5.08. Further Assurances . . . . . . . . . . . . . . . . . .47
5.09. Expenses . . . . . . . . . . . . . . . . . . . . . . .48
5.10. Indemnity Reinsurance Agreements . . . . . . . . . . .48
5.11. Administrative Services Agreements . . . . . . . . . .48
5.12. [RESERVED]. . . . . . . . . . . . . . . . . . . . . .48
5.13. Transition Services Agreement. . . . . . . . . . . . .49
5.14. General Assignment and Assumption Agreement. . . . . .49
5.15. Bill of Sale . . . . . . . . . . . . . . . . . . . . .49
5.16. Reinsurance Credit for New York Contacts . . . . . . .49
5.17. Stock Purchase Agreement . . . . . . . . . . . . . . .49
5.18. License Agreement. . . . . . . . . . . . . . . . . . .49
5.19. Assumption Reinsurance Agreements. . . . . . . . . . .49
5.20. Certain Events . . . . . . . . . . . . . . . . . . . .50
5.21. Reinsurance Treaties . . . . . . . . . . . . . . . . .52
5.22. Termination of Certain Agreements. . . . . . . . . . .52
5.23. Employees; Severance Payments. . . . . . . . . . . . .52
5.24. Employee Benefits. . . . . . . . . . . . . . . . . . .55
5.25. Allocation of Purchase Price and Assumed Liabilities .60
5.26. Other Agreements . . . . . . . . . . . . . . . . . . .61
5.27. Bank Accounts and Lockboxes. . . . . . . . . . . . . .61
5.28. Computer Software. . . . . . . . . . . . . . . . . . .61
5.29. Section 338(h)(10) Election. . . . . . . . . . . . .62
5.30. Confidentiality. . . . . . . . . . . . . . . . . . . .62
5.31. Certain Seller Approval Rights . . . . . . . . . . . .63
5.32. Provision of Certain Services. . . . . . . . . . . . .63
5.33. Certain Product Tax Matters. . . . . . . . . . . . . .64
5.34. Transition to Purchaser Policy Forms . . . . . . . . .64
5.35. Systems. . . . . . . . . . . . . . . . . . . . . . . .65
5.36. Updated Financial Information. . . . . . . . . . . . .65
5.37. Performance of Covenants . . . . . . . . . . . . . . .66
5.38. Separate Account Revenues. . . . . . . . . . . . . . .66
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION OF PURCHASER AND
LLANY TO CLOSE. . . . . . . . . . . . . . . . . . . . . . . 66
6.01. Representations and Warranties . . . . . . . . . . . .66
6.02. Other Agreements . . . . . . . . . . . . . . . . . . .66
6.03. Governmental and Regulatory Consents and Approvals . .66
6.04. Possession of Assets; Instruments of Conveyance. . . .67
6.05. Injunction . . . . . . . . . . . . . . . . . . . . . .67
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONOF SELLER TO CLOSE. . .67
7.01. Representations and Warranties . . . . . . . . . . . .67
7.02. Other Agreements . . . . . . . . . . . . . . . . . . .67
7.03. Governmental and Regulatory Consents and Approvals . .67
7.04. Purchase Price . . . . . . . . . . . . . . . . . . . .68
7.05. Injunction . . . . . . . . . . . . . . . . . . . . . .68
ARTICLE VIII
FURTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . .68
8.01. CIGNA's Non-Compete. . . . . . . . . . . . . . . . . .68
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . .69
9.01. Survival of Representations and Warranties . . . . . .69
ARTICLE X
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . .69
10.01. Obligation to Indemnify . . . . . . . . . . . . . . .69
10.02. Claims Notice . . . . . . . . . . . . . . . . . . . .71
10.03. Right to Contest Claims of Third Parties. . . . . . .71
10.04. Certain Liabilities . . . . . . . . . . . . . . . . .73
10.05. Indemnification Payments. . . . . . . . . . . . . . .75
10.06. Exclusivity . . . . . . . . . . . . . . . . . . . . .75
ARTICLE XI
TERMINATION PRIOR TO CLOSING. . . . . . . . . . . . . . . . .75
11.01. Termination of Agreement. . . . . . . . . . . . . . .75
11.02. Survival. . . . . . . . . . . . . . . . . . . . . . .76
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . .76
12.01. Publicity . . . . . . . . . . . . . . . . . . . . . .76
12.02. Confidentiality . . . . . . . . . . . . . . . . . . .76
12.03. Notices . . . . . . . . . . . . . . . . . . . . . . .76
12.04. Entire Agreement. . . . . . . . . . . . . . . . . . .79
12.05. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies . . . . . . . . . . . . . .79
12.06. Governing Law . . . . . . . . . . . . . . . . . . . .79
12.07. Binding Effect; Assignment. . . . . . . . . . . . . .80
12.08. Interpretation. . . . . . . . . . . . . . . . . . . .80
12.09. No Third Party Beneficiaries. . . . . . . . . . . . .80
12.10. Counterparts. . . . . . . . . . . . . . . . . . . . .80
12.11. Other Agreements, Exhibits and Schedules. . . . . . .80
12.12. Headings. . . . . . . . . . . . . . . . . . . . . . .80
12.13. Dollar References . . . . . . . . . . . . . . . . . .81
<PAGE> EXHIBITS
Exhibit A - Form of Purchaser Indemnity Reinsurance Agreement
Exhibit B - Form of Purchaser Administrative Services
Agreement
Exhibit C - Form of LLANY Indemnity Reinsurance Agreement
Exhibit D - Form of LLANY Administrative Services Agreement
Exhibit E - Form of CLIC Indemnity Reinsurance Agreement
Exhibit F - Form of CLIC Administrative Services Agreement
Exhibit G - Form of Transition Services Agreement
Exhibit H - Form of General Assignment and Assumption
Agreement
Exhibit I - Form of Bill of Sale
Exhibit J - State Regulatory Approvals
<PAGE> INDEX OF SCHEDULES
Schedule 1.01(A) - Certain Excluded Contracts
Schedule 1.01(B) - Assigned and Assumed Contracts
Schedule 1.01(C) - COLI Forms
Schedule 1.01(D) - Initial Portfolio
Schedule 1.01(E) - Current Insurance Forms
Schedule 1.01(F) - Pro Forma Financial Statements
Schedule 1.01(G) - Separate Accounts
Schedule 1.01(H) - Excluded Assets
Schedule 1.01(J) - Seller Key People
Schedule 3.03 - Actions and Proceedings
Schedule 3.04 - No Conflict or Violation
Schedule 3.06 (A) - Principally Used Software
Schedule 3.06(B) - Generally Used Software
Schedule 3.09 - Permits, Licenses and Franchises
Schedule 3.10(A) - Qualified Contracts
Schedule 3.11 - Regulatory Filings
Schedule 3.12 - Brokers and Agents
Schedule 3.13 - Reinsurance
Schedule 3.14 - Conduct of Business
Schedule 3.19(A) - Employees
Schedule 3.19(B) - Pay to Stay Arrangements
Schedule 3.19(C) - Severance Benefits
Schedule 3.19(D) - Restricted Stock Awards and Options
Schedule 3.20(A) - Benefit Plans
Schedule 3.20(B) - Qualified Plans
Schedule 3.20(C) - Unfunded Benefit Liability
Schedule 3.20(D) - Funding Liability
Schedule 3.20(I) - Acceleration of Benefits
Schedule 3.20(J) - COBRA and HIPAA
Schedule 3.20(L) - Summary Plan Descriptions
Schedule 3.21 - Labor Relations
Schedule 3.22 - Liens
Schedule 3.23(A) - List of Contracts
Schedule 3.23(B) - Defaults, Termination Provisions
Schedule 3.23(C) - Crediting Rates Restrictions
Schedule 3.26 - Tax Matters
Schedule 3.28 - Undisclosed Liabilities
Schedule 3.29 - Cash Flow Testing
Schedule 5.01(A) - Conduct of Business
Schedule 5.01(B)(iii) - Plan Changes
Schedule 5.21 - Assignment of Reinsurance Treaties
Schedule 10.04 - Class Settlements
<PAGE>
SECOND AMENDED AND RESTATED
ASSET TRANSFER AND ACQUISITION AGREEMENT
This SECOND AMENDED AND RESTATED ASSET TRANSFER AND
ACQUISITION AGREEMENT (this "Agreement"), dated as of July 27, 1997,
is entered into by and among CIGNA Corporation, a Delaware corporation
("CIGNA") ,Connecticut General Corporation, a Connecticut corporation
and a wholly owned indirect subsidiary of CIGNA ("Parent"),
Connecticut General Life Insurance Company, a stock life insurance
company organized under the laws of the State of Connecticut and a
wholly owned subsidiary of Parent ("Seller"), CIGNA Life Insurance
Company, a stock life insurance company organized under the laws of
the State of Connecticut and an indirect wholly owned subsidiary of
CIGNA ("CLIC"), Lincoln National Corporation, an Indiana corporation
("LNC"), The Lincoln National Life Insurance Company, a stock life
insurance company organized under the laws of the State of Indiana and
a wholly owned subsidiary of LNC ("Purchaser"), and Lincoln Life &
Annuity Company of New York, a stock life insurance company organized
under the laws of the State of New York and a wholly owned subsidiary
of Purchaser ("LLANY") and amends and restates in its entirety the
Amended and Restated Asset Transfer and Acquisition Agreement entered
into by and among the aforementioned parties on, and dated as of,
July 27, 1997.
RECITALS:
A. The Acquisition. Upon the terms and subject to the
conditions of this Agreement, Seller and CLIC wish to sell, and
Purchaser wishes to acquire, certain of the life insurance,
disability income insurance and annuity business of Seller and CLIC,
and certain other assets of Parent, Seller and CLIC, as described
below. Concurrently herewith, CIGNA, Parent and Purchaser are entering
into the Stock Purchase Agreement (as defined below) relating to the
purchase by Purchaser of the stock of the Parent Subsidiaries (as
defined below).
B. The Documents. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as defined below) the
parties hereto will execute and deliver the following agreements and
instruments dated as of the Closing Date (as defined below) or a date
prior thereto: (i) Seller and Purchaser, Seller and LLANY and CLIC and
Purchaser will enter into the Purchaser Indemnity Reinsurance
Agreement, the LLANY Indemnity Reinsurance Agreement and the CLIC
Indemnity Reinsurance Agreement (each as defined below), respectively,
providing for, upon the terms and conditions and for the consideration
set forth therein, the indemnity reinsurance as of the Effective Date
(as defined below) by Purchaser and LLANY of the general account
liabilities of Seller and CLIC under the Insurance Contracts (as
defined below) and under any policies or contracts issued by Seller
and CLIC following the Effective Date that would have constituted
Insurance Contracts if issued by Seller prior to the Effective Date;
(ii) Seller and Purchaser, Seller and LLANY and CLIC and Purchaser
will enter into the Purchaser Administrative Services Agreement, the
LLANY Administrative Services Agreement and the CLIC Administrative
Services Agreement (each as defined below), respectively, providing
for the servicing by Purchaser and LLANY of the reinsured books of
business in the name of the Seller and CLIC and for the servicing of
the Seller Separate Accounts (as defined below) business attributable
to Seller and CLIC; (iii) Seller and Purchaser will enter into the
Transition Services Agreement (as defined below), providing for the
provision by Seller of any services to the Business (as defined below)
currently provided by Seller or any Affiliate (as defined below) of
Seller and requested by Purchaser as necessary to enable Purchaser to
operate the Business and for the provision by Purchaser to Seller of
certain services, for a period not to exceed 18 months after the
Closing Date; (iv) Seller, CLIC, Purchaser and LLANY will enter into
the General Assignment and Assumption Agreement to provide for the
assignment by Seller and CLIC of certain assets and the assumption by
Purchaser and LLANY of certain non-insurance obligations relating to
the Business; (v) Seller and CLIC will execute and deliver to
Purchaser and LLANY all necessary instruments of transfer, including
but not limited to the Bill of Sale (as defined below); and (vi)
Seller, CLIC, Purchaser and LLANY will enter into the License
Agreement (as defined below).
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, and in reliance upon the representations,
warranties, conditions and covenants contained herein, and intending
to be legally bound hereby, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms shall have
the respective meanings set forth below throughout this Agreement:
"Adjusted Statutory Reserves and Other Statutory Liabilities"
at any time means statutory reserves and other statutory liabilities
of the Business appropriately includable in line items 1 through 25,
except line 24.1, of the Liabilities, Surplus and Other Funds page of
the NAIC Annual Statement Blank (1996 format), but excluding from such
statutory reserves and other statutory liabilities the statutory
liabilities included within Retained Liabilities.
"Administrative Services Agreements" means the Purchaser
Administrative Services Agreement, the LLANY Administrative Services
Agreement and the CLIC Administrative Services Agreement.
"Affiliate" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common
control with such Person.
"Allocable Amount" shall have the meaning set forth in
Section 5.25(a) hereof.
"Ancillary Agreements" means the Indemnity Reinsurance
Agreements, the Administrative Services Agreements, the General
Assignment and Assumption Agreement, the Bill of Sale, the Transition
Services Agreement, the Stock Purchase Agreement, the License
Agreement, the Office Lease Agreement and the Office Sub-Lease
Agreements.
"Annual Rate" means the value of r in the expression (1 +
r)n/365 - 1, where "n" is equal to the number of days for which interest
is to be computed and the result of the expression is the interest
factor for computing the applicable interest amounts.
"Antitrust Division" shall have the meaning set forth in
Section 5.05 hereof.
"Applicable Law" means any domestic or foreign federal, state
or local statute, law, ordinance, rule, administrative interpretation,
regulation, order, writ, injunction, directive, judgment, decree,
policy, guideline or other requirement (including without limitation
those of the Commission, NASD, NAIC and any state) applicable to the
parties hereto, or any of their respective Affiliates, properties,
assets, officers, directors, employees or agents, as the case may be.
"Asserted Liability" shall have the meaning set forth in
Section 10.03(a) hereof.
"Assignable Licensed Principally Used Software" means the
Licensed Principally Used Software as to which (i) no consent to the
assignment thereof to Purchaser is required or (ii) consent to the
assignment thereof has been obtained on or prior to the Closing Date.
"Assigned and Assumed Contracts" means all contracts and
other agreements material to the operation of the Business, including
but not limited to those identified on Schedule 1.01(B), but excluding
(i) Insurance Contracts, (ii) reinsurance treaties and agreements,
and (iii) those listed on Schedule 1.01(A).
"Assumed Liabilities" shall have the meaning set forth in the
General Assignment and Assumption Agreement.
"Band 1 Employee" shall have the meaning set forth in
Section 5.23(a) hereof.
"Band 2 Employee" shall have the meaning set forth in
Section 5.23(c) hereof.
"Benefit Plans" shall have the meaning set forth in Section
3.20(a) hereof.
"Benefits Affected Employee" shall have the meaning set forth
in Section 5.24(a) hereof.
"Benefits Effective Date" shall have the meaning set forth in
Section 5.24(a) hereof.
"Bill of Sale" means the Bill of Sale which is substantially
in the form of Exhibit I hereto.
"Books and Records" means the originals or copies of all
customer lists, policy information, Insurance Contract forms and
rating plans, disclosure and other documents and filings required
under applicable securities laws, claim records, sales records,
underwriting records, financial records, tax records and compliance
records in the possession or control of Seller or CLIC and relating
principally to the operation of the Business, including, without
limitation, any database, magnetic or optical media (to the extent not
subject to licensing restrictions) and any other form of recorded,
computer generated or stored information or process, but excluding any
such records that are subject to the attorney-client privilege.
"Brokers" shall have the meaning set forth in Section 3.12
hereof.
"Brokers and Agents" shall have the meaning set forth in
Section 3.12 hereof.
"Business" means the business of issuing, selling and
administering individual life insurance (other than the COLI
Business), disability income insurance and annuity contracts, the
other business activities related thereto and the respective
businesses currently conducted by the Parent Subsidiaries, in each
case as currently conducted by CIGNA's Individual Insurance Division
and the Parent Subsidiaries or, where so specified herein, as
conducted by Purchaser and LLANY following the Closing.
"Business Day" means any day other than a Saturday, Sunday,
a day on which banking institutions in any of the States of
Connecticut, Indiana or New York are permitted or obligated by law to
be closed or a day on which the New York Stock Exchange is closed for
trading.
"CA" means CIGNA Associates, Inc., a Connecticut corporation.
"Ceding Commissions" shall mean the aggregate of the ceding
commissions provided for under the Indemnity Reinsurance Agreements.
"CFA" means CIGNA Financial Advisors, Inc., a Connecticut
corporation.
"CFA Closing" shall have the meaning set forth in Section
2.03(a) hereof.
"CIGNA" shall have the meaning set forth in the first
paragraph of this Agreement.
"CIGNA Non-Compete" means the non-competition agreement
contained in Article VIII hereof.
"Claims Notice" shall have the meaning set forth in Section
10.02 hereof.
"CLIC" shall have the meaning set forth in the first
paragraph of this Agreement.
"CLIC Administrative Services Agreement" means the
Administrative Services Agreement between CLIC and Purchaser,
substantially in the form of Exhibit F hereto.
"CLIC Indemnity Reinsurance Agreement" means the Indemnity
Reinsurance Agreement between CLIC and Purchaser, substantially in the
form of Exhibit E hereto, which sets forth (i) the terms and
conditions upon which certain general account liabilities of CLIC will
be reinsured by Purchaser, and (ii) the consideration to be paid
therefor.
"Closing" means the closing of the transactions contemplated
by this Agreement, subject to the provision contained in Section
2.03(a) hereof.
"Closing Balance Sheet" shall have the meaning set forth in
Section 2.03(b) hereof.
"Closing Date" means (i) if the last of the conditions to
Closing set forth in this Agreement is satisfied or waived in writing
prior to the 15th day of a given month, then the Closing shall be the
first day of the month following the month in which the last of the
conditions was so satisfied or waived in writing, or (ii) if such
satisfaction or waiver in writing occurs or is granted after the 15th
day of any given month, then the Closing shall be the first day of the
second month following the month in which the last of the closing
conditions is so satisfied or waived; provided, however, that if such
date is not a Business Day, the Closing Date shall be the immediately
succeeding Business Day; and provided further, that the Closing may
occur on such other date as the parties may agree to in writing.
"COBRA" shall have the meaning set forth in Section 3.20(j)
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
Any citation to a provision of the Code includes a citation to any
successor provision.
"COLI Business" means the business of issuing, selling and
administering insurance contracts that are issued on an individual
basis on the lives of employees of employers, without individual
underwriting, whereby the employer is the owner and beneficiary of the
contract or the employer contributes to the payment of premiums, which
may include policies of the type identified on Schedule 1.01(C)
hereto; provided, however, that COLI Business excludes any key person
contracts.
"Commission" means the United States Securities and Exchange
Commission.
"Connecticut SAP" means the statutory accounting principles
and practices prescribed or permitted by the Insurance Department of
the State of Connecticut as applied on a basis consistent with those
utilized in the preparation of 1996 Annual Statements.
"Contract Employees" shall have the meaning set forth in
Section 5.23(b) hereof.
"Effective Date" means the Closing Date if such date is the
first day of a month and, if not, then the first day of the month in
which the Closing Date falls.
"Elections" shall have the meaning set forth in Section 5.29
hereof.
"Environmental Laws" shall have the meaning set forth in
Section 3.22(b) hereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all final and temporary regulations and
interpretive Bulletins and other rulings of general applicability
thereunder.
"Estimated Statutory Carrying Value" shall mean, as to any
Investment Asset or Other Statutory Asset, the carrying value thereof
on the books of Seller or CLIC, as the case may be, for statutory
statement blank purposes in accordance with Connecticut SAP, estimated
in good faith as of the date of the Closing Balance Sheet by Seller
or CLIC, as the case may be.
"Externally Managed Funds" shall have the meaning set forth
in Section 3.17 hereof.
"Final Balance Sheet" shall have the meaning set forth in
Section 2.03(d) hereof.
"403(b) Contract" means an Insurance Contract which is
intended to qualify for tax treatment under section 403(b) of the
Code.
"FTC" shall have the meaning set forth in Section 5.05
hereof.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"General Account Liabilities"means all general account
insurance liabilities and obligations arising under the Insurance
Contracts, including without limitation (i) the General Account
Reserves, (ii) amounts included in lines 12, 12a, 19 and 25 of the
Liabilities, Surplus and Other Funds page of the NAIC Annual Statement
Blank (1996 format), (iii) liabilities and obligations associated with
Seller's separate account SA-8T and CLIC's separate account SA-8TCL,
(iv) premium taxes due in respect of premiums, deposits and other
consideration paid on or after the Effective Date with respect to the
Insurance Contracts and (v) guaranty fund or other premium based
assessments due based on such premiums, deposits and other
consideration, net of any premium tax credits of Seller or CLIC
arising out of any such assessments, but excluding (x) the Seller
Separate Account Liabilities and (y) any general account liabilities
which relate to (A) amounts transferred from the Seller Separate
Accounts to the general account of Seller or CLIC, as the case may be,
pending distribution to holders of the Insurance Contracts and (B)
amounts held in the general account of Seller or CLIC, as the case may
be, pending transfer to the Seller Separate Accounts.
"General Account Other Insurance Assets" means all general
account other admitted insurance assets of Seller or CLIC, as the case
may be, arising under the Insurance Contracts determined pursuant to
Connecticut SAP as such amounts would have been included in lines
12.1, 12.2, 12.3, 15, 16 and 17 of the Assets page of the NAIC Annual
Statement Blank (1996 format).
"General Account Reserves" means the general account
statutory reserves of Seller and CLIC (without regard to the
transactions contemplated by the Indemnity Reinsurance Agreements)
with respect to the Insurance Contracts determined pursuant to
Connecticut SAP, as such reserves would have been included in lines
1, 2, 3, 4.1, 4.2, 5, 6, 7.1, 7.2, 7.3, 8, 9, 10.1, 10.2, 10.3, 11.1,
11.2, 11.3 and 11.4 of the Liabilities, Surplus and Other Funds page
of the NAIC Annual Statement Blank (1996 format), excluding however,
any general account statutory reserve adjustments in relation to
Separate Account Liabilities.
"General Assignment and Assumption Agreement" means the
General Assignment and Assumption Agreement between Seller, CLIC and
Purchaser which is substantially in the form of Exhibit H hereto.
"Hazardous Materials" shall have the meaning set forth in
Section 3.22(b) hereof.
"HIPAA" shall have the meaning set forth in Section 3.20(j)
hereof.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder.
"Income Tax Regulations" means the temporary or final
regulations issued under the Code. Any citation to a provision of the
Income Tax Regulations includes a reference to any successor
regulatory provision.
"Indemnified Party" shall have the meaning set forth in
Section 10.02 hereof.
"Indemnifying Party" shall have the meaning set forth in
Section 10.02 hereof.
"Indemnity Reinsurance Agreements" means the Purchaser
Indemnity Reinsurance Agreement, the LLANY Indemnity Reinsurance
Agreement and the CLIC Indemnity Reinsurance Agreement.
"Indiana SAP" means the statutory accounting principles and
practices prescribed or permitted by the Indiana Insurance Department.
"Initial Portfolio" means the portfolio of investment assets
listed on Schedule 1.01(D) hereto, excluding assets, if any, which
constitute real estate assets owned by Seller or CLIC or in which
Seller or CLIC has any equity interest.
"Insurance Contracts" means all individual life insurance,
disability income insurance and annuity contracts issued and
administered by Seller or CLIC through CIGNA's Individual Insurance
Division (in accordance with, and as determined by reference to,
Seller's and CLIC's historical practices) and in force on the date
hereof, including but not limited to all such policies and contracts
issued on the forms identified on Schedule 1.01(E) hereto but
excluding the COLI Business, and any additional individual life
insurance (other than life insurance issued as part of the COLI
Business), disability income insurance and annuity contracts issued
and administered by Seller or CLIC through CIGNA's Individual
Insurance Division (in accordance with, and as determined by reference
to, Seller's and CLIC's historical practices) after the date hereof
and prior to the Closing Date, to the extent that such contracts are
in effect as of the Effective Date (including all supplements,
endorsements, riders and ancillary agreements in connection
therewith).
"Interim CIGNA Financial Statements" shall have the meaning
set forth in Section 3.24 hereof.
"Interim LLANY Financial Statements" shall have the meaning
set forth in Section 4.09(b) hereof.
"Interim Purchaser Financial Statements" shall have the
meaning set forth in Section 4.09(a) hereof.
"Internally Managed Funds" shall have the meaning set forth
in Section 3.17 hereof.
"Investment Assets" means assets included in the Initial
Portfolio, with such additions thereto and deletions therefrom as may
result from ordinary course management of Seller's and CLIC's
investment portfolios, consistent in all material respects with
Seller's and CLIC's past investment practices, prior to the Closing
Date.
"IRS" means the United States Internal Revenue Service.
"July 18 Letter" shall have the meaning set forth in Section
3.19(a) hereof.
"knowledge" shall be interpreted for the purposes of this
Agreement as follows: (i) a matter will be deemed to be within the
"knowledge of the Seller Key People" if (A) such matter is as of the
date of the execution of this Agreement actually known to any of the
Seller Key People, or (B) in light of the positions held by the Seller
Key People, but taking into account that the due diligence undertaken
by the Seller Key People prior to the execution of this Agreement was
limited to reviewing materials accessible to the Seller Key People
without informing other individuals of the transactions contemplated
by this Agreement, the matter would reasonably be expected to be known
by the Seller Key People; and (ii) a matter will be deemed to be
within the "knowledge of Purchaser" if it is actually known to any of
the Purchaser Key People as of the date of the execution of this
Agreement after reasonable inquiry.
"Lender" shall have the meaning set forth in Section 3.22(b)
hereof.
"License Agreement" means the license agreement to be entered
into on or prior to the Closing Date among CIGNA, Seller, CLIC,
Purchaser and LLANY, pursuant to which (i) CIGNA, Seller and CLIC will
grant to Purchaser and/or LLANY, as applicable, the right to use
CIGNA's, Seller's and CLIC's logos, trademarks, copyrights and service
marks that are currently used in the Business (x) for the period of
time set forth in the Administrative Services Agreements (as defined
herein) in connection with the administration of the Business (as
defined herein) pursuant to such agreements, (y) subject to Section
5.34 hereof, for a period of 24 months following the Closing Date, in
connection with writing business that is being processed at the time
of Closing and in writing new business to be added to Purchaser's and
LLANY's books following Closing during the transition to Purchaser's
or LLANY's policy forms (as contemplated by Section 5.34); and (z) for
a period of six months following the Closing Date, for related
purposes (e.g., signage); and (ii) Purchaser and LLANY, as applicable,
will grant, from and after the Closing Date, to Seller a non-exclusive
perpetual license for Seller and its Affiliates to use and copy the
Owned Principally Used Software, which license will be assignable in
connection with any sale of any business of Seller or its Affiliates
that utilizes such software. Under the License Agreement the licensee
shall have the right to make modifications to the licensed software,
provided such modification does not adversely affect the use of such
software by the licensor.
"Licensed Generally Used Software" shall have the meaning set
forth in Section 3.06(a) hereof.
"Licensed Principally Used Software" shall have the meaning
set forth in Section 3.06(a) hereof.
"LLANY" shall have the meaning set forth in the first
paragraph of this Agreement.
"LLANY Administrative Services Agreement" means the
Administrative Services Agreement substantially in the form of
Exhibit D hereto.
"LLANY Indemnity Reinsurance Agreement" means the Indemnity
Reinsurance Agreement substantially in the form of Exhibit C hereto,
which sets forth (i) the terms and conditions upon which certain
general account liabilities of Seller will be reinsured by LLANY and
(ii) the consideration to be paid therefor.
"LNC" shall have the meaning set forth in the first paragraph
of this Agreement.
"Loss" and "Losses" shall have the meanings set forth in
Section 10.01(a) hereof.
"material" or "material adverse effect on the Business" shall
have the following meaning: A matter will be deemed to be "material"
or to have a "material adverse effect on the Business" in connection
with any provision of this Agreement if such matter would be
considered significant by a reasonable acquiror of the Business in the
context of the particular provision in which the word "material" or
the phrase "material adverse effect on the Business" appears; i.e.,
a matter need not have a material adverse effect on the Business in
its entirety in order to be deemed "material" or to have a "material
adverse effect on the Business" in the context of a particular
provision.
"Mortgage Loans" shall have the meaning set forth in Section
3.22(b) hereof.
"NAIC" means the National Association of Insurance
Commissioners.
"NASD" shall mean the National Association of Securities
Dealers, Inc., including without limitation its Subsidiary NASD
Regulation, Inc.
"New York Contract Closing Date Investment Assets" shall have
the meaning set forth in Section 2.03(b) hereof.
"New York Contracts" means the life insurance, disability
income insurance and annuity contracts included within the definition
of Insurance Contracts that are owned by residents of the State of New
York (including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"New York SAP" means the statutory accounting principles and
practices prescribed or permitted by the New York Insurance
Department.
"1940 Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations thereunder.
"90-Day Treasury Rate" means the annual yield rate, on the
date to which such 90-Day Treasury Rate relates, of actively traded
U.S. Treasury securities having a remaining duration to maturity of
three months, as such rate is published under "Treasury Constant
Maturities" in Federal Reserve Statistical Release H.15(519).
"Non-New York Contract Closing Date Investment Assets" shall
have the meaning set forth in Section 2.03(b) hereof.
"Non-New York Contracts" means the life insurance,
disability income insurance and annuity contracts included within the
definition of Insurance Contracts, other than New York Contracts
(including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"Office Lease Agreement" shall have the meaning set forth in
the Transition Services Agreement.
"Office Sub-Lease Agreements" shall have the meaning set
forth in the Transition Services Agreement.
"Opinion" shall have the meaning set forth in Section 3.29 of
this Agreement.
"Other Statutory Assets" means admitted assets of Seller and
CLIC that are included in the Transferred Assets (other than cash,
Investment Assets, loans under the Insurance Contracts, and admitted
assets that are included in Schedule 1.01(H)).
"Owned Generally Used Software" shall have the meaning set
forth in Section 3.06(a) hereof.
"Owned Principally Used Software" shall have the meaning set
forth in Section 3.06(a) hereof.
"Parent" shall have the meaning set forth in the first
paragraph of this Agreement.
"Parent Subsidiaries" means CFA and CA.
"Pension Plans" shall have the meaning set forth in Section
3.20(a) hereof.
"Permits" means all licenses, permits, orders, approvals,
registrations, authorizations, qualifications and filings with and
under all federal, state, local or foreign laws or governmental or
regulatory bodies.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit (including, but not limited to, the Business),
division or other entity.
"Post-Closing Contracts" means all Insurance Contracts
included within the meaning of such term as set forth in the Indemnity
Reinsurance Agreements.
"premiums" means premiums and annuity considerations,
deposits and similar receipts with respect to the Insurance Contracts.
"Pro Forma Financial Statements" shall mean the pro forma
financial statements of the Business as set forth in Schedule 1.01 (F)
hereto.
"Proposed Balance Sheet" shall have the meaning set forth in
Section 2.03(d) hereof.
"Purchase Price" means $1,414,000,000.
"Purchaser" shall have the meaning set forth in the first
paragraph of this Agreement.
"Purchaser Administrative Services Agreement" means the
Administrative Services Agreement between Seller and Purchaser,
substantially in the form of Exhibit B hereto.
"Purchaser Financial Statements" shall have the meaning set
forth in Section 4.09(b) hereof.
"Purchaser Indemnitees" shall have the meaning set forth in
Section 10.01(a) hereof.
"Purchaser Indemnity Reinsurance Agreement" means the
Indemnity Reinsurance Agreement between Seller and Purchaser,
substantially in the form of Exhibit A hereto, which sets forth
(i) the terms and conditions upon which certain general account
liabilities of Seller will be reinsured by Purchaser, and (ii) the
consideration to be paid therefor.
"Purchaser Key People" means the individuals set forth in
Schedule 1.01(I) hereto.
"Purchaser's Defined Benefit Plan" shall have the meaning set
forth in Section 5.24(f) hereof.
"Purchaser's 401(k) Plans" shall have the meaning set forth
in Section 5.24(d) hereof.
"Purchaser's Money Purchase Plan" shall have the meaning set
forth in Section 5.24(e) hereof.
"Purchaser's Retiree Welfare Plans" shall have the meaning
set forth in Section 5.24(c) hereof.
"Qualified Contract" means an Insurance Contract issued in
connection with a plan intended to qualify for tax treatment under
section 401(a), 403(a), 403(b), 408 or 457 of the Code.
"Qualified Plans" shall have the meaning set forth in
Section 3.20(b) hereof.
"Real Estate Assets" shall have the meaning set forth in
Section 3.22(b) hereof.
"Retained Liabilities" means (except as has been previously
agreed by Seller or CLIC and Purchaser):
(i) all liabilities of the Business (other than the General
Account Liabilities and obligations under contracts and
agreements) that have, as of the Closing Date, either
(without duplication)
(x) been accrued by Seller or CLIC on Seller's or CLIC's
books prepared in accordance with Connecticut SAP (to
the extent of the amount of such accrual) or
(y) been asserted by a third party claimant in a writing
received by Seller, or CLIC or any of their Affiliates
prior to the Closing Date;
(ii) any Section 10.04 Seller Obligation;
(iii) any liability or loss incurred or suffered as a result of
any claim by any present or former employee, agent or
(solely with respect to clause (z)(B) below) broker of
Seller, CLIC or any of their Affiliates who performed or
performs services in the Business, including, without
limitation, the Benefits Affected Employees, that
(x) relates to the employment, agency or (solely with
respect to clause (z)(B) below) brokerage relationship
of such present or former employee, agent or broker
with the Seller, CLIC or any of their Affiliates,
(y) arose out of actions, events or omissions that occurred
(or, in the case of omissions, failed to occur) prior
to the Closing Date, but did not arise out of any such
actions, events or omissions that would not have
occurred if not for Purchaser's presence at Seller's or
CLIC's facilities and Purchaser's pre-Closing
integration and systems modification work and
Purchaser's other involvement in the Business during
the pre-Closing period, and
(z) arises either
(A) in the case of any such present or former employee
or agent, under federal, state or local statute
(including, without limitation, Title VII of the
Civil Rights Act of 1964, the Civil Rights Act of
1991, the Age Discrimination in Employment Act of
1990, the Equal Pay Act, the Americans with
Disabilities Act of 1990, ERISA and all other
statutes regulating the terms and conditions of
employment), regulation or ordinance, under the
common law or in equity (including any claims for
wrongful discharge or otherwise), or
(B) in the case of any such present or former employee,
agent or broker, under any policy, agreement,
understanding or promise, written or oral, formal or
informal, between Seller or CLIC, as the case may
be, and the individual;
(iv) General Account Liabilities (subject to the obligations
of Purchaser and LLANY under the Indemnity Reinsurance
Agreements);
(v) pension and other post-employment liabilities for retired
employees;
(vi) liabilities for Taxes of Seller or CLIC other than
premium Taxes payable with respect to premiums paid after
the Effective Date with respect to policies and contracts
reinsured under the Indemnity Reinsurance Agreements;
(vii) obligations under contracts of Seller or CLIC not
assigned to Purchaser or LLANY;
(viii) liabilities specifically excluded in this Agreement from
those being assumed by Purchaser or LLANY;
(ix) any liability secured by a security interest in any asset
not transferred to Purchaser or LLANY;
(x) liabilities for amounts payable prior to the Effective
Date for returns or refunds of premiums under the
Insurance Contracts;
(xi) liabilities for commission payments or other fees or
compensation payable with respect to the Insurance
Contracts to or for the benefit of brokers and service
providers, in each case payable prior to the Effective
Date;
(xii) liabilities for guaranty fund assessments and similar
charges imposed with respect to the Insurance Contracts
based on premiums paid prior to the Effective Date; and
(xiii) liability for reinsurance in unauthorized companies.
"Securities Act" means the Securities Act of 1933, as
amended, and all rules and regulations thereunder.
"Section 5.31 Policies" shall have the meaning set forth in
Section 5.31 hereof.
"Section 10.04 Purchaser Obligation" shall have the meaning
set forth in Section 10.04(d) hereof.
"Section 10.04 Seller Obligation" shall have the meaning set
forth in Section 10.04(d) hereof.
"Seller" shall have the meaning set forth in the first
paragraph of this Agreement.
"Seller Financial Statements" shall have the meaning set
forth in Section 3.24 hereof.
"Seller Indemnitees" shall have the meaning set forth in
Section 10.01(b) hereof.
"Seller Key People" means the individuals set forth in
Schedule 1.01(J) hereto.
"Seller Parties" means CIGNA, Parent, Seller and CLIC.
"Seller Separate Accounts" means the separate accounts of
Seller and CLIC utilized in CIGNA's Individual Insurance Division, as
identified on Schedule 1.01(G) hereto.
"Seller's Deferred Compensation Plan" shall have the meaning
set forth in Section 5.24(g) hereof.
"Seller's Defined Benefit Plan" shall have the meaning set
forth in Section 5.24(f) hereof.
"Seller's 401(k) Plan" shall have the meaning set forth in
Section 5.24(d) hereof.
"Seller's Money Purchase Plan" shall have the meaning set
forth in Section 5.24(e) hereof.
"Separate Account Liabilities" means those liabilities that
are reflected in the Seller Separate Accounts.
"Settlement Agreements" shall have the meaning set forth in
Section 10.04(c) hereof.
"Severance Costs" shall have the meaning set forth in Section
3.19(c) hereof.
"Statutory Carrying Value" shall mean, as to any Investment
Asset or Other Statutory Asset, the carrying value thereof on the
books of Seller or CLIC, as the case may be, for statutory statement
blank purposes, determined in accordance with Connecticut SAP.
"Stock Purchase Agreement" means the Stock Purchase
Agreement among CIGNA, Parent and Purchaser being executed
concurrently herewith.
"Subsidiary" means, with respect to any Person on a given
date (i) any other Person of which a majority of the voting power of
the equity securities or equity interests is owned directly or
indirectly by such Person and (ii) any other Person the accounts of
which, by virtue of an ownership interest in it by such Person would
be consolidated, in accordance with GAAP, with those of such Person
in its financial statements as of the applicable date.
"Subsidiary Stock" means all of the issued and outstanding
shares of common stock of CFA, par value $25.00 per share, and CA, par
value $1.00 per share, all of which issued and outstanding shares are
owned by Parent.
"Suitable Employment" shall have the meaning set forth in
Section 5.23(c) hereof.
"Taxes" (or "Tax" as the context may require) means (i) any
tax, however denominated, imposed by any federal, state, local,
municipal, territorial, provincial or foreign government or any agency
or political subdivision of any such government (a "Taxing
Authority"), including without limitation any tax imposed under
Subtitle A of the Code and any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, gains, goods
and services, production, documentary, recording, social security,
unemployment, disability, workers' compensation, estimated, ad
valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by Seller or its Affiliates,
payroll, employment, excise, severance, stamp, capital stock,
occupation, personal or real property, environmental or windfall
profit tax, premium, custom, duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with
any interest, penalty, addition to tax or additional amount imposed
by any Taxing Authority relating thereto, (ii) liability of Parent or
its Affiliates for the payment of any amounts of the type described
in (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group with any other corporation at any time on
or prior to the Closing Date, and (iii) liability of Parent or its
Affiliates for the payment of any amounts as a result of being a party
to any Tax Sharing Agreement or with respect to the payment of any
amounts of the type described in (i) or (ii) as a result of any
express or implied obligation to indemnify any other Person.
"Taxing Authority" has the meaning set forth in the
definition of "Taxes."
"Third Party Accountant" shall have the meaning set forth in
Section 2.03(d) hereof.
"Third Party Claimant" shall have the meaning set forth in
Section 10.03(a) hereof.
"Transferred Assets" means: (i) cash and/or Investment
Assets (identified in accordance with Section 2.03(b)) with Statutory
Carrying Value as of the Closing Date equal to the sum as of the
Closing Date of (A) Adjusted Statutory Reserves and Other Statutory
Liabilities plus (B) the statutory surplus with respect to the
participating Insurance Contracts minus (C) the amount of outstanding
loans under the Insurance Contracts and minus (D) the Statutory
Carrying Value of Other Statutory Assets; (ii) all of Seller's and
CLIC's rights and interests under the Insurance Contracts to receive
principal and interest paid on policy or contract loans on or after
the Closing Date; (iii) Other Statutory Assets, (iv) the Books and
Records; (v) the Assignable Licensed Principally Used Software; (vi)
the Owned Principally Used Software; (vii) the Transferred Contracts;
(viii) all of the issued and outstanding capital stock of the Parent
Subsidiaries; and (ix) all other assets (including, without
limitation, Seller's and CLIC's relationships with their agents with
respect to the Business, the assembled workforce, going concern,
goodwill, and other similar intangible assets relating to the Business
and non-admitted assets such as agents' balances and cash advanced to
or in the hands of officers or agents) and contracts of Seller or
CLIC, as the case may be, that are used exclusively in, or are
otherwise material (individually or in the aggregate) to, the
Business, but excluding those assets (A) specifically identified on
Schedule 1.01 (H) hereto, (B) described on Schedule 2.01 to the
Transition Services Agreement as being made available by Seller, (C)
the Insurance Contracts, the Seller Separate Accounts, and the
policies and contracts funded by the Seller Separate Accounts; (D)
reinsurance treaties and agreements, and (E) cash and Investment
Assets other than the cash and Investment Assets specified in clause
(i) above; and (F) that cannot be transferred to Purchaser or LLANY,
as the case may be, because of the inability of Seller or CLIC to
obtain the consent of a third party required for such transfer to be
effective.
"Transferred Contracts" means the Assigned and Assumed
Contracts, and all other contracts, assigned pursuant to the General
Assignment and Assumption Agreement.
"Transition Services Agreement" means the Transition Services
Agreement between Seller and Purchaser, substantially in the form of
Exhibit G hereto.
"25% Premium Threshold" shall have the meaning set forth in
Section 5.34(d) hereof.
"WARN Act" means the Worker Adjustment and Retraining and
Notification Act.
"Welfare Plans" shall have the meaning set forth in Section
3.20(a) hereof.
ARTICLE II
TRANSFER AND ACQUISITION OF ASSETS
Section 2.01. Cash Consideration. Upon the terms and
subject to the conditions of this Agreement, Purchaser and LLANY shall
pay to CIGNA, Parent, Seller and CLIC on the Closing Date an aggregate
amount equal to the Purchase Price by wire transfer of immediately
available funds in U.S. Dollars to the bank account(s) designated to
Purchaser in writing by Seller at least two Business Days prior to the
Closing Date, with the exact amount of each payment to be determined
according to the allocation provided for in Section 5.25 hereof. Such
payment obligation shall not be affected in any manner by the delay
between the Closing Date and, if applicable, the date of the CFA
Closing, as provided for in Section 2.03 hereof.
Section 2.02. Acquisition of Transferred Assets and
Assumption of Assumed Liabilities. (a) Upon the terms and subject
to the conditions of this Agreement and the payment of the Purchase
Price, on the Closing Date, Seller and CLIC shall sell, assign and
transfer to Purchaser and LLANY, as applicable, all of Seller's and
CLIC's right, title and interest in the Transferred Assets; provided,
however, that the amount of cash and Investment Assets to be
transferred shall be determined in accordance with the provisions of
Section 2.03 and adjusted as required by Section 2.04 hereof. All
sales, assignments and transfers of the Transferred Assets other than
the Subsidiary Stock, cash and Investment Assets shall be effected
by the Bill of Sale and the General Assignment and Assumption
Agreement. The sale, assignment and transfer of the Subsidiary Stock
shall be effected pursuant to the Stock Purchase Agreement.
Investment Assets shall be transferred by such instruments of transfer
or book entry transfer, as appropriate, as are reasonably acceptable
to Seller, CLIC, Purchaser and LLANY. Notwithstanding anything in
this Agreement to the contrary, but subject to the provisions of
Section 5.04 hereof, Seller and CLIC shall be entitled to keep and
maintain copies of all Books and Records from and after the Closing,
and to have access to the originals of the Books and Records in
accordance with the terms hereof.
(b) Upon the terms and subject to the conditions of this
Agreement, on the Closing Date, Purchaser and LLANY shall reinsure
their respective General Account Liabilities pursuant to the Indemnity
Reinsurance Agreements, as appropriate, and Purchaser and LLANY shall
each assume, pursuant to the General Assignment and Assumption
Agreement, all Assumed Liabilities other than the Retained
Liabilities. The liabilities to be assumed by Purchaser or LLANY, as
the case may be, will include, without limitation, the Transferred
Contracts and the Assignable Licensed Principally Used Software to be
assumed by it.
(c) The liabilities assumed by Purchaser hereunder and under
the Ancillary Agreements and the Purchase Price shall be allocated
among the Transferred Assets and the CIGNA Non-Compete as provided in
Section 5.25 hereof.
Section 2.03. Place and Date of Closing; Balance Sheets;
Closing Date Transfers of Investment Assets and Cash. (a) The
Closing shall take place at the offices of Sutherland, Asbill &
Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington, D.C., at
10:00 a.m. Eastern Time on the Closing Date or such other time or
place as the parties may mutually agree upon; provided, however, that
if the Closing occurs prior to January 1, 1998, the closing of the
sale by Parent to Purchaser of all the issued and outstanding common
stock of CFA pursuant to the terms of the Stock Purchase Agreement
will occur at 10:00 a.m. Eastern Time on January 1, 1998, at such
location as the parties may mutually agree (the "CFA Closing"). In
the latter event, the closing of the sale of the stock of CFA shall
be treated as a Stock Purchase Closing for purposes of the Stock
Purchase Agreement.
(b) On the Closing Date, Seller and CLIC will deliver to
Purchaser a balance sheet of the Business in the same format as the
statutory balance sheet as of December 31, 1996, included in the Pro
Forma Financial Statements (the "Closing Balance Sheet") and a
certification of the chief financial officers of Seller and CLIC that
all items on the Closing Balance Sheet were estimated in good faith
by Seller and CLIC as of the end of the month immediately preceding
the month in which the Closing Date falls and were based upon the
books and records of Seller and CLIC consistent with the methodologies
utilized in preparing the Pro Forma Financial Statements. The Closing
Balance Sheet shall reflect, in each case separately with respect to
Seller and CLIC, (i) the Adjusted Statutory Reserves and Other
Statutory Liabilities, (ii) the Separate Account Liabilities with
respect to the New York Contracts, (iii) the Separate Account
Liabilities with respect to the Non-New York Contracts, (iv) the
General Account Reserves and the General Account Liabilities with
respect to the New York Contracts, (v) the General Account Reserves
and the General Account Liabilities with respect to the Non-New York
Contracts, (vi) assets held in the Seller Separate Accounts equal to
the Separate Account Liabilities with respect to the New York
Contracts, (vii) assets held in the Seller Separate Accounts equal to
the Separate Account Liabilities with respect to the Non-New York
Contracts, (viii) loans under the New York Contracts, (ix) loans under
the Non-New York Contracts, (x) the amount of the statutory surplus
with respect to the participating New York Contracts, (xi) the amount
of the statutory surplus with respect to the participating Non-New
York Contracts, (xii) the General Account Other Insurance Assets with
respect to the New York Contracts, (xiii) the General Account Other
Insurance Assets with respect to the Non-New York Contracts, (xiv) the
Other Statutory Assets with respect to the New York Contracts, (xv)
the Other Statutory Assets with respect to the Non-New York Contracts,
(xvi) Investment Assets (and cash to the extent needed because of
Investment Assets not being capable of being divided to produce the
exact amount contemplated by this item (xvi), it being the intent of
the parties, however, that the Investment Assets will be chosen so as
to keep the amount of such cash to the minimum) with an Estimated
Statutory Carrying Value equal to (A) General Account Liabilities plus
(B) the statutory surplus with respect to the participating Insurance
Contracts minus (C) the amount of outstanding loans under the
Insurance Contracts and minus (D) the General Account Other Insurance
Assets, and (xvii) a positive or negative amount in respect of cash
reflecting the amount of cash to be paid on the Closing Date by Seller
or Purchaser, respectively, pursuant to Section 2.03(c) hereof. The
Investment Assets and cash shown on the Closing Balance Sheet in
accordance with clause (xvi) of the preceding sentence shall be
divided into (x) Investment Assets and cash for the New York Contracts
(the "New York Contract Closing Date Investment Assets" and (y)
Investments Assets and cash for the Non-New York Contracts (the "Non-
New York Contract Closing Date Investment Assets"). The Investment
Assets to be reflected on the Closing Balance Sheet and transferred
to Purchaser and LLANY shall be jointly identified by Purchaser,
Seller and CLIC prior to Closing from among the Investment Assets,
with such substitutions as may be agreed upon by both parties.
Purchaser and Seller and CLIC shall act reasonably and in good faith
in all aspects of the selection of the assets to be transferred, with
the goal of selecting a portfolio of assets having risk and return
characteristics substantially identical to those of the Investment
Assets, and of minimizing (i) the amount of cash to be transferred,
and (ii) the number of Mortgage Loans so transferred that are cross-
defaulted or cross-collateralized with any loan to be retained by
Seller or CLIC owned by any Affiliate of Seller or CLIC.
(c) On the Closing Date, Seller and CLIC, as appropriate,
will transfer (i) to LLANY the New York Contract Closing Date
Investment Assets and (ii) to Purchaser the Non-New York Contract
Closing Date Investment Assets. Also on the Closing Date, (iii) if
(x) the sum of Adjusted Statutory Reserves and Other Statutory
Liabilities and the statutory surplus with respect to the
participating Insurance Contracts exceeds (y) the sum of the amount
of the outstanding loans under the Insurance Contracts, the Estimated
Statutory Carrying Value of the Other Statutory Assets, the Estimated
Statutory Carrying Value of the New York Closing Date Investment
Assets and the Estimated Statutory Carrying Value of the Non-New York
Closing Date Investment Assets, all as shown on the Closing Balance
Sheet, Seller and CLIC will pay to Purchaser cash in an aggregate
amount equal to such excess; and (iv) if the sum referred to in
subclause (y) of clause (iii) above exceeds the sum referred to in
subclause (x) of clause (iii) above, Purchaser will pay to Seller and
CLIC cash in an aggregate amount equal to such excess.
(d) Seller and CLIC shall, on or before the date that is 60
days after the Closing Date, prepare a proposed balance sheet of the
Business as of the close of business on the last day of the month
preceding the month in which the Closing Date falls (the "Proposed
Balance Sheet"), in the same format as the Closing Balance Sheet
(except that the Proposed Balance Sheet shall specify the Statutory
Carrying Value, rather than the Estimated Statutory Carrying Value,
of the cash and Investment Assets and Other Statutory Assets reflected
on the Closing Balance Sheet), and a certification of the chief
financial officers of Seller and CLIC that the data contained in the
Proposed Balance Sheet was obtained from the books and records of
Seller and CLIC and such data was computed in accordance with
Connecticut SAP applied consistently with the application thereof in
the preparation of the Pro Forma Financial Statements. Promptly after
its preparation, Seller and CLIC shall deliver copies of the Proposed
Balance Sheet to Purchaser. Purchaser shall have the right to review
such balance sheet and comment thereon for a period of 45 days after
receipt thereof. Seller and CLIC agree that Purchaser and its
accountants may have access to the accounting records of Seller and
CLIC relating to their preparation of the Proposed Balance Sheet for
the purpose of conducting its review. Any changes in the Proposed
Balance Sheet that are agreed to by Purchaser, Seller and CLIC within
45 days of the aforementioned delivery of such balance sheet by Seller
shall be incorporated into a final balance sheet of the Business as
of the close of business on the last day of the month preceding the
month in which the Closing Date falls (the "Final Balance Sheet").
In the event that Purchaser, Seller and CLIC are unable to agree on
the manner in which any item or items should be treated in the
preparation of the Final Balance Sheet within such 45-day period,
separate written reports of such item or items shall be made in
concise form and shall be referred to KPMG Peat Marwick (the "Third
Party Accountant"). The Third Party Accountant shall determine within
14 days the manner in which such item or items shall be treated on the
Final Balance Sheet; provided, however, that the dollar amount of each
item in dispute shall be determined within the range of dollar amounts
proposed by Seller and CLIC, on the one hand, and Purchaser on the
other hand. The determinations by the Third Party Accountant as to
the items in dispute shall be in writing and shall be binding and
conclusive on the parties and shall be so reflected in the Final
Balance Sheet. The fees, costs and expenses of retaining the Third
Party Accountant shall be shared equally by Seller and CLIC, on the
one hand, and Purchaser, on the other hand. Such determination shall
be binding and conclusive on the parties. Following the resolution
of all disputed items (or, if there is no dispute, promptly after the
parties reach agreement on the Final Balance Sheet), Seller and CLIC
shall prepare the Final Balance Sheet and shall deliver copies of such
balance sheet and such calculation to Purchaser.
Section 2.04. Post-Closing Adjustments. (a) In the event
the Statutory Carrying Value of the New York Closing Date Investment
Assets is less than the amount of (i) General Account Liabilities
relating to the New York Contracts plus (ii) the statutory surplus
with respect to the participating New York Insurance Contracts, minus
(iii) the amount of outstanding loans under the New York Contracts and
minus (iv) the General Account Other Insurance Assets with respect to
the New York Contracts, all as reflected on the Final Balance Sheet,
Seller shall transfer to LLANY additional cash equal to the amount of
such difference, together with interest thereon from and including the
Closing Date to but not including the date of such transfer computed
at an Annual Rate equal to the 90-day Treasury Rate in effect on the
Closing Date.
(b) In the event the Statutory Carrying Value of the Non-New
York Closing Date Investment Assets is less than the amount of (i)
General Account Liabilities relating to the Non-New York Contracts
plus (ii) the statutory surplus with respect to the participating Non-
New York Insurance Contracts minus (iii) the amount of outstanding
loans under the Non-New York Contracts and minus (iv) the General
Account Other Insurance Assets with respect to the Non-New York
Contracts, all as reflected on the Final Balance Sheet, Seller and
CLIC shall transfer to Purchaser additional cash in an aggregate
amount equal to the amount of such difference, together with interest
thereon from and including the Closing Date to but not including the
date of such transfer computed at an Annual Rate equal to the 90-day
Treasury Rate in effect on the Closing Date.
(c) In the event the Statutory Carrying Value of the New
York Closing Date Investment Assets is more than the amount of (i)
General Account Liabilities relating to the New York Contracts plus
(ii) the statutory surplus with respect to the participating New York
Insurance Contracts minus (iii) the amount of outstanding loans under
the New York Contracts and minus (iv) the General Account Other
Insurance Assets with respect to the New York Contracts, all as
reflected on the Final Balance Sheet, LLANY shall transfer to Seller
additional cash equal to the amount of such difference, together with
interest thereon from and including the Closing Date to but not
including the date of such transfer computed at an Annual Rate equal
to the 90-day Treasury Rate in effect on the Closing Date.
(d) In the event the Statutory Carrying Value of the Non-New
York Closing Date Investment Assets is more than the amount of (i)
General Account Liabilities relating to the Non-New York Contracts
plus (ii) the statutory surplus with respect to the participating Non-
New York Insurance Contracts minus (iii) the amount of outstanding
loans under the Non-New York Contracts and minus (iv) the General
Account Other Insurance Assets with respect to the Non-New York
Contracts, all as reflected on the Final Balance Sheet, Purchaser
shall transfer to Seller and CLIC additional cash in an aggregate
amount equal to the amount of such difference, together with interest
thereon from and including the Closing Date to but not including the
date of such transfer computed at an Annual Rate equal to the 90-day
Treasury Rate in effect on the Closing Date.
(e) If (x) the sum of Adjusted Statutory Reserves and Other
Statutory Liabilities and the statutory surplus with respect to the
participating Insurance Contracts exceeds (y) the sum of the amount
of the outstanding loans under the Insurance Contracts, the Statutory
Carrying Value of the Other Statutory Assets, the Statutory Carrying
Value of the New York Contract Closing Date Investment Assets, the
Statutory Carrying Value of the Non-New York Contract Closing Date
Investment Assets, and the cash, if any, paid to Purchaser pursuant
to Section 2.03(c)(iii) or minus the cash, if any, paid by Purchaser
pursuant to Section 2.03(c)(iv), all (except for such cash) as shown
on the Final Balance Sheet, Seller and CLIC will pay to Purchaser cash
in an aggregate amount equal to such excess, together with interest
thereon from and including the Closing Date to but not including the
date of such transfer, computed at an Annual Rate equal to the 90-day
Treasury Rate in effect on the Closing Date.
(f) If the sum referred to in clause (y) of Section 2.04(e)
exceeds the sum referred to in clause (x) of Section 2.04(e),
Purchaser will pay to Seller and CLIC cash in an aggregate amount
equal to such excess.
(g) Amounts required to be transferred from Purchaser and
LLANY to Seller and CLIC or from Seller and CLIC to Purchaser and
LLANY pursuant to this Section shall be netted against one another so
that only a single net transfer shall be required. Any transfer of
cash required under this Section 2.04 shall be made within ten
Business Days of the date of the delivery of the Final Balance Sheet
to Purchaser.
Section 2.05. Closing Items. (a) At the Closing, Seller
and CLIC, as applicable, shall execute (where appropriate) and deliver
to Purchaser and LLANY, as applicable, the following:
(i) the Indemnity Reinsurance Agreements;
(ii) the Administrative Services Agreements;
(iii) the Transition Services Agreement;
(iv) the General Assignment and Assumption Agreement;
(v) the Bill of Sale;
(vi) the License Agreement;
(vii) the Office Lease Agreement;
(viii) the Office Sub-Lease Agreements;
(ix) evidence of compliance with the requirements of the
HSR Act;
(x) evidence of receipt of the Permits described on
Exhibit J hereto from the Insurance Departments of
the States of Connecticut, New York and Wisconsin;
and
(xi) evidence of compliance with any state pre-acquisition
notification acts from which no exemption is
available.
Seller and CLIC, as applicable, shall also (i) transfer to
the Purchaser and LLANY cash and Investment Assets in accordance with
Sections 2.02(a) and 2.03(c) hereof, (ii) transfer the other
Transferred Assets (other than the Subsidiary Stock) to Purchaser or
LLANY, as applicable, in accordance with Section 2.02 hereof, and
(iii) deliver to Purchaser a true and correct list of all life
insurance, disability income insurance and annuity contracts included
in the Insurance Contracts that are in effect as of the Closing Date.
In addition, at the Closing Parent shall transfer the Subsidiary Stock
pursuant to the terms of the Stock Purchase Agreement or, in the event
that the Closing Date is prior to January 1, 1998, Parent will deliver
to Purchaser at the Closing all of the issued and outstanding common
stock of CA and, at the CFA Closing, all of the issued and outstanding
common stock of CFA.
(b) At the Closing, Purchaser and LLANY, as applicable,
shall execute (where appropriate) and deliver to Seller and CLIC, as
applicable, the following:
(i) the Indemnity Reinsurance Agreements;
(ii) the Administrative Services Agreements;
(iii) the Transition Services Agreement;
(iv) the General Assignment and Assumption
Agreement;
(v) the License Agreement;
(vi) the Office Lease Agreement;
(vii) the Office Sub-Lease Agreements;
(viii) evidence of compliance with the requirements
of the HSR Act;
(ix) evidence of receipt of the Permits described
on Exhibit J hereto from the Insurance
Departments of the States of Indiana and New
York; and
(x) evidence of compliance with any state pre-acquisition
notification requirements from which no exemption
is available.
Purchaser and LLANY shall also transfer to (i) CIGNA,
Parent , Seller and CLIC in accordance with Section 2.01 an aggregate
amount of cash equal to the Purchase Price and (ii) to Seller and
CLIC, any cash required to be paid by Purchaser pursuant to Section
2.03 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER
CIGNA, Parent, Seller and CLIC hereby represent and warrant
to Purchaser and LLANY as of July 27, 1997, as follows (it being
understood that CLIC hereby makes only those representations and
warranties that specifically relate to it):
Section 3.01. Organization, Standing and Authority of CIGNA,
Parent, Seller and CLIC. CIGNA is duly organized, validly existing
and in good standing under the laws of Delaware and has all requisite
power and authority to carry on its operations as they are now being
conducted, except where the failure to have such authority would not,
individually or in the aggregate, have a material adverse effect on
the Business. Each of Parent, Seller and CLIC is duly organized,
validly existing and in good standing under the laws of Connecticut
and has all requisite power and authority to carry on the operations
of the Business as they are now being conducted, except where the
failure to have such authority would not, individually or in the
aggregate, have a material adverse effect on the Business. Each of
CIGNA, Parent, Seller and CLIC is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where
such qualification is necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the Business.
