<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): December 31, 1998
PROVIDENT AMERICAN CORPORATION
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Pennsylvania 0-13591 23-2214195
- ---------------------------- ----------------------- -------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
2500 DeKalb Pike, Norristown, Pennsylvania 19404
------------------------------------------------------
(Address of principal executive offices/Zip Code)
Former name, former address, and former fiscal year,
if changed since last report: N/A
<PAGE>
Item 2. Acquisition or Disposition of Assets
The following information is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements of the Company and its subsidiaries, and
the notes thereto, appearing in the Company's reports filed with the Securities
and Exchange Commission ("SEC"). Except for the historical information contained
herein, this Current Report on Form 8-K, contains certain forward-looking
statements regarding the Company's business and prospects that are based upon
numerous assumptions about future conditions which may ultimately prove to be
inaccurate and actual events and results may materially differ from anticipated
results described in such statements. Such forward-looking statements involve
risks and uncertainties, such as historical and anticipated losses; uncertainty
of future results, new business challenges, risks associated with brand
development, competition, funding; need for additional capital, management of
potential growth; new management team, dependence on key personnel, dependence
on the Internet, dependence on strategic alliances with Internet providers,
liability for information retrieved from the Internet, uncertain acceptance of
the Internet as a medium for health insurance sales, risk capacity constrains;
reliance on internally developed systems; system development risks, dependence
on third party systems, rapid technological change, risk of system failure, A.M.
Best's insurance ratings, dependence on key suppliers of insurance products,
dependence upon third party claims administration services, changes in the
insurance industry, insurance industry factors, health care reform legislation,
government regulation and legal uncertainties, potential conflicts of interest,
risk associated with the Year 2000 and absence of dividends. Any one or a
combination of these factors could have a material adverse effect on the
Company's business, financial condition and results of operations. These
forward-looking statements represent the Company's judgment as of the date of
this report. The Company disclaims, however, any intent or obligation to update
these forward-looking statements.
<PAGE>
Sale of Provident American Life and Health Insurance Company to Central Reserve
Life Insurance Company/Reinsurance of Group Medical and Life Insurance Business
On December 31,1998, Provident American Corporation ("Provident") and
its wholly owned subsidiary, Provident Indemnity Life Insurance Company
("PILIC"), sold the Company's group medical marketing, sales distribution rights
and all of the outstanding common stock of Provident American Life and Health
Insurance Company ("PALHIC") and NIA Corporation to Central Reserve Life
Insurance Company ("CRLC") for $5.4 million pursuant to a binding letter
agreement dated November 12, 1998 as supplemented by the Stock Purchase
Agreement dated December 29, 1998 between Provident, PILIC and CRLC
(collectively the "CRLC Agreement"). The CRLC Agreement requires CRLC and PALHIC
to exclusively offer individual health insurance policies to customers of
HealthAxis.com, Inc. ("HealthAxis"), the majority-owned subsidiary of Provident.
PAHLIC, markets and underwrites medical and life insurance to individuals and
small groups. PAHLIC currently offers individual health products through the
HealthAxis web site.
In addition, under the terms of the CRLC Agreement, Provident
transferred to CRLC all rights and control related to Provident's licensed
insurance agents and entered into non-compete and non-solicitation agreements
with CRLC regarding those licensed insurance agents with respect to the future
sale of health insurance products for a three year period commencing on December
31, 1998.
Under the CRLC Agreement, PALHIC agreed to reinsure 100% of its
business to PILIC, which in turn reinsured through a 100% quota share
reinsurance agreement all of the Company's group medical and group life business
to Reassurance Company of Hanover ("RCH"). In related reinsurance agreements
with RCH and PALHIC, RCH paid a $10.0 million ceding commission to PILIC,
consisting of a $5.0 million non-refundable payment plus a $5.0 million
contingent payment, pursuant to which Provident has agreed to guarantee that RCH
will earn at least $10.0 million in future profits from the purchased inforce
business, plus 12% interest (the "guaranteed amount"). If RCH fails to earn the
guaranteed amount within five years of the date of the closing of the CRLC
transaction, Provident must repay RCH the lesser of the guaranteed amount less
RCH's actual profits on the inforce business, or $5.0 million, plus 12% interest
on $5.0 million. As security for Provident's guarantee, Provident executed a
security agreement in favor of RCH secured by the stock of PILIC. Such agreement
provides that RCH shall have the right to exercise all remedies of a secured
party if Provident defaults on its guarantee to RCH. If RCH's future profits
exceed the guaranteed amount then PILIC is entitled to receive an additional
payment from RCH equal to two-thirds of the policy fees collected during 1999
and one-third of the policy fees collected during 2000.
Under the CRLC Agreement, PILIC was provided with the right to reinsure
new business written by CRLC's agents for five years after the effective date of
the CRLC Agreement. PILIC may reinsure up to 20% of the new business written by
CRLC's agents during 1999 and up to 50% for the remaining four years via a new
quota share reinsurance agreement with CRLC or PALHIC. For the purpose of
computing profit and loss of the reinsured business, CRLC will charge not more
than 43% of first year premium and 28% of renewal premium, plus an
administrative fee of 3%, which will be reduced to 2% if total policies under
administration exceed $100 million of premium inforce.
Pursuant to the terms of the CRLC Agreement, PILIC may reinsure 50% of
the new business sold through HealthAxis and directly underwritten by CRLC or
PALHIC commencing January 1, 1999 via a new quota share reinsurance agreement
with CRLC or PALHIC for a period of 3 years. For the purpose of computing profit
and loss of the reinsured business under the CRLC Agreement, CRLC may not charge
more than 28% of the first year's premiums and 21% of renewal premiums, plus an
administrative fee of 3%. In addition, CRLC is required to pay HealthAxis
commissions of 15% of the first year's premiums and 8% of renewal premiums, plus
all administrative fees until HealthAxis has recovered all payments made to
initiate its Internet program. After such time, the fees will be subject to the
quota share agreement to be entered into between PALHIC or CRLC and PILIC. CRLC
agreed to work to develop additional health insurance products for sale by
HealthAxis and to enter into comparable reinsurance agreements with PILIC. These
transactions were approved by the Pennsylvania Insurance Department.
<PAGE>
Item 5. Other Events.
On December 29, 1998, HealthAxis.com, Inc., a majority owned subsidiary
of Provident, entered into a three year individual medical products carrier
partner agreement with PALHIC and CRLC which provides that HealthAxis will
distribute certain PALHIC insurance products through its web site. A copy of
such agreement is attached as Exhibit 99.7.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
Not applicable.
(b) Pro-forma Financial Information.
The following unaudited consolidated pro-forma
balance sheet at September 30, 1998, and the unaudited
condensed consolidated pro-forma statements of operations for
the nine months ended September 30, 1998 and for the year
ended December 31, 1997 give effect to the sale of PALHIC and
NIA to CRLC and the ceded reinsurance with RCH. The unaudited
pro-forma financial information is based on the historical
financial statements of the Company giving effect to the sale
of PALHIC and NIA to CRLC and ceded reinsurance with RCH as if
they occurred on January 1, 1997.
The unaudited pro-forma financial statements are
presented for informational purposes only and do not purport
to be indicative of the financial position which would
actually have existed or the results of the operations which
would actually have been obtained if the transactions had
occurred in the periods indicated below or which may exist or
be obtained in the future. The ultimate use of the cash
received from CRLC and RCH together with the pro-forma cash
impact of ceded reinsurance may differ from the assumptions
used herein. The unaudited condensed pro-forma financial
information should be read in conjunction with the notes
thereto and the Company's historical consolidated financial
statements and notes thereto included in the Company's latest
annual report on Form 10-K and latest quarterly reporting on
form 10-Q.
<PAGE>
Provident American Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands) (Unaudited)
<TABLE>
<CAPTION>
As of September 30, 1998
Reported Pro Forma Adjustments Pro Forma
--------- --------------------- ---------
<S> <C> <C> <C>
Assets
Investments:
Bonds $ 43,383 ($ 4,193) (5) $ 39,190
Equity securities 22 0 22
Policy loans 556 0 556
Other invested assets 516 0 516
--------- --------- ---------
Total Investments 44,477 (4,193) 40,284
Cash and cash equivalents 6,995 28,267 (4,5,6) 35,262
Amounts due from third party administrator 7,220 (7,220) (3) 0
Premiums due and uncollected 1,809 (1,809) (3) 0
Amounts due from reinsurers 15,948 (15,948) (3) 0
Loans receivable from officer, director and stockholder 1,306 (141) (2,5) 1,165
Accrued investment income 494 (108) (5) 386
Property and equipment, less accumulated depreciation 7,700 (294) (5) 7,406
Unamortized deferred policy acquisition costs 4,643 (3,224) (2) 1,419
Goodwill less accumulated amortization 1,143 (1,143) (5) 0
Deferred AOL exclusivity fee 6,595 0 6,595
Other assets 2,405 (250) (5) 2,155
--------- --------- ---------
Total Assets $ 100,735 ($ 6,063) $ 94,672
========= ========= =========
Liabilities and Stockholders' Equity
Future policy benefits:
Life 41,271 0 41,271
Annuity and other 5,175 (8) (3) 5,167
Policy claims 32,848 (29,546) (3) 3,302
Premiums received in advance and unearned 761 (761) (3) 0
Amounts due to reinsurers 330 (330) (3) 0
Accrued commissions and expenses 4,433 (763) (3) 3,670
Loans payable 3,630 (98) (5) 3,532
Accounts Payable 921 0 921
Deferred income taxes 626 0 626
Unearned Ceded Commission 0 5,000 (2) 5,000
Other liabilities 2,537 0 2,537
--------- --------- ---------
Total Liabilities 92,532 (26,506) 66,026
Minority interest in HealthAxis.com Inc. 530 0 530
Stockholders' Equity
Preferred stock, par value $1: authorized 20,000,000 shares:
Series A Cumulative Convertible, issued 580,250 580 0 580
Series B Cumulative Convertible, none issued 0 0 0
Common stock, par value $.10: authorized 50,000,000,
issued 10,237,035 1,024 0 1,024
Common stock, Class A, par value $.10: authorized 20,000,000,
none issued 0 0 0
Additional paid-in capital 19,567 0 19,567
Net unrealized appreciation (depreciation) of bonds 1,171 0 1,171
Net unrealized appreciation (depreciation) of equity securities (13) 0 (13)
Retained earnings (14,580) 20,443 5,863
--------- --------- ---------
7,749 20,443 28,192
Less common stock held in treasury, at cost, 36,300 shares (76) 0 (76)
--------- --------- ---------
Total Stockholders' Equity 7,673 20,443 28,116
--------- --------- ---------
Total Liabilities and Stockholders' Equity $ 100,735 ($ 6,063) $ 94,672
========= ========= =========
</TABLE>
<PAGE>
Provident American Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in thousands, except preferred and common stock data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
Reported Pro Forma Adjustments (3,5) Pro Forma
-------- --------------------------- --------
<S> <C> <C> <C>
Revenue:
Net premium 52,870 (44,815) 8,055
Net investment income 2,853 547(6) 3,400
Realized gains on investments 264 (35) 229
Realized gain on the sale of subsidiary 4,000 0 4,000
Other revenue 24 (24) (0)
-------- ------- --------
Total revenue 60,011 (44,327) 15,684
-------- ------- --------
Benefits and expenses:
Death and other policy benefits 35,499 (28,212) 7,287
Commissions, net of ceding allowance
and deferred acquisition costs 7,145 (4,192) 2,953
Other operating expenses, net of ceding allowance
and deferred acquisition costs 19,482 (14,593) 4,889
Amortization of deferred policy acquisition costs 1,148 (1,121) 27
Depreciation and amortization of goodwill 685 (49) 636
-------- ------- --------
Total benefits and expenses 63,959 (48,167) 15,792
-------- ------- --------
Income (loss) before income taxes (3,948) 3,840 (108)
Provision (benefit) for income taxes:
Current (948) 852 (96)
Deferred 0 0 0
-------- ------- --------
Total income taxes (948) 852 (96)
-------- ------- --------
Net income (loss) (3,000) 2,988 (12)
Dividends on preferred stock 111 0 111
-------- ------- --------
Net income (loss) applicable to common stock $ (3,111) $ 2,988 $ (123)
======== ======= ========
Income (loss) per share of common stock
Basic ($0.31) ($0.01)
======== ========
Diluted ($0.31) ($0.01)
======== ========
Common shares and equivalents used in computing income (loss) per share
Basic 10,131 10,131
Diluted 10,131 10,131
</TABLE>
<PAGE>
Provident American Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in thousands, except preferred and common stock data)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Reported Pro Forma Adjustments Pro Forma
------- --------------------- ---------
<S> <C> <C> <C>
Revenue:
Net premium 54,253 (48,272) (3) 5,981
Net investment income 3,487 554 (3,5,6) 4,031
Realized gains on investments 750 33 (3,5) 783
Processing fees and other revenue 3,540 945 (3) 4,485
Ceding allowance net of policy acquisition costs 0 1,443 (2) 1,443
Loss on sale of subsidiaries 0 (2,128) (1) (2,128)
------- ------ ------
Total revenue 62,030 (47,435) 14,595
------- ------ ------
Benefits and expenses:
Death and other policy benefits 47,726 (37,249) (3) 10,477
Commissions, net of ceding allowance
and deferred acquisition costs 6,813 (6,110) (3) 703
Other operating expenses, net of ceding allowance
and deferred acquisition costs 15,301 (13,832) (3) 1,469
Amortization of deferred policy acquisition costs 10,943 (10,943) (3) 0
Depreciation and amortization of goodwill 4,261 (1,103) (3) 3,158
------- ------ ------
Total benefits and expenses 85,044 (69,237) 15,807
Income (loss) before income taxes (23,014) 21,802 (1,212)
Provision (benefit) for income taxes:
Current (5,205) 4,931 (3) (274)
Deferred 616 (584) (3) 32
------- ------ ------
Total income taxes (4,589) 4,347 (242)
------- ------ ------
Net income (loss) (18,425) 17,455 (970)
Dividends on preferred stock 148 0 148
------- ------ ------
Net income (loss) applicable to common stock (18,573) 17,455 (1,118)
======= ====== ======
Income (loss) per share of common stock
Basic (1.84) (0.11)
======= ======
Diluted (1.84) (0.11)
======= ======
Common shares and equivalents used in computing income (loss) per share
Basic 10,090 10,090
Diluted 10,090 10,090
</TABLE>
<PAGE>
Provident American Corporation and Subsidiaries Notes to
Pro-forma Condensed Consolidated Financial Statements
1. Represents the net loss on the sale of PALHIC and NIA
as if the sale occurred on January 1, 1997. The net
loss is calculated by deducting the Company's net
assets related to PALHIC and NIA together with $0.3
million of transaction costs from the $5.4 million
cash received from CRLC for the purchase of PALHIC
and NIA.
2. Represents the $10 million cash ceding allowance
received from RCH less $5 million unearned portion
related to the contingent payment recorded as an
unearned ceding commission liability, less $0.4
million of transaction costs and less $3.2 million
write-off of deferred acquisition costs related to
the ceded business as of January 1, 1997.
3. Represents the group medical and group life revenue
and expense activity for the periods shown assumed
ceded effective January 1, 1997.
4. Represents cash received from CRL of $5.4 million,
cash received from RCH of $10 million less $0.6
million of transaction costs together with the
estimated net cash flow resulting from the ceded
group medical and group life business for 21 months
ended September 30, 1998.
5. Represents amounts related to PALHIC and NIA assumed
sold on January 1, 1997.
6. Assumes reinvestment of cash proceeds and increased
cash flow from operations at a 6% yield.
(c) Exhibits.
The following exhibits are filed herewith:
S-K Item
Number Description
- ------ -----------
99.1 Stock Purchase Agreement, dated December 29, 1998, between
Central Reserve Life Insurance Company ("CRLC"), Provident
American Corporation ("Provident"), and Provident
Indemnity Life Insurance Company ("PILIC").
99.2 Guarantee Agreement, dated December 29, 1998, by Provident
in favor of Reassurance Company of Hanover ("RCH") as
agent on behalf of itself and CRCL.
99.3 Stock Pledge Agreement dated, December 29, 1998, by
Provident in favor of RCH as agent for itself and CRLC.
99.4 Reinsurance Agreement among PILIC, RCH and CRLC (effective
date December 31, 1998).
99.5 Reinsurance Agreement among Provident American Life and
Health Insurance Company ("PALHIC") and PILIC (effective
date December 31, 1998).
99.6 Assignment and Assumption of Contracts dated December 31,
1998 among CRLC, Provident, PILIC and Provident Health
Services, Inc.
99.7 Individual Medical Products Carrier Partner Agreement,
dated December 29, 1998, among and between HealthAxis.com,
Inc., PALHIC and CRLC.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
PROVIDENT AMERICAN CORPORATION
Date: ____January 15, 1999 By: /s/ Francis L. Gillan III
-------------------------------
Francis L. Gillan III
Chief Financial Officer and
Treasurer
<PAGE>
EXHIBIT INDEX
S-K Item
Number Description
- ------ -----------
99.1 Stock Purchase Agreement, dated December 29, 1998, between
Central Reserve Life Insurance Company ("CRLC"), Provident
American Corporation ("Provident"), and Provident
Indemnity Life Insurance Company ("PILIC").
99.2 Guarantee Agreement, dated December 29, 1998, by Provident
in favor of Reassurance Company of Hanover ("RCH") as
agent on behalf of itself and CRCL.
99.3 Stock Pledge Agreement dated, December 29, 1998, by
Provident in favor of RCH as agent for itself and CRLC.
99.4 Reinsurance Agreement among PILIC, RCH and CRLC (effective
date December 31, 1998).
99.5 Reinsurance Agreement among Provident American Life and
Health Insurance Company ("PALHIC") and PILIC (effective
date December 31, 1998).
99.6 Assignment and Assumption of Contracts dated December 31,
1998 among CRLC, Provident, PILIC and Provident Health
Services, Inc.
99.7 Individual Medical Products Carrier Partner Agreement,
dated December 29, 1998, among and between HealthAxis.com,
Inc., PALHIC and CRLC.
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into on
this 29th day of December, 1998, by and among CENTRAL RESERVE LIFE INSURANCE
COMPANY, an Ohio corporation ("CRL"), PROVIDENT AMERICAN CORPORATION, a
Pennsylvania corporation ("PAMCO"), and PROVIDENT INDEMNITY LIFE INSURANCE
COMPANY, a Pennsylvania corporation and wholly-owned subsidiary of PAMCO
("PILIC").