Section 3.02. Authorization. Each of CIGNA, Parent, Seller
and CLIC has all requisite power and authority to execute and deliver,
and to perform its respective obligations under, this Agreement and
under each of the Ancillary Agreements to be executed by it. The
execution and delivery by CIGNA, Parent, Seller and CLIC of this
Agreement and the Ancillary Agreements to be executed by them, and the
performance by CIGNA, Parent, Seller and CLIC of their respective
obligations under such agreements, have been or, with respect to
Parent, Seller, and CLIC, will promptly after the execution of this
Agreement be, duly authorized by all necessary corporate action on the
part of CIGNA, Parent, Seller and CLIC. This Agreement has been duly
executed and delivered by CIGNA and, subject to such due authorization
as to them occurring, by CIGNA, Parent, Seller and CLIC, and on the
Closing Date the Ancillary Agreements executed by CIGNA, Parent,
Seller and/or CLIC will be duly executed and delivered by CIGNA,
Parent, Seller and/or CLIC, as appropriate; and, subject to the due
execution and delivery by the other parties to such agreements, this
Agreement, subject in the case of Parent, Seller and CLIC to such due
authorization is, and the Ancillary Agreements executed by CIGNA,
Parent, Seller and/or CLIC will, upon due execution and delivery, be
valid and binding obligations of CIGNA, Parent, Seller and/or CLIC,
as the case may be, enforceable against CIGNA, Parent, Seller and/or
CLIC in accordance with their respective terms. Notwithstanding the
foregoing, the obligation of Parent, Seller and/or CLIC to execute any
Ancillary Agreement shall be subject to the terms and conditions of
this Agreement.
Section 3.03. Actions and Proceedings. Except as disclosed
on Schedule 3.03 hereto, there are no outstanding orders, decrees or
judgments by or with any court, governmental agency, regulatory body
or arbitration tribunal before which CIGNA, Parent, Seller or CLIC was
a party that, individually or in the aggregate, have a material
adverse effect on the Business. Except as disclosed on Schedule 3.03
hereto, there are no actions, suits, arbitrations or legal,
administrative or other proceedings pending or, to the knowledge of
the Seller Key People, threatened against CIGNA, Parent, Seller or
CLIC, at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind which, if
adversely determined, would, individually or in the aggregate, have
a material adverse effect on the Business.
Section 3.04. No Conflict or Violation. Except as disclosed
on Schedule 3.04 hereto, the execution, delivery and performance by
CIGNA, Parent, Seller and CLIC of this Agreement and the Ancillary
Agreements to which any of them may become a party and the
consummation of the transactions contemplated hereby and thereby in
accordance with the respective terms and conditions hereof and thereof
will not (a) violate any provision of the charter, bylaws or other
organizational document of CIGNA, Parent, Seller or CLIC, (b) violate,
conflict with or result in the breach of any of the terms of, result
in any modification of the effect of, otherwise give any other
contracting party the right to terminate, or constitute (or with
notice or lapse of time or both, constitute) a default under, any
contract relating to or arising in connection with the Business to
which CIGNA, Parent, Seller or CLIC is a party or by or to which
CIGNA, Parent, Seller or CLIC or any of their respective assets or
properties may be bound or subject, except for such violations,
conflicts, breaches or modifications that would not, individually or
in the aggregate, have a material adverse effect on the Business and
violations with respect to any contract as to which Seller is able to
make arrangements pursuant to Section 5.32 hereof, (c) violate any
order, judgment, injunction, award or decree of any court, arbitrator
or governmental or regulatory body against, or binding upon, or any
agreement with, or condition imposed by, any governmental or
regulatory body, foreign or domestic, binding upon CIGNA, Parent,
Seller or CLIC in connection with the Business, except for such
violations that would not, individually or in the aggregate, have a
material adverse effect on the Business, (d) subject to obtaining the
Permits referred to in Section 3.05 hereof, violate any statute, law
or regulation of any jurisdiction, except for such violations that
would not, individually or in the aggregate, have a material adverse
effect on the Business or (e) result in a breach or violation of any
of the terms or conditions of, constitute a default under, or
otherwise cause an impairment or revocation of, any Permit related to
the Business, except for such breaches, violations, defaults,
impairments or revocations that would not, individually or in the
aggregate, have a material adverse effect on the Business.
Section 3.05. Governmental Consents and Approvals. Except
as required under the HSR Act and except for required Permits of and
filings with applicable insurance or securities regulatory
authorities, the execution, delivery and performance by CIGNA, Parent,
Seller and CLIC of this Agreement and the Ancillary Agreements to
which any of them is a party and the consummation of the transactions
contemplated hereby and thereby in accordance with the respective
terms hereof and thereof do not require any of CIGNA, Parent, Seller
or CLIC to obtain any consent, approval or action of, make any filing
with, or give any notice to, any governmental or regulatory body,
except for such consents, approvals, actions, filings or notices the
failure of which to obtain, make or give, as the case may be, would
not, individually or in the aggregate, have a material adverse effect
on the Business.
Section 3.06. Computer Software and Intellectual Property.
(a) Seller has set forth on Schedule 3.06(A) hereto a true and
complete listing, to the knowledge of the Seller Key People, of all
computer software programs used principally in the conduct of the
Business. Schedule 3.06(A) hereto also sets forth whether each such
computer software program is (i) owned by Seller (the "Owned
Principally Used Software") or (ii) licensed by Seller from a third
party (the "Licensed Principally Used Software"). Seller has set
forth on Schedule 3.06(B) hereto a true and complete listing, to the
knowledge of the Seller Key People, of all computer software programs
used generally in the conduct of the Seller's businesses as well as
in the conduct of the Business. Schedule 3.06(B) hereto also sets
forth whether each such computer software program is (i) owned by
Seller (the "Owned Generally Used Software") or (ii) licensed by
Seller from a third party (the "Licensed Generally Used Software").
Seller has, and on the Closing Date Purchaser or LLANY, as applicable,
will have the right to use all Owned Principally Used Software, free
and clear of any royalty or other similar payment obligations, claims
of infringement or alleged infringement or other lien, charge, claim
or other encumbrance of any kind other than the License Agreement,
except for any such claims, liens, charges or encumbrances that would
not, individually or in the aggregate, have a material adverse effect
on the Business. Seller has, and immediately prior to the Closing
will have, the right to use the Licensed Principally Used Software,
free and clear of claims of infringement or alleged infringement or
other lien, charge, claim or other encumbrance of any kind, except for
any such claims, liens, charges or encumbrances that would not,
individually or in the aggregate, have a material adverse effect on
the Business. Seller is not in conflict with or violation or
infringement of, nor, to the knowledge of the Seller Key People, has
Seller received any notice of any such conflict with, or violation or
infringement of, any asserted rights of any other Person with respect
to any Owned Principally Used Software or Licensed Principally Used
Software, except for any such conflicts, violations or infringements
that would not, individually or in the aggregate, have a material
adverse effect on the Business.
(b) To the knowledge of the Seller Key People, (i) the
logos, trademarks, service marks and copyrights that are used in the
Business are the property of CIGNA, Seller or CLIC, and (ii) CIGNA,
Seller or CLIC has the right to grant to Purchaser and/or LLANY a
limited license to use the logos, trademarks, service marks and
copyrights referred to above in this Section 3.06.
Section 3.07. Brokerage and Financial Advisers. No broker,
finder or financial adviser has acted directly or indirectly as such
for, or is entitled to any compensation from, Seller or its Affiliates
in connection with this Agreement or the transactions contemplated
hereby, except Goldman, Sachs & Co., whose fees for services rendered
in connection therewith will be paid by Seller.
Section 3.08. Compliance with Laws. Except with respect to
those violations, if any, which would not, individually or in the
aggregate, have a material adverse effect on the Business (i) none of
Seller, CLIC nor the Seller Separate Accounts nor any Internally
Managed Fund (as defined below) is in violation of any federal, state,
local or foreign law, ordinance or regulation or any other requirement
of any governmental or regulatory body, court or arbitrator applicable
to the Business nor, to the knowledge of the Seller Key People, has
Seller or CLIC received any written notice that any such violation is
being alleged and (ii) without limiting the generality of the
foregoing, in connection with Seller's or CLIC's most recently
completed or any ongoing triennial examination, neither Seller nor
CLIC has, to the knowledge of the Seller Key People, received any
notice, nor, to the knowledge of the Seller Key People, is Seller or
CLIC aware of the intention to send any notice, from any state
regulatory authority alleging any violation of any such law, ordinance
or regulation or directing Seller or CLIC to take any remedial action
with respect to such law, ordinance or regulation, in either case
relating to the Business.
Section 3.09. Permits, Licenses and Franchises. Schedule
3.09 hereto lists (i) all jurisdictions in which Seller and CLIC are
licensed to issue the Insurance Contracts and (ii) the lines of
business in connection with the Business which Seller and CLIC are
authorized to transact in each such jurisdiction. Seller and CLIC
have been duly authorized by the relevant state insurance regulatory
authorities to issue the Insurance Contracts that it is currently
writing, and was duly authorized to issue the Insurance Contracts that
it is not currently writing at the time such Insurance Contracts were
issued, in the respective states in which it conducts the Business,
except for authorizations the failure of which to have would not,
individually or in the aggregate, have a material adverse effect on
the Business. Except as set forth on Schedule 3.09, Seller and CLIC
have all other Permits necessary to conduct the Business in the manner
and in the areas in which the Business is presently being conducted
and all such Permits are valid and in full force and effect, except
where the failure to have such a Permit would not, individually or in
the aggregate, have a material adverse effect on the Business.
Section 3.10. Insurance Contracts. (a) The forms of
Insurance Contracts available for issuance, and the states in which
such forms are authorized for issuance, on the date hereof are listed
on Schedule 1.01(E) hereto and are specifically identified on such
Schedule as "Life Insurance Contracts," "Annuity Contracts," and
"Disability Income Insurance Contracts." All Insurance Contracts as
now in force are in all respects, to the extent required under
applicable law, on forms approved by applicable insurance regulatory
authorities or which have been filed and not objected to by such
authorities within the period provided for objection, and such forms
comply in all material respects with the insurance statutes,
regulations and rules applicable thereto, except where the failure to
have such approval or non-objection or the failure to so comply would
not, individually or in the aggregate, have a material adverse effect
on the Business. To the knowledge of the Seller Key People, at the
time Seller or CLIC paid commissions to any broker or agent within the
past 36 months in connection with the sale of Insurance Contracts,
each such broker or agent was duly licensed as an insurance broker
(for the type of business sold by such broker) or agent in the
particular jurisdiction in which such broker or agent sold such
business for Seller or CLIC, and no such broker or agent violated (or
with or without notice or lapse of time or both would have violated)
any federal, state, local or foreign law, ordinance or regulation or
any other requirement of any governmental or regulatory body, court
or arbitrator applicable to the Business, except where the failure to
be so licensed or any such violation would not, individually or in the
aggregate, have a material adverse effect on the Business. Neither
the manner in which Seller or CLIC compensates any Person involved in
the sale or servicing of Insurance Contracts that is not registered
as a broker-dealer or insurance agent, as applicable, nor, to the
knowledge of the Seller Key People, the conduct of any such Person,
renders such Person a broker-dealer or insurance agent under any
applicable federal or state law, and the manner in which Seller or
CLIC compensates each Person involved in the sale or servicing of
Insurance Contracts is in compliance with all applicable federal or
state laws except where such manner of compensation or conduct having
such affect or the failure to be so in compliance would not,
individually or in the aggregate, have a material adverse affect on
the Business.
(b) Both Seller and CLIC have implemented procedures and
programs which are reasonably designed to provide assurance that its
respective agents and employees are in material compliance with all
Applicable Law, including without limitation, advertising, licensing
and sales practices laws, regulations, directives, bulletins and
opinions of governmental authorities, except for non-compliances that,
individually or in the aggregate, have not had and would not have a
material adverse effect on the Business. Seller and CLIC have
previously provided Purchaser with a true, complete and correct copy
of its compliance program and procedures referred to in the preceding
sentence, to the extent they relate to Seller's Individual Insurance
Division and, except as previously disclosed in this Agreement or any
Schedule to this Agreement, the Seller Key People have no knowledge
of any noncompliance therewith, except for noncompliance which,
individually or in the aggregate, have not had and would not have a
material adverse effect on the Business.
(c) Seller and CLIC have at all times since January 1, 1987,
maintained records which in all material respects accurately reflect
transactions in reasonable detail, and accounting controls, policies
and procedures sufficient to ensure in all material respects that such
transactions are recorded in a manner which permits the preparation
of financial statements in accordance with GAAP and applicable
statutory accounting requirements.
(d) Except as set forth on Schedule 3.10(A) hereto, to the
knowledge of the Seller Key People:
(i) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, (A) the
terms of each Qualified Contract and the administration and operation
thereof and of any plan or arrangement funded in whole or in part
through any such Qualified Contract comply, and at all relevant times
have complied, in all material respects with the applicable provisions
of the Code and ERISA and (to the extent such plan is intended by the
Contract holder to limit fiduciary responsibility in accordance with
section (404)(c) of ERISA) comply, and at all relevant times have
complied, in all material respects with all applicable requirements
for limiting fiduciary responsibility under section 404(c) of ERISA;
(B) contributions or payments to each such Qualified Contract which
are intended to be nontaxable are not taxable; and (C) plan or
contract loans made under such Qualified Contracts were neither
prohibited transactions nor taxable when made or at any time
thereafter, except with respect to taxable defaults in repayment of
such contracts loans;
(ii) neither Seller nor any of its Affiliates is legally
responsible, by operation of law, written agreement or otherwise, for
calculating, deducting, accounting for, recording, making, or
reporting plan or contract loans under section 72(p) of the Code or
minimum required distributions under sections 401(a), 408 and 457 of
the Code; testing, determining or otherwise ensuring compliance under
Sections 401(a), 408 and 457 of the Code or otherwise administering
or providing administrative services of any nature to any plan or
arrangement funded in whole or in part through any such Qualified
Contract; and
(iii) none of the Qualified Contracts is a 403(b)
Contract.
Section 3.11. Regulatory Filings. Except as listed on
Schedule 3.11 hereto, Seller and CLIC have filed all reports,
statements, documents, registrations, filings or submissions
(including without limitation any sales material) required to be filed
by Seller, CLIC, the Seller Separate Accounts and the Internally
Managed Funds (as defined below) with any governmental or regulatory
body to the extent they relate to the Business, except where the
failure to make such filings would not, individually or in the
aggregate, have a material adverse effect on the Business. Except as
listed on Schedule 3.11 hereto, all such registrations, filings and
submissions were in compliance in all material respects with
applicable law when filed or as amended or supplemented, and, to the
knowledge of the Seller Key People, no material deficiencies have been
asserted by any such governmental or regulatory body with respect to
such registrations, filings or submissions that have not been
satisfied.
Section 3.12. Brokers and Agents. Schedule 3.12(A) hereto
lists all selling entities with respect to Insurance Contracts whose
producers can sell insurance only through the selling entity, and
lists commissions paid by Seller or CLIC through each such selling
entity during 1996 and the first two quarters of 1997. Schedule
3.12(B) hereto lists certain Persons who have acted as brokers or
general agents with respect to Insurance Contracts which are in force
(such brokers, collectively with all other brokers or general agents
with respect to the Insurance Contracts which are in force, being
referred to herein as "Brokers") and lists the amount of commissions
paid by Seller or CLIC to each Broker identified thereon during 1996
and in the first two quarters of 1997. Schedule 3.12(C) hereto lists
all other Persons constituting Seller's "career agency force" (the
Brokers and the Persons listed on Schedule 3.12(C) being referred to
collectively herein as "Brokers and Agents"). Schedule 3.12(D) hereto
sets forth (i) the standard forms of agreements between Seller (or
CLIC) and brokers and Seller (or CLIC) and agents, respectively, which
relate to the Business, and (ii) a list of those Brokers and Agents
as to which such agreements are in effect. Except as disclosed on
Schedule 3.19(B), there are no other written agreements between Seller
(or CLIC) and any Brokers and Agents providing for the compensation
or indemnification of such Brokers and Agents in connection with the
Business or the provision of financing (whether in the form of
contract loans or otherwise) to such Brokers and Agents. The
contracts and other agreements relating to the Business between Seller
(or CLIC) and the Brokers and Agents are valid, binding and in full
force and effect in accordance with their respective terms as against
Seller or CLIC, as the case may be, and, to the knowledge of the
Seller Key People, the other parties thereto. Neither Seller nor CLIC
nor, to the knowledge of the Seller Key People, any Broker or Agent
is in default in any material respect with respect to any such
contract or such other agreement.
Section 3.13. Reinsurance. Except as set forth on Schedule
3.13 hereto, and to the knowledge of the Seller Key People, (a) there
are no agreements, written or oral, pursuant to which Seller or CLIC
cedes or retrocedes risks assumed under the Insurance Contracts and
(b) there are no Insurance Contracts which are agreements of assumed
reinsurance.
Section 3.14. Conduct of Business. Except as expressly
contemplated or required by this Agreement, or as set forth in
Schedule 3.14 hereto, since December 31, 1996, Seller and CLIC have
generally conducted the Business only in the ordinary course
consistent with their past practices and there has not been any
material change in the underwriting, pricing, actuarial, reserving,
investment, sales, marketing or agency practices or policies of the
Business.
Section 3.15. Absence of Certain Changes. Since December
31, 1996, there has been no change in mortality or lapse experience,
or any damage, destruction, loss or other event or condition of any
character (whether or not in the ordinary course of business), other
than those occurring as a result of general economic or financial
conditions or other developments which are not unique to the Business
but also affect other Persons who participate or are engaged in lines
of business similar to the Business, that, individually or in the
aggregate, is likely to have a material adverse effect on the
Business.
Section 3.16. Other Sale Arrangements. None of Seller, CLIC
or Parent is obligated or liable, contingently or otherwise, for or
with respect to negotiations, letters of intent or commitments for the
sale of all or any part of the Business (except in the ordinary course
of business) or any of the stock or substantially all of the assets
of the Parent Subsidiaries to any Persons other than Purchaser and
LLANY.
Section 3.17. Seller Separate Accounts and Underlying Funds.
Each of the Seller Separate Accounts and the funds supporting the
Seller Separate Accounts that are managed by an Affiliate of Seller
or CLIC (the "Internally Managed Funds") is duly and validly
established and maintained in all material respects under the laws of
the State of Connecticut and the assets of the Seller Separate
Accounts and the Internally Managed Funds are not chargeable with
liabilities arising out of any other business that Seller or CLIC may
conduct; each of the Seller Separate Accounts and the Internally
Managed Funds is duly registered as an investment company under the
1940 Act (or exempt from such registration); each of the Seller
Separate Accounts and the Internally Managed Funds is and has been
operated in compliance with the 1940 Act in all material respects, and
Seller or CLIC, as appropriate, has filed all reports and amendments
of its registration statement required to be filed, and has been
granted all exemptive relief necessary for the operations of the
Seller Separate Accounts and the Internally Managed Funds. Each
Internally Managed Fund is duly incorporated and in good standing
under the laws of the state of its incorporation or is a validly
existing business trust under the laws of the jurisdiction in which
it was formed and is qualified as a foreign corporation or business
trust in each jurisdiction in which such qualification is necessary,
except for those jurisdictions where failure to be so qualified would
not, individually or in the aggregate, have a material adverse affect
on the Business. The Insurance Contracts under which the Seller
Separate Account assets are held are duly and validly issued and were
sold pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws and each such
registration statement is currently in effect to the extent necessary
to allow Seller to receive contributions under such contracts. Seller
or CLIC, as appropriate, has filed each prospectus and statement of
additional information, as amended or supplemented, under which the
Seller Separate Accounts and Internally Managed Funds assets are held
that are required to be filed, and each such prospectus and statement
of additional information, as of its respective mailing date or date
of use, complied in all material respects with applicable securities
laws. All participation agreements relating to funds supporting the
Seller Separate Accounts that are not managed by an Affiliate of
Seller or CLIC (the "Externally Managed Funds") are in full force and
effect and, to the knowledge of the Seller Key People, no notice has
been given from any Externally Managed Fund that it intends to
terminate any such participation agreement.
Section 3.18. Assigned and Assumed Contracts. Each of the
Assigned and Assumed Contracts is valid, binding and in full force and
effect according to its terms as against Seller or CLIC, as the case
may be, and, to the knowledge of the Seller Key People, the other
party or parties thereto; and either (a) is freely assignable to
Purchaser or LLANY, as applicable, pursuant to this Agreement and the
General Assignment and Assumption Agreement without notice to or
consent of any Person, other than as specified on Exhibit J hereto,
or (b) if any required consent to an assignment thereof to Purchaser
(other than those specified in Exhibit J) is not able to be obtained
by Seller or CLIC, as the case may be, using commercially reasonable
best efforts, Seller will be able to make arrangements with respect
thereto pursuant to Section 5.32 hereof. Neither Seller nor CLIC, as
the case may be, nor, to the knowledge of the Seller Key People, any
other party to any such contract is in default with respect to any
such contract or such other agreement, except for any such default
that would not, individually or in the aggregate, have a material
adverse effect on the Business.
Section 3.19. Employees. (a) Except for individuals
identified in a letter to Steve Lewis from Tom Jones which was
delivered by facsimile on July 18, 1997, at 5:08 p.m., (the "July 18
Letter"), Schedule 3.19(A) hereto lists to the knowledge of the
Seller Key People (i) each Person employed by or who is an agent of
Seller or any of its Affiliates immediately prior to the execution of
this Agreement who customarily works for the Business, (ii) the
position and the payroll employer of each such Person or the entity
with which each such Person has an agency contract as of the date
hereof, (iii) the salary or other base remuneration of each such
Person as of the date hereof, and (iv) for each such Person, other
than an agent, who customarily devotes less than 35 hours per week to
the Business, the hours per week customarily worked by such Person.
To the knowledge of the Seller Key People, as of the date hereof,
there is no Person who is employed by or is an agent of CA. Promptly
after the date hereof, Seller will prepare and deliver to Purchaser
an updated Schedule 3.19(A) which will not be qualified by reference
to the knowledge of the Seller Key People. Thereafter, all references
in this Agreement to Schedule 3.19(A) will be references to such
revised Schedule.
(b) Schedule 3.19(B) hereto lists and describes, to the
knowledge of the Seller Key People, any "pay to stay" or similar
arrangement applicable to any employee listed on Schedule 3.19(A)
hereto as of the date of this Agreement.
(c) Schedule 3.19(C) hereto contains a complete description
of each category of severance and related benefits ("Severance Costs")
that Seller proposes to pay or provide to or on behalf of any Band 1
Employee, as further described in Section 5.23(h) hereof, including
severance benefits, early vesting of restricted stock awards, and to
the extent applicable under Seller's policies and practices in effect
on the date hereof, outplacement services.
(d) Schedule 3.19(D) hereto contains a complete list of the
restricted stock awards and/or options for CIGNA's common stock that
have been granted to any employee or agent listed on Schedule 3.19(A)
hereto, and, for all stock options, such list discloses both the
vested and the unvested options as of the date hereof.
Section 3.20. Employee Benefit Plans; ERISA. (a) Schedule
3.20(A) hereto contains a list and brief description of (i) all
"employee pension benefit plans," as defined in section 3(2) of ERISA,
established, maintained, or contributed to by Seller or any of its
Affiliates for the benefit of any employees or agents listed on
Schedule 3.19(A) or Schedule 3.12(C) (sometimes referred to herein as
the "Pension Plans"); (ii) all "employee welfare benefit plans," as
defined in section 3(1) of ERISA, established, maintained, or
contributed to by Seller or any of its Affiliates for the benefit of
any employees or agents listed on Schedule 3.19(A) or Schedule 3.12(C)
(sometimes referred to herein as the "Welfare Plans"); and (iii) to
the knowledge of the Seller Key People, all other benefit plans,
programs, and arrangements established, maintained, or contributed to
by Seller or any of its Affiliates for the benefit of any employees
or agents listed on Schedule 3.19(A) or Schedule 3.12(C), without
regard to the coverage of any such plan, program, or arrangement by
ERISA or any provision of the Code (which plans are collectively
referred to herein as the "Benefit Plans.") Each Benefit Plan is in
material compliance with all Applicable Law including ERISA and the
Code.
(b) Schedule 3.20(B) identifies each Benefit Plan that is
or is intended to be a "qualified plan" within the meaning of section
401(a) of the Code ("Qualified Plans"). Except as set forth in
Schedule 3.20(B), the Internal Revenue Service has issued a favorable
determination letter with respect to each Qualified Plan, both as to
the original plan and all restatements or material amendments, that
has not been revoked, and, to the knowledge of Seller Key People,
there are no existing circumstances nor any events that have occurred
that are likely to adversely affect the qualified status of any
Qualified Plan or the related trust. None of the Qualified Plans has,
to the knowledge of Seller Key People, been subject to any assertion
by any governmental authority that it is not qualified and, to the
knowledge of the Seller Key People, each has been operated so that it
has always been so qualified.
(c) Except as set forth in Schedule 3.20(C), no Pension Plan
established or maintained by Seller or any of its Affiliates, and no
Pension Plan to which Seller or any of its Affiliates is obligated to
make contributions, had, as of January 1, 1997, an "unfunded benefit
liability," as defined in section 4001(a)(18) of ERISA. All
contributions required to be made to any Benefit Plan by applicable
law or regulation or by any plan document or other contractual
undertaking, and all premiums due or payable with respect to insurance
policies funding any Benefit Plan, for any period through the date
hereof have been timely made or paid in full or, to the extent not
required to be made or paid on or before the date hereof, have been
fully reflected on the relevant financial statements described in
Section 3.24 hereof. All amounts required to be paid under or with
respect to any Benefit Plan have been paid in full on a timely basis;
except for any failures that individually or in the aggregate would
not have a material adverse effect on the Business. No excise or
penalty taxes are assessable as a result of any nondeductible or other
contributions made or not made to a Benefit Plan. All contributions
to a Benefit Plan have been deductible under the Code.
(d) Schedule 3.20(D) to the knowledge of the Seller Key
People, fully and accurately discloses any funding liability under the
Deferred Compensation Plan of CIGNA Corporation and Seller's Top
Earner's Plan. Promptly after the date hereof, Seller will prepare
and deliver to Purchaser an updated Schedule 3.20(D) which will not
be qualified by reference to the knowledge of the Seller Key People.
Thereafter, all references in this Agreement to Schedule 3.20(D) will
be references to such revised Schedule.
(e) No Pension Plan established or maintained by Seller or
any of its Affiliates, and no Pension Plan to which Seller or any of
its Affiliates is obligated to make contributions, has an "accumulated
funding deficiency," as defined in section 302 of ERISA and section
412 of the Code, whether or not waived.
(f) No Pension Plan established or maintained by Seller or
any of its Affiliates or to which Seller or any of its Affiliates is
obligated to make contributions, and no trust created under any such
Pension Plan, has been terminated or experienced a "reportable event,"
as defined in section 4043 of ERISA, during the five-year period
ending on the date of execution of this Agreement.
(g) No Pension Plan to which Seller or any of its Affiliates
is obligated to make contributions is a "multiemployer plan," as
defined in section 4001(a)(3) of ERISA, or a single-employer plan
under multiple controlled groups, within the meaning of sections 4063-64 of
ERISA.
(h) To the knowledge of the Seller Key People, none of
Seller, any of its Affiliates, any officer of Seller or of any of its
Affiliates, any Benefit Plan (including the Pension Plans) that is
subject to ERISA, any trust created under any such Benefit Plan, or
any trustee or administrator of any such Benefit Plan has engaged in
a "prohibited transaction," as defined in section 406 of ERISA or
section 4975 of the Code, or in any other breach of fiduciary
responsibility with respect to a Benefit Plan that could subject
Seller, any of its Affiliates, or any officer of Seller or of any of
its Affiliates to any tax or penalty pursuant to section 4975 of the
Code or to any liability under section 502(i) or 502(l) of ERISA.
(i) Except as provided in this Agreement or as set forth in
Schedule 3.20(I), to the knowledge of Seller Key People, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (either alone or in conjunction
with any other event) (i) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or
benefit to any employee, director, officer or former employee of
Seller or any of its Affiliates, (ii) result in or cause the payment
of an amount constituting an "excess parachute payment" (as such term
is defined in section 280G(b)(1) of the Code), or (iii) result in a
violation of fiduciary duties imposed by section 404 of ERISA, the
prohibited transaction rules of section 406 of ERISA or section 4975
of the Code, or other applicable law.
(j) To the knowledge of the Seller Key People and except to
the extent set forth in Schedule 3.20(J) hereto, each Welfare Plan
that is a "group health plan," as defined in section 5000(b)(1) of the
Code, complies, and at all times has complied, in all material
respects with the applicable requirements of section 4980B of the Code
("COBRA") and sections 9801 through 9806 of the Code ("HIPAA").
(k) To the knowledge of the Seller Key People, none of
Seller, any of its Affiliates, any officer of Seller or of any of its
Affiliates, any Benefit Plan (including Pension Plan) that is subject
to ERISA, any trust created under any such Benefit Plan, or any
trustee or administrator of any such Benefit Plan could subject
Seller, any of its Affiliates, or any officer of Seller or of any of
its Affiliates to any tax or penalty pursuant to section 512, 4976 or
7501 of the Code.
(l) Except as set forth in Schedule 3.20(L), to the
knowledge of Seller Key People, summary plan descriptions and all
other returns, reports, documents, statements and communications which
are required to have been filed, published or disseminated under ERISA
or other applicable law and the rules and regulations promulgated by
the Department of Labor, the Pension Benefit Guaranty Corporation, the
Treasury Department, the Equal Employment Opportunity Commission, the
Commission or any other Governmental Authority with respect to the
Benefit Plans have been so filed, published or disseminated.
(m) To the knowledge of the Seller Key People, and with the
exception of claims for benefits, including associated appeals and
disputes of denied claims, arising in the ordinary course of
administration of the Benefit Plans, no material claims, assessments,
investigations, or proceedings in arbitration or litigation relating
to or arising under any Benefit Plan are pending or threatened against
Seller, any of its Affiliates, any Benefit Plan, or any trust or other
funding arrangement created under or established as part of any
Benefit Plan, or against any trustee, fiduciary, custodian,
administrator, or any other Person holding or controlling assets of
any Benefit Plan, and Seller has no basis to anticipate that any such
claim or claims exist.
Section 3.21. Labor Relations and Employment. Except to the
extent set forth in Schedule 3.21 hereto, (i) to the knowledge of the
Seller Key People, there is no labor strike, dispute, slowdown,
stoppage or lockout pending or, to the knowledge of the Seller Key
People, threatened against or affecting Seller or CLIC in connection
with the Business, and, since January 1, 1992, there has not been any
such action; (ii) to the knowledge of the Seller Key People, there are
no union claims to represent the employees of Seller or CLIC and there
are no current union organizing activities among such employees; (iii)
neither Seller nor CLIC is a party to or bound by any collective
bargaining or similar agreement with any labor organization applicable
to Seller's or CLIC's employees in connection with the Business; and
(iv) there are no material written personnel policies, rules or
procedures applicable to Seller's employees in connection with the
Business, other than those set forth in Schedule 3.21, true and
correct copies of which have heretofore been delivered to Purchaser.
Section 3.22. Transferred Assets. (a) Seller or CLIC has
good and marketable title to all assets included within the
Transferred Assets (other than cash, the Assignable Licensed
Principally Used Software and the Transferred Contracts), free of any
lien, encumbrance, restriction, claim, charge, or defect of title,
except for any liens, encumbrances, restrictions, claims, charges or
defaults of title (i) whose effect on the value of the relevant
Transferred Asset will be collectively reflected in the current value
thereof on the Final Balance Sheet, (ii) identified on Schedule 3.22
hereto, or (iii) with respect to assets other than cash or Investment
Assets, that, individually or in the aggregate, would not have a
material adverse effect on the Business.
(b) (i) Schedules B and D of the statutory statements of
Seller for the year ended December 31, 1996 contain true and (to the
extent required by the form) complete disclosures of all "Mortgage
Loans" (Schedule B Assets), and "Credit Tenant Loans and Industrial
Revenue Bonds with Publicly Traded Borrowers" (Schedule D Assets)
owned by Seller as of December 31, 1996 ( the items set forth in (i)
and (ii) hereinafter collectively referred to as "Real Estate
Assets"). All information concerning the Real Estate Assets in the
statutory statements of Seller for the year ended December 31, 1996
is true and (to the extent required by the form) complete in all
respects in the opinion of Seller; and reserves taken in respect of
impairment to value of the Mortgage Loans are in the opinion of Seller
adequate to fairly represent such impairment.
(ii) All Real Estate Assets comply with all regulations of
the applicable authorities of the domiciliary jurisdiction of Seller
owning such assets to qualify as "admitted assets" pursuant to the
laws and regulations of such domicile.
(iii) To the knowledge of the Seller Key People, the real
property underlying each item that constitutes the Real Estate Assets
and all activities upon, or use or occupancy of, such property are in
compliance with all applicable laws, including Environmental Laws (as
defined below). For each commercial mortgage loan originated since
1987, Seller or an Affiliate of Seller has obtained an environmental
report covering the environmental condition of the asset. As used in
this Agreement, the term "Environmental Laws" shall mean all state,
federal and local laws and all rules and regulations promulgated
thereunder governing or in any way relating to the generation,
handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, release, discharge or disposal of any
contaminant, pollutant or hazardous or toxic substance, material or
waste, or other environmentally regulated material including, but not
limited to, those substances, materials and wastes listed in the
United States Department of Transportation Table (49 C.F.R. 172.101)
or by the Environmental Protection Agency as a hazardous substance,
material or waste or which is or becomes regulated under any
applicable local, state or federal law and all rules and regulations
promulgated thereunder, including, without limitation, any of the
following materials, wastes or substances: (A) petroleum and petroleum
products, (B) asbestos in any form, (C) polychlorinated biphenyls, (D)
urea formaldehyde, (E) atmospheric radon at levels over four (4)
picocuries per cubic liter, (F) those designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to Section
307 of the Clean Water Act (33 U.S.C. Section 1317), (G) those defined as
a "hazardous substance" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C.
Section 6903), or (H) those defined as a "hazardous substance" pursuant
to Section 101 of the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601)
(collectively, "Hazardous Materials"). Seller has not participated in the
management of any of the partnership properties or of the borrowers under
the Mortgage Loans or has not participated in the management or operation
of the real property encumbered by any of the Mortgage Loans or any of the
improvements located on said real property. As used in this Section
3.22(d) "participated in the management" shall have the meaning
ascribed to such phrase in the Asset Conservation, Lender Liability
and Deposit Insurance Protection Act of 1996 and "operation" shall
have the meaning ascribed in 42 U.S.C. Section 6901 et seq.
(iv) Seller or an Affiliate of Seller is the sole named
insured on a policy of title insurance with respect to each of the
Real Estate Assets for which it is the sole lender, and each of said
title insurance policies insures Seller or such Affiliate as the
holder of a first priority mortgage in regard to Mortgage Loans. On
mortgages shared with other lenders, Seller or an Affiliate of Seller
is a named insured or has an interest in a title insurance policy
insuring Seller or an Affiliate of Seller as a participant in the
first priority mortgage.
(v) Seller or an Affiliate of Seller, owning each Mortgage
Loan asset (hereinafter sometimes referred to as "Lender"), has
possession of the original promissory note or notes creating such
Mortgage Loan debt and all other documents creating, evidencing or
modifying the Mortgage Loan or its terms and conditions. The lien
associated with each Mortgage Loan constitutes a first priority lien
against the property purported to be encumbered, subject to certain
exceptions.
Section 3.23. Contracts. (a) Schedule 3.23(A) lists and
briefly describes to the knowledge of the Seller Key People each and
every written contract, agreement, lease, license, commitment or
arrangement (including the parties to and the date and subject matter
of) and, to the knowledge of the Seller Key People, each and every
oral contract, agreement, commitment or arrangement, to which Seller
or CLIC is a party or which is binding upon Seller or CLIC that is
material to the Business except for (i) those specifically disclosed
in any other Schedule to this Agreement and (ii) the Insurance
Contracts.
(b) Each of the contracts listed on Schedule 3.23(A) is in
full force and effect and constitutes a legal, valid and binding
obligation of Seller or CLIC, as the case may be, and to the knowledge
of the Seller Key People, of each other Person that is a party
thereto. Except as set forth on Schedule 3.23(B), neither Seller nor
CLIC nor, to the knowledge of the Seller Key People, any other party
to such contract is in violation, breach or default of any such
contract or, with or without notice or lapse of time or both, would
be in violation, breach or default of any such contract, except for
such violations, breaches or defaults that would not, individually or
in the aggregate, have a material adverse effect on the Business.
Except as set forth on Schedule 3.23(B), to the knowledge of the
Seller Key People, no such contract contains any provision providing
that any party thereto other than Seller or CLIC, as the case may be,
may terminate such contract by reason of the execution of this
Agreement or the Ancillary Agreements or the transactions contemplated
thereby.
(c) Notwithstanding the generality of the foregoing,
Schedule 3.23(C) hereto lists and briefly describes to the knowledge
of the Seller Key People each and every written contract, agreement,
commitment or arrangement, and each and every oral contract,
agreement, commitment or arrangement, to which Seller or CLIC is a
party or which is binding upon Seller or CLIC that restrict the right
of Seller or CLIC to change the crediting rates and other non-guaranteed
elements under the Insurance Contracts, other than pursuant
to the terms of the Insurance Contracts.
Section 3.24. GAAP Financial Statements. On or prior to the
date hereof, Seller has delivered to Purchaser true, correct and
complete copies of (a) the audited consolidated balance sheet of
Seller and its Subsidiaries as of December 31, 1996, prepared in
accordance with GAAP, together with the notes thereon and the related
report of Price Waterhouse LLP, the independent certified public
accountant of Seller, and (b) the audited consolidated statements of
income, stockholders' equity and cash flows of Seller and its
Subsidiaries for the year ended December 31, 1996, prepared in
accordance with GAAP, together with the notes thereon and the related
report of Price Waterhouse LLP, (collectively, the "Seller Financial
Statements"). Seller has delivered to Purchaser a true, correct and
complete copy of the consolidated balance sheet, and the related
consolidated statements of income, stockholders' equity and cash flows
of CIGNA and its Subsidiaries for the quarter ended March 31, 1997,
prepared in accordance with GAAP, subject to normal recurring year-end
adjustments (the "Interim CIGNA Financial Statements"). The Seller
Financial Statements and the Interim CIGNA Financial Statements are
based on the books and records of Seller and its Subsidiaries or CIGNA
and its Subsidiaries, as appropriate, and the Seller Financial
Statements and the Interim CIGNA Financial Statements have been
prepared in accordance with GAAP (subject, in the case of the Interim
CIGNA Financial Statements, to normal recurring year-end adjustments)
consistently applied, and fairly present in all material respects the
consolidated financial position and results of operations of Seller
or CIGNA, as appropriate, and their respective Subsidiaries as of the
date and for the period indicated therein.
Section 3.25. Statutory Statements. Seller has previously
delivered Purchaser true, complete and correct copies of the Annual
Statements of Seller as filed with the Connecticut Insurance
Department for the years ended December 31, 1996 and 1995, together
with all exhibits and schedules thereto and the actuarial opinions
applicable to the Business for such years and supporting actuarial
memoranda for the year ended December 31, 1996 only. Seller has
previously disclosed to Purchaser a true, complete and correct copy
of the Quarterly Statement of Seller as filed with the Connecticut
Insurance Department for the quarter ended March 31, 1997, together
with all exhibits and schedules thereto.
Section 3.26. Tax Matters. Except as described on Schedule
3.26:
(a) The assets of the Seller Separate Accounts are and have
been adequately diversified at all times within the meaning of section
817(h) of the Code.
(b) Each Insurance Contract identified as an "Annuity
Contract" for purposes of this Agreement complies with the
requirements of Section 72 of the Code.
(c) Each Insurance Contract identified as a "Life Insurance
Contract" for purposes of this Agreement that was issued after
December 31, 1984 complies with the requirements of Section 7702 of
the Code.
(d) Each Insurance Contract identified as a "Life Insurance
Contract" for purposes of this Agreement that was issued before
January 1, 1985 (i) complies with the requirements of Section 7702 of
the Code to the extent applicable to such Insurance Contract or (ii)
to the extent Section 7702 of the Code is inapplicable to such
Insurance Contact and such Insurance Contract is a flexible premium
contract within the meaning of Section 101(f) of the Code, complies
with the requirements of such Section 101(f).
(e) To the knowledge of the Seller Key People, there are no
"hold harmless," tax sharing, indemnification, or similar arrangements
regarding the Tax qualification or treatment of any Insurance
Contracts.
(f) Seller is or is treated for all federal income Tax
purposes as the owner of the assets underlying each variable Insurance
Contract issued, entered into, or sold by Seller.
(g) The policyholders of any Insurance Contracts that
constitute "modified endowment contracts" under Section 7702A of the
Code have been fully notified of the status and federal tax
consequences of such Insurance Contracts.
(h) Seller has complied in all material respects with all
applicable reporting, withholding and disclosure requirements under
the Code, ERISA and other applicable law, including but not limited
to those regarding distributions, with respect to the Insurance
Contracts and has reported the distributions under such contracts in
accordance with Sections 72, 7702 and 7702A of the Code in all
material respects.
Section 3.27. Transition Services Agreement. Except as set
forth in the Transition Services Agreement, the amounts to be paid by
Purchaser to Seller pursuant to the terms of the Transition Services
Agreement have been (or will be) computed in accordance with the
internal charge-back methodologies historically used by Seller.
Section 3.28. Pro Forma Financial Statements. The data
contained in the Pro Forma Financial Statements was obtained from the
books and records of Seller and CLIC and is the same data that was
included with respect to the Business in the GAAP and statutory
financial statements of Seller and CLIC and in Seller's and CLIC's
work papers upon which such GAAP and SAP financial statements were
based. Such data was computed in accordance with, as applicable, GAAP
and Connecticut SAP. Except as disclosed on Schedule 3.28 hereto, or
reserved against in the Pro Forma Financial Statements, to the
knowledge of the Seller Key People, as of the date thereof there were
no material debts, liabilities or obligations of the Business, whether
accrued, absolute or contingent and whether due or to become due.
Section 3.29. Cash Flow Testing. The 1996 Actuarial
Opinion and Memorandum with respect to Individual Insurance Products
for Seller contained in Schedule 3.29 hereto (the "Opinion") is a
true, correct and complete copy of an extract from the 1996 Actuarial
Memorandum for Seller as filed with the Connecticut Department of
Insurance. To the knowledge of the Seller Key People the cash flow
testing results set forth in the Opinion, and the supporting data for
the Opinion contained in Schedule 3.29 hereto, (i) reflected only
insurance policies and annuity contracts issued by the Seller that
would have constituted Insurance Contracts if in effect on the date
hereof and (ii) were, for the purpose of forming the Opinion,
determined in accordance with standards of practice promulgated by the
Actuarial Standards Board consistently applied throughout the periods
covered and met the requirements of Connecticut SAP. At the request
of Purchaser, Seller prepared and previously provided additional cash
flow calculations. To the knowledge of Seller Key People, the
calculations were prepared with reasonable care reflecting the
methodology, and were subject to adjustments (e.g., consideration of
certain non-reinsured business) and qualifications, discussed with
Purchaser's advisor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LNC, PURCHASER AND LLANY
LNC, Purchaser and LLANY hereby represent and warrant to
Parent, Seller and CLIC as of July 27, 1997, as follows:
Section 4.01. Organization and Standing. Each of LNC and
Purchaser is a corporation duly organized and validly existing under
the laws of the State of Indiana and has all requisite power and
authority to own, lease and operate its assets, properties and
business and to carry on the operations of its business as they are
now being conducted, except where such authority is not material to
such operations. LLANY is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York
and has all requisite power and authority to own, lease and operate
its assets, properties and business and to carry on the operations of
its business as they are now being conducted, except where such
authority is not material to such operations.
Section 4.02. Authorization. Each of LNC, Purchaser and
LLANY has all requisite power and authority to execute, deliver and
perform its obligations under this Agreement and under each of the
Ancillary Agreements to be executed by it. The execution and delivery
by LNC, Purchaser and LLANY of this Agreement and the execution and
delivery of the Ancillary Agreements to be executed by Purchaser and
LLANY, and the performance by each of them of their obligations under
such agreements, have been duly authorized. This Agreement has been
duly executed and delivered by LNC, Purchaser and LLANY, and on the
Closing Date the Ancillary Agreements executed by Purchaser and LLANY,
respectively, will be duly executed and delivered by Purchaser and
LLANY; and, subject to the due execution and delivery by the other
parties to such agreements, this Agreement is, and the Ancillary
Agreements executed by Purchaser and LLANY will, upon due execution
and delivery, be valid and binding obligations of LNC, Purchaser and
LLANY, respectively, enforceable against LNC, Purchaser or LLANY, as
appropriate, in accordance with their respective terms.
Notwithstanding the foregoing, the obligation of Purchaser and LLANY
to execute any Ancillary Agreement shall be subject to the terms and
conditions of this Agreement.
Section 4.03. Actions and Proceedings. Except as disclosed
on Schedule 4.03 hereto, there are no outstanding orders, decrees or
judgments by or with any court, governmental agency, regulatory body
or arbitration tribunal before which LNC, Purchaser or LLANY was a
party that, individually or in the aggregate, have a material adverse
effect on the operations of LNC, Purchaser or LLANY. Except as
disclosed on Schedule 4.03 hereto, there are no actions, suits,
arbitrations or legal, administrative or other proceedings pending or,
to the knowledge of the Purchaser Key People, threatened against LNC,
Purchaser or LLANY, at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any
kind which, if adversely determined, would, individually or in the
aggregate, have a material adverse effect on the operations of LNC,
Purchaser or LLANY.
Section 4.04. No Conflict or Violation. Except as disclosed
on Schedule 4.04 hereto, the execution, delivery and performance by
LNC, Purchaser and LLANY of this Agreement and the execution, delivery
and performance by each of Purchaser and LLANY of the Ancillary
Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby in accordance with the
respective terms and conditions hereof and thereof will not (a)
violate any provision of the charter, bylaws or other organizational
document of LNC, Purchaser or LLANY, (b) violate, conflict with or
result in the breach of any of the terms of, result in any
modification of the effect of, otherwise give any other contracting
party the right to terminate, or constitute (or with notice or lapse
of time or both, constitute) a default under, any contract to which
LNC, Purchaser or LLANY is a party or by or to which either of them
or any of their respective assets or properties may be bound or
subject, except for such violations, conflicts, breaches or
modifications that would not, individually or in the aggregate, have
a material adverse effect on Purchaser or LLANY, (c) violate any
order, judgment, injunction, award or decree of any court, arbitrator
or governmental or regulatory body against, or binding upon, or any
agreement with, or condition imposed by, any governmental or
regulatory body, foreign or domestic, binding upon LNC, Purchaser or
LLANY, except for such violations that would not, individually or in
the aggregate, have a material adverse effect on Purchaser or LLANY,
(d) violate any statute, law or regulation of any jurisdiction except
for such violations that would not, individually or in the aggregate,
have a material adverse effect on LNC, Purchaser or LLANY, or (e)
result in a breach or violation of any of the terms or conditions of,
constitute a default under, or otherwise cause an impairment of, any
Permit related to LNC's, Purchaser's or LLANY's business or necessary
to conduct the Business, except for any violation, conflict, breach
or default that would individually or in the aggregate, have a
material adverse effect on the operations of LNC, Purchaser or LLANY.
Section 4.05. Governmental Consents and Approvals. Except
as required under the HSR Act or as set forth on Schedule 4.05 hereto
and except for required Permits of applicable insurance regulatory
authorities, the execution, delivery and performance by LNC, Purchaser
and LLANY of this Agreement, and the execution, delivery and
performance by each of Purchaser and LLANY of the Ancillary Agreements
to which either of them is a party, and the consummation of the
transactions contemplated hereby and thereby in accordance with the
respective terms hereof and thereof, do not require any of LNC,
Purchaser or LLANY to obtain any consent, approval or action of, make
any governmental filing with or give any notice to, any Person, except
for such consents, approvals, actions, filings or notices the failure
of which to obtain, make or give, as the case may be, would not
individually or in the aggregate have a material adverse effect on the
operations of LNC, Purchaser or LLANY.
Section 4.06. Brokerage and Financial Advisers. No broker,
finder or financial adviser has acted directly or indirectly as such
for, or is entitled to any compensation from, Purchaser or LLANY in
connection with this Agreement or the transactions contemplated
hereby, except Merrill Lynch & Co., whose fees for services rendered
in connection therewith will be paid by Purchaser.
Section 4.07. Compliance with Laws. Except with respect to
those violations, if any, that will be cured by Purchaser prior to,
or by the act of, Closing or which individually or in the aggregate
would not have a material adverse effect on the operation of Purchaser
or LLANY, neither Purchaser nor LLANY is in violation of any federal,
state, local or foreign law, ordinance or regulation or any other
requirement of any governmental or regulatory body, court or
arbitrator nor has Purchaser or LLANY received any written notice that
any such violation is being alleged.
Section 4.08. Permits, Licenses and Franchises. Purchaser
and LLANY have been duly authorized by the relevant state insurance
regulatory authorities to transact each of the lines of insurance
business in each of the jurisdictions as set forth with respect to
each such company on Schedule 4.08 hereto. Except as listed on
Schedule 4.08 hereto, Purchaser and LLANY have all Permits necessary
to conduct the Business in the manner and in the areas in which the
Business is presently being conducted, and all such Permits are valid
and in full force and effect, except where the failure to have such
a Permit would not, individually or in the aggregate, have a material
effect on the operations of Purchaser or LLANY. Except as listed on
Schedule 4.08 hereto, neither Purchaser nor LLANY has engaged in any
activity which would cause revocation or suspension of any such Permit
and no action or proceeding looking to or contemplating the revocation
or suspension of any such Permit is pending or threatened.
Section 4.09. SAP Financial Statements. (a) On or prior
to the date hereof, Purchaser has delivered to Seller true, correct
and complete copies of (a) the audited consolidated balance sheet of
Purchaser and its Subsidiaries as of December 31, 1996, prepared in
accordance with Indiana SAP, together with the notes thereon and the
related report of Ernst & Young, the independent certified public
accountant of Purchaser, and (b) the audited consolidated statements
of income, stockholders' equity and cash flows of Purchaser and its
Subsidiaries for the year ended December 31, 1996, prepared in
accordance with Indiana SAP, together with the notes thereon and the
related report of Ernst & Young, (collectively, the "Purchaser
Financial Statements"). Purchaser has delivered to Seller a true,
correct and complete copy of the consolidated balance sheet, and the
related consolidated statements of income, stockholders' equity and
cash flows of Purchaser and its Subsidiaries for the quarter ended
March 31, 1997, prepared in accordance with Indiana SAP subject to
year-end adjustments (the "Interim Purchaser Financial Statements").
The Purchaser Financial Statements and the Interim Purchaser Financial
Statements are based on the books and records of Purchaser and its
Subsidiaries, and the Purchaser Financial Statements have been
prepared in accordance with Indiana SAP consistently applied, audited
by Ernst & Young and fairly present in all material respects the
consolidated financial position and results of operations of Purchaser
and its Subsidiaries as of the date and for the period indicated
therein.
(b) On or prior to the date hereof, LLANY has delivered to
Seller true, correct and complete copies of (a) the audited
consolidated balance sheet of LLANY as of December 31, 1996, prepared
in accordance with New York SAP, together with the notes thereon and
the related report of Ernst & Young, the independent certified public
accountant of LLANY, and (b) the audited consolidated statements of
income, stockholders' equity and cash flows of LLANY for the year
ended December 31, 1996, prepared in accordance with New York SAP,
together with the notes thereon and the related report of Ernst &
Young, (collectively, the "Purchaser Financial Statements"). LLANY
has delivered to Seller a true, correct and complete copy of the
consolidated balance sheet, and the related consolidated statements
of income, stockholders' equity and cash flows of LLANY for the
quarters March 31, 1997, prepared in accordance with New York SAP
subject to year-end adjustments (the "Interim LLANY Financial
Statements"). The LLANY Financial Statements and the Interim LLANY
Financial Statements are based on the books and records of LLANY, and
the LLANY Financial Statements have been prepared in accordance with
New York SAP consistently applied, audited by Ernst & Young and fairly
present in all material respects the consolidated financial position
and results of operations of LLANY as of the date and for the period
indicated therein.
Section 4.10. Statutory Statements. (a) Purchaser has
furnished to Seller true, complete and correct copies of the Annual
Statements of Purchaser as filed with the Indiana Insurance Department
for the years ended December 31, 1996, 1995 and 1994, together with
all exhibits and schedules thereto and applicable actuarial opinions.
Purchaser has furnished to Seller a true, complete and correct copy
of the Quarterly Statement of Purchaser as filed with the Indiana
Insurance Department for the quarter ended March 31, 1997, together
with all exhibits and schedules thereto.
(b) LLANY has furnished to Seller true, complete and correct
copies of the Annual Statements of LLANY as filed with the New York
Insurance Department for the year ended December 31, 1996, together
with all exhibits and schedules thereto and applicable actuarial
opinions. LLANY has furnished to Seller a true, complete and correct
copy of the Quarterly Statements of LLANY as filed with the New York
Insurance Department for the quarter ended March 31, 1997, together
with all exhibits and schedules thereto.
Section 4.11. Absence of Certain Changes. Except as listed
on Schedule 4.11 hereto or except as expressly contemplated or
required by this Agreement, since December 31, 1996, there has not
been (i) any change in the business, operations, condition (financial
or otherwise), results of operations, properties, prospects or assets
of Purchaser or (ii) in the ability of Purchaser to consummate the
transactions contemplated hereby or in any Ancillary Agreement, in
either case that has had or is likely to have a material adverse
effect on the operation of Purchaser or LLANY.
Section 4.12. Qualified Institutional Buyer. Purchaser and
LLANY are each "qualified institutional buyers" within the meaning of
Rule 144A promulgated under the Securities Act. Purchaser and LLANY
hereby acknowledge that Seller and CLIC may be relying, with respect
to the transfer of Investment Assets on the exemption from the
registration provisions of the Securities Act provided by Rule 144A.
Section 4.13. Sufficient Funds. Either Purchaser or LNC has
or will have at Closing sufficient funds available (through existing
credit arrangements or otherwise) to pay the Purchase Price and to pay
all fees and expenses related to the transactions contemplated.
ARTICLE V
COVENANTS
Section 5.01. Conduct of Business. (a) Prior to the
Closing (and, as to the matters specified in Section 5.01(b)(ix),
prior to the CFA Closing, if applicable), Seller and CLIC shall, and
Parent shall cause the Parent Subsidiaries to, (i) in all material
respects operate the Business as presently operated and only in the
ordinary course and consistent with past practice (including but not
limited to past underwriting standards and investment management of
the Transferred Assets) except as set forth in Schedule 5.01(A)
hereto, (ii) use commercially reasonable best efforts to preserve the
value of the Business, and (iii) use commercially reasonable best
efforts to preserve their relationships with and the goodwill of their
agents, brokers, customers, suppliers, employees and other Persons
having business dealings with Seller, CLIC and the Parent Subsidiaries
in connection with the Business.
(b) Without limiting the generality of Section 5.01(a), and
except as otherwise expressly provided in this Agreement, Seller and
CLIC will not, and Parent will cause each of the Parent Subsidiaries
not to, without the prior written consent of Purchaser:
(i) enter into any contract that would constitute an
Assigned and Assumed Contract, other than in the ordinary
course of business consistent with past practice;
(ii) acquire or dispose of any asset that would
constitute a Transferred Asset if owned by Seller or CLIC at
Closing, other than acquisitions or dispositions in the
ordinary course of the Business;
(iii) except as set forth in Schedule 5.01(B) hereto,
enter into, adopt or (except as may be required by law or the
terms of any such arrangement) terminate any bonus, profit
sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or
other employee benefit agreement, trust, plan, fund or other
arrangement for the benefit or welfare of any individual
identified on Schedule 3.19(A), amend any such arrangement as
it relates to such individuals or (except, as to non-executive
level individuals, for changes in base compensation and bonuses,
and changes in benefits in accordance with plans or arrangements
in effect as of the date hereof, in the ordinary course of business
consistent with past practice) change in any manner the
compensation or other benefits payable to any such individual;
(iv) change any of the accounting principles, practices,
methods or policies (including but not limited to any
reserving methods, practices or policies) employed with
respect to the Business, except as may be required as a
result of a change in law, GAAP, SAP or guidelines issued by
the Commission or its accounting staff;
(v) change the method of determining the GAAP reserves
with respect to the Business for any guaranty fund
assessment, second injury fund assessment, special insurance
assessment or similar assessment or tax;
(vi) pay, discharge or satisfy any material claims,
liabilities or obligations associated with the Business
(absolute, asserted or unasserted, contingent or otherwise)
other than the payment, discharge or satisfaction in the
ordinary course of the Business consistent with past practice
or in accordance with their terms of liabilities reflected or
reserved against in the Pro Forma Financial Statements or
incurred in the ordinary course of business consistent with
past practice;
(vii) enter into any reinsurance contract, other than
in the ordinary course of business consistent with past
practice;
(viii) take or cause to be taken any action that would
result in Seller's or CLIC's investment portfolio or Seller
Separate Accounts to be managed other than in the ordinary
course consistent with past practice in all material
respects; or
(ix) as to each of the Parent Subsidiaries, declare or
pay any dividend or make any other distribution with respect
to its capital stock; or
(x) agree in writing or otherwise to take any of the
actions described above in this Section 5.01(b).
(c) Prior to Closing, Seller shall notify Purchaser as
promptly as practicable of any event or transaction having a material
adverse effect on the Business.
Section 5.02. Certain Transactions. From the date of this
Agreement through the Closing, neither Seller nor CLIC nor any of its
officers, employees, representatives or agents will, directly or
indirectly, solicit, encourage or initiate any negotiations or
discussions with, or provide any information to, or otherwise
cooperate in any other manner with, any Person or group (other than
Purchaser, LLANY and their respective Affiliates and their respective
representatives) concerning any direct or indirect sale or other
disposition of the Business or the stock or substantially all of the
assets of any Parent Subsidiary.
Section 5.03. Investigations; Pre-Closing Access. (a)
Prior to the Closing Date, Purchaser shall be entitled, through its
employees and representatives, to make such investigation of the
assets, liabilities, business and operations of the Business, and such
examination of the Books and Records, as Purchaser may reasonably
request. Any investigation, examination or interview by Purchaser of
Seller's and CLIC's employees and agents and employees of the Parent
Subsidiaries or access pursuant to any of the provisions of this
Section 5.03(a) or 5.03(b) shall be conducted or occur at reasonable
times upon reasonable prior notice; and each of the parties hereto and
its employees and representatives, including, without limitation,
counsel, investment bankers, and independent public accountants, shall
cooperate with the other's employees and representatives, as the case
may be, in connection with such review and examination.
(b) In addition, prior to the Closing Date, Seller and CLIC
shall provide Purchaser with full and complete access to every aspect
of the Business, subject only to any applicable legal limitations.
Without limiting the generality of the foregoing, Seller and CLIC
shall (i) provide Purchaser with access to individuals reasonably
specified by Purchaser to plan the transition of the Business and the
employees and agents of Seller to Purchaser and LLANY, (ii) designate
certain individuals (subject to Purchaser's reasonable approval) to
serve as members of a Seller/Purchaser transition team and cause such
individuals to devote reasonable time to transition matters,
(iii) devote reasonable resources to transition matters (such
resources to include, without limitation, office accommodations and
related facilities for a substantial and continuing presence of
Purchaser's transition team members on Seller's premises), (iv)
cooperate with Purchaser in connection with Purchaser's filing of
policy and contract forms to enable Purchaser to issue policies and
contracts substantially similar to those included in the Business, (v)
consult with Purchaser regarding Seller's development work pertaining
to systems, products, distribution and customer and producer services,
and (vi) cooperate with Purchaser in its development work pertaining
to systems, products, distribution and customer and producer services
in order to enable implementation of the transition plan at the
earliest feasible date. In conjunction with the foregoing, Seller and
CLIC hereby acknowledge that the transition plan is critical to the
success of the transactions contemplated by this Agreement.
(c) Prior to the Closing Date, Seller shall be entitled,
through its employees and representatives, to make such investigation
of the assets, liabilities, business and operations of Purchaser and
LLANY as Seller may reasonably request. Any such investigation or
examination shall be conducted at reasonable times upon reasonable
prior notice; and each of the parties hereto and its employees and
representatives, including, without limitation, counsel, investment
bankers, and independent public accountants, shall cooperate with the
other's employees and representatives, as the case may be, in
connection with such review and examination.
(d) Notwithstanding any other provisions of this Section
5.03, Purchaser, Seller and CLIC shall cooperate in implementing the
provisions of this Section 5.03 so as not to prevent or interfere with
Seller's and CLIC's compliance with Section 5.01 hereof.
Section 5.04. Post-Closing Access. (a) Following the
Closing Date, Seller and CLIC shall (i) allow Purchaser and/or LLANY,
upon reasonable prior notice and during regular business hours,
through their employees and representatives, the right, at Purchaser's
or LLANY's expense, to examine and make copies of any books and
records retained by Seller and CLIC, to the extent they relate to the
Business, for any reasonable business purpose, including, without
limitation, the preparation or examination of Purchaser's Tax returns,
regulatory filings and financial statements and the conduct of any
litigation or regulatory dispute resolution, whether pending or
threatened, concerning the conduct of the Business prior to the
Closing Date and (ii) maintain such books and records for Purchaser's
and/or LLANY's examination and copying. Access to such books and
records shall be at Purchaser's or LLANY's expense and may not
unreasonably interfere with Seller's or CLIC's or any successor
company's business operations.
(b) Following the Closing Date, Purchaser and LLANY shall
(i) allow Seller and CLIC, upon reasonable prior notice and during
regular business hours, through their employees and representatives,
the right, at Seller's and CLIC's expense, to examine and make copies
of the Books and Records transferred to Purchaser and LLANY,
respectively, at the Closing for any reasonable business purpose,
including, without limitation, the preparation or examination of Tax
returns, regulatory filings and financial statements and the conduct
of any litigation or the conduct of any regulatory, contractholder,
participant or other dispute resolution whether pending or threatened,
and (ii) maintain such Books and Records for Seller's and CLIC's
examination and copying. Access to such Books and Records shall be
at Seller's and CLIC's expense and may not unreasonably interfere with
Purchaser's or LLANY's or any successor company's business operations.
Section 5.05. HSR Act Filings. Seller and Purchaser shall,
as promptly as practicable, file, or cause to be filed, Notification
and Report Forms to be filed under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") in connection with
the transactions contemplated by this Agreement, the Ancillary
Agreements and the other agreements contemplated hereby and thereby,
and will use their respective reasonable efforts to respond as
promptly as practicable to all inquiries received from the FTC or the
Antitrust Division for additional information or documentation and to
cause the waiting periods under the HSR Act to terminate or expire at
the earliest possible date. Seller and Purchaser will each 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.
Section 5.06. Consents and Reasonable Efforts. (a) Seller,
CLIC, Purchaser and LLANY shall cooperate and use commercially
reasonable best efforts to obtain all consents, approvals and
agreements of, and to give and make all notices and filings with, any
governmental authorities and regulatory agencies, necessary to
authorize, approve or permit the consummation of the transactions
contemplated by this Agreement, the Ancillary Agreements and the other
agreements contemplated hereby and thereby, including, without
limitation, the Permits described in Sections 6.03 and 7.03. Seller
shall use commercially reasonable best efforts to obtain, and
Purchaser and LLANY will cooperate with Seller in obtaining, all other
approvals and consents to the transactions contemplated by this
Agreement and the Ancillary Agreements, including the matters set
forth on Schedule 3.04 hereto and the consents of third parties under
contracts to be assigned. In the event third party consents under
contracts to be assigned cannot be obtained, Seller agrees to use
commercially reasonable best efforts, in cooperation with Purchaser,
to obtain comparable benefits for Purchaser for the period provided
for in Section 5.32 hereof. Purchaser will use commercially
reasonable best efforts to obtain all approvals and consents to the
transactions contemplated by this Agreement and the Ancillary
Agreements as set forth on Schedule 4.04 hereto.
(b) Seller, CLIC and Purchaser shall cooperate and use
commercially reasonable best efforts to obtain approval by the
managing trustees or their equivalent of the Seller Separate Accounts
regarding the substitution of a mutual fund managed by Purchaser or
an Affiliate of Purchaser for any and all Internally Managed Funds
that support the Seller Separate Accounts, to obtain approval from the
Commission in connection therewith to enter into a participation
agreement to effect such substitution (which participation agreement
shall be reasonably satisfactory to Purchaser and Seller in all
material respects), and to obtain all other consents, approvals and
agreements of, and to give and make all notices and filings with, any
other governmental authorities and regulatory agencies, necessary to
authorize, approve or permit the consummation of the substitution
referred to herein. Seller, CLIC and Purchaser, as the case may be,
shall use commercially reasonable best efforts to obtain, and each
such party will cooperate with the other parties in obtaining, all
other approvals and consents to the substitution described in the
immediately preceding foregoing sentence.
(c) To the extent that the sale of all the issued and
outstanding common stock of CFA to Purchaser pursuant to the Stock
Purchase Agreement results in an "assignment" (as that term in defined
in the 1940 Act) of the principal underwriting agreement currently in
effect between the Seller Separate Accounts and CFA, Seller, CLIC and
Purchaser shall cooperate and use commercially reasonable best efforts
to obtain approval by the managing trustees or their equivalent of the
Seller Separate Accounts of new principal underwriting agreements
between the Seller Separate Accounts and CFA (in substantially the
same form as currently in effect), and to obtain all other consents,
approvals and agreements of, and to give and make all notices and
filings with, any other governmental authorities and regulatory
agencies, necessary to authorize, approve or permit the new principal
underwriting agreements. Seller, CLIC and Purchaser, as the case may
be, shall use commercially reasonable best efforts to obtain, and each
such party will cooperate with the other parties in obtaining, all
other approvals and consents to the approval of new principal
underwriting agreements described in the immediately preceding
foregoing sentence.
Section 5.07. Representations and Warranties. From the date
hereof through the Closing Date, (a) Seller and CLIC shall use
commercially reasonable best efforts to conduct their affairs in such
a manner so that, except as otherwise contemplated or permitted by
this Agreement, the representations and warranties contained in
Article III shall continue to be true, complete and correct in all
material respects on and as of the Closing Date as if made on and as
of the Closing Date, except for representations and warranties that
are expressly stated to be made as of an earlier date (b) Purchaser
and LLANY shall use commercially reasonable best efforts to conduct
their affairs in such a manner so that, except as otherwise
contemplated or permitted by this Agreement, the representations and
warranties as to Purchaser and LLANY contained in Article IV 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) Seller
shall notify Purchaser and LLANY promptly of any event, condition or
circumstance known to Seller occurring from the date hereof through
the Closing Date that would constitute a violation or breach of this
Agreement by Seller or CLIC and (d) Purchaser shall notify Seller
promptly of any event, condition or circumstance known to Purchaser
occurring from the date hereof through the Closing Date that would
constitute a violation or breach of this Agreement by Purchaser or
LLANY. Not later than August 31, 1997, Seller shall provide to
Purchaser and LLANY updates of the schedules to this Agreement, which
for the purposes of this provision shall be prepared without regard
to any qualification as to the knowledge of the Seller Key People in
the representation and warranty to which the relevant schedule
relates. The update to Schedule 3.06(A) provided pursuant to the
preceding sentence shall also identify which items of Licensed
Principally Used Software have remaining terms of less than 42 months
from the date hereof, and shall describe the renewal provisions, if
any, relating to such license agreements. No update pursuant to the
preceding two sentences (other than the update to Schedules 3.19(A)
and 3.20(D) provided for in Sections 3.19(a) and 3.20(d),
respectively) shall (i) have any effect on the rights of any of the
parties hereto, or (ii) constitute a representation or warranty by any
of the Seller Parties, it being understood that the representations,
warranties, covenants, and agreements of any of the Seller Parties
that refer to any such schedules shall be deemed to continue to refer
to such original schedules.
Section 5.08. Further Assurances. (a) Upon the terms and
subject to the conditions herein provided, on and prior to the Closing
Date each of Seller, CLIC, Purchaser and LLANY shall use all
commercially reasonable best efforts to take, or cause to be taken,
all action or do, or cause to be done, all things or execute any
documents necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement, the Ancillary Agreements and the other
agreements contemplated hereby and thereby.
(b) On and after the Closing Date, Seller or CLIC (as
reasonably requested from time to time by Purchaser) and Purchaser and
LLANY (as reasonably requested from time to time by Seller or CLIC)
shall take all reasonably appropriate action and execute any
additional documents, instruments or conveyances of any kind (not
containing additional representations and warranties) which may be
reasonably necessary to carry out any of the provisions hereof,
including, without limitation, putting each of Purchaser and LLANY in
full possession and operating control of the Transferred Assets and
the Business and causing Purchaser to have full unencumbered ownership
of the Subsidiary Stock, and giving effect to the assumption of
liabilities by Purchaser and LLANY as contemplated hereby and thereby.
Section 5.09. Expenses. Except as otherwise specifically
provided in this Agreement, the parties to this Agreement shall bear
their respective expenses incurred in connection with the preparation,
execution and performance of this Agreement and the transactions
contemplated hereby, including, without limitation, all fees and
expenses of agents, representatives, counsel, investment bankers,
actuaries and accountants; provided, however, that (a) Purchaser shall
pay the cost of the filing fees in connection with all filings by any
of the parties hereto with the FTC and the Antitrust Division under
the HSR Act with respect to the transactions contemplated hereby and
(b) Purchaser shall bear the cost of obtaining required insurance
regulatory approvals, consents and orders for the implementation of
the Indemnity Reinsurance Agreements and from the States of Indiana
and New York, and (c) Seller shall bear the cost of obtaining required
approvals, consents and orders for the implementation of the Indemnity
Reinsurance Agreements from the State of Connecticut.
Section 5.10. Indemnity Reinsurance Agreements. At the
Closing, Seller and Purchaser shall execute and deliver to each other
the Purchaser Indemnity Reinsurance Agreement, CLIC and Purchaser
shall execute and deliver to each other the CLIC Indemnity Reinsurance
Agreement, and Seller and LLANY shall execute and deliver to each
other the LLANY Indemnity Reinsurance Agreement. Each of the
Indemnity Reinsurance Agreements shall be effective as of the
Effective Date.
Section 5.11. Administrative Services Agreements. At the
Closing, Seller and Purchaser shall execute and deliver to each other
the Purchaser Administrative Services Agreement, CLIC and Purchaser
shall execute and deliver to each other the CLIC Administrative
Services Agreement, and Seller and LLANY shall execute and deliver to
each other the LLANY Administrative Services Agreement. Each of the
Administrative Services Agreements shall be effective as of the
Closing Date.
Section 5.12. [RESERVED].
Section 5.13. Transition Services Agreement. At the
Closing, Seller and Purchaser shall execute and deliver to each other
the Transition Services Agreement, which shall be effective as of the
Closing Date, in substantially the form of Exhibit G hereto; provided,
that if any of the services to be provided by or to Seller thereunder
are more appropriately provided by or to CLIC (as reasonably
determined by the parties hereto prior to the Closing Date), then CLIC
shall be added as a party to the Transition Services Agreement. Not
later than 30 days prior to the Closing Date, Purchaser shall provide
a written notice to Seller identifying the type and level of services
Purchaser will require pursuant to the Transition Services Agreement
in those areas serviced by Band 1 Employees for the period from the
Effective Date through the end of the second calendar month
thereafter.
Section 5.14. General Assignment and Assumption Agreement.
At the Closing, Seller, CLIC, Purchaser and LLANY shall execute and
deliver to each other the General Assignment and Assumption Agreement,
which shall be effective as of the Closing Date, in substantially the
form of Exhibit H hereto.
Section 5.15. Bill of Sale. At the Closing, Seller and
CLIC, shall execute and deliver to Purchaser and LLANY the Bill of
Sale, which shall be effective as of the Closing Date, in
substantially the form of Exhibit I hereto.
Section 5.16. Reinsurance Credit for New York Contacts.
Purchaser and LLANY hereby agree to use their commercially reasonable
best efforts to cause LLANY to become an accredited reinsurer in the
State of Connecticut as promptly as practicable after the date of
execution of this Agreement and/or both before and after the Closing
to take any other actions as may be necessary in order for Seller to
receive full statutory reinsurance credit with respect to the New York
Contracts under the terms of the LLANY Indemnity Reinsurance
Agreement.
Section 5.17. Stock Purchase Agreement. At the Closing,
Parent will deliver to Purchaser the Subsidiary Stock pursuant to the
terms of the Stock Purchase Agreement, which transfer of stock shall
be effective as of the Closing Date, as set forth in the Stock
Purchase Agreement, and subject to the proviso set forth in Section
2.03(a) hereof.
Section 5.18. License Agreement. At the Closing, CIGNA,
Seller, CLIC, Purchaser and LLANY will execute and deliver to each
other the License Agreement, the terms of which the parties shall
negotiate prior to Closing. CIGNA, Seller, CLIC, Purchaser and LLANY
hereby covenant to negotiate in good faith from the date hereof until
Closing regarding the terms of the License Agreement, which shall be
consistent with those described in the definition of License
Agreement.
Section 5.19. Assumption Reinsurance Agreements. At
Purchaser's option at any time following the Closing, Seller and/or
CLIC, as the case may be, will enter into and cooperate with Purchaser
and LLANY in obtaining regulatory approvals for assumption reinsurance
agreements pursuant to which Purchaser and LLANY will assumption
reinsure all separate account liabilities of the Business. Such
agreements shall contain such terms and conditions as are customarily
included in assumption reinsurance agreements pertaining to insurance
contracts funded by separate accounts.
Section 5.20. Certain Events. (a) In the event that there
is a change of control of LNC or Purchaser, or LNC ceases to maintain
an investment grade credit rating on its senior debt, then Purchaser
and LLANY shall immediately notify Seller and CLIC thereof describing
the circumstances in reasonable detail and shall, at the written
request of Seller and CLIC:
(i) place assets (consisting of cash and admitted
investment assets) in separate grantor trusts of
Purchaser and LLANY (within the meaning of Sections
671-678 of the Code), pursuant to trust agreements
and with trustees, each reasonably satisfactory to
Seller and CLIC, sufficient to satisfy the remaining
General Account Liabilities under the Indemnity
Reinsurance Agreements;
(ii) provide clean, unconditional, annually renewable
letters of credit from banks, and having terms,
reasonably satisfactory to Seller and CLIC in an
amount sufficient to satisfy the remaining General
Account Liabilities under the Indemnity Reinsurance
Agreements; or
(iii) enter into assumption reinsurance agreements with
Seller and CLIC having terms reasonably
satisfactory to Seller and CLIC and obtain all
regulatory approvals and policyholder and
contractholder consents necessary to assume, and
assume, the policies and contracts reinsured
under the Indemnity Reinsurance Agreements.
(b) In the event that Purchaser ceases to maintain a claims
paying rating issued by A.M. Best of at least B++, or by Moody's
Investors Services, Inc. of at least Baa3, or by Standard & Poor's
Corporation of at least BBB-, then Purchaser shall immediately notify
Seller and CLIC thereof describing the circumstances in reasonable
detail and shall, at the written request of Seller and CLIC, take one
of the actions specified in clauses (i), (ii) and (iii) of Section
5.20(a); provided, that any such action taken shall relate only to the
obligations, policies and contracts under the Purchaser Indemnity
Reinsurance Agreement and the CLIC Indemnity Reinsurance Agreement.
(c) In the event that there is a change of control of LLANY,
or in the event that LLANY ceases to maintain a claims paying rating
issued by A.M. Best of at least B++, or by Moody's Investors Services,
Inc. of at least Baa3, or by Standard & Poor's Corporation of at least
BBB-, then LLANY shall immediately notify Seller thereof describing
the circumstances in reasonable detail and shall, at the written
request of Seller, take one of the actions specified in clauses (i),
(ii) and (iii) of Section 5.20(a); provided, that any such action
taken shall relate only to the obligations, policies and contracts
under the LLANY Indemnity Reinsurance Agreement. Alternatively, under
the circumstances described in this Section 5.20(c), but only if there
has not been a change of control of Purchaser and none of the events
relating to Purchaser referred to in Section 5.20(b) has occurred,
Purchaser may, pursuant to the Purchaser Indemnity Reinsurance
Agreement, coinsure 100% of the General Account Liabilities under the
policies and contracts reinsured under the LLANY Indemnity Reinsurance
Agreement.
(d) If Purchaser and LLANY do not take one of the actions
specified in clauses (i), (ii) and (iii) of Section 5.20(a) under the
circumstances described therein within 60 days after the date of
Seller's and CLIC's written request provided under Section 5.20(a),
Seller and CLIC will have the option to (i) terminate the relevant
reinsurance agreement, (ii) recapture the relevant remaining adjusted
statutory reserves and other statutory liabilities, and (iii) require
Purchaser and LLANY to transfer to Seller and CLIC cash and/or
admitted invested assets at market value sufficient to satisfy such
reserves and liabilities.
(e) If Purchaser does not take one of the actions specified
in clauses (i), (ii) and (iii) of Section 5.20(a) under the
circumstances described in Section 5.20(b) within the 60 days after
the date of Seller's and CLIC's written request provided under Section
5.20(b), Seller and CLIC will have the option to (i) terminate the
Purchaser Indemnity Reinsurance Agreement and the CLIC Indemnity
Reinsurance Agreement, (ii) recapture the relevant remaining adjusted
statutory reserves and other statutory liabilities, and (iii) require
Purchaser to transfer to Seller and CLIC cash and/or admitted
invested assets at market value sufficient to satisfy such reserves
and liabilities.
(f) If LLANY does not take one of the actions specified in
clauses (i), (ii) and (iii) of Section 5.20(a) under the circumstances
described in Section 5.20(c), or if Purchaser does not take the action
specified in the last sentence of Section 5.20(c) within 60 days after
the date of Seller's written request provided under Section 5.20(c),
Seller will have the option to (i) terminate the LLANY Indemnity
Reinsurance Agreement, (ii) recapture the relevant remaining adjusted
statutory reserves and other statutory liabilities, and (iii) require
LLANY to transfer to Seller cash and/or admitted invested assets at
market value sufficient to satisfy such reserves and liabilities.
(g) Any dispute regarding the appropriate amount of cash
and/or invested assets at market value to be transferred pursuant to
Sections 5.20(d), (e) or (f) shall be resolved by a nationally-known
firm of independent actuaries reasonably selected by Seller; provided,
that in no event shall the market value of such cash and/or invested
assets at the time of any transfer pursuant to Section 5.20(d), (e)
or (f) hereof be less than 100% of the amount of the relevant reserves
and liabilities.
(h) For the purposes of this Section 5.20, a "change of
control" shall be deemed to have occurred with respect to LNC,
Purchaser or LLANY if (i) a Person that is not now an Affiliate of LNC
acquires, directly or indirectly, a majority of the outstanding
capital stock of LNC, Purchaser, or LLANY, as the case may be, or
(ii) a Person that is not now an Affiliate of LNC nominates one or
more directors to the board of directors of LNC, Purchaser or LLANY,
such director or directors are elected and, as a result of such
election, a majority of such board of directors consists of directors
so nominated by Persons that are not now Affiliates of LNC.
Section 5.21. Reinsurance Treaties. Prior to Closing, each
of Seller and CLIC agrees to use its commercially reasonable best
efforts, at its own expense, to assign all of its rights and
obligations under the reinsurance treaties listed on Schedule 5.21
hereto to which it is a party, and to obtain any endorsements from the
reinsurers thereunder to the extent necessary to ensure that Purchaser
and LLANY are entitled to enforce such treaties against the reinsurers
in their own names, with respect to the Insurance Contracts and the
Post-Closing Contracts. If Seller or CLIC are unable to obtain such
endorsements notwithstanding such efforts, Seller and CLIC shall place
Purchaser and LLANY in the same net economic position as if such
endorsements had been obtained (which actions may consist of Seller
and CLIC continuing to use commercially reasonable best efforts to
enforce their rights under such treaties and ensuring that all
benefits thereunder received, directly or indirectly, by Seller or
CLIC flow to Purchaser and LLANY, as applicable).
Section 5.22. Termination of Certain Agreements. At or
prior to Closing, Seller shall deliver to Purchaser documentation
evidencing the termination of any agreements between Seller or any
Affiliate of Seller and the Parent Subsidiaries, other than those, if
any, that provide for Seller or an Affiliate of Seller to provide
services or assets to the Parent Subsidiaries that are material to the
conduct of the Business by Purchaser and LLANY following the Closing
which are not described in Schedule 2.01 to the Transition Services
Agreement. Any such termination shall include settlement of all
outstanding balances between the relevant companies and the
documentation shall be reasonably satisfactory to Purchaser.
Section 5.23. Employees; Severance Payments. (a)
Purchaser shall provide to Seller, at least 30 days prior to the
Closing Date, the names of those individuals listed on Schedule
3.19(A) hereto who will not be offered employment under a contract or
at will or an agency contract by Purchaser (such individuals, along
with any replacement employees for any such individuals whose
employment terminates prior to the Closing Date and any other
individuals listed on Schedule 3.19(A) hereto who are identified prior
to the Closing Date in writing to Seller by Purchaser as lacking the
work authorization and identification required by the Immigration
Reform and Control Act of 1986, being referred to herein as the "Band
1 Employees"). The identity of the Band 1 Employees shall be
determined by Purchaser in its sole discretion consistent with any
Applicable Law. Purchaser shall indicate in writing, at the time it
delivers such list to Seller, which of the Band 1 Employees Purchaser
believes should be retained by Seller until the Closing Date, and
Seller shall use all commercially reasonable efforts to retain such
individuals, through the Closing Date, in the positions which such
individuals hold as of the date hereof.
(b) Purchaser shall provide Seller, prior to the Closing Date,
the names of those individuals listed on Schedule 3.19(A) hereto with
respect to whom Purchaser will offer employment contracts or agency
agreements or contracts, such agreements or contracts to be effective
as of the later of the Closing Date or January 1, 1998. Each such
individual who accepts such offer and enters into such an employment
contract or agency contract shall hereinafter be referred to as a
"Contract Employee." From and after the commencement of the
employment or an agency contract of a Contract Employee by Purchaser,
Purchaser shall bear full responsibility for any severance payments
payable in connection with the termination of the employment of any
Contract Employee in accordance with the terms of such Contract
Employee's contract, and Seller shall have no obligations with respect
thereto. Notwithstanding any exclusive agency agreements with its
career agency force, Seller expressly agrees that it shall permit its
career agents to enter into agency agreements with Purchaser as
contemplated herein.
(c) Prior to the Closing Date, Purchaser shall offer Suitable
Employment (including, where applicable, as an agent) to all Band 2
Employees, to be effective as of the later of the Closing Date or
January 1, 1998. "Band 2 Employees" shall mean (i) individuals listed
on Schedule 3.19(A) hereto who are neither Band 1 Employees nor
Contract Employees and (ii) individuals hired by Seller in accordance
with Section 5.23(d) as replacement employees for any such individuals
whose employment terminates prior to the later of the Closing Date or
January 1, 1998. "Suitable Employment" shall mean a position that is
substantially similar to the individual's position, and at an
individual's geographic location of employment, as of the date hereof
(or, as to a replacement employee, the position held by the respective
Band 2 Employee whom he has replaced), with a salary (or other
remuneration, in the case of agents) at least at the level set forth
on Schedule 3.19(A). Notwithstanding any other provision of this
Section 5.23, an individual listed on Schedule 3.19(A) who receives
and rejects an offer of other than Suitable Employment shall be a Band
1 Employee. Notwithstanding the foregoing or any other provision of
this Section 5.23, nothing in this Agreement shall be deemed to
require Purchaser to retain any particular Band 2 Employee for any
period of time following the later of the Closing Date or January 1,
1998, or to entitle any such Band 2 Employee to any status other than
that of an at will employee of Purchaser.
(d) In the event that any Band 2 Employee's employment
terminates prior to the later of the Closing Date or January 1, 1998,
Seller, acting in consultation with Purchaser, shall use commercially
reasonable efforts to replace such Band 2 Employee, including
retention of individuals through contract, leasing arrangement, or
otherwise, in order to maintain appropriate staffing levels with
respect to the Business. Unless otherwise agreed to by Seller and
Purchaser, any individual hired by Seller in accordance with this
Section 5.23 (other than a Contract Employee) shall be deemed a Band
2 Employee for the purpose of this Agreement. A Band 1 Employee may
become a Band 2 Employee under this Section 5.23(d).
(e) Purchaser shall reimburse Seller for any stay bonuses that
are provided prior to Closing at Purchaser's request to Band 1, Band
2 or Contract Employees.
(f) In the event that the Closing Date occurs before December
31, 1997, then from the Closing Date through December 31, 1997, the
Contract Employees and Band 2 Employees shall remain employees (or,
where applicable agents) of Seller and its Affiliates. During the
period from the Closing Date through December 31, 1997, Purchaser
shall contract with Seller to provide those services to support the
Business that immediately prior to Closing were provided by Contract
Employees and Band 2 Employees, and as further set forth in the
Transition Services Agreement. Purchaser may also contract with
Seller to provide some or all of those services to support the
Business that immediately prior to Closing were provided by Band 1
Employees; such services to be provided for the period and on the
terms and conditions agreed to by Purchaser and Seller as further set
forth in the Transition Services Agreement. No later than 30 days
prior to the Closing Date, Purchaser shall provide a written notice
to Seller identifying the type and level of services Purchaser will
require in those areas serviced by Band 1 Employees for the period
from the Closing Date through the end of the second calendar month
thereafter. In accordance with the terms of the Transition Services
Agreement, Seller shall determine the manner in which it shall provide
the services described above in this Section 5.23(f) to Purchaser and
the employees or agents who shall provide such services. Purchaser
shall also contract with Seller to provide those services to support
the Business that on July 27, 1997, were provided by those employees
identified in the July 18 Letter as are specified in the Transition
Services Agreement; such services to be provided for the period and
on the terms and conditions agreed to by Purchaser and Seller, as set
forth in the Transition Services Agreement. The Transition Services
Agreement shall specify the basis on and manner in which Purchaser
shall compensate Seller for all such services described in this
Section 5.23(f) and provided in accordance with the Transition
Services Agreement.
(g) Except as otherwise specifically provided for in
Section 5.23(f), neither Seller nor any of its Affiliates shall,
without the prior approval of Purchaser:
(i) prior to the Closing Date, offer post-closing employment
to any Seller employee listed on Schedule 3.19(A) hereto or transfer
any such employee to any subsidiary or division of Seller unrelated
to the operation of the Business;
(ii) for a period of two years following the Closing Date,
offer employment to any Seller employee listed on Schedule 3.19(A)
hereto to whom Purchaser offers Suitable Employment, as defined in
Section 5.23(c), regardless of whether the employee accepts
Purchaser's offer;
(iii) prior to the Closing Date, offer a contract to any
Seller career agent listed on Schedule 3.19(A) hereto or to any Seller
Broker listed on Schedule 3.12(B) hereto;
(iv) for a period of five years after the Closing Date, offer
employment or a contract to any Seller career agent listed on Schedule
3.19(A) hereto who is offered a contract by Purchaser; and
(v) for a period of three years after the Closing Date,
offer employment or a contract to any Seller Broker listed on Schedule
3.12(B) hereto who is offered a contract by Purchaser with respect to
sales of any product included in the Business.
Neither Purchaser nor any of its Affiliates shall, without the prior
approval of Seller, prior to the Closing Date or for a period of two
years thereafter, offer post-closing employment to any employee of
Seller or its Affiliates not listed on Schedule 3.19(A) hereto (i) who
is one of the Seller Key People, (ii) who Purchaser comes into contact
with during the negotiation of, preparation for or Closing of the
transaction that is the subject of this Agreement, or (iii) whose
place of employment is in space that is cohabited by any Contract
Employee or Band 2 Employee or in facilities maintained by Seller or
its Affiliates in the Hartford, Connecticut metropolitan area;
provided, however that this paragraph shall not prohibit Purchaser or
its Affiliates from employing any such individual who responds to any
solicitation directed to the general public such as a newspaper or
magazine advertisement.
(h) Purchaser shall reimburse Seller for any Severance Costs
(as defined in Schedule 3.19(C) hereto) incurred with respect to any
Band 1 Employee who is terminated by Seller on or after the date
Purchaser delivers the list of Band 1 Employees to Seller, but not
later than 90 days following the Closing Date; provided, however that
to the extent that Purchaser requests Seller to provide the services
of any Band 1 Employee following the Closing Date, the applicable 90-day
period for any Band 1 Employee who provides such services to
Purchaser shall begin on the last day that such Band 1 Employee
provides services to Purchaser. Purchaser will not reimburse Seller
for any Severance Costs incurred with respect to any employee or agent
who rejects an offer of an employment contract or agency contract that
would otherwise constitute Suitable Employment or an offer of Suitable
Employment from Purchaser.
Section 5.24. Employee Benefits. (a) Subject to the
further provisions of this Section 5.24, Purchaser agrees to provide
benefits under the employee benefit plans, programs, and arrangements
of Purchaser and its Affiliates (not to include incentive compensation
plans), without regard to the coverage of any such plan, program, or
arrangement by ERISA or any provision of the Code, to each Band 2
Employee and Contract Employee who accepts employment (under a
contract or at will) or an agency contract with Purchaser ("Benefits
Affected Employee"), effective as of the commencement of such
employment or agency contract (the "Benefits Effective Date"), on the
same terms and conditions as such benefits are provided to similarly
situated employees or agents of Purchaser. Purchaser and its
Affiliates shall waive or cause to be waived, except to the extent
that such waiver is precluded by applicable law, any waiting period,
probationary period, pre-existing condition exclusion, evidence of
insurability requirement, or similar condition with respect to initial
participation under any plan, program, or arrangement established,
maintained, or contributed to by Purchaser or any of its Affiliates
to provide health, life insurance, or disability benefits with respect
to each Benefits Affected Employee who has satisfied the comparable
eligibility, insurability or other requirements being waived under
Seller's comparable plans prior to the Benefits Effective Date.
(b) Subject to the other provisions of this Section 5.24, and
except as provided in Section 5.23, Seller, and not Purchaser, shall
be responsible and shall retain any and all liability for (i) all
compensation, benefits, and perquisites of any kind due any Benefits
Affected Employee on account of employment by Seller before the
Benefits Effective Date, or the termination of employment by Seller,
including, but not limited to, medical or dental benefits either
reported but not paid or incurred but not reported before the Benefits
Effective Date and continuation of health care coverage pursuant to
COBRA; and (ii) all notices, payments, fines, taxes or assessments due
to any governmental authority pursuant to any applicable foreign,
federal, state or local law, common law, statute, rule or regulation
with respect to the employment, discharge or layoff of employees of
the Business by Seller for any period before the Benefits Effective
Date, including, but not limited to, the WARN Act and any applicable
state severance pay law and any rules or regulations that have been
issued in connection with any of the foregoing.
Subject to the other provisions of this Section 5.24, and except
as provided in Section 5.23, Purchaser, and not Seller, shall be
responsible and shall assume any and all liability for (i) all
compensation, benefits, and perquisites of any kind due any Benefits
Affected Employee on account of employment by Purchaser on and after
the Benefits Effective Date, or the termination of employment by
Purchaser, including, but not limited to, continuation of health care
coverage pursuant to COBRA; (ii) all notices, payments, fines, taxes
or assessments due to any governmental authority pursuant to any
applicable foreign, federal, state or local law, common law, statute,
rule or regulation with respect to the employment, discharge or layoff
of Benefits Affected Employees by Purchaser for any period on and
after the Benefits Effective Date, including, but not limited to, the
WARN Act and any applicable state severance pay law and any rules or
regulations that have been issued in connection with any of the
foregoing.
Notwithstanding any other provision of this Agreement, and except
as provided in Sections 5.23(h) and 10.01(b)(v) hereof, Seller, and
not Purchaser, shall be responsible and shall retain any and all
liability for (i) all compensation, benefits, and perquisites of any
kind due any Band 1 Employee on account of the termination of
employment of such individual by Seller; (ii) all notices, payments,
fines, taxes or assessments due to any governmental authority pursuant
to any applicable foreign, federal, state or local law, common law,
statute, rule or regulation with respect to the discharge or layoff
of employees of the Business by Seller for any period, including, but
not limited to, the WARN Act and any applicable state severance pay
law and any rules or regulations that have been issued in connection
with any of the foregoing; and (iii) any claim by any present or
former employee or agent of Seller or any of its Affiliates who
performed or performs services in the Business, (including, without
limitation, any Band 1 Employee), but who does not become a Contract
Employee or a Band 2 Employee, that (x) relates to the termination of
employment, discharge or layoff of such present or former employee or
agent, or the failure of such employee or agent to become a Contract
Employee or a Band 2 Employee, (y) arises either (A) under federal,
state or local statute (including, without limitation, Title VII of
the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1990, the Equal Pay Act, the
Americans with Disabilities Act of 1990, ERISA and all other statutes
regulating the terms and conditions of employment), regulation or
ordinance, under the common law or in equity (including any claims for
wrongful discharge or otherwise), or (B) under any policy, agreement,
understanding or promise, written or oral, formal or informal, between
the Seller or any of its Affiliates and the individual, and (z) arose
out of actions, events or omissions that occurred (or, in the case of
omissions, failed to occur) either prior or subsequent to the Closing
Date, but not out of any violation by Purchaser or any of its
Affiliates, or any agent of Purchaser or any of its Affiliates, of
Applicable Law (including without limitation the statutes referred to
in clause (y) above).
(c) Notwithstanding any provision of this Section 5.24 to the
contrary:
(i) Each Benefits Affected Employee shall be permitted to
elect to receive benefits under the Lincoln National Corporation
Employees' Health Care Expense Account Plan or the LNL Agents' Health
Care Expense Account Plan, as applicable (pursuant to the Lincoln
National Corporation Customized Security Plan), as of the Benefits
Effective Date.
(ii) Each Benefits Affected Employee shall be permitted to
elect to receive benefits under the Lincoln National Corporation
Employees' Dependent Care Expense Account Plan (pursuant to the
Lincoln National Corporation Customized Security Plan) as of the
Benefits Effective Date.
(iii) Each Benefits Affected Employee who retires on or
after the Benefits Effective Date shall be eligible to participate in
the Lincoln National Corporation Group Health and Dental Plan for
Retirees (Retiree Employee Coverage) and Group Life Plans
("Purchaser's Retiree Welfare Plans") on the same terms and conditions
as such benefits are provided to similarly situated employees of
Purchaser. The service of each such Benefits Affected Employee with
Seller and its Affiliates prior to the Benefits Effective Date shall
be credited for purposes of eligibility and the level of benefits
under Purchaser's Retiree Welfare Plans to the same extent as if such
service had been performed for Purchaser or any of its Affiliates.
(d) Each Benefits Affected Employee who is eligible to
participate in Seller's Savings and Investment Plus Plan ("Seller's
401(k) Plan") immediately before the Benefits Effective Date shall be
eligible to participate in the Lincoln National Corporation Employees'
Savings and Profit Sharing Plan or the LNL Agents' Savings and Profit
Sharing Plan, as applicable ("Purchaser's 401(k) Plans"), as of the
Benefits Effective Date. The service of each such Benefits Affected
Employee with Seller and its Affiliates prior to the Benefits
Effective Date shall be credited for purposes of eligibility and
vesting under Purchaser's 401(k) Plans to the same extent as if such
service had been performed for Purchaser or any of its Affiliates.
Seller shall retain all liabilities and obligations with respect to
benefits accrued by Benefits Affected Employees under the Seller's
401(k) Plan. On the Benefits Effective Date, or as soon as
practicable thereafter, Seller and Purchaser shall take such actions
as may be necessary if any, to permit each Benefits Affected Employee
who participates in Seller's 401(k) Plan to effect a direct rollover
(within the meaning of section 401(a)(31) of the Code) of his account
balance into the Purchaser's 401(k) Plan for which he is eligible.
Seller and Purchaser shall work together in order to facilitate and
effect any such direct rollover; provided, however, that nothing
contained herein shall obligate Purchaser's 401(k) Plans to accept a
direct rollover in a form other than cash or to accept a rollover
contribution that could jeopardize the tax-qualification of
Purchaser's 401(k) Plans, and nothing contained herein shall obligate
Seller's 401(k) Plan to make a distribution that could jeopardize the
tax-qualification of Seller's 401(k) Plan.
(e) Each Benefits Affected Employee who is an agent and who
is eligible to participate in the Connecticut General Life Field
Retirement Plan (as amended and restated effective January 1, 1996)
("Seller's Money Purchase Plan") immediately before the Benefits
Effective Date shall be eligible to participate in the Lincoln
National Corporation Agents' Money Purchase Plan ("Purchaser's Money
Purchase Plan") in accordance with the applicable provisions of such
plan as amended from time to time. The service of each such Benefits
Affected Employee with Seller and its Affiliates prior to the Benefits
Effective Date shall be credited for purposes of eligibility and
vesting under Purchaser's Money Purchase Plan to the same extent as
if such service had been performed for Purchaser or any of its
Affiliates. Seller shall retain all liabilities and obligations with
respect to benefits accrued by Benefits Affected Employees under the
Seller's Money Purchase Plan. On the Benefits Effective Date, or as
soon as practicable thereafter, Seller and Purchaser shall take such
actions as may be necessary if any, to permit each Benefits Affected
Employee who participates in Seller's Money Purchase Plan to effect
a direct rollover (within the meaning of section 401(a)(31) of the
Code) of his account balance into the Purchaser's Money Purchase Plan.
Seller and Purchaser shall work together in order to facilitate and
effect any such direct rollover; provided, however, that nothing
contained herein shall obligate Purchaser's Money Purchase Plan to
accept a direct rollover in a form other than cash or to accept a
rollover contribution that could jeopardize the tax-qualification of
Purchaser's Money Purchase Plan, and nothing contained herein shall
obligate Seller's Money Purchase Plan to make a distribution that
would jeopardize the tax-qualification of Seller's Money Purchase
Plan.
(f) Each Benefits Affected Employee other than an agent shall
be eligible to participate in the Lincoln National Corporation
Employees' Retirement Plan ("Purchaser's Defined Benefit Plan") in
accordance with the applicable provisions of such plan as amended from
time to time. Each such Benefits Affected Employee shall be credited
for all purposes under Purchaser's Defined Benefit Plan with the
service of such Benefits Affected Employee with Seller and its
Affiliates up to the Benefits Effective Date to the same extent as if
such service had been performed for Purchaser or any of its
Affiliates. Seller shall retain all liabilities and obligations with
respect to benefits accrued by Benefits Affected Employees under the
CIGNA Pension Plan ("Seller's Defined Benefit Plan").
As soon as practicable after the Benefits Effective Date, Seller
shall provide to Purchaser the Benefits Information Schedule which
shall set forth, with respect to each Benefits Affected Employee who
becomes a participant in Purchaser's Defined Benefit Plan on the
Benefits Effective Date, the employee's name; date of birth; date of
hire; vesting service as of the Benefits Effective Date; credited
service as of the Benefits Effective Date; sex; compensation for
calendar years 1987 through 1996; estimated compensation for 1997;
number of hours worked by the Benefits Affected Employee for Seller
during 1997; and shall specify the amount of each such Benefits
Affected Employee's normal retirement benefit (age 65 accrued benefit)
under Seller's Defined Benefit Plan commencing at age 65 and payable
in the form of a single life annuity, and such Benefits Affected
Employee's credited service under Seller's plans, all determined as
of the Benefits Effective Date, as well as the early retirement
reduction factors applicable under Seller's Defined Benefit Plan at
each possible combination of age and service.
Purchaser shall be permitted to reduce (but not below zero) the
aggregate of the accrued benefits under Purchaser's Defined Benefit
Plan of each Benefits Affected Employee who commences participation
thereunder by the amount of such Benefits Affected Employee's benefits
payable under the Seller's Defined Benefit Plan.
No later than the date that is 24 months after the Closing Date,
and for purposes only of calculating pension benefits under
Purchaser's Defined Benefit Plan, Seller shall provide to Purchaser
a schedule containing the actual data in place of the estimated data
set forth on the Benefits Information Schedule.
(g) Purchaser shall assume all obligations and liabilities for
each Benefits Affected Employee under the Deferred Compensation Plan
of CIGNA Corporation (the "Seller's Deferred Compensation Plan"),
which amounts shall be credited to each such Benefits Affected
Employee under the Lincoln National Corporation Executive Deferred
Compensation Plan for Employees or the LNL Deferred Compensation Plan
for Agents, as applicable. Purchaser may, prior to the Closing Date,
elect whether to assume Seller's Top Earner's Plan, including all
obligations and liabilities under Seller's Top Earner's Plan for each
Benefits Affected Employee, and any assets of Seller's Top Earner's
Plan or that are held by Seller or any of its Affiliates in connection
with Seller's Top Earner's Plan.
(h) Unvested options of CIGNA's common stock held by Benefits
Affected Employees, as identified on Schedule 3.19(D) for such
individuals, shall vest on the Closing Date, and such individuals
shall have a reasonable period of time, but in no event less than 90
days, after Closing Date to exercise such options. Furthermore, at
Purchaser's election, which shall be made no later than 30 days prior
to the Closing Date, either:
(i) Seller shall, as of the later of the Closing Date or
December 31, 1997, make a cash payment to each Benefits Affected
Employee who holds any restricted stock of CIGNA, as identified on
Schedule 3.19(D) for such individuals, in an amount equal to the then-fair
market value of such restricted stock; in which case, the
restricted stock of CIGNA held by each such Benefits Affected Employee
shall be deemed to be forfeited on the date of payment; or
(ii) LNC shall, on the Benefits Effective Date, grant
restricted common stock of LNC to each Benefits Affected Employee who
as of the later of the Closing Date or December 31, 1997 held any
restricted stock of CIGNA, as identified on Schedule 3.19(D) for such
individuals. The value of the restricted stock grant from LNC to each
such individual shall equal, as of the date of grant, the then-fair
market value of the restricted stock of CIGNA the individual on the
later of the Closing Date or December 31, 1997, and the stock granted
to each individual by LNC shall be subject to the same vesting
restrictions as is the restricted stock of CIGNA that the individual
holds on the later of the Closing Date or December 31, 1997 and shall
otherwise be subject to the applicable terms and conditions of the LNC
1997 Incentive Compensation Plan. The restricted stock of CIGNA held
by each such Benefits Affected Employee shall be forfeited on the
individual's last day of employment with Seller or any of its
Affiliates on or prior to the Benefits Effective Date. In
consideration therefor, as of each date that vesting restrictions on
LNC's stock granted to any individual pursuant to this
Section 5.24(h)(ii) lapse, Seller shall make a cash payment to
Purchaser in an amount equal, as of the later of the Closing Date or
December 31, 1997, to the then-fair market value of restricted stock
of CIGNA that was forfeited by such individual pursuant to this
Section 5.24(h)(ii), or, in the event it is a lower amount, the value
of the LNC stock on the date the restrictions lapse.
(i) Seller shall retain all liabilities and obligations with
respect to any Benefits Affected Employee under any Benefit Plan,
other than Seller's Deferred Compensation Plan and, if Purchaser makes
the election under Section 5.24(g), Seller's Top Earner's Plan.
(j) Purchaser shall provide vacation and sick pay benefits to
all Benefits Affected Employees on the same terms and conditions as
such benefits are provided to similarly situated employees or agents
of Purchaser; provided that each such Benefits Affected Employee shall
be credited with the service of such Benefits Affected Employee with
Seller and its Affiliates up to the Benefits Effective Date to the
same extent as if such service had been performed for Purchaser for
purposes of determining the number of vacation and/or sick days such
Benefits Affected Employee shall be entitled to prospectively. No
later than the day before the Benefits Effective Date, Seller shall
pay to each Benefits Affected Employee the value of his accrued
vacation and personal days.
(k) On and after the Closing Date, each of Seller and
Purchaser shall timely amend their respective employee benefit plans,
programs, and arrangements, and shall undertake all actions necessary
or desirable to implement such amendments, to the extent that such
amendments and other actions are reasonably necessary to carry out any
of the terms and provisions of this Section 5.24.
(l) Any Benefits Affected Employee who, on the day before the
Benefits Effective Date, is on a leave of absence and is eligible for
benefits under CIGNA's Short-Term or Long-Term Disability Benefits
Plans shall, if such individual remains disabled on the Benefits
Effective Date, remain employed by Seller on a leave of absence. If,
within six months after the Benefits Effective Date, such individual
ceases to be disabled, Purchaser shall make a good faith effort to
place such individual in a position with Purchaser or any of its
Affiliates that constitutes Suitable Employment.
Section 5.25. Allocation of Purchase Price and Assumed
Liabilities. (a) CIGNA, Parent, Seller, CLIC and Purchaser agree
to allocate the Purchase Price, the liabilities assumed by Purchaser
hereunder and under the Ancillary Agreements, and all other
capitalizable costs incurred in connection with the transactions
described herein (collectively, the "Allocable Amount") among the
Transferred Assets and the CIGNA Non-Compete in accordance with this
Section 5.25 for all purposes, including Tax and financial accounting
purposes.
(b) An amount equal to the Ceding Commissions shall be
allocated to the value of the insurance-in-force with respect to the
Insurance Contracts reinsured under the Indemnity Reinsurance
Agreements.
(c) The remainder of the Allocable Amount shall be allocated
among the Transferred Assets (other than such insurance-in-force) and
the CIGNA Non-Compete in proportion to the fair market value of such
assets, using the residual method of accounting. For purposes of the
Code, the amount of the liabilities assumed by Purchaser that are
included in the Allocable Amount for this purpose shall be equal to
Seller's tax basis in such liabilities.
(d) For purposes of section 1060 of the Code, Seller and
Purchaser shall (i) make the allocation described in Section 5.25(c)
hereof in the manner described in Income Tax Regulations Section
1.1060-1T, taking into account the allocation described in Section
5.25(b) hereof, and (ii) file asset acquisition statements on Form
8594 (or any replacement or successor form) reflecting such allocation
at the time, in the manner, and under the procedures described in such
provision of the Income Tax Regulations.
(e) As soon as practicable after the Closing Date, Purchaser
shall prepare a schedule reflecting the allocation of the remainder
of the Allocable Amount under Section 5.25(c) hereof in the manner
described in Income Tax Regulations Section 1.1060-1T and shall submit
it to Seller. If, within 30 days of Seller's receipt of such
schedule, Seller shall not have objected in writing to the
determination of the Allocable Amount or to such allocation, the
allocation shall be used by Seller and Purchaser for purposes of Form
8594 (and any replacement or successor form) and all other federal
income Tax purposes. If, within 15 days of any objection in writing
to the determination of the Allocable Amount or to such allocation,
Seller and Purchaser shall not have agreed in writing to the
allocation under Section 5.25(c) hereof, any disputed aspects of the
determination of the Allocable Amount or to such allocation shall be
resolved by the Third Party Accountant within 30 days of the
submission of the dispute to the Third Party Accountant by Seller or
Purchaser. The decision of the Third Party Accountant shall be final,
and the costs, expenses, and fees of the Third Party Accountant shall
be borne equally by Seller and Purchaser.
(f) Seller and Purchaser shall not take any position before
any Taxing Authority or otherwise (including in any Tax return)
inconsistent with this Section 5.25 unless and to the extent required
to do so pursuant to a determination (as defined in Section 1313(a)
of the Code or any similar provision of state, local or foreign law).
Section 5.26. Other Agreements. Seller, CLIC, Purchaser and
LLANY shall, following the date hereof, work in good faith and in
accordance with the financial terms set forth herein to prepare the
License Agreement in accordance with the terms and conditions
specified in the definition of the License Agreement.
Section 5.27. Bank Accounts and Lockboxes. Pursuant to the
General Assignment and Assumption Agreements, Seller and CLIC shall
transfer to Purchaser or LLANY, as appropriate, the bank accounts and
lock-boxes of Seller and CLIC used solely in the operation of the
Business. Seller and CLIC shall execute such additional agreements and
instruments as may be required by a particular bank to effectuate the
transfer to Purchaser or LLANY, as appropriate, of such bank accounts
and lock-boxes.
Section 5.28. Computer Software. With respect to Licensed
Principally Used Software, Seller and Purchaser shall work together
cooperatively to determine the most economical method of obtaining
from the licensors of the Licensed Principally Used Software the right
for Seller to process data for Purchaser or LLANY, as applicable,
related to the Business or for Purchaser to operate the Licensed
Principally Used Software. Seller shall be responsible for all costs
and expenses associated with obtaining such right from the licensors
of the Licensed Principally Used Software, or with obtaining
substitute software or reimbursing Purchaser for the cost of obtaining
substitute software, (i) for a period equal, as to any item of
Licensed Principally Owned Software, to the lesser of (x) three years
after the Closing and (y) the remaining life of the applicable license
and (ii) insofar as such right relates to a volume of usage consistent
with that of the Business as conducted by Seller prior to the Closing.
Purchaser shall be entitled to participate fully in any negotiation
with any such licensors, but shall bear its own costs in connection
with such participation. In the event that the remaining term of a
license agreement relating to an item of Licensed Principally Used
Software expires during the three year period referred to above, then
(i) if such agreement is not renewable by Seller, then Seller shall
have no further obligation under this Section 5.28 with respect to
such item of Licensed Principally Used Software; or (ii) if such
agreement is renewable by Seller, then Seller shall so notify
Purchaser and Purchaser shall be entitled to require Seller to renew
such agreement for a period ending not later than the end of the
three-year period commencing on the Closing Date; provided, that
Purchaser shall be required to make all payments with respect to the
renewal period. With respect to the Licensed Principally Used
Software, Purchaser shall assume responsibility for complying with the
terms and conditions of the licenses governing such software,
including responsibility for the payment of the costs and expenses,
or its pro rata share of the costs and expenses, as applicable, of all
ongoing contractual responsibilities, including without limitation
licensing, upgrade and maintenance fees. With respect to the Licensed
Principally Used Software, Purchaser and LLANY agree to (i) keep
confidential the terms of any license agreements relating to such
software, to the extent the terms of such license agreements require
confidentiality and Seller communicates such requirements to Purchaser
in writing and (ii) abide by the terms of any license agreements
relating to such software, to the extent such terms have been
communicated to Purchaser in writing.
Section 5.29. Section 338(h)(10) Election. CIGNA and
Purchaser shall jointly make timely and irrevocable elections under
Section 338(h)(10) of the Code and, if permissible, similar elections
under any applicable state, local or foreign income tax laws for each
of the Parent Subsidiaries (the "Elections") on the terms and in the
manner set forth in the Stock Purchase Agreement.
Section 5.30. Confidentiality. Each party hereto (with LNC,
Purchaser and LLANY considered to be one party and CIGNA, Parent,
Seller and CLIC considered to be another party for purposes of this
Section 5.30) will hold, and will use its best efforts to cause its
Affiliates, and their respective representatives to hold, in strict
confidence from any Person (other than any such Affiliates or
representatives), unless (i) compelled to disclose by judicial or
administrative process (including without limitation in connection
with obtaining the necessary approvals of this Agreement and the
transactions contemplated hereby of governmental or regulatory
authorities) or by other requirements of law or (ii) disclosed in an
action or proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates
furnished to it by the other party or such other party's
representatives in connection with this Agreement or the transactions
contemplated hereby, except to the extent that such documents or
information can be shown to have been (a) previously known by the
party receiving such documents or information, (b) in the public
domain (either prior to or after the furnishing of such documents or
information hereunder) through no fault of such receiving party or (c)
later acquired by the receiving party from another source if the
receiving party is not aware that such source is under an obligation
to another party hereto to keep such documents and information
confidential; provided that following the Closing the foregoing
restrictions will not apply to Purchaser's use of documents and
information concerning the Business furnished by Seller hereunder.
In the event the transactions contemplated hereby are not consummated,
upon the request of the other party, each party hereto will, and will
cause its Affiliates and their respective representatives to, promptly
redeliver or cause to be redelivered all copies of confidential
documents and information furnished by the other party in connection
with this Agreement or the transactions contemplated hereby and
destroy or cause to be destroyed all notes, memoranda, summaries,
analyses, compilations and other writings related thereto or based
thereon prepared by the party furnished such documents and information
or its representatives.
Section 5.31. Certain Seller Approval Rights. Unless and
until Purchaser assumes the obligations referred to in Section
10.04(a), Purchaser and LLANY, as applicable, may with respect to
those policies and contracts reinsured under the Indemnity Reinsurance
Agreements that are not subject to the Settlement Agreements (the
"Section 5.31 Policies"), (i) make recommendations to Seller and CLIC
with respect to any changes in any non-guaranteed elements of such
Section 5.31 Policies and (ii) make proposals to Seller and CLIC with
respect to material changes in the fundamental portfolio investment
policy with respect to the assets funding such Section 5.31 Policies.
Seller or CLIC, as applicable, shall have the right to review such
recommendations and proposals, and neither Purchaser nor LLANY will
make any recommendation pursuant to the applicable sections of any of
the Indemnity Reinsurance Agreements with respect to any Section 5.31
Policies, or make any material change in such fundamental portfolio
investment policy, without the prior approval of Seller or CLIC, as
applicable (which approval shall not unreasonably be withheld). In
addition, unless and until Purchaser assumes the obligations referred
to in Section 10.04(a), Purchaser shall provide to Seller and CLIC
following the end of each calendar year a certificate of an executive
officer of Purchaser regarding compliance with the terms of the
Section 5.31 Policies.
Section 5.32. Provision of Certain Services. For a period
of three years after closing Seller agrees to provide, cause a third
party to provide, or reimburse Purchaser or LLANY for the reasonable
cost of obtaining, in each case at a cost to Purchaser not in excess
of the amount currently being paid by Seller, CLIC or the Parent
Subsidiaries or charged back to the Business by any Affiliate of
Seller (subject to escalation on the basis provided for in the
contract pursuant to which Seller or the relevant Affiliate of Seller
obtains such service or the use of such asset from a third party)
services or assets substantially comparable to any service or asset
material to the operation of the Business that Seller is unable to
deliver to Purchaser or LLANY (other than any such service or asset
identified in Schedule 1.01(H) hereto or described in Schedule 2.01
to the Transition Services Agreement and other than Insurance
Contracts, reinsurance treaties and agreements and Licensed
Principally Used Software). In the event that the remaining term of
a contract pursuant to which Seller or any Affiliate of Seller obtains
a particular service or asset expires during the three-year period
covered by this Section 5.32, then: (i) if such contract is not
renewable, then Seller shall have no further obligation under this
Section 5.32 with respect to such service or asset; or (ii) if such
contract is renewable, then Seller shall so notify Purchaser or LLANY,
as the case may be, and Purchaser or LLANY shall be entitled to
require Seller or the relevant Affiliate of Seller to renew such
contract for a period ending not later than the end of the three-year
term covered by this Section 5.32; provided, that Purchaser or LLANY,
as the case may be, shall be required to make all payments with
respect to the renewal period.
Section 5.33. Certain Product Tax Matters. (a) Seller or
CLIC, as applicable, shall, after the Closing, at Purchaser's written
request given prior to the last day of the 20th month following the
month in which the Closing Date falls, use commercially reasonable
best efforts to obtain such relief as Purchaser shall reasonably
require (including obtaining a waiver from, or entering into a
settlement or closing agreement with, the IRS or any affected
policyholder) with respect to any non-compliance by Seller or CLIC
prior to the Closing with any product tax requirement or limitation
contained in Sections 72, 101(f), 817(h), 7702 and 7702A of the Code
regarding any Insurance Contract. Seller and CLIC shall permit
Purchaser to participate in and, to the extent Seller or CLIC is not
materially adversely affected by such actions, control any
discussions, negotiations, or settlements with the IRS and any
affected policyholders pursuant to this Section 5.33.
(b) Any such request by Purchaser shall be treated as a
Claims Notice under Article X hereof. Prior to the time that the $30
million deductible provided for in Section 10.01(c)(i) hereof or,
where applicable, the $10 million deductible provided for in Section
10.01(c)(ii) hereof, has been exhausted, Purchaser shall bear the
costs and expenses of such relief and shall, promptly upon Seller's
or CLIC's request therefor, reimburse Seller or CLIC, as applicable,
for any costs or expenses incurred by Seller or CLIC (other than
Seller's or CLIC's internal costs or expenses) in complying with this
Section 5.33. To the extent that the relevant deductible provided for
in Section 10.01(c) hereof has been exhausted, (i) Purchaser shall not
reimburse Seller or CLIC for its costs and expenses incurred in
complying with this Section 5.33 and (ii) any costs or expenses
incurred by Purchaser hereunder, including Purchaser's costs and
expenses (other than Purchaser's internal costs and expenses) and any
payments of Taxes or payments to affected policyholders, shall be
treated as payments for which Purchaser is entitled to indemnification
under this Agreement. Any costs or expenses incurred by Purchaser
hereunder, including reimbursement payments to Seller and CLIC,
Purchaser's costs and expenses (other than Purchaser's internal costs
and expenses), and other payments by Purchaser, shall be applied
against the relevant deductible in Section 10.01(c) hereof.
Section 5.34. Transition to Purchaser Policy Forms. (a)
Commencing on the Closing Date and for a period of one year
thereafter, as requested in writing by Purchaser or LLANY, as the case
may be, Seller and CLIC shall issue contracts of the type that would
be included in the Business if in effect on the Closing Date;
provided, that Seller and CLIC shall not be required to issue
contracts pursuant to this Section 5.34 in any state if (i) Purchaser
has completed the modification of systems used principally in the
conduct of the Business to permit such systems to input, process and
output information in a multi-company environment and (ii) Purchaser
or LLANY, as the case may be, has obtained insurance department
approval of its own forms corresponding to the Insurance Contracts in
such state. Purchaser shall use its commercially reasonable best
efforts to complete the systems modifications and to obtain the policy
forms approvals referred to in the previous sentence as soon as is
reasonably practicable after the date hereof.
(b) Commencing on the first anniversary of the Closing Date
and for a period of one year thereafter, as requested by Seller or
LLANY, as the case may be, and subject to Section 5.34 (c), Seller and
CLIC shall continue to issue contracts of the type that would be
included in the Business if in effect on the Closing Date in those
states in which Purchaser or LLANY, as the case may be, has not
obtained the policy forms approval referred to in Section 5.34(a)
notwithstanding its commercially reasonable best efforts to do so.
(c) Any contract issued by Seller or CLIC pursuant to
Section 5.34(a) or (b) will be reinsured and administered by Purchaser
or LLANY, as the case may be, in accordance with the Indemnity
Reinsurance Agreements and the Administrative Services Agreements.
(d) In the event that the aggregate amount of direct written
premium by Seller and CLIC at the request of Purchaser and LLANY
pursuant to Section 5.34(b) exceeds an amount equal to 25% of the
direct written premium with respect to the Business as conducted by
Purchaser and LLANY during the one-year period described in Section
5.34(a) (the "25% Premium Threshold"), then:
(i) Seller and CLIC shall provide a written notice to
Purchaser noting that the 25% Premium Threshold has been
reached; and
(ii) Purchaser or LLANY, as appropriate, shall
thereafter pay to Seller and CLIC on an annual basis an
aggregate amount equal to the cost of capital to Seller and CLIC
associated with retaining risk-based capital to support the
amount by which direct written premium under contracts issued by
Seller pursuant to Section 5.34(b) exceed the 25% Premium
Threshold.
Section 5.35. Systems. During the period prior to the
Closing, Seller shall work in good faith to assist Purchaser in
development activities designed to ensure that all systems used
principally in the conduct of the Business are capable of inputting,
processing and outputting information in a multi-company environment
as soon as reasonably practicable following the Closing. Seller
acknowledges the criticality of developing such capabilities in order
to permit Purchaser and LLANY to commence issuing policies and
contracts substantially identical to the Insurance Contracts, and thus
maintaining the value of the Business, following the Closing.
Purchaser acknowledges that the development of such capabilities will
require resources that may exceed those reasonably available to Seller
during the pre-Closing period. In view of the foregoing
acknowledgments: (i) Seller agrees to make available to Purchaser
internal facilities, personnel and other resources for the development
of multi-company systems capabilities to the extent that doing so will
not significantly detract from the accomplishment of other systems
priorities, taking into account Seller's obligations under Sections
5.01, 5.03, and 5.07 of this Agreement; and (ii) Purchaser agrees to
bear the cost of retaining outside consultants and procuring other
resources necessary to accomplish the multi-company systems
development work in a timely manner.
Section 5.36. Updated Financial Information. As soon as is
reasonably practicable following the end of any fiscal quarter or
fiscal year of Seller, Seller shall deliver to Purchaser pro forma
financial information with respect to such quarter or year and with
respect to the period from the end of the previous fiscal year to the
end of such quarter or year, as applicable, in each case using the
same methodology as was used in preparing the Pro Forma Financial
Statements, it being understood that the quarterly financial
information to be provided shall consist solely of a pro forma income
statement.
Section 5.37. Performance of Covenants. CIGNA shall cause
Parent, Seller and CLIC to comply with their respective covenants and
agreements under this Agreement. LNC shall cause Purchaser and LLANY
to comply with their respective covenants and agreements under this
Agreement.
Section 5.38. Separate Account Revenues. Commencing with
the month during which the Closing occurs, Seller and CLIC shall pay
to Purchaser, or Purchaser shall pay to Seller and CLIC if negative,
on a monthly basis an amount equal to 100% of the revenues from
contract fees, separate account fees or charges, and any other fees,
charges or expenses (including those derived from expense factors in
the calculation of unit value), plus or minus the change in the amount
accrued for separate account expense allowances recognized in reserves
(as shown on the 1996 NAIC Annual Statement, page 3, line 13A,
parenthetical item), with respect to interests in the Seller Separate
Accounts. Such payments are construed so that all consolidated
statutory earnings on the Seller Separate Account portion of the
Business after the Closing Date accrue to Purchaser.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF PURCHASER AND LLANY TO CLOSE
The obligations of each of LNC, Purchaser and LLANY under
this Agreement are subject to the satisfaction on or prior to the
Closing of the following conditions, any one or more of which may be
waived by it to the extent permitted by law:
Section 6.01. Representations and Warranties. (a) The
representations and warranties contained in Section 3.02 and in
Section 3.04(a), (c), (d) and (e) of this Agreement shall be true and
correct in all respects as of the Closing Date.