RECITALS:
WHEREAS, PILIC is the record and beneficial owner of all of the
outstanding capital stock of Provident American Life and Health Insurance
Company, a Pennsylvania corporation ("PALHIC") that is engaged in the business
of providing and selling health insurance;
WHEREAS, PILIC is also the record and beneficial owner of all of the
outstanding capital stock of NIA Corporation, a Colorado corporation ("NIA");
WHEREAS, CRL desires to purchase from PILIC, and PILIC desires to sell
to CRL, all of the outstanding capital stock of PALHIC (collectively, the
"PALHIC Shares") and all of the outstanding capital stock of NIA (collectively,
the "NIA Shares");
WHEREAS, PAMCO is the record and beneficial owner of all of PILIC's
outstanding capital stock and is entering into certain representations,
warranties, covenants, agreements and indemnities contained herein as a material
and essential inducement to CRL entering into this Agreement; and
WHEREAS, simultaneously herewith, PAMCO is entering into a guaranty in
favor of Reassurance Company of Hannover, a Florida corporation ("RCH"), as
agent for RCH and CRL (the "Guaranty"), and a stock pledge agreement in favor of
RCH, as agent for RCH and CRL (the "stock Pledge"), to secure certain
obligations of PILIC to RCH and CRL under a quota-share reinsurance agreement
between RCH and PILIC (the "Hannover Treaty") and as a material and essential
inducement to CRL entering into this Agreement;
NOW, THEREFORE, for and in consideration of the foregoing, the mutual
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. PURCHASE AND SALE OF STOCK
1.1 Agreement to Purchase and Sell. CRL hereby agrees to purchase, and
PILIC hereby agrees to sell, all of PILIC's right, title and interest in and to
all of the PALHIC Shares and the NIA Shares (collectively, the "Purchased
Shares"), free and clear of any and all liens, taxes, claims, mortgages,
charges, security interests, encumbrances or similar agreements of any kind or
nature whatsoever (collectively, "Liens"), on the terms and subject to the
conditions set forth herein.
<PAGE>
1.2 Consideration for Sales.
1.2.1 As consideration for the sale of the PALHIC Shares and
as partial consideration of PAMCO's execution and delivery of the Guaranty and
Stock Pledge, CRL shall pay to PILIC an amount of cash equal to $5,429,961
(subject to adjustment, the "PALHIC Purchase Price") at the closing of the
transactions contemplated by this Agreement (the "Closing"). The PALHIC Purchase
Price shall be adjusted, as soon as practicable but no later than March 5, 1999,
to reflect the actual value on the date of Closing of the assets of PALHIC
described in Exhibit A attached hereto, less any liabilities reflected on
Exhibit A attached hereto.
1.2.2 As consideration for the sale of the NIA Shares and as
partial consideration of PAMCO's execution and delivery of the Guaranty and
Stock Pledge, CRL shall pay to PILIC an amount of cash equal to $100.00 plus the
amount determined in accordance with Section 2.9 (the "NIA Purchase Price"). The
$100.00 shall be payable at Closing and the amount determined in accordance with
Section 2.9 shall be paid as soon as practicable.
1.3 Effective Time of Closing. Subject to the satisfaction of the
conditions set forth in Section 1.5 hereof, the Closing shall occur
simultaneously with the closing of the transactions described in the Hannover
Treaty, the Guaranty and the Stock Pledge. Regardless of the actual date of
Closing, the Closing shall be effective as of 11:59 p.m. on December 31, 1998.
1.4 Closing Deliveries. At the Closing:
1.4.1 PILIC shall deliver to CRL: (a) all of the certificates
representing the Purchased Shares, duly endorsed in blank or with appropriate
stock powers attached; (b) an executed copy of the Assignment described in
Section 2.3 hereof; (c) an executed copy of the Lease described in Section 2.10
hereof; (d) written resignations of all directors and officers of PALHIC and
NIA; (e) all organizational documents, minutes and other corporate records of
PALHIC and NIA; (f) a legal opinion of counsel to PAMCO and PILIC in
substantially the form attached hereto as Exhibit B; and (g) evidence
satisfactory to CRL that (i) any regulatory approvals necessary to consummate
the transactions described herein have been obtained, (ii) except for the
liabilities reflected on Exhibit A attached hereto and the liabilities pursuant
to the HPS Agreement described in Section 2.8 hereof, PILIC or its Affiliates
(other than PALHIC) have assumed all debts, liabilities and obligations of
PALHIC, including but not limited to the reinsurance by PILIC of all of PALHIC's
health and life insurance policies, (iii) all reinsurance agreements with
respect to the health insurance policies of PILIC, constituting approximately
$100 million in premium and including all business rewritten with CRL or its
Affiliates, that were reinsured to RCH in the Hannover Treaty (the "Ceded
Block") have been cancelled without liability to PALHIC, and (iv) PALHIC has no
operations, employees or assets (other than capital and surplus). As used
herein, an "Affiliate" of a person is a person that directly or indirectly
controls, or is controlled by, or is under common control with, the person
specified.
<PAGE>
1.4.2 PAMCO shall deliver to CRL: (a) a copy of the Assignment
described in Section 2.3 hereof that has been executed by PAMCO and Provident
Health Services, Inc., a Pennsylvania corporation; (b) an executed copy of the
Guaranty; and (c) an executed copy of the Stock Pledge.
1.4.3 CRL shall deliver: (a) to PILIC the PALHIC Purchase
Price and the NIA Purchase Price by wire transfer to the account(s) designated
in the wire transfer instructions of PILIC set forth in attached Exhibit C; (b)
to PAMCO and PILIC legal opinions of CRL's special and general counsel in
substantially the form attached hereto as Exhibit D-1 and D-2, respectively; and
(c) to PILIC the purchase price for the Agent Advances described in Section 2.12
hereof and Exhibit E attached hereto.
1.5 Conditions Precedent to Closing. The obligation of the parties to
close the transactions contemplated by this Agreement shall be subject to the
satisfaction of the following conditions prior to January 1, 1999:
1.5.1 The receipt of all regulatory approvals and consents
necessary to consummate the transactions described in this Agreement and the
Hannover Treaty, on terms satisfactory to the parties hereto and thereto.
1.5.2 The completeness and accuracy, in all material respects,
of all of the representations and warranties of the parties set forth in this
Agreement as of the date of Closing.
1.5.3 The closing of the transactions described in the
Hannover Treaty and the reinsurance agreement between PILIC and PALHIC that is
to be consummated on or before the Closing Date.
1.5.4 The execution and delivery of the HealthAxis Agreement
described in Section 2.1.1.
1.5.5 The execution and delivery by HPS and PALHIC of the HPS
Agreement described in Section 2.8 hereof in form and substance satisfactory to
CRL in its sole discretion.
1.5.6 The delivery by PAMCO and PILIC of the Disclosure Letter
described in Section 3.1 to CRL, within ten days after the date hereof, in final
form and substance satisfactory to CRL in its sole discretion.
1.6 Certain Taxes. PAMCO and PILIC shall be responsible for the payment
of any and all sales, use, excise, transfer, value added, capital gains, and
similar taxes and transfer or recording fees imposed by any governmental body in
connection with any of the transactions contemplated herein to the extent
incurred or accrued on or prior to January 1, 1999.
2. CERTAIN COVENANTS OF PAMCO, PILIC AND CRL
2.1 Restrictive Covenants.
<PAGE>
2.1.1 Noncompetition and Nonsolicitation. For a period of
three years after the date of Closing, PAMCO and PILIC shall not, and shall
cause each Affiliate thereof not to (a) solicit the sale of or sell any health
insurance products to any customer of PALHIC, CRL or any Affiliate of CRL or (b)
solicit, hire or engage any present or future employee or agent of PALHIC, CRL
or any Affiliate of CRL to sell any health insurance products. Notwithstanding
the foregoing, HealthAxis.com, Inc., a Pennsylvania corporation ("HealthAxis"),
and its Affiliates may freely solicit the sale of and distribute health
insurance products on behalf of any person or entity through Internet websites
or other means of electronic commerce, including but not limited to sales of
such products on behalf of PALHIC or CRL pursuant to that certain Individual
Medical Products Carrier Partner Agreement to be entered into among PALHIC, CRL
and HealthAxis (the "HealthAxis Carrier Agreement") and by any other means not
in violation of this Section 2.1.1. For purposes of this Agreement, the term
"Affiliate" means, with respect to any party hereto, any other person or entity
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with such party.
2.1.2 Confidentiality. Each of PAMCO and PILIC acknowledges
that it has had access to confidential information of PALHIC and covenants and
agrees that, after the Closing, neither it nor any of its Affiliates will use
for its own benefit or divulge to any third party any confidential information
or trade secrets of PALHIC. As used herein, "confidential information" consists
of any and all information, knowledge or data relating to PALHIC (including
without limitation all information relating to customer and prospective customer
lists, insurance products, prices and trade practices) that is not in the public
domain or otherwise published or publicly available. Except as may be required
by applicable law or regulation, and to the extent reasonably possible, each of
PAMCO and PILIC agrees to deliver to CRL at the Closing all material (and all
copies thereof) in the possession or control of PAMCO, PILIC or any of their
Affiliates that contains or relates to any such confidential information.
2.1.3 Remedies upon Breach. Each of PAMCO and PILIC
acknowledges that the restrictions contained in this Section 2.1 are reasonable
and necessary to protect the legitimate interests of PALHIC and CRL and do not
cause PAMCO, PILIC or their Affiliates undue hardship, that any violation of
this Section 2.1 will result in irreparable injury to PALHIC and CRL and that,
therefore, PALHIC and CRL shall be entitled to preliminary and permanent
injunctive relief in any court of competent jurisdiction without having to prove
actual damages and to an equitable accounting of all earnings, profits and other
benefits arising from such violation, which rights shall be cumulative and in
addition to any other rights or remedies to which PALHIC or CRL may be entitled.
2.2 Reinsurance of Certain PILIC and PALHIC Policies.
<PAGE>
2.2.1 Following the Closing, the parties agree that PALHIC's
current insurance products continue to be written through PILIC in the states
where PILIC is currently writing such products for a period of up to one year as
may be requested and directed by CRL from time to time. PILIC agrees to cede to
CRL, and CRL agrees to reinsure on an indemnity basis from PILIC, subject to
applicable laws, all of PILIC's liabilities in and to all such insurance
policies and certificates issued by PILIC and in force in said states as of and
after 12:01 a.m. on January 1, 1999.
2.2.2 Following the Closing, the parties agree to continue to
support PILIC's military life insurance products through PALHIC. This support
shall continue no longer than one year after the date of Closing, at which time
PALHIC's writing of such insurance business shall cease. CRL agrees to cause
PALHIC to cede to PILIC, and PILIC agrees to reinsure on an indemnity basis from
PALHIC, subject to applicable laws, all of PALHIC's liabilities in and to all
military life insurance policies and certificates issued by PALHIC and in force
as of and after 12:01 a.m. on January 1, 1999.
2.2.3 The cessions described in this Sections 2.2 shall be
effected by a reinsurance agreement in form reasonably satisfactory to the
applicable parties, who also agree to execute appropriate reserve transfer,
indemnity and other ancillary agreements in connection therewith.
2.3 Assignment of Certain Agreements. PAMCO and PILIC agree, and agree
to cause any and all of their Affiliates to assign and transfer to PALHIC and
CRL all of their rights under any agreements with agents and brokers for the
sale of health insurance products and to execute any agreements, documents or
instruments requested by CRL to accomplish such assignment and transfer,
including but not limited to an assignment in substantially the form attached
hereto as Exhibit F (the "Assignment").
2.4 Continued Marketing of Certain Policies. For a period of three
years after the date hereof, CRL shall: (a) at its option, either market and
sell, or cause PALHIC to continue to market and sell, "HealthQuest,"
"HealthQuest Plus," "HealthEdge," "AdvantEdge," "solution" and "solution Plus"
insurance policies or similar insurance policies, including policies rewritten
with CRL or its Affiliates, (collectively, the "PALHIC Policies"); (b) make the
PALHIC policies available for sale by the existing agency force of PALHIC and
agents recruited thereby (collectively, the "PALHIC Agents") during that time
period; and (c) at its option, either establish, or cause PALHIC to establish,
as soon as practicable and effective as of January 1, 1999, a mechanism to track
the PALHIC Policy business written by the PALHIC Agents and provide periodic
reports to PILIC detailing the writing of the PALHIC Policies. CRL agrees to
furnish, or caused to be furnished, to PILIC, upon request, as promptly as
practicable, such information (including access to books and records) as is
reasonably necessary for PILIC to verify the periodic reports that detail the
writing of the PALHIC Policies.
<PAGE>
2.5 Future PALHIC Policies. With respect to PALHIC Policies issued
after the Closing, CRL or its designee shall administer such PALHIC Policies,
and PILIC shall have the right to reinsure up to 20% of the premium with respect
to such PALHIC Policies issued during calendar year 1999 and up to 50% of the
premium with respect to such PALHIC Policies issued during calendar years 2000
through 2003. PALHIC, CRL and PILIC shall share the policy fees for such PALHIC
Policies based on the quota-share ratio, provided that PALHIC and CRL shall be
entitled to retain all application fees. To the extent that PILIC elects to
reinsure any such PALHIC Policies, the maximum expense allowances due to CRL
with respect to such PALHIC Policies shall be 43% of collected premium for
calendar year 1999 (i.e., administration 10%, premium tax 3%, commission 28% and
marketing expenses 2%) and 26% of collected premium for subsequent calendar
years (i.e., administration 10%, premium tax 3% and commissions 13%). All
managed care costs relating to such PALHIC Policies shall be paid as incurred.
CRL shall be entitled to receive a 3% administrative fee with respect to all new
PALHIC Policies issued after the Closing (including, but not limited to, any
PALHIC Policies reinsured by PILIC), which fee shall reduce to 2% for total
policies under administration that exceed $100 million of premium in force. Any
such reinsurance by PILIC shall be governed by a mutually agreeable reinsurance
agreement having terms substantially similar to the coinsurance provisions
contained in the Hannover Treaty and shall require the prior approval of any
applicable state insurance agencies.
2.6 Reinsurance of PALHIC Internet Insurance Products. With respect to
PALHIC health insurance products issued after the Closing as a result of sales
obtained through Internet websites or other means of electronic commerce
maintained or provided by HealthAxis pursuant to the HealthAxis Carrier
Agreement, PILIC shall have the right to reinsure the premium with respect to
such policies on a 50/50 quota-share basis, except that (a) the maximum
first-year expense allowance shall not exceed 28% with commission expense
reduced to 15% and marketing expense eliminated and (b) the second-year expense
allowance shall not exceed 21% with commission expense reduced to 8%. Any such
reinsurance by PILIC shall be governed by a mutually agreeable reinsurance
agreement having terms substantially similar to the coinsurance provisions
contained in the Hannover Treaty and shall require the prior approval of any
applicable state insurance agencies.
2.7 Right to Assume PALHIC Policies. Notwithstanding any provision of
this Agreement to the contrary, CRL shall have the right at any time or from
time to time to cause PALHIC to assign to CRL any and all PALHIC Policies issued
after the Closing, in which event CRL shall assume the obligations of PALHIC
under such assigned policies.
2.8 Administration of Ceded Block. Effective as of the Closing, CRL
shall enter into an agreement with Health Plan Services, Inc. ("HPS") providing
for the establishment of a separate bank account for premiums received on or
after January 1, 1999 on the Ceded Block (the "HPS Agreement"). In addition,
effective as of the Closing, CRL shall assume all administrative
responsibilities for the Ceded Block and the ongoing claims services obligation
of PALHIC to HPS under the existing applicable agreement (the "Existing HPS
Agreement"), provided that PALHIC, CRL and CRL's Affiliates shall not be
responsible for the Base Service Fee, Loss Ratio Management Fee and the other
fees and charges described therein (collectively, the "HPS Fees") and shall only
be required to pay the percentage payment with respect to claim services
excluding the $6.00 per claim charge previously being paid to HPS by PALHIC.
2.9 Override Payments. The parties agree that, effective as of the
Closing, all commission override payments made to PAMCO, PILIC, NIA or any of
their respective Affiliates with respect to the Ceded Block shall be assigned to
CRL or its designee, except that the December override due to NIA will be paid
to PILIC.
<PAGE>
2.10 Access to Personnel and Facilities. At and after the Closing,
PILIC shall furnish to CRL, on a contract basis, such employees of PILIC as CRL
may designate to assist in the transition of the Ceded Block to CRL's
administrative facility in Cleveland, Ohio. CRL shall reimburse PILIC for the
reasonable costs of such employees. With respect to the employees provided by
PILIC hereunder, CRL will make a payment to PILIC for distribution to such
employees equal to four weeks" pay, at such time as such employees are no longer
needed by CRL, on an employee by employee basis. Except as specifically set
forth in this Section, CRL shall have no liability of any nature with respect to
any employees of PILIC. In addition, CRL and PILIC shall enter into an employee
and facility lease agreement in substantially the form attached hereto as
Exhibit G (the "Lease") whereby CRL shall sublet PILIC's facilities in
Norristown, Pennsylvania and shall lease all of PILIC's equipment utilized in
connection with Ceded Block.
2.11 Agent Software. Following the Closing, the PILIC and CRL shall use
good faith efforts to negotiate a mutually acceptable agreement that grants CRL
the nonexclusive right to use PILIC's agency management service software,
including but not limited to the software used to conduct marketplace pricing
sensitivity analysis, and any enhancements thereto.
2.12 Agent Advances. At the Closing, CRL agrees to purchase all right,
title and interest of PILIC in and to all advances made by PILIC pursuant to the
MGA Partners Program (collectively, the "Agent Advances") for a purchase price
equal to the uncollected balance of such advances as of the Closing. The amounts
of all such Agent Advances and the names and addresses of all of the agents to
whom they were made are set forth on Exhibit E attached hereto. PILIC warrants
that the information set forth on Exhibit E is true and correct. PILIC hereby
grants to CRL: (a) all of PILIC's right to repayment of all such Agent Advances
by withholding first-year commissions and renewal commissions relating to all
insurance policies of PILIC now or hereafter sold through PILIC by such agents;
(b) all increases, substitutions, replacements and additions to any of the
foregoing; and (c) all proceeds of the sale or other disposition of any of the
foregoing.