Section 6.02. Other Agreements. The Ancillary Agreements
and each of the other agreements and instruments contemplated hereby
and thereby to which CIGNA, Seller, Parent or CLIC is a party shall
have been duly executed and delivered by CIGNA, Seller, Parent or
CLIC, as applicable, on the Closing Date and each of such agreements,
documents and instruments shall be in full force and effect with
respect to CIGNA, Seller, Parent or CLIC on the Closing Date, as
applicable.
Section 6.03. Governmental and Regulatory Consents and
Approvals. (a) All Permits and authorizations required by Seller,
CLIC, Purchaser or LLANY from governmental and regulatory bodies
listed on Exhibit J hereto shall have been obtained and shall be in
full force and effect and without conditions or limitations which
would have a material adverse effect on the Business as operated by
Purchaser after the Closing Date and are unacceptable to Purchaser in
the exercise of its reasonable business judgment, and Purchaser shall
have been furnished with appropriate evidence, reasonably satisfactory
to it and its counsel, of the granting of such Permits.
(b) The waiting period prescribed by the HSR Act shall have
expired or early termination thereof shall have been granted.
Section 6.04. Possession of Assets; Instruments of
Conveyance. On the Closing Date, Seller and CLIC shall have delivered
to Purchaser or LLANY, as applicable, possession of the Transferred
Assets to be transferred on the Closing Date and shall have
transferred to Purchaser or LLANY, as applicable, all of the right,
title and interest of Seller or CLIC, as applicable, in and to such
assets as provided in this Agreement and the Ancillary Agreements.
Section 6.05. Injunction. There shall be no effective
injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction, directing that the
transactions provided for herein not be consummated as herein
provided.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF SELLER TO CLOSE
The obligations of each of CIGNA, Parent, Seller and CLIC
under this Agreement are subject to the satisfaction on or prior to
the Closing of the following conditions, any one or more of which may
be waived by it to the extent permitted by law:
Section 7.01. Representations and Warranties. (a) The
representations and warranties contained in Section 4.02 and in
Section 4.04(a), (c), (d) and (e) this Agreement shall be true and
correct in all respects on and as of the Closing Date.
Section 7.02. Other Agreements. The Ancillary Agreements
and each of the other agreements and instruments contemplated hereby
and thereby to which Purchaser or LLANY is a party shall have been
duly executed and delivered by Purchaser or LLANY, as applicable, on
the Closing Date and each of such agreements and instruments shall be
in full force and effect with respect to Purchaser or LLANY on the
Closing Date, as applicable.
Section 7.03. Governmental and Regulatory Consents and
Approvals. (a) All Permits required by Seller, CLIC, Purchaser or
LLANY from governmental and regulatory bodies listed on Exhibit J
hereto shall have been obtained and shall be in full force and effect
and without conditions or limitations which would have a material
adverse effect on the business of Seller and are unacceptable to
Seller in the exercise of its reasonable business judgment, and Seller
shall have been furnished with appropriate evidence, reasonably
satisfactory to it and its counsel, of the granting of such Permits.
(b) The waiting period prescribed by the HSR Act shall have
expired or early termination thereof shall have been granted.
Section 7.04. Purchase Price. Purchaser and LLANY shall
have paid to Parent, Seller and CLIC an amount in cash equal to the
Purchase Price as provided in Section 2.01 of this Agreement.
Section 7.05. Injunction. There shall be no effective
injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction, directing that the
transactions provided for herein not be consummated as herein
provided.
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01. CIGNA's Non-Compete. (a) For a period of
thirty-six calendar months following the Closing, neither CIGNA nor
any of its Subsidiaries shall issue or sell individual life or
disability income or annuity policies that are to be distributed
through career agents in the United States.
(b) For a period of twelve calendar months following the
Closing, neither CIGNA nor any of its Subsidiaries shall issue
individual life or disability income or annuity policies that are to
be distributed through any other means in the United States other than
any existing such arrangements of Seller and its Affiliates that do
not constitute part of the Business, such as (x) corporate owned life
insurance, (y) individual policies issued in connection with the
conversion by certificate holders of their rights under group policies
and (z) immediate and deferred annuities sold through CIGNA Financial
Services, Inc., a Delaware corporation, to participants of defined
benefit and defined contribution plans administered by Seller or any
of its Affiliates.
(c) CIGNA, Purchaser and LLANY acknowledge that any damage
caused to Purchaser and LLANY by reason of the breach by CIGNA, any
of its Subsidiaries or any of their respective successors in interest
of this Section 8.01 could not be adequately compensated for in
monetary damages alone; therefore, each party agrees that, in addition
to any other remedies, at law or otherwise, Purchaser and LLANY shall
be entitled to specific performance of this Section 8.01 or an
injunction to be issued by a court of competent jurisdiction
restraining and enjoining any violation of this Section 8.01.
(d) It is the intent and desire of the parties to this
Agreement that the provisions of this Section 8.01 shall be enforced
to the fullest extent permissible under applicable law. Accordingly,
if any particular portion of this Section 8.01 shall be adjudicated
to be invalid or unenforceable, this Section 8.01 shall be amended to
delete therefrom the portion thus adjudicated to be invalid and
unenforceable under such law.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 9.01. Survival of Representations and Warranties.
All representations and warranties of the parties hereto contained in
this Agreement and the Ancillary Agreements shall survive the
execution and delivery hereof; provided, however, that, except as set
forth in the following sentence, the representations and warranties
of the parties hereto herein and in the Stock Purchase Agreement shall
terminate and expire on the last day of the twentieth calendar month
following the month in which the Closing Date falls, except for
matters as to which a Claims Notice shall have been given pursuant to
Section 10.02 or 10.03 by a party hereto prior to the applicable
expiration date, which representations shall continue with respect to
such matters until such matters have been finally decided, settled or
adjudicated. Notwithstanding anything in this Agreement to the
contrary, the provisions of Article V of the Stock Purchase Agreement
shall survive until 30 days after the expiration of the full period
of all statutes of limitations (giving effect to any waiver,
mitigation or extension thereof) applicable to the matters described
herein.
ARTICLE X
INDEMNIFICATION
Section 10.01. Obligation to Indemnify. (a) Subject to the
limitations set forth in this Article X, CIGNA and Seller agree to
indemnify, defend and hold harmless Purchaser and LLANY (and their
respective directors, officers, employees, Affiliates, successors and
permitted assigns (collectively, the "Purchaser Indemnitees")) from
and against all Losses (as hereinafter defined), based upon: (i) any
breach of or inaccuracy in the representations and warranties
contained in Article III hereof, (other than Section 3.22(b)) Article
III and Article V of the Stock Purchase Agreement, or in any
certificate delivered by Seller to Purchaser pursuant to this
Agreement on or after the date of execution of this Agreement that
were breaches as of the date of this Agreement or the Stock Purchase
Agreement and do not result in a Section 10.04 Purchaser Obligation;
(ii) any breach, nonfulfillment or default in the performance of any
of the covenants and agreements of Seller or CLIC contained in this
Agreement or in any Ancillary Agreement; (iii) any Section 10.04
Seller Obligations; or (iv) Retained Liabilities. Any breach of the
representations and warranties contained in Section 3.22(b) hereof
shall be governed by Section 10.01(e) below.
As used in this Article X, "Loss" and/or "Losses" shall mean
actions, claims, losses, liabilities, damages, deficiencies, costs,
expenses (including attorneys' fees), interest, taxes and penalties.
(b) Subject to the limitations set forth in this Article X,
LNC and Purchaser agree to indemnify, defend and hold harmless Seller
(and its directors, officers, employees, Affiliates, successors and
permitted assigns (collectively, the "Seller Indemnitees")) from and
against all Losses, based upon: (i) any breach of or inaccuracy in
the representations and warranties contained in Article IV hereof or
Article IV of the Stock Purchase Agreement or in any certificate
delivered by Purchaser or LLANY to Seller pursuant to this Agreement,
on or after the date of execution of this Agreement; (ii) any breach,
nonfulfillment or default in the performance of any of the covenants
and agreements of Purchaser or LLANY contained in this Agreement or
in the Ancillary Agreements; (iii) all Assumed Liabilities; (iv) any
Section 10.04 Purchaser Obligations or (v) the violation by Purchaser
or any of its Affiliates, or any agent of Purchaser or any of its
Affiliates, of Applicable Law (including without limitation the
statutes referred to in the third paragraph of Section 5.24(b) hereof)
in connection with (y) the failure of any Band 1 Employee to become
a Contract Employee or a Band 2 Employee, or (z) any decision on the
part of Purchaser or any of its Affiliates, or any agent of Purchaser
or any of its Affiliates, not to offer employment to any Band 1
Employee (or the discharge, layoff or termination of employment of any
Band 1 Employee directly resulting from an action described in Clause
(y) or (z)).
(c) The aggregate amount for which CIGNA and Seller shall
be liable under Section 10.01(a) shall be $700 million. The aggregate
amount for which LNC and Purchaser shall be liable under
Section 10.01(b) shall be $700 million. Except as set forth in the
following sentence, CIGNA and Seller shall be required to indemnify
the Purchaser Indemnitees pursuant to Section 10.01(a)(i) and (ii)
only to the extent that the sum of Losses incurred by the Purchaser
Indemnitees in connection with such clauses exceeds $30 million in the
aggregate, and then only for the amount of such excess.
Notwithstanding the foregoing (i) no Loss resulting from a breach by
Seller or CLIC of any covenant or agreement referred to in Section
10.01(a)(ii) resulting from the absence of a good faith effort by
Seller or CLIC to comply with such covenant or agreement shall be
subject to or applied against the $30 million "deductible" provided
for in the preceding sentence; (ii) CIGNA and Seller shall be required
to indemnify the Purchaser Indemnitees for any breach of
Section 3.26(g) to the extent the Losses incurred by reason of such
breach exceed $10 million in the aggregate, and then only for the
amount of such excess; (iii) Losses, if any, incurred by reason of a
breach of Section 3.26(g) shall be applied against the $30 million
"deductible" provided for in the preceding sentence except to the
extent that they exceed $10 million and are indemnified by CIGNA or
Seller; and (iv) Losses which constitute obligations of any of the
Parent Subsidiaries for any Taxes which are indemnifiable under
Article V of the Stock Purchase Agreement shall be subject to and
applied against the $30 million "deductible" provided for in the
preceding sentence, except to the extent described in Section
5.06(e)(2) of the Stock Purchase Agreement. LNC and Purchaser shall
be required to indemnify the Seller Indemnitees pursuant to Section
10.01(b)(i) and (ii) only to the extent that the sum of Losses
incurred by the Seller Indemnitees in connection with such clauses
exceeds $30 million in the aggregate, and then only for the amount of
such excess; provided, that no Loss resulting from a breach by
Purchaser or LLANY of any covenant or agreement referred to in Section
10.01(b)(ii) resulting from the absence of a good faith effort by
Purchaser or LLANY, as the case may be, to comply with such covenant
or agreement shall be subject to or applied against the $30 million
deductible provided for in this sentence. For the avoidance of doubt,
the $30 million deductible referred to in this Section 10.01(c) shall
not apply to any claim for indemnification under any provision of this
Section 10.01 other than Sections 10.01(a)(i) and (ii) and 10.01
(b)(i) and (ii). For purposes of this Section 10.01(c), a breach of
an agreement in a covenant to make a payment of money (including a
payment in satisfaction of a judgment against the obligor based upon
the failure to pay under such covenant), except where the obligation
to make such payment, or the required amount of such payment, is
disputed in good faith by the obligor, shall be deemed to result from
the absence of a good faith effort to perform such covenant.
(d) Matters governed by Section 5.06 of the Stock Purchase
Agreement shall be subject to the provisions of this Article X to the
extent, but only to the extent, specifically so provided therein.
(e) In the event that the representations set forth in
Section 3.22(b) were not accurate as of the date hereof as to any real
estate asset described in such Section, and if Purchaser or LLANY
incurs a Loss as a result of such inaccuracy within the period
specified in Section 9.01 of this Agreement, Purchaser or LLANY, as
the case may be, may provide a Claims Notice to Seller identifying
such inaccuracy and such Loss. Not later than thirty (30) days after
the date of such Claims Notice, Seller shall either (i) purchase such
asset from Purchaser or LLANY, as the case may be, for a cash amount
equal to the Statutory Carrying Value of such asset as of the Closing
Date minus the amount of any principal payments received by Purchaser
or LLANY with respect to such asset since the Closing Date, or (ii)
deliver to Purchaser or LLANY, as the case may be, a combination of
cash and other assets having risk and return characteristics
substantially identical to those of the asset in question and having
an aggregate Statutory Carrying Value as of the Closing Date minus the
amount of any principal payments received by Purchaser or LLANY with
respect to such asset since the Closing Date.
Section 10.02. Claims Notice. In the event that either
Purchaser, LLANY or Seller wishes to assert a claim for
indemnification hereunder, such party seeking indemnification (the
"Indemnified Party") shall deliver written notice (a "Claims Notice")
to the other party (the "Indemnifying Party") no later than ten (10)
Business Days after such claim becomes known to the Indemnified Party,
specifying the facts constituting the basis for, and the amount (if
known) of the claim asserted. Failure to deliver a Claims Notice with
respect to a claim (other than a claim based on an Asserted Liability)
in a timely manner as specified in the preceding sentence shall not
be deemed a waiver of the Indemnified Party's right to indemnification
hereunder for Losses in connection with such claim, but the amount of
reimbursement to which the Indemnified Party is entitled shall be
reduced by the amount, if any, by which the Indemnified Party's Losses
would have been less had such Claims Notice been timely delivered;
provided, that the failure to deliver a Claims Notice with respect to
an Asserted Liability within twenty (20) Business Days of the
Indemnified Party's receipt of written notice of such Asserted
Liability shall be deemed to be a waiver of the Indemnified Party's
right to indemnification hereunder for Losses in connection with such
Asserted Liability.
Section 10.03. Right to Contest Claims of Third Parties.
(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim or
demand made, or an action, proceeding or investigation instituted, by
any Person not a party to this Agreement (a "Third Party Claimant")
that may result in a Loss with respect to which the Indemnified Party
would be entitled to indemnification pursuant to this Article X
without regard to the dollar limitations set forth in Section 10.01
(an "Asserted Liability"), the Indemnified Party shall deliver to the
Indemnifying Party a Claims Notice with respect thereto, which Claims
Notice shall, in accordance with the provisions of Section 10.02
hereof, be delivered as promptly as practicable and in any event no
later than ten (10) Business Days after such Asserted Liability is
actually known to the Indemnified Party. Failure to deliver a Claims
Notice with respect to a claim in a timely manner as specified in the
preceding sentence shall not be deemed a waiver of the Indemnified
Party's right to indemnification hereunder for Losses in connection
with such claim, but the amount of reimbursement to which the
Indemnified Party is entitled shall be reduced by the amount, if any,
by which the Indemnified Party's Losses would have been less had such
Claims Notice been timely delivered; provided, that the failure to
deliver a Claims Notice with respect to an Asserted Liability within
twenty (20) Business Days of the Indemnified Party's receipt of
written notice of such Asserted Liability shall be deemed to be a
waiver of the Indemnified Party's right to indemnification hereunder
for Losses in connection with such Asserted Liability.
(b)(i) The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party, to investigate, contest,
defend or settle any Asserted Liability that may result in a Loss with
respect to which the Indemnified Party is entitled to indemnification
pursuant to this Article X; provided, that the Indemnified Party may,
at its option and at its own expense, participate in the
investigation, contesting, defense or settlement of any such Asserted
Liability through representatives and counsel of its own choosing;
and, provided further, that the Indemnifying Party shall not settle
any Asserted Liability unless (i) such settlement is on exclusively
monetary terms or (ii) the Indemnified Party shall have consented to
the terms of such settlement, which consent shall not unreasonably be
withheld. If requested by the Indemnifying Party, the Indemnified
Party will, at the sole cost and expense of the Indemnifying Party,
cooperate with the Indemnifying Party and its counsel in contesting
any Asserted Liability or, if appropriate and related to the Asserted
Liability in question, in making any counterclaim against the Third
Party Claimant, or any cross-complaint against any Person (other than
the Indemnified Party or its Affiliates). The failure of the
Indemnifying Party to provide the above-mentioned written notice to
the Indemnified Party within ten (10) Business Days after receipt of
a Claims Notice with respect to an Asserted Liability shall be deemed
an election not to defend the same. Unless and until the Indemnifying
Party elects to defend the Asserted Liability, the Indemnified Party
shall have the right, at its option and at the Indemnifying Party's
expense to the extent that the applicable $30 million deductible under
Section 10.01(c) hereof has been exhausted, to do so in such manner
as it deems appropriate; provided, however, that the Indemnified Party
shall not settle or compromise any Asserted Liability for which it
seeks indemnification hereunder without the prior written consent of
the Indemnifying Party (which shall not be unreasonably withheld)
during the ten (10) Business Day period referred to above after the
receipt of a Claims Notice, or thereafter in a manner that would cause
any applicable $30 million deductible under Section 10.01(c) hereof
to be exhausted.
(ii) Notwithstanding Section 10.03(b)(i), the Indemnified
Party shall have the right to investigate, contest, defend or settle
any Asserted Liability falling under Section 10.01(a)(i) or (b)(i),
as the case may be, other than any such Asserted Liability that the
Indemnified Party asserts or may thereafter assert is not subject to
the applicable $30 million deductible under Section 10.01(c) because
of the proviso to the first or the second sentence of Section
10.01(c), as the case may be, so long as the Losses that could
reasonably be expected to result from such Asserted Liability,
together with all Losses under any other Asserted Liability falling
under such Sections over which the Indemnified Party has retained
control pursuant to this Section 10.03(b)(ii), would not exceed the
$30 million "deductible" provided for in Section 10.01(a)(i) and
(b)(i). In the event that an Indemnified Party retains control over
any Asserted Liability pursuant to this Section 10.03(b)(ii):
(A) The Indemnifying Party shall have the right to
participate in (but not control) the defense of such Asserted
Liability;
(B) The Indemnified Party shall not settle or
compromise such Asserted Liability without the prior written
consent of the Indemnifying Party (which shall not be
unreasonably withheld); and
(C) The Indemnified Party shall not be entitled to any
indemnification for any amounts by which the actual Losses
resulting from such Asserted Claims exceeds, in the
aggregate, the $30 million deductible provided for in Section
10.01(a)(i) and (b)(i).
(c) The Indemnifying Party shall be entitled to participate
in (but not to control) the defense of any Asserted Liability which
it has elected, or is deemed to have elected, not to defend, or as to
which it does not have the right to defend under Section 10.03(b),
with its own counsel and at its own expense.
(d) Except as provided in the first sentence of
Section 10.03(b), the Indemnifying Party shall bear all costs of
defending any Asserted Liability and shall indemnify and hold the
Indemnified Party harmless against and from all costs, fees and
expenses incurred in connection with defending such Asserted
Liability.
(e) Purchaser, LLANY and Seller shall make mutually
available to each other (or to CIGNA, as applicable) all relevant
information in their possession relating to any Asserted Liability
(except to the extent that such action would result in a loss of
attorney-client privilege) and shall cooperate with each other in the
defense thereof.
Section 10.04. Certain Liabilities. (a) Except as
specifically provided in this Section 10.04, Seller or CLIC, as the
case may be, shall retain any and all liability for compensatory,
consequential, exemplary, punitive or similar damages which results
from (i) any claim brought by any owner or beneficiary of any of the
Insurance Contracts or (ii) any action brought by any insurance
regulatory body for (x) any alleged or actual act, error or omission
by Seller, CLIC or any of their Affiliates prior to the Closing Date,
whether intentional or otherwise, or (y) any reckless conduct or bad
faith by Seller, CLIC or any of their Affiliates, in connection with
the handling of any claim under any of the Insurance Contracts or in
connection with the issuance, delivery, cancellation or administration
of any of the Insurance Contracts (other than obligations to pay
benefits or other amounts or to take any other actions specifically
provided for under such Insurance Contracts as originally issued and
subsequently amended or supplemented other than pursuant to the
Settlement Agreements). Purchaser shall cooperate with Seller and
CLIC in Seller's and CLIC's efforts to address and resolve liabilities
for all obligations referred to in Section 10.04(a), including
resolutions which required commission reversal and/or producer
discipline.
(b) Seller or CLIC, as the case may be, shall retain
liability for all obligations referred to in Section 10.04(a)
indefinitely with respect to Insurance Contracts issued on any policy
or contract form unless and until such time (if ever) as Purchaser
notifies Seller that it elects to assume such liability with respect
to such Insurance Contracts. Any such notice shall be in writing and
shall be effective as of the date specified therein.
(c) Seller and certain of its Affiliates have entered into
the settlement agreements identified on Schedule 10.04 hereto relating
to class actions involving certain of the Insurance Contracts (the
"Settlement Agreements"). The following shall apply with respect to
liabilities arising out of the sale or administration of the Insurance
Contracts (other than obligations to pay benefits or other amounts
or to take any other actions specifically provided for under such
Insurance Contracts as originally issued and subsequently amended or
supplemented other than pursuant to the Settlement Agreements) that
are subject to the Settlement Agreements:
(i) Seller or CLIC, as applicable, shall retain any
liability caused by Seller's or CLIC's failure to
comply with any Settlement Agreement (except to the
extent that such failure resulted from the failure
of Purchaser or LLANY to comply with the relevant
Administrative Services Agreement) and for any
attorneys' or arbitrators' fees or any other costs
incurred under the Settlement Agreement prior to
Closing;
(ii) Seller or CLIC, as applicable, shall retain
responsibility for and shall control the defense of
claims brought under alternative dispute resolution
procedures provided for under the Settlement
Agreements, for any payments required to be made to
the relevant holders of Insurance Contracts or their
attorneys under such procedures, and the economic
cost of any reformation of the relevant insurance
contract resulting from such procedures (including
any administrative and systems costs incurred to
implement any such reformation);
(iii) Seller or CLIC, as applicable, shall retain
liability to the extent provided in Section
10.04(a) for any claims by holders of the
relevant Insurance Contracts who have opted out
of the class covered by the Settlement Agreement;
and
(iv) Notwithstanding anything in this Agreement to the
contrary, Purchaser shall assume any other liability
with respect to any Insurance Contract covered by
any Settlement Agreement, including without
limitation (A) any contract reformation specifically
provided for in such Settlement Agreement (other
than any reformation arising out of the alternative
dispute resolution procedures referred to in (ii)
above) and (B) any liability arising out of the
failure by Purchaser or LLANY to comply with any
Settlement Agreement or the terms of any Insurance
Contract covered by the Settlement Agreement.
(d) Any liability retained by Seller or CLIC pursuant to
Section 10.04(a) or Section 10.04(c)(i), (ii) or (iii) shall be
referred to herein as a "Section 10.04 Seller Obligation". Any
liability assumed by Purchaser pursuant to Section 10.04(b) or Section
10.04(c)(iv) shall be referred to herein as a "Section 10.04 Purchaser
Obligation".
Section 10.05. Indemnification Payments. Any payment
hereunder shall be made by wire transfer of immediately available
funds to such account or accounts as the Indemnified Party shall
designate to the Indemnifying Party in writing.
Section 10.06. Exclusivity. Except as provided in Section
5.06 of the Stock Purchase Agreement, after the Closing, to the extent
permitted by applicable law, the indemnities provided for in Section
10.01 shall be the exclusive remedies of the parties hereto and their
respective officers, directors, employees, agents and Affiliates for
any breach of or inaccuracy in any representation or warranty
(including in any certificate delivered by a party pursuant to this
Agreement) or any breach, nonfulfillment or default in the performance
of any of the covenants or agreements contained in this Agreement or
the Stock Purchase Agreement (but not any such covenants or agreements
to the extent they are by their terms to be performed after the
Closing Date), and the parties shall not be entitled to a rescission
of this Agreement or to any further indemnification rights or claims
of any nature whatsoever in respect thereof, all of which the parties
hereto hereby waive.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
Section 11.01. Termination of Agreement. This Agreement may
be terminated at any time prior to the Closing:
(a) by Seller or Purchaser in writing, if there shall be any
order, writ, injunction or decree of any court or governmental or
regulatory agency binding on Purchaser and/or Seller, which prohibits
or restrains Purchaser and/or Seller from consummating the
transactions contemplated hereby; provided, that Purchaser and/or
Seller, as the case may be, shall have used its commercially
reasonable best efforts to have any such order, writ, injunction or
decree lifted and the same shall not have been lifted by April 30,
1998;
(b) by either of Seller or Purchaser in writing, if the
Closing has not occurred on or prior to the first anniversary of the
date of this Agreement unless the absence of such occurrence shall be
due to the failure of the party seeking to terminate this Agreement
to materially perform each of its obligations under this Agreement
required to be performed by it on or prior to the Closing Date; and
(c) at any time on or prior to the Closing Date, by mutual
written consent of Seller and Purchaser.
Section 11.02. Survival. If this Agreement is terminated
and the transactions contemplated hereby are not consummated as
described above, this Agreement shall become null and void and of no
further force and effect, except for (a) the provisions of this
Agreement relating to the obligations of the parties hereto to keep
confidential and not to use certain information and data obtained from
the other parties hereto and (b) the provisions of Sections 5.09,
12.01, 12.08(b) and this Section 11.02.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Publicity. Except as may otherwise be
required by law, no release or announcement concerning this Agreement
or the transactions contemplated hereby shall be made without advance
consultation by Seller and Purchaser with respect thereto. The
parties hereto shall cooperate with each other in making any release
or announcement.
Section 12.02. Confidentiality. The parties agree that,
other than as agreed or as required to implement the transactions
contemplated hereby, the parties will keep confidential the terms and
conditions of this Agreement and the Ancillary Agreements, including,
without limitation, the Schedules hereto and thereto, except as
otherwise required by law (including, without limitation, pursuant to
any federal or state securities laws or the rules of any stock
exchange or self-regulatory organization or pursuant to any legal,
regulatory or legislative proceedings).
Section 12.03. Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be
delivered personally (by courier or otherwise), telegraphed, telexed,
sent by facsimile transmission or sent by certified or registered
mail, postage prepaid and return receipt requested, or by express
mail. Any such notice shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, three days after the date of deposit in the United States
mails, as follows:
(i) if to LNC:
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Attention: Jack D. Hunter, Esq.
Telecopier No.: (219) 455-5403
With a concurrent copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(ii) if to Purchaser:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(iii) If to LLANY:
Philip L. Holstein
President
Lincoln Life & Annuity Company of New York
120 Madison Street, Suite 1700
Syracuse, New York 13202
Telecopier No.: (315) 428-8419
With a concurrent copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(iv) If to Seller:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
(v) If to Parent:
Connecticut General Corporation
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
(vi) If to CIGNA:
CIGNA Corporation
One Liberty Place - OLP- 1550
1650 Market Street
Philadelphia, Pennsylvania 19192
Attention: Corporate Secretary, Carol J. Ward
Telecopier No.: (215) 761-5518
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
(vii) If to CLIC:
CIGNA Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: Corporate Secretary, David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
Any party may, by notice given in accordance with this
Section 12.03 to the other parties, designate another address or
person for receipt of notices hereunder provided that notice of such
a change shall be effective upon receipt.
Section 12.04. Entire Agreement. This Agreement (including
the Ancillary Agreements, the other agreements contemplated hereby and
thereby, the Exhibits and the Schedules hereto) contains the entire
agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, with respect
thereto.
Section 12.05. Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may
be waived, only by a written instrument signed by each of the parties
or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party on exercising any right, power or
privilege hereunder shall operate as a waiver thereof, or shall any
waiver on the part of any party of any right, power or privilege, or
any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other
such right, power or privilege. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity.
Section 12.06. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
Section 12.07. Binding Effect; Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder, may
be assigned by any party (in whole or in part) without the prior
written consent of the other party hereto (with LNC, Purchaser and
LLANY considered to be one party and CIGNA, Parent, Seller and CLIC
considered to be another party for purposes of this sentence).
Section 12.08. Interpretation. (a) Notwithstanding
anything in this Agreement to the contrary (except as set forth in
Section 5.31 hereof), no term or condition of this Agreement shall be
construed to supersede, restrict or otherwise limit any term or
condition set forth in the Indemnity Reinsurance Agreements.
(b) The parties acknowledge and agree that, except as
specifically provided herein, they may pursue judicial remedies at law
or equity in the event of a dispute with respect to the interpretation
or construction of this Agreement. In the event that an alternative
dispute resolution procedure is provided for in any of the Ancillary
Agreements or any other agreement contemplated hereby or thereby, and
there is a dispute with respect to the construction or interpretation
of such Ancillary Agreement, the dispute resolution procedure provided
for in such Ancillary Agreement shall be the procedure that shall
apply with respect to the resolution of such dispute.
(c) For purposes of this Agreement, the words "hereof,"
"herein," "hereby" and other words of similar import refer to this
Agreement as a whole unless otherwise indicated. Whenever the
singular is used herein, the same shall include the plural, and
whenever the plural is used herein, the same shall include the
singular, where appropriate.
Section 12.09. No Third Party Beneficiaries. Except as set
forth in Article X, nothing in this Agreement is intended or shall
be construed to give any Person (including, but not limited to, the
employees of Seller), other than the parties hereto, their successors
and permitted assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained
herein.
Section 12.10. Counterparts. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts
shall together constitute one and the same instrument. Each
counterpart may consist of a number of copies hereof each signed by
less than all, but together signed by all, of the parties hereto.
Section 12.11. Other Agreements, Exhibits and Schedules.
The Exhibits and the Schedules are a part of this Agreement as if
fully set forth herein. All references herein to Articles, Sections,
subsections, paragraphs, subparagraphs, clauses, Exhibits and
Schedules shall be deemed references to such parts of this Agreement,
unless the context shall otherwise require.
Section 12.12. Headings. The headings in this Agreement are
for reference only, and shall not affect the interpretation of this
Agreement.
Section 12.13. Dollar References. All dollar references in
this Agreement are to the currency of the United States.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CIGNA CORPORATION
By:
Name:
Title:
CONNECTICUT GENERAL CORPORATION
By:
Name:
Title:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
Name:
Title:
CIGNA LIFE INSURANCE COMPANY
By:
Name:
Title:
LINCOLN NATIONAL CORPORATION
By:
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
By:
Name:
Title:
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
by and between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of __________, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
BUSINESS REINSURED . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE III
TERMINATION AND RECAPTURE . . . . . . . . . . . . . . . . . . .5
Section 3.01. Termination. . . . . . . . . . . . . . . . . . .5
Section 3.02. Recapture. . . . . . . . . . . . . . . . . . . .5
ARTICLE IV
TERRITORY. . . . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE V
ADMINISTRATION; CHANGES; CREDITING RATES. . . . . . . . . . . .8
Section 5.01. Administration . . . . . . . . . . . . . . . . .8
Section 5.02. Contract Changes or Reserve Assumption Changes .8
Section 5.03. Non-Guaranteed Elements. . . . . . . . . . . . .8
ARTICLE VI
TRANSFER OF ASSETS; CONTRACT LOANS; CEDING COMMISSION. . . .. .8
Section 6.01. Asset Transfer.. . . . . . . . . . . . . . . . .8
Section 6.02. Contract Loans . . . . . . . . . . . . . . . . .9
Section 6.03. Ceding Commission. . . . . . . . . . . . . . . .9
ARTICLE VII
INSOLVENCY. . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE VIII
OFFSETS. . . . .. . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IX
RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES . . . . . .10
ARTICLE X
ERRORS AND OMISSIONS. . . . . . . . . . . . . . . . . . . . . 10
ARTICLE XI
DUTY OF COOPERATION. . . .. . . . . . . . . . . . . . . . . . 11
Section 11.01. Cooperation Generally . . . . . . . . . . . . 11
Section 11.02. Product Tax Cooperation . . . . . . . . . . . 11
ARTICLE XII
DEFERRED ACQUISITION COSTS. . . . . . . . . . . . . . . . . . 11
Section 12.01. Section 848 Election. . . . . . . . . . . . . 11
Section 12.02. DAC Adjustment. . . . . . . . . . . . . . . . 12
ARTICLE XIII
ARBITRATION. . . . .. . . . . . . . . . . . . . . . . . . . . 13
ARTICLE XIV
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . 14
Section 14.01. Notices . . . . . . . . . . . . . . . . . . . 14
Section 14.02. Amendment . . . . . . . . . . . . . . . . . . 15
Section 14.03. Counterparts. . . . . . . . . . . . . . . . . 15
Section 14.04. No Third Party Beneficiaries. . . . . . . . . 15
Section 14.05. Assignment. . . . . . . . . . . . . . . . . . 15
Section 14.06. Governing Law . . . . . . . . . . . . . . . . 15
Section 14.07. Credit for Ceded Reinsurance. . . . . . . . . 15
Section 14.08. Entire Agreement. . . . . . . . . . . . . . . 15
Section 14.09. No Reinsurance Intermediary . . . . . . . . . 15
SCHEDULE 1.01. . . . . . . . . . . . . . . . . . In-Force Contracts
SCHEDULE 1.02. . . . . . . . . . . . . . . . Post-Closing Contracts
SCHEDULE 1.03. . . . . . . . . . . . . . . Cedent Separate Accounts
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
This INDEMNITY REINSURANCE AGREEMENT (this "Agreement"),
dated as of ___________, 1997, is made by and between Connecticut
General Life Insurance Company, a Connecticut domiciled stock life
insurance company ("Cedent"), and The Lincoln National Life
Insurance Company, an Indiana domiciled stock life insurance
company ("Reinsurer") and a wholly owned subsidiary of Lincoln
National Corporation, an Indiana corporation.
WHEREAS, Cedent has agreed to cede and transfer to
Reinsurer the Coinsured Contracts (as defined below) for the
consideration specified herein and Reinsurer has agreed to
reinsure the General Account Liabilities (as defined below) of
Cedent under the Coinsured Contracts on the terms and conditions
set forth herein; and
WHEREAS, Cedent desires that Reinsurer perform all
administrative functions on behalf of Cedent after the date hereof
with respect to the Coinsured Contracts and the Cedent Separate
Accounts (as defined below) and the contracts supported by the
Cedent Separate Accounts, and Reinsurer has agreed to provide such
services pursuant to the terms of the Administrative Services
Agreement (as defined below);
NOW THEREFORE, in consideration of the mutual covenants
and promises contained herein and upon the terms and conditions
set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings
set forth below throughout the Agreement:
"Acquisition Agreement" means the Second Amended and
Restated Asset Transfer and Acquisition Agreement entered into by
and among CIGNA, Connecticut General Corporation, Cedent, CIGNA
Life Insurance Company, Lincoln National Corporation, Reinsurer
and Lincoln Life & Annuity Company of New York dated as of July
27, 1997.
"Administrative Services Agreement" means the
Administrative Services Agreement entered into by and between
Reinsurer and Cedent dated as of the date hereof.
"Affiliate" means, with respect to any Person, at the
time in question, any other Person controlling, controlled by or
under common control with such Person.
"Agreement" means this Indemnity Reinsurance Agreement.
"Annual Rate" means the value of r in the expression (l
+ r)n/365 -1, where "n" is equal to the number of days for which
interest is to be computed and the result of the expression is the
interest factor for computing the applicable interest amounts.
"Cash Equivalents" means, as of any particular date,
money market funds, marketable obligations issued or guaranteed by
the United States Government, certificates of deposit, bankers'
acceptances and other similar liquid investments, in each case,
with a maturity date of not more than 90 days from the date on
which any such instrument is transferred pursuant to the terms of
this Agreement, the market value of which on the date of transfer
will be counted as equivalent to cash for purposes of satisfying
the aggregate amount of cash and Cash Equivalents required to be
transferred as described in Article III hereof.
"Cedent" shall have the meaning set forth in the
introductory paragraph hereof.
"Cedent Separate Account Liabilities" means those
insurance liabilities that are reflected in the Cedent Separate
Accounts and that relate to the Coinsured Contracts.
"Cedent Separate Accounts" means the separate accounts
of Cedent described on Schedule 1.03 hereto.
"Ceding Commission" means $________.
"CIGNA" means CIGNA Corporation, a Delaware corporation.
"Code" means the Internal Revenue Code of 1986, as
amended. Any citation to a section of the Code includes a
citation to any successor statutory provision.
"Coinsured Contracts" means (i) the In-Force Contracts
and (ii) the Post-Closing Contracts.
"COLI Business" shall have the meaning as set forth in
the Acquisition Agreement.
"Connecticut SAP" means the statutory accounting
principles and practices prescribed or permitted by the Insurance
Department of the State of Connecticut as applied on a basis
consistent with those utilized in the preparation of 1996 Annual
Statements of Cedent submitted to the Insurance Department of the
State of Connecticut.
"Contractholder" shall mean the holder of any Coinsured
Contract.
"DAC Adjustment" shall have the meaning set forth in
Section 12.02(a) hereof.
"Effective Date" shall have the meaning set forth in
Article II hereof.
"Extra Contractual Obligations" means all liabilities
for compensatory, consequential, exemplary, punitive or similar
damages which relate to or arise in connection with any alleged or
actual act, error or omission by Cedent or any of its Affiliates
prior to the Effective Date hereof, whether intentional or
otherwise, or from any reckless conduct or bad faith by Cedent or
any of its Affiliates prior to the Effective Date hereof, or in
connection with any such alleged or actual act, error or omission
on and after the Effective Date hereof by the Reinsurer acting on
behalf of Cedent or any of its Affiliates pursuant to the
Administrative Services Agreement or otherwise, in each case
whether in connection with the handling of any claim under any of
the Coinsured Contracts or in connection with the issuance,
delivery, cancellation or administration of any of the Coinsured
Contracts; provided, that no Section 10.04 Seller Obligation, as
such term is defined in the Acquisition Agreement, shall be deemed
to be an Extra Contractual Obligation.
"Final Recapture Statement" shall have the meaning set
forth in Section 3.02(d) hereof.
"General Account Liabilities" means all general account
insurance liabilities and obligations arising under the Coinsured
Contracts, including, without limitation (i) the General Account
Reserves, (ii) amounts included in lines 12, 12a, 19, and 25 of
the Liabilities, Surplus and Other Funds page of the NAIC Annual
Statement Blank (1996 format), (iii) any Extra Contractual
Obligations, (iv) liabilities and obligations associated with
Cedent's separate account SA-8T, (v) premium taxes due in respect
of premiums, deposits and other consideration paid on or after the
Effective Date with respect to the Coinsured Contracts and (vi)
guaranty fund or other premium based assessments due based on such
premiums, deposits and other consideration, net of any premium tax
credits of Cedent arising out of any such assessments, but
excluding (x) the Cedent Separate Account Liabilities, and (y) any
general account liabilities which relate to (A) amounts
transferred from the Cedent Separate Accounts to the general
account of Cedent pending distribution to holders of the Coinsured
Contracts and (B) amounts held in the general account of Cedent
pending transfer to the Cedent Separate Accounts.
"General Account Other Insurance Assets" means all
general account other admitted insurance assets of Cedent arising
under the Coinsured Contracts determined pursuant to Connecticut
SAP as such amounts would have been included in lines 12.1, 12.2,
12.3, 15, 16 and 17 of the Assets page of the NAIC Annual
Statement Blank (1996 format).
"General Account Reserves" means the general account
statutory reserves of Cedent (without regard to this Agreement)
with respect to the Coinsured Contracts determined pursuant to
Connecticut SAP, as such reserves would have been included in
lines 1, 2, 3, 4.1, 4.2, 5, 6, 7.1, 7.2, 7.3, 8, 9, 10.1, 10.2,
10.3, 11.1, 11.2, 11.3 and 11.4 of the Liabilities, Surplus and
Other Funds page of the NAIC Annual Statement Blank (1996 format),
excluding however, any general account statutory reserve
adjustments in relation to Cedent Separate Account Liabilities.
"In-Force Contracts" means all individual life insurance
(other than contracts included in the COLI Business), health
insurance and annuity contracts owned by resident's of
jurisdictions other than the State of New York and issued through
CIGNA's Individual Insurance Division by Cedent on the forms
described on Schedule 1.01 hereto and in effect on the Effective
Date (including all supplements, endorsements, riders and
ancillary agreements in connection therewith).
"Income Tax Regulations" means the temporary and final
regulations issued under the Code. Any citation to a section of
the Income Tax Regulations includes a citation to any successor
regulatory provision.
"NAIC" means the National Association of Insurance
Commissioners.
"90-Day Treasury Rate" means the annual yield rate, on
the date to which 90-Day Treasury Rate relates, of actively traded
U.S. Treasury securities having a remaining duration to maturity
of three months, as such rate is published under "Treasury
Constant Maturities" in Federal Reserve Statistical Release
H.15(519).
"Outward Reinsurance" shall have the meaning set forth
in Article II hereof.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit, division or other entity.
"Post-Closing Contracts" means all individual life
insurance (other than contracts included within the COLI
Business), health insurance and annuity contracts of the types
which are described on Schedule 1.02 hereto (including all
supplements, endorsement, riders and ancillary agreements in
connection therewith) that are delivered or issued for delivery to
a person other than a resident of the State of New York through
CIGNA's Individual Insurance Division by Cedent prior to the
second anniversary of the Effective Date at the written request of
Reinsurer in accordance with Section 5.34 of the Acquisition
Agreement.
"Post-Recapture Extra Contractual Obligations" means
Extra Contractual Obligations which relate to or arise in
connection with any alleged or actual act, error or omission by
Reinsurer or any of its Affiliates (including by the Reinsurer
acting on behalf of Cedent or any of its Affiliates pursuant to
the Administrative Services Agreement or otherwise) on or before
the Recapture Date, whether intentional or otherwise, or from any
reckless conduct or bad faith by Reinsurer or any of its
Affiliates (including by the Reinsurer acting on behalf of Cedent
or any of its Affiliates pursuant to the Administrative Services
Agreement or otherwise), in connection with the handling of any
claim under any of the Coinsured Contracts or in connection with
the issuance, delivery, cancellation or administration of any of
the Coinsured Contracts.
"Preliminary Recapture Statement" shall have the meaning
set forth in Section 3.02(b) hereof.
"Proposed Recapture Statement" shall have the meaning
set forth in Section 3.02(d) hereof.
"Recapture Date" shall have the meaning set forth in
Section 3.02(a) hereof.
"Reinsurer" shall have the meaning set forth in the
introductory paragraph hereof.
"Third Party Actuary" shall have the meaning set forth
in Section 3.02(d) hereof.
"Trigger Date" means the last day of the time period
specified in Sections 5.20(d) or (e), as the case may be, of the
Acquisition Agreement in the event that the Reinsurer is required
to take any of the actions specified in Sections 5.20(a)(i), (ii)
and (iii) thereof during such time period and fails to take any
such actions.
"Umpire" shall have the meaning set forth in Article
XIII.
ARTICLE II
BUSINESS REINSURED
Upon the terms and subject to the conditions and other
provisions of this Agreement and any required governmental and
regulatory consents and approvals, effective as of 12:01 a.m.,
Eastern Time, on __________, 1997 (the "Effective Date"), Cedent
hereby cedes to Reinsurer and Reinsurer hereby accepts and
indemnity reinsures, on a coinsurance basis, 100% of the General
Account Liabilities outstanding as of the Effective Date or
arising thereafter, net of reinsurance recoveries received by
Cedent under reinsurance cessions with respect to the Coinsured
Contracts other than pursuant to this Agreement ("Outward
Reinsurance").
ARTICLE III
TERMINATION AND RECAPTURE
Section 3.01. Termination. The reinsurance provided
under this Agreement shall terminate as to each Coinsured Contract
on any date as of which such Coinsured Contract is recaptured as
provided below in this Article III, but shall otherwise continue
indefinitely as to all Coinsured Contracts.
Section 3.02. Recapture. (a) If Reinsurer fails to
take one of the actions specified in clauses (i), (ii) and (iii)
of Section 5.20(a) of the Acquisition Agreement under the
circumstances described therein on or prior to the Trigger Date,
then Cedent shall have the right, upon 10 days' written notice to
Reinsurer, to recapture the Coinsured Contracts that have not
expired, effective as of the first day of the month following the
Trigger Date (the "Recapture Date"). In the event that the
Coinsured Contracts that have not expired are recaptured pursuant
to this Article III, a net accounting and settlement with respect
to the General Account Liabilities relating to Coinsured Contracts
that have not expired shall be undertaken by the parties hereto
pursuant to the provisions set forth below in this Section 3.02.
(b) On the Recapture Date, Reinsurer will deliver to
Cedent a statement of the General Account Other Insurance Assets,
General Account Liabilities, the amount of the participating
surplus with respect to the Coinsured Contracts and the amount of
any contract loans under the Coinsured Contracts that have not
expired, each as of the end of the second month preceding the
month in which the Recapture Date falls (the "Preliminary
Recapture Statement"), together with a certification of the chief
financial officer of Reinsurer that (i) the Preliminary Recapture
Statement was prepared in accordance with Connecticut SAP, and
(ii) the General Account Reserves set forth therein (A) were
determined in accordance with generally accepted actuarial
standards consistently applied, (B) were fairly stated in
accordance with sound actuarial principles, (C) were based on
actuarial assumptions that were appropriate for Cedent's
obligations under the related Coinsured Contracts, and (D) met the
requirements of Connecticut SAP.
(c) On the Recapture Date, Reinsurer shall transfer to
Cedent (i) invested assets, cash and Cash Equivalents having an
aggregate value sufficient to satisfy the obligations represented
by the General Account Liabilities plus the amount of the
participating surplus with respect to the Coinsured Contracts less
the amount of any contract loans under the Coinsured Contracts
that have not expired and less the amount of General Account Other
Insurance Assets and (ii) the General Account Other Insurance
Assets, each as determined by Reinsurer and set forth on the
Preliminary Recapture Statement. Cash shall be transferred by
Reinsurer to Cedent by wire transfer of immediately available
funds in U.S. Dollars. Invested assets and Cash Equivalents shall
be transferred by such instruments of transfer as are reasonably
acceptable to Cedent. Invested assets transferred pursuant to
this Section 3.02(c) shall be valued at their market value as of
the Recapture Date. As specified in Section 6.02 hereof, Cedent
shall, from and after the Recapture Date, be entitled to receive
and retain all contract loan repayments under the Coinsured
Contracts that have not expired. Recapture shall be deemed to
occur upon the receipt by Cedent of such invested assets, cash and
Cash Equivalents and such General Account Other Insurance Assets,
free of all liens or other encumbrances.
(d) Reinsurer shall, on or before the date that is 30
days after the Recapture Date, prepare a statement of the General
Account Other Insurance Assets, General Account Liabilities, the
amount of the participating surplus with respect to the Coinsured
Contracts and the amount of any contract loans under the Coinsured
Contracts that have not expired, each as of the close of business
on the last day of the month preceding the month in which the
Recapture Date falls (the "Proposed Recapture Statement"),
together with a certification of the chief financial officer of
Reinsurer to the same effect with respect to the Proposed
Recapture Statement as of the date thereof as the certification
provided by such officer with respect to the Preliminary Recapture
Statement as of the date thereof pursuant to Section 3.02(b).
Promptly after its preparation, Reinsurer shall deliver copies of
the Proposed Recapture Statement to Cedent. Cedent shall have the
right to review the Proposed Recapture Statement and comment
thereon for a period of 45 days after receipt thereof. Reinsurer
agrees that Cedent and its accountants and other agents may have
access to the accounting records of Reinsurer relating to its
preparation of the Proposed Recapture Statement for the purpose of
conducting its review. Any changes in the Proposed Recapture
Statement that are agreed to by Reinsurer and Cedent within 45
days of the aforementioned delivery of such statement by Reinsurer
shall be incorporated into a final recapture statement as of the
close of business on the last day of the month preceding the month
in which the Recapture Date falls (the "Final Recapture
Statement"). In the event that Reinsurer and Cedent are unable to
agree within such 45-day period on the manner in which any item or
items should be treated in the preparation of the Final Recapture
Statement, or upon (i) the amount of invested assets, cash and
Cash Equivalents that is sufficient to satisfy the obligations
represented by the General Account Liabilities plus the amount of
participating surplus with respect to the Coinsured Contracts less
the amount of any contract loans under the Coinsured Contracts
that have not expired and less the amount of General Account Other
Insurance Assets or (ii) the amount of the General Account Other
Insurance Assets, separate written reports of such item or items
shall be made in concise form and shall be referred to a
nationally-known firm of independent actuaries selected by Cedent
and approved by the Reinsurer, which approval shall not
unreasonably be withheld (the "Third Party Actuary"). The Third
Party Actuary shall determine within 14 days the manner in which
such item or items shall be treated on the Final Recapture
Statement; provided, however, that the dollar amount of each item
in dispute shall be determined between the range of dollar amounts
proposed by Cedent and Reinsurer, respectively; further provided,
however, that in no event shall the amount of invested assets,
cash and Cash Equivalents that is deemed to be sufficient to
satisfy the obligations represented by the General Account
Liabilities less the amount of any contract loans under the
Coinsured Contracts that have not expired be less than the amount
of the General Account Liabilities less the amount of any such
contract loans. The determinations by the Third Party Actuary as
to the items in dispute shall be in writing and shall be binding
and conclusive on the parties and shall be so reflected in the
Final Recapture Statement. The fees, costs and expenses of
retaining the Third Party Actuary shall be shared equally between
the parties. Such determination shall be binding and conclusive
on the parties. Following the resolution of all disputed items,
Reinsurer shall prepare the Final Recapture Statement and shall
deliver copies of such statement to Cedent.
(e) In the event the aggregate amount of invested
assets, cash and Cash Equivalents and General Account Other
Insurance Assets reflected on the Preliminary Recapture Statement
and transferred to the Cedent on the Recapture Date is less than
an amount equal to the General Account Liabilities plus the amount
of participating surplus with respect to the Coinsured Contracts
less the amount of any contract loans under the Coinsured
Contracts that have not expired less the amount of General Account
Other Insurance Assets, each as reflected on the Final Recapture
Statement, Reinsurer shall transfer to Cedent additional cash or
Cash Equivalents equal to the amount of such difference, together
with interest thereon from and including the Recapture Date to but
not including the date of such transfer computed at an Annual Rate
equal to the 90-Day Treasury Rate in effect as of the Recapture
Date. In the event the aggregate amount of invested assets, cash
and Cash Equivalents, and General Account Other Insurance Assets
reflected on the Preliminary Recapture Statement and transferred
to Cedent on the Recapture Date is more than an amount equal to
the General Account Liabilities plus the amount of participating
surplus with respect to the Coinsured Contracts less the amount of
any contract loans under the Coinsured Contracts that have not
expired less the amount of General Account Other Insurance Assets,
each as reflected on the Final Recapture Statement, Cedent shall
transfer to Reinsurer cash or Cash Equivalents in the amount of
such difference, together with interest thereon computed at an
Annual Rate as specified above from and including the Recapture
Date to but not including the date of such transfer.
(f) If at any time after the Recapture Date Cedent or
any of its Affiliates is required to make any payment in respect
of any Post Recapture Extra Contractual Obligations, Reinsurer
will, promptly upon Cedent's demand therefor, pay the amount
thereof to Cedent.
ARTICLE IV
TERRITORY
This Agreement shall apply to Coinsured Contracts
covering lives and risks wherever resident or situated.
ARTICLE V
ADMINISTRATION; CHANGES; CREDITING RATES
Section 5.01. Administration. Pursuant to the
Administrative Services Agreement, Cedent has appointed Reinsurer
to perform all administrative services with respect to the
Coinsured Contracts and the Cedent Separate Accounts and the
contracts supported by the Cedent Separate Accounts and Reinsurer
has agreed to perform such services on behalf of Cedent,
including, but not limited to, the collection of premiums and
other amounts due from Contractholders, the direct payment of all
General Account Liabilities, the direct disbursement of all
contract loans and the administration of claims.
Section 5.02. Contract Changes or Reserve Assumption
Changes. Cedent, on its own initiative, shall not change (a) the
terms and conditions of any Coinsured Contracts or (b) the
assumptions and methods used by Cedent to establish the General
Account Reserves. Reinsurer shall share proportionately, on a
100% coinsurance basis, in any changes in the terms or conditions
of any Coinsured Contracts or changes in the assumptions and
methods used to establish the General Account Reserves, whether
effected by Reinsurer acting pursuant to the Administrative
Services Agreement or by reason of the requirements of any
regulatory authority having jurisdiction over Cedent or otherwise
required by law or by Connecticut SAP, provided that prior to
effectuating any such change Cedent shall promptly notify
Reinsurer of such proposed change and afford Reinsurer the
opportunity, to the extent practical under applicable law, to
object to such change under applicable administrative procedures
(both formal and informal).
Section 5.03. Non-Guaranteed Elements. Cedent shall
set all non-guaranteed elements of the Coinsured Contracts from
and after the Effective Date, taking into account the
recommendations of the Reinsurer with respect thereto.
ARTICLE VI
TRANSFER OF ASSETS; CONTRACT LOANS; CEDING COMMISSION
Section 6.01. Asset Transfer. As consideration for the
indemnity reinsurance of the General Account Liabilities by
Reinsurer hereunder, Cedent hereby agrees to transfer to Reinsurer
in accordance with the terms of the Acquisition Agreement (i)
investment assets having a statutory statement carrying value on
the books of Cedent equal to (a) the General Account Liabilities
as of the close of business on the last day of the month preceding
the month in which the Effective Date falls plus (b) the amount of
the participating surplus with respect to the Coinsured Contracts
as of such date less (c) the amount of any contract loans under
the Coinsured Contracts as of such date and less (d) the amount of
the General Account Other Insurance Assets as of such date and
(ii) the General Account Other Insurance Assets as of the close of
business on the last day of the month preceding the month in which
the Effective Date falls. As additional consideration for the
assumption of the General Account Liabilities by Reinsurer,
Reinsurer shall be entitled to 100% of all premiums, deposits and
other considerations to the extent received on or after the
Effective Date by Cedent or Reinsurer with respect to the general
account portion of the Coinsured Contracts net of reinsurance
premiums and all other amounts payable on or after the Effective
Date with respect to the Outward Reinsurance. Cedent shall
promptly remit to Reinsurer (but in no event later than 72 hours
following the receipt of any such premiums, deposits and other
considerations) any such amounts received by it in respect of any
of the Coinsured Contracts and hereby assigns to Reinsurer all of
its rights to such premiums, deposits and other considerations
payable to Cedent.
Section 6.02. Contract Loans. (a) As further
consideration for the indemnity reinsurance of the General Account
Liabilities hereunder, Reinsurer shall, subject to the provisions
of this Section 6.02, be entitled to all contract loan repayments
(including both principal and interest) under the Coinsured
Contracts, payable in accordance with Article V hereof.
(b) Cedent shall, from and after the Recapture Date,
have the right to retain all contract loan repayments under the
Coinsured Contracts, and to direct Reinsurer to pay to Cedent all
such contract loan repayment amounts collected by Reinsurer
pursuant to the Administrative Services Agreement.
Section 6.03. Ceding Commission. As consideration for
the reinsurance ceded by Cedent to Reinsurer of the Coinsured
Contracts and the acquisition by Reinsurer of rights in respect of
such Coinsured Contracts, Reinsurer shall pay Cedent the Ceding
Commission as of the Effective Date by including such amount in
the Purchase Price (as defined in the Acquisition Agreement)
payable by Reinsurer on the Closing Date under the Acquisition
Agreement. Reinsurer shall provide Cedent its allocation of the
Ceding Commission among the life insurance and non-cancelable
disability insurance, other health insurance, and annuity
contracts included in the Coinsured Contracts.
ARTICLE VII
INSOLVENCY
Reinsurer hereby agrees that, as to all reinsurance
made, ceded, renewed or otherwise becoming effective hereunder,
the reinsurance shall be payable by Reinsurer on the basis of the
liability of Cedent under the Coinsured Contracts reinsured on an
indemnity basis directly to Cedent or to its conservator,
liquidator, receiver or other statutory successor, without
diminution because of (i) the insolvency, liquidation or
rehabilitation of Cedent, (ii) the appointment of a conservator,
receiver, liquidator or statutory successor of Cedent, or (iii)
the failure of the conservator, receiver, liquidator or statutory
successor of Cedent to pay all or a portion of any claim. It is
agreed that any conservator, receiver, liquidator or statutory
successor of Cedent shall give prompt written notice to Reinsurer
of the pendency or submission of a claim under any such Coinsured
Contracts within a reasonable time after such claim is filed in
the receivership, conservation, insolvency or liquidation
proceeding. During the pendency of such claim, Reinsurer may
investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated, any defense
available to Cedent or its conservator, receiver, liquidator or
statutory successor except where: (i) the Coinsured Contract
specifies another payee of such reinsurance in the event of the
insolvency of Cedent and (ii) Reinsurer, with the consent of the
direct insureds has assumed such policy obligations of Cedent as
its direct obligations to the payees under such Coinsured
Contracts, in substitution for the obligations of Cedent to such
payees. The expense thus incurred by Reinsurer is chargeable
against Cedent, subject to the approval of the court, as a part of
the expense of insolvency, liquidation or rehabilitation to the
extent of a proportionate share of the benefit which accrues to
Cedent solely as a result of the defense undertaken by Reinsurer.
ARTICLE VIII
OFFSETS
Any debts or credits between Cedent and Reinsurer
arising under this Agreement are deemed mutual debts or credits,
as the case may be, and shall be netted or set off, as the case
may be, and only the balance shall be allowed or paid hereunder.
ARTICLE IX
RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES
Reinsurer's reinsurance of the General Account
Liabilities is intended for the sole benefit of the parties to
this Agreement and shall not create any right on the part of any
other party, including, without limit, any Contractholder,
insured, claimant or beneficiary, against Reinsurer or any legal
relation between any Contractholders, insureds, claimants or
beneficiaries and Reinsurer.
ARTICLE X
ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made by either
Cedent or Reinsurer in connection with this Agreement or any
transaction hereunder shall not relieve the other party from any
liability which would have attached to such party had such delay,
error or omission not occurred, provided that the party causing
such delay, error or omission rectifies the same as soon as
possible after its discovery thereof. If, as a result of any such
delay, error or omission, there is a delay in the transfer of
funds to be transferred pursuant hereto, the party responsible for
such delay, error or omission shall pay, to the party to whom such
funds are to be transferred, interest on the amount of funds to be
transferred from the date of such delay, error or omission to and
including the date of such transfer of funds at a rate equal to
the 90-Day Treasury Rate.
ARTICLE XI
DUTY OF COOPERATION
Section 11.01. Cooperation Generally. Each party
hereto shall cooperate fully with the other in all reasonable
respects in order to accomplish the objectives of this Agreement.
The duty of cooperation shall apply, but not be limited, to
regulatory matters and to litigation matters involving third
parties.
Section 11.02. Product Tax Cooperation. Cedent shall,
at Reinsurer's written request and sole cost and expense,
cooperate fully with Reinsurer in obtaining such relief as
Reinsurer shall reasonably require (including obtaining a waiver
from, or entering into a settlement or closing agreement with, the
Internal Revenue Service or an affected policyholder) with respect
to any non-compliance by Cedent or Reinsurer with any product tax
requirement or limitation contained in the Code (including without
limitation sections 72, 101, 817, 7702 and 7702A of the Code)
regarding any Coinsured Contract; provided, however, that this
Section 11.02 shall apply only if Reinsurer's written request is
not given prior to the last day of the twentieth calendar month
following the month in which the Closing Date falls. Cedent shall
permit Reinsurer to participate in any discussions, negotiations
or settlements with the Internal Revenue Service or any affected
policyholder pursuant to this Section 11.02 and, to the extent
Cedent is not adversely affected by such actions, to control such
discussions, negotiations or settlements.
ARTICLE XII
DEFERRED ACQUISITION COSTS
Section 12.01. Section 848 Election. (a) Each of
Cedent and Reinsurer acknowledges that it is subject to taxation
under Subchapter L of the Code and hereby makes the election
contemplated by Section 1.848-2(g)(8) of the Income Tax
Regulations with respect to this Agreement. Each of Cedent and
Reinsurer (i) agrees that such election is effective for the
taxable year of each party that includes the Effective Date and
for all subsequent years during which this Agreement remains in
effect and (ii) warrants that it will take no action to revoke the
election.
(b) Pursuant to Section 1.848-2(g)(8) of the Income Tax
Regulations, each of Cedent and Reinsurer hereby agrees (i) to
attach a schedule to its federal income tax return for its first
taxable year ending on or after the Effective Date that identifies
this Agreement as a reinsurance agreement for which the joint
election under Section 1.848-2(g)(8) has been made, (ii) that the
party with net positive consideration, as defined in Section 848
of the Code and the Income Tax Regulations thereunder, for this
Agreement for each taxable year will capitalize its specified
policy acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of Section 848(c)(1)
of the Code, and (iii) to exchange information pertaining to the
amount of net consideration, as defined in Section 848 of the Code
and the Income Tax Regulations thereunder, under this Agreement
each year to ensure consistency. Reinsurer shall prepare and
execute duplicate copies of the schedule described in the
preceding sentence as soon as possible after the Effective Date
and submit them to Cedent for execution. Cedent shall execute the
copies and return one of them to Reinsurer within 30 days of
Cedent's receipt of such copies.