3. REPRESENTATIONS AND WARRANTIES OF PAMCO AND PILIC
As of the date hereof and the date of Closing, PAMCO and PILIC jointly
and severally represent and warrant to CRL as follows (all of which
representations and warranties as to NIA are made to the knowledge of PAMCO and
PILIC):
3.1 Organization, Power and Qualification. Each of PAMCO, PILIC, PALHIC
and NIA is a corporation duly organized, validly existing and in good standing
under the laws of its state of organization. Each of PILIC, PALHIC and NIA has
all requisite corporate power and authority to own or hold under lease its
properties and assets and to carry on its business as presently conducted (its
"Business"). Each of PILIC, PALHIC and NIA is duly licensed to sell life,
accident and health insurance or, as the case may be, duly qualified to do
business as a foreign corporation in each jurisdiction in which the nature of
its activities or properties makes qualification as a foreign corporation
necessary. Part 3.1 of the disclosure letter from PAMCO and PILIC to CRL of even
date herewith (the "Disclosure Letter," a copy of which is attached as Exhibit
H) includes a list of the states where each of PILIC and PALHIC is licensed to
issue insurance.
<PAGE>
3.2 Authority. Each of PAMCO and PILIC has the absolute and
unrestricted right, power, authority and capacity, corporate or otherwise, to
make, execute and deliver this Agreement and all other agreements and documents
to be executed and delivered by it pursuant to this Agreement; and each of PAMCO
and PILIC has taken all necessary actions required to be taken to authorize it
to execute and deliver this Agreement and such other agreements, and to perform
all of its obligations, undertakings and agreements to be observed and performed
by it hereunder and thereunder. This Agreement and such other agreements and
documents have been duly executed and delivered by each of PAMCO and PILIC and
constitute the valid and binding agreements of each of PAMCO and PILIC,
enforceable in accordance with their respective terms subject, as to the
enforcement of remedies, to general equitable principles and to bankruptcy,
insolvency and similar laws affecting creditors' rights generally.
3.3 No Violation. The execution, delivery and performance of this
Agreement and each other agreement or document to be executed, delivered and
performed hereunder by PAMCO, PILIC, PALHIC or NIA will not: (a) contravene,
conflict with, or result in a violation or breach of any provision of, or give
any person or entity the right to declare a default or exercise any remedy
under, or result in the acceleration of the maturity or performance of, or the
cancellation, termination or modification of, or create (or cause the
acceleration of the maturity of) any debt, obligation or liability affecting, or
result in the creation or imposition of any Lien under: (i) any term or
provision of the charter, bylaws or other organizational documents, or any
resolution adopted by the board of directors or the stockholders, of PAMCO,
PILIC, PALHIC or NIA; (ii) any law, rule, regulation, judgment, decree or order
of any court or governmental authority applicable to PAMCO, PILIC, PALHIC or
NIA; or (iii) any contract, agreement, indenture, lease or other commitment to
which PAMCO, PILIC, PALHIC or NIA is a party or by which any of them or their
assets is bound; (b) cause any material change in the rights or obligations of
any party under any such contract, agreement, indenture, lease or commitment;
(c) give any governmental body or other person or entity the right to challenge
any of the transactions contemplated by this Agreement or to exercise any remedy
or obtain any relief under any law, rule, regulation, judgment, decree or order
applicable to PAMCO, PILIC, PALHIC or NIA; or (d) give any governmental body the
right to revoke, withdraw, suspend, cancel, terminate or modify any permit,
license, consent, certificate, order, authorization or approval held by PILIC,
PALHIC or NIA or that otherwise relates to the Business of, or any of the assets
owned or used by, PILIC, PALHIC or NIA; except, in the case of clause (c) and
(d) of this sentence, for the consent and approval of the Pennsylvania
Department of Insurance with respect to the transactions contemplated hereby.
<PAGE>
3.4 Consents. Except for the consent and approval of the Pennsylvania
Department of Insurance, no consent of any federal, state or local authority, or
any private person or entity is required to be obtained that has not been
obtained, and no notice to any such authority, person or entity is required to
be given that has not been given, in connection with the execution, delivery or
performance of this Agreement or any other agreement or document to be executed,
delivered or performed hereunder by PAMCO, PILIC, PALHIC or NIA or to enable CRL
to conduct the Business of PALHIC after the Closing in the manner in which it is
currently conducted, including, without limitation, any consents or notices
required by any applicable federal or state securities laws, any applicable
state takeover laws and any applicable requirement of the State of Pennsylvania
or any other insurance regulatory authority having jurisdiction over PAMCO,
PILIC, PALHIC or NIA.
3.5 Capital Stock.
3.5.1 The capital structure of PALHIC is as set forth in Part
3.5.1 of the Disclosure Letter. The PALHIC Shares constitute all of the issued
and outstanding shares of capital stock of PALHIC. All of the PALHIC Shares are
duly authorized, validly issued, fully paid and nonassessable. No legend (other
than any legend regarding registration under applicable securities laws) or
other reference to any purported Lien appears upon any certificate representing
any of the PALHIC Shares. There are no outstanding securities convertible into
or exercisable for, or any rights to subscribe for or purchase, or any options,
warrants or other rights for the purchase of, or any agreements or arrangements
providing for the issuance (contingent or otherwise) of, or any actions relating
to, any shares of capital stock of PALHIC. PILIC is the direct legal and
beneficial owner of all of the PALHIC Shares, free and clear of any and all
Liens, and there are no outstanding contracts, demands, commitments or other
agreements or arrangements under which PILIC is or may become obligated to sell,
transfer or assign any of the PALHIC Shares (other than this Agreement). Each of
the PALHIC Shares has been issued in compliance with all federal and state
securities laws and without violation of any pre-emptive rights.
3.5.2 The capital structure of NIA is as set forth in Part
3.5.2 of the Disclosure Letter. The NIA Shares constitute all of the issued and
outstanding shares of capital stock of NIA. All of the NIA Shares are duly
authorized, validly issued, fully paid and nonassessable. No legend (other than
any legend regarding registration under applicable securities laws) or other
reference to any purported Lien appears upon any certificate representing any of
the NIA Shares. There are no outstanding securities convertible into or
exercisable for, or any rights to subscribe for or purchase, or any options,
warrants or other rights for the purchase of, or any agreements or arrangements
providing for the issuance (contingent or otherwise) of, or any actions relating
to, any shares of capital stock of NIA. PILIC is the direct legal and beneficial
owner of all of the NIA Shares, free and clear of any and all Liens, and there
are no outstanding contracts, demands, commitments or other agreements or
arrangements under which PILIC is or may become obligated to sell, transfer or
assign any of the NIA Shares (other than this Agreement). Each of the NIA Shares
has been issued in compliance with all federal and state securities laws and
without violation of any pre-emptive rights.
<PAGE>
3.5.3 The capital structure of PILIC is as set forth in Part
3.5.3 of the Disclosure Letter. All of the outstanding shares of capital stock
of PILIC (collectively, the "PILIC Shares") are duly authorized, validly issued,
fully paid and nonassessable. No legend (other than any legend regarding
registration under applicable securities laws) or other reference to any
purported Lien appears upon any certificate representing any of the PILIC
Shares. There are no outstanding securities convertible into or exercisable for,
or any rights to subscribe for or purchase, or any options, warrants or other
rights for the purchase of, or any agreements or arrangements providing for the
issuance (contingent or otherwise) of, or any actions relating to, any shares of
capital stock of PILIC. PAMCO is the direct legal and beneficial owner of all of
the PILIC Shares, free and clear of any and all Liens, and there are no
outstanding contracts, demands, commitments or other agreements or arrangements
under which PAMCO is or may become obligated to sell, transfer or assign any of
the PILIC Shares (other than pursuant to that certain Stock Pledge Agreement to
be entered into by PAMCO and RCH as of the Closing). Each of the PILIC Shares
has been issued in compliance with all federal and state securities laws and
without violation of any pre-emptive rights.
3.5.4 There are no outstanding surplus notes issued by PILIC,
PALHIC or NIA.
3.5.5 Neither PALHIC nor NIA has any subsidiaries or directly
or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable with or exercisable for any equity or similar
interest in, any corporation, partnership, limited liability company, joint
endeavor or other business entity or association other than for investment
purposes in the ordinary course in accordance with past practice.
3.5.6 Upon the Closing, CRL will have good and marketable
title to the Purchased Shares, free and clear of any and all Liens. Following
the Closing, neither PAMCO nor PILIC will have any claim against PALHIC or NIA,
including, without limitation, any claim arising under the terms of, or
otherwise relating to, any of the Purchased Shares.
3.6 Approvals. Each of PILIC, PALHIC and NIA possesses or has applied
for all material governmental and other permits, licenses, consents,
certificates, orders, authorizations and approvals ("Approvals") necessary for
it to own or hold under lease and operate its properties and assets and to carry
on its Business as now conducted (except for the consent and approval of the
Pennsylvania Department of Insurance with respect to the transactions
contemplated hereby). Each such Approval is without material qualification or
restriction. Neither PILIC, PALHIC nor NIA has received any notice or other
communication relating to the potential revocation, withdrawal, suspension,
cancellation, termination or modification of any such Approvals that, singly or
in the aggregate and if the subject of an unfavorable ruling or finding, could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) of its Business, results of operation or business
prospects, whether taken individually or as a whole, and taking into account all
relevant factors including, without limitation, assets, liabilities, personnel,
business and relationships with agents, customers, lenders, lessors and others
(a "Material Adverse Effect"). Each of PILIC, PALHIC and NIA has operated and is
operating in compliance with the provisions, terms and conditions of its
Approvals. All applications required to have been filed for the renewal of such
Approvals have been duly filed on a timely basis with the appropriate
governmental bodies, and all other filings required to have been made with
respect to such Approvals have been duly made on a timely basis with the
appropriate governmental bodies.
<PAGE>
3.7 No Default, Violation or Litigation. Neither PILIC, PALHIC nor NIA
is in violation of any applicable law, regulation or order of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality (including, without limitation, any Approvals
or laws, rules, regulations, orders, restrictions and compliance schedules
applicable to insurers, wages and hours, employee benefit plans or civil rights)
that could reasonably be expected to have a Material Adverse Effect on PILIC,
PALHIC or NIA. Except as described in Part 3.7 of the Disclosure Letter: (a)
there are no lawsuits, proceedings, claims or governmental investigations
pending or, to the knowledge of PAMCO or PILIC, threatened against or involving
PAMCO, PILIC, PALHIC, NIA or any of their respective officers or directors that
have had or could reasonably be expected to have a Material Adverse Effect on
PILIC, PALHIC or NIA or that challenge, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated by this Agreement; and (b) there are no judgments,
consents, decrees, injunctions or any other judicial or administrative mandates
outstanding against PAMCO, PILIC, PALHIC or NIA that have had or could
reasonably be expected to have a Material Adverse Effect on PILIC, PALHIC or NIA
or that may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the transactions contemplated by this Agreement.
3.8 Liabilities of PALHIC and NIA. Except as set forth in Part
3.8 of the Disclosure Letter:
3.8.1 All debts, liabilities and obligations of PALHIC of any
nature whatsoever have been fully and unconditionally assigned to and assumed by
PILIC prior to the Closing, except for liabilities reflected on Exhibit A
attached hereto. All of PALHIC's insurance policies have been reinsured to
PILIC.
3.8.2 Neither PALHIC nor NIA has any debts, liabilities or
obligations of any nature whatsoever, including but not limited to any debts,
liabilities or obligations under or relating to any of the following: (a) any
contracts, agreements, arrangements or understandings with any Affiliate thereof
or any third party or governmental body, including without limitation, any
reinsurance, ceding, commission, agency, brokerage, fee sharing, employment,
consulting, sales, marketing, management, administration, noncompetition or
nonsolicitation agreement; (b) any note, bond, indenture, loan, credit agreement
or other evidence of indebtedness or direct or indirect guaranty or assumption
of indebtedness, liabilities or obligations thereof, any Affiliate thereof or
any third party, including but not limited to any intercompany obligations of
PALHIC or NIA to PAMCO, PILIC or any such Affiliate; (c) any accrued and unpaid
dividend or other distribution on, or redemption obligation relating to, any of
the Purchased Shares; (d) any pension, retirement, profit sharing, thrift
savings, deferred compensation, stock bonus, stock option, cash bonus, employee
stock ownership (including investment credit or payroll stock ownership),
severance pay, insurance, medical, welfare, vacation or other employee pension
or welfare benefit plan, or any withdrawal liability or other penalty or charge
relating to any such plans; (e) any collective bargaining or other labor
agreement; (f) any obligation to pay compensation, commissions, perquisites,
bonuses, profit sharing distributions, severance or termination pay, or other
extraordinary compensation to any director, officer, employee or agent of PALHIC
or NIA in connection with any of the transactions contemplated by this
Agreement; (g) any taxes or other Liens of any nature whatsoever except as set
forth in Exhibit A; (h) any environmental liabilities; or (i) the sale of any
assets or insurance policies by PALHIC or NIA, including, without limitation,
the sale by PALHIC of debit life insurance to Life and Health Insurance Company
of America in 1996.
3.8.3 PALHIC will have no operations or employees as of
December 31, 1998.
<PAGE>
3.9 Absence of Certain Changes. Except as may be disclosed in Part 3.9
of the Disclosure Letter, since September 30, 1998, each of PILIC, PALHIC and
NIA has conducted its Business in the ordinary course and there has not been:
(a) any event or series of events, or any damage, destruction or loss (whether
or not covered by insurance), that has had or could reasonably be expected to
have a Material Adverse Effect on PILIC, PALHIC or NIA; (b) any change in the
accounting methods or practices followed by PILIC, PALHIC or NIA, including,
without limitation, any change in depreciation or amortization policies or rates
theretofore adopted; (c) any termination, lapse, suspension, revocation of,
limitation upon or failure to renew any Approval of PILIC, PALHIC or NIA; (d)
any change in any underwriting, actuarial, investment or financial reporting
practice or policy followed by PILIC, PALHIC or NIA or method or application
thereof, or any assumption underlying such principle, practice or policy, in
each case other than in the ordinary course of business consistent with past
practice; (e) except as otherwise contemplated herein, any termination,
amendment or execution by PILIC, PALHIC or NIA of any reinsurance, coinsurance
or similar contract or treaty, as ceding or assuming insurer other than in the
ordinary course of business consistent with past practice; (f) any purchase of
any investment securities by PILIC, PALHIC or NIA other than purchases of
investment grade commercial paper or cash equivalents; or (g) any material
change in the operating practices of PILIC, PALHIC or NIA.
3.10 SAP Statements. PAMCO and PILIC have heretofore delivered to CRL
the following annual and quarterly statements of PALHIC filed with or submitted
to the insurance regulatory authorities of the state in which PALHIC is
domiciled on forms prescribed or permitted by such authorities (collectively,
the "SAP Statements"):
(a) an Annual Statement of PALHIC for each of the years ended
1997, 1996 and 1995 (and the notes, exhibits and schedules relating
thereto and any affirmations and certifications filed therewith);
(b) audited statements of admitted assets, liabilities, and
capital and surplus of PALHIC as of December 31, 1997, 1996 and 1995,
and the related summaries of operations, statements of capital and
surplus and cash flow for the years then ended, together with the notes
related thereto; and
(c) a Quarterly Statement of PALHIC for the period ended
September 30, 1998 (and the exhibits and schedules relating thereto).
3.11 Assets of PALHIC and NIA.
3.11.1 The total capital and surplus of PALHIC as of the
Closing will be at least equal to the amount of the Purchase Price and consist
only of the assets described in Exhibit A attached hereto.
3.11.2 All of the material assets of NIA are described in Part
3.11.2 of the Disclosure Letter.
<PAGE>
3.12 Books and Records. The books of account, minute books, stock
record books, and other records of PALHIC and NIA, all of which have been made
available to Buyer, are complete and correct in all material respects and, to
the knowledge of PAMCO and PILIC, have been maintained in accordance with sound
business practices, including the maintenance of an adequate system of internal
controls. The minute books of PALHIC and NIA contain accurate and complete
records of all meetings held of, and corporate action taken by, the
stockholders, the boards of directors and committees of the boards of directors
of PALHIC and NIA, respectively, and no meeting of any such stockholders, board
of directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be delivered to CRL.
3.13 Software. Except as disclosed in Part 3.13 of the Disclosure
Letter, each of PALHIC and NIA has reviewed all material computer software used
by it and the areas within its business and operations that could be adversely
affected by the "year 2000 computer issue" (that is, the risk that such software
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999), and has
developed or is developing a program to address this issue on a timely basis.
Based on such reviews and programs, the year 2000 computer issue is not
reasonably likely to impair the ability of PALHIC and NIA to use such software
after December 31, 1999.
3.14 Commissions and Fees. Neither PAMCO, PILIC, PALHIC nor NIA has
retained or used the services of any person or entity in such a manner as to
entitle such person or entity to any commission or compensation for broker or
finder fees with respect to the transactions contemplated by this Agreement
except for Advest, Inc., the fees of which shall be the sole responsibility of
PAMCO.
3.15 Disclosure. Copies of all documents referred to herein or in the
Disclosure Letter have been delivered or made available to CRL, are true,
complete and accurate copies thereof, and include all amendments, supplements or
modifications thereto or waivers thereunder. Except as expressly set forth in
this Agreement, the Disclosure Letter or any certificates or other documents
executed and delivered by PAMCO or PILIC to CRL pursuant hereto, neither PAMCO
nor PILIC has any knowledge of any facts or conditions (other than any actual or
competitive factors in the markets in which they operate) that will or may
reasonably be expected to have a Material Adverse Effect on PILIC, PALHIC or
NIA.
4. REPRESENTATIONS AND WARRANTIES OF CRL
As of the date hereof and the date of Closing, CRL represents and
warrants to PAMCO and PILIC as follows:
<PAGE>
4.1 Organization. CRL is a corporation duly organized, validly existing
and in good standing under the laws of its state of organization. CRL has all
requisite corporate power and authority to own or hold under lease its
properties and assets and to carry on its business as presently conducted. CRL
is duly qualified to do business as a foreign corporation in each jurisdiction
in which the nature of its activities or properties makes qualification as a
foreign corporation necessary.