Section 12.02. DAC Adjustment. (a) For purposes of
this Agreement, the term "DAC Adjustment" is calculated as
follows: First, for each taxable year with respect to each
category of Coinsured Contracts, "the gross amount incurred by the
reinsurer with respect to this Agreement" (as defined in Section
1.848-2(f)(2)(i)(A) of the Income Tax Regulations) for such
category (but not including any DAC Adjustment incurred in such
year) is multiplied by the applicable percentage set forth in
Section 848 (c)(1) of the Code for such category. The sum, if
any, from the preceding sentence is then reduced by the
amortization allowed Cedent under Section 848(a)(2) of the Code
for such category, but only with regard to amounts capitalized per
this Agreement under Section 1.848-2(f)(2)(i)(A). The result for
a category, whether positive or negative, is then multiplied by
the quotient of: tr/(1-(tr x (1+Y))), where tr = the maximum
applicable marginal corporate federal income tax rate (as defined
in Section 11(b)(1)(D) of the Code) for the taxable year, and Y =
the applicable percentage set forth in Section 848(c)(1) for such
category of Coinsured Contracts. The aggregate amount of such
calculations for all categories of Coinsured Contracts for a
taxable year (whether positive or negative) is the DAC Adjustment
for the year.
(b) Within 60 days of the end of Cedent's taxable year,
Cedent shall calculate the DAC Adjustment for the year and submit
such calculations to Reinsurer for review. If, within 30 days of
Reinsurer's receipt of such calculations, Reinsurer shall not have
objected in writing to such calculations, the calculations shall
become final. If, within 15 days of any objection in writing to
such calculations, Cedent and Reinsurer shall not have agreed in
writing to such calculations (in which case the calculations shall
become final), any disputed aspects of the calculations shall be
resolved by the Third Party Accountant (as defined in the
Acquisition Agreement) within 30 days of the submission of the
dispute to the Third Party Accountant by Cedent or Reinsurer. The
decision of the Third Party Accountant shall be final (and the
resulting calculations shall be final), and the costs, expenses,
and fees of the Third Party Accountant shall be borne equally by
Cedent and Reinsurer.
(c) If the amount of the DAC Adjustment for any taxable
year of Cedent is positive, Reinsurer shall pay such amount to
Cedent within 15 days of the date on which the calculations of the
DAC Adjustment become final. If the amount of the DAC adjustment
for any taxable year of Cedent negative, Cedent shall pay such
amount to Reinsurer within 15 days of the date on which the
calculations of the DAC Adjustment become final.
(d) Notwithstanding any other provision of this Section
12.02, the term "gross amount incurred by the reinsurer with
respect to this Agreement" shall not include (i) all or any part
of the Ceding Commission or (ii) the consequences of any recapture
of the Coinsured Contracts pursuant to Section 3.02 hereof.
(e) In the event that Section 848 of the Code or the
Income Tax Regulations thereunder are amended after the date
hereof and any change is made to the amortization period under
Section 848(a)(2), the capitalization percentages in Section
848(c)(1), or the definition of the term "gross amount incurred by
the reinsurer with respect to the reinsurance agreement" in
Section 1.848-2(f)(2)(i)(A) of the Income Tax Regulations, Cedent
and Reinsurer shall cooperate in good faith to modify the
definition of the term "DAC Adjustment" to reflect such change,
consistent with the principles and assumptions originally used in
defining that term in this Agreement.
ARTICLE XIII
ARBITRATION
Any dispute arising out of or relating to the
interpretation, performance or breach of this Agreement, including
the formation or validity hereof, shall be submitted for decision
to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at the
hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the
selection of the Umpire within 30 days of their appointment, then
each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two
candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing
procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall
be disinterested active or former officers of insurance or
reinsurance companies.
Within 30 days after notice of appointment of all
arbitrators, the panel shall meet and determine a schedule for the
conduct of the arbitration, including hearings. The panel shall
be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. The panel shall
determine where the arbitration shall take place. To the extent
and only to the extent that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision
considering the custom and practice of the applicable insurance
and reinsurance business. Insofar as the arbitration panel looks
to substantive law, the law of New York shall govern. The
decision of any two arbitrators when rendered in writing shall be
final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
The panel shall render its decision, which shall be in
writing and state the reasons therefor, within 60 days following
the termination of hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof. Each party
shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the
panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not
limited to interest (determined at the Panel's discretion) and
attorneys' fees, to the extent permitted by law.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
Section 14.01. Notices. Any notice required or
permitted hereunder shall be in writing and shall be delivered
personally (by courier or otherwise), telegraphed, telexed, sent
by facsimile transmission or sent by certified or registered mail,
postage prepaid and return receipt requested, or by express mail.
Any such notice shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission
or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(1) If to Reinsurer to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to Cedent to:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: 212-530-5219
Any party may, by notice given in accordance with this
Agreement to the other party, designate another address or person
for receipt of notices hereunder.
Section 14.02. Amendment. This Agreement may not be
modified, changed, discharged or terminated, except by an
instrument in writing signed by an authorized officer of each of
the parties hereto.
Section 14.03. Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but all
such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all,
of the parties hereto.
Section 14.04. No Third Party Beneficiaries. Nothing
in this Agreement is intended or shall be construed to give any
Person, other than the parties hereto, their successors and
permitted assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained
herein.
Section 14.05. Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either party (in whole or in part) without the
prior written consent of the other party hereto.
Section 14.06. Governing Law. SUBJECT TO ARTICLE XIII
HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 14.07. Credit for Ceded Reinsurance. Reinsurer
shall take at its own expense all actions, and maintain all
licenses, permits and authorizations, as are necessary in order
for Cedent to receive credit for reinsurance ceded hereunder as
reported in Cedent's financial statements.
Section 14.08. Entire Agreement. This Agreement,
together with the Acquisition Agreement and the other Ancillary
Agreements (as defined in the Acquisition Agreement), constitutes
the entire agreement between the parties relating to the indemnity
reinsurance of the Coinsured Contracts, and there are no other
agreements between the parties hereto, either existing or
contemplated, written or oral, relating thereto.
Section 14.09. No Reinsurance Intermediary. The
parties acknowledge that there is no reinsurance intermediary
entitled to a fee from either Cedent or Reinsurer by reason of
acting as a broker in soliciting, negotiating or procuring the
making of this Agreement or any binder for this Agreement.
IN WITNESS WHEREOF, Cedent and Reinsurer have executed
this Agreement as of the date first above written.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
<PAGE> SCHEDULE 1.01
In-Force Contracts
<PAGE> SCHEDULE 1.02
Post-Closing Contracts
<PAGE>
SCHEDULE 1.03
Cedent Separate Accounts
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
by and between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of _________, 1997
<PAGE> TABLE OF CONTENTS
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
APPOINTMENT; STANDARDS;NOTIFICATION OF CONTRACTHOLDERS . . . . 4
Section 2.01. Appointment and Acceptance of Appointment. . . .4
Section 2.02. Standards. . . . . . . . . . . . . . . . . . . .4
Section 2.03. Notification of Contractholders. . . . . . . . .4
ARTICLE III
ADMINISTRATIVE SERVICES . . . . . . . . . . . . . . . . . . . .4
Section 3.01. Administrative Services in General . . . . . . .4
Section 3.02. Collection Services. . . . . . . . . . . . . . .5
Section 3.03. Processing of Disbursements. . . . . . . . . . .5
Section 3.04. Payment of Disbursements . . . . . . . . . . . .6
Section 3.05. Denied Disbursements . . . . . . . . . . . . . .6
ARTICLE IV
BOOKS AND RECORDS; REPORTS . . . . . . . . . . . . . . . . . . 8
Section 4.01. Maintenance of Books and Records . . . . . . . .8
Section 4.02. Transaction Report . . . . . . . . . . . . . . .9
Section 4.03. Final Balance Sheet. . . . . . . . . . . . . . .9
ARTICLE V
INABILITY TO PERFORM SERVICES; ERRORS . . . . . . . . . . . . .9
Section 5.01. Inability to Perform Services. . . . . . . . . .9
Section 5.02. Errors . . . . . . . . . . . . . . . . . . . . .9
ARTICLE VI
REGULATORY MATTERS . . . .. . . . . . . . . . . . . . . . . . 10
Section 6.01. Responsibilities of Purchaser. . . . . . . . . 10
ARTICLE VII
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.01. Indemnification. . . . . . . . . . . . . . . . 10
Section 7.02. Notice of Asserted Liability . . . . . . . . . 11
Section 7.03. Right to Contest Claims of Third Parties . . . 11
Section 7.04. Indemnification Payments . . . . . . . . . . . 12
ARTICLE VIII
DURATION; TERMINATION . . . . . . . . . . . . . . . . . . . . 12
Section 8.01. Duration . . . . . . . . . . . . . . . . . . . 12
Section 8.02. Termination. . . . . . . . . . . . . . . . . . 12
ARTICLE IX
ARBITRATION. . . .. . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE X
INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10.01. Liability Insurance . . . . . . . . . . . . . 14
Section 10.02. Fidelity Bond . . . . . . . . . . . . . . . . 15
ARTICLE XI
MISCELLANEOUS. . . .. . . . . . . . . . . . . . . . . . . . . 15
Section 11.01. Headings, Schedules and Exhibits. . . . . . . 15
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . 15
Section 11.03. Amendments. . . . . . . . . . . . . . . . . . 16
Section 11.04. Execution in Counterpart. . . . . . . . . . . 16
Section 11.05. Limited Authority . . . . . . . . . . . . . . 16
Section 11.06. Assignment. . . . . . . . . . . . . . . . . . 16
Section 11.07. No Third Party Beneficiaries. . . . . . . . . 17
Section 11.08. Subcontracting. . . . . . . . . . . . . . . . 17
Section 11.09. Change in Status. . . . . . . . . . . . . . . 17
Section 11.10. Survival. . . . . . . . . . . . . . . . . . . 17
Section 11.11. Further Assurances. . . . . . . . . . . . . . 17
Section 11.12. Governing Law.. . . . . . . . . . . . . . . . 17
SCHEDULE 1.01. . . . . . . . . . . . . . . Seller Separate Accounts
SCHEDULE 2.01. . . . . . . . . . . . . . . .Administrative Services
<PAGE> ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this
"Agreement"), dated as of ________, 1997, is made by and between
Connecticut General Life Insurance Company, a Connecticut
domiciled stock life insurance company ("Seller"), and The Lincoln
National Life Insurance Company, a stock life insurance company
incorporated in Indiana and a wholly owned subsidiary of Lincoln
National Corporation ("Purchaser").
WHEREAS, pursuant to an Indemnity Reinsurance Agreement
between Seller and Purchaser that is being executed concurrently
with this Agreement (the "Indemnity Reinsurance Agreement"),
Purchaser has agreed to indemnify Seller for 100% of the General
Account Liabilities, as defined in the Indemnity Reinsurance
Agreement (such General Account Liabilities being referred to
herein as the "General Account Liabilities"); and
WHEREAS, Seller wishes to appoint Purchaser to provide
all administrative services with respect to the Coinsured
Contracts and the Seller Separate Accounts (as defined below), and
Purchaser desires to provide such administrative services in
consideration for Seller entering into the Acquisition Agreement
(as defined below) and the Indemnity Reinsurance Agreement;
NOW THEREFORE, in consideration of the mutual covenants
and promises contained herein and upon the terms and conditions
set forth herein, the parties to this Agreement agree as follows:
ARTICLE IV
DEFINITIONS
The following terms shall have the respective meaning
set forth below throughout the Agreement:
"Acquisition Agreement" means the Second Amended and
Restated Asset Transfer and Acquisition Agreement entered into by
and among CIGNA Corporation, Connecticut General Corporation,
Seller, CIGNA Life Insurance Company, Lincoln National
Corporation, Purchaser and Lincoln Life & Annuity Company of New
York dated as of July 27, 1997.
"Administrative Services" shall have the meaning set
forth in Section 2.01 hereof.
"Asserted Liability" shall have the meaning set forth in
Section 7.03 hereof.
"Business" shall have the same meaning as set forth in
the Acquisition Agreement.
"Business Day" means any day on which the unit value of
the Seller Separate Accounts is required to be calculated.
"Coinsured Contracts" shall have the same meaning as the
term "Coinsured Contracts" set forth in the Indemnity Reinsurance
Agreement (which term, for the avoidance of doubt, includes the
policies and contracts funded by the Seller Separate Accounts and
owned by residents of jurisdictions other than the State of New
York and issued by Seller through CIGNA's Individual Insurance
Division).
"Contractholder" means the holder of any Coinsured
Contract.
"Commission" means the Securities and Exchange
Commission.
"Effective Date" means the Effective Date as defined in
the Indemnity Reinsurance Agreement.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"General Account Liabilities" shall have the meaning set
forth in the first recital hereof.
"Guaranty Fund Adjustment" shall have the meaning set
forth in Section 3.06(a) hereof.
"Indemnified Party" shall have the meaning set forth in
Section 7.02 hereof.
"Indemnifying Party" shall have the meaning set forth in
Section 7.02 hereof.
"Indemnity Reinsurance Agreement" shall have the meaning
set forth in the first recital hereof.
"Intermediary" means an individual or entity designated
by a Contractholder as its broker of record or as the individual
or entity that will act on such Contractholder's behalf, in some
or all respects, in connection with such Contractholder's
Coinsured Contract.
"Legally Required Seller Actions" shall have the meaning
set forth in Section 3.01 hereof.
"License Agreement" shall have the meaning set forth in
the Acquisition Agreement.
"NAIC" means the National Association of Insurance
Commissioners.
"NASD" means the National Association of Securities
Dealers, Inc.
"Outward Reinsurance" means reinsurance cessions by
Seller with respect to the Coinsured Contracts, other than
pursuant to the Indemnity Reinsurance Agreement.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit, division or other entity.
"Post-Closing Assessments" shall have the meaning set
forth in Section 3.06(a) hereof.
"Premium Tax Credits" shall have the meaning set forth
in Section 3.06(a) hereof.
"Purchaser" shall have the meaning set forth in the
introductory paragraph hereof.
"Purchaser Losses" shall have the meaning set forth in
Section 7.01 hereof.
"Seller" shall have the meaning set forth in the
introductory paragraph hereof.
"Seller Losses" shall have the meaning set forth in
Section 7.01 hereof.
"Seller Separate Accounts" means the separate accounts
of Seller described on Schedule 1.01 hereto.
"Service Provider" means an individual or entity, other
than an Intermediary, that provides services to holders of
Coinsured Contracts with respect to the Coinsured Contracts other
than Seller or Purchaser.
"Third Party Claimant" shall have the meaning set forth
in Section 7.03 hereof.
"Transition Services Agreement" shall have the meaning
set forth in the Acquisition Agreement.
"Umpire" shall have the meaning set forth in Article IX.
ARTICLE V
APPOINTMENT; STANDARDS;
NOTIFICATION OF CONTRACTHOLDERS
Section 2.01. Appointment and Acceptance of
Appointment. Seller hereby appoints Purchaser to provide, with
respect to the Coinsured Contracts, the administrative services
specified herein and in Schedule 2.01 hereto (collectively, the
"Administrative Services") for the period specified in Section
8.01 of this Agreement, and Purchaser hereby accepts such
appointment and agrees to perform such services.
Section 2.02. Standards. Purchaser acknowledges that
the performance of the Administrative Services in an accurate and
timely manner is of paramount importance to Seller. Purchaser
agrees to perform the Administrative Services with the skill,
diligence and expertise commonly expected from experienced and
qualified personnel performing such duties and in conformance with
industry standards and applicable law.
Notwithstanding the foregoing obligations, in
recognition of the fact that Purchaser is taking over the
administrative procedures used prior to the Effective Date by
Seller, Purchaser shall not be obligated by this Agreement or any
schedule hereto to perform during the first 18 months after the
Effective Date the services required by this Agreement in a manner
different from the manner in which such services are being
provided by Seller immediately prior to the Effective Date;
provided, however, that after the Effective Date, Purchaser shall
make any changes required by changes in law (or the interpretation
thereof) subsequent to the Effective Date and any changes required
by changes in industry standards.
Section 2.03. Notification of Contractholders.
Purchaser agrees to send to (i) holders of the Coinsured
Contracts, (ii) Intermediaries, and (iii) Service Providers, a
written notice prepared by Seller and reasonably acceptable to
Purchaser to the effect that Purchaser has been appointed by
Seller to provide Administrative Services. Purchaser shall send
such notice promptly after receipt thereof, but in no event more
than 30 Business Days thereafter, by first class U.S. mail.
ARTICLE III
ADMINISTRATIVE SERVICES
Section 3.01. Administrative Services in General.
Purchaser agrees to perform all administrative services required
to be performed with respect to the Coinsured Contracts and the
Seller Separate Accounts, and is authorized to do so in the name
or on behalf of Seller where appropriate, including, without
limitation those specifically provided for in Sections 3.02
through 3.05 and elsewhere in this Agreement, but subject to
Section 3.06 and the next following paragraph.
The intention of the parties is that Purchaser will
perform all such administrative services in such a way as to
minimize the involvement of Seller and its affiliates therein,
subject to (a) Section 3.06 and (b) any requirements of law or
governmental authorities having jurisdiction that require that
specific actions, other than those provided for in Section 3.06,
be taken by Seller without Purchaser acting on its behalf
("Legally Required Seller Actions").
Without limiting the generality of the foregoing,
Purchaser shall have the right to cause Seller to effect the
termination of any participation agreements and/or to enter into
new participation agreements relating to underlying funding media
for the Seller Separate Accounts.
Section 3.02. Collection Services. Purchaser agrees to
perform the following services with respect to amounts due from
holders of the Coinsured Contracts:
(a) Collect premiums, deposits and other remittances
from Contractholders (including payments of principal or interest
on contract loans) and from any collection facility, including
Intermediaries and other persons or institutions that receive
remittances with respect to the Coinsured Contracts, and process
the remittances in a manner reasonably acceptable to Seller.
(b) Collect amounts payable in respect of Outward
Reinsurance.
(c) Maintain records pertaining to the collection and
processing of premiums, deposits or other remittances and amounts
payable in respect of Outward Reinsurance in the format utilized
by Seller on the Effective Date or as otherwise agreed by the
parties.
(d) Promptly invest in the Seller Separate Accounts
deposits collected which relate to the separate account portions
of Coinsured Contracts (including transfers from fixed options
under the Coinsured Contracts), and forward funds and required
information to the underlying investment management companies in
accordance with any applicable agreements, laws and regulations.
Section 3.03. Processing of Disbursements. Purchaser
agrees to perform the following services with respect to
disbursements made in respect of the Coinsured Contracts for
payment of death benefits, annuity benefits, withdrawals,
surrenders, transfers, policy loans, returns of deposits, and any
other disbursement and payments due to reinsurers or otherwise in
respect of Outward Reinsurance:
(a) Receive and process requests for disbursements.
(b) Process policy lapses, expiries and/or non-forfeiture options
with respect to the Coinsured Contracts.
(c) Evaluate requests for disbursements and either pay
any such request for disbursement, in accordance with Section 3.04
hereof, or propose to deny any such request for disbursement in
full or in part, in accordance with Section 3.05 hereof,
(i) within 10 Business Days after receipt of all documentation
required to process any such disbursement, with respect to any
request for a disbursement relating to the general account portion
of a Coinsured Contract and (ii) within the time period specified
in the applicable contract, with respect to any request for a
disbursement relating to the separate account under a Coinsured
Contract, or, in the case of either clause (i) or clause (ii)
above, within any shorter time provided by applicable statute,
rule or regulation. In the event that Purchaser is unable to make
a determination as to whether any such request for disbursement
should be paid or denied within the specified period, it shall
notify Seller immediately in writing and shall state in such
notice the reasons for such delay.
Section 3.04. Payment of Disbursements. Purchaser
agrees to pay all disbursements (subject, where appropriate, to
reimbursement from the relevant Seller Separate Account).
Purchaser will do so directly so as to avoid, to the maximum
extent practicable, Seller or its affiliates being required to
make any payments in connection with the Coinsured Contracts or
the Administrative Services, except as specifically provided
otherwise in Section 3.06.
Section 3.05. Denied Disbursements. (a) Purchaser
agrees to promptly notify Seller if it proposes to deny any
disbursement request. The notice required under this Section 3.05
will contain the basis for Purchaser's decision to deny such
disbursement request and the date that such disbursement would be
required to be made. Purchaser may not deny a disbursement
request if Seller reasonably objects to such denial in writing
within 10 Business Days of Seller's receipt of the notice required
under this Section 3.05 (or within such shorter period as may be
required to permit the relevant disbursement to be made within the
time period required by any applicable law or regulation). In the
event that Purchaser notifies Seller of a proposed denial on the
Business Day that the disbursement would be required to be made
and Seller objects to such proposed denial, then the disbursement
shall be made as soon as practicable thereafter, and Seller
acknowledges that such disbursement may be made later than the
date otherwise required by this Agreement.
(b) Purchaser agrees to immediately notify Seller of
any litigation that has been instituted or threatened, or of any
complaint which any person has filed or has threatened to file
with any state insurance department or other regulatory agency,
with respect to any denied disbursement request or any
disbursement request-handling procedure in connection with a
Coinsured Contract, regardless of whether the disbursement request
was paid or denied, or with respect to any other matter relating
to a Coinsured Contract. Such notice shall contain a report
summarizing the nature of the litigation or complaint, the alleged
actions or omissions giving rise to the litigation or complaint
and copies of any files that Seller may require to respond to the
litigation or complaint.
(c) Purchaser shall pay the expenses of any litigation
or regulatory proceeding with respect to the Coinsured Contracts
(subject to any indemnification rights of Purchaser under this
Agreement or any other agreement between Purchaser and Seller).
Section 3.06. Certain Actions by Seller.
Notwithstanding the provisions of Section 3.01:
(a) Purchaser will give Seller timely notice of any
Legally Required Seller Actions and, to the maximum extent
practicable, prepare in a timely manner the forms of any
documentation required for Seller to comply therewith. Seller
will prepare and, subject to Purchaser's compliance with this
section, timely file any filings required to be made with any
governmental authorities, including filings with insurance
regulators and guaranty associations and filings and premium tax
returns with taxing authorities that relate to Seller generally
and not just to the Coinsured Contracts and the Seller Separate
Accounts and will make any payments required in connection with
such filings and premium tax returns and any assessment by
guaranty associations. To the extent reasonably possible,
Purchaser will be responsible for complying with all applicable
reporting, withholding and disclosure requirements under the
Internal Revenue Code of 1986 with respect to the Coinsured
Contracts and Seller Separate Accounts, and Seller will cooperate
with Purchaser to the extent necessary to allow Purchaser to
fulfill its responsibilities. Purchaser will, in a timely fashion
in light of the dates such filings and payments by Seller are
required, provide to Seller all information with respect to the
Coinsured Contracts and the Seller Separate Accounts that may be
required for Seller to prepare such filings and tax returns and
will pay to Seller (without reduction for Premium Tax Credits, as
defined below) the amounts that are required to be paid by Seller
in connection with such filings and premium tax returns in respect
of premiums, deposits or other consideration paid to Seller after
the Effective Date on the Coinsured Contracts and the Seller
Separate Accounts. Without limiting the generality of the
foregoing, Purchaser will reimburse Seller for premium taxes due
on the Coinsured Contracts and the Seller Separate Accounts in
sufficient time to allow Seller to file such returns.
As described below, Purchaser will pay to Seller an amount
equal to the portion of any guaranty fund assessments or other
premium based assessments paid by Seller after the Effective Date
that are based on premiums, deposits and other consideration paid
or earned after the Effective Date on the Coinsured Contracts and
Seller Separate Accounts ("Post Closing Assessments"). Seller
will pay to or provide Purchaser with the benefit of any Post
Closing Assessments which have been applied to reduce Seller's
premium tax liability ("Premium Tax Credits"), regardless of the
source of such liability. Seller will provide to Purchaser by
March 15 of each year a statement of the amount of Post Closing
Assessments less Premium Tax Credits for the prior calendar year
("Guaranty Fund Adjustment"). By March 30 of each year Purchaser
will pay to Seller the Guaranty Fund Adjustment, if a positive
amount, and Seller will pay or credit to Purchaser the Guaranty
Fund Adjustment, if a negative amount.
(b) In the event that Seller retains a portion of any
investment asset transferred to Purchaser pursuant to Section 6.01
of the Indemnity Reinsurance Agreement and Section 2.03(c) of the
Acquisition Agreement, (i) Seller will continue to provide, or
cause to be provided, investment management with respect to such
asset if Seller's retained interest is equal to or greater than
50% of the combined interest of Seller and Purchaser in such asset
and (ii) Purchaser will provide, or cause to be provided,
investment management services with respect to such asset if
Seller's interest is less than 50% of the combined interest of
Seller and Purchaser in such asset. The party providing such
investment management services shall do so in the same manner as
such party provides such services with respect to its own portion
of the relevant asset, but shall make no other warranty, or have
any other responsibility, to the other party with respect to such
investment management services.
Section 3.07. Compensation and Reimbursement for
Seller. Purchaser will, promptly upon Seller's request therefor:
(a) compensate Seller for any administrative services
it may from time to time, notwithstanding the intention of the
parties expressed in Section 3.01, be required to perform with
respect to the Coinsured Contracts and the Seller Separate
Accounts, including without limitation accounting, legal, tax and
regulatory filing services, Legally Required Seller Actions and,
to the extent they relate to Coinsured Contracts and Seller
Separate Accounts, actions and services referred to in Section
3.06; and
(b) reimburse Seller for any other costs it may
reasonably incur with respect to the Coinsured Contracts and the
Seller Separate Accounts as a result of the reinsurance
arrangement contemplated by the Indemnity Reinsurance Agreement.
The compensation and reimbursement referred to in this Section
3.07 shall be based on Seller's fully-allocated costs, including a
proportionate share of corporate overhead, as detailed in invoices
to Purchaser.
ARTICLE IV
BOOKS AND RECORDS; REPORTS
Section 4.01. Maintenance of Books and Records. (a)
For the duration of this Agreement, Purchaser shall maintain, at a
location to be agreed upon by Purchaser and Seller, books and
records of all transactions pertaining to the Coinsured Contracts,
including, but not limited to, any disbursement requests submitted
in respect of the Coinsured Contracts and any documents relating
thereto, any communications relating to any Coinsured Contract,
any communication with any regulatory authority, complaint logs
and all data used by Purchaser in the performance of services
required under this Agreement. These books and records shall be
maintained (i) in accordance with any and all applicable statutes,
rules and regulations and (ii) in a format no less accessible than
the format in which such books and records are maintained on the
date hereof. All such books and records pertaining to a Coinsured
Contract shall be made available to Seller, its auditors or other
designees, and regulatory agencies, during normal business hours
and at any other time on reasonable notice, for review,
inspection, examination and reproduction. Upon termination of
this Agreement, all books and records pertaining to Coinsured
Contracts which have not expired shall be delivered promptly to
Seller or such other person or entity as Seller shall designate in
writing.
(b) Purchaser shall back up all of its computer files
used in the performance of services under this Agreement on a
daily basis and shall maintain back-up files in an off-site
location.
(c) Purchaser shall maintain facilities and procedures
reasonably acceptable to Seller for safekeeping all records used
in the performance of services under this Agreement.
Section 4.02. Transaction Report. Within five Business
Days of the end of each calendar month during the term of this
Agreement, Purchaser shall provide Seller with a summary report
and accounting of all transactions, including receipts, payments,
policy loans, surrenders and other matters, that have occurred
during that month, in a form acceptable to Seller. Purchaser
shall provide a final accounting to Seller within 15 Business Days
following the end of the month during which the termination of
this Agreement occurs.
Section 4.03. Final Balance Sheet. Purchaser shall
assist Seller, as reasonably requested by Seller, in the
preparation of the Proposed Balance Sheet and the Final Balance
Sheet, as such terms are defined in the Acquisition Agreement.
ARTICLE V
INABILITY TO PERFORM SERVICES; ERRORS
Section 5.01. Inability to Perform Services. In the
event that Purchaser shall be unable to perform services as
required by this Agreement for any reason for a period that can
reasonably be expected to exceed three Business Days, Purchaser
shall cooperate with Seller in obtaining an alternative means of
providing such services. Purchaser will be responsible for all
costs incurred in either restoring services or obtaining an
alternative source of services, except to the extent such
inability by Purchaser to perform the services required by this
Agreement is the result of, or is caused by, the failure of Seller
to perform its obligations under the Transition Services
Agreement.
Section 5.02. Errors. Purchaser shall, at its own
expense, correct any errors in Administrative Services caused by
it within a reasonable time after receiving notice thereof from
Seller or otherwise, except to the extent such inability by
Purchaser to perform the services required by this Agreement is
the result of, or is caused by, the failure of Seller or any of
its Affiliates as the case may be, to perform its obligations as
set forth under the Transition Services Agreement. This
obligation includes, without limitation, reimbursement to the
Seller Separate Accounts and the management investment companies
underlying that account for any dilution or other adverse effect
due to transactions made effective as of an earlier date, commonly
referred to as "breakage."
ARTICLE VI
REGULATORY MATTERS
Section 6.01. Responsibilities of Purchaser.
Purchaser, on behalf of Seller,
shall, subject to the second paragraph of Section 3.01 and
Section 3.06(a) be responsible for all state insurance department
and federal and state securities law filings (including, but not
limited to, filings of riders and amendments), the maintenance of
all required licenses and permits, compliance with all regulatory
requirements and the taking of all required actions with respect
to government authorities.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Indemnification. (a) Purchaser agrees
to indemnify and hold harmless Seller and any of its directors,
officers, employees, agents or affiliates from any and all losses,
costs, claims, demands, compensatory, extra contractual and/or
punitive damages, fines and penalties (collectively, "Seller
Losses") arising out of or caused by: (i) fraud, theft or
embezzlement by officers, employees or agents of Purchaser during
the term of this Agreement; (ii) the failure, either intentional
or unintentional, of Purchaser to properly perform the services or
take the actions required by this Agreement, including, without
limitation, the failure to properly process, evaluate and pay
disbursement requests in accordance with the terms of this
Agreement; (iii) any other act of negligence or willful misconduct
committed by officers, agents or employees of Purchaser during the
term of this Agreement; (iv) any failure of Purchaser to comply
with applicable laws, rules and regulations during the term of
this Agreement other than, during the first 18 months after the
Effective Date, Seller Losses arising out of or caused by actions
or inactions of Purchaser consistent with the manner in which such
services are being provided by Seller immediately prior to the
Effective Date, except if changes are required pursuant to Section
2.02 hereof; or (v) the failure of any Person described in clause
(ii) of Section 11.08 to properly perform the services that
Purchaser is to provide hereunder.
(b) Seller agrees to indemnify and hold harmless
Purchaser and any of its directors, officers, employees, agents or
affiliates from any and all losses, costs, claims, demands,
compensatory, extra contractual and/or punitive damages, fines and
penalties (collectively, "Purchaser Losses") arising out of or
caused by: (i) fraud, theft or embezzlement by officers,
employees or agents of Seller during the term of this Agreement;
(ii) any other act of negligence or willful misconduct committed
by officers, agents or employees of Seller during the term of this
Agreement; or (iii) any failure of Seller to comply with
applicable laws, rules and regulations during the term of this
Agreement other than any failure on the part of Seller or
Purchaser caused by the action or inaction of Purchaser, including
when acting in the name or on behalf of Seller, whether or not in
compliance with the terms of this Agreement.
Section 7.02. Notice of Asserted Liability. In the
event that either party hereto asserts a claim for indemnification
hereunder, such party seeking indemnification (the "Indemnified
Party") shall give written notice to the other party (the
"Indemnifying Party") specifying the facts constituting the basis
for, and the amount (if known) of, the claim asserted.
Section 7.03. Right to Contest Claims of Third Parties.
(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim
or demand made, or an action, proceeding or investigation
instituted, by any Person not a party to this Agreement (a "Third
Party Claimant") that may result in a Purchaser Loss with respect
to which Purchaser is entitled to indemnification pursuant to
Section 7.01(a) hereof or a Seller Loss with respect to which
Seller is entitled to indemnification pursuant to Section 7.01(b)
hereof (an "Asserted Liability"), the Indemnified Party shall so
notify the Indemnifying Party as promptly as practicable, but in
no event later than 10 Business Days after such Asserted Liability
is actually known to the Indemnified Party. Failure to deliver
notice with respect to an Asserted Liability in a timely manner
shall not be deemed a waiver of the Indemnified Party's right to
indemnification for Losses in connection with such Asserted
Liability but the amount of reimbursement to which the Indemnified
Party is entitled shall be reduced by the amount, if any, by which
the Indemnified Party's losses would have been less had such
notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party, to investigate, contest,
defend or settle the Asserted Liability; provided, that the
Indemnified Party may, at its option and at its own expense,
participate in the investigation, contesting, defense or
settlement of any such Asserted Liability through representatives
and counsel of its own choosing. The failure of the Indemnifying
Party to respond in writing to proper notice of an Asserted
Liability within 10 days after receipt thereof shall be deemed an
election not to defend the same. Unless and until the
Indemnifying Party elects to defend the Asserted Liability, the
Indemnified Party shall have the right, at its option and at the
Indemnifying Party's expense, to do so in such manner as it deems
appropriate, including, but not limited to, settling such Asserted
Liability (after giving notice of the settlement to the
Indemnifying Party) on such terms as the Indemnified Party deems
appropriate.
(c) Except as provided in the immediately preceding
sentence, the Indemnified Party shall not settle or compromise any
Asserted Liability for which it seeks indemnification hereunder
without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld) during the 10 day period
specified above.
(d) The Indemnifying Party shall be entitled to
participate in (but not to control) the defense of any Asserted
Liability which it has elected, or is deemed to have elected, not
to defend, or which it does not have the right to defend under
paragraph (b) of this Section 7.03, with its own counsel and at
its own expense.
(e) Except as provided in the first sentence of
paragraph (b) of this Section 7.03, the Indemnifying Party shall
bear all costs of defending any Asserted Liability and shall
indemnify and hold the Indemnified Party harmless against and from
all costs, fees and expenses incurred in connection with defending
such Asserted Liability.
(f) Purchaser and Seller shall make mutually available
to each other all relevant information in their possession
relating to any Asserted Liability (except to the extent that such
action would result in a loss of attorney-client privilege) and
shall cooperate with each other in the defense thereof.
Section 7.04. Indemnification Payments. Any payment
hereunder shall be made by wire transfer of immediately available
funds to such account or accounts as the Indemnified Party shall
designate to the Indemnifying Party in writing.
ARTICLE VIII
DURATION; TERMINATION
Section 8.01. Duration. This Agreement shall commence
on the date of its execution and continue until such time as none
of the Coinsured Contracts remains in force and no further
Administrative Services in respect of the Coinsured Contracts are
required, or until it is terminated under Section 8.02. Purchaser
shall cooperate fully in the transfer of services and the books
and records maintained by Purchaser pursuant to Section 4.01
hereof (or, where appropriate, copies thereof) to Seller or
Seller's designee, so that Seller or its designee will be able to
perform the services required under this Agreement without
interruption following termination of this Agreement.
Section 8.02. Termination. (a) This Agreement is
subject to immediate termination at the option of Seller, upon
written notice to Purchaser, on the occurrence of any of the
following events:
(i) A voluntary or involuntary proceeding is
commenced in any state by or against Purchaser for the purpose of
conserving, rehabilitating or liquidating Purchaser, or Purchaser
shall lose its authority to perform services hereunder;
(ii) There is a material breach by Purchaser of
any term or condition of this Agreement, that is not cured by
Purchaser within 90 days of receipt of written notice from Seller
of such breach or act;
(iii) Any liability policy or bond required
pursuant to Article X of this Agreement is canceled, terminated or
substantially revised; or
(iv) Purchaser is unable to perform the services
required under Articles III, IV and V of this Agreement for a
period of 90 consecutive days for any reason.
(b) This Agreement will terminate automatically in the
event that Seller exercises recapture under the Indemnity
Reinsurance Agreement pursuant to Section 3.02 thereof.
(c) This Agreement may be terminated at any time upon
the mutual written consent of the parties hereto, which writing
shall state the effective date of termination.
(d) In the event that this Agreement is terminated
under any of the provisions of this Section 8.02 other than
Section 8.02(b), Purchaser shall select a third-party
administrator to perform the services required by this Agreement.
Seller shall have the right to approve any such administrator
selected by Purchaser, but such approval will not unreasonably be
withheld. If Purchaser fails to select an administrator pursuant
to this Section 8.02(d), Seller shall select such an
administrator. In either case, Purchaser shall pay all fees and
charges imposed by the selected administrator.
ARTICLE IX
ARBITRATION
Any dispute arising out of or relating to the
interpretation, performance or breach of this Agreement, including
the formation or validity thereof, shall be submitted for decision
to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at the
hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the
selection of the Umpire within 30 days of their appointment, then
each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two
candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing
procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall
be disinterested active or former officers of insurance or
reinsurance companies.
Within 30 days after notice of appointment of all
arbitrators, the panel shall meet and determine a schedule for the
conduct of the arbitration, including hearings. The panel shall
be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. The panel shall
determine where the arbitration shall take place. To the extent
and only to the extent that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision
considering the custom and practice of the applicable insurance
and reinsurance business. Insofar as the arbitration panel looks
to substantive law, the law of New York shall govern. The
decision of any two arbitrators when rendered in writing shall be
final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
The panel shall render its decision, which shall be in
writing and state the reasons therefor, within 60 days following
the termination of hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof. Each party
shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the
panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not
limited to interest (determined at the Panel's discretion) and
attorneys' fees, to the extent permitted by law.
ARTICLE X
INSURANCE
Section 10.01. Liability Insurance. Purchaser shall
maintain errors and omissions liability coverages in commercially
prudent amounts, to cover any loss arising as a result of any real
or alleged negligence, errors or omissions on the part of
Purchaser's officers, agents or employees in any aspect of the
performance of services under this Agreement.
Section 10.02. Fidelity Bond. Purchaser shall maintain
fidelity bond coverage in commercially prudent amounts to cover
any loss due to the misdeeds of Purchaser's officers, employees or
agents.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Headings, Schedules and Exhibits.
Headings used herein are not a part of this Agreement and shall
not affect the terms hereof. The attached Schedules and Exhibits
are a part of this Agreement.
Section 11.02. Notices. Any notice required or
permitted hereunder shall be in writing and shall be delivered
personally (by courier or otherwise), telegraphed, telexed, sent
by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent
by facsimile transmission or, if mailed, three days after the date
of deposit in the United States mails, as follows:
(a) If to Purchaser to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(b) If to Seller to:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
Any party may, by notice given in accordance with this
Agreement to the other parties, designate another address or
person for receipt of notices hereunder.
Section 11.03. Amendments. This Agreement cannot be
modified, changed, discharged or terminated, except by an
instrument in writing signed by an authorized officer of each of
the parties hereto.
Section 11.04. Execution in Counterpart. This
Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than all,
but together signed by all of the parties hereto.
Section 11.05. Limited Authority. Seller and Purchaser
are not partners or joint venturers, and no employee or agent of
either party shall be considered an employee or agent of the
other. Purchaser's authority shall be limited to that which is
expressly stated in this Agreement.
Section 11.06. Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either party (in whole or in part) without the
prior written consent of the other party hereto, which consent
shall not be unreasonably withheld provided, however, that
Purchaser may not assign this Agreement or such rights so long as
it is the reinsurer under the Indemnity Reinsurance Agreement.
Section 11.07. No Third Party Beneficiaries. Except as
otherwise specifically provided for herein, nothing in this
Agreement is intended or shall be construed to give any person,
other than the parties hereto, their successors and permitted
assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 11.08. Subcontracting. Purchaser may not
subcontract for the performance of any services that Purchaser is
to provide hereunder, except as permitted in writing by Seller,
which consent shall not be unreasonably withheld. Notwithstanding
the foregoing sentence, Purchaser shall be permitted to
subcontract for the performance of any of such services with (i)
any Person that is performing such services as a subcontractor for
Seller as of the date hereof, without obtaining the consent of
Seller so long as Purchaser notifies Seller of such subcontract on
or prior to the effective date thereof or (ii) any Person that is
performing such services as a subcontractor for Purchaser with
respect to all or substantially all of Purchaser's insurance
business that is similar to the insurance business to be
administered hereunder.
Section 11.09. Change in Status. Purchaser shall
notify Seller immediately of any "change of control" filing, the
adoption of any plan to liquidate, merge or dissolve Purchaser, or
of any proceeding or lawsuit which affects Purchaser's ability to
perform this Agreement, including, but not limited to, insolvency
or rehabilitation proceedings.
Section 11.10. Survival. The provisions of Articles
VII and IX hereof shall survive the termination of this Agreement.
Section 11.11. Further Assurances. Each of the parties
hereto shall execute such documents and other papers and perform
such further acts as may be reasonably required to carry out the
provisions of this Agreement. Without limiting the generality of
the foregoing, Seller shall (a) execute all documents necessary to
grant Purchaser the disbursement payment authority contemplated by
Section 3.03 of this Agreement, (b) subject to Section 3.01, make
any Seller regulatory filings or broker appointments that
Purchaser is required to make on behalf of Seller hereunder and
(c) grant any licenses to Purchaser with respect to any logos,
trademarks, service marks or copyrights necessary for Purchaser to
comply with the terms of this Agreement.
Section 11.12. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives
as of the date first above written.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
<PAGE>
SCHEDULE 1.01
Seller Separate Accounts
<PAGE> SCHEDULE 2.01
Administrative Services
o Disbursements, including but not limited to payment of
benefits, claim investigation, adjustment, resisting and
defense of claims, policy loans, premium refunds,
withdrawals, and surrenders
o Statistical information
o Billing and premium collection
o Policy lapses, expiries, and nonforfeitures
o Reinstatements
o Legally required accounting and actuarial information in
order to meet statutory, tax and GAAP requirements
o Preparation and filing of insurance forms and amendments,
including rate authorization filings, if applicable
o Underwriting and new business administration
o Commission processing
o Electronic data processing services
o Licensing of agents
o Preparation and filing of any tax information returns as may
be required under federal and state laws
o Completion of any annual, quarterly or monthly statement
exhibits
o Direct response to any insurance department or other
regulatory inquiries with copies to Seller as are necessary
to enable Seller to meet its compliance responsibilities
o Any DAC computations (whether or not related to Settlement
Agreements)
o Preparation of all reports required to be filed under federal
and state securities laws, including but not limited to the
annual and semiannual reports to contractholders,
confirmation of all contract customer transactions, proxy
material, including all mailings to contractholders, annual
reports on Form N-SAR, registration of units under Rule 24f-2
of the Investment Company Act of 1940, applications and
prospectuses.
o Reinsurance Administration
o Broker Dealer administrative activities (e.g. trading)
o Licensing and appointment of agents
o Contracting with and oversight of outside investment managers
o Compliance with IRC, SEC and other regulators with respect to
the registered products
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
by and between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
and
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Dated as of __________, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - BUSINESS REINSURED . . . . . . . . . . . . . . . . .5
ARTICLE III - TERMINATION AND RECAPTURE . . . . . . . . . . . . .5
Section 3.01. Termination. . . . . . . . . . . . . . . . . .5
Section 3.02. Recapture. . . . . . . . . . . . . . . . . . .5
ARTICLE IV - TERRITORY . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE V - CHANGES; CREDITING RATES . . . . . . . . . . . . . . .7
Section 5.01. Contract Changes or Reserve
Assumption Changes . . . . . . . . . . . . . .7
Section 5.02. Non-Guaranteed Elements. . . . . . . . . . . .8
ARTICLE VI
TRANSFER OF ASSETS; CONTRACT LOANS; CEDING COMMISSION. . . .. .8
Section 6.01. Asset Transfer.. . . . . . . . . . . . . . . .8
Section 6.02. Contract Loans . . . . . . . . . . . . . . . .8
Section 6.03. Ceding Commission. . . . . . . . . . . . . . .9
ARTICLE VII - INSOLVENCY . . . . . . . . . . . . . . . . . . . . .9
ARTICLE VIII - OFFSETS . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE IX - RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES .10
ARTICLE X - ERRORS AND OMISSIONS . . . . . . . . . . . . . . . . 10
ARTICLE XI - DUTY OF COOPERATION . . . . . . . . . . . . . . . . 10
Section 11.01. Cooperation Generally. . . . . . . . . . . . 10
Section 11.02. Product Tax Cooperation. . . . . . . . . . . 10
ARTICLE XII - DEFERRED ACQUISITION COSTS . . . . . . . . . . . . 11
Section 12.01. Section 848 Election . . . . . . . . . . . . 11
Section 12.02. DAC Adjustment . . . . . . . . . . . . . . . 11
ARTICLE XIII - ARBITRATION . . . . . . . . . . . . . . . . . . . 13
ARTICLE XIV - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . 13
Section 14.01. Notices. . . . . . . . . . . . . . . . . . . 13
Section 14.02. Amendment. . . . . . . . . . . . . . . . . . 14
Section 14.03. Counterparts . . . . . . . . . . . . . . . . 14
Section 14.04. No Third Party Beneficiaries . . . . . . . . 14
Section 14.05. Assignment . . . . . . . . . . . . . . . . . 15
Section 14.06. Governing Law. . . . . . . . . . . . . . . . 15
Section 14.07. Credit for Ceded Reinsurance . . . . . . . . 15
Section 14.08. Entire Agreement . . . . . . . . . . . . . . 15
Section 14.09. No Reinsurance Intermediary. . . . . . . . . 15
SCHEDULE 1.01. . . . . . . . . . . . . . . . . . In-Force Contracts
SCHEDULE 1.02. . . . . . . . . . . . . . . . Post-Closing Contracts
SCHEDULE 1.03. . . . . . . . . . . . . . . Cedent Separate Accounts
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
This INDEMNITY REINSURANCE AGREEMENT (this "Agreement"),
dated as of ___________, 1997, is made by and between Connecticut
General Life Insurance Company, a Connecticut domiciled stock life
insurance company ("Cedent"), and Lincoln Life & Annuity Company
of New York, a New York domiciled stock life insurance company
("Reinsurer") and a wholly owned subsidiary of The Lincoln
National Life Insurance Company, an Indiana domiciled stock life
insurance company.
WHEREAS, Cedent has agreed to cede and transfer to
Reinsurer the Coinsured Contracts (as defined below) for the
consideration specified herein and Reinsurer has agreed to
reinsure the General Account Liabilities (as defined below) of
Cedent under the Coinsured Contracts on the terms and conditions
set forth herein.
NOW THEREFORE, in consideration of the mutual covenants
and promises contained herein and upon the terms and conditions
set forth herein, the parties hereto agree as follows:
ARTICLE II
DEFINITIONS
The following terms shall have the respective meanings
set forth below throughout the Agreement:
"Acquisition Agreement" means the Second Amended and
Restated Asset Transfer and Acquisition Agreement entered into by
and among CIGNA, Connecticut General Corporation, Cedent, CIGNA
Life Insurance Company, Lincoln National Corporation, The Lincoln
National Life Insurance Company and Reinsurer dated as of July 27,
1997.
"Affiliate" means, with respect to any Person, at the
time in question, any other Person controlling, controlled by or
under common control with such Person.
"Agreement" means this Indemnity Reinsurance Agreement.
"Annual Rate" means the value of r in the expression (l
+ r)n/365 -1, where "n" is equal to the number of days for which
interest is to be computed and the result of the expression is the
interest factor for computing the applicable interest amounts.
"Cash Equivalents" means, as of any particular date,
money market funds, marketable obligations issued or guaranteed by
the United States Government, certificates of deposit, bankers'
acceptances and other similar liquid investments, in each case,
with a maturity date of not more than 90 days from the date on
which any such instrument is transferred pursuant to the terms of
this Agreement, the market value of which on the date of transfer
will be counted as equivalent to cash for purposes of satisfying
the aggregate amount of cash and Cash Equivalents required to be
transferred as described in Article III hereof.
"Cedent" shall have the meaning set forth in the
introductory paragraph hereof.
"Cedent Separate Account Liabilities" means those
insurance liabilities that are reflected in the Cedent Separate
Accounts and that relate to the Coinsured Contracts.
"Cedent Separate Accounts" means the separate accounts
of Cedent described on Schedule 1.03 hereto.
"Ceding Commission" means $________.
"CIGNA" means CIGNA Corporation, a Delaware corporation.
"Code" means the Internal Revenue Code of 1986, as
amended. Any citation to a section of the Code includes a
citation to any successor statutory provision.
"Coinsured Contracts" means (i) the In-Force Contracts,
and (ii) the Post-Closing Contracts.
"COLI Business" shall have the meaning as set forth in
the Acquisition Agreement.
"Connecticut SAP" means the statutory accounting
principles and practices prescribed or permitted by the Insurance
Department of the State of Connecticut as applied on a basis
consistent with those utilized in the preparation of 1996 Annual
Statements of Cedent submitted to the Insurance Department of the
State of Connecticut.
"Contractholder" shall mean the holder of any Coinsured
Contract.
"DAC Adjustment" shall have the meaning set forth in
Section 12.02(a) hereof.
"Effective Date" shall have the meaning set forth in
Article II hereof.
"Extra Contractual Obligations" means all liabilities
for compensatory, consequential, exemplary, punitive or similar
damages which relate to or arise in connection with any alleged or
actual act, error or omission by Cedent or any of its Affiliates
prior to the Effective Date hereof, whether intentional or
otherwise, or from any reckless conduct or bad faith by Cedent or
any of its Affiliates prior to the Effective Date hereof, or in
connection with any such alleged or actual act, error or omission
on and after the Effective Date hereof by the Reinsurer or any of
its Affiliates acting on behalf of Cedent or any of its Affiliates
pursuant to this Agreement or otherwise, in each case whether in
connection with the handling of any claim under any of the
Coinsured Contracts or in connection with the issuance, delivery,
cancellation or administration of any of the Coinsured Contracts;
provided, that no Section 10.04 Seller Obligation, as such term is
defined in the Acquisition Agreement, shall be deemed to be an
Extra Contractual Obligation.
"Final Recapture Statement" shall have the meaning set
forth in Section 3.02(d) hereof.
"General Account Liabilities" means all general account
insurance liabilities and obligations arising under the Coinsured
Contracts, including, without limitation (i) the General Account
Reserves, (ii) the amounts included in lines 12, 12a, 19, and 25
of the Liabilities, Surplus and Other Funds page of the NAIC
Annual Statement Blank (1996 format), (iii) any Extra Contractual
Obligations, (iv) liabilities and obligations associated with
Cedent's separate account SA-8T, (v) premium taxes due in respect
of premiums, deposits and other consideration paid on or after the
Effective Date with respect to the Coinsured Contracts and (vi)
guaranty fund or other premium based assessments due based on such
premiums, deposits and other consideration, net of any premium tax
credits of Cedent arising out of any such assessments, but
excluding (x) the Cedent Separate Account Liabilities, and (y) any
general account liabilities which relate to (A) amounts
transferred from the Cedent Separate Accounts to the general
account of Cedent pending distribution to holders of the Coinsured
Contracts and (B) amounts held in the general account of Cedent
pending transfer to the Cedent Separate Accounts.
"General Account Other Insurance Assets" means all
general account other admitted insurance assets of Cedent arising
under the Coinsured Contracts determined pursuant to Connecticut
SAP as such amounts would have been included in lines 12.1, 12.2,
12.3, 15, 16 and 17 of the Assets page of the NAIC Annual
Statement Blank (1996 format).
"General Account Reserves" means the general account
statutory reserves of Cedent (without regard to this Agreement)
with respect to the Coinsured Contracts determined pursuant to
Connecticut SAP, as such reserves would have been included in
lines 1, 2, 3, 4.1, 4.2, 5, 6, 7.1, 7.2, 7.3, 8, 9, 10.1, 10.2,
10.3, 11.1, 11.2, 11.3 and 11.4 of the Liabilities, Surplus and
Other Funds page of the NAIC Annual Statement Blank (1996 format),
excluding however, any general account statutory reserve
adjustments in relation to Cedent Separate Account Liabilities.
"In-Force Contracts" means all individual life insurance
(other than contracts included in the COLI Business), health
insurance and annuity contracts owned by residents of the State of
New York and issued through CIGNA's Individual Insurance Division
by Cedent on the forms described on Schedule 1.01 hereto and in
effect on the Effective Date (including all supplements,
endorsements, riders and ancillary agreements in connection
therewith).
"Income Tax Regulations" means the temporary and final
regulations issued under the Code. Any citation to a section of
the Income Tax Regulations includes a citation to any successor
regulatory provision.
"NAIC" means the National Association of Insurance
Commissioners.
"90-Day Treasury Rate" means the annual yield rate, on
the date to which 90-Day Treasury Rate relates, of actively traded
U.S. Treasury securities having a remaining duration to maturity
of three months, as such rate is published under "Treasury
Constant Maturities" in Federal Reserve Statistical Release
H.15(519).
"Outward Reinsurance" shall have the meaning set forth
in Article II hereof.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit, division or other entity.
"Post-Closing Contracts" means all individual life
insurance (other than contracts included within the COLI
Business), health insurance and annuity contracts of the types
which are described on Schedule 1.02 hereto (including all
supplements, endorsement, riders and ancillary agreements in
connection therewith) that are delivered or issued for delivery to
a resident of the State of New York through CIGNA's Individual
Insurance Division by Cedent prior to the second anniversary of
the Effective Date at the written request of Reinsurer in
accordance with Section 5.34 of the Acquisition Agreement..
"Post-Recapture Extra Contractual Obligations" means
Extra Contractual Obligations which relate to or arise in
connection with any alleged or actual act, error or omission by
Reinsurer or any of its Affiliates (including by Reinsurer or its
Affiliates acting on behalf of Cedent or any of its Affiliates
pursuant to this Agreement or otherwise) on or before the
Recapture Date, whether intentional or otherwise, or from any
reckless conduct or bad faith by Reinsurer or any of its
Affiliates (including by Reinsurer or its Affiliates acting on
behalf of Cedent or any of its Affiliates pursuant to this
Agreement or otherwise), in connection with the handling of any
claim under any of the Coinsured Contracts or in connection with
the issuance, delivery, cancellation or administration of any of
the Coinsured Contracts.
"Preliminary Recapture Statement" shall have the meaning
set forth in Section 3.02(b) hereof.
"Proposed Recapture Statement" shall have the meaning
set forth in Section 3.02(d) hereof.
"Recapture Date" shall have the meaning set forth in
Section 3.02(a) hereof.
"Reinsurer" shall have the meaning set forth in the
introductory paragraph hereof.
"Third Party Actuary" shall have the meaning set forth
in Section 3.02(d) hereof.
"Trigger Date" means the last day of the time period
specified in Section 5.20(c) of the Acquisition Agreement in the
event that the Reinsurer is required to take any of the actions
specified in Sections 5.20(a)(i), (ii) and (iii) thereof during
such time period and fails to take any such actions.
"Umpire" shall have the meaning set forth in Article
XIII.
ARTICLE III
BUSINESS REINSURED
Upon the terms and subject to the conditions and other
provisions of this Agreement, effective as of 12:01 a.m., Eastern
Time, on __________, 1997 (the "Effective Date"), Cedent hereby
cedes to Reinsurer and Reinsurer hereby accepts and indemnity
reinsures, on a coinsurance basis, 100% of the General Account
Liabilities outstanding as of the Effective Date or arising
thereafter, net of reinsurance recoveries received by Cedent under
reinsurance cessions with respect to the Coinsured Contracts other
than pursuant to this Agreement ("Outward Reinsurance").
ARTICLE IV
TERMINATION AND RECAPTURE
Section 3.01. Termination. The reinsurance provided
under this Agreement shall terminate as to each Coinsured Contract
on any date as of which such Coinsured Contract is recaptured as
provided below in this Article III, but shall otherwise continue
indefinitely as to all Coinsured Contracts.
Section 3.02. Recapture. (a) If Reinsurer fails to
take one of the actions specified in clauses (i), (ii) and (iii)
of Section 5.20(a) of the Acquisition Agreement under the
circumstances described therein on or prior to the Trigger Date,
then Cedent shall have the right, upon 10 days' written notice to
Reinsurer, to recapture the Coinsured Contracts that have not
expired, effective as of the first day of the month following the
Trigger Date (the "Recapture Date"). In the event that the
Coinsured Contracts that have not expired are recaptured pursuant
to this Article III, a net accounting and settlement with respect
to the General Account Liabilities relating to Coinsured Contracts
that have not expired shall be undertaken by the parties hereto
pursuant to the provisions set forth below in this Section 3.02.
(b) On the Recapture Date, Reinsurer will deliver to
Cedent a statement of the General Account Other Insurance Assets,
General Account Liabilities, the amount of the participating
surplus with respect to the Coinsured Contracts and the amount of
any contract loans under the Coinsured Contracts that have not
expired, each as of the end of the second month preceding the
month in which the Recapture Date falls (the "Preliminary
Recapture Statement"), together with a certification of the chief
financial officer of Reinsurer that (i) the Preliminary Recapture
Statement was prepared in accordance with Connecticut SAP, and
(ii) the General Account Reserves set forth therein (A) were
determined in accordance with generally accepted actuarial
standards consistently applied, (B) were fairly stated in
accordance with sound actuarial principles, (C) were based on
actuarial assumptions that were appropriate for Cedent's
obligations under the related Coinsured Contracts, and (D) met the
requirements of Connecticut SAP.
(c) On the Recapture Date, Reinsurer shall transfer to
Cedent (i) invested assets, cash and Cash Equivalents having an
aggregate value sufficient to satisfy the obligations represented
by the General Account Liabilities plus the amount of the
participating surplus with respect to the Coinsured Contracts less
the amount of any contract loans under the Coinsured Contracts
that have not expired and less the amount of General Account Other
Insurance Assets and (ii) the General Account Other Insurance
Assets, each as determined by Reinsurer and set forth on the
Preliminary Recapture Statement. Cash shall be transferred by
Reinsurer to Cedent by wire transfer of immediately available
funds in U.S. Dollars. Invested assets and Cash Equivalents shall
be transferred by such instruments of transfer as are reasonably
acceptable to Cedent. Invested assets transferred pursuant to
this Section 3.02(c) shall be valued at their market value as of
the Recapture Date. As specified in Section 6.02 hereof, Cedent
shall, from and after the Recapture Date, be entitled to receive
and retain all contract loan repayments under the Coinsured
Contracts that have not expired. Recapture shall be deemed to
occur upon the receipt by Cedent of such invested assets, cash and
Cash Equivalents and such General Account Other Insurance Assets,
free of all liens or other encumbrances.
(d) Reinsurer shall, on or before the date that is 30
days after the Recapture Date, prepare a statement of the General
Account Other Insurance Assets, General Account Liabilities, the
amount of the participating surplus with respect to the Coinsured
Contracts and the amount of any contract loans under the Coinsured
Contracts that have not expired, each as of the close of business
on the last day of the month preceding the month in which the
Recapture Date falls (the "Proposed Recapture Statement"),
together with a certification of the chief financial officer of
Reinsurer to the same effect with respect to the Proposed
Recapture Statement as of the date thereof as the certification
provided by such officer with respect to the Preliminary Recapture
Statement as of the date thereof pursuant to Section 3.02(b).
Promptly after its preparation, Reinsurer shall deliver copies of
the Proposed Recapture Statement to Cedent. Cedent shall have the
right to review the Proposed Recapture Statement and comment
thereon for a period of 45 days after receipt thereof. Reinsurer
agrees that Cedent and its accountants and other agents may have
access to the accounting records of Reinsurer relating to its
preparation of the Proposed Recapture Statement for the purpose of
conducting its review. Any changes in the Proposed Recapture
Statement that are agreed to by Reinsurer and Cedent within 45
days of the aforementioned delivery of such statement by Reinsurer
shall be incorporated into a final recapture statement as of the
close of business on the last day of the month preceding the month
in which the Recapture Date falls (the "Final Recapture
Statement"). In the event that Reinsurer and Cedent are unable to
agree within such 45-day period on the manner in which any item or
items should be treated in the preparation of the Final Recapture
Statement, or upon (i) the amount of invested assets, cash and
Cash Equivalents that is sufficient to satisfy the obligations
represented by the General Account Liabilities plus the amount of
participating surplus with respect to the Coinsured Contracts less
the amount of any contract loans under the Coinsured Contracts
that have not expired and less the amount of General Account Other
Insurance Assets or (ii) the amount of the General Account Other
Insurance Assets, separate written reports of such item or items
shall be made in concise form and shall be referred to a
nationally-known firm of independent actuaries selected by Cedent
and approved by the Reinsurer, which approval shall not
unreasonably be withheld (the "Third Party Actuary"). The Third
Party Actuary shall determine within 14 days the manner in which
such item or items shall be treated on the Final Recapture
Statement; provided, however, that the dollar amount of each item
in dispute shall be determined between the range of dollar amounts
proposed by Cedent and Reinsurer, respectively; further provided,
however, that in no event shall the amount of invested assets,
cash and Cash Equivalents that is deemed to be sufficient to
satisfy the obligations represented by the General Account
Liabilities less the amount of any contract loans under the
Coinsured Contracts that have not expired be less than the amount
of the General Account Liabilities less the amount of any such
contract loans. The determinations by the Third Party Actuary as
to the items in dispute shall be in writing and shall be binding
and conclusive on the parties and shall be so reflected in the
Final Recapture Statement. The fees, costs and expenses of
retaining the Third Party Actuary shall be shared equally between
the parties. Such determination shall be binding and conclusive
on the parties. Following the resolution of all disputed items,
Reinsurer shall prepare the Final Recapture Statement and shall
deliver copies of such statement to Cedent.