4.2 Authority. CRL has the right, power, authority and capacity to
make, execute and deliver this Agreement, has taken all necessary actions
required to be taken to authorize it to execute and deliver this Agreement and
to perform all of its obligations, undertakings and agreements to be observed
and performed by it hereunder. This Agreement has been duly executed and
delivered by CRL and constitutes the valid and binding agreement of CRL,
enforceable in accordance with its terms subject, as to the enforcement of
remedies, to general equitable principles and to bankruptcy, insolvency and
similar laws affecting creditors' rights generally.
4.3 No Violation. The execution, delivery and performance of this
Agreement by CRL will not: (a) contravene, conflict with, or result in a
violation or breach of any provision of, or give any person or entity the right
to declare a default or exercise any remedy under, or result in the acceleration
of the maturity or performance of, or the cancellation, termination or
modification of, or create (or cause the acceleration of the maturity of) any
debt, obligation or liability affecting, or result in the creation or imposition
of any Lien under: (i) any term or provision of the charter, bylaws or other
organizational documents, or any resolution adopted by the board of directors or
the stockholders, of CRL; (ii) any law, rule, regulation, judgment, decree or
order of any court or governmental authority applicable to CRL; or (iii) any
contract, agreement, indenture, lease or other commitment to which CRL is a
party or by which it or any of its assets is bound; (b) cause any material
change in the rights or obligations of any party under any such contract,
agreement, indenture, lease or commitment; or (c) give any governmental body or
other person or entity the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under any law, rule, regulation, judgment, decree or order applicable to CRL,
except for the consent and approval of the Pennsylvania Department of Insurance
with respect to the transactions contemplated hereby.
4.4 Consents. Except for the consent and approval of the Pennsylvania
Department of Insurance, no consent of any federal, state or local authority, or
any private person or entity is required to be obtained that has not been
obtained, and no notice to any such authority, person or entity is required to
be given that has not been given, in connection with the execution, delivery or
performance of this Agreement or any other agreement or document to be executed,
delivered or performed hereunder by CRL, including, without limitation, any
consents or notices required by any applicable federal or state securities laws,
any applicable state takeover laws and any applicable requirement of any
insurance regulatory authority having jurisdiction over CRL.
<PAGE>
4.5 No Litigation. There are no lawsuits, proceedings, claims or
governmental investigations pending or, to the knowledge of CRL, threatened
against or involving CRL, or any officers or directors thereof, that challenge,
or that may have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the transactions contemplated by this Agreement; and to
the knowledge of CRL there are no judgments, consents, decrees, injunctions or
any other judicial or administrative mandates outstanding against CRL that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with any of the transactions contemplated by this Agreement.
4.6 Commissions and Fees. CRL has not retained or used the services of
any person or entity in such a manner as to entitle such person or entity to any
commission or compensation for broker or finder fees with respect to the
transactions contemplated by this Agreement.
4.7 Software. CRL has reviewed all material computer software used by
it and the areas within its business and operations that could be adversely
affected by the "year 2000 computer issue" (that is, the risk that such software
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999), and has
developed or is developing a program to address this issue on a timely basis.
Based on such review and program, the year 2000 computer issue is not reasonably
likely to impair the ability of CRL to use such software after December 31,
1999.
4.8 Investment. CRL acknowledges that the Purchased Shares have not
been registered under any securities laws and that the certificates representing
the Purchased Shares shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REQUIREMENTS."
5. INDEMNIFICATION
5.1 Indemnification by PAMCO and PILIC. Subject to the limitations set
forth in Section 5.4 hereof, PAMCO and PILIC jointly and severally agree to
reimburse, indemnify and hold CRL and its parent corporation, directors,
officers, stockholders, employees and agents harmless from, against and in
respect of all losses, interest (including prejudgment interest on any litigated
or arbitrated matter), claims, damages, liabilities, costs and expenses,
including, without limitation, fines, penalties, court costs and reasonable
attorneys" and expert witness" fees (collectively, "Losses"), that they may
suffer or incur in connection with any of the following:
5.1.1 any untruth or inaccuracy in, breach of or omission from
(a) any of the representations and warranties of PAMCO and PILIC in
this Agreement, (b) the Disclosure Letter, (c) the SAP Statements or
(d) any other agreement, document or instrument executed and delivered
by PAMCO, PILIC, PALHIC or NIA to CRL pursuant to this Agreement
(regardless of whether such untruth, inaccuracy, breach or omission is
considered material);
<PAGE>
5.1.2 any nonfulfillment or breach of any covenant or
agreement of PAMCO or PILIC set forth in this Agreement, the Disclosure
Letter or any other agreement, document or instrument executed and
delivered by PAMCO, PILIC, PALHIC or NIA to CRL pursuant to this
Agreement (regardless of whether such nonfulfillment or breach is
considered material);
5.1.3 any fees, expenses or other payments incurred or owed by
PAMCO, PILIC, PALHIC, NIA or any of their Affiliates to any brokers,
finders or comparable third parties in connection with the transactions
contemplated by this Agreement;
5.1.4 any debts, liabilities or other obligations of PILIC,
PALHIC or NIA of any nature whatsoever arising, or relating to any act
or omission occurring, on or prior to the Closing, including but not
limited to any and all claims of employees of PILIC, PALHIC or NIA with
respect to compensation, pension plans, stock purchase plans or other
employee benefits;
5.1.5 any Loss that (a) arises out of, results from or relates
to any act or omission, whether or not in bad faith, intentional,
willful, negligent, reckless, careless or otherwise, of PALHIC, NIA or
any of their respective directors, officers, agents or representatives
in connection with any insurance policy included in the Ceded Block or
otherwise issued by PALHIC prior to the Closing and (b) is not a claim
for health benefits that are contractually covered by the terms and
conditions of such insurance policy;
5.1.6 any amounts due to any reinsurer or other person in
connection with the cancellation by PALHIC of all reinsurance
agreements with respect to the Ceded Block (other than the Hannover
Treaty) or any other insurance policy issued by PALHIC prior to the
Closing;
5.1.7 any Loss that arises out of, or results from, any
agreement or understanding with or obligation to HPS, including but not
limited to any amounts owed under the Existing HPS Agreement (other
than the ongoing claims services obligations to HPS that are assumed by
CRL pursuant to Section 2.8);
5.1.8 the sale by PALHIC of debit life insurance to Life and
Health Insurance Company of America in 1996; and
5.1.9 any litigation or contemplated litigation against or
involving PAMCO, PILIC, PALHIC, NIA or any of their Affiliates existing
as of the date hereof or the date of Closing (regardless of subject
matter).
5.2 Indemnification by CRL. Subject to the limitations set forth in
Section 5.4 hereof, CRL agrees to reimburse, indemnify and hold PAMCO, PILIC and
their directors, officers, stockholders, employees and agents harmless from,
against and in respect of all Losses that they may suffer or incur in connection
with any of the following:
<PAGE>
5.2.1 any untruth or inaccuracy in, breach of or omission from
any of the representations and warranties of CRL in this Agreement or
any other agreement, document or instrument executed and delivered by
CRL to PAMCO or PILIC pursuant to this Agreement (regardless of whether
such untruth, inaccuracy, breach or omission is considered material);
5.2.2 any nonfulfillment or breach of any covenant or
agreement of CRL set forth in this Agreement (including, without
limitation, any failure by CRL to cause PALHIC to market and sell the
PALHIC Policies pursuant to Section 2.4 hereof) or any other agreement,
document or instrument executed and delivered by CRL to PAMCO or PILIC
pursuant to this Agreement (regardless of whether such nonfulfillment
or breach is considered material);
5.2.3 the operation of PALHIC after January 1, 1999, except as
may otherwise be provided in the reinsurance agreements described in
Sections 2.5 and 2.6 hereof; and
5.2.4 any fees, expenses or other payments incurred or owed by
CRL or any of its Affiliates to any brokers, finders or comparable
third parties in connection with the transactions contemplated by this
Agreement.
5.3 Method of Asserting Claims.
5.3.1 Notice of Claim. If any legal proceedings are instituted
or any claim or demand given by any person, in respect of which payment
may be sought by any party or parties from any other party or parties
under the provisions of Sections 5.1 or 5.2, the party or parties
seeking indemnification (collectively, the "Indemnitee") will cause
written notice of any claim of which it has knowledge that is covered
by this Agreement to be forwarded promptly to the party or parties from
which indemnification is sought (collectively, the "Indemnitor"). Such
notice will specify the amount and nature of the claim and the reason
why it constitutes an indemnified liability, it being understood that
failure to provide notice will not relieve the other party from
liability except to the extent damages or prejudice results from such
failure.
5.3.2 Payment of Claims. In the event of a Loss other than a
third party claim, the Indemnitor will remit the amounts due, as
indicated in such notice, within thirty days of receipt thereof unless
the Indemnitor asserts in a writing delivered to the Indemnitee that
the claim is not an indemnified liability or disputes the amount of the
Loss. The failure by the Indemnitor to respond within thirty days of
receipt of such notice will be deemed to be an acknowledgment of the
correctness of the amounts due as set forth in the notice.
<PAGE>
5.3.3 Third Party Claims. If any action is brought by a third
party against any Indemnitee with respect to which such Indemnitee is
entitled to indemnification hereunder and notice of such action to the
Indemnitor has been given pursuant to Section 5.3.1, the Indemnitor
will be entitled to participate therein, and to the extent it may elect
by written notice delivered to the Indemnitee within thirty days after
receiving the aforesaid notice from such Indemnitee, to assume the
defense thereof with counsel reasonably satisfactory to such
Indemnitee. Such Indemnitee will cooperate with respect to any such
participation or defense. Notwithstanding the foregoing, the Indemnitee
will have the right to employ its own counsel in any such case but the
fees and expenses of such counsel will be at the expense of such
Indemnitee, unless (a) the employment of such counsel at the expense of
the Indemnitor shall have been authorized in writing by the Indemnitor,
(b) the Indemnitor shall not have employed counsel reasonably
satisfactory to such Indemnitee to have charge of the defense of such
action within thirty days after notice of commencement of the action,
or (c) such Indemnitee shall have reasonably concluded, based upon
written advice of counsel, that there may be defenses available to it
that are different from or additional to those available to the
Indemnitor (in which case the Indemnitor will not have the right to
direct the defense of such action on behalf of the Indemnitee with
respect to such different defenses), in any of which events such fees
and expenses of one additional counsel will be borne by the Indemnitor.
Notwithstanding anything in this Section 5 to the contrary, an
Indemnitor will not be liable for any settlement of any claim or action
effected without its written consent; provided, however, that such
consent is not unreasonably withheld. Upon payment of indemnification
by the Indemnitor, the Indemnitee, if requested in writing by the
Indemnitor, will assign to Indemnitor its rights against any applicable
account debtor or other responsible person to the extent of the
indemnification payment.
5.4 Limitations on Indemnification. Notwithstanding anything in this
Agreement to the contrary, and except with respect to any indemnification in
respect of a misrepresentation or omission made by an indemnifying party with
actual intent to defraud, no Indemnitor shall have any liability under this
Section 5 until the aggregate amount of Losses incurred by the Indemnitee
exceeds $25,000, and then only to the extent that the amount of such Losses
exceeds $25,000.
5.5 Survival. The representations and warranties of the parties shall
survive the Closing for a period of three years (except for the representations
and warranties set forth in Section 3.5.6, which shall survive indefinitely) and
shall not be deemed waived by the Closing and will be effective regardless of
any investigation that may have been made at any time by or on behalf of the
Indemnitee by its directors, officers, employees or agents.
5.6 Payment of Losses. The Indemnitor will pay to the Indemnitee, in
cash, the amount of any Loss to which the Indemnitee may become entitled by
reason of the provisions of this Section 5, such payment to be made within
thirty days after such Loss is finally determined either by mutual agreement of
the parties or pursuant to the final unappealable judgment of a court of
competent jurisdiction.
6. MISCELLANEOUS
6.1 Payment of Expenses. Unless otherwise specified in this Agreement,
each of the parties will each pay its or his own expenses, including, without
limitation, the expenses of its or his own counsel, investment bankers and
accountants, incurred in connection with the preparation, execution and delivery
of this Agreement and the other agreements and documents referred to herein and
the consummation of the transactions contemplated hereby and thereby. All
expenses of the parties in enforcing any of the provisions of this Agreement and
the other agreements and documents referred to herein, including reasonable
attorneys" fees, will be borne as determined by the court or arbitrator deciding
any dispute under this Agreement in accordance with their determination of what
is fair and equitable under the circumstances.
<PAGE>
6.2 Knowledge. For purposes of the representations and warranties made
in this Agreement, the term "knowledge" refers to the applicable party's
knowledge after reasonable due inquiry.
6.3 Notices. All notices, demands or other communications required or
permitted to be given or made hereunder shall be in writing and (a) delivered
personally, or (b) sent by pre-paid, first class, certified or registered mail,
return receipt requested, or (c) by priority overnight national express courier
service, or (d) by facsimile transmission (followed by a hard copy by U.S. mail
or priority overnight delivery as aforesaid), to the intended recipient thereof.
6.4 Successors and Assigns. No party may assign all or any part of its
rights, duties or obligations under or pursuant to this Agreement without the
consent of the other parties hereto (which consent shall not be unreasonably
withheld). Except as otherwise provided, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors and permitted assigns.
6.5 Governing Law; Venue. This Agreement will be governed, construed
and enforced in accordance with the internal laws of the State of Ohio,
excluding any choice of law rules that may direct the application of the laws of
another jurisdiction. Any legal action, suit or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby shall be
instituted in the United States District Court for the Northern District of Ohio
located in Cuyahoga County, Ohio, and each party agrees not to assert, by way of
motion, as a defense, or otherwise, in any such action, suit or proceeding, any
claim that it is not subject personally to the jurisdiction of such court, that
the action, suit or proceeding is brought in an inconvenient forum, that the
venue of the action, suit or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced in or by such court. Each party
further irrevocably submits to the jurisdiction of such court in any such
action, suit, or proceeding. Any and all service of process and any other notice
in any such action, suit or proceeding will be effective against any party if
served or delivered as provided by the rules of the court in which such legal
action, suit or proceeding has been instituted.
6.6 Amendment and Waiver. This Agreement shall not be altered or
amended except by an instrument in writing signed by or on behalf of the party
entitled to the benefit of the provision against whom enforcement is sought. Any
term or condition of this Agreement may be waived at any time by the party which
is entitled to the benefit thereof, but only if such waiver is evidenced by a
writing signed by such party. No failure on the part of any party hereto to
exercise, and no delay in exercising any right, power or remedy created
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy by any such party preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. No
waiver by any party hereto of any breach of or default in any term or condition
of this Agreement shall constitute a waiver of or assent to any succeeding
breach of or default in the same or any other term or condition hereof.
<PAGE>
6.7 Instruments of Further Assurance. Each of the parties hereto
agrees, upon the request of any of the other parties, from time to time to
execute and deliver to such other party or parties all such instruments and
documents of further assurance or otherwise as are reasonable under the
circumstances, and to do any and all such acts and things as may reasonably be
required to carry out the obligations of such requested party hereunder.
6.8 Publicity. No notices to third parties or other publicity,
including press releases, concerning any of the transactions provided for herein
will be made by any party hereto unless planned and coordinated jointly among
the parties, except to the extent otherwise required by applicable law. PAMCO
and PILIC are aware that CRL is owned by a public company that must comply with
the disclosure requirements of the federal securities laws and any applicable
stock exchange or securities association.
6.9 Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter hereof
(including, without limitation, that certain letter agreement among CRL, PAMCO,
PILIC and PALHIC dated November 12, 1998, but excluding any agreement entered
into between HealthAxis and CRL prior to the date hereof), and contains the sole
and entire agreement among the parties with respect to the matters covered
hereby. The Disclosure Schedule and any exhibits or schedules referred to herein
constitute a part of this Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first set forth above.
CENTRAL RESERVE LIFE INSURANCE COMPANY
By: /s/ Linda S. Standish
-------------------------------
Name: Linda S. Standish
Title: Vice President
PROVIDENT AMERICAN CORPORATION
By: /s/ Alvin H. Clemens
-------------------------------
Name: Alvin H. Clemens
Title: Chairman
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
By: /s/ Anthony R. Verdi
-------------------------------
Name: Anthony R. Verdi
Title: President
<PAGE>
GUARANTY
THIS GUARANTY (this "Agreement"), is made and entered into on this 29th
day of December, 1998, by PROVIDENT AMERICAN CORPORATION, a Pennsylvania
corporation ("PAMCO"), in favor of REASSURANCE COMPANY OF Hannover, a Florida
corporation ("RCH"), as agent on behalf of itself and CENTRAL RESERVE LIFE
INSURANCE COMPANY, an Ohio corporation ("CRL").
RECITALS:
WHEREAS, PAMCO, Provident Indemnity Life Insurance Company, a
Pennsylvania corporation and wholly-owned subsidiary of PAMCO ("PILIC"), and CRL
will enter into that certain Stock Purchase Agreement, dated December 29, 1998
(the "Stock Purchase Agreement"), whereby PILIC shall sell to CRL all of the
outstanding capital stock of Provident American Life and Health Insurance
Company, a Pennsylvania corporation ("PALHIC");
WHEREAS, in connection with the Stock Purchase Agreement, RCH will
enter into a quota-share reinsurance agreement with PILIC (the "Hannover
Treaty") to reinsure all of the health insurance policies of PILIC, constituting
approximately $100 million in premium and including all business rewritten with
CRL or its affiliates (the "Ceded Block");
WHEREAS, pursuant to the Hannover Treaty, RCH will deliver to PILIC a
$10 million cash payment (the "Ceding Commission"), and all profits from the
Ceded Block will be retained by RCH until it has recaptured the entire Ceding
Commission, together with any losses incurred, plus interest thereon at 12% per
annum;
WHEREAS, as a material inducement to RCH to enter into the Hannover
Treaty and to CRL to enter into the Stock Purchase Agreement, PAMCO has agreed
to execute and deliver to RCH (as agent on behalf of itself and CRL) this
Agreement, pursuant to which PAMCO guarantees that RCH will actually receive at
least $10 million in net profits from the Ceded Block, plus interest thereon at
the rate of 12% per annum, within five years after the effective date of the
Hannover Treaty;
WHEREAS, PAMCO has duly authorized the execution, delivery and
performance of this Agreement; and
WHEREAS, PAMCO has and will receive direct and indirect benefits from
the transactions contemplated by the Hannover Treaty and the Stock Purchase
Agreement and the related transactions;
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and in order to induce RCH to enter into the Hannover
Treaty and CRL to enter into the Stock Purchase Agreement as aforesaid, PAMCO
agrees as follows:
<PAGE>
- 11 -
SECTION 1. Guaranty. PAMCO hereby unconditionally guarantees the
following:
(a) Repayment of the Ceding Commission in the amount of Ten
Million Dollars ($10,000,000), plus simple interest thereon at the rate of 12%
per annum from the effective date of the Hannover Treaty, such repayment to be
made from the cumulative statutory net income derived from the Ceded Block
within five years after the effective date of the Hannover Treaty, provided,
however, the maximum amount which PAMCO shall be obligated to pay pursuant to
this Section 1(a) shall not exceed Five Million Dollars ($5,000,000) less the
cumulative amount of the overrides paid to NIA Corporation, a Colorado
corporation, with respect to the Ceded Block within the five year period after
the effective date of the Hannover Treaty;
(b) Interest on the amount to be paid by PAMCO to RCH pursuant
to Section 1(a) hereto at the rate of 12% per annum from the date hereof; and
(c) Reimbursement of all reasonable expenses (including
reasonable attorney' fees) incurred by RCH in enforcing any rights under this
Agreement;
(all such indebtedness, liabilities, obligations and expenses being collectively
referred to herein as the "Obligations").