(e) In the event the aggregate amount of invested
assets, cash and Cash Equivalents and General Account Other
Insurance Assets reflected on the Preliminary Recapture Statement
and transferred to the Cedent on the Recapture Date is less than
an amount equal to the General Account Liabilities plus the amount
of participating surplus with respect to the Coinsured Contracts
less the amount of any contract loans under the Coinsured
Contracts that have not expired less the amount of General Account
Other Insurance Assets, each as reflected on the Final Recapture
Statement, Reinsurer shall transfer to Cedent additional cash or
Cash Equivalents equal to the amount of such difference, together
with interest thereon from and including the Recapture Date to but
not including the date of such transfer computed at an Annual Rate
equal to the 90-Day Treasury Rate in effect as of the Recapture
Date. In the event the aggregate amount of invested assets, cash
and Cash Equivalents, and General Account Other Insurance Assets
reflected on the Preliminary Recapture Statement and transferred
to Cedent on the Recapture Date is more than an amount equal to
the General Account Liabilities plus the amount of participating
surplus with respect to the Coinsured Contracts less the amount of
any contract loans under the Coinsured Contracts that have not
expired less the amount of General Account Other Insurance Assets,
each as reflected on the Final Recapture Statement, Cedent shall
transfer to Reinsurer cash or Cash Equivalents in the amount of
such difference, together with interest thereon computed at an
Annual Rate as specified above from and including the Recapture
Date to but not including the date of such transfer.
(f) If at any time after the Recapture Date Cedent or
any of its Affiliates is required to make any payment in respect
of any Post Recapture Extra Contractual Obligations, Reinsurer
will, promptly upon Cedent's demand therefor, pay the amount
thereof to Cedent.
ARTICLE IV
TERRITORY
This Agreement shall apply to Coinsured Contracts
covering lives and risks wherever resident or situated.
ARTICLE V
CHANGES; CREDITING RATES
Section 5.01. Contract Changes or Reserve Assumption
Changes. Cedent, on its own initiative, shall not change (a) the
terms and conditions of any Coinsured Contracts or (b) the
assumptions and methods used by Cedent to establish the General
Account Reserves. Reinsurer shall share proportionately, on a
100% coinsurance basis, in any changes in the terms or conditions
of any Coinsured Contracts or changes in the assumptions and
methods used to establish the General Account Reserves, whether
effected by Reinsurer or its Affiliates acting pursuant to this
Agreement or otherwise or by reason of the requirements of any
regulatory authority having jurisdiction over Cedent or otherwise
required by law or by Connecticut SAP, provided that prior to
effectuating any such change Cedent shall promptly notify
Reinsurer of such proposed change.
Section 5.02. Non-Guaranteed Elements. Cedent shall
set all non-guaranteed elements of the Coinsured Contracts from
and after the Effective Date, taking into account the
recommendations of Reinsurer with respect thereto.
ARTICLE VI
TRANSFER OF ASSETS; CONTRACT LOANS; CEDING COMMISSION
Section 6.01. Asset Transfer. As consideration for the
indemnity reinsurance of the General Account Liabilities by
Reinsurer hereunder, Cedent hereby agrees to transfer to Reinsurer
in accordance with the terms of the Acquisition Agreement (i)
investment assets having a statutory statement carrying value on
the books of Cedent equal to (a) the General Account Liabilities
as of the close of business on the last day of the month preceding
the month in which the Effective Date falls plus (b) the amount of
the participating surplus with respect to the Coinsured Contracts
as of such date less (c) the amount of any contract loans under
the Coinsured Contracts as of such date and less (d) the amount of
the General Account Other Insurance Assets as of such date and
(ii) the General Account Other Insurance Assets as of the close of
business on the last day of the month preceding the month in which
the Effective Date falls. As additional consideration for the
assumption of the General Account Liabilities by Reinsurer,
Reinsurer shall be entitled to 100% of all premiums, deposits and
other considerations to the extent received on or after the
Effective Date by Cedent or Reinsurer with respect to the general
account portion of the Coinsured Contracts net of reinsurance
premiums and all other amounts payable on or after the Effective
Date with respect to the Outward Reinsurance. Cedent shall
promptly remit to Reinsurer (but in no event later than 72 hours
following the receipt of any such premiums, deposits and other
considerations) any such amounts received by it in respect of any
of the Coinsured Contracts and hereby assigns to Reinsurer all of
its rights to such premiums, deposits and other considerations
payable to Cedent.
Section 6.02. Contract Loans. (a) As further
consideration for the indemnity reinsurance of the General Account
Liabilities hereunder, Reinsurer shall, subject to the provisions
of this Section 6.02, be entitled to all contract loan repayments
(including both principal and interest) under the Coinsured
Contracts.
(b) Cedent shall, from and after the Recapture Date,
have the right to retain or otherwise receive all contract loan
repayments under the Coinsured Contracts.
Section 6.03. Ceding Commission. As consideration for
the reinsurance ceded by Cedent to Reinsurer of the Coinsured
Contracts and the acquisition by Reinsurer of rights in respect of
such Coinsured Contracts, Reinsurer shall pay Cedent the Ceding
Commission as of the Effective Date by including such amount in
the Purchase Price (as defined in the Acquisition Agreement)
payable by Reinsurer on the Closing Date under the Acquisition
Agreement. Reinsurer shall provide Cedent its allocation of the
Ceding Commission among the life insurance and non-cancelable
disability insurance, other health insurance, and annuity
contracts included in the Coinsured Contracts.
ARTICLE VII
INSOLVENCY
Reinsurer hereby agrees that, as to all reinsurance made,
ceded, renewed or otherwise becoming effective hereunder, the
reinsurance shall be payable by Reinsurer on the basis of the
liability of Cedent under the Coinsured Contracts reinsured on an
indemnity basis, directly to Cedent or to its conservator,
liquidator, receiver or other statutory successor without
diminution because of (i) the insolvency, liquidation or
rehabilitation of Cedent, (ii) the appointment of a conservator,
receiver, liquidator or statutory successor of Cedent, or (iii)
the failure of the conservator, receiver, liquidator or statutory
successor of Cedent to pay all or a portion of any claim. It is
agreed that any conservator, receiver, liquidator or statutory
successor of Cedent shall give prompt written notice to Reinsurer
of the pendency or submission of a claim under any such Coinsured
Contracts within a reasonable time after such claim is filed in
the receivership, conservation, insolvency or liquidation
proceeding. During the pendency of such claim, Reinsurer may
investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated, any defense
available to Cedent or its conservator, receiver, liquidator or
statutory successor except where: (i) the Coinsured Contract
specifies another payee of such reinsurance in the event of the
insolvency of Cedent and (ii) Reinsurer, with the consent of the
direct insureds has assumed such policy obligations of Cedent as
its direct obligations to the payees under such Coinsured
Contracts, in substitution for the obligations of Cedent to such
payees. The expense thus incurred by Reinsurer is chargeable
against Cedent, subject to the approval of the court, as a part of
the expense of insolvency, liquidation or rehabilitation to the
extent of a proportionate share of the benefit which accrues to
Cedent solely as a result of the defense undertaken by Reinsurer.
ARTICLE VIII
OFFSETS
Any debts or credits between Cedent and Reinsurer arising
under this Agreement are deemed mutual debts or credits, as the
case may be, and shall be netted or set off, as the case may be,
and only the balance shall be allowed or paid hereunder.
ARTICLE IX
RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES
Reinsurer's reinsurance of the General Account Liabilities
is intended for the sole benefit of the parties to this Agreement
and shall not create any right on the part of any other party,
including, without limit, any Contractholder, insured, claimant or
beneficiary, against Reinsurer or any legal relation between any
Contractholders, insureds, claimants or beneficiaries and
Reinsurer.
ARTICLE X
ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made by either
Cedent or Reinsurer in connection with this Agreement or any
transaction hereunder shall not relieve the other party from any
liability which would have attached to such party had such delay,
error or omission not occurred, provided that the party causing
such delay, error or omission rectifies the same as soon as
possible after its discovery thereof. If, as a result of any such
delay, error or omission, there is a delay in the transfer of
funds to be transferred pursuant hereto, the party responsible for
such delay, error or omission shall pay, to the party to whom such
funds are to be transferred, interest on the amount of funds to be
transferred from the date of such delay, error or omission to and
including the date of such transfer of funds at a rate equal to
the 90-Day Treasury Rate.
ARTICLE XI
DUTY OF COOPERATION
Section 11.01. Cooperation Generally. Each party hereto
shall cooperate fully with the other in all reasonable respects in
order to accomplish the objectives of this Agreement. The duty of
cooperation shall apply, but not be limited, to regulatory matters
and to litigation matters involving third parties.
Section 11.02. Product Tax Cooperation. Cedent shall, at
Reinsurer's written request and sole cost and expense, cooperate
fully with Reinsurer in obtaining such relief as Reinsurer shall
reasonably require (including obtaining a waiver from, or entering
into a settlement or closing agreement with, the Internal Revenue
Service or an affected policyholder) with respect to any non-compliance by
Cedent or Reinsurer with any product tax requirement or limitation
contained in the Code (including without limitation Sections 72, 101,
817, 7702 and 7702A of the Code) regarding any Coinsured Contract;
provided, however, that this Section 11.02 shall apply only if
Reinsurer's written request is not given prior to the last day of
the twentieth calendar month following the month in which the
Closing Date falls. Cedent shall permit Reinsurer to participate
in any discussions, negotiations or settlements with the Internal
Revenue Service or any affected policyholder pursuant to this
Section 11.02 and, to the extent Cedent is not adversely affected
by such actions, to control such discussions, negotiations or settlements.
ARTICLE XII
DEFERRED ACQUISITION COSTS
Section 12.01. Section 848 Election. (a) Each of Cedent
and Reinsurer acknowledges that it is subject to taxation under
Subchapter L of the Code and hereby makes the election
contemplated by Section 1.848-2(g)(8) of the Income Tax
Regulations with respect to this Agreement. Each of Cedent and
Reinsurer (i) agrees that such election is effective for the
taxable year of each party that includes the Effective Date and
for all subsequent years during which this Agreement remains in
effect and (ii) warrants that it will take no action to revoke the
election.
(b) Pursuant to Section 1.848-2(g)(8) of the Income Tax
Regulations, each of Cedent and Reinsurer hereby agrees (i) to
attach a schedule to its federal income tax return for its first
taxable year ending on or after the Effective Date that identifies
this Agreement as a reinsurance agreement for which the joint
election under Section 1.848-2(g)(8) has been made, (ii) that the
party with net positive consideration, as defined in Section 848
of the Code and the Income Tax Regulations thereunder, for this
Agreement for each taxable year will capitalize its specified
policy acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of Section 848(c)(1)
of the Code, and (iii) to exchange information pertaining to the
amount of net consideration, as defined in Section 848 of the Code
and the Income Tax Regulations thereunder, under this Agreement
each year to ensure consistency. Reinsurer shall prepare and
execute duplicate copies of the schedule described in the
preceding sentence as soon as possible after the Effective Date
and submit them to Cedent for execution. Cedent shall execute the
copies and return one of them to Reinsurer within 30 days of
Cedent's receipt of such copies.
Section 12.02. DAC Adjustment. (a) For purposes of
this Agreement, the term "DAC Adjustment" is calculated as
follows: First, for each taxable year with respect to each
category of Coinsured Contracts, "the gross amount incurred by the
reinsurer with respect to this Agreement" (as defined in Section
1.848-2(f)(2)(i)(A) of the Income Tax Regulations) for such
category (but not including any DAC Adjustment incurred in such
year) is multiplied by the applicable percentage set forth in
Section 848 (c)(1) of the Code for such category. The sum, if
any, from the preceding sentence is then reduced by the
amortization allowed Cedent under Section 848(a)(2) of the Code
for such category, but only with regard to amounts capitalized per
this Agreement under Section 1.848-2(f)(2)(i)(A). The result for
a category, whether positive or negative, is then multiplied by
the quotient of: tr/(1-(tr x (1+Y))), where tr = the maximum
applicable marginal corporate federal income tax rate (as defined
in Section 11(b)(1)(D) of the Code) for the taxable year, and Y =
the applicable percentage set forth in Section 848(c)(1) for such
category of Coinsured Contracts. The aggregate amount of such
calculations for all categories of Coinsured Contracts for a
taxable year (whether positive or negative) is the DAC Adjustment
for the year.
(b) Within 60 days of the end of Cedent's taxable year, Cedent
shall calculate the DAC Adjustment for the year and submit such
calculations to Reinsurer for review. If, within 30 days of
Reinsurer's receipt of such calculations, Reinsurer shall not have
objected in writing to such calculations, the calculations shall
become final. If, within 15 days of any objection in writing to
such calculations, Cedent and Reinsurer shall not have agreed in
writing to such calculations (in which case the calculations shall
become final), any disputed aspects of the calculations shall be
resolved by the Third Party Accountant (as defined in the
Acquisition Agreement) within 30 days of the submission of the
dispute to the Third Party Accountant by Cedent or Reinsurer. The
decision of the Third Party Accountant shall be final (and the
resulting calculations shall be final), and the costs, expenses,
and fees of the Third Party Accountant shall be borne equally by
Cedent and Reinsurer.
(c) If the amount of the DAC Adjustment for any taxable year of
Cedent is positive, Reinsurer shall pay such amount to Cedent
within 15 days of the date on which the calculations of the DAC
Adjustment become final. If the amount of the DAC adjustment for
any taxable year of Cedent negative, Cedent shall pay such amount
to Reinsurer within 15 days of the date on which the calculations
of the DAC Adjustment become final.
(d) Notwithstanding any other provision of this Section 12.02,
the term "gross amount incurred by the reinsurer with respect to
this Agreement" shall not include (i) all or any part of the
Ceding Commission or (ii) the consequences of any recapture of the
Coinsured Contracts pursuant to Section 3.02 hereof.
(e) In the event that Section 848 of the Code or the Income Tax
Regulations thereunder are amended after the date hereof and any
change is made to the amortization period under Section 848(a)(2),
the capitalization percentages in Section 848(c)(1), or the
definition of the term "gross amount incurred by the reinsurer
with respect to the reinsurance agreement" in Section 1.848-2(f)(2)(i)(A)
of the Income Tax Regulations, Cedent and Reinsurer
shall cooperate in good faith to modify the definition of the term
"DAC Adjustment" to reflect such change, consistent with the
principles and assumptions originally used in defining that term
in this Agreement.
ARTICLE XIII
ARBITRATION
Any dispute arising out of or relating to the
interpretation, performance or breach of this Agreement, including
the formation or validity hereof, shall be submitted for decision
to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at the
hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the
selection of the Umpire within 30 days of their appointment, then
each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two
candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing
procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall be
disinterested active or former officers of insurance or
reinsurance companies.
Within 30 days after notice of appointment of all
arbitrators, the panel shall meet and determine a schedule for the
conduct of the arbitration, including hearings. The panel shall
be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. The panel shall
determine where the arbitration shall take place. To the extent
and only to the extent that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision
considering the custom and practice of the applicable insurance
and reinsurance business. Insofar as the arbitration panel looks
to substantive law, the law of New York shall govern. The
decision of any two arbitrators when rendered in writing shall be
final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
The panel shall render its decision, which shall be in
writing and state the reasons therefor, within 60 days following
the termination of hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof. Each party
shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the
panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not
limited to interest (determined at the Panel's discretion) and
attorneys' fees, to the extent permitted by law.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
Section 14.01. Notices. Any notice required or permitted
hereunder shall be in writing and shall be delivered personally
(by courier or otherwise), telegraphed, telexed, sent by facsimile
transmission or sent by certified or registered mail, postage
prepaid and return receipt requested, or by express mail. Any
such notice shall be deemed given when so delivered personally,
telegraphed, telexed or sent by facsimile transmission or, if
mailed, three days after the date of deposit in the United States
mails, as follows:
(1) If to Reinsurer to:
Lincoln Life & Annuity Company of New York
120 Madison Street, Suite 1700
Syracuse, New York 13202
Attention: Philip L. Holstein
Telecopier No.: (315) 428-8419
With concurrent copies to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to Cedent to:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: 212-530-5219
Any party may, by notice given in accordance with this
Agreement to the other party, designate another address or person
for receipt of notices hereunder.
Section 14.02. Amendment. This Agreement may not be
modified, changed, discharged or terminated, except by an
instrument in writing signed by an authorized officer of each of
the parties hereto.
Section 14.03. Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but all
such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all,
of the parties hereto.
Section 14.04. No Third Party Beneficiaries. Nothing in
this Agreement is intended or shall be construed to give any
Person, other than the parties hereto, their successors and
permitted assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained
herein.
Section 14.05. Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either party (in whole or in part) without the
prior written consent of the other party hereto.
Section 14.06. Governing Law. SUBJECT TO ARTICLE XIII
HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 14.07. Credit for Ceded Reinsurance. Reinsurer
shall take at its own expense all actions, and maintain all
licenses, permits and authorizations, as are necessary in order
for Cedent to receive credit for reinsurance ceded hereunder as
reported in Cedent's financial statements.
Section 14.08. Entire Agreement. This Agreement, together
with the Acquisition Agreement and the other Ancillary Agreements
(as defined in the Acquisition Agreement), constitutes the entire
agreement between the parties relating to the indemnity
reinsurance of the Coinsured Contracts, and there are no other
agreements between the parties hereto, either existing or
contemplated, written or oral, relating thereto.
Section 14.09. No Reinsurance Intermediary. The parties
acknowledge that there is no reinsurance intermediary entitled to
a fee from either Cedent or Reinsurer by reason of acting as a
broker in soliciting, negotiating or procuring the making of this
Agreement or any binder for this Agreement.
IN WITNESS WHEREOF, Cedent and Reinsurer have executed this
Agreement as of the date first above written.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
Name:
Title:
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
By:
Name:
Title:
<PAGE>
SCHEDULE 1.01
In-Force Contracts
<PAGE> SCHEDULE 1.02
Post-Closing Contracts
<PAGE>
SCHEDULE 1.03
Cedent Separate Accounts
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
by and between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
and
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Dated as of _________, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
APPOINTMENT; STANDARDS; NOTIFICATION;COMMUNICATION
WITH CONTRACTHOLDERS. . . . . . . . . . . . . . . . . . . . . .3
Section 2.01. Appointment and Acceptance of Appointment. . . .3
Section 2.02. Standards. . . . . . . . . . . . . . . . . . . .4
Section 2.03. Notification of Intermediaries and Service
Providers; Communications with
Contractholders. . . . . . . . . . . . . . . . .4
ARTICLE III - ADMINISTRATIVE SERVICES . . . . . . . . . . . . . .5
Section 3.01. Administrative Services in General . . . . . . .5
Section 3.02. Collection Services. . . . . . . . . . . . . . .5
Section 3.03. Processing of Disbursements. . . . . . . . . . .5
Section 3.04. Payment of Disbursements . . . . . . . . . . . .6
Section 3.05. Denied Disbursements . . . . . . . . . . . . . .6
Section 3.06. Certain Actions by Seller. . . . . . . . . . . .7
Section 3.07. Compensation and Reimbursement for Seller. . . .8
ARTICLE IV - BOOKS AND RECORDS; REPORTS; CREDITING RATES . . . . .8
Section 4.01. Maintenance of Books and Records . . . . . . . .8
Section 4.02. Transaction Report . . . . . . . . . . . . . . .9
Section 4.03. Non-Guaranteed Elements. . . . . . . . . . . . .9
ARTICLE V - INABILITY TO PERFORM SERVICES; ERRORS . . . . . . . .9
Section 5.01. Inability to Perform Services. . . . . . . . . .9
Section 5.02. Errors . . . . . . . . . . . . . . . . . . . . .9
ARTICLE VI - REGULATORY MATTERS . . . . . . . . . . . . . . . . 10
Section 6.01. Responsibilities of LLANY. . . . . . . . . . . 10
ARTICLE VII - INDEMNIFICATION .. . . . . . . . . . . . . . . . . 10
Section 7.01. Indemnification. . . . . . . . . . . . . . . . 10
Section 7.02. Notice of Asserted Liability . . . . . . . . . 11
Section 7.03. Right to Contest Claims of Third Parties . . . 11
Section 7.04. Indemnification Payments . . . . . . . . . . . 12
ARTICLE VIII - DURATION; TERMINATION . . . . . . . . . . . . . . 12
Section 8.01. Duration . . . . . . . . . . . . . . . . . . . 12
Section 8.02. Termination. . . . . . . . . . . . . . . . . . 13
ARTICLE IX - ARBITRATION . . . . . . . . . . . . . . . . . . . . 13
ARTICLE X - INSURANCE . . . . . . . . . . . . . . . . . . . . . 15
Section 10.01. Liability Insurance . . . . . . . . . . . . . 15
Section 10.02. Fidelity Bond . . . . . . . . . . . . . . . . 15
ARTICLE XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 15
Section 11.01. Headings, Schedules and Exhibits. . . . . . . 15
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . 15
Section 11.03. Amendments. . . . . . . . . . . . . . . . . . 16
Section 11.04. Execution in Counterpart. . . . . . . . . . . 16
Section 11.05. Limited Authority . . . . . . . . . . . . . . 17
Section 11.06. Assignment. . . . . . . . . . . . . . . . . . 17
Section 11.07. No Third Party Beneficiaries. . . . . . . . . 17
Section 11.08. Subcontracting. . . . . . . . . . . . . . . . 17
Section 11.09. Change in Status. . . . . . . . . . . . . . . 17
Section 11.10. Survival. . . . . . . . . . . . . . . . . . . 17
Section 11.11. Further Assurances. . . . . . . . . . . . . . 17
Section 11.12. Governing Law.. . . . . . . . . . . . . . . . 18
SCHEDULE 1.01. . . . . . . . . . . . . . .Seller Separate Accounts
SCHEDULE 2.01. . . . . . . . . . . . . . . .Administrative Services
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this
"Agreement"), dated as of ________, 1997, is made by and between
Connecticut General Life Insurance Company, a Connecticut
domiciled stock life insurance company ("Seller"), and Lincoln
Life & Annuity Company of New York, a stock life insurance company
incorporated in New York ("LLANY"), and a wholly owned subsidiary
of The Lincoln National Life Insurance Company, an Indiana
domiciled stock life insurance company ("Lincoln Life").
WHEREAS, pursuant to an Indemnity Reinsurance Agreement
between Seller and LLANY that is being executed concurrently with
this Agreement (the "Indemnity Reinsurance Agreement"), LLANY has
agreed to indemnify Seller for 100% of the General Account
Liabilities, as defined in the Indemnity Reinsurance Agreement
(such General Account Liabilities being referred to herein as the
"General Account Liabilities"); and
WHEREAS, Seller wishes to appoint LLANY to provide all
administrative services with respect to the Coinsured Contracts
(as defined below) and LLANY desires to provide such
administrative services in consideration for Seller entering into
the Acquisition Agreement (as defined below) and the Indemnity
Reinsurance Agreement.
NOW THEREFORE, in consideration of the mutual covenants
and promises contained herein and upon the terms and conditions
set forth herein, the parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
(a) The following terms shall have the respective
meaning set forth below throughout the Agreement:
"Acquisition Agreement" means the Second Amended and
Restated Asset Transfer and Acquisition Agreement entered into by
and among CIGNA Corporation, Connecticut General Corporation,
Seller, CIGNA Life Insurance Company, Lincoln National
Corporation, Lincoln Life and LLANY dated as of July 27, 1997.
"Administrative Services" shall have the meaning set
forth in Section 2.01 hereof.
"Asserted Liability" shall have the meaning set forth in
Section 7.03 hereof.
"Business Day" means any day on which the unit value of
the Seller Separate Accounts is required to be calculated.
"Coinsured Contracts" shall have the meaning set forth
in the Indemnity Reinsurance Agreement (which term, for the
avoidance of doubt, includes policies and contracts owned by
residents of the State of New York that are funded by the Seller
Separate Accounts).
"Contractholder" means the holder of any Coinsured
Contract.
"Effective Date" means the Effective Date as defined in
the Indemnity Reinsurance Agreement.
"General Account Liabilities" shall have the meaning set
forth in the first recital hereof.
"Guaranty Fund Adjustment" shall have the meaning set
forth in Section 3.06(a) hereof.
"Indemnified Party" shall have the meaning set forth in
Section 7.02 hereof.
"Indemnifying Party" shall have the meaning set forth in
Section 7.02 hereof.
"Indemnity Reinsurance Agreement" shall have the meaning
set forth in the first recital hereof.
"Intermediary" means an individual or entity designated
by a Contractholder as its broker of record or as the individual
or entity that will act on such Contractholder's behalf, in some
or all respects, in connection with such Contractholder's
Coinsured Contract.
"Legally Required Seller Actions" shall have the meaning
set forth in Section 3.01 hereof.
"Lincoln Life" shall have the meaning set forth in the
introductory paragraph hereof.
"LLANY" shall have the meaning set forth in the
introductory paragraph hereof.
"LLANY Losses" shall have the meaning set forth in
Section 7.01 hereof.
"Outward Reinsurance" means reinsurance cessions by
Seller with respect to the Coinsured Contracts, other than
pursuant to the Indemnity Reinsurance Agreement.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit, division or other entity.
"Post Closing Assessments" shall have the meaning set
forth in Section 3.06(a) hereof.
"Premium Tax Credits" shall have the meaning set forth
in Section 3.06(a) hereof.
"Seller" shall have the meaning set forth in the
introductory paragraph hereof.
"Seller Losses" shall have the meaning set forth in
Section 7.01 hereof.
"Seller Separate Accounts" means the separate accounts
of Seller described on Schedule 1.01 hereto.
"Service Provider" means an individual or entity, other
than an Intermediary, Seller or LLANY, that provides services to
holders of Coinsured Contracts with respect to the Coinsured
Contracts.
"Third Party Claimant" shall have the meaning set forth
in Section 7.03 hereof.
"Transition Services Agreement" shall have the meaning
set forth in the Acquisition Agreement.
"Umpire" shall have the meaning set forth in Article IX.
ii. Capitalized terms used and not otherwise defined
herein shall have the respective meanings set forth in the
Acquisition Agreement.
ARTICLE II
APPOINTMENT; STANDARDS; NOTIFICATION;
COMMUNICATION WITH CONTRACTHOLDERS
Section 2.01 Appointment and Acceptance of Appointment.
Seller hereby appoints LLANY to provide, with respect to the
Coinsured Contracts, the administrative services specified herein
and in Schedule 2.01 hereto (collectively, the "Administrative
Services") for the period specified in Section 8.01 of this
Agreement, and LLANY hereby accepts such appointment and agrees to
provide such services on behalf of and in the name of Seller.
LLANY acknowledges that the performance of LLANY under this
Agreement with respect to the business and operations of Seller
shall at all times be subject to the direction, control and
ultimate authority of Seller. LLANY agrees to obtain and maintain
any and all licenses required to perform its obligations under
this Agreement
Section 2.02 Standards. LLANY acknowledges that the
performance of the Administrative Services in an accurate and
timely manner is of paramount importance to Seller. LLANY agrees
to perform the Administrative Services with the skill, diligence
and expertise commonly expected from experienced and qualified
personnel performing such duties and in accordance with such
additional standards as may be adopted by Seller and communicated
to LLANY, including industry standards and applicable law.
Notwithstanding the foregoing obligations, in
recognition of the fact that LLANY is taking over the
administrative procedures used prior to the Effective Date by
Seller, LLANY shall not be obligated by this Agreement or any
schedule hereto to perform during the first 18 months after the
Effective Date the services required by this Agreement in a manner
different from the manner in which such services are being
provided by Seller immediately prior to the Effective Date;
provided, however, that after the Effective Date, LLANY shall make
any changes required by changes in law (or the interpretation
thereof) subsequent to the Effective Date and any changes required
by changes in industry standards.
Section 2.03 Notification of Intermediaries and Service
Providers; Communications with Contractholders. LLANY agrees to
send to (i) holders of the Coinsured Contracts, (ii)
Intermediaries, and (iii) Service Providers, a written notice
prepared by Seller and reasonably acceptable to LLANY to the
effect that LLANY has been appointed by Seller to provide the
Administrative Services. LLANY shall send such notice promptly
after receipt thereof, but in no event more than 30 Business Days
thereafter, by first class U.S. mail. In providing services under
this Agreement, LLANY agrees that any and all correspondence with
Seller's Contractholders and beneficiaries will (a) show the name,
address and telephone number of Seller, (b) disclose in the
letterhead of such correspondence that LLANY is acting as the
administrative agent of Seller in connection with the Coinsured
Contracts and (c) confirm that Seller remains as their insurer and
is responsible for the payment of all benefits under the Coinsured
Contracts. LLANY also agrees to instruct Seller's Contractholders
to remit premium payments and deposits to LLANY, as administrative
agent of Seller, in the form of checks payable to Seller. LLANY
further agrees that, to the extent it instructs Seller's
Contractholders and/or beneficiaries to correspond with LLANY,
they will be instructed to correspond with LLANY as administrative
agent of Seller. LLANY further agrees that if any of its
employees who have direct contact with Seller's Contractholders
and beneficiaries perform such services from a location outside
the State of New York, LLANY will establish and maintain a toll-free 800
telephone number for use by Seller's Contractholders and
beneficiaries, which shall be answered in the name of LLANY or
Seller or in a generic manner.
ARTICLE III
ADMINISTRATIVE SERVICES
Section 3.01 Administrative Services in General. LLANY
agrees to perform all administrative services required to be
performed with respect to the Coinsured Contracts, and is
authorized to do so in the name or on behalf of Seller where
appropriate, including, without limitation those specifically
provided for in Sections 3.02 through 3.05 and elsewhere in this
Agreement, but subject to Section 3.06 and the next following
paragraph.
Subject to the provisions of this Agreement relating to
the retention and the right to exercise ultimate control by the
Seller, the intention of the parties is that LLANY will perform
all such administrative services in such a way as to minimize the
involvement of Seller and its Affiliates therein, subject to
(a) Section 3.06 and (b) any requirements of law or governmental
authorities having jurisdiction that require that specific
actions, other than those provided for in Section 3.06, be taken
by Seller without LLANY acting on its behalf ("Legally Required
Seller Actions"). LLANY will give Seller timely notice of any
Legally Required Seller Actions and, to the maximum extent
practicable, prepare in a timely manner the forms of any
documentation required for Seller to comply therewith.
Section 3.02 Collection Services. LLANY agrees to
perform the following services with respect to amounts due from
holders of the Coinsured Contracts:
(a) Collect premiums, deposits and other remittances
from Contractholders (including payments of principal or interest
on contract loans) and from any collection facility, including
Intermediaries and other persons or institutions that receive
remittances with respect to the Coinsured Contracts, and, subject
to the provisions of paragraph (d) below, process the remittances,
in a manner reasonably acceptable to Seller.
(b) Collect amounts payable in respect of Outward
Reinsurance.
(c) Maintain records pertaining to the collection and
processing of premiums, deposits or other remittances and amounts
payable in respect of Outward Reinsurance in the format utilized
by Seller on the Effective Date or as otherwise agreed by the
parties.
(d) Promptly invest in the Seller Separate Accounts
deposits collected which relate to the separate account portions
of Coinsured Contracts (including transfers from fixed options
under the Coinsured Contracts).
Section 3.03 Processing of Disbursements. LLANY agrees
to perform the following services with respect to disbursements
made in respect of the Coinsured Contracts for payment of death
benefits, annuity benefits, withdrawals, surrenders, transfers,
policy loans, returns of deposits, and any other disbursement and
payments due to reinsurers or otherwise in respect of Outward
Reinsurance:
(a) Receive and process requests for disbursements.
(b) Process policy lapses, expiries and/or non-forfeiture options
with respect to the Coinsured Contracts.
(c) Evaluate requests for disbursements and either pay
any such request for disbursement, in accordance with Section 3.04
hereof, or propose to deny any such request for disbursement in
full or in part, in accordance with Section 3.05 hereof,
(i) within 10 Business Days after receipt of all documentation
required to process any such disbursement, with respect to any
request for a disbursement relating to the general account portion
of a Coinsured Contract and (ii) within the time period specified
in the applicable contract, with respect to any request for a
disbursement relating to the separate account under a Coinsured
Contract, or, in the case of either clause (i) or clause (ii)
above, within any shorter time provided by applicable statute,
rule or regulation. In the event that LLANY is unable to make a
determination as to whether any such request for disbursement
should be paid or denied within the specified period, it shall
notify Seller immediately in writing and shall state in such
notice the reasons for such delay.
Section 3.04 Payment of Disbursements. LLANY agrees to
pay all disbursements on behalf of and in the name of Seller with
respect to the Coinsured Contracts (subject, where appropriate, to
reimbursement from the relevant Seller Separate Account). LLANY
will do so directly so as to avoid, to the maximum extent
practicable, Seller or its Affiliates being required to make any
payments in connection with the Coinsured Contracts or the
Administrative Services, except as specifically provided otherwise
in Section 3.06.
Section 3.05 Denied Disbursements. (a) LLANY agrees
to notify Seller if it proposes to deny any disbursement request.
Such notice shall be made promptly, but in any event, at such time
as to permit Seller to object to such denial and to allow such
disbursement to be made in a timely manner. The notice required
under this Section 3.05 will contain the basis for LLANY's
decision to deny such disbursement request and the date that such
disbursement would be required to be made. LLANY may not deny a
disbursement request if Seller reasonably objects to such denial
in writing within 10 Business Days of Seller's receipt of the
notice required under this Section 3.05 (or within such shorter
period as may be required to permit the relevant disbursement to
be made within the time period required by any applicable law or
regulation). In the event that LLANY notifies Seller of a
proposed denial on the Business Day that the disbursement would be
required to be made and Seller objects to such proposed denial,
then the disbursement shall be made as soon as practicable
thereafter, and Seller acknowledges that such disbursement may be
made later than the date otherwise required by this Agreement.
(b) LLANY agrees to immediately notify Seller of any
litigation that has been instituted or threatened, or of any
complaint which any person has filed or has threatened to file
with any state insurance department or other regulatory agency,
with respect to any denied disbursement request or any
disbursement request-handling procedure in connection with a
Coinsured Contract, regardless of whether the disbursement request
was paid or denied, or with respect to any other matter relating
to a Coinsured Contract. Such notice shall contain a report
summarizing the nature of the litigation or complaint, the alleged
actions or omissions giving rise to the litigation or complaint
and copies of any files that Seller may require to respond to the
litigation or complaint. Seller shall retain the right to
exercise ultimate responsibility for handling all such litigation
matters and for resolving complaints.
(c) LLANY shall pay the expenses of any litigation or
regulatory proceeding with respect to the Coinsured Contracts
(subject to any indemnification rights of LLANY under this
Agreement or any other agreement between LLANY and Seller).
Section 3.06 Certain Actions by Seller.
Notwithstanding the provisions of Section 3.01:
(a) LLANY acknowledges that the performance of LLANY
under this Agreement with respect to the business and operations
of Seller shall at all times be subject to the direction, control
and ultimate authority of Seller. Seller will prepare and,
subject to LLANY's compliance with this section, timely file any
filings required to be made with any governmental authorities,
including filings with insurance regulators and guaranty
associations and filings and premium tax returns with taxing
authorities that relate to Seller generally and not just to the
Coinsured Contracts and will make any payments required in
connection with such filings and premium tax returns and any
assessment by guaranty associations. To the extent reasonably
possible, LLANY will be responsible for complying with all
applicable reporting, withholding and disclosure requirements
under the Internal Revenue Code of 1986 with respect to the
Coinsured Contracts, and Seller will cooperate with LLANY to the
extent necessary to allow LLANY to fulfill its responsibilities.
LLANY will, in a timely fashion in light of the dates such filings
and payments by Seller are required, provide to Seller all
information with respect to the Coinsured Contracts that may be
required for Seller to prepare such filings and tax returns and
will pay to Seller (without reduction for Premium Tax Credits, as
defined below) the amounts that are required to be paid by Seller
in connection with such filings and premium tax returns in respect
of premiums, deposits or other consideration paid to Seller after
the Effective Date on the Coinsured Contracts. Without limiting
the generality of the foregoing, LLANY will reimburse Seller for
premium taxes due on the Coinsured Contracts in sufficient time to
allow Seller to file such returns.
As described below, LLANY will pay to Seller an amount
equal to the portion of any guaranty fund assessments or other
premium based assessments paid by Seller after the Effective Date
that are based on premiums, deposits and other consideration paid
or earned after the Effective Date on the Coinsured Contracts
("Post Closing Assessments"). Seller will pay to or provide LLANY
with the benefit of any Post Closing Assessments which have been
applied to reduce Seller's premium tax liability ("Premium Tax
Credits"), regardless of the source of such liability. Seller
will provide to LLANY by March 15 of each year a statement of the
amount of Post Closing Assessments less Premium Tax Credits for
the prior calendar year ("Guaranty Fund Adjustment"). By March 30
of each year LLANY will pay to Seller the Guaranty Fund
Adjustment, if a positive amount, and Seller will pay or credit to
LLANY the Guaranty Fund Adjustment, if a negative amount.
(b) In the event that Seller retains a portion of any
investment asset transferred to LLANY pursuant to Section 6.01 of
the Indemnity Reinsurance Agreement and Section 2.03(c) of the
Acquisition Agreement, (i) Seller will continue to provide, or
cause to be provided, investment management with respect to such
asset if Seller's retained interest is equal to or greater than
50% of the combined interest of Seller and LLANY in such asset and
(ii) LLANY will provide, or cause to be provided, investment
management services with respect to such asset if Seller's
interest is less than 50% of the combined interest of Seller and
LLANY in such asset. The party providing such investment
management services shall do so in the same manner as such party
provides such services with respect to its own portion of the
relevant asset, but shall make no other warranty, or have any
other responsibility, to the other party with respect to such
investment management services.
Section 3.07 Compensation and Reimbursement for Seller.
LLANY will, promptly upon Seller's request therefor:
(a) compensate Seller for any administrative services
it may from time to time, notwithstanding the intention of the
parties expressed in Section 3.01, be required to perform with
respect to the Coinsured Contracts, including without limitation
accounting, legal, tax and regulatory filing services, Legally
Required Seller Actions and, to the extent they relate to
Coinsured Contracts, actions and services referred to in Section
3.06; and
(b) reimburse Seller for any other costs it may
reasonably incur with respect to the Coinsured Contracts as a
result of the reinsurance arrangement contemplated by the
Indemnity Reinsurance Agreement.
The compensation and reimbursement referred to in this
Section 3.07 shall be based on Seller's fully-allocated costs,
including a proportionate share of corporate overhead, as detailed
in invoices to LLANY.
ARTICLE IV
BOOKS AND RECORDS; REPORTS; CREDITING RATES
Section 4.01 Maintenance of Books and Records. (a) For
the duration of this Agreement, LLANY shall maintain, at a
location to be agreed upon by LLANY and Seller, books and records
of all transactions pertaining to the Coinsured Contracts,
including, but not limited to, any disbursement requests submitted
in respect of the Coinsured Contracts and any documents relating
thereto, any communications relating to any Coinsured Contract,
any communication with any regulatory authority, complaint logs
and all data used by LLANY in the performance of services required
under this Agreement. These books and records shall be maintained
(i) in accordance with any and all applicable statutes, rules and
regulations and (ii) in a format no less accessible than the
format in which such books and records are maintained on the date
hereof. All such books and records pertaining to a Coinsured
Contract shall be made available to Seller, its auditors or other
designees, and regulatory agencies, during normal business hours
and at any other time on reasonable notice, for review,
inspection, examination and reproduction. Upon termination of
this Agreement, all books and records pertaining to Coinsured
Contracts which have not expired shall be delivered promptly to
Seller or such other person or entity as Seller shall designate in
writing.
(b) LLANY shall back up all of its computer files used
in the performance of services under this Agreement on a daily
basis and shall maintain back-up files in an off-site location.
(c) LLANY shall maintain facilities and procedures
reasonably acceptable to Seller for safekeeping all records used
in the performance of services under this Agreement.
Section 4.02 Transaction Report. Within five Business
Days of the end of each calendar month during the term of this
Agreement, LLANY shall provide Seller with a summary report and
accounting of all transactions, including receipts, payments,
policy loans, surrenders and other matters, that have occurred
during that month, in a form acceptable to Seller. LLANY shall
provide a final accounting to Seller within 15 Business Days
following the end of the month during which the termination of
this Agreement occurs.
Section 4.03 Non-Guaranteed Elements. LLANY shall
periodically provide to Seller recommendations regarding non-guaranteed
elements of the Coinsured Contracts.
ARTICLE V
INABILITY TO PERFORM SERVICES; ERRORS
Section 5.01 Inability to Perform Services. In the
event that LLANY shall be unable to perform services as required
by this Agreement for any reason for a period that can reasonably
be expected to exceed three Business Days, LLANY shall cooperate
with Seller in obtaining an alternative means of providing such
services. LLANY will be responsible for all costs incurred in
either restoring services or obtaining an alternative source of
services, except to the extent such inability by LLANY to perform
the services required by this Agreement is the result of, or is
caused by, the failure of Seller to perform its obligations under
the Transition Services Agreement.
Section 5.02 Errors. LLANY shall, at its own expense,
correct any errors in Administrative Services caused by it within
a reasonable time after receiving notice thereof from Seller or
otherwise, except to the extent such inability by LLANY to perform
the services required by this Agreement is the result of, or is
caused by, the failure of Seller or any of its Affiliates as the
case may be, to perform its obligations as set forth under the
Transition Services Agreement.
ARTICLE VI
REGULATORY MATTERS
Section 6.01 Responsibilities of LLANY. LLANY, on
behalf of Seller, shall, subject to the second paragraph of
Section 3.01 and Section 3.06(a), be responsible for, with respect
to the Coinsured Contracts, all state insurance department filings
(including, but not limited to, filings of riders and amendments),
the maintenance of all required licenses and permits, compliance
with all regulatory requirements and the taking of all required
actions with respect to government authorities.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. (a) LLANY agrees to
indemnify and hold harmless Seller and any of its directors,
officers, employees, agents or Affiliates from any and all losses,
costs, claims, demands, compensatory, extra contractual and/or
punitive damages, fines and penalties (collectively, "Seller
Losses") arising out of or caused by: (i) fraud, theft or
embezzlement by officers, employees or agents of LLANY during the
term of this Agreement; (ii) the failure, either intentional or
unintentional, of LLANY to properly perform the services or take
the actions required by this Agreement, including, without
limitation, the failure to properly process, evaluate and pay
disbursement requests in accordance with the terms of this
Agreement; (iii) any other act of negligence or willful misconduct
committed by officers, agents or employees of LLANY during the
term of this Agreement; (iv) any failure of LLANY to comply with
applicable laws, rules and regulations during the term of this
Agreement other than, during the first 18 months after the
Effective Date, Seller Losses arising out of or caused by actions
or inactions of LLANY consistent with the manner in which such
services are being provided by Seller immediately prior to the
Effective Date, except if changes are required pursuant to Section
2.02 hereof; or (v) the failure of any Person described in clause
(iii) of Section 11.08 to properly perform the services that LLANY
is to provide hereunder.
(b) Seller agrees to indemnify and hold harmless LLANY
and any of its directors, officers, employees, agents or
affiliates from any and all losses, costs, claims, demands,
compensatory, extra contractual and/or punitive damages, fines and
penalties (collectively, "LLANY Losses") arising out of or caused
by: (i) fraud, theft or embezzlement by officers, employees or
agents of Seller during the term of this Agreement; (ii) any other
act of negligence or willful misconduct committed by officers,
agents or employees of Seller during the term of this Agreement;
(iii) any failure of Seller to comply with applicable laws, rules
and regulations during the term of this Agreement other than any
failure on the part of Seller or LLANY caused by the action or
inaction of LLANY, including when acting in the name or on behalf
of Seller, whether or not in compliance with the terms of this
Agreement; (iv) the following by LLANY of Seller's instructions
with respect to the services provided by LLANY hereunder to the
extent that, at the time such instructions are given, LLANY
objects in writing thereto; or (v) the following by LLANY of
Seller's instructions with respect to the handling of litigation
matters arising with respect to a denied disbursement request or
any disbursement-request handling procedure in connection with a
Coinsured Contract or complaints related to the Coinsured
Contracts, to the extent that, at the time such instructions are
given, LLANY objects in writing thereto; provided, however, that
for purposes of this subsection (v), LLANY Losses shall not
include benefits paid or payable pursuant to the terms of the
Coinsured Contracts
Section 7.02 Notice of Asserted Liability. In the
event that either party hereto asserts a claim for indemnification
hereunder, such party seeking indemnification (the "Indemnified
Party") shall give written notice to the other party (the
"Indemnifying Party") specifying the facts constituting the basis
for, and the amount (if known) of, the claim asserted.
Section 7.03 Right to Contest Claims of Third Parties.
(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim
or demand made, or an action, proceeding or investigation
instituted, by any Person not a party to this Agreement (a "Third
Party Claimant") that may result in a LLANY Loss with respect to
which LLANY is entitled to indemnification pursuant to Section
7.01(a) hereof or a Seller Loss with respect to which Seller is
entitled to indemnification pursuant to Section 7.01(b) hereof (an
"Asserted Liability"), the Indemnified Party shall so notify the
Indemnifying Party as promptly as practicable, but in no event
later than 10 Business Days after such Asserted Liability is
actually known to the Indemnified Party. Failure to deliver
notice with respect to an Asserted Liability in a timely manner
shall not be deemed a waiver of the Indemnified Party's right to
indemnification for Losses in connection with such Asserted
Liability but the amount of reimbursement to which the Indemnified
Party is entitled shall be reduced by the amount, if any, by which
the Indemnified Party's losses would have been less had such
notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party, to investigate, contest,
defend or settle the Asserted Liability; provided, that the
Indemnified Party may, at its option and at its own expense,
participate in the investigation, contesting, defense or
settlement of any such Asserted Liability through representatives
and counsel of its own choosing. The failure of the Indemnifying
Party to respond in writing to proper notice of an Asserted
Liability within 10 days after receipt thereof shall be deemed an
election not to defend the same. Unless and until the
Indemnifying Party elects to defend the Asserted Liability, the
Indemnified Party shall have the right, at its option and at the
Indemnifying Party's expense, to do so in such manner as it deems
appropriate, including, but not limited to, settling such Asserted
Liability (after giving notice of the settlement to the
Indemnifying Party) on such terms as the Indemnified Party deems
appropriate.
(c) Except as provided in the immediately preceding
sentence, the Indemnified Party shall not settle or compromise any
Asserted Liability for which it seeks indemnification hereunder
without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld) during the 10 day period
specified above.
(d) The Indemnifying Party shall be entitled to
participate in (but not to control) the defense of any Asserted
Liability which it has elected, or is deemed to have elected, not
to defend, or which it does not have the right to defend under
paragraph (b) of this Section 7.03, with its own counsel and at
its own expense.
(e) Except as provided in the first sentence of
paragraph (b) of this Section 7.03, the Indemnifying Party shall
bear all costs of defending any Asserted Liability and shall
indemnify and hold the Indemnified Party harmless against and from
all costs, fees and expenses incurred in connection with defending
such Asserted Liability.
(f) LLANY and Seller shall make mutually available to
each other all relevant information in their possession relating
to any Asserted Liability (except to the extent that such action
would result in a loss of attorney-client privilege) and shall
cooperate with each other in the defense thereof.
Section 7.04 Indemnification Payments. Any payment
hereunder shall be made by wire transfer of immediately available
funds to such account or accounts as the Indemnified Party shall
designate to the Indemnifying Party in writing.
ARTICLE VIII
DURATION; TERMINATION
Section 8.01 Duration. This Agreement shall commence
on the date of its execution and continue until such time as none
of the Coinsured Contracts remains in force and no further
Administrative Services in respect of the Coinsured Contracts are
required, or until it is terminated under Section 8.02. LLANY
shall cooperate fully in the transfer of services and the books
and records maintained by LLANY pursuant to Section 4.01 hereof
(or, where appropriate, copies thereof) to Seller or Seller's
designee, so that Seller or its designee will be able to perform
the services required under this Agreement without interruption
following termination of this Agreement.
Section 8.02 Termination. (a) This Agreement is
subject to immediate termination at the option of Seller, upon
written notice to LLANY, on the occurrence of any of the following
events:
(i) A voluntary or involuntary proceeding is
commenced in any state by or against LLANY for the purpose of
conserving, rehabilitating or liquidating LLANY, or LLANY shall
lose its authority to perform services hereunder;
(ii) There is a material breach by LLANY of any
term or condition of this Agreement, that is not cured by LLANY
within 90 days of receipt of written notice from Seller of such
breach or act;
(iii) Any liability policy or bond required
pursuant to Article X of this Agreement is canceled, terminated or
substantially revised; or
(iv) LLANY is unable to perform the services
required under Articles III, IV and V of this Agreement for a
period of 90 consecutive days for any reason.
(b) This Agreement will terminate automatically in the
event that Seller exercises recapture under the Indemnity
Reinsurance Agreement pursuant to Section 3.02 thereof.
(c) This Agreement may be terminated at any time upon
the mutual written consent of the parties hereto, which writing
shall state the effective date of termination.
(d) In the event that this Agreement is terminated
under any of the provisions of this Section 8.02 other than
Section 8.02(b), LLANY shall select a third-party administrator to
perform the services required by this Agreement. Seller shall
have the right to approve any such administrator selected by
LLANY. If LLANY fails to select an administrator pursuant to this
Section 8.02(d), Seller shall select such an administrator. In
either case, LLANY shall pay all fees and charges imposed by the
selected administrator.
ARTICLE IX
ARBITRATION
Any dispute arising out of or relating to the
interpretation, performance or breach of this Agreement, including
the formation or validity thereof, shall be submitted for decision
to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at the
hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the
selection of the Umpire within 30 days of their appointment, then
each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two
candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing
procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall
be disinterested active or former officers of insurance or
reinsurance companies.
Within 30 days after notice of appointment of all
arbitrators, the panel shall meet and determine a schedule for the
conduct of the arbitration, including hearings. The panel shall
be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. The panel shall
determine where the arbitration shall take place. To the extent
and only to the extent that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision
considering the custom and practice of the applicable insurance
and reinsurance business. Insofar as the arbitration panel looks
to substantive law, the law of New York shall govern. The
decision of any two arbitrators when rendered in writing shall be
final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
The panel shall render its decision, which shall be in
writing and state the reasons therefor, within 60 days following
the termination of hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof. Each party
shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the
panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not
limited to interest (determined at the Panel's discretion) and
attorneys' fees, to the extent permitted by law.
ARTICLE X
INSURANCE
Section 10.01 Liability Insurance. LLANY shall
maintain errors and omissions liability coverages in commercially
prudent amounts, to cover any loss arising as a result of any real
or alleged negligence, errors or omissions on the part of LLANY's
officers, agents or employees in any aspect of the performance of
services under this Agreement.
Section 10.02 Fidelity Bond. LLANY shall maintain
fidelity bond coverage in commercially prudent amounts to cover
any loss due to the misdeeds of LLANY's officers, employees or
agents.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Headings, Schedules and Exhibits.
Headings used herein are not a part of this Agreement and shall
not affect the terms hereof. The attached Schedules and Exhibits
are a part of this Agreement.
Section 11.02 Notices. Any notice required or
permitted hereunder shall be in writing and shall be delivered
personally (by courier or otherwise), telegraphed, telexed, sent
by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent
by facsimile transmission or, if mailed, three days after the date
of deposit in the United States mails, as follows:
(a) If to LLANY to:
Lincoln Life & Annuity Company of New York
120 Madison Street, Suite 1700
Syracuse, New York 13202
Attention: Philip L. Holstein
Telecopier No.: (315) 428-8419
With concurrent copies to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(b) If to Seller to:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
Any party may, by notice given in accordance with this
Agreement to the other parties, designate another address or
person for receipt of notices hereunder.
Section 11.03 Amendments. This Agreement cannot be
modified, changed, discharged or terminated, except by an
instrument in writing signed by an authorized officer of each of
the parties hereto.
Section 11.04 Execution in Counterpart. This Agreement
may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by
all of the parties hereto.
Section 11.05 Limited Authority. Seller and LLANY are
not partners or joint venturers, and no employee or agent of
either party shall be considered an employee or agent of the
other. LLANY's authority shall be limited to that which is
expressly stated in this Agreement.
Section 11.06 Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either party (in whole or in part) without the
prior written consent of the other party hereto, which consent
shall not be unreasonably withheld provided, however, that LLANY
may not assign this Agreement or such rights so long as it is the
reinsurer under the Indemnity Reinsurance Agreement.
Section 11.07 No Third Party Beneficiaries. Except as
otherwise specifically provided for herein, nothing in this
Agreement is intended or shall be construed to give any person,
other than the parties hereto, their successors and permitted
assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 11.08 Subcontracting. LLANY may not
subcontract for the performance of any services that LLANY is to
provide hereunder, except as permitted in writing by Seller, which
consent shall not be unreasonably withheld. Notwithstanding the
foregoing sentence, LLANY shall be permitted to subcontract for
the performance of any of such services with (i) Lincoln Life,
(ii) any Person that is performing such services as a
subcontractor for Seller as of the date hereof, without obtaining
the consent of Seller so long as LLANY notifies Seller of such
subcontract on or prior to the effective date thereof or (iii) any
Person that is performing such services as a subcontractor for
LLANY with respect to all or substantially all of LLANY's
insurance business that is similar to the insurance business to be
administered hereunder; provided, further, that LLANY shall remain
liable to Seller with respect to the services provided by such
Person to the same extent as if LLANY had provided or failed to
provide such services.
Section 11.09 Change in Status. LLANY shall notify
Seller immediately of any "change of control" filing, the adoption
of any plan to liquidate, merge or dissolve LLANY, or of any
proceeding or lawsuit which affects LLANY's ability to perform
this Agreement, including, but not limited to, insolvency or
rehabilitation proceedings.
Section 11.10 Survival. The provisions of Articles VII
and IX hereof shall survive the termination of this Agreement.
Section 11.11 Further Assurances. Each of the parties
hereto shall execute such documents and other papers and perform
such further acts as may be reasonably required to carry out the
provisions of this Agreement. Without limiting the generality of
the foregoing, Seller shall (a) execute all documents necessary to
grant LLANY (i) the ability to negotiate checks received by LLANY
but payable to Seller, as contemplated by Section 2.03 of this
Agreement and (ii) the disbursement payment authority contemplated
by Section 3.03 of this Agreement, (b) subject to Section 3.01,
make any Seller regulatory filings or broker appointments that
LLANY is required to make on behalf of Seller hereunder and (c)
grant any licenses to LLANY with respect to any logos, trademarks,
service marks or copyrights necessary for LLANY to comply with the
terms of this Agreement.
Section 11.12 Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives
as of the date first above written.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
Name:
Title:
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
By:
Name:
Title:
<PAGE>
SCHEDULE 1.01
Seller Separate Accounts
<PAGE> SCHEDULE 2.01
Administrative Services
o Disbursements, including but not limited to payment of
benefits, claim investigation, adjustment, resisting and
defense of claims, policy loans, premium refunds,
withdrawals, and surrenders
o Statistical information
o Billing and premium collection
o Policy lapses, expiries, and nonforfeitures
o Reinstatements
o Legally required accounting and actuarial information in
order to meet statutory, tax and GAAP requirements
o Preparation and filing of insurance forms and amendments,
including rate authorization filings, if applicable
o Underwriting and new business administration
o Commission processing and payment
o Electronic data processing services
o Licensing of agents
o Preparation and filing of any tax information returns as may
be required under federal and state laws
o Completion of any annual, quarterly or monthly statement
exhibits
o Direct response to any insurance department or other
regulatory inquiries with copies to Seller as are necessary
to enable Seller to meet its compliance responsibilities
o Any DAC computations (whether or not related to Settlement
Agreements)
o Reinsurance Administration
o Licensing and appointment of agents
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
by and between
CIGNA LIFE INSURANCE COMPANY
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of __________, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II - BUSINESS REINSURED . . . . . . . . . . . . . . . . .5
ARTICLE III - TERMINATION AND RECAPTURE . . . . . . . . . . . . . 5
Section 3.01. Termination. . . . . . . . . . . . . . . . . . .5
Section 3.02. Recapture. . . . . . . . . . . . . . . . . . . .6
ARTICLE IV - TERRITORY. . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V - ADMINISTRATION; CHANGES; CREDITING RATES. . . . . . .8
Section 5.01. Administration . . . . . . . . . . . . . . . . .8
Section 5.02. Contract Changes or Reserve Assumption
Changes. . . . . . . . . . . . . . . . . . . .8
Section 5.03. Non-Guaranteed Elements. . . . . . . . . . . . .9
ARTICLE VI
TRANSFER OF ASSETS; CONTRACT LOANS; CEDING COMMISSION. . . .. .9
Section 6.01. Asset Transfer.. . . . . . . . . . . . . . . . .9
Section 6.02. Contract Loans . . . . . . . . . . . . . . . . .9
Section 6.03. Ceding Commission. . . . . . . . . . . . . . . 10
ARTICLE VI - IINSOLVENCY . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII - OFFSETS . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IX - RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES. 10
ARTICLE X - ERRORS AND OMISSIONS . . . . . . . . . . . . . . . . 11
ARTICLE XI - DUTY OF COOPERATION . . . . . . . . . . . . . . . . 11
Section 11.01. Cooperation Generally . . . . . . . . . . . . 11
Section 11.02. Product Tax Cooperation . . . . . . . . . . . 11
ARTICLE XII - DEFERRED ACQUISITION COSTS . . . . . . . . . . . . 12
Section 12.01. Section 848 Election. . . . . . . . . . . . . 12
Section 12.02. DAC Adjustment. . . . . . . . . . . . . . . . 12
ARTICLE XIII - ARBITRATION . . . . . . . . . . . . . . . . . . . 13
ARTICLE XIV - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . 14
Section 14.01. Notices . . . . . . . . . . . . . . . . . . . 14
Section 14.02. Amendment . . . . . . . . . . . . . . . . . . 15
Section 14.03. Counterparts. . . . . . . . . . . . . . . . . 15
Section 14.04. No Third Party Beneficiaries. . . . . . . . . 16
Section 14.05. Assignment. . . . . . . . . . . . . . . . . . 16
Section 14.06. Governing Law . . . . . . . . . . . . . . . . 16
Section 14.07. Credit for Ceded Reinsurance. . . . . . . . . 16
Section 14.08. Entire Agreement. . . . . . . . . . . . . . . 16
Section 14.09. No Reinsurance Intermediary.. . . . . . . . . 16
SCHEDULE 1.01. . . . . . . . . . . . . . . . . . In-Force Contracts
SCHEDULE 1.01. . . . . . . . . . . . . . . . Post-Closing Contracts
SCHEDULE 1.03. . . . . . . . . . . . . . . Cedent Separate Accounts
<PAGE> INDEMNITY REINSURANCE AGREEMENT
This INDEMNITY REINSURANCE AGREEMENT (this "Agreement"),
dated as of ___________, 1997, is made by and between CIGNA Life
Insurance Company, a stock life insurance company organized under
the laws of the State of Connecticut ("Cedent") and an indirect
wholly owned subsidiary of CIGNA Corporation, a Delaware
corporation, and The Lincoln National Life Insurance Company, an
Indiana domiciled stock life insurance company ("Reinsurer") and a
wholly owned subsidiary of Lincoln National Corporation, an
Indiana corporation.
WHEREAS, Cedent has agreed to cede and transfer to
Reinsurer the Coinsured Contracts (as defined below) for the
consideration specified herein and Reinsurer has agreed to
reinsure the General Account Liabilities (as defined below) of
Cedent under the Coinsured Contracts on the terms and conditions
set forth herein; and
WHEREAS, Cedent desires that Reinsurer perform all
administrative functions on behalf of Cedent after the date hereof
with respect to the Coinsured Contracts and the Cedent Separate
Accounts (as defined below) and the contracts supported by the
Cedent Separate Accounts, and Reinsurer has agreed to provide such
services pursuant to the terms of the Cedent Administrative
Services Agreement (as defined below);
NOW THEREFORE, in consideration of the mutual covenants
and promises contained herein and upon the terms and conditions
set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings
set forth below throughout the Agreement:
"Acquisition Agreement" means the Second Amended and
Restated Asset Transfer and Acquisition Agreement entered into by
and among CIGNA Corporation, Connecticut General Corporation,
Connecticut General Life Insurance Company, Cedent, Lincoln
National Corporation, Reinsurer and Lincoln Life & Annuity Company
of New York dated as of July 27, 1997.
"Affiliate" means, with respect to any Person, at the
time in question, any other Person controlling, controlled by or
under common control with such Person.
"Agreement" means this Indemnity Reinsurance Agreement.
"Annual Rate" means the value of r in the expression (l
+ r)n/365 -1, where "n" is equal to the number of days for which
interest is to be computed and the result of the expression is the
interest factor for computing the applicable interest amounts.
"Cash Equivalents" means, as of any particular date,
money market funds, marketable obligations issued or guaranteed by
the United States Government, certificates of deposit, bankers'
acceptances and other similar liquid investments, in each case,
with a maturity date of not more than 90 days from the date on
which any such instrument is transferred pursuant to the terms of
this Agreement, the market value of which on the date of transfer
will be counted as equivalent to cash for purposes of satisfying
the aggregate amount of cash and Cash Equivalents required to be
transferred as described in Article III hereof.
"Cedent" shall have the meaning set forth in the
introductory paragraph hereof.
"Cedent Administrative Services Agreement" means the
Administrative Services Agreement entered into by and between
Reinsurer and Cedent dated as of the date hereof.
"Cedent Separate Accounts" means the separate accounts
of Cedent described on Schedule 1.03 hereto.
"Cedent Separate Account Liabilities" means those
insurance liabilities that are reflected in the Cedent Separate
Accounts and that relate to the Coinsured Contracts.
"Ceding Commission" means $________
"CIGNA" means CIGNA Corporation, a Delaware corporation.
"Code" means the Internal Revenue Code of 1986, as
amended. Any citation to a section of the Code includes a
citation to any successor statutory provision.
"Coinsured Contracts" means (i) the In-Force Contracts,
and (ii) the Post-Closing Contracts.
"COLI Business" shall have the meaning as set forth in
the Acquisition Agreement.
"Connecticut SAP" means the statutory accounting
principles and practices prescribed or permitted by the Insurance
Department of the State of Connecticut as applied on a basis
consistent with those utilized in the preparation of 1996 Annual
Statements of Cedent submitted to the Insurance Department of the
State of Connecticut.
"Contractholder" shall mean the holder of any Coinsured
Contract.
"DAC Adjustment" shall have the meaning set forth in
Section 12.02(a) hereof.
"Effective Date" shall have the meaning set forth in
Article II hereof.
"Extra Contractual Obligations" means all liabilities
for compensatory, consequential, exemplary, punitive or similar
damages which relate to or arise in connection with any alleged or
actual act, error or omission by Cedent or any of its Affiliates
prior to the Effective Date hereof, whether intentional or
otherwise, or from any reckless conduct or bad faith by Cedent or
any of its Affiliates prior to the Effective Date hereof, or in
connection with any such alleged or actual act, error or omission
on and after the Effective Date hereof by the Reinsurer acting on
behalf of Cedent or any of its Affiliates pursuant to the Cedent
Administrative Services Agreement or otherwise, in each case
whether in connection with the handling of any claim under any of
the Coinsured Contracts or in connection with the issuance,
delivery, cancellation or administration of any of the Coinsured
Contracts; provided, that no Section 10.04 Seller Obligation, as
such term is defined in the Acquisition Agreement, shall be deemed
to be an Extra Contractual Obligation.
"Final Recapture Statement" shall have the meaning set
forth in Section 3.02(d) hereof.
"General Account Liabilities" means all general account
insurance liabilities and obligations arising under the Coinsured
Contracts, including, without limitation (i) the General Account
Reserves, (ii) amounts included in lines 12, 12a, 19, and 25 of
the Liabilities, Surplus and Other Funds page of the NAIC Annual
statement Blank (1996 format), (iii) any Extra Contractual
Obligations, (iv) liabilities and obligations associated with
Cedent's separate account SA-8TCL, (v) premium taxes due in
respect of premiums, deposits and other consideration paid on or
after the Effective Date with respect to the Coinsured Contracts
and (vi) guaranty fund or other premium based assessments due
based on such premiums, deposits and other consideration, net of
any premium tax credits of Cedent arising out of any such
assessments, but excluding (x) the Cedent Separate Account
Liabilities, and (y) any general account liabilities which relate
to (A) amounts transferred from the Cedent Separate Accounts to
the general account of Cedent pending distribution to holders of
the Coinsured Contracts and (B) amounts held in the general
account of Cedent pending transfer to the Cedent Separate
Accounts.
"General Account Other Insurance Assets" means all
general account other admitted insurance assets of Cedent arising
under the Coinsured Contracts determined pursuant to Connecticut
SAP as such amounts would have been included in lines 12.1, 12.2,
12.3, 15, 16 and 17 of the Assets page of the NAIC Annual
Statement Blank (1996 format).
"General Account Reserves" means the general account
statutory reserves of Cedent (without regard to this Agreement)
with respect to the Coinsured Contracts determined pursuant to
Connecticut SAP, as such reserves would have been included in
lines 1, 2, 3, 4.1, 4.2, 5, 6, 7.1, 7.2, 7.3, 8, 9, 10.1, 10.2,
10.3, 11.1, 11.2, 11.3 and 11.4 of the Liabilities, Surplus and
Other Funds page of the NAIC Annual Statement Blank (1996 format),
excluding however, any general account statutory reserve
adjustments in relation to Cedent Separate Account Liabilities.
"In-Force Contracts" means all individual life insurance
(other than contracts included in the COLI Business), health
insurance and annuity contracts issued through CIGNA's Individual
Insurance Division by Cedent on the forms described on Schedule
1.01 hereto and in effect on the Effective Date (including all
supplements, endorsements, riders and ancillary agreements in
connection therewith).
"Income Tax Regulations" means the temporary and final
regulations issued under the Code. Any citation to a section of
the Income Tax Regulations includes a citation to any successor
regulatory provision.
"NAIC" means the National Association of Insurance
Commissioners.
"90-Day Treasury Rate" means the annual yield rate, on
the date to which 90-Day Treasury Rate relates, of actively traded
U.S. Treasury securities having a remaining duration to maturity
of three months, as such rate is published under "Treasury
Constant Maturities" in Federal Reserve Statistical Release
H.15(519).
"Outward Reinsurance" shall have the meaning set forth
in Article II hereof.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit, division or other entity.
"Post-Closing Contracts" means all individual life
insurance (other than contracts included within the COLI
Business), health insurance and annuity contracts of the types
which are described on Schedule 1.02 hereto (including all
supplements, endorsement, riders and ancillary agreements in
connection therewith) that are issued through CIGNA's Individual
Insurance Division prior to the second anniversary of the
Effective Date by Cedent at the written request of Reinsurer in
accordance with Section 5.34 of the Acquisition Agreement.
"Post-Recapture Extra Contractual Obligations" means
Extra Contractual Obligations which relate to or arise in
connection with any alleged or actual act, error or omission by
Reinsurer or any of its Affiliates (including by the Reinsurer
acting on behalf of Cedent or any of its Affiliates pursuant to
the Cedent Administrative Services Agreement or otherwise) on or
before the Recapture Date, whether intentional or otherwise, or
from any reckless conduct or bad faith by Reinsurer or any of its
Affiliates (including by the Reinsurer acting on behalf of Cedent
or any of its Affiliates pursuant to the Cedent Administrative
Services Agreement or otherwise), in connection with the handling
of any claim under any of the Coinsured Contracts or in connection
with the issuance, delivery, cancellation or administration of any
of the Coinsured Contracts.
"Preliminary Recapture Statement" shall have the meaning
set forth in Section 3.02(b) hereof.
"Proposed Recapture Statement" shall have the meaning
set forth in Section 3.02(d) hereof.
"Recapture Date" shall have the meaning set forth in
Section 3.02(a) hereof.
"Reinsurer" shall have the meaning set forth in the
introductory paragraph hereof.
"Third Party Actuary" shall have the meaning set forth
in Section 3.02(d) hereof.
"Trigger Date" means the last day of the time period
specified in Sections 5.20(d) or (e), as the case may be, of the
Acquisition Agreement in the event that the Reinsurer is required
to take any of the actions specified in Sections 5.20(a)(i), (ii)
and (iii) thereof during such time period and fails to take any
such actions.
"Umpire" shall have the meaning set forth in Article
XIII.
ARTICLE II
BUSINESS REINSURED
Upon the terms and subject to the conditions and other
provisions of this Agreement and any required governmental and
regulatory consents and approvals, effective as of 12:01 a.m.,
Eastern Time, on __________, 1997 (the "Effective Date"), Cedent
hereby cedes to Reinsurer and Reinsurer hereby accepts and
indemnity reinsures, on a coinsurance basis, 100% of the General
Account Liabilities outstanding as of the Effective Date or
arising thereafter, net of reinsurance recoveries received by
Cedent under reinsurance cessions with respect to the Coinsured
Contracts other than pursuant to this Agreement ("Outward
Reinsurance").
ARTICLE III
TERMINATION AND RECAPTURE
Section 3.01. Termination. The reinsurance provided
under this Agreement shall terminate as to each Coinsured Contract
on any date as of which such Coinsured Contract is recaptured as
provided below in this Article III, but shall otherwise continue
indefinitely as to all Coinsured Contracts.
Section 3.02. Recapture. (a) If Reinsurer fails to
take one of the actions specified in clauses (i), (ii) and (iii)
of Section 5.20(a) of the Acquisition Agreement under the
circumstances described therein on or prior to the Trigger Date,
then Cedent shall have the right, upon 10 days' written notice to
Reinsurer, to recapture the Coinsured Contracts that have not
expired, effective as of the first day of the month following the
Trigger Date (the "Recapture Date"). In the event that the
Coinsured Contracts that have not expired are recaptured pursuant
to this Article III, a net accounting and settlement with respect
to the General Account Liabilities relating to Coinsured Contracts
that have not expired shall be undertaken by the parties hereto
pursuant to the provisions set forth below in this Section 3.02.
(b) On the Recapture Date, Reinsurer will deliver to
Cedent a statement of the General Account Other Insurance Assets,
General Account Liabilities, the amount of the participating
surplus with respect to the Coinsured Contracts and the amount of
any contract loans under the Coinsured Contracts that have not
expired, each as of the end of the second month preceding the
month in which the Recapture Date falls (the "Preliminary
Recapture Statement"), together with a certification of the chief
financial officer of Reinsurer that (i) the Preliminary Recapture
Statement was prepared in accordance with Connecticut SAP, and
(ii) the General Account Reserves set forth therein (A) were
determined in accordance with generally accepted actuarial
standards consistently applied, (B) were fairly stated in
accordance with sound actuarial principles, (C) were based on
actuarial assumptions that were appropriate for Cedent's
obligations under the related Coinsured Contracts, and (D) met the
requirements of Connecticut SAP.
(c) On the Recapture Date, Reinsurer shall transfer to
Cedent (i) invested assets, cash and Cash Equivalents having an
aggregate value sufficient to satisfy the obligations represented
by the General Account Liabilities plus the amount of the
participating surplus with respect to the Coinsured Contracts less
the amount of any contract loans under the Coinsured Contracts
that have not expired and less the amount of General Account Other
Insurance Assets and (ii) the General Account Other Insurance
Assets, each as determined by Reinsurer and set forth on the
Preliminary Recapture Statement. Cash shall be transferred by
Reinsurer to Cedent by wire transfer of immediately available
funds in U.S. Dollars. Invested assets and Cash Equivalents shall
be transferred by such instruments of transfer as are reasonably
acceptable to Cedent. Invested assets transferred pursuant to
this Section 3.02(c) shall be valued at their market value as of
the Recapture Date. As specified in Section 6.02 hereof, Cedent
shall, from and after the Recapture Date, be entitled to receive
and retain all contract loan repayments under the Coinsured
Contracts that have not expired. Recapture shall be deemed to
occur upon the receipt by Cedent of such invested assets, cash and
Cash Equivalents and such General Account Other Insurance Assets,
free of all liens or other encumbrances.
(d) Reinsurer shall, on or before the date that is 30
days after the Recapture Date, prepare a statement of the General
Account Other Insurance Assets, General Account Liabilities, the
amount of the participating surplus with respect to the Coinsured
Contracts and the amount of any contract loans under the Coinsured
Contracts that have not expired, each as of the close of business
on the last day of the month preceding the month in which the
Recapture Date falls (the "Proposed Recapture Statement"),
together with a certification of the chief financial officer of
Reinsurer to the same effect with respect to the Proposed
Recapture Statement as of the date thereof as the certification
provided by such officer with respect to the Preliminary Recapture
Statement as of the date thereof pursuant to Section 3.02(b).
Promptly after its preparation, Reinsurer shall deliver copies of
the Proposed Recapture Statement to Cedent. Cedent shall have the
right to review the Proposed Recapture Statement and comment
thereon for a period of 45 days after receipt thereof. Reinsurer
agrees that Cedent and its accountants and other agents may have
access to the accounting records of Reinsurer relating to its
preparation of the Proposed Recapture Statement for the purpose of
conducting its review. Any changes in the Proposed Recapture
Statement that are agreed to by Reinsurer and Cedent within 45
days of the aforementioned delivery of such statement by Reinsurer
shall be incorporated into a final recapture statement as of the
close of business on the last day of the month preceding the month
in which the Recapture Date falls (the "Final Recapture
Statement"). In the event that Reinsurer and Cedent are unable to
agree within such 45-day period on the manner in which any item or
items should be treated in the preparation of the Final Recapture
Statement, or upon (i) the amount of invested assets, cash and
Cash Equivalents that is sufficient to satisfy the obligations
represented by the General Account Liabilities plus the amount of
participating surplus with respect to the Coinsured Contracts less
the amount of any contract loans under the Coinsured Contracts
that have not expired and less the amount of General Account Other
Insurance Assets or (ii) the amount of the General Account Other
Insurance Assets, separate written reports of such item or items
shall be made in concise form and shall be referred to a
nationally-known firm of independent actuaries selected by Cedent
and approved by the Reinsurer, which approval shall not
unreasonably be withheld (the "Third Party Actuary"). The Third
Party Actuary shall determine within 14 days the manner in which
such item or items shall be treated on the Final Recapture
Statement; provided, however, that the dollar amount of each item
in dispute shall be determined between the range of dollar amounts
proposed by Cedent and Reinsurer, respectively; further provided,
however, that in no event shall the amount of invested assets,
cash and Cash Equivalents that is deemed to be sufficient to
satisfy the obligations represented by the General Account
Liabilities less the amount of any contract loans under the
Coinsured Contracts that have not expired be less than the amount
of the General Account Liabilities less the amount of any such
contract loans. The determinations by the Third Party Actuary as
to the items in dispute shall be in writing and shall be binding
and conclusive on the parties and shall be so reflected in the
Final Recapture Statement. The fees, costs and expenses of
retaining the Third Party Actuary shall be shared equally between
the parties. Such determination shall be binding and conclusive
on the parties. Following the resolution of all disputed items,
Reinsurer shall prepare the Final Recapture Statement and shall
deliver copies of such statement to Cedent.
(e) In the event the aggregate amount of invested
assets, cash and Cash Equivalents and General Account Other
Insurance Assets reflected on the Preliminary Recapture Statement
and transferred to Cedent on the Recapture Date is less than an
amount equal to the General Account Liabilities plus the amount of
participating surplus with respect to the Coinsured Contracts less
the amount of any contract loans under the Coinsured Contracts
that have not expired less the amount of General Account Other
Insurance Assets, each as reflected on the Final Recapture
Statement, Reinsurer shall transfer to Cedent additional cash or
Cash Equivalents equal to the amount of such difference, together
with interest thereon from and including the Recapture Date to but
not including the date of such transfer computed at an Annual Rate
equal to the 90-Day Treasury Rate in effect as of the Recapture
Date. In the event the aggregate amount of invested assets, cash
and Cash Equivalents, and General Account Other Insurance Assets
reflected on the Preliminary Recapture Statement and transferred
to Cedent on the Recapture Date is more than an amount equal to
the General Account Liabilities plus the amount of participating
surplus with respect to the Coinsured Contracts less the amount of
any contract loans under the Coinsured Contracts that have not
expired less the amount of General Account Other Insurance Assets,
each as reflected on the Final Recapture Statement, Cedent shall
transfer to Reinsurer cash or Cash Equivalents in the amount of
such difference, together with interest thereon computed at an
Annual Rate as specified above from and including the Recapture
Date to but not including the date of such transfer.
(f) If at any time after the Recapture Date Cedent or
any of its Affiliates is required to make any payment in respect
of any Post Recapture Extra Contractual Obligations, Reinsurer
will, promptly upon Cedent's demand therefor, pay the amount
thereof to Cedent.
ARTICLE IV
TERRITORY
This Agreement shall apply to Coinsured Contracts
covering lives and risks wherever resident or situated.
ARTICLE V
ADMINISTRATION; CHANGES; CREDITING RATES
Section 5.01. Administration. Pursuant to the Cedent
Administrative Services Agreement, Cedent has appointed Reinsurer
to perform all administrative services with respect to the
Coinsured Contracts and the Cedent Separate Accounts and the
contracts supported by the Cedent Separate Accounts and Reinsurer
has agreed to perform such services on behalf of Cedent,
including, but not limited to, the collection of premiums and
other amounts due from Contractholders, the direct payment of all
General Account Liabilities, the direct disbursement of all
contract loans and the administration of claims.
Section 5.02. Contract Changes or Reserve Assumption
Changes. Cedent, on its own initiative, shall not change (a) the
terms and conditions of any Coinsured Contracts or (b) the
assumptions and methods used by Cedent to establish the General
Account Reserves. Reinsurer shall share proportionately, on a
100% coinsurance basis, in any changes in the terms or conditions
of any Coinsured Contracts or changes in the assumptions and
methods used to establish the General Account Reserves, whether
effected by Reinsurer acting pursuant to the Cedent Administrative
Services Agreement or by reason of the requirements of any
regulatory authority having jurisdiction over Cedent or otherwise
required by law or by Connecticut SAP, provided that prior to
effectuating any such change Cedent shall promptly notify
Reinsurer of such proposed change and afford Reinsurer the
opportunity, to the extent practical under applicable law, to
object to such change under applicable administrative procedures
(both formal and informal).
Section 5.03. Non-Guaranteed Elements. Cedent shall
set all non-guaranteed elements of the Coinsured Contracts from
and after the Effective Date, taking into account the
recommendations of the Reinsurer with respect thereto.
ARTICLE VI
TRANSFER OF ASSETS; CONTRACT LOANS; CEDING COMMISSION
Section 6.01. Asset Transfer. As consideration for the
indemnity reinsurance of the General Account Liabilities by
Reinsurer hereunder, Cedent hereby agrees to transfer to Reinsurer
in accordance with the terms of the Acquisition Agreement (i)
investment assets having a statutory statement carrying value on
the books of Cedent equal to (a) the General Account Liabilities
as of the close of business on the last day of the month preceding
the month in which the Effective Date falls plus (b) the amount of
the participating surplus with respect to the Coinsured Contracts
as of such date less (c) the amount of any contract loans under
the Coinsured Contracts as of such date and less (d) the amount of
the General Account Other Insurance Assets as of such date and
(ii) the General Account Other Insurance Assets, as of the close
of business on the last day of the month preceding the month in
which the Effective Date falls. As additional consideration for
the assumption of the General Account Liabilities by Reinsurer,
Reinsurer shall be entitled to 100% of all premiums, deposits and
other considerations to the extent received on or after the
Effective Date by Cedent or Reinsurer with respect to the general
account portion of the Coinsured Contracts, net of reinsurance
premiums and all other amounts payable on or after the Effective
Date with respect to the Outward Reinsurance. Cedent shall
promptly remit to Reinsurer (but in no event later than 72 hours
following the receipt of any such premiums, deposits and other
considerations) any such amounts received by it in respect of the
general account portion of any of the Coinsured Contracts and
hereby assigns to Reinsurer all of its rights to such premiums,
deposits and other considerations payable to Cedent.
Section 6.02. Contract Loans. (a) As further
consideration for the indemnity reinsurance of the General Account
Liabilities hereunder, Reinsurer shall, subject to the provisions
of this Section 6.02, be entitled to all contract loan repayments
(including both principal and interest) under the Coinsured
Contracts, payable in accordance with Article V hereof.
(b) Cedent shall, from and after the Recapture Date,
have the right to retain all contract loan repayments under the
Coinsured Contracts, and to direct Reinsurer to pay to Cedent all
such contract loan repayment amounts collected by Reinsurer
pursuant to the Cedent Administrative Services Agreement.
Section 6.03. Ceding Commission. As consideration for
the reinsurance ceded by Cedent to Reinsurer of the Coinsured
Contracts and the acquisition by Reinsurer of rights in respect of
such Coinsured Contracts, Reinsurer shall pay Cedent the Ceding
Commission as of the Effective Date by including such amount in
the Purchase Price (as defined in the Acquisition Agreement)
payable by Reinsurer on the Closing Date under the Acquisition
Agreement. Reinsurer shall provide Cedent its allocation of the
Ceding Commission among the life insurance and non-cancelable
disability insurance, other health insurance, and annuity
contracts included in the Coinsured Contracts.
ARTICLE VII
INSOLVENCY
Reinsurer hereby agrees that, as to all reinsurance made,
ceded, renewed or otherwise becoming effective hereunder, the
reinsurance shall be payable by Reinsurer on the basis of the
liability of Cedent under the Coinsured Contracts reinsured on an
indemnity basis directly to Cedent or to its conservator,
liquidator, receiver or other statutory successor, without
diminution because of (i) the insolvency, liquidation or
rehabilitation of Cedent, (ii) the appointment of a conservator,
receiver, liquidator or statutory successor of Cedent, or (iii)
the failure of the conservator, receiver, liquidator or statutory
successor of Cedent to pay all or a portion of any claim. It is
agreed that any conservator, receiver, liquidator or statutory
successor of Cedent shall give prompt written notice to Reinsurer
of the pendency or submission of a claim under any such Coinsured
Contracts within a reasonable time after such claim is filed in
the receivership, conservation, insolvency or liquidation
proceeding. During the pendency of such claim, Reinsurer may
investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated, any defense
available to Cedent or its conservator, receiver, liquidator or
statutory successor except where: (i) the Coinsured Contract
specifies another payee of such reinsurance in the event of the
insolvency of Cedent and (ii) Reinsurer, with the consent of the
direct insureds has assumed such policy obligations of Cedent as
its direct obligations to the payees under such Coinsured
Contracts, in substitution for the obligations of Cedent to such
payees. The expense thus incurred by Reinsurer is chargeable
against Cedent, subject to the approval of the court, as a part of
the expense of insolvency, liquidation or rehabilitation to the
extent of a proportionate share of the benefit which accrues to
Cedent solely as a result of the defense undertaken by Reinsurer.
ARTICLE VIII
OFFSETS
Any debts or credits between Cedent and Reinsurer arising
under this Agreement are deemed mutual debts or credits, as the
case may be, and shall be netted or set off, as the case may be,
and only the balance shall be allowed or paid hereunder.
ARTICLE IX
RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES
Reinsurer's reinsurance of the General Account Liabilities
is intended for the sole benefit of the parties to this Agreement
and shall not create any right on the part of any other party,
including, without limit, any Contractholder, insured, claimant or
beneficiary, against Reinsurer or any legal relation between any
Contractholders, insureds, claimants or beneficiaries and
Reinsurer.
ARTICLE X
ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made by either
Cedent or Reinsurer in connection with this Agreement or any
transaction hereunder shall not relieve the other party from any
liability which would have attached to such party had such delay,
error or omission not occurred, provided that the party causing
such delay, error or omission rectifies the same as soon as
possible after its discovery thereof. If, as a result of any such
delay, error or omission, there is a delay in the transfer of
funds to be transferred pursuant hereto, the party responsible for
such delay, error or omission shall pay, to the party to whom such
funds are to be transferred, interest on the amount of funds to be
transferred from the date of such delay, error or omission to and
including the date of such transfer of funds at a rate equal to
the 90-Day Treasury Rate.
ARTICLE XI
DUTY OF COOPERATION
Section 11.01. Cooperation Generally. Each party hereto
shall cooperate fully with the other in all reasonable respects in
order to accomplish the objectives of this Agreement. The duty of
cooperation shall apply, but not be limited, to regulatory matters
and to litigation matters involving third parties.
Section 11.02. Product Tax Cooperation. Cedent shall, at
Reinsurer's written request and sole cost and expense, cooperate
fully with Reinsurer in obtaining such relief as Reinsurer shall
reasonably require (including obtaining a waiver from, or entering
into a settlement or closing agreement with, the Internal Revenue
Service or an affected policyholder) with respect to any non-compliance
by Cedent or Reinsurer with any product tax requirement
or limitation contained in the Code (including without limitation
sections 72, 101, 817, 7702 and 7702A of the Code) regarding any
Coinsured Contract; provided, however, that this Section 11.02
shall apply only if Reinsurer's written request is not given prior
to the last day of the twentieth calendar month following the
month in which the Closing Date falls. Cedent shall permit
Reinsurer to participate in any discussions, negotiations or
settlements with the Internal Revenue Service or any affected
policyholder pursuant to this Section 11.02 and, to the extent
Cedent is not adversely affected by such actions, to control such
discussions, negotiations or settlements.
ARTICLE XII
DEFERRED ACQUISITION COSTS
Section 12.01. Section 848 Election. (a) Each of Cedent
and Reinsurer acknowledges that it is subject to taxation under
Subchapter L of the Code and hereby makes the election
contemplated by Section 1.848-2(g)(8) of the Income Tax
Regulations with respect to this Agreement. Each of Cedent and
Reinsurer (i) agrees that such election is effective for the
taxable year of each party that includes the Effective Date and
for all subsequent years during which this Agreement remains in
effect and (ii) warrants that it will take no action to revoke the
election.
(b) Pursuant to Section 1.848-2(g)(8) of the Income Tax
Regulations, each of Cedent and Reinsurer hereby agrees (i) to
attach a schedule to its federal income tax return for its first
taxable year ending on or after the Effective Date that identifies
this Agreement as a reinsurance agreement for which the joint
election under Section 1.848-2(g)(8) has been made, (ii) that the
party with net positive consideration, as defined in Section 848
of the Code and the Income Tax Regulations thereunder, for this
Agreement for each taxable year will capitalize its specified
policy acquisition expenses with respect to this Agreement without
regard to the general deductions limitation of Section 848(c)(1)
of the Code, and (iii) to exchange information pertaining to the
amount of net consideration, as defined in Section 848 of the Code
and the Income Tax Regulations thereunder, under this Agreement
each year to ensure consistency. Reinsurer shall prepare and
execute duplicate copies of the schedule described in the
preceding sentence as soon as possible after the Effective Date
and submit them to Cedent for execution. Cedent shall execute the
copies and return one of them to Reinsurer within 30 days of
Cedent's receipt of such copies.
Section 12.02. DAC Adjustment. (a) For purposes of
this Agreement, the term "DAC Adjustment" is calculated as
follows: First, for each taxable year with respect to each
category of Coinsured Contracts, "the gross amount incurred by the
reinsurer with respect to this Agreement" (as defined in section
1.848-2(f)(2)(i)(A) of the Income Tax Regulations) for such
category (but not including any DAC Adjustment incurred in such
year) is multiplied by the applicable percentage set forth in
section 848 (c)(1) of the Code for such category. The sum, if
any, from the preceding sentence is then reduced by the
amortization allowed Cedent under section 848(a)(2) of the Code
for such category, but only with regard to amounts capitalized per
this Agreement under section 1.848-2(f)(2)(i)(A). The result for
a category, whether positive or negative, is then multiplied by
the quotient of: tr/(1-(tr x (1+Y))), where tr = the maximum
applicable marginal corporate federal income tax rate (as defined
in section 11(b)(1)(D) of the Code) for the taxable year, and Y =
the applicable percentage set forth in section 848(c)(1) for such
category of Coinsured Contracts. The aggregate amount of such
calculations for all categories of Coinsured Contracts for a
taxable year (whether positive or negative) is the DAC Adjustment
for the year.
(b) Within 60 days of the end of Cedent's taxable year, Cedent
shall calculate the DAC Adjustment for the year and submit such
calculations to Reinsurer for review. If, within 30 days of
Reinsurer's receipt of such calculations, Reinsurer shall not have
objected in writing to such calculations, the calculations shall
become final. If, within 15 days of any objection in writing to
such calculations, Cedent and Reinsurer shall not have agreed in
writing to such calculations (in which case the calculations shall
become final), any disputed aspects of the calculations shall be
resolved by the Third Party Accountant (as defined in the
Acquisition Agreement) within 30 days of the submission of the
dispute to the Third Party Accountant by Cedent or Reinsurer. The
decision of the Third Party Accountant shall be final (and the
resulting calculations shall be final), and the costs, expenses,
and fees of the Third Party Accountant shall be borne equally by
Cedent and Reinsurer.
(c) If the amount of the DAC Adjustment for any taxable year of
Cedent is positive, Reinsurer shall pay such amount to Cedent
within 15 days of the date on which the calculations of the DAC
Adjustment become final. If the amount of the DAC adjustment for
any taxable year of Cedent negative, Cedent shall pay such amount
to Reinsurer within 15 days of the date on which the calculations
of the DAC Adjustment become final.
(d) Notwithstanding any other provision of this Section 12.02,
the term "gross amount incurred by the reinsurer with respect to
this Agreement" shall not include (i) all or any part of the
Ceding Commission or (ii) the consequences of any recapture of the
Coinsured Contracts pursuant to Section 3.02 hereof.
(e) In the event that section 848 of the Code or the Income Tax
Regulations thereunder are amended after the date hereof and any
change is made to the amortization period under Section 848(a)(2),
the capitalization percentages in Section 848(c)(1), or the
definition of the term "gross amount incurred by the reinsurer
with respect to the reinsurance agreement" in Section 1.848-2(f)(2)(i)(A)
of the Income Tax Regulations, Cedent and Reinsurer shall cooperate in
good faith to modify the definition of the term "DAC Adjustment" to
reflect such change, consistent with the principles and assumptions
originally used in defining that term in this Agreement.
ARTICLE XIII
ARBITRATION
Any dispute arising out of or relating to the
interpretation, performance or breach of this Agreement, including
the formation or validity hereof, shall be submitted for decision
to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at the
hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the
selection of the Umpire within 30 days of their appointment, then
each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two
candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing
procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall be
disinterested active or former officers of insurance or
reinsurance companies.
Within 30 days after notice of appointment of all
arbitrators, the panel shall meet and determine a schedule for the
conduct of the arbitration, including hearings. The panel shall
be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. The panel shall
determine where the arbitration shall take place. To the extent
and only to the extent that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision
considering the custom and practice of the applicable insurance
and reinsurance business. Insofar as the arbitration panel looks
to substantive law, the law of New York shall govern. The
decision of any two arbitrators when rendered in writing shall be
final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
The panel shall render its decision, which shall be in
writing and state the reasons therefor, within 60 days following
the termination of hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof. Each party
shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the
panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not
limited to interest (determined at the Panel's discretion) and
attorneys' fees, to the extent permitted by law.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
Section 14.01. Notices. Any notice required or permitted
hereunder shall be in writing and shall be delivered personally
(by courier or otherwise), telegraphed, telexed, sent by facsimile
transmission or sent by certified or registered mail, postage
prepaid and return receipt requested, or by express mail. Any
such notice shall be deemed given when so delivered personally,
telegraphed, telexed or sent by facsimile transmission or, if
mailed, three days after the date of deposit in the United States
mails, as follows:
(1) If to Reinsurer to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to Cedent to:
CIGNA Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: Corporate Secretary, David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
Any party may, by notice given in accordance with this
Agreement to the other party, designate another address or person
for receipt of notices hereunder.
Section 14.02. Amendment. This Agreement may not be
modified, changed, discharged or terminated, except by an
instrument in writing signed by an authorized officer of each of
the parties hereto.
Section 14.03. Counterparts. This Agreement may be
executed by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but all
such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all,
of the parties hereto.
Section 14.04. No Third Party Beneficiaries. Nothing in
this Agreement is intended or shall be construed to give any
Person, other than the parties hereto, their successors and
permitted assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained
herein.
Section 14.05. Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either party (in whole or in part) without the
prior written consent of the other party hereto.
Section 14.06. Governing Law. SUBJECT TO ARTICLE XIII
HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 14.07. Credit for Ceded Reinsurance. Reinsurer
shall take at its own expense all actions, and maintain all
licenses, permits and authorizations, as are necessary in order
for Cedent to receive credit for reinsurance ceded hereunder as
reported in Cedent's financial statements.
Section 14.08. Entire Agreement. This Agreement, together
with the Acquisition Agreement and the other Ancillary Agreements
(as defined in the Acquisition Agreement), constitutes the entire
agreement between the parties relating to the indemnity
reinsurance of the Coinsured Contracts, and there are no other
agreements between the parties hereto, either existing or
contemplated, written or oral, relating thereto.
Section 14.09. No Reinsurance Intermediary. The parties
acknowledge that there is no reinsurance intermediary entitled to
a fee from either Cedent or Reinsurer by reason of acting as a
broker in soliciting, negotiating or procuring the making of this
Agreement or any binder for this Agreement.
IN WITNESS WHEREOF, Cedent and Reinsurer have executed this
Agreement as of the date first above written.
CIGNA LIFE INSURANCE COMPANY
By:
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
<PAGE>
SCHEDULE 1.01
In-Force Contracts
<PAGE> SCHEDULE 1.02
Post-Closing Contracts
<PAGE> SCHEDULE 1.03
Cedent Separate Accounts
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
by and between
CIGNA LIFE INSURANCE COMPANY
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of _________, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
APPOINTMENT; STANDARDS;NOTIFICATION OF CONTRACTHOLDERS . . . . 4
Section 2.01. Appointment and Acceptance of Appointment. . . .4
Section 2.02. Standards. . . . . . . . . . . . . . . . . . . .4
Section 2.03. Notification of Contractholders. . . . . . . . .4
ARTICLE III - ADMINISTRATIVE SERVICES . . . . . . . . . . . . . .4
Section 3.01. Administrative Services in General . . . . . . .4
Section 3.02. Collection Services. . . . . . . . . . . . . . .5
Section 3.03. Processing of Disbursements. . . . . . . . . . .5
Section 3.04. Payment of Disbursements . . . . . . . . . . . .6
Section 3.05. Denied Disbursements . . . . . . . . . . . . . .6
Section 3.06. Certain Actions by CLIC. . . . . . . . . . . . .7
Section 3.07. Compensation and Reimbursement for CLIC. . . . .8
ARTICLE IV - BOOKS AND RECORDS; REPORTS . . . . . . . . . . . . .8
Section 4.01. Maintenance of Books and Records . . . . . . . .8
Section 4.02. Transaction Report . . . . . . . . . . . . . . .9
Section 4.03. Final Balance Sheet. . . . . . . . . . . . . . .9
ARTICLE V - INABILITY TO PERFORM SERVICES; ERRORS . . . . . . . .9
Section 5.01. Inability to Perform Services. . . . . . . . . .9
Section 5.02. Errors . . . . . . . . . . . . . . . . . . . . .9
ARTICLE VI - REGULATORY MATTERS . . . . . . . . . . . . . . . . 10
Section 6.01. Responsibilities of Purchaser. . . . . . . . . 10
ARTICLE VII - INDEMNIFICATION . . . . . . . . . . . . . . . . . 10
Section 7.01. Indemnification. . . . . . . . . . . . . . . . 10
Section 7.02. Notice of Asserted Liability . . . . . . . . . 11
Section 7.03. Right to Contest Claims of Third Parties . . . 11
Section 7.04. Indemnification Payments . . . . . . . . . . . 12
ARTICLE VIII - DURATION; TERMINATION . . . . . . . . . . . . . . 12
Section 8.01. Duration . . . . . . . . . . . . . . . . . . . 12
Section 8.02. Termination. . . . . . . . . . . . . . . . . . 12
ARTICLE IX - ARBITRATION . . . . . . . . . . . . . . . . . . . . 13
ARTICLE X - INSURANCE . . . . . . . . . . . . . . . . . . . . . 14
Section 10.01. Liability Insurance . . . . . . . . . . . . . 14
Section 10.02. Fidelity Bond . . . . . . . . . . . . . . . . 14
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 11.01. Headings, Schedules and Exhibits. . . . . . . 15
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . 15
Section 11.03. Amendments. . . . . . . . . . . . . . . . . . 16
Section 11.04. Execution in Counterpart. . . . . . . . . . . 16
Section 11.05. Limited Authority . . . . . . . . . . . . . . 16
Section 11.06. Assignment. . . . . . . . . . . . . . . . . . 16
Section 11.07. No Third Party Beneficiaries. . . . . . . . . 17
Section 11.08. Subcontracting. . . . . . . . . . . . . . . . 17
Section 11.09. Change in Status. . . . . . . . . . . . . . . 17
Section 11.10. Survival. . . . . . . . . . . . . . . . . . . 17
Section 11.11. Further Assurances. . . . . . . . . . . . . . 17
Section 11.12. Governing Law.. . . . . . . . . . . . . . . . 17
SCHEDULE 1.01. . . . . . . . . . . . . . . . CLIC Separate Accounts
SCHEDULE 2.01. . . . . . . . . . . . . . . .Administrative Services
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this
"Agreement"), dated as of ________, 1997, is made by and between
CIGNA Life Insurance Company, a stock life insurance company
organized under the laws of the State of Connecticut ("CLIC") and
an indirect wholly owned subsidiary of CIGNA Corporation, a
Delaware corporation, and The Lincoln National Life Insurance
Company, a stock life insurance company incorporated in Indiana
and a wholly owned subsidiary of Lincoln National Corporation
("Purchaser").
WHEREAS, pursuant to an Indemnity Reinsurance Agreement
between CLIC and Purchaser that is being executed concurrently
with this Agreement (the "CLIC Indemnity Reinsurance Agreement"),
Purchaser has agreed to indemnify CLIC for 100% of the General
Account Liabilities, as defined in the CLIC Indemnity Reinsurance
Agreement (such General Account Liabilities being referred to
herein as the "General Account Liabilities"); and
WHEREAS, CLIC wishes to appoint Purchaser to provide all
administrative services with respect to the Coinsured Contracts
and the CLIC Separate Accounts (as defined below), and Purchaser
desires to provide such administrative services in consideration
for CLIC entering into the Acquisition Agreement (as defined
below) and the CLIC Indemnity Reinsurance Agreement;
NOW THEREFORE, in consideration of the mutual covenants
and promises contained herein and upon the terms and conditions
set forth herein, the parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meaning
set forth below throughout the Agreement:
"Acquisition Agreement" means the Second Amended and
Restated Asset Transfer and Acquisition Agreement entered into by
and among CIGNA Corporation, Connecticut General Corporation,
Connecticut General Life Insurance Company, CIGNA Life Insurance
Company, Lincoln National Corporation, Purchaser and Lincoln Life
& Annuity Company of New York dated as of July 27, 1997.
"Administrative Services" shall have the meaning set
forth in Section 2.01 hereof.
"Asserted Liability" shall have the meaning set forth in
Section 7.03 hereof.
"Business" shall have the same meaning as set forth in
the Acquisition Agreement.
"Business Day" means any day on which the unit value of
the CLIC Separate Accounts is required to be calculated.
"CLIC" shall have the meaning set forth in the
introductory paragraph hereof.
"CLIC Indemnity Reinsurance Agreement" shall have the
meaning set forth in the first recital hereof.
"CLIC Losses" shall have the meaning set forth in
Section 7.01 hereof.
"CLIC Separate Accounts" means the separate accounts of
CLIC described on Schedule 1.01 hereto.
"Coinsured Contracts" shall have the same meaning as the
term "Coinsured Contracts" set forth in the CLIC Indemnity
Reinsurance Agreement (which term, for the avoidance of doubt,
includes policies and contracts funded by the CLIC Separate
Accounts and issued by CLIC through CIGNA's Individual Insurance
Division).
"Contractholder" means the holder of any Contract.
"Commission" means the Securities and Exchange
Commission.
"Effective Date" means the Effective Date as defined in
the CLIC Indemnity Reinsurance Agreement.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"General Account Liabilities" shall have the meaning set
forth in the first recital hereof.
"Guaranty Fund Adjustment" shall have the meaning set
forth in Section 3.06(a) hereof.
"Indemnified Party" shall have the meaning set forth in
Section 7.02 hereof.
"Indemnifying Party" shall have the meaning set forth in
Section 7.02 hereof.
"Intermediary" means an individual or entity designated
by a Contractholder as its broker of record or as the individual
or entity that will act on such Contractholder's behalf, in some
or all respects, in connection with such Contractholder's
Coinsured Contract.
"Legally Required CLIC Actions" shall have the meaning
set forth in Section 3.01 hereof.
"License Agreement" shall have the meaning set forth in
the Acquisition Agreement.
"NAIC" means the National Association of Insurance
Commissioners.
"NASD" means the National Association of Securities
Dealers, Inc.
"Outward Reinsurance" means reinsurance cessions by CLIC
with respect to the Coinsured Contracts, other than pursuant to
the CLIC Indemnity Reinsurance Agreement.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit, division or other entity.
"Post-Closing Assessments" shall have the meaning set
forth in Section 3.06(a) hereof.
"Premium Tax Credit" shall have the meaning set forth in
Section 3.06(a) hereof.
"Purchaser" shall have the meaning set forth in the
introductory paragraph hereof.
"Purchaser Losses" shall have the meaning set forth in
Section 7.01 hereof.
"Service Provider" means an individual or entity, other
than an Intermediary, that provides services to holders of
Coinsured Contracts with respect to the Coinsured Contracts other
than CLIC or Purchaser.
"Third Party Claimant" shall have the meaning set forth
in Section 7.03 hereof.
"Transition Services Agreement" shall have the meaning
set forth in the Acquisition Agreement.
"Umpire" shall have the meaning set forth in Article IX.
ARTICLE II
APPOINTMENT; STANDARDS;
NOTIFICATION OF CONTRACTHOLDERS
Section 2.01. Appointment and Acceptance of
Appointment. CLIC hereby appoints Purchaser to provide, with
respect to the Coinsured Contracts, the administrative services
specified herein and in Schedule 2.01 hereto (collectively, the
"Administrative Services") for the period specified in Section
8.01 of this Agreement, and Purchaser hereby accepts such
appointment and agrees to perform such services.
Section 2.02. Standards. Purchaser acknowledges that
the performance of the Administrative Services in an accurate and
timely manner is of paramount importance to CLIC. Purchaser
agrees to perform the Administrative Services with the skill,
diligence and expertise commonly expected from experienced and
qualified personnel performing such duties and in conformance with
industry standards and applicable law.
Notwithstanding the foregoing obligations, in
recognition of the fact that Purchaser is taking over the
administrative procedures used prior to the Effective Date by
CLIC, Purchaser shall not be obligated by this Agreement or any
schedule hereto to perform during the first 18 months after the
Effective Date the services required by this Agreement in a manner
different from the manner in which such services are being
provided by CLIC immediately prior to the Effective Date;
provided, however, that after the Effective Date, Purchaser shall
make any changes required by changes in law (or the interpretation
thereof) subsequent to the Effective Date and any changes required
by changes in industry standards.
Section 2.03. Notification of Contractholders.
Purchaser agrees to send to (i) holders of the Coinsured
Contracts, (ii) Intermediaries, and (iii) Service Providers, a
written notice prepared by CLIC and reasonably acceptable to
Purchaser to the effect that Purchaser has been appointed by CLIC
to provide Administrative Services. Purchaser shall send such
notice promptly after receipt thereof, but in no event more than
30 Business Days thereafter, by first class U.S. mail.
ARTICLE III
ADMINISTRATIVE SERVICES
Section 3.01. Administrative Services in General.
Purchaser agrees to perform all administrative services required
to be performed with respect to the Coinsured Contracts and the
CLIC Separate Accounts, and is authorized to do so in the name or
on behalf of CLIC where appropriate, including, without limitation
those specifically provided for in Sections 3.02 through 3.05 and
elsewhere in this Agreement, but subject to Section 3.06 and the
next following paragraph.
The intention of the parties is that Purchaser will
perform all such administrative services in such a way as to
minimize the involvement of CLIC and its affiliates therein,
subject to (a) Section 3.06 and (b) any requirements of law or
governmental authorities having jurisdiction that require that
specific actions, other than those provided for in Section 3.06,
be taken by CLIC without Purchaser acting on its behalf ("Legally
Required CLIC Actions").
Without limiting the generality of the foregoing,
Purchaser shall have the right to cause CLIC to effect the
termination of any participation agreements and/or to enter into
new participation agreements relating to underlying funding media
for the CLIC Separate Accounts.
Section 3.02. Collection Services. Purchaser agrees to
perform the following services with respect to amounts due from
holders of the Coinsured Contracts:
(a) Collect premiums, deposits and other remittances
from Contractholders (including payments of principal or interest
on contract loans) and from any collection facility, including
Intermediaries and other persons or institutions that receive
remittances with respect to the Coinsured Contracts, and process
the remittances in a manner reasonably acceptable to CLIC.
(b) Collect amounts payable in respect of Outward
Reinsurance.
(c) Maintain records pertaining to the collection and
processing of premiums, deposits or other remittances and amounts
payable in respect of Outward Reinsurance in the format utilized
by CLIC on the Effective Date or as otherwise agreed by the
parties.
(d) Promptly invest in the CLIC Separate Accounts
deposits collected which relate to the separate account portions
of Coinsured Contracts (including transfers from fixed options
under the Coinsured Contracts), and forward funds and required
information to the underlying investment management companies in
accordance with any applicable agreements, laws and regulations.
Section 3.03. Processing of Disbursements. Purchaser
agrees to perform the following services with respect to
disbursements made in respect of the Coinsured Contracts for
payment of death benefits, annuity benefits, withdrawals,
surrenders, transfers, policy loans, returns of deposits, and any
other disbursement and payments due to reinsurers or otherwise in
respect of Outward Reinsurance:
(a) Receive and process requests for disbursements.
(b) Process policy lapses, expiries and/or non-forfeiture options
with respect to the Coinsured Contracts.
(c) Evaluate requests for disbursements and either pay
any such request for disbursement, in accordance with Section 3.04
hereof, or propose to deny any such request for disbursement in
full or in part, in accordance with Section 3.05 hereof,
(i) within 10 Business Days after receipt of all documentation
required to process any such disbursement, with respect to any
request for a disbursement relating to the general account portion
of a Coinsured Contract and (ii) within the time period specified
in the applicable contract, with respect to any request for a
disbursement relating to the separate account under a Coinsured
Contract, or, in the case of either clause (i) or clause (ii)
above, within any shorter time provided by applicable statute,
rule or regulation. In the event that Purchaser is unable to make
a determination as to whether any such request for disbursement
should be paid or denied within the specified period, it shall
notify CLIC immediately in writing and shall state in such notice
the reasons for such delay.
Section 3.04. Payment of Disbursements. Purchaser
agrees to pay all disbursements (subject, where appropriate, to
reimbursement from the relevant CLIC Separate Account). Purchaser
will do so directly so as to avoid, to the maximum extent
practicable, CLIC or its affiliates being required to make any
payments in connection with the Coinsured Contracts or the
Administrative Services, except as specifically provided otherwise
in Section 3.06.
Section 3.05. Denied Disbursements. (a) Purchaser
agrees to promptly notify CLIC if it proposes to deny any
disbursement request. The notice required under this Section 3.05
will contain the basis for Purchaser's decision to deny such
disbursement request and the date that such disbursement would be
required to be made. Purchaser may not deny a disbursement
request if CLIC reasonably objects to such denial in writing
within 10 Business Days of CLIC's receipt of the notice required
under this Section 3.05 (or within such shorter period as may be
required to permit the relevant disbursement to be made within the
time period required by any applicable law or regulation). In the
event that Purchaser notifies CLIC of a proposed denial on the
Business Day that the disbursement would be required to be made
and CLIC objects to such proposed denial, then the disbursement
shall be made as soon as practicable thereafter, and CLIC
acknowledges that such disbursement may be made later than the
date otherwise required by this Agreement.
(b) Purchaser agrees to immediately notify CLIC of any
litigation that has been instituted or threatened, or of any
complaint which any person has filed or has threatened to file
with any state insurance department or other regulatory agency,
with respect to any denied disbursement request or any
disbursement request-handling procedure in connection with a
Coinsured Contract, regardless of whether the disbursement request
was paid or denied, or with respect to any other matter relating
to a Coinsured Contract. Such notice shall contain a report
summarizing the nature of the litigation or complaint, the alleged
actions or omissions giving rise to the litigation or complaint
and copies of any files that CLIC may require to respond to the
litigation or complaint.
(c) Purchaser shall pay the expenses of any litigation
or regulatory proceeding with respect to the Coinsured Contracts
(subject to any indemnification rights of Purchaser under this
Agreement or any other agreement between Purchaser and CLIC).
Section 3.06. Certain Actions by CLIC.
Notwithstanding the provisions of Section 3.01:
(a) Purchaser will give CLIC timely notice of any
Legally Required CLIC Actions and, to the maximum extent
practicable, prepare in a timely manner the forms of any
documentation required for CLIC to comply therewith. CLIC will
prepare and, subject to Purchaser's compliance with this section,
timely file any filings required to be made with any governmental
authorities, including filings with insurance regulators and
guaranty associations and filings and premium tax returns with
taxing authorities that relate to CLIC generally and not just to
the Coinsured Contracts and the CLIC Separate Accounts and will
make any payments required in connection with such filings and
premium tax returns and any assessment by guaranty associations.
To the extent reasonably possible, Purchaser will be responsible
for complying with all applicable reporting, withholding and
disclosure requirements under the Internal Revenue Code of 1986
with respect to the Coinsured Contracts and CLIC Separate
Accounts, and CLIC will cooperate with Purchaser to the extent
necessary to allow Purchaser to fulfill its responsibilities.
Purchaser will, in a timely fashion in light of the dates such
filings and payments by CLIC are required, provide to CLIC all
information with respect to the Coinsured Contracts and the CLIC
Separate Accounts that may be required for CLIC to prepare such
filings and tax returns and will pay to CLIC (without reduction
for Premium Tax Credits, as defined below) the amounts that are
required to be paid by CLIC in connection with such filings and
premium tax returns in respect of premiums, deposits or other
consideration paid to CLIC after the Effective Date on the
Coinsured Contracts and the CLIC Separate Accounts. Without
limiting the generality of the foregoing, Purchaser will reimburse
CLIC for premium taxes due on the Coinsured Contracts and the CLIC
Separate Accounts in sufficient time to allow CLIC to file such
returns.
As described below, Purchaser will pay to CLIC an amount
equal to the portion of any guaranty fund assessments or other
premium based assessments paid by CLIC after the Effective Date
that are based on premiums, deposits and other consideration paid
or earned after the Effective Date on the Coinsured Contracts and
CLIC Separate Accounts ("Post Closing Assessments"). CLIC will
pay to or provide Purchaser with the benefit of any Post Closing
Assessments which have been applied to reduce CLIC's premium tax
liability ("Premium Tax Credits"), regardless of the source of
such liability. CLIC will provide to Purchaser by March 15 of
each year a statement of the amount of Post Closing Assessments
less Premium Tax Credits for the prior calendar year ("Guaranty
Fund Adjustment"). By March 30 of each year Purchaser will pay to
CLIC the Guaranty Fund Adjustment, if a positive amount, and CLIC
will pay or credit to Purchaser the Guaranty Fund Adjustment, if a
negative amount.
(b) In the event that CLIC retains a portion of any
investment asset transferred to Purchaser pursuant to Section 6.01
of the CLIC Indemnity Reinsurance Agreement and Section 2.03(c) of
the Acquisition Agreement, (i) CLIC will continue to provide, or
cause to be provided, investment management with respect to such
asset if CLIC's retained interest is equal to or greater than 50%
of the combined interest of CLIC and Purchaser in such asset and
(ii) Purchaser will provide, or cause to be provided, investment
management services with respect to such asset if CLIC's interest
is less than 50% of the combined interest of CLIC and Purchaser in
such asset. The party providing such investment management
services shall do so in the same manner as such party provides
such services with respect to its own portion of the relevant
asset, but shall make no other warranty, or have any other
responsibility, to the other party with respect to such investment
management services.
Section 3.07. Compensation and Reimbursement for CLIC.
Purchaser will, promptly upon CLIC's request therefor:
(a) compensate CLIC for any administrative services it
may from time to time, notwithstanding the intention of the
parties expressed in Section 3.01, be required to perform with
respect to the Coinsured Contracts and the CLIC Separate Accounts,
including without limitation accounting, legal, tax and regulatory
filing services, Legally Required CLIC Actions and, to the extent
they relate to Coinsured Contracts and CLIC Separate Accounts,
actions and services referred to in Section 3.06; and
(b) reimburse CLIC for any other costs it may
reasonably incur with respect to the Coinsured Contracts and the
CLIC Separate Accounts as a result of the reinsurance arrangement
contemplated by the CLIC Indemnity Reinsurance Agreement.
The compensation and reimbursement referred to in this Section
3.07 shall be based on CLIC's fully-allocated costs, including a
proportionate share of corporate overhead, as detailed in invoices
to Purchaser.
ARTICLE IV
BOOKS AND RECORDS; REPORTS
Section 4.01. Maintenance of Books and Records. (a)
For the duration of this Agreement, Purchaser shall maintain, at a
location to be agreed upon by Purchaser and CLIC, books and
records of all transactions pertaining to the Coinsured Contracts,
including, but not limited to, any disbursement requests submitted
in respect of the Coinsured Contracts and any documents relating
thereto, any communications relating to any Coinsured Contract,
any communication with any regulatory authority, complaint logs
and all data used by Purchaser in the performance of services
required under this Agreement. These books and records shall be
maintained (i) in accordance with any and all applicable statutes,
rules and regulations and (ii) in a format no less accessible than
the format in which such books and records are maintained on the
date hereof. All such books and records pertaining to a Coinsured
Contract shall be made available to CLIC, its auditors or other
designees, and regulatory agencies, during normal business hours
and at any other time on reasonable notice, for review,
inspection, examination and reproduction. Upon termination of
this Agreement, all books and records pertaining to Coinsured
Contracts which have not expired shall be delivered promptly to
CLIC or such other person or entity as CLIC shall designate in
writing.
(b) Purchaser shall back up all of its computer files
used in the performance of services under this Agreement on a
daily basis and shall maintain back-up files in an off-site
location.
(c) Purchaser shall maintain facilities and procedures
reasonably acceptable to CLIC for safekeeping all records used in
the performance of services under this Agreement.
Section 4.02. Transaction Report. Within five Business
Days of the end of each calendar month during the term of this
Agreement, Purchaser shall provide CLIC with a summary report and
accounting of all transactions, including receipts, payments,
policy loans, surrenders and other matters, that have occurred
during that month, in a form acceptable to CLIC. Purchaser shall
provide a final accounting to CLIC within 15 Business Days
following the end of the month during which the termination of
this Agreement occurs.
Section 4.03. Final Balance Sheet. Purchaser shall
assist CLIC, as reasonably requested by CLIC, in the preparation
of the Proposed Balance Sheet and the Final Balance Sheet, as such
terms are defined in the Acquisition Agreement.
ARTICLE V
INABILITY TO PERFORM SERVICES; ERRORS
Section 5.01. Inability to Perform Services. In the
event that Purchaser shall be unable to perform services as
required by this Agreement for any reason for a period that can
reasonably be expected to exceed three Business Days, Purchaser
shall cooperate with CLIC in obtaining an alternative means of
providing such services. Purchaser will be responsible for all
costs incurred in either restoring services or obtaining an
alternative source of services, except to the extent such
inability by Purchaser to perform the services required by this
Agreement is the result of, or is caused by, the failure of CLIC
to perform its obligations under the Transition Services
Agreement.
Section 5.02. Errors. Purchaser shall, at its own
expense, correct any errors in Administrative Services caused by
it within a reasonable time after receiving notice thereof from
CLIC or otherwise, except to the extent such inability by
Purchaser to perform the services required by this Agreement is
the result of, or is caused by, the failure of CLIC or any of its
Affiliates as the case may be, to perform its obligations as set
forth under the Transition Services Agreement. This obligation
includes, without limitation, reimbursement to the CLIC Separate
Accounts and the management investment companies underlying that
account for any dilution or other adverse effect due to
transactions made effective as of an earlier date, commonly
referred to as "breakage."
ARTICLE VI
REGULATORY MATTERS
Section 6.01. Responsibilities of Purchaser.
Purchaser, on behalf of CLIC,
shall, subject to the second paragraph of Section 3.01 and
Section 3.06(a) be responsible for all state insurance department
and federal and state securities law filings (including, but not
limited to, filings of riders and amendments), the maintenance of
all required licenses and permits, compliance with all regulatory
requirements and the taking of all required actions with respect
to government authorities.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Indemnification. (a) Purchaser agrees
to indemnify and hold harmless CLIC and any of its directors,
officers, employees, agents or affiliates from any and all losses,
costs, claims, demands, compensatory, extra contractual and/or
punitive damages, fines and penalties (collectively, "CLIC
Losses") arising out of or caused by: (i) fraud, theft or
embezzlement by officers, employees or agents of Purchaser during
the term of this Agreement; (ii) the failure, either intentional
or unintentional, of Purchaser to properly perform the services or
take the actions required by this Agreement, including, without
limitation, the failure to properly process, evaluate and pay
disbursement requests in accordance with the terms of this
Agreement; (iii) any other act of negligence or willful misconduct
committed by officers, agents or employees of Purchaser during the
term of this Agreement; (iv) any failure of Purchaser to comply
with applicable laws, rules and regulations during the term of
this Agreement other than, during the first 18 months after the
Effective Date, CLIC Losses arising out of or caused by actions or
inactions of Purchaser consistent with the manner in which such
services are being provided by CLIC immediately prior to the
Effective Date, except if changes are required pursuant to Section
2.02 hereof; or (v) the failure of any Person described in clause
(ii) of Section 11.08 to properly perform the services that
Purchaser is to provide hereunder.
(b) CLIC agrees to indemnify and hold harmless
Purchaser and any of its directors, officers, employees, agents or
affiliates from any and all losses, costs, claims, demands,
compensatory, extra contractual and/or punitive damages, fines and
penalties (collectively, "Purchaser Losses") arising out of or
caused by: (i) fraud, theft or embezzlement by officers,
employees or agents of CLIC during the term of this Agreement;
(ii) any other act of negligence or willful misconduct committed
by officers, agents or employees of CLIC during the term of this
Agreement; or (iii) any failure of CLIC to comply with applicable
laws, rules and regulations during the term of this Agreement
other than any failure on the part of CLIC or Purchaser caused by
the action or inaction of Purchaser, including when acting in the
name or on behalf of CLIC, whether or not in compliance with the
terms of this Agreement.
Section 7.02. Notice of Asserted Liability. In the
event that either party hereto asserts a claim for indemnification
hereunder, such party seeking indemnification (the "Indemnified
Party") shall give written notice to the other party (the
"Indemnifying Party") specifying the facts constituting the basis
for, and the amount (if known) of, the claim asserted.
Section 7.03. Right to Contest Claims of Third Parties.
(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim
or demand made, or an action, proceeding or investigation
instituted, by any Person not a party to this Agreement (a "Third
Party Claimant") that may result in a Purchaser Loss with respect
to which Purchaser is entitled to indemnification pursuant to
Section 7.01(a) hereof or a CLIC Loss with respect to which CLIC
is entitled to indemnification pursuant to Section 7.01(b) hereof
(an "Asserted Liability"), the Indemnified Party shall so notify
the Indemnifying Party as promptly as practicable, but in no event
later than 10 Business Days after such Asserted Liability is
actually known to the Indemnified Party. Failure to deliver
notice with respect to an Asserted Liability in a timely manner
shall not be deemed a waiver of the Indemnified Party's right to
indemnification for Losses in connection with such Asserted
Liability but the amount of reimbursement to which the Indemnified
Party is entitled shall be reduced by the amount, if any, by which
the Indemnified Party's losses would have been less had such
notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party, to investigate, contest,
defend or settle the Asserted Liability; provided, that the
Indemnified Party may, at its option and at its own expense,
participate in the investigation, contesting, defense or
settlement of any such Asserted Liability through representatives
and counsel of its own choosing. The failure of the Indemnifying
Party to respond in writing to proper notice of an Asserted
Liability within 10 days after receipt thereof shall be deemed an
election not to defend the same. Unless and until the
Indemnifying Party elects to defend the Asserted Liability, the
Indemnified Party shall have the right, at its option and at the
Indemnifying Party's expense, to do so in such manner as it deems
appropriate, including, but not limited to, settling such Asserted
Liability (after giving notice of the settlement to the
Indemnifying Party) on such terms as the Indemnified Party deems
appropriate.
(c) Except as provided in the immediately preceding
sentence, the Indemnified Party shall not settle or compromise any
Asserted Liability for which it seeks indemnification hereunder
without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld) during the 10 day period
specified above.
(d) The Indemnifying Party shall be entitled to
participate in (but not to control) the defense of any Asserted
Liability which it has elected, or is deemed to have elected, not
to defend, or which it does not have the right to defend under
paragraph (b) of this Section 7.03, with its own counsel and at
its own expense.
(e) Except as provided in the first sentence of
paragraph (b) of this Section 7.03, the Indemnifying Party shall
bear all costs of defending any Asserted Liability and shall
indemnify and hold the Indemnified Party harmless against and from
all costs, fees and expenses incurred in connection with defending
such Asserted Liability.