SECTION 2. Repayment of the Ceding Commission. The repayment of the
Ceding Commission provided for in Section 1(a) hereto, shall be calculated
quarterly by RCH pursuant to Schedule C of the Hannover Treaty, and such
calculation shall be binding on PAMCO absent manifest error. RCH shall provide
PAMCO written notice setting forth calculation of the repayment of the Ceding
Commission for each quarter within a reasonable time after the end of each
quarterly period. The amount of repayment to be credited against the Ceding
Commission for each period shall be (i) the amount of the statutory net income
derived from the Ceded Block during such period, minus (ii) interest at the rate
of 12% per annum, for such period, on the amount of the Ceding Commission which
had not been repaid at the start of such period.
SECTION 3. Guaranty Absolute. PAMCO guarantees that the Obligations
will be paid strictly in accordance with the terms hereof and of the Hannover
Treaty regardless of any law, regulation or order now or hereafter in effect in
any jurisdiction affecting any of such terms or the rights of RCH with respect
thereto, except the provisions of the Pennsylvania Insurance Department Act of
1921, as amended (the "Code"). The liability of PAMCO under this Agreement shall
be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any of the Stock
Purchase Agreement, or any other agreement or instrument evidencing all or any
part of the Obligations;
(b) the absence of any attempt to collect the Obligations from
PILIC, any affiliate of PILIC or PAMCO, or any other person or guarantor;
<PAGE>
(c) the waiver or consent by RCH with respect to any provision
of any document evidencing the Obligations, or any part thereof, or any other
agreement now or hereafter executed by PAMCO or PILIC and delivered to RCH and
any modification thereof;
(d) failure by RCH to take any steps to perfect and maintain
its security interest in, or preserve its rights to, any security or collateral
for the Obligations;
(e) RCH's election, in any proceeding instituted under Chapter
11 of Title 11 of the United States Code (11 U.S.C. "101 et seq.) (the
"Bankruptcy Code"), of the application of Section 1111(b)(2) of the Bankruptcy
Code;
(f) any borrowing or grant of a security interest under
Section 364 of the Bankruptcy Code; or
(g) any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of PAMCO.
SECTION 4. Affirmative Covenants. PAMCO covenants and agrees that so
long as this Agreement is in effect and until such time as the Obligations,
together with interest, fees and all other obligations hereunder, have been paid
in full it shall:
(a) Maintain the corporate existence of PAMCO and PILIC and
their qualification and good standing in all states in which such qualification
and good standing are necessary in order for PAMCO and PILIC to conduct business
and own property as conducted and owned in such states.
(b) Comply in all material respects with all applicable
governmental laws, rules, regulations and orders; such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property except
to the extent contested in good faith.
(c) Furnish to RCH:
(i) as soon as available and in any event within
sixty (60) days after the end of each fiscal quarter, or in
the case of the end of PAMCO's fiscal year one hundred twenty
(120) days, financial statements of PAMCO and PILIC as of the
end of such fiscal quarter;
(ii) as soon as possible, and in any event within
five (5) Business Days (any day other than a Saturday, Sunday
or public holiday being referred to herein as a "Business
Day") after the occurrence of any Event of Default, a specific
description of the nature and period of existence thereof and
the action PAMCO has taken and proposes to take with respect
thereto;
<PAGE>
(iii) as soon as possible, and in any event within
five (5) Business Days after PAMCO or PILIC shall receive
notice of any litigation or governmental or regulatory
investigation or proceeding pending against or involving PAMCO
or PILIC which could reasonably be expected to have a Material
Adverse Effect (as defined in the Stock Purchase Agreement) or
a material adverse effect on the ability of PAMCO or PILIC to
perform its obligations hereunder or under the Hannover
Treaty, the Stock Purchase Agreement, or any other agreement
related thereto; and
(iv) such other information respecting the condition
or operations, financial or otherwise, of PAMCO and PILIC as
RCH may from time to time reasonably request.
(d) Permit RCH or any person designated by RCH in writing to
call, from time to time, without hindrance or delay, at PAMCO's and PILIC's
place of business during usual business hours to inspect, audit, check and make
copies of the extracts from its books, records, journals, orders, receipts and
any correspondence and other data relating to their financial dealings, business
or to any transactions between the parties hereto. In exercising its rights
hereunder, RCH shall not unreasonably disrupt or interfere with PAMCO's or
PILIC's conduct of business.
(e) Maintain insurance coverage by such insurers and in such
forms and amounts and against such risks as are generally consistent with the
insurance coverage maintained by PAMCO and PILIC at the date hereof, and
forthwith upon RCH's written request, furnish to RCH such information about such
insurance as RCH may from time to time reasonably request, which information
shall be prepared in form and detail satisfactory to RCH and certified by an
authorized officer of PAMCO.
SECTION 5. Negative Covenants. PAMCO covenants and agrees that so long
as this Agreement is in effect and until such time as the Obligations, together
with interest, fees and all other obligations hereunder, have been paid in full
it shall not and shall not permit PILIC to, without the prior written consent of
RCH:
(a) Sell, assign, lease or otherwise dispose of all or
substantially all of any of PAMCO's or PILIC's assets; or enter into any
transaction of merger, reorganization or consolidation, or wind up, liquidate or
dissolve or enter into any other such transactions (all such transactions being
referred to hereinafter individually and collectively as a "Change of Control
Transaction"), or agree to a Change of Control Transaction, except that PAMCO
may enter into a Change of Control Transaction not involving PILIC, if the
successor entity to PAMCO agrees in writing to assume all of the liabilities and
obligations of PAMCO pursuant to this Agreement.
(b) Enter into any agreement, contract or arrangement that
would materially and adversely alter its right or ability to carry on PAMCO's or
PILIC's business.
<PAGE>
(c) Enter into any agreement, contract or arrangement that
would materially and adversely effect its ability to perform its obligations to
RCH under this Agreement, the Hannover Treaty, the Stock Purchase Agreement, or
any other agreement related thereto.
(d) Contract, create, incur, assume or suffer to exist any
indebtedness of PAMCO or PILIC, except for indebtedness incurred under this
Agreement or existing indebtedness; and any refinancing, extension, renewal or
refunding of any such existing indebtedness not involving an increase in the
principal amount thereof;
(e) (i) Lend money or credit or make advances to any person,
(ii) purchase or acquire any stock, obligations or securities of, or any other
interest in, or make any capital contribution to, or other investment in, any
person, (iii) create, acquire or hold any Subsidiary, (iv) be or become a party
to any joint venture or partnership, or (v) be or become obligated under any
guaranty obligations (other than those created in favor of the RCH pursuant to
this Agreement), except if no Event of Default shall have occurred and be
continuing, or would result therefrom, and the maximum cumulative amount of the
above made and outstanding at any time shall not exceed an aggregate of $25,000.
(f) Directly or indirectly declare, order, pay or make any
dividend or other distribution on or in respect of any capital stock of any
class of PAMCO or PILIC, whether by reduction of capital or otherwise, or
directly or indirectly make any purchase, redemption, retirement or other
acquisition of any capital stock of any class of PAMCO or PILIC or of any
warrants, rights or options to acquire or any securities convertible into or
exchangeable for any capital stock of PAMCO or PILIC, except PAMCO shall have
the right to receive cash dividends or distributions otherwise declared and paid
with respect to the PILIC only to the extent such dividends or other
distributions will not materially or adversely effect PILIC's ability to do
business, its ratings, licences or certificates of authority.
(g) Make (or give any notice in respect thereof) any voluntary
or optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with the trustee with
respect thereto money or securities before due for the purpose of paying when
due) or exchange of, or refinance or refund, any indebtedness of PAMCO or PILIC
which has an outstanding principal balance greater than $100,000.
(h) Enter into any transaction or series of transactions with
any affiliate, subsidiary or parent other than in the ordinary course of
business of and pursuant to the reasonable requirements of PAMCO's or PILIC's
business and upon fair and reasonable terms no less favorable to PAMCO or PILIC
than would be obtained in a comparable arm's-length transaction with a person
other than an affiliate, subsidiary, or parent, provided that in no event may
PAMCO hold or PILIC issue surplus notes.
<PAGE>
Notwithstanding the forgoing, (i) for any period in which the Cash Collateral
(as defined in that certain Stock Pledge Agreement, dated December ____, 1998,
between PAMCO, RCH and Kohrman, Jackson & Krantz, P.L.L., as collateral agent
(the "stock Pledge Agreement")) has been properly substituted for the Stock
Collateral (as defined in the Stock Pledge Agreement) pursuant to Section
1(a)(ii) of the Stock Pledge Agreement, PAMCO (but not PILIC) may enter into any
of the transactions described in this Section 5 without any consent of RCH, (ii)
PAMCO may cause HealthAxis.com, Inc., a Pennsylvania corporation ("HealthAxis"),
a subsidiary of PAMCO, to and HealthAxis may, enter into the transactions
described in this Section 5 without any consent of RCH, or (iii) PAMCO and PILIC
may sell, assign, lease or otherwise dispose of their ownership of HealthAxis
without any consent of RCH.
SECTION 6. Waiver. PAMCO hereby waives diligence, presentment, demand
of payment, filing of claims with a court in the event of receivership or
bankruptcy of any of PAMCO or PILIC, protest or notice with respect to the
Obligations and all demands whatsoever, and covenants that this Agreement will
not be discharged, except by complete performance of the Obligations contained
herein. Upon any Event of Default as provided in this Agreement or any other
instrument or document evidencing all or any part of the Obligations, RCH may,
at its election, proceed directly and at once, upon 10 days prior written
notice, against PAMCO to collect and recover the full amount or any portion of
the Obligations, without first proceeding against PILIC any other person or
against any security or collateral for the Obligations. RCH shall have the
exclusive right to determine the application of payments and credits, if any,
from PAMCO, PILIC or any other person on account of the Obligations or of any
other liability of PAMCO, PILIC or any affiliate thereof to RCH.
SECTION 7. Authorization. RCH is hereby authorized, without notice or
demand and without affecting the liability of PAMCO hereunder, from time to
time, to: (i) accept partial payments on the Obligations; and (ii) take and hold
security or collateral for the payment of the Obligations, and exchange,
enforce, waive and release any such security or collateral. RCH is hereby
authorized, upon ten (10) days prior written notice, and without affecting the
liability of PAMCO hereunder, from time to time, to apply such security or
collateral and direct the order or manner of sale thereof as in its sole
discretion it may determine.
At any time upon the occurrence of an Event of Default, RCH may, in its
sole discretion, upon ten (10) days prior written notice to PAMCO and regardless
of the acceptance of any security or collateral for the payment hereof,
appropriate and apply toward the payment of the Obligations (i) any indebtedness
due or to become due from RCH to PAMCO or PILIC, and (ii) any moneys, credits or
other property belonging to PAMCO or PILIC, at any time held by or coming into
the possession of RCH.
<PAGE>
SECTION 8. Subrogation. PAMCO hereby waives and relinquishes any right
to subrogation or other right or claim to payment against PILIC arising out of
or on account of any sum paid or agreed to be paid by PAMCO under this
Agreement, whether such right to claim is liquidated, unliquidated, fixed,
contingent, matured or unmatured, so long as this Agreement is in effect and
until such time as the Obligations, together with interest, fees and all other
obligations hereunder, have been paid in full. PAMCO acknowledges that PAMCO
will receive direct and indirect benefits from the arrangements contemplated by
the Stock Purchase Agreement and that the waiver set forth herein is knowingly
made in contemplation of such benefits. PAMCO also waives all setoffs and
counterclaims and all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Agreement. PAMCO further waives all notices (other than
those required pursuant to this Agreement) that the Obligations, any portion
thereof and/or any interest on any instrument or document evidencing all or any
part of the Obligations are due, notices of any and all proceedings to collect
from PILIC or any other person all or any part of the Obligations, and, to the
extent permitted by law, notices of exchange, sale, surrender or other handling
of any security or collateral given to RCH to secure payment of the Obligations.
SECTION 9. Marshaling of Assets. PAMCO consents and agrees that RCH
shall not be under any obligation to marshal any assets in favor of PAMCO or
against or in payment of any or all of the Obligations. PAMCO further agrees
that, to the extent that PAMCO or PILIC makes any payment or payments to RCH, or
RCH receives any proceeds of collateral, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to such person, its estate, trustee,
receiver or any other party, under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such payment or repayment,
the Obligation or part thereof which has been paid, reduced or satisfied by such
amount shall be reinstated and continued in full force and effect as of the date
such initial payment, reduction or satisfaction occurred.
SECTION 10. Amendments, Etc. No amendment of any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by PAMCO and RCH. No waiver of any provision of this Agreement nor
consent to any departure by a party therefrom shall in any event be effective
unless the same shall be in writing and signed by the other party to this
Agreement, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 11. Addresses for Notices. Unless otherwise specifically
provided herein, any notice or other communication required or permitted to be
given shall be in writing addressed to the respective party as set forth below
and may be personally served, telecopied, telexed or sent by overnight courier
service or United States mail and shall be deemed to have been given: (i) if
delivered in person, when delivered; (ii) if delivered by telecopy or telex, on
the date of transmission if transmitted on a business day before 4:00 p.m.
(Eastern time) or, if not, on the next succeeding business day; (iii) if
delivered by overnight courier, two days after delivery to such courier properly
addressed; or (iv) if by U. S. Mail, four business days after depositing in the
United States mail, with postage prepaid and properly addressed.
If to RCH: Reassurance Company of Hannover
800 N. Magnolia Avenue, Suite 1000
Orlando, Florida 32803
Attention: Mr. Craig Baldwin
Fax No.: (407) 649-8322
<PAGE>
with a copy to: Central Reserve Life Insurance Company
17800 Royalton Road
Strongsville, Ohio 44136
Attention: General Counsel
Fax No.: (440) 572-4500
If to PAMCO: Provident American Corporation
P.O. Box 511
Norristown, Pennsylvania 19404-0511
Attention: Alvin H. Clemens, Chairman
Fax No.: (610) 279-0410
with a copy to: Butera, Beausang, Cohen & Brennan
630 Freedom Business Center, Suite 212
King of Prussia, Pennsylvania 19406
Attention: Michael F. Beausang, Jr.
Fax No.: (610) 265-7205
SECTION 12. No Waiver; Remedies. No failure on the part of RCH to
exercise, and no delay in exercising, any right or remedy hereunder shall
operate as a waiver thereof, and no single or partial exercise by RCH of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right; nor shall any modification or, waiver of any of the
provisions of this Agreement be binding upon RCH, except as expressly set forth
in a writing duly signed and delivered by an authorized officer or agent of RCH
on behalf of RCH. RCH's failure at any time or times hereafter to require strict
performance by PAMCO or PILIC of any of the provisions, warranties, terms and
conditions contained in herein or in the Stock Purchase Agreement, the Hannover
Treaty, or the Stock Pledge Agreement or in any agreement now or at any time or
times hereafter executed by PAMCO and delivered to RCH shall not waive, affect
or diminish any right of RCH at any time or times hereafter to demand strict
performance thereof and such right shall not be deemed to have been waived by
any act or knowledge of RCH, its agents, officers or employees, unless such
waiver is contained in an instrument in writing signed by an officer or agent of
RCH and directed to the Borrowers specifying such waiver. No waiver by RCH of
any default or Event of Default shall operate as a waiver of any other default
or the same default or Event of Default on a future occasion, and no action by
RCH permitted hereunder shall in any way affect or impair RCH's rights or the
obligations of PAMCO under this Agreement. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
<PAGE>
SECTION 13. Events of Default. Each of the following shall constitute
an Event of Default hereunder: (i) if RCH fails to receive repayment of the
Ceding Commission as provided pursuant to Sections 1 and 2 hereof; (ii) there is
a uncured breach of any representation, warranty or covenant given by PAMCO
pursuant to this Agreement and if such default shall remain uncured for a period
of ten (10) days; or (iii) if any of the collateral shall be attached or levied
upon or seized in any legal proceedings, or held by virtue of any lien or
distress or otherwise encumbered in any manner.
SECTION 14. Continuing Guaranty. This Agreement is a continuing
guaranty and shall (i) remain in full force and effect until payment in full of
the Obligations, (ii) be binding upon PAMCO, its successors and assigns, and
(iii) inure to the benefit of and be enforceable by RCH and its successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), RCH agrees that if no Event of Default shall have occurred and be
continuing, RCH shall not make any assignment of the Obligations without the
prior written consent of PAMCO.
SECTION 15. Effective Date. This Agreement shall be effective as of
11:59 p.m. on December 31, 1998 and shall be subject to, and occur
simultaneously with, the closing of the transactions described in the Hannover
Treaty, the Stock Purchase Agreement and the Stock Pledge.
SECTION 16. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida, without regard
to principles of conflict of laws.
SECTION 17. WAIVER OF JURY TRIAL. PAMCO HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE STOCK PURCHASE AGREEMENT.
SECTION 18. WAIVER OF JURISDICTION. PAMCO HEREBY AGREES TO THE
JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN ORANGE COUNTY, STATE OF
FLORIDA. PAMCO CONSENTS THAT ALL SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO PAMCO AND RCH AT THEIR ADDRESSES SET FORTH IN SECTION 11
HEREOF, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) BUSINESS
DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S., POSTAGE PREPAID.
PAMCO WAIVES ANY OBJECTION TO JURISDICTION OVER THE PERSON OR, TO THE EXTENT OF
COMPLIANCE WITH THE IMMEDIATELY PRECEDING SENTENCE, SUFFICIENCY OF PROCESS OR
SERVICE UPON IT.
SECTION 19. Capitalized Terms. Capitalized terms not otherwise defined
herein are used herein with the meanings ascribed to such terms in the Stock
Purchase Agreement.
SECTION 20. Confession of Judgment. PAMCO hereby irrevocably authorizes
and empowers any attorney-at-law to appear for PAMCO in any action upon or in
connection with this Agreement at any time after the Obligations become due, as
herein provided, in any court in or of the State of Ohio or elsewhere, and
waives the issuance and service of process with respect thereto, and irrevocably
authorizes and empowers any such attorney-at-law to confess judgment in favor of
RCH against PAMCO, the amount due thereon or hereon, plus interest as herein
provided, and all costs of collection, and waives and releases all errors in
said proceedings and judgments and all
<PAGE>
rights of appeal from the judgment rendered. PAMCO agrees and consents that the
attorney confessing judgment on behalf of PAMCO may also be counsel to RCH or
any of RCH's affiliates, waives any conflict of interest which might otherwise
arise, and consents to RCH paying such confessing attorney a reasonable legal
fee or allowing such attorney's reasonable fees to be paid from the proceeds of
collection of the Obligations or proceeds of any collateral, or any other
security for the Obligations.
IN WITNESS WHEREOF, PAMCO has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
Signed and acknowledged
in the presence of: PROVIDENT AMERICAN CORPORATION
/s/ Anthony R. Verdi
-------------------------------
- ------------------------- By: Anthony R. Verdi
Its: Chief Operating Officer
Name:
--------------------
- -------------------------
Name:
--------------------
<PAGE>
STATE OF Pennsylvania )
) ss:
COUNTY OF Montgomery )
The foregoing instrument was acknowledged before me this 29th
day of December, 1998, by Anthony R. Verdi, C.O.O. of PROVIDENT AMERICAN
CORPORATION, a PA corporation, on behalf of the company.
/s/ Kathleen V. Martin
--------------------------------
Notary Public
(NOTARIAL SEAL)
Accepted at Orlando, Florida as of December 28, 1998.
REASSURANCE COMPANY OF HANNOVER
By: /s/ Craig M. Baldwin
----------------------------
Name: Craig M. Baldwin
Title: SR. V.P. - Marketing
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), is made and entered
into on this 29th day of December, 1998, by PROVIDENT AMERICAN CORPORATION, a
Pennsylvania corporation ("Pledgor"), in favor of REASSURANCE COMPANY OF
HANNOVER, a Florida corporation ("secured Party"), as agent on behalf of itself
and CENTRAL RESERVE LIFE INSURANCE COMPANY, an Ohio corporation ("CRL").
RECITALS:
WHEREAS, Pledgor, Provident Indemnity Life Insurance Company, a
Pennsylvania corporation and wholly-owned subsidiary of Pledgor ("PILIC"), and
CRL will enter into that certain Stock Purchase Agreement, dated December 29,
1998 (the "stock Purchase Agreement"), whereby PILIC shall sell to CRL all of
the outstanding capital stock of Provident American Life and Health Insurance
Company, a Pennsylvania corporation ("PALHIC");
WHEREAS, in connection with the Stock Purchase Agreement, Secured Party
will enter into a quota-share reinsurance agreement with PILIC (the "Hannover
Treaty") to reinsure all of the health insurance policies of PILIC, constituting
approximately $100 million in premium and including all business rewritten with
CRL or its affiliates (the "Ceded Block");
WHEREAS, pursuant to the Hannover Treaty, Secured Party will deliver to
PILIC a $10 million cash payment (the "Ceding Commission"), and all profits from
the Ceded Block will be retained by Secured Party until it has recaptured the
entire Ceding Commission, together with any losses incurred, plus interest
thereon at 12% per annum;
WHEREAS, as a material inducement to Secured Party to enter into the
Hannover Treaty and to CRL to enter into the Stock Purchase Agreement, Pledgor
will execute and deliver to Secured Party (as agent on behalf of itself and CRL)
that certain Guaranty, of even date herewith (the "PAMCO Guaranty"), pursuant to
which Pledgor guarantees that Secured Party will actually receive at least $10
million in net profits from the Ceded Block, plus interest thereon at the rate
of 12% per annum, within five years after the effective date of the Hannover
Treaty; and
WHEREAS, as a condition precedent to the effectiveness of the Stock
Purchase Agreement Pledgor has agreed to grant a security interest in and pledge
the Collateral (as hereinafter defined) to Secured Party as security for payment
of any amounts due or performance of any obligations due under the PAMCO
Guaranty (the "Obligations");
NOW THEREFORE, the parties agree as follows:
<PAGE>
1. Grant of Security Interest and Pledge.
(a) As security for the payment and performance by Pledgor
pursuant to the PAMCO Guaranty, Pledgor hereby pledges, transfers, conveys,
hypothecates, mortgages, assigns, sets over, delivers and grants to Secured
Party a security interest in and to
(i) all of the currently issued and outstanding
shares of capital stock of PILIC and all shares of capital
stock of PILIC issued during the term of this Agreement
(collectively, the "PILIC Shares"), all income, stock
dividends and other distributions therefrom (such PILIC
Shares, proceeds, products, income, stock dividends and
distributions being referred to collectively as the "stock
Collateral");
(ii) Pledgor shall have the right at any time and
upon giving ten (10) days prior written notice to Secured
Party and to Collateral Agent, that Pledgor intends to
substitute for the Stock Collateral a letter of credit, cash
or cash equivalent in the principal amount of Five Million
Dollars ($5,000,000) (such letter of credit cash or cash
equivalent being referred to collectively as the Cash
Collateral) (the Stock Collateral and the Cash Collateral
being referred to collectively as the "Collateral"). Upon
receipt by Secured Party or Collateral Agent of the Cash
Collateral in form satisfactory to the Secured Party, at
Secured Party's reasonable discretion, Secured Party shall
assign to Pledgor all of Secured Party's right title and
interest in and to the Stock Collateral, release all liens and
encumbrances which Secured Party has upon the Stock
Collateral, and shall instruct the Collateral Agent to deliver
the Stock Collateral to Pledgor, and thereupon Pledgor shall
be released from all further liability pursuant to Sections
2(d), 2(e), 2(f), 2(g), 4 and 11 hereunder..
Secured Party shall be entitled to hold the Collateral and to exercise rights
incident thereto, subject, however, to the terms and conditions set forth
herein.
(b) Pledgor hereby designates and appoints Secured Party as
its attorney-in-fact and proxy, with full power of substitution, which
designation and appointment is irrevocable and coupled with an interest, upon
the occurrence and continuance of an Event of Default (as hereinafter defined)
for the purpose of performing any and all acts, in the name, place and stead of
Pledgor, which are authorized by this Agreement.
2. Representations, Warranties and Covenants Regarding Collateral.
Pledgor hereby represents, warrants and covenants to and with Secured Party as
follows:
(a) Pledgor has not and shall not permit any lien, claim,
charge, security interest or encumbrance to exist with respect to the
Collateral, other than those in favor of Secured Party.
<PAGE>
(b) Upon execution and delivery of this Agreement, Pledgor
shall deliver to Kohrman Jackson & Krantz P.L.L., as Collateral Agent on behalf
of Secured Party ("Collateral Agent") either (i) certificates evidencing the
Stock Collateral, accompanied by executed stock powers in blank and by
irrevocable proxies with respect to the Stock Collateral and such other
instruments or documents as Collateral Agent, Secured Party or its counsel may
reasonably request, or (ii) the Cash Collateral. If the Cash Collateral is
delivered to the Collateral Agent or the Secured Party, any Stock Collateral
held pursuant to this Agreement shall be returned to Pledgor.
(c) Pledgor agrees to perform all acts and do all things which
Secured Party may reasonably request, now or hereafter, to evidence, preserve or
protect the creation, attachment or perfection of the security interest herein
granted to Secured Party.
(d) The PILIC Shares constitute and will continue to
constitute all of the issued and outstanding shares of capital stock of PILIC.
All of the PILIC Shares are duly authorized, validly issued, fully paid and
nonassessable. No legend or other reference to any purported lien appears upon
any certificate representing any of the PILIC Shares. There are no outstanding
securities convertible into or exercisable for, or any rights to subscribe for
or purchase, or any options, warrants or other rights for the purchase of, or
any agreements or arrangements providing for the issuance (contingent or
otherwise) of, or any actions relating to, any shares of capital stock of PILIC.
Pledgor is the direct legal and beneficial owner of all of the PILIC Shares,
free and clear of any and all liens, and there are no outstanding contracts,
demands, commitments or other agreements or arrangements under which Pledgor is
or may become obligated to sell, transfer or assign any of the PILIC Shares
(other than to Secured Party as provided herein). Each of the PILIC Shares has
been issued in compliance with all federal and state securities laws and without
violation of any pre-emptive rights.
(e) There are no surplus notes presently issued and
outstanding by PILIC.
(f) Upon the delivery of the PILIC Shares to Collateral Agent
pursuant to this Agreement, Secured Party shall have a valid and perfected
security interest in the Stock Collateral subject to the provisions of the
Pennsylvania Insurance Department Act of 1921, as amended (the "Code").
(g) So long as this Agreement is in effect Pledgor shall not
and shall not permit PILIC to (i) issue any additional shares of the capital
stock of PILIC, (ii) issue any securities convertible into or exercisable for,
or any rights to subscribe for or purchase, or any options, warrants or other
rights for the purchase of, or any agreements or arrangements providing for the
issuance (contingent or otherwise) of, or any actions relating to, any shares of
capital stock of PILIC, and (iii) enter into any contracts, demands, commitments
or other agreements or arrangements under which Pledgor is or may become
obligated to sell, transfer or assign any of the PILIC Shares.
<PAGE>
(h) In the event that Pledgor fails or refuses to perform any
of its obligations set forth herein, Secured Party shall have the right, without
obligation, to do all things it deems necessary or advisable to discharge the
same, and any sums paid by Secured Party, or the cost thereof, including without
limitation, attorney fees, shall constitute secured Obligations and bear
interest at the rate specified in the PAMCO Guaranty until paid.
3. Events of Default; Remedies.
(a) Each of the following shall constitute an Event of Default
hereunder: (i) if there shall occur any uncured default under the PAMCO
Guaranty; (ii) there is a uncured breach of any representation, warranty or
covenant given by Pledgor pursuant to this Agreement and if such default shall
remain uncured for a period of Ten (10) days; or (iii) if any of the Collateral
shall be attached or levied upon or seized in any legal proceedings, or held by
virtue of any lien or distress or otherwise encumbered in any manner.
(b) Upon the occurrence of an Event of Default, Secured Party
shall thereupon have, in addition to the rights specified elsewhere in this
Agreement (including but not limited to Section 4(d) hereof) and the PAMCO
Guaranty:
(i) the right to request Collateral Agent to release
to Secured Party the Collateral and the right to receive the
Collateral from the Collateral Agent;
(ii) subject to the provisions of the Code, the right
to cause any or all of the Stock Collateral to be transferred
into the name of Secured Party or its nominee or nominees;
(iii) subject to the provisions of the Code, the sole
right to exercise or refrain from exercising the voting and
other consensual rights that Pledgor would otherwise be
entitled to exercise with respect to the Stock Collateral;
(iv) all other rights and remedies of a secured party
under the Uniform Commercial Code of the State of Florida or
other applicable law.
4. Voting, Dividends, Etc.
(a) During the term of this Agreement and for so long as no
Event of Default shall have occurred and be continuing, Pledgor shall have the
right to vote the Stock Collateral.
<PAGE>
(b) During the term of this Agreement and for so long as no
Event of Default shall have occurred and be continuing, Pledgor shall have the
right to receive cash dividends or distributions otherwise declared and paid
with respect to the Stock Collateral, except to the extent such dividends or
other distributions will materially or adversely effect the PILIC's ability to
do business, its ratings, licences or certificates of authority. Any and all
stock or liquidating dividends, other distributions in property, returns of
capital or other distributions made on or in respect of Stock Collateral,
whether resulting from a subdivision, combination or reclassification of the
stock included in the Stock Collateral, received in exchange for the Stock
Collateral or any part thereof or received as a result of any merger,
consolidation, acquisition or other exchange of assets, and any additional PILIC
Shares issued during the term of this Agreement, shall be and become part of the
Stock Collateral pledged hereunder and, if received by Pledgor, shall forthwith
be delivered to Collateral Agent, to be held subject to the terms of this
Agreement.
(c) Collateral Agent may hold any of the Collateral, endorsed
or assigned in blank, and may deliver any of the Collateral to the issuer for
the purpose of making denominational exchanges or registrations or for such
other purpose in furtherance of this Agreement as Collateral Agent may deem
desirable.
(d) Upon the occurrence of any uncured Event of Default and
subject to the provisions of the Code, all of Pledgor's rights to vote the Stock
Collateral pursuant to Section 4(a) and to receive any cash dividends or
distributions pursuant to Section 4(b) hereof shall cease, and all such rights
shall thereupon become vested in Secured Party, who shall have the sole and
exclusive right to vote the Collateral and to receive and retain the cash
dividends and other distributions which Pledgor would otherwise be authorized to
receive and retain pursuant to Section 4(a) hereof. In such event, Pledgor shall
pay over to Secured Party any cash dividends or distributions received by
Pledgor with respect to the Collateral, and any and all money, stock and other
property paid over to or received by Secured Party pursuant to the provisions of
this Section 4(d) shall be retained by Secured Party as Collateral hereunder and
shall be applied in accordance with the provisions hereof.
5. Power of Attorney. Pledgor appoints Secured Party, or any other
person whom Secured Party may designate, as Pledgor's attorney, with power to
endorse Pledgor's name on any checks, notes, acceptances, money orders, drafts
or other form of payment or security that may come into Secured Party's
possession and to do all things necessary to carry out this Agreement. Pledgor
ratifies and approves all acts of such attorney. Neither Secured Party nor any
other person designated by Secured Party as attorney hereunder will be liable
for any acts or omissions except in the case of wilful misconduct or gross
negligence on the part of Secured Party or such person, nor for any errors of
judgment or mistakes of fact or law. This power, coupled with an interest, is
irrevocable until the satisfaction in full of the Obligations. Prior to the
occurrence of an uncured Event of Default, Secured Party shall give Pledgor Ten
(10) days notice prior to the exercise of any action under this Section 5.
6. Termination of Agreement. This Agreement shall continue in full
force and effect until the termination of the PAMCO Guaranty pursuant to the
terms thereof and the satisfaction in full of the Obligations. Upon termination
of this Agreement, Collateral Agent or Secured Party shall surrender to Pledgor
or other person legally entitled thereto, without recourse or warranty, all
certificates evidencing, and stock powers in respect of, the securities included
in the Stock Collateral which are in the possession of Collateral Agent or
Secured Party and have not been disposed of pursuant to the terms of this
Agreement.
<PAGE>
7. Obligations Unaffected. The validity and enforceability of the
security interest granted hereunder and the rights of Secured Party hereunder
shall not be affected by (i) the failure of Secured Party to assert any claim or
demand or to enforce any right or remedy it may have against Pledgor pursuant to
the PAMCO Guaranty or otherwise, (ii) any extension or renewal of any of the
terms of the PAMCO Guaranty, (iii) any rescission, waiver, amendment or
modification of any of the terms or provisions of the PAMCO Guaranty, or (iv)
the release of any security held by Secured Party for the Obligations. Pledgor
waives any right to require that any resort be had by Secured Party (i) to any
security held by Secured Party for payment of the Obligations, (ii) to any other
monetary obligations of Pledgor, or (iii) to Secured Party's rights against any
guarantor of the Obligations.
8. Waivers, Amendments; Successors and Assigns.
(a) Pledgor waives presentment and protest of any instrument
and notice thereof, notice of default and all other notices to which Pledgor
might otherwise be entitled, except as otherwise specifically provided herein.
(b) Failure by Secured Party to exercise any right, remedy or
option under this Agreement or in any other agreement between the parties
hereto, or delay by Secured Party in exercising the same, will not operate as a
waiver.
(c) No waiver by Secured Party shall be effective unless it is
in a writing signed by Secured Party, and then only to the extent specifically
stated, and no waiver by Secured Party on any occasion shall affect or diminish
Secured Party's right thereafter to require strict performance by Pledgor with
any provision of this Agreement.
(d) Secured Party's rights and remedies under this Agreement
shall be cumulative and not exclusive of any other right or remedy which Secured
Party may have.
(e) Each party hereto waives all right to trial by a jury in
any litigation relating to transactions under this Agreement.
(f) This Agreement and any term or provision hereof can only
be amended or terminated by an instrument in writing executed by both Pledgor
and Secured Party.
(g) Secured Party agrees that if no Event of Default shall
have occurred and be continuing, Secured Party shall not assign this Agreement
or any portion thereof without the prior written consent of Pledgor. Pledgor
shall not be permitted to assign this Agreement or any interest herein without
the prior written consent of Secured Party.
(h) All of the rights, privileges, remedies and options given
to Secured Party hereunder shall inure to the benefit of its successors and
assigns; and all the terms, conditions, promises, covenants, provisions and
warranties of this Agreement shall inure to the benefit of and shall bind the
representatives, successors and permitted assigns of Secured Party and Pledgor.
<PAGE>
9. Effective Date. This Agreement shall be effective as of 11:59 p.m.
on December 31, 1998 and shall be subject to, and occur simultaneously with, the
closing of the transactions described in the Hannover Treaty, the Stock Purchase
Agreement and the PAMCO Guaranty.
10. Collateral Agent.
(a) Pledgor and Secured Party agree to the appointment of the
Collateral Agent and Collateral Agent hereby agrees to act as collateral agent
and to hold, safeguard and disburse the Collateral pursuant to the terms and
conditions hereof.
(b) If an Event of Default occurs, Secured Party shall give
ten (10) days written notice to Pledgor and Collateral Agent requesting
Collateral Agent to release the Collateral to the Secured Party. Upon receipt of
such notice and the passing of the ten (10) day period, Collateral Agent shall
release to Secured Party any and all Collateral which is in the possession of or
subject to the control of the Collateral Agent.