(f) Purchaser and CLIC shall make mutually available to
each other all relevant information in their possession relating
to any Asserted Liability (except to the extent that such action
would result in a loss of attorney-client privilege) and shall
cooperate with each other in the defense thereof.
Section 7.04. Indemnification Payments. Any payment
hereunder shall be made by wire transfer of immediately available
funds to such account or accounts as the Indemnified Party shall
designate to the Indemnifying Party in writing.
ARTICLE VIII
DURATION; TERMINATION
Section 8.01. Duration. This Agreement shall commence
on the date of its execution and continue until such time as none
of the Coinsured Contracts remains in force and no further
Administrative Services in respect of the Coinsured Contracts are
required, or until it is terminated under Section 8.02. Purchaser
shall cooperate fully in the transfer of services and the books
and records maintained by Purchaser pursuant to Section 4.01
hereof (or, where appropriate, copies thereof) to CLIC or CLIC's
designee, so that CLIC or its designee will be able to perform the
services required under this Agreement without interruption
following termination of this Agreement.
Section 8.02. Termination. (a) This Agreement is
subject to immediate termination at the option of CLIC, upon
written notice to Purchaser, on the occurrence of any of the
following events:
(i) A voluntary or involuntary proceeding is
commenced in any state by or against Purchaser for the purpose of
conserving, rehabilitating or liquidating Purchaser, or Purchaser
shall lose its authority to perform services hereunder;
(ii) There is a material breach by Purchaser of
any term or condition of this Agreement, that is not cured by
Purchaser within 90 days of receipt of written notice from CLIC of
such breach or act;
(iii) Any liability policy or bond required
pursuant to Article X of this Agreement is canceled, terminated or
substantially revised; or
(iv) Purchaser is unable to perform the services
required under Articles III, IV and V of this Agreement for a
period of 90 consecutive days for any reason.
(b) This Agreement will terminate automatically in the
event that CLIC exercises recapture under the CLIC Indemnity
Reinsurance Agreement pursuant to Section 3.02 thereof.
(c) This Agreement may be terminated at any time upon
the mutual written consent of the parties hereto, which writing
shall state the effective date of termination.
(d) In the event that this Agreement is terminated
under any of the provisions of this Section 8.02 other than
Section 8.02(b), Purchaser shall select a third-party
administrator to perform the services required by this Agreement.
CLIC shall have the right to approve any such administrator
selected by Purchaser, but such approval will not unreasonably be
withheld. If Purchaser fails to select an administrator pursuant
to this Section 8.02(d), CLIC shall select such an administrator.
In either case, Purchaser shall pay all fees and charges imposed
by the selected administrator.
ARTICLE IX
ARBITRATION
Any dispute arising out of or relating to the
interpretation, performance or breach of this Agreement, including
the formation or validity thereof, shall be submitted for decision
to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at the
hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the
selection of the Umpire within 30 days of their appointment, then
each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two
candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing
procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall
be disinterested active or former officers of insurance or
reinsurance companies.
Within 30 days after notice of appointment of all
arbitrators, the panel shall meet and determine a schedule for the
conduct of the arbitration, including hearings. The panel shall
be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. The panel shall
determine where the arbitration shall take place. To the extent
and only to the extent that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision
considering the custom and practice of the applicable insurance
and reinsurance business. Insofar as the arbitration panel looks
to substantive law, the law of New York shall govern. The
decision of any two arbitrators when rendered in writing shall be
final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
The panel shall render its decision, which shall be in
writing and state the reasons therefor, within 60 days following
the termination of hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof. Each party
shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the
panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not
limited to interest (determined at the Panel's discretion) and
attorneys' fees, to the extent permitted by law.
ARTICLE X
INSURANCE
Section 10.01. Liability Insurance. Purchaser shall
maintain errors and omissions liability coverages in commercially
prudent amounts, to cover any loss arising as a result of any real
or alleged negligence, errors or omissions on the part of
Purchaser's officers, agents or employees in any aspect of the
performance of services under this Agreement.
Section 10.02. Fidelity Bond. Purchaser shall maintain
fidelity bond coverage in commercially prudent amounts to cover
any loss due to the misdeeds of Purchaser's officers, employees or
agents.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Headings, Schedules and Exhibits.
Headings used herein are not a part of this Agreement and shall
not affect the terms hereof. The attached Schedules and Exhibits
are a part of this Agreement.
Section 11.02. Notices. Any notice required or
permitted hereunder shall be in writing and shall be delivered
personally (by courier or otherwise), telegraphed, telexed, sent
by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent
by facsimile transmission or, if mailed, three days after the date
of deposit in the United States mails, as follows:
(a) If to Purchaser to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(b) If to CLIC to:
CIGNA Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
ATTN: Corporate Secretary, David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
ATTN: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
Any party may, by notice given in accordance with this
Agreement to the other parties, designate another address or
person for receipt of notices hereunder.
Section 11.03. Amendments. This Agreement cannot be
modified, changed, discharged or terminated, except by an
instrument in writing signed by an authorized officer of each of
the parties hereto.
Section 11.04. Execution in Counterpart. This
Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than all,
but together signed by all of the parties hereto.
Section 11.05. Limited Authority. CLIC and Purchaser
are not partners or joint venturers, and no employee or agent of
either party shall be considered an employee or agent of the
other. Purchaser's authority shall be limited to that which is
expressly stated in this Agreement.
Section 11.06. Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either party (in whole or in part) without the
prior written consent of the other party hereto, which consent
shall not be unreasonably withheld provided, however, that
Purchaser may not assign this Agreement or such rights so long as
it is the reinsurer under the CLIC Indemnity Reinsurance
Agreement.
Section 11.07. No Third Party Beneficiaries. Except as
otherwise specifically provided for herein, nothing in this
Agreement is intended or shall be construed to give any person,
other than the parties hereto, their successors and permitted
assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 11.08. Subcontracting. Purchaser may not
subcontract for the performance of any services that Purchaser is
to provide hereunder, except as permitted in writing by CLIC,
which consent shall not be unreasonably withheld. Notwithstanding
the foregoing sentence, Purchaser shall be permitted to
subcontract for the performance of any of such services with (i)
any Person that is performing such services as a subcontractor for
CLIC as of the date hereof, without obtaining the consent of CLIC
so long as Purchaser notifies CLIC of such subcontract on or prior
to the effective date thereof or (ii) any Person that is
performing such services as a subcontractor for Purchaser with
respect to all or substantially all of Purchaser's insurance
business that is similar to the insurance business to be
administered hereunder.
Section 11.09. Change in Status. Purchaser shall
notify CLIC immediately of any "change of control" filing, the
adoption of any plan to liquidate, merge or dissolve Purchaser, or
of any proceeding or lawsuit which affects Purchaser's ability to
perform this Agreement, including, but not limited to, insolvency
or rehabilitation proceedings.
Section 11.10. Survival. The provisions of Articles
VII and IX hereof shall survive the termination of this Agreement.
Section 11.11. Further Assurances. Each of the parties
hereto shall execute such documents and other papers and perform
such further acts as may be reasonably required to carry out the
provisions of this Agreement. Without limiting the generality of
the foregoing, CLIC shall (a) execute all documents necessary to
grant Purchaser the disbursement payment authority contemplated by
Section 3.03 of this Agreement, (b) subject to Section 3.01, make
any CLIC regulatory filings or broker appointments that Purchaser
is required to make on behalf of CLIC hereunder and (c) grant any
licenses to Purchaser with respect to any logos, trademarks,
service marks or copyrights necessary for Purchaser to comply with
the terms of this Agreement.
Section 11.12. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives
as of the date first above written.
CIGNA LIFE INSURANCE COMPANY
By:
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
<PAGE>
SCHEDULE 1.01
CLIC Separate Accounts
<PAGE>
SCHEDULE 2.01
Administrative Services
o Disbursements, including but not limited to payment of
benefits, claim investigation, adjustment, resisting and
defense of claims, policy loans, premium refunds,
withdrawals, and surrenders
o Statistical information
o Billing and premium collection
o Policy lapses, expiries, and nonforfeitures
o Reinstatements
o Legally required accounting and actuarial information in
order to meet statutory, tax and GAAP requirements
o Preparation and filing of insurance forms and amendments,
including rate authorization filings, if applicable
o Underwriting and new business administration
o Commission processing
o Electronic data processing services
o Licensing of agents
o Preparation and filing of any tax information returns as may
be required under federal and state laws
o Completion of any annual, quarterly or monthly statement
exhibits
o Direct response to any insurance department or other
regulatory inquiries with copies to CLIC as are necessary to
enable CLIC to meet its compliance responsibilities
o Any DAC computations (whether or not related to Settlement
Agreements)
o Preparation of all reports required to be filed under federal
and state securities laws, including but not limited to the
annual and semiannual reports to contractholders,
confirmation of all contract customer transactions, proxy
material, including all mailings to contractholders, annual
reports on Form N-SAR, registration of units under Rule 24f-2
of the Investment Company Act of 1940, applications and
prospectuses.
o Reinsurance Administration
o Broker Dealer administrative activities (e.g. trading)
o Licensing and appointment of agents
o Contracting with and oversight of outside investment managers
o Compliance with IRC, SEC and other regulators with respect to
the registered products
<PAGE>
TRANSITION SERVICES AGREEMENT
by and between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of [__________]
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II - APPOINTMENT; STANDARDS . . . . . . . . . . . . . . .4
ARTICLE III
EFFECTIVE DATE; TERM; TERMINATION AS TO PARTICULAR SERVICES. . 4
ARTICLE IV - SERVICES . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE V - INABILITY TO PERFORM SERVICES; ERRORS . . . . . . . .8
ARTICLE VI - PRICING . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE VII - INDEMNIFICATION . . . . . . . . . . . . . . . . . .8
ARTICLE VIII - ARBITRATION . . . . . . . . . . . . . . . . . . . 11
ARTICLE IX - INSURANCE . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE X - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 12
SCHEDULE 2.01. . . . . . . . . . . . . . . . . . . Menu of Services
SCHEDULE 4.01. . . . . . . . . . . . . . . . . . .Services Selected
SCHEDULE 4.02(a) . . . . . . . . . . . . . . .Hartford Office Space
SCHEDULE 4.02(b) . . . . . . . . . . . . . . . . Field Office Space
SCHEDULE 4.03(b) . . . . . . . . . . . . . . . . . . . . .Employees
<PAGE>
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this "Agreement"),
dated as of [_______], is made by and between Connecticut General
Life Insurance Company, a stock life insurance company
incorporated in Connecticut ("Seller"), and The Lincoln National
Life Insurance Company, a stock life insurance company
incorporated in Indiana ("Purchaser").
WHEREAS, pursuant to the Indemnity Reinsurance Agreements
(as defined below), Purchaser and Lincoln Life & Annuity Company
of New York ("LLANY") are coinsuring certain individual life
insurance, health insurance and annuity contracts issued by Seller
and by CIGNA Life Insurance Company, a Connecticut domiciled stock
life insurance company and an Affiliate of Seller ("CLIC"); and
WHEREAS, pursuant to the Purchaser Administrative Services
Agreement (as defined herein) and the CLIC Administrative Services
Agreement (as defined herein), the parties are providing for
Purchaser to render certain administrative services to Seller and
CLIC with respect to the Non-New York Contracts (as defined
herein); and
WHEREAS, pursuant to the LLANY Administrative Services
Agreement (as defined herein), LLANY and Seller are providing for
LLANY to render certain administrative services to Seller with
respect to the New York Contracts (as defined herein); and
WHEREAS, pursuant to the Intercompany Administrative
Services Agreement (as defined herein), Purchaser and LLANY are
providing for Purchaser to render certain administrative services
to LLANY with respect to the New York Contracts; and
WHEREAS, the parties desire to effectuate the Purchaser
Administrative Services Agreement, the CLIC Administrative
Services Agreement, the LLANY Administrative Services Agreement
and provisions of the Intercompany Administrative Services
Agreement pertinent to LLANY's obligations under the LLANY
Administrative Services Agreement and to cooperatively provide for
an orderly transition in the performance of administrative
services from Seller and CLIC to Purchaser and from Seller to
LLANY as of the Effective Date (as defined herein) without
interruption of the operations of the Business (as defined
herein);
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, and upon the terms and
conditions set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meaning set
forth below throughout this Agreement:
"Acquisition Agreement" means the Second Amended and
Restated Asset Transfer and Acquisition Agreement, dated as of
July 27, 1997, by and among CIGNA Corporation, Connecticut General
Corporation, Seller, CIGNA Life Insurance Company, Lincoln
National Corporation, Purchaser and LLANY.
"Affiliate" means, with respect to any Person, at the time
in question, any other Person controlling, controlled by or under
common control with such Person.
"Business" means the business of issuing, selling and
administering individual life insurance (other than the COLI
Business), health insurance and annuity contracts as currently
conducted by CIGNA's Individual Insurance Division or, where so
specified herein, as conducted by Purchaser and LLANY following
the Closing, the other business activities related thereto as
currently conducted by CIGNA's Individual Insurance Division, and
the respective businesses currently conducted by the Parent
Subsidiaries.
"Business Day" shall have the meaning set forth in the
Purchaser Administrative Services Agreement.
"CLIC" shall have the meaning set forth in the second
paragraph of this Agreement.
"CLIC Administrative Services Agreement" means the
Administrative Services Agreement, dated as of the date hereof, by
and between CLIC and Purchaser.
"CLIC Indemnity Reinsurance Agreement" means the Indemnity
Reinsurance Agreement, dated as of the date hereof, by and between
CLIC and Purchaser.
"COLI Business" shall have the meaning set forth in the
Acquisition Agreement.
"Effective Date" means the Effective Date as defined in the
Indemnity Reinsurance Agreements.
"Indemnity Reinsurance Agreements" means the Purchaser
Indemnity Reinsurance Agreement, the LLANY Indemnity Reinsurance
Agreement and the CLIC Indemnity Reinsurance Agreement.
"Intercompany Administrative Services Agreement" means the
Administrative Services Agreement, dated as of the date hereof,
entered into by and between Purchaser and LLANY, providing for
Purchaser to render certain administrative services to LLANY with
respect to the New York Contracts on and after the Effective Date.
"LLANY" shall have the meaning set forth in the second
paragraph of this Agreement.
"LLANY Indemnity Reinsurance Agreement" means the Indemnity
Reinsurance Agreement, dated as of the date hereof, by and between
LLANY and Seller.
"LLANY Administrative Services Agreement" means the
Administrative Services Agreement, dated as of the date hereof,
entered into by and between LLANY and Seller.
"New York Contracts" means the Coinsured Contracts, as such
term is defined in the LLANY Indemnity Reinsurance Agreement.
"Non-New York Contracts" means the Coinsured Contracts, as
such term is defined in the Purchaser Indemnity Reinsurance
Agreement, and the Coinsured Contracts, as such term is defined in
the CLIC Indemnity Reinsurance Agreement.
"Office Lease Agreement" shall have the meaning set forth
in Section 4.02(a).
"Office Sublease Agreements" shall have the meaning set
forth in Section 4.02(b).
"Parent Subsidiaries" means CIGNA Financial Advisors, Inc.,
and CIGNA Associates, Inc.
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental, judicial or regulatory
body, business unit, division or other entity.
"Purchaser" shall have the meaning set forth in the first
paragraph of this Agreement.
"Purchaser Administrative Services Agreement" means the
Administrative Services Agreement, dated as of the date hereof, by
and between Purchaser and Seller.
"Purchaser Indemnity Reinsurance Agreement" means the
Indemnity Reinsurance Agreement, dated as of the date hereof, by
and between Purchaser and Seller.
"Seller" shall have the meaning set forth in the first
paragraph of this Agreement.
"Seller Separate Accounts" shall have the meaning set forth
in the Acquisition Agreement.
"Umpire" shall have the meaning set forth in Article VIII.
ARTICLE II
APPOINTMENT; STANDARDS
Section 2.01. Appointment and Acceptance of Appointment.
Seller has heretofore advised Purchaser of the services and assets
that Seller (other than the Business) or an Affiliate of Seller
(other than the Parent Subsidiaries) provides or otherwise makes
available to the Business and of the internal charge back
methodologies historically used by Seller or such Affiliates, as
the case may be, in charging the Business for such services and
assets ("Seller's Charge-Back Methodologies"). A listing of such
services and assets, as so advised to Purchaser, is contained in
Schedule 2.01 hereto. Purchaser has determined to avail itself,
from amongst the services and assets listed on Schedule 2.01, of
only those services and assets listed on Schedule 4.01 hereto.
Accordingly, Purchaser hereby appoints Seller to provide the
transition services specified in Article IV hereof and in Schedule
4.01 hereto (collectively, the "Transition Services") for the
period specified in Article III of this Agreement, and Seller
hereby accepts such appointment.
Section 2.02. Standards. Seller acknowledges that the
Transition Services are of paramount importance to Purchaser.
Seller agrees to provide the Transition Services at a level of
service substantially identical to that being provided to the
Business as of July 27, 1997.
ARTICLE III
EFFECTIVE DATE; TERM; TERMINATION AS TO PARTICULAR SERVICES
Section 3.01. Effective Date; Term. This Agreement shall
be effective as of the Effective Date. It shall have a term of 18
calendar months and shall terminate on the last day of the
eighteenth such calendar month following the Effective Date.
Section 3.02. Termination As To Particular Services.
Purchaser may terminate this Agreement with respect to any
specific service specified in Article IV hereof or in Schedule
4.01 hereto by delivery of notice to Seller not later than 60 days
prior to the effective date of such termination as specified in
such notice. No such termination shall in any way affect Seller's
obligation to provide any other service hereunder. Certain
specific services shall be provided for a shorter period than the
term of this Agreement, as provided herein.
ARTICLE IV
SERVICES
Section 4.01. Certain Specified Services. Seller shall
provide to Purchaser the services specified in Schedule 4.01
hereto. As compensation for the provision of such services by
Seller, Purchaser shall pay to Seller a fee determined in
accordance with the internal charge-back methodology historically
used by Seller with respect to such services (excluding any
extraordinary third-party charges incurred by Seller in order to
enable Seller to provide such Services to an unaffiliated third
party (i.e., Purchaser) as contemplated by this Agreement). In
addition to the foregoing, Purchaser shall pay, or shall reimburse
Seller for, any sales, use or similar taxes, including interest
and penalties, imposed by any state or local taxing authority with
respect to the fees paid by Purchaser under this Agreement.
Section 4.02 Lease and Sub-Leases of Office Space. (a) On
the Effective Date, Seller and Purchaser shall enter into an
agreement (the "Office Lease Agreement") with respect to the
office space in Seller's headquarters facility in Bloomfield,
Connecticut, described on Schedule 4.02(a) hereto.<F1> The Office
Lease Agreement shall provide for monthly rental payments based on
Seller's Charge-Back Methodologies and shall terminate on the
first anniversary of the Effective Date.
(b) On the Effective Date, Seller and Purchaser shall enter
into one or more agreements (the "Office Sublease Agreements")
with respect to the field office space described on Schedule
4.02(b) hereto.<F2> The Office Sublease Agreements shall provide
for monthly rental payments in an amount determined in accordance
with Seller's Charge-Back Methodologies and shall otherwise have
terms that are substantially similar to those contained in the
lease whereby Seller leases the shared office space from a third
party (the "Prime Lease"), and shall terminate on the last day of
the eighteenth month following the Effective Date or, if earlier,
the end of the term of the Prime Lease; provided, that Seller
shall exercise any renewal option under any Prime Lease at
Purchaser's direction.
Section 4.03. Other Services. In addition to the services
specified in Schedule 4.01 hereto, Seller shall provide to
Purchaser the services described below.
(a) In the event that the Effective Date occurs before
December 31, 1997, then, from the Effective Date through December
31, 1997, Seller shall provide to Purchaser those services to
support the Business that immediately prior to the Effective Date
were provided by Contract Employees and Band 2 Employees (as
defined in the Acquisition Agreement). The services may include
(without limitation) the following: (i) underwriting; (ii) billing
and/or premium servicing; (iii) pricing; (iv) product development;
(v) client and producer services, (vi) training; (vii) claims
management and distribution; (viii) broker/dealer activities; (ix)
support services for brokers, wholesalers, marketing, customer
support; and (x) hardware and software systems and maintenance.
(b) Seller shall provide to Purchaser those services
that (i) immediately prior to the Effective Date were provided by
Band 1 Employees (as defined in the Acquisition Agreement) or (ii)
on July 27, 1997, were provided by those employees identified in
Schedule 4.03(b) hereto. The services may include (without
limitation) the following: (i) human resources; (ii) finance;
(iii) accounting; and (iv) marketing.
With respect to such services, on the Effective Date,
Purchaser shall provide a written notice to Seller identifying the
type and level of services Purchaser will require for the period
from the Effective Date through the end of the second calendar
month thereafter. By the fifth business day of each calendar
month beginning after the period covered by the initial notice
described in the preceding sentence, Purchaser shall provide a
written notice to Seller identifying the type and level of
services Purchaser will require during the next following calendar
month.
(c) Seller shall determine the manner in which
it shall provide the services described in this Section 4.03 to
Purchaser and, subject to the restrictions regarding individuals
listed in Schedule 4.03(b), the employees or agents who shall
provide such services. Notwithstanding the above, such services
shall be provided at a quality level generally consistent with the
past practices of Seller and the level at which the Business was
being operated on July 27, 1997, and the individuals providing
such services shall possess such qualifications as are reasonably
required to operate the Business at such quality level. In the
event that Purchaser requires services of the type that an
individual listed in Schedule 4.03(b) performed as of July 27,
1997, such individual shall be assigned to provide such services
under this Section 4.03. Notwithstanding the preceding sentence,
Seller may substitute another individual for any individual listed
in Schedule 4.03(b) to provide services previously provided by
such individual; provided that any such individual who is
substituted has the qualifications reasonably required to perform
such services and further provided that a substitution may occur
only if Seller and Purchaser mutually agree thereto (and Purchaser
shall not unreasonably withhold its agreement to any substitution
proposed by Seller). Seller shall establish a transition services
team with oversight responsibility for the personnel responsible
for providing such transition services and a transition services
leader reasonably acceptable to Purchaser who shall have primary
responsibility for supervising all transition services described
in this Section 4.03.
(d) In no event shall the personnel whose services are
provided to Purchaser in accordance with this Agreement be
considered employees or agents of Purchaser. Seller shall be
solely liable for the payment of salary, bonus, employer's share
of all applicable withholding taxes, other reasonable out of
pocket expenses normally incidental to the services (including,
without limitation, travel and entertainment expenses) and
benefits received by such personnel consistent with the historical
practices of Seller and its Affiliates (collectively, the
"Compensation and Benefits").
Purchaser's sole obligation to Seller with respect to such
personnel for services under this Section 4.03 shall be as
described in this Section 4.03(d). Purchaser shall reimburse
Seller for the amount of Compensation and Benefits paid to or
provided on behalf of such personnel for the amount or period of
time such personnel actually devote to providing such transition
services to the Business; provided, however, that Purchaser shall
have no obligation to reimburse Seller for the amount of any
severance that may be payable by reason of the termination of any
employee listed in Schedule 4.03(b), regardless of whether
Purchaser has notified Seller that it no longer requires services
in the area in which such individual was employed by Seller. The
aggregate Compensation and Benefits costs for any individual
employee listed in Schedule 4.03(b) for any month may not be
increased by more than ten percent over the cost for any prior
month during the period of this Agreement without the prior
written approval of Purchaser. Other than increases in salary or
base remuneration in the ordinary course of business and any
changes in benefits disclosed in Schedule 5.01(B) to the
Acquisition Agreement or as described in the preceding sentence,
there may be no increases in the Compensation and Benefits of any
employees providing services under this Section 4.03 without the
prior written approval of Purchaser. In the event that the
Compensation and Benefits paid to or provided on behalf of any
such personnel during the period of this Agreement include amounts
attributable to an entire year or any portion of a year greater
than the period of time during which such personnel were providing
transition services under this Section 4.03, then the portion of
such Compensation and Benefits that Purchaser shall reimburse to
Seller shall be determined by allocation of such Compensation and
Benefits in accordance with the ratio that the amount or period of
time during such year or portion of the year during which the
individuals provided services under this Agreement and the salary
or other remuneration earned by such individuals during such
period bears to the total amount or period of time such
individuals were employed by Seller for such year or portion of a
year and the salary or other remuneration earned by such
individuals during such period of employment.
To the extent not otherwise provided for herein, Purchaser
shall reimburse Seller for Purchaser's reasonably allocable share
of overhead costs, other than corporate level tax, attributable to
Seller personnel who perform transition services for Purchaser.
Seller shall remain responsible for all overhead costs of all
Seller personnel who do not perform transition services for
Purchaser and for Seller's reasonably allocable share of the
overhead costs attributable to Seller personnel who both perform
transition services for Purchaser and perform services for Seller.
(e) With respect to the services described in this
Section 4.03, Purchaser shall make payments of the amounts owed to
Seller under this Agreement (as determined under Section 4.03(d))
as follows: (i) on or before the tenth day of the month (other
than the first month during which transition services are
provided), Seller shall provide to Purchaser a written itemization
of the actual Compensation and Benefits costs incurred by Seller
for such transition services provided during the prior month (the
"Prior Month's Costs"); and (ii) on or before the twentieth day of
such month, Purchaser shall pay to Seller an amount equal to the
Prior Month's Costs. In the event, however, that the total Prior
Month's Costs cannot be determined by Seller by the tenth day of
any month, then, on such date, Seller shall provide a written
itemization to the Purchaser to the extent the Prior Month's Costs
can be determined and shall indicate on the itemization the extent
to which the Prior Month's Costs cannot be determined (the
"Undetermined Costs"). As soon as practicable thereafter as
Seller is able to determine any previously Undetermined Costs,
Seller shall provide a written itemization thereof to Purchaser,
and Purchaser shall have a period of ten days to pay such costs.
In Seller's discretion, Seller may provide a single itemization
for all Undetermined Costs for any month, aggregate any
Undetermined Costs with the Prior Month's Costs for any subsequent
month, or provide separate itemizations as any previously
Undetermined Costs are determined; provided however, that Seller
shall not provide a separate itemization for any previously
Undetermined Costs aggregating less than $10,000, unless such
costs are the final costs for services under this Section 4.03 to
be itemized.
Section 4.04. Certain Services Provided by Purchaser.
In addition to the services to be provided to Purchaser by Seller
identified as such in Schedule 4.01, during the term of this
Agreement Purchaser shall provide to Seller the services
identified on Schedule 4.04 for the fees identified thereon.
ARTICLE V
INABILITY TO PERFORM SERVICES; ERRORS
Section 5.01. Inability to Perform Services. In the event
that Seller shall be unable to perform services as required by
this Agreement for any reason for a period that can reasonably be
expected to exceed three Business Days, Seller shall cooperate
with Purchaser in obtaining an alternative means of providing such
services. Seller will be responsible for all costs incurred in
either restoring services or obtaining an alternative source of
services.
Section 5.02. Errors. Seller shall, at its own expense,
correct any errors in Transition Services caused by it within a
reasonable time after receiving notice thereof from Purchaser or
otherwise.
ARTICLE VI
PRICING
Section 6.01. Pricing. Seller will price all services
specified on Schedule 4.01 in accordance with the Seller's Charge-Back
Methodologies.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Indemnification. (a) Seller agrees to
indemnify and hold harmless Purchaser and any of its directors,
officers, employees, agents or affiliates from any and all losses,
costs, claims, demands, compensatory, extra contractual and/or
punitive damages, fines and penalties (collectively, "Purchaser
Losses") arising out of or caused by:
(i) fraud, theft or embezzlement by officers, employees
or agents of Seller during the term of this Agreement;
(ii) the failure, either intentional or unintentional, of
Seller to properly perform the services required by this
Agreement, including, without limitation, the failure to properly
process, evaluate and pay disbursement requests in accordance with
the terms of this Agreement;
(iii) the breach of any representation or warranty of
Seller;
(iv) any failure of Seller to comply with applicable laws,
rules and regulations during the term of this Agreement;
(v) the failure of any subcontractor retained by Seller in
accordance with Section 10.08 to perform the services that Seller
is to provide hereunder; or
(vi) any liability or loss incurred or suffered as a
result of any claim by any individual providing services under
Section 4.03(b) hereof that arose during the term of this
Agreement out of any violation by Seller or any of its Affiliates
of (A) any law regulating the terms and conditions of employment,
including any statute, regulation or ordinance, under the common
law or in equity (including for wrongful discharge or otherwise)
or (B) any agreement, including any policy, understanding or
promise, written or oral, formal or informal, between the Seller
or its Affiliates and the individual.
(b) Purchaser agrees to indemnify and hold harmless Seller
and any of its directors, officers, employees, agents or
affiliates from any and all losses, costs, claims, demands,
compensatory, extra contractual and/or punitive damages, fines and
penalties (collectively, "Seller Losses") arising out of or caused
by:
(i) fraud, theft or embezzlement by officers, employees or
agents of Purchaser during the term of this Agreement;
(ii) any failure of Purchaser to comply with applicable
laws, rules and regulations during the term of this Agreement,
other than any failure caused by the action or inaction of Seller
not in compliance with the terms of this Agreement; or
(iii) any liability or loss incurred or suffered as a
result of any claim by any individual providing services under
Section 4.03(a) hereof that (A) relates to the employment or
agency relationship of such individual with the Seller or any of
its Affiliates or the termination of such relationship, (B) arose
out of actions, events or omissions that occurred (or, in the case
of omissions, failed to occur) during the term of this Agreement,
and (C) arose either (1) under any law regulating the terms and
conditions of employment, including any statute, regulation or
ordinance, under the common law or in equity (including any claims
for wrongful discharge or otherwise), or (2) under any agreement,
including any policy, understanding or promise, written or oral,
formal or informal, between the Seller or its Affiliates and the
individual, but (D) did not arise out of any violation by Seller
or its Affiliates of any law referred to in Clause (C)(1) above or
any agreement referred to in Clause (C)(2) above.
Section 7.02. Notice of Asserted Liability. In the event
that either party hereto asserts a claim for indemnification
hereunder, such party seeking indemnification (the "Indemnified
Party") shall give written notice to the other party (the
"Indemnifying Party") specifying the facts constituting the basis
for, and the amount (if known) of, the claim asserted.
Section 7.03. Right to Contest Claims of Third Parties.
(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim
or demand made, or an action, proceeding or investigation
instituted, by any Person not a party to this Agreement (a "Third
Party Claimant") that may result in a Purchaser Loss with respect
to which Purchaser is entitled to indemnification pursuant to
Section 7.01(a) hereof or a Seller Loss with respect to which
Seller is entitled to indemnification pursuant to Section 7.01(b)
hereof (an "Asserted Liability"), the Indemnified Party shall so
notify the Indemnifying Party, as promptly as practicable but in
no event later than 10 Business Days after such Asserted Liability
is actually known to the Indemnified Party. Failure to deliver
notice with respect to an Asserted Liability in a timely manner
shall not be deemed a waiver of the Indemnified Party's right to
indemnification for Losses in connection with such Asserted
Liability but the amount of reimbursement to which the Indemnified
Party is entitled shall be reduced by the amount, if any, by which
the Indemnified Party's losses would have been less had such
notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon
written notice to the Indemnified Party, to investigate, contest,
defend or settle the Asserted Liability; provided, that the
Indemnified Party may, at its option and at its own expense,
participate in the investigation, contesting, defense or
settlement of any such Asserted Liability through representatives
and counsel of its own choosing. The failure of the Indemnifying
Party to respond in writing to proper notice of an Asserted
Liability within 10 days after receipt thereof shall be deemed an
election not to defend the same. Unless and until the
Indemnifying Party elects to defend the Asserted Liability, the
Indemnified Party shall have the right, at its option and at the
Indemnifying Party's expense, to do so in such manner as it deems
appropriate, including, but not limited to, settling such Asserted
Liability (after giving notice of the settlement to the
Indemnifying Party) on such terms as the Indemnified Party deems
appropriate.
(c) Except as provided in the immediately preceding
sentence, the Indemnified Party shall not settle or compromise any
Asserted Liability for which it seeks indemnification hereunder
without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld) during the 10 day period
specified above.
(d) The Indemnifying Party shall be entitled to
participate in (but not to control) the defense of any Asserted
Liability which it has elected, or is deemed to have elected, not
to defend, or which it does not have the right to defend under
paragraph (b) of this Section 7.03, with its own counsel and at
its own expense.
(e) Except as provided in the first sentence of paragraph
(b) of this Section 7.03, the Indemnifying Party shall bear all
costs of defending any Asserted Liability and shall indemnify and
hold the Indemnified Party harmless against and from all costs,
fees and expenses incurred in connection with defending such
Asserted Liability.
(f) Purchaser and Seller shall make mutually available to
each other all relevant information in their possession relating
to any Asserted Liability (except to the extent that such action
would result in a loss of attorney-client privilege) and shall
cooperate with each other in the defense thereof.
Section 7.04. Indemnification Payments. Any payment
hereunder shall be made by wire transfer of immediately available
funds to such account or accounts as the Indemnified Party shall
designate to the Indemnifying Party in writing.
ARTICLE VIII
ARBITRATION
Any dispute arising out of or relating to the
interpretation, performance or breach of this Agreement, including
the formation or validity thereof, shall be submitted for decision
to a panel of three arbitrators. Notice requesting arbitration
must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two
arbitrators shall, before instituting the hearing, choose an
impartial third arbitrator (the "Umpire") who shall preside at the
hearing. If either party fails to appoint its arbitrator within
30 days after being requested to do so by the other party, the
latter, after 10 days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the
selection of the Umpire within 30 days of their appointment, then
each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two
candidates from the other arbitrator's list, and the Umpire shall
be selected from the two remaining candidates by a lot drawing
procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall be
disinterested active or former officers of insurance or
reinsurance companies.
Within 30 days after notice of appointment of all
arbitrators, the panel shall meet and determine a schedule for the
conduct of the arbitration, including hearings. The panel shall
be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. The panel shall
determine where the arbitration shall take place. To the extent
and only to the extent that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision
considering the custom and practice of the applicable insurance
and reinsurance business. Insofar as the arbitration panel looks
to substantive law, the law of New York shall govern. The
decision of any two arbitrators when rendered in writing shall be
final and binding. The panel is empowered to grant interim relief
as it may deem appropriate.
The panel shall render its decision, which shall be in
writing and state the reasons therefor, within 60 days following
the termination of hearings. Judgment upon the award may be
entered in any court having jurisdiction thereof. Each party
shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The
remaining costs of the arbitration shall be allocated by the
panel. The panel may, at its discretion, award such further costs
and expenses as it considers appropriate, including but not
limited to interest (determined at the Panel's discretion) and
attorneys' fees, to the extent permitted by law.
ARTICLE IX
INSURANCE
Section 9.01. Liability Insurance. Seller shall maintain
errors and omissions liability coverages in commercially prudent
amounts, to cover any loss arising as a result of any real or
alleged negligence, errors or omissions on the part of Seller's
officers, agents or employees in any aspect of the performance of
services under this Agreement.
Section 9.02. Fidelity Bond. Seller shall maintain
fidelity bond coverage in commercially prudent amounts to cover
any loss due to the misdeeds of Seller's officers, employees or
agents.
ARTICLE X
MISCELLANEOUS
Section 10.01. Headings, Schedules and Exhibits. Headings
used herein are not a part of this Agreement and shall not affect
the terms hereof. The attached Schedules are a part of this
Agreement.
Section 10.02. Notices. Any notice required or permitted
hereunder shall be in writing and shall be delivered personally
(by courier or otherwise), telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit
in the United States mails, as follows:
(a) If to Purchaser to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan, LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(b) If to Seller to:
Connecticut General Life Insurance Company
900 Cottage Grove Road
Hartford, Connecticut 06152-2302
Attention: David C. Kopp
Telecopier No.: (860) 726-5315
With a concurrent copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: G. Malcolm Holderness
Telecopier No.: (212) 530-5219
Any party may, by notice given in accordance with this
Agreement to the other parties, designate another address or
person for receipt of notices hereunder.
Section 10.03. Amendments. This Agreement cannot be
modified, changed, discharged or terminated, except by an
instrument in writing signed by an authorized officer of each of
the parties hereto.
Section 10.04. Execution in Counterpart. This Agreement
may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by
all of the parties hereto.
Section 10.05. Limited Authority. Seller and Purchaser
are not partners or joint venturers, and no employee or agent of
either party shall be considered an employee or agent of the
other. Purchaser's authority shall be limited to that which is
expressly stated in this Agreement.
Section 10.06. Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, permitted assigns and legal
representatives. Neither this Agreement, nor any right hereunder,
may be assigned by either party (in whole or in part) without the
prior written consent of the other party hereto, which consent
shall not be unreasonably withheld.
Section 10.07. No Third Party Beneficiaries. Except as
otherwise specifically provided for herein, nothing in this
Agreement is intended or shall be construed to give any person,
other than the parties hereto, their successors and permitted
assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 10.08. Subcontracting. Seller may not subcontract
for the performance of any services that Seller is to provide
hereunder, except as permitted in writing by Purchaser, which
consent shall not be unreasonably withheld. Notwithstanding the
foregoing sentence, Seller shall be permitted to subcontract for
the performance of any of such services with any Person that is
performing such services as a subcontractor for Seller as of the
date hereof, without obtaining the consent of Purchaser so long as
Seller notifies Purchaser of such subcontract on or prior to the
effective date thereof.
Section 10.09. Change in Status. Seller shall notify
Purchaser immediately of any "change of control" filing, the
adoption of any plan to liquidate, merge or dissolve Seller, or of
any proceeding or lawsuit which effects Seller's ability to
perform this Agreement, including, but not limited to, insolvency
or rehabilitation proceedings.
Section 10.10. Survival. The provisions of Article VII
and Article X hereof shall survive the termination of this
Agreement.
Section 10.11. Further Assurances. Each of the parties
hereto shall execute such documents and other papers and perform
such further acts as may be reasonably required to carry out the
provisions of this Agreement.
Section 10.12. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives
as of the date first above written.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By:
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
<FOOTNOTE>
<F1> Schedule 4.02(a) will describe the space being used by the
Business on July 27, 1997, subject to changes in the
ordinary course of business.
<F2> Schedule 4.02(b) will describe the portion of the office
space (other than Bloomfield, CT) shared by the Business
with other units or personnel of Seller as of July 27,
1997, subject to changes in the ordinary course of
business.
</FOOTNOTE>
<PAGE>
SCHEDULE 2.01
Menu of Services
Payroll - Corporate Payroll Staff/Benefits Administration
Staffing - Home Office only
Employee Relations
Training - management courses and technology
Career Continuation services
Diversity Strategy and Policy
Compensation - policy, research, surveys, incentive design
Employee Health
Legal
Public Relations/Communications
Network Support/Centralized Technology Services/Telecommunications
Internal Audit
Treasury Department
Travel
Accounts Payable
Real Estate/Space Management/Building Services/Security
Printing/Copy Services/Purchasing/Supplies/Mail
Corporate Advertising/Marketing
Investment Management Services and Asset Allocation Services
Tax
Risk Management
Loss Control
<PAGE>
SCHEDULE 4.01
Services Selected
[In accordance with Section 5.13 of the Acquisition Agreement,
Purchaser shall, not later than 30 days prior to the Closing Date
(as defined in the Acquisition Agreement), provide a written
notice to Seller identifying the final list of selected services;
the following list is accordingly subject to modification.]
I. Services centrally provided to CII or provided to CII by
other divisions
(A) Employee facilities available in home office and
co-located field offices while occupying the space:
1. Employee Health
2. Day Care Centers (Home Office only)
3. Cafeteria
4. Real Estate/Space Management/Building
Services/Security
5. Printing/Copy Services/Mail Room
6. Risk Management
(B) Other services not tied to location of business:
1. Network Support/Centralized Technology
Services/Telecommunications
2. Payroll -- Corporate payroll staff/Benefits
Administration
3. Treasury Department -- Cash management & banking
services
4. Accounts Payable
5. Investment management services (for shared assets)
6. Tax -- 1099 reporting
7. C.R.I.S. provided administrative services for
individual retirement variable annuities block
8. Unit Valuation processing
II. Services for identified functions as provided by Band 1
Employees and employees identified in Schedule 4.03(b)
(A) Financial reporting/Processing
(B) Actuarial Valuation Systems (Price Waterhouse,
Tritan, Poly) and Services
(C) Expense Management and Budgeting
(D) TAI Reinsurance System/Processing
<PAGE>
SCHEDULE 4.02(a)
Hartford Office Space
<PAGE> SCHEDULE 4.02(b)
Field Office Space
<PAGE> SCHEDULE 4.03(b)
Employees
Karen Rohan - Chief Accounting Officer
David Braun - Actuarial Program - Financial Reporting
Kenneth Collings - Actuarial Program - Financial Reporting
Stephen Kaczmarek - Actuarial Program - Financial Reporting
Dennis Gan - Actuarial Program - Financial Reporting
Troy Milbrandt - Actuarial Program - Financial Reporting
Timothy Bischof - Actuarial Program - Financial Reporting
Jennifer Dolphin - Actuarial Program - Financial Reporting
Jared Gross - Actuarial Program - Financial Reporting
Jun Lee - Actuarial Program - Financial Reporting
Matthew Worthington - Actuarial Program
Andree Corr - Financial Program
Arnov Jajoo - Financial Program
Susan Ignatowski - Financial Program
Greg Williams - Financial Program
Ann Jaworski - Financial Program
Kathleen O'Neil - Financial Program
<PAGE> SCHEDULE 4.04
I. Services CII provides to other divisions to be provided by
Purchaser:
(A) [To CHC] Group term life conversions (conversion
charges to be negotiated)
<PAGE>
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
By and Among
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
CIGNA LIFE INSURANCE COMPANY,
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
and
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Dated as of __________, 1997
<PAGE>
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
This GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT (this
"Agreement"), dated as of ____________, 1997, is entered into by
and among Connecticut General Life Insurance Company, a
Connecticut domiciled stock life insurance company ("Seller"),
CIGNA Life Insurance Company, a Connecticut domiciled stock life
insurance company ("CLIC"), The Lincoln National Life Insurance
Company, an Indiana domiciled stock life insurance company,
("Purchaser"), and Lincoln Life & Annuity Company of New York, a
New York domiciled stock life insurance company and a wholly owned
subsidiary of Purchaser.
W I T N E S S E T H
WHEREAS, CIGNA Corporation, Connecticut General
Corporation, Seller, CLIC, Lincoln National Corporation, Purchaser
and LLANY are parties to a Second Amended and Restated Asset
Transfer and Acquisition Agreement dated as of July 27, 1997 (the
"Acquisition Agreement"), pursuant to which Seller and CLIC will
sell, and Purchaser and LLANY will purchase, certain portions of
Seller's and CLIC's individual life, health and annuity businesses
upon the terms and subject to the conditions set forth in the
Acquisition Agreement; and
WHEREAS, concurrently with the execution of this Agreement
(but subject to Section 2.04 of the Acquisition Agreement),
Seller, CLIC, Purchaser and LLANY are executing and delivering
other instruments of assignment, conveyance, transfer and
assumption to vest in Purchaser or LLANY, as applicable, all of
Seller's and CLIC's right, title and interest in and to the
Transferred Assets other than those being sold, assigned,
transferred and assumed hereby;
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual promises, covenants and agreements contained herein
and in the Acquisition Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein and
not defined herein have the respective meanings assigned to them
in the Acquisition Agreement.
Section 2. Sale of Contracts, Accounts and Contract Loans.
Seller and CLIC hereby sell, assign, transfer and deliver to
Purchaser or LLANY, as of the date hereof, (i) all of Seller's and
CLIC's right, title and interest in and to the Assigned and
Assumed Contracts described on Schedule A hereto, (ii) all other
contracts and agreements between Seller or CLIC and a Person that
is not an Affiliate of Seller or CLIC relating primarily to the
Business (other than (x) the Insurance Contracts, (y) the Seller
Separate Accounts and the policies and contracts funded thereby,
and (z) the Acquisition Agreement and contracts and agreements
executed pursuant thereto), except those of the Assigned and
Assumed Contracts and such other contracts and agreements that
cannot be assigned to Purchaser or LLANY, as the case may be,
because of Seller's or CLIC's inability to obtain the consent of a
third party required for such assignment to be effective, and
(iii) the lockboxes and bank accounts listed on Schedule C hereto.
The other contracts and agreements referred to in clause (ii) of
the preceding sentence include, but are not limited to, those
identified on Schedule B hereto. The Assigned and Assumed
Contracts and such other contracts and agreements, except for
those that cannot be assigned as aforesaid are referred to herein
as the "Transferred Contracts." In addition, Seller and CLIC
hereby sell, assign, transfer and deliver (i) to Purchaser, all
loans to the holders of Non-New York Contracts, and (ii) to LLANY,
all loans to the holders of New York Contracts. The assets
described in this Section 2 are referred to collectively herein as
the "Assets," and are transferred hereby as they exist as of the
date hereof, subject to the terms and conditions set forth herein.
Section 3. Assumption of Liabilities. Purchaser or LLANY,
as the case may be, hereby assumes and agrees to pay, perform and
discharge in full, and release and discharge Seller, CLIC, and
their Affiliates, successors and assigns, completely,
unconditionally, and forever from, all liabilities and obligations
arising under the Transferred Contracts. Purchaser or LLANY, as
the case may be, hereby assumes and agrees to pay, perform and
discharge in full, and release and discharge Seller, CLIC, and
their Affiliates, successors and assigns, completely,
unconditionally and forever from, all other liabilities and
obligations of, or arising under, the Business to the extent that
such liabilities or obligations are or become payable, or are
otherwise required to be performed, on or after the Effective Date
(whether now known or unknown and whether accrued, absolute,
contingent or otherwise) provided, however, with respect to any
liabilities or obligations of the Business, or any category
thereof, that require allocation as between the Business and the
Seller or CLIC (other than the Business), only the portion thereof
reasonably allocable to the Business consistent with Seller's and
CLIC's historical allocation practices will be assumed by
Purchaser or LLANY, as the case may be, pursuant hereto. The
obligations and liabilities referred to in the preceding sentence
(the "Assumed Liabilities") include without limitation those
listed on Schedule D, but exclude the Retained Liabilities.
Section 4. Additional Actions. Seller and CLIC shall
promptly give all notices that are, under the Transferred
Contracts or applicable law, required in connection with the
assignment of the Assets. Each of Seller, CLIC, Purchaser and
LLANY shall promptly execute, deliver, record or file any and all
releases, affidavits, waivers, notices or other documents which
any other party hereto may reasonably request in order to
implement the sale, assignment, transfer and assumption of the
Assets.
Section 5. Representations and Warranties. Neither Seller
nor CLIC makes any representation or warranty hereunder with
respect to the Assets, and neither Purchaser nor LLANY makes any
representation or warranty with respect to the assumption of the
liabilities and obligations arising under the Assets, other than
those set forth in the Acquisition Agreement.
Section 6. No Third Party Beneficiaries. This Agreement
is for the sole and exclusive benefit of Seller, CLIC, Purchaser
and LLANY and their respective successors and permitted assigns
and nothing herein is intended or shall be construed to confer
upon any Person other than Seller, CLIC, Purchaser and LLANY and
their respective successors and permitted assigns any rights,
remedies or claims under, or by reason of, this Agreement or any
term, covenant or condition hereof.
Section 7. Amendment. This Agreement may only be amended
or modified by a written instrument executed by both of the
parties hereto.
Section 8. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be duly executed on its behalf as of the date first
above written.
CONNECTICUT GENERAL LIFE INSURANCE CORPORATION
By:
Name:
Title:
CIGNA LIFE INSURANCE COMPANY
By:
Name:
Title:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
By:
Name:
Title:
<PAGE>
SCHEDULE A
Assigned and Assumed Contracts
[Including Rights under Non-Shared Field Office Leases]
<PAGE> SCHEDULE B
Certain Other Assigned Contracts
<PAGE> SCHEDULE C
Lockboxes and Bank Accounts
<PAGE>
SCHEDULE D
Certain Assumed Liabilities
[Including Obligations Under Non-Shared Field Office Leases]
<PAGE>
BILL OF SALE
By and Among
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
and CIGNA LIFE INSURANCE COMPANY
in favor of
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
and
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Dated as of ________, 1997
<PAGE>
BILL OF SALE
THIS BILL OF SALE (this "Bill of Sale") is dated as of
______, 1997, by Connecticut General Life Insurance Company, a
Connecticut domiciled stock life insurance company ("Seller"), and
CIGNA Life Insurance Company, a Connecticut domiciled stock life
insurance company ("CLIC") in favor of The Lincoln National Life
Insurance Company, an Indiana domiciled stock life insurance
company ("Purchaser"), and Lincoln Life & Annuity Company of New
York, a stock life insurance company incorporated in New York and
a wholly owned subsidiary of Purchaser ("LLANY").
W I T N E S S E T H:
WHEREAS, CIGNA Corporation, Connecticut General
Corporation, Seller, CLIC, Lincoln National Corporation, Purchaser
and LLANY are parties to a Second Amended and Restated Asset
Transfer and Acquisition Agreement dated as of July 27, 1997 (the
"Acquisition Agreement"), pursuant to which Seller and CLIC will
sell, and Purchaser and LLANY will purchase, certain portions of
Seller's and CLIC's individual life, health and annuity businesses
upon the terms and subject to the conditions set forth in the
Acquisition Agreement; and
WHEREAS, concurrently with the execution and delivery of
this Bill of Sale (but subject to Section 2.04 of the Acquisition
Agreement), Seller, CLIC, Purchaser and LLANY are executing and
delivering other instruments of assignment, conveyance, transfer
and assumption to vest in Purchaser or LLANY, as applicable, all
of Seller's and CLIC's right, title and interest in and to the
Transferred Assets other than those being sold, assigned, and
transferred hereby;
NOW, THEREFORE, in consideration of the foregoing
premises and the mutual promises, covenants and agreements
contained herein and in the Acquisition Agreement, and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. Definitions. Capitalized terms used herein
and not defined herein have the respective meanings assigned to
them in the Acquisition Agreement.
Section 2. Sale of Assets to Purchaser. Seller and
CLIC hereby sell, assign, transfer and deliver to Purchaser and
its successors and assigns forever all of Seller's and CLIC's
right, title and interest in and to (i) the Books and Records
relating to those Insurance Contracts to be reinsured by Purchaser
pursuant to the Purchaser Indemnity Reinsurance Agreement and the
CLIC Indemnity Reinsurance Agreement and all other Books and
Records other than those referred to in Section 3 hereof; (ii) the
software listed on Schedule A hereto, (iii) to the extent owned by
Seller or CLIC, the support software incorporated as part of the
software listed on Schedule A hereto and required to operate the
software listed on Schedule A hereto (for example, applicable JCL
datasets and similar support utilities), and (iv) all other assets
that are used exclusively in, or are otherwise material
(individually or in the aggregate) to, the Business, including but
not limited to those identified on Schedule B hereto, in each case
as the same exist as of the date hereof, subject to the terms and
conditions hereof, but excluding (x) those assets referred to
following the words "excluding those assets" in clauses (A)
through (F) of the definition of "Transferred Assets" in the
Acquisition Agreement and (y) those assets referred to in Section
3 hereof. The assets described in this Section 2 are referred to
herein as the "Purchaser Assets."
TO HAVE AND TO HOLD such Purchaser Assets unto Purchaser
and its successors and assigns forever.
Section 3. Sale of Assets to LLANY. Seller does hereby
sell, assign, transfer and deliver to LLANY and its successors and
assigns forever all of Seller's right, title and interest in and
to the Books and Records relating to the Insurance Contracts to be
reinsured by LLANY pursuant to the LLANY Indemnity Reinsurance
Agreement and those assets identified as "LLANY Assets" on
Schedule B hereto, in each case as the same exist as of the date
hereof, subject to the terms and conditions hereof. The assets
described in this Section 3 are referred to herein as the "LLANY
Assets."
TO HAVE AND TO HOLD the LLANY Assets unto LLANY and its
successors and assigns forever.
Section 4. Additional Actions. Seller and CLIC shall
promptly execute, deliver, record or file any and all other
releases, affidavits, waivers or other documents, and take any and
all additional actions, which Purchaser or LLANY may reasonably
request in order to implement the provisions of this Bill of Sale.
Section 5. Representations and Warranties. Neither
Seller nor CLIC make any representation or warranty hereunder with
respect to the Purchaser Assets or the LLANY Assets other than
those set forth in the Acquisition Agreement. This Bill of Sale
is not intended to create any obligation of Seller or CLIC other
than the obligations contemplated in the Acquisition Agreement.
Section 6. No Third Party Beneficiaries. This Bill of
Sale is for the sole and exclusive benefit of Purchaser, LLANY,
Seller, CLIC and their respective successors and assigns and
nothing herein is intended or shall be construed to confer upon
any Person other than Purchaser, LLANY, Seller, CLIC or their
respective successors and assigns any right, remedy or claim under
or by reason of this Bill of Sale or any term, covenant or
condition hereof.
Section 6. Amendment. This Bill of Sale may only be
amended or modified by a written instrument executed by both of
the parties hereto. This Bill of Sale shall inure to the benefit
of and be binding upon Purchaser, LLANY, Seller, CLIC and their
respective successors and assigns.
Section 7. Governing Law. THIS BILL OF SALE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
IN WITNESS WHEREOF, the undersigned have caused this
Bill of Sale to be duly executed on its behalf as of the date
first written above.
CONNECTICUT GENERAL LIFE INSURANCE CORPORATION
By:
Name:
Title:
CIGNA LIFE INSURANCE COMPANY
By:
Name:
Title:
Accepted and Agreed as of the
date first written above:
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By:
Name:
Title:
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
By:
Name:
Title:
<PAGE>
SCHEDULE A
Software
<PAGE> SCHEDULE B
Certain Assets
<PAGE>
Exhibit J
o Approval of the Connecticut Department of Insurance
for the implementation of this Agreement and each
of the Ancillary Agreements for which regulatory
approval is required.
o Approval of the New York Insurance Department for
the implementation of this Agreement, each of the
Ancillary Agreements and any other matters
contemplated by this Agreement for which approval
of the New York Insurance Department is required.
o Approval of the Indiana Insurance Department for
the implementation of this Agreement and each of
the Ancillary Agreements for which regulatory
approval is required.
o Approval of the Wisconsin Insurance Department for
the implementation of this Agreement and each of
the Ancillary Agreements for which regulatory
approval is required.
LINCOLN NATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT (11) - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Nine Months Three Months
Ended September 30 Ended September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding
(assuming conversion of
series A preferred stock) ---- 103,480,259 104,587,473 102,578,854 104,635,177
Net effect of dilutive
stock options (based on
the treasury stock method
using average market price) -- 1,112,934 852,924 1,288,889 627,055
Total shares
outstanding ----------- 104,593,193 105,440,397 103,867,743 105,262,232
FULLY DILUTED
Average shares outstanding
(assuming conversion of
series A preferred stock) ---- 103,480,259 104,587,413 102,578,854 104,635,177
Net effect of dilutive
stock options (based on
the treasury stock method
using the end of period
market price, if higher than
average market price) -------- 1,385,264 852,924 1,337,108 627,055
Total shares
outstanding ----------- 104,865,523 105,440,397 103,915,962 105,262,177
DOLLAR INFORMATION (000's omitted)
Net Income from Continuing
Operations ------------- $159,949 $261,705 $124,887 $ 82,956
Net Income -------------- 294,835 370,777 171,254 119,310
PER SHARE INFORMATION
Primary:
Net Income from Continuing
Operations ------------- $1.53 $2.48 $1.20 $ .79
Net Income -------------- 2.82 3.52 1.65 1.13
Fully Diluted:
Net Income from Continuing
Operations ------------- $1.53 $2.48 $1.20 $ .79
Net Income -------------- 2.81 3.52 1.65 1.13
</TABLE>
Notes: 1. Earnings per share is computed based on the average number of
common shares outstanding during each period after assuming
conversion of the series A preferred stock.
2. LNC does not include the dilutive effect of stock options in the
computation of the earnings per share information appearing on the
consolidated statements of income since it is immaterial.
LINCOLN NATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT 12 - HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
Nine Months
Ended
September 30 Year Ended December 31,
(millions of dollars) 1997(4) 1996 1996 1995 1994 1993 1992
Net Income before Federal
Income Taxes and
Accounting Change ---------- 372.8 503.4 692.7 626.6 376.3 587.8 424.7
Equity Loss (Earnings) in
Unconsolidated Affiliates -- -- (1.3) (1.4) (12.4) (14.6) -- .2
Sub-total of Fixed Charges -- 88.0 75.7 108.6 94.4 66.6 62.9 74.6
Sub-total of Adjusted
Net Income -------------- 460.8 577.8 799.9 708.6 428.3 650.7 499.5
Interest on Annuities &
Financial Products --------- 1136.0 1060.0 1435.6 1400.0 1359.0 1315.8 1261.7
Adjusted Income Base ---- 1596.8 1637.8 2235.5 2108.6 1787.3 1966.5 1761.2
Rent Expense ---------------- 54.0 45.0 71.6 65.7 51.3 55.8 62.4
Fixed Charges:
Interest and Debt Expense --- 70.0 60.7 84.7 72.5 49.5 44.3 53.8
Rent (Pro-rated) ------------ 18.0 15.0 23.9 21.9 17.1 18.6 20.8
Sub-total of Fixed Charges 88.0 75.7 108.6 94.4 66.6 62.9 74.6
Interest on Annuities &
Financial Products --------- 1136.0 1060.0 1435.6 1400.0 1359.0 1315.8 1261.7
Sub-total of Fixed Charges 1224.0 1135.7 1544.2 1494.4 1425.6 1378.7 1336.3
Preferred Dividends (Pre-tax) .1 .1 .2 13.4 24.2 24.2 20.3
Total Fixed Charges ------ 1224.1 1135.8 1544.4 1507.8 1449.8 1402.9 1356.6
Ratio of Earnings to Fixed Charges:
Excluding Interest on
Annuities and Financial
Products (1) -------------- 5.24 7.63 7.37 7.51 6.43 10.35 6.70
Including Interest on
Annuities and Financial
Products (2) -------------- 1.30 1.44 1.45 1.41 1.25 1.43 1.32
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends (3) ------------- 1.30 1.44 1.45 1.40 1.23 1.40 1.30
(1) For purposes of determining this ratio, earnings consist of income
before federal income taxes and cumulative effect of accounting
change adjusted for the difference between income or losses from
unconsolidated equity investments and cash distributions from such
investments, plus fixed charges. Fixed charges consist of
1) interest and debt expense on short and long-term debt and
distributions to minority interest-preferred securities of
subsidiary companies and 2) the portion of operating leases
that are representative of the interest factor.
(2) Same as the ratio of earnings to fixed charges, excluding interest on
annuities and financial products, except fixed charges and earnings
include interest on annuities and financial products.
(3) Same as the ratio of earnings to fixed charges, including interest on
annuities and financial products, except that fixed charges include
the pre-tax earnings required to cover preferred stock dividend
requirements.
(4) Coverage ratios for the nine months ended September 30, 1997 are lower
than the ratios shown for the other historical periods due to the
reduction in net income due to reserve strengthening in LNC's
disability income business (see note 5 on page 8). The coverage
for the full year 1997 is expected to be higher than the historical
periods due to the inclusion of the gain on sale of a subsidiary
(see note 4 on page 7).
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements of Lincoln National Corporation
and is qualified in its entirety by reference to such condensed consolidated
financial statements.
</LEGEND>
<CIK> 0000059558
<NAME> Lincoln National Corporation
<S> <C>
<PERIOD-TYPE> 9-MOS
<PERIOD-START> Jan-01-1997
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<DEBT-HELD-FOR-SALE> 24,253,418,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 684,378,000
<MORTGAGE> 3,216,760,000
<REAL-ESTATE> 601,288,000
<TOTAL-INVEST> 29,862,419,000
<CASH> 1,246,992,000
<RECOVER-REINSURE> 2,295,230,000
<DEFERRED-ACQUISITION> 1,595,010,000
<TOTAL-ASSETS> 79,963,499,000
<POLICY-LOSSES> 10,783,747,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20,438,945,000
<NOTES-PAYABLE> 1,292,466,000
0
1,157,000
<COMMON> 962,487,000
<OTHER-SE> 3,677,414,000
<TOTAL-LIABILITY-AND-EQUITY> 79,963,499,000
1,517,482,000
<INVESTMENT-INCOME> 1,665,655,000
<INVESTMENT-GAINS> 71,602,000
<OTHER-INCOME> 338,428,000
<BENEFITS> 2,149,555,000
<UNDERWRITING-AMORTIZATION> 372,034,000
<UNDERWRITING-OTHER> 803,726,000
<INCOME-PRETAX> 197,835,000
<INCOME-TAX> 37,886,000
<INCOME-CONTINUING> 159,949,000
<DISCONTINUED> 134,886,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,835,000
<EPS-PRIMARY> $2.85
<EPS-DILUTED> $2.85
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