(c) Collateral Agent shall not be liable, except for its own
gross negligence or willful misconduct and, except with respect to claims based
upon such gross negligence or willful misconduct that are successfully asserted
against Collateral Agent, the other parties hereto shall jointly and severally
indemnify and hold harmless Collateral Agent from and against any and all
losses, liabilities, claims, actions, damages and expenses, including reasonable
attorneys' fees and disbursements, arising out of and in connection with this
Agreement.
11. Registration of Shares. Secured Party acknowledges that the PILIC
Shares have not been registered under any securities laws and that the
certificates representing the PILIC Shares shall bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM SUCH REQUIREMENTS."
12. General Provisions.
(a) Pledgor agrees to do such further acts and things, and to
execute and deliver such additional conveyances, assignments, agreements and
instruments, as Collateral Agent or Secured Party may reasonably request in
connection with the administration and enforcement of this Agreement or relative
to the Collateral or any part thereof or in order better to assure and confirm
unto Secured Party its rights and remedies hereunder.
(b) Section headings used herein are for convenience only and
are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
<PAGE>
(c) Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
(d) Pledgor shall reimburse Secured Party for all reasonable
costs and expenses incurred by Secured Party (including reasonable attorney's
fees and disbursements) to: (i) commence, defend or intervene in any court
proceeding relating to the Collateral or this Agreement; (ii) file a petition,
complaint, answer, motion or other pleadings, or to take any other action in or
with respect to any suit or proceeding (bankruptcy or otherwise) relating to the
Collateral or this Agreement; (iii) protect, collect, sell, take possession of
or liquidate any of the Collateral; and (iv) attempt to enforce any security
interest in any of the Collateral or to seek any advice with respect to such
enforcement. Pledgor also agrees to pay, and to save Secured Party harmless from
any delay in paying any intangibles, documentary stamp and other taxes, if any,
which may be payable in connection with the execution and delivery of this
Agreement, or any modification hereof.
(e) If Pledgor fails to pay any taxes, assessments or
governmental charges levied or assessed or imposed upon or with respect to the
Collateral, or otherwise fails to pay any amount necessary for the protection
and preservation of the Collateral securing the Obligations, Secured Party may
pay same at Secured Party's option, together with interest and penalty, and the
amounts so paid shall be added to the Obligations, bearing interest until paid
at the rate or rates for the Obligations specified in the PAMCO Guaranty, and be
secured by the Collateral.
(f) This Agreement shall be deemed to be a contract made under
the laws of the State of Florida for all purposes, and the validity of this
Agreement and of all transactions provided for herein shall be governed by,
interpreted and construed under, and in accordance with, the internal laws (and
not the law of conflicts) of the State of Florida.
(g) As between Secured Party and Pledgor, Secured Party may,
in its sole discretion, (i) exchange, enforce, waive or release any security or
portion of the Collateral, (ii) apply such security or any proceeds of the
Collateral and direct the order or manner of sale thereof as Secured Party may,
from time to time, determine, and (iii) settle, compromise, collect or otherwise
liquidate any such security or Collateral for the Obligations in any manner
following the occurrence of an Event of Default and during the continuance
thereof without affecting or impairing Secured Party's right to take any other
further action with respect to any security for the Obligations or any part
thereof. Prior to the occurrence of an uncured Event of Default, Secured Party
shall give Pledgor ten (10) days notice prior to the exercise of any action
under this Section 9(g).
<PAGE>
(h) Secured Party shall have the continuing and exclusive
right to apply or reverse and reapply any and all payments to any portion of the
Obligations. To the extent Pledgor makes a payment or payments to Secured Party,
or Secured Party receives any payment or proceeds of the Collateral for
Pledgor's account, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Obligations or part thereof
intended to be satisfied shall be revived and continue in full force and effect,
as if such payment or proceeds had not been received by Secured Party .
(i) Pledgor recognizes that, in the event Pledgor fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to Secured Party;
therefore, Pledgor agrees that Secured Party, if Secured Party so requests,
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
(j) Unless otherwise specifically provided herein, any notice
or other communication required or permitted to be given shall be in writing
addressed to the respective party as set forth below and may be personally
served, telecopied, telexed or sent by overnight courier service or United
States mail and shall be deemed to have been given: (i) if delivered in person,
when delivered; (ii) if delivered by telecopy or telex, on the date of
transmission if transmitted on a business day before 4:00 p.m. (Eastern time)
or, if not, on the next succeeding business day; (iii) if delivered by overnight
courier, two days after delivery to such courier properly addressed; or (iv) if
by U. S. Mail, four business days after depositing in the United States mail,
with postage prepaid and properly addressed.
If to Secured Party: Reassurance Company of Hannover
800 N. Magnolia Avenue, Suite 1000
Orlando, Florida 32803
Attention: Mr. Craig Baldwin
Fax No.: (407) 649-8322
with a copy to: Central Reserve Life Insurance Company
17800 Royalton Road
Strongsville, Ohio 44136
Attention: General Counsel
Fax No.: (440) 572-4500
If to Collateral Agent: Kohrman Jackson & Krantz P.L.L.
20th Floor, One Cleveland Center
1375 East 9th Street
Cleveland, Ohio 44114-1724
Attention: Marc Krantz
Fax No.: (216) 621-6536
<PAGE>
If to Pledgor: Provident American Corporation
P.O. Box 511
Norristown, Pennsylvania 19404-0511
Attention: Alvin H. Clemens, Chairman
Fax No.: (610) 279-0410
with a copy to: Butera, Beausang, Cohen & Brennan
630 Freedom Business Center, Suite 212
King of Prussia, Pennsylvania 19406
Attention: Michael F. Beausang, Jr.
Fax No.: (610) 265-7205
(k) Pledgor agrees to indemnify Collateral Agent and/or
Secured Party from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever (including, without limitation, fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against Collateral Agent and/or Secured Party in any litigation, proceeding or
investigation, including, without limitation, any of the foregoing brought under
any federal or state securities laws, which is threatened, instituted or
conducted by any government agency or instrumentality or any other person with
respect to any aspect of, or any transaction contemplated by, or referred to in,
or any matter related to, this Agreement, whether or not Collateral Agent and/or
Secured Party is a party thereto except to the extent that any of the foregoing
arises out of the wilful misconduct or gross negligence of such party.
(l) This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
(m) CONSENT TO JURISDICTION; SERVICE OF PROCESS. PLEDGOR
HEREBY CONSENTS TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE
COUNTY OF ORANGE, STATE OF FLORIDA AND IRREVOCABLY AGREES THAT, SUBJECT TO
SECURED PARTY'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. PLEDGOR ACCEPTS FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. PLEDGOR HEREBY AGREES THAT
SERVICE UPON PLEDGOR BY MAIL AT THE ADDRESS SPECIFIED PURSUANT TO SUBSECTION (j)
ABOVE SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF SECURED PARTY TO BRING PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER
JURISDICTION.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
REASSURANCE COMPANY OF HANNOVE
By: /s/ Craig M. Baldwin
------------------------------------
Name: Craig M. Baldwin
Title: Sr. V.P. - Marketing
PROVIDENT AMERICAN CORPORATION
By: /s/ Anthony R. Verdi
------------------------------------
Name: Anthony R. Verdi
Title: Chief Operating Officer
KOHRMAN JACKSON & KRANTZ P.L.L.
as Collateral Agent
By: /s/ Kohrman Jackson & Krantz P.L.L.
------------------------------------
Name: Marc C. Krantz
Title: Partner
<PAGE>
REINSURANCE AGREEMENT
(hereafter referred to as the "Agreement")
among
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
(hereafter referred to as the "Company")
and
REASSURANCE COMPANY OF HANNOVER
(hereafter referred to as the "Reinsurer")
and
CENTRAL RESERVE LIFE INSURANCE COMPANY
(hereafter referred to as the "Administrator")
Effective: 11:59 P.M., Local Standard Time, December 31, 1998
Term: Continuous
Type: COINSURANCE HA-98033F
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
PREAMBLE....................................................... 4
I DEFINITIONS.................................................... 4
II LIABILITY; ALLOWANCES.......................................... 6
III COMMENCEMENT AND TERMINATION; RECAPTURE........................ 6
IV POLICY REDUCTIONS, TERMINATIONS AND REWRITES................... 6
V PREMIUM........................................................ 7
VI REPORTS AND REMITTANCES; POWER OF ATTORNEY..................... 7
VII EXTRA CONTRACTUAL OBLIGATIONS.................................. 8
VIII REINSURER'S RIGHT OF NOTICE OF UNUSUAL PRACTICES............... 9
IX ADMINISTRATION OF THE POLICIES................................. 9
X REPRESENTATIONS, WARRANTIES AND COVENANTS...................... 10
XI LOSS SETTLEMENTS............................................... 10
XII COINSURANCE; RESERVES.......................................... 11
XIII ERRORS AND OMISSIONS........................................... 13
XIV INSOLVENCY..................................................... 13
XV TREASURY REGULATION SECTION 1.848-2 (g)(8)..................... 14
XVI CONDITIONS..................................................... 15
XVII TAXES.......................................................... 15
XVIII ACCESS TO RECORDS.............................................. 15
XIX ARBITRATION.................................................... 16
XX GOVERNING LAW.................................................. 16
XXI SUBROGATION.................................................... 16
XXII ENTIRE AGREEMENT............................................... 17
XXIII POLICY CHANGES; RATE INCREASES................................. 17
XXIV OFFSET......................................................... 18
XXV WAIVER; AMENDMENT.............................................. 18
XXVI NO ASSIGNMENT; BINDING EFFECT.................................. 18
XXVII SEVERABILITY................................................... 19
XXVIII NOTICES........................................................ 19
XXIX EXECUTION...................................................... 20
<PAGE>
SCHEDULE A - POLICIES.................................... 22
SCHEDULE B - EXPENSE ALLOWANCE........................... 23
SCHEDULE C - RECAPTURE; EXPERIENCE REFUND................ 25
<PAGE>
REINSURANCE AGREEMENT
(hereafter referred to as the "Agreement")
among
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
(hereafter referred to as the "Company")
and
REASSURANCE COMPANY OF HANNOVER
(hereafter referred to as the "Reinsurer")
and
CENTRAL RESERVE LIFE INSURANCE COMPANY
(hereafter referred to as the "Administrator")
PREAMBLE
In consideration of the mutual covenants hereinafter contained the parties
hereto agree as follows:
ARTICLE I - DEFINITIONS
"Administrator" means Central Reserve Life Insurance Company, an Ohio
corporation.
"Claim" means a claim made to the Company or the Administrator by a
policyholder, insured, certificate holder or dependent thereof who is entitled
to coverage under a Policy for which medical treatment, facilities or services
contractually covered by such Policy, and not excluded by such Policy, were
rendered or provided to such policyholder, insured, certificate holder or
dependent thereof. A Claim is incurred on the date it is regarded as being
incurred in the administration of the insured's Claim relating to the same
medical treatment, facilities or services.
"Coinsurance Basis" means reinsurance on a basis whereby the Company cedes to
the Reinsurer reserves underlying the Policies and assets, valued at book value
in accordance with SAP, which assets satisfy the reserve requirements necessary
or required by applicable law or regulation with respect to the Reinsurer's
proportionate share of liability hereunder, and such reserves and assets are
held by the Reinsurer.
"Company" means Provident Indemnity Life Insurance Company, a Pennsylvania
corporation.
"Contested Claim" has the meaning assigned to such term in Article XI hereof.
<PAGE>
"Effective Date" means 11:59 P.M., Local Standard Time, December 31, 1998.
"Extra Contractual Obligations" means any and all reasonable costs, expenses,
damages, liabilities or obligations of any kind or nature (including without
limitation attorneys fees, consequential and incidental damages, and punitive
and exemplary damages) which are incurred by the Company and arise out of,
result from or relate to any act or omission, whether or not in bad faith,
intentional, willful, negligent, reckless, careless or otherwise, of the Company
or the Administrator in connection with a Policy, and which are not
contractually covered by the terms and conditions of such Policy.
"Initial Treaty" has the meaning assigned to such term in Article X hereof.
"Local Standard Time" means the time at the location of the Company's home
office.
"Loss" means a Claim that has been actually paid by the Company. A Loss is
incurred on the date that the Loss is actually paid by the Company.
"Loss Adjustment Expenses" means all reasonable payments to other than employees
of fees and expenses associated with investigation, litigation (including
without limitation reasonable attorney's fees) and settlement of Claims, as
distinguished from the amount of a claimant's recovery from the Company under
such claimant's Policy.
"Person" means an individual, firm, corporation or entity.
"Policy" means the plans of insurance policies, riders, and binders listed on
Schedule A attached hereto and incorporated herein by reference which were
issued by the Company and by Provident American Life and Health Insurance
Company, a Pennsylvania corporation, prior to the Effective Date and are in
force on the Effective Date. In no event shall the term Policy or Policies
include any plans of insurance policies, riders, or binders underwritten or
issued by Union Benefit Life Insurance Company.
"Premium" means premium required by a Policy to be paid and which is actually
collected and received by the Company or the Administrator on behalf of the
Company, less premium returned to a Person after actual collection and receipt
by the Company or the Administrator due to rescission or cancellation of a
Policy or reductions or terminations in coverage or benefits under a Policy.
"Reinsurer" means Reassurance Company of Hannover, a Florida corporation.
"Services" means all of the usual and customary servicing and administrative
functions and duties associated with the Policies, including but not limited to,
premium payments; Claims administration; customer services for insureds, owners,
beneficiaries, agents and other interested Persons; file and record maintenance
and administration including system maintenance and administration; billing and
collection of Premium; maintenance of Policy financial data in such form to
allow the Company and the Reinsurer to meet any and all reporting requirements
it may have; and payment of agents' commissions related to Policies , it being
understood that provision of funds for the payment of Claims and commissions, to
the extent, if any, that Premiums are insufficient for that purpose, are the
sole responsibility of the Reinsurer.
<PAGE>
"Suspension Notice" has the meaning assigned to such term in Article XXIII
hereof.
ARTICLE II - LIABILITY; ALLOWANCES
The Company agrees to cede to the Reinsurer, and the Reinsurer agrees to
reinsure from the Company, 100% of Losses under Policies incurred on and after
the Effective Date. The Reinsurer agrees to indemnify the Company for such
Losses to the extent provided by this Article II. The Company and the Reinsurer
acknowledge and agree that the reinsurance provided to the Company by the
Reinsurer hereunder is on an original terms basis on the underlying Policies
reinsured hereby.
In connection with the reinsurance hereunder the Reinsurer agrees to pay to (i)
the Company, on the Effective Date, a ceding allowance on the terms and
provisions set forth in Schedule B, and (ii) the Administrator an expense
allowance on the terms and provisions set forth in Schedule B.
ARTICLE III - COMMENCEMENT AND TERMINATION; RECAPTURE
This Agreement, and the rights, obligations and duties hereunder of the parties
hereto, shall become effective on the Effective Date provided the transfer of
assets set forth in Article XII has occurred. The Reinsurer shall continue to
provide reinsurance only for Losses incurred by the Company under Policies so
long as such Policies continue to be in force and this Agreement continues to be
in effect as to such Policies. The Reinsurer shall have no liability hereunder
for Losses actually paid under Policies prior to the Effective Date.
This Agreement is unlimited in duration, but may be amended in writing by the
mutual written consent of the parties hereto. This Agreement shall automatically
terminate when no Policies are in force. Upon any termination of this Agreement,
an experience refund calculation shall be made in accordance with Schedule C
hereto. Except as otherwise provided herein, the Policies may not be recaptured
by the Company.
ARTICLE IV - POLICY REDUCTIONS, TERMINATIONS AND REWRITES
The Reinsurer's liability hereunder shall not be increased by reason of the
inability of the Company to collect from any other reinsurers any amounts which
may become due from such reinsurers which amounts arise, relate to or result
from reinsurance of risk by such reinsurers under Policies or any other policy
issued by the Company.
Reductions and terminations of coverage and benefits under Policies shall reduce
or terminate the Reinsurer's liability hereunder in a corresponding amount as of
the same date.
<PAGE>
All rewrites, conversions and other Policy continuations effected in accordance
with the Company's and the Policy's guidelines shall be viewed as existing
Policies as of the original dates of issue, not as of the date of Policy change,
including alternative policies offered by any company owned or controlled by the
Administrator.
ARTICLE V - PREMIUM
The Administrator, on behalf of the Company, shall pay to the Reinsurer 100% of
Premium under Policies collected for coverage on and after the Effective Date.
The Company and Provident American Life and Health Insurance Company shall
immediately deliver to the Administrator any Premium received by the Company
and/or Provident American Life and Health Insurance Company for payment to the
Reinsurer.
<PAGE>
ARTICLE VI - REPORTS AND REMITTANCES; POWER OF ATTORNEY
Premium funds collected by the Administrator with respect to the Policies shall
be deposited in a bank account or accounts under the control of the
Administrator, and identified as the Company's Premium account(s). The Company
shall authorize the deposit of checks drawn to its order in this account, as
well as the use of this account for Premium drafting plans with respect to the
Policies. Funds may be transferred or paid from such Company Premium account(s)
only:
1. To pay return Premiums to policyholders (provided that such Premiums
were received by the Administrator on behalf of the Company
hereunder);
2. To pay Claims or fund a bank account, identified as the Company's
claim account, used to pay Claims under Policies, and Loss Adjustment
Expenses with respect to Policies;
3. To pay commissions with respect to Premiums on Policies;
4. To pay the Company all estimated Premium taxes and guarantee fund or
similar assessments, licenses and fees with respect to the Policies;
5. To pay association fees, if any, to the respective associations based
on specified fee schedules;
6. To pay the Administrator the Policy fees collected as part of Premium
until repayment in full of the ceding allowance (with interest
thereon) by the Company to the Reinsurer. After such full repayment,
to pay the Company such Policy fees;
7. To pay the Administrator's expense allowance provided for in Schedule
B hereto;
8. To pay the net balance due from Premiums each month to the Reinsurer.
Any expenses associated with this account shall be borne by, and interest earned
thereon credited to, the Administrator.
<PAGE>
Within thirty (30) days after the end of each calendar month the Administrator
shall deliver in writing to the Company and the Reinsurer a report delineating
all of the foregoing, and shall also include in such report (i) reserves,
calculated in accordance with SAP, on the Policies in force as of the end of the
preceding calendar quarter (reported on a quarterly basis only); and (ii) such
other information as the Reinsurer may reasonably request.
Together with the delivery of each such report by the Administrator to the
Reinsurer, the Administrator shall remit all amounts due and payable by the
Company to the Reinsurer, if any, as indicated by such report. Within ten (10)
business days after the Reinsurer's receipt of the report, the Reinsurer shall
pay the Administrator all amounts due and payable to the Company by the
Reinsurer, if any, as indicated by such report. All payments owed by the
Reinsurer to the Company and made to the Administrator shall be deemed to be
made to the Company. All payments owed by the Company to the Reinsurer and made
by the Administrator shall be deemed to be made by the Company.
If the Administrator decides to deliver such report via electronic media, the
Administrator shall consult with the Reinsurer to determine the appropriate
reporting format. Should the Administrator subsequently desire to make changes
in the data format or the code structure, the Administrator shall communicate
such changes to the Company and the Reinsurer prior to the use of such changes
in reports to the Reinsurer.
Upon receipt of a report, the Reinsurer may, in its discretion and upon
reasonable information and belief, contest the information contained in the
report. If the Reinsurer so contests, the Reinsurer shall deliver to the
Administrator and the Company written notice thereof stating the reasons upon
which the Reinsurer disputes the report, and the parties shall use their best
efforts to resolve the dispute within twenty (20) days thereafter. If the
parties fail to resolve such dispute within such period, the dispute shall be
resolved by arbitration as provided herein. During the time such dispute is
pending, the Reinsurer shall have the right to suspend all payment obligations
relating to the disputed portion(s) of such report until resolution of such
dispute. If such dispute is resolved by arbitration in favor of the
Administrator, the Reinsurer shall be liable for interest (as provided below) on
the amount owed by the Reinsurer to the Company as of the date such amount
became past due.
The Company hereby irrevocably constitutes and appoints the Administrator, or
its delegate, as its attorney-in-fact, with full power of substitution, and with
full power and authority to act in its name, place, and stead to execute, swear
to, acknowledge, deliver, and file all instruments and documents as may be
required or necessary, in the reasonable discretion of the Administrator or its
delegate, to perform the Services and all administrative obligations of the
Administrator hereunder relating to the Policies. This power of attorney shall
be deemed coupled with an interest, shall be irrevocable, and shall survive the
insolvency of the Company.
Interest at a rate equal to .5833% per month (7% per annum) shall be charged on
all amounts due and owing which have not been paid when due by and to the
Company or the Reinsurer, as applicable, to be received by the Administrator and
subsequently distributed to the Company or the Reinsurer, as applicable.
<PAGE>
ARTICLE VII - EXTRA CONTRACTUAL OBLIGATIONS
The Reinsurer shall have no liability for Extra Contractual Obligations, unless
the Reinsurer was an active party or directed, consented to, or ratified the
act, omission or course of conduct which ultimately resulted in assessment of
Extra Contractual Obligations against the Company, in which case the Reinsurer
shall share pro rata in such Extra Contractual Obligations in proportion to the
Reinsurer's liability for a Loss hereunder. The Administrator agrees to
indemnify and hold harmless the Company from and against any losses, damages,
liabilities, costs, or expenses incurred by the Company as a result of the
Administrator's willful or grossly negligent actions or omissions which cause
such Extra Contractual Obligations.
ARTICLE VIII - REINSURER'S RIGHT OF NOTICE OF UNUSUAL PRACTICES
The parties acknowledge and agree that the Reinsurer has placed its utmost good
faith and confidence in the Administrator, and the parties assume that, except
as otherwise notified by the Administrator, the underwriting, claims and other
insurance practices employed by the Administrator with respect to the
reinsurance under this Agreement are consistent with the customary and usual
practices of the insurance industry as a whole. Where the Administrator does
engage in exceptional or uncustomary practices, the Company and the
Administrator each agree to notify the Reinsurer of such practices. The parties
agree that the Administrator's failure to so notify the Reinsurer will result in
the Reinsurer having no liability hereunder with respect to Losses relating to
such exceptional or uncustomary practices. The Administrator agrees to indemnify
and hold harmless the Company and the Reinsurer from and against any losses,
damages, liabilities, costs, or expenses incurred by the Company or the
Reinsurer, as applicable, as a result of the Administrator's willful or grossly
negligent exceptional or uncustomary practices as described in this Article
VIII.
ARTICLE IX - ADMINISTRATION OF THE POLICIES
As of the Effective Date, the Administrator agrees to perform the Services with
the utmost good faith for as long as the Reinsurer is required to provide
reinsurance hereunder. The Administrator agrees to indemnify and hold harmless
the Company from and against any losses, damages, liabilities, costs, or
expenses incurred by the Company as a result of the Administrator's material
breach of this Article IX.
If the Reinsurer reasonably believes that the Administrator has failed to
perform the Services, the Reinsurer shall notify the Administrator in writing of
such failure and the Administrator shall have ten (10) business days to cure
such failure to the reasonable satisfaction of the Reinsurer. If the
Administrator fails or refuses to cure such failure within such period, or has
become financially impaired, the Reinsurer may request the Administrator to
secure another Person to perform the Services, in which case the Company shall
engage another Person selected by the Administrator and reasonably satisfactory
to the Company and the Reinsurer to perform the Services. Such other Person
shall have in good standing all governmental, regulatory and other licenses,
permits and authorizations necessary or required by law to perform the Services.
<PAGE>
In the event the Administrator is removed from performing the Services pursuant
to this Article, the Company and the Administrator shall deliver to the
replacement Person providing the Services all reports, records, documents,
instruments and other information necessary or required to perform
satisfactorily the Services. All costs associated with the transfer of the
Services to another Person shall be borne by the Administrator.
ARTICLE X - REPRESENTATIONS, WARRANTIES AND COVENANTS
The Company and the Administrator represent and warrant to the Reinsurer that:
1. There are no governmental or regulatory consents, approvals or other
authorizations necessary or required by law, regulation, order, decree,
judgment or otherwise to be obtained to consummate the transactions
contemplated by this Agreement; and
2. If required by applicable law, rule or regulation, each Policy has been
filed with the appropriate governmental or regulatory agency or
authority and approval of such filed Policy has been obtained by the
Company or the Administrator, as applicable, from such agency or
authority.
The Company and the Administrator covenant and agree:
1. To request promptly any such consents, approvals or other
authorizations, if necessary or required, relating to this Agreement
and the transactions contemplated hereby, and to pursue diligently such
request. The Company and the Administrator jointly and severally agree
to indemnify and hold harmless the Reinsurer from and against any and
all losses, damages, costs, expenses or liabilities suffered or
incurred by the Reinsurer arising out of a breach of this Agreement by
the Company; and
2. Not to terminate the reinsurance agreement (the "Initial Treaty")
between the Company and the Administrator relating to the Policies
reinsured hereunder, to otherwise cause the recapture of such Policies
under such agreement, or to otherwise materially amend, modify or
change the terms of such agreement. The Company and the Administrator
jointly and severally irrevocably and unconditionally agree to repay to
the Reinsurer the loss carryforward (LCF) specified in Schedule C
hereto; and
3. To perform all of their respective duties and obligations hereunder with the
utmost good faith.
ARTICLE XI - LOSS SETTLEMENTS
The Reinsurer shall accept the decision of the Administrator with respect to a
Claim and the incurrence of a Loss, except as otherwise provided herein. The
Administrator agrees to deliver written notice to the Reinsurer of each Claim
which would, if paid, cause the Reinsurer's liability hereunder to be $25,000 or
more prior to such Claim actually being paid. The Administrator agrees to
deliver to the Reinsurer all documents, reports and other information in the
possession of or known by the Administrator relating to such Claim to permit the
Reinsurer to evaluate the Claim and advise the Administrator in writing with
respect to payment of the Claim. If the Reinsurer fails to advise the
Administrator in writing within ten (10) days after the Administrator's delivery
to the Reinsurer of the documents, reports and other information relating to
such Claim, the Administrator
<PAGE>
shall pay the Claim and the Reinsurer shall be estopped from denying reinsurance
liability hereunder for such Loss.
The Administrator may, in its discretion, deliver written notice to the
Reinsurer of each Claim as to which the Administrator is uncertain, or has
reasonable cause to believe, that such Claim is or may not be properly payable.
In addition, the Administrator shall deliver immediately such a notice to the
Reinsurer and the Company as to each Claim denied in whole or in part by the
Administrator if a notice of litigation or threatened litigation is filed with
the Company or the Administrator relating to such denied Claim (each Claim as to
which such a notice is delivered is referred to herein as a "Contested Claim").
The Company and the Administrator agree to deliver immediately to the Reinsurer
all documents, reports and other information relating to such Contested Claim to
permit the Reinsurer to evaluate the Contested Claim and advise the Company and
the Administrator in writing with respect to payment of the Contested Claim. In
the event the Company or the Administrator complies with the Reinsurer's advice
with respect to a Contested Claim, and Extra Contractual Obligations later arise
with respect to such Contested Claim, the Reinsurer shall share in the Extra
Contractual Obligations in proportion to the Reinsurer's liability for a Loss
hereunder, but if the Company or the Administrator fails to give such notice or
to comply with such advice, the Reinsurer shall not share in any of the Extra
Contractual Obligations. In no event shall the Reinsurer be liable for any Extra
Contractual Obligations based upon acts, omissions, facts, circumstances or
events which occurred prior to the Effective Date.
The Administrator agrees to deliver written notice to the Reinsurer of each
Policy that the Administrator reasonably believes should be rescinded and
Premium reimbursed to the policyholder prior to the Administrator, on behalf of
the Company, actually rescinding such Policy. The Reinsurer shall review facts
surrounding the Policy and the reasons for the reasonable belief of the
Administrator that the Policy should be rescinded and the Reinsurer will advise
the Administrator in writing with respect to the rescission of the Policy within
fifteen (15) business days after the Administrator delivers its written notice
to the Reinsurer regarding the Policy. In the event the Reinsurer advises the
Administrator to rescind the Policy and Extra Contractual Obligations later
arise due to such advice from the Reinsurer, the Reinsurer shall share in the
Extra Contractual Obligations in proportion to the Reinsurer's liability for a
Loss hereunder, but if the Administrator fails to comply with such advice, the
Reinsurer shall not share in any of the Extra Contractual Obligations. The
Administrator agrees to indemnify and hold harmless the Company and the
Reinsurer from and against any losses, damages, liabilities, costs, or expenses
incurred by the Company or the Reinsurer, as applicable, as a result of the
Administrator's failure or refusal to comply with such advice from the Reinsurer
as described in this Article XI.
The parties agree that the Company's and the Administrator's intentional or
grossly negligent acts or omissions with respect to this Article XI shall
relieve the Reinsurer of any liability hereunder with respect to any such Claim,
Loss or Policy.
<PAGE>
ARTICLE XII - COINSURANCE; RESERVES
The reinsurance hereunder shall be on a Coinsurance Basis. The parties agree
that only the SAP reserves of the Policies relating to the unearned and advance
premiums, net of due and uncollected premium, shall be reviewed and the amounts
therefor shall be calculated as of September 30, 1998, and determined by an
actuary designated by the Company, which actuary shall be a Fellow of the
Society of Actuaries ("FSA"). Upon the FSA's completion of such calculation, the
FSA shall deliver to an actuary designated by the Reinsurer (the "Reinsurer's
Actuary") such calculation for review and approval by the Reinsurer's Actuary on
behalf of the Reinsurer. If the Reinsurer's Actuary does not approve the
calculation, the Reinsurer's Actuary and the FSA shall use their good faith best
efforts to reach an agreement as to such calculation. Thereafter, if the FSA and
the Reinsurer's Actuary continue to disagree with respect to such calculation,
the parties agree that the calculation shall be determined by the independent
actuarial firm of Tillinghast, Milliman & Robertson or Wakely & Associates,
which firm shall be selected by the Company. The determination of the
calculation by such firm shall be final, binding, conclusive and nonappealable
upon the Company and the Reinsurer. The parties agree that all fees of the FSA
shall be borne by the Company, all fees of the Reinsurer's Actuary shall be
borne by the Reinsurer, and all fees of the independent actuarial firm shall be
borne by each of the Company and the Reinsurer in the proportion of the
difference that each of their respective representatives' calculations bears to
the calculation of the independent actuarial firm. By way of example, if the FSA
determines the SAP reserves to be $2 million, the Reinsurer's Actuary determines
the SAP reserves to be $3 million, and the independent actuarial firm determines
the SAP reserves to be $2.5 million, each of the Company and the Reinsurer shall
be liable for 50% of the fees of the independent actuarial firm.
On the Effective Date, such SAP reserves of the Policies relating to the
unearned and advance premiums, net of due and uncollected premium, shall be
ceded, and assets, acceptable to the Reinsurer (if other than cash) and valued
at book value (or marked to market as of the Effective Date in the case of
marketable securities) in accordance with SAP, which assets satisfy the reserve
requirements necessary or required by applicable law or regulation with respect
to the Reinsurer's proportionate share of liability hereunder, shall be
transferred by the Company to the Reinsurer in connection with the reinsurance
hereunder. Such transfer of assets shall be on an estimated basis, to be
adjusted as set forth herein.
If any due Premiums allowed as an offset in computing the transferred reserves
are not received by the Administrator on behalf of the Company within forty-five
(45) days after the Effective Date, the Company shall pay the amount thereof to
the Reinsurer upon demand by the Reinsurer.
The parties further agree that sixty (60) days after the Effective Date, the
Reinsurer's Actuary shall recalculate such SAP reserves of the Policies relating
to the unearned and advance premiums, net of due and uncollected premium, as of
the Effective Date to determine whether a redundancy or deficiency in such
reserves were ceded by the Company to the Reinsurer. If the Reinsurer's Actuary
determines that the reserves indicate a redundancy, the Reinsurer shall, and
agrees to, immediately deliver to the Company the amount of such redundancy. If
the Reinsurer's Actuary determines that the reserves indicate a deficiency, the
Company shall, and agrees to, immediately deliver to the Reinsurer the amount of
such deficiency. The calculation of the Reinsurer's Actuary shall be subject to
review and approval by the FSA on behalf of the Company. If the FSA does not
approve the calculation, the Reinsurer's Actuary and the FSA shall use their
<PAGE>
good faith best efforts to reach an agreement as to such calculation.
Thereafter, if the FSA and the Reinsurer's Actuary continue to disagree with
respect to such calculation, the parties agree that the calculation shall be
determined by the independent actuarial firm of either Tillinghast, Milliman &
Robertson, or Wakely & Associates, which firm shall be selected by the
Reinsurer. The determination of the calculation by such firm shall be final,
binding, conclusive and nonappealable upon the Company and the Reinsurer. The
parties agree that all fees of the FSA shall be borne by the Company, all fees
of the Reinsurer's Actuary shall be borne by the Reinsurer, and all fees of the
independent actuarial firm shall be borne by each of the Company and the
Reinsurer as determined according to the same formula above in this Article XII.
Upon request by the Reinsurer, the Company and the Administrator shall cooperate
to deliver to the Reinsurer all Policy information necessary or reasonably
required by the Reinsurer to perform cash flow testing on the Policies for the
each year of this Agreement. The Company and the Administrator understand and
agree that the Reinsurer's right to such information is an inducement to the
Reinsurer entering into this Agreement. The Company and the Administrator,
therefore, agree to use their respective best efforts to comply with the
Reinsurer's request for all such Policy information to perform such cash flow
testing.
ARTICLE XIII - ERRORS AND OMISSIONS
Any inadvertent or clerical delay, error or omission made by any party hereto in
connection with this Agreement shall not relieve either party from any liability
of such party hereunder had such inadvertent or clerical delay, error or
omission not occurred. The parties agree to cure all inadvertent and clerical
delays, errors and omissions immediately upon discovery thereof.
ARTICLE XIV - INSOLVENCY
In the event of insolvency of the Company, all payments of the Reinsurer for
Losses shall be payable directly to the Administrator for the account of the
Company, or to the Company's liquidator, receiver, conservator or statutory
successor, without diminution because of the insolvency of the Company, except
where this Agreement specifically provides for another payee of such Losses in
the event of the insolvency of the Company.
The Company or its liquidator, receiver, conservator or statutory successor
shall give written notice to the Reinsurer of the pendency of a Claim,
indicating the Policy under which such Claim is pending, within a reasonable
time after such Claim is filed in the insolvency proceeding. During the pendency
of such Claim the Reinsurer may investigate such Claim and interpose, at its own
expense, in the proceeding where such Claim is to be adjudicated, any defense or
defenses that it may deem available to the Company or its liquidator, receiver,
conservator or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the insolvency court, against the Company as part of the
administrative expenses of the estate to the extent of a pro rata share of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
<PAGE>
ARTICLE XV - TREASURY REGULATION SECTION 1.848-2(g)(8) JOINT ELECTION
The Company and the Reinsurer hereby agree to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued December 1992, under Section
848 of the Internal Revenue Code of 1986, as amended. This election shall be
effective for the taxable year ended December 31, 1998 and for all subsequent
taxable years for which this Agreement remains in effect unless such election is
terminated by mutual written agreement of the parties hereto with the consent,
if required, of the Commissioner of the Internal Revenue Service.
As used in this Article XV, the term "party" will refer to either the Company or
the Reinsurer as appropriate.
The terms used in this Article XV are defined by reference to Treasury
Regulation Section 1.848-2 in effect as of December 29, 1992. The term "net
consideration" will refer to either net consideration as defined in Treasury
Regulation Section 1.848-2(f) or "gross premium and other consideration" as
defined in Treasury Regulation Section 1.848-2(b) as appropriate.
Both parties agree to identify this Agreement as one for which the joint
election under Treasury Regulation Section 1.848-2(g)(8) has been made in a
schedule attached to their respective federal income tax returns for the taxable
period ended December 31, 1998.
The party with the positive net consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expenses with respect
to this Agreement without regard to the general deductions limitation of Section
848(c)(1).
Both parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.
The Company will submit a schedule to the Reinsurer by July 1st of each year of
its calculation of the net consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a statement signed by an officer
of the Company stating that the Company will report such net consideration in
its tax return for the preceding calendar year.
The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within forty-five (45) days of the
Reinsurer's receipt of the Company's calculation. If the Reinsurer does not so
notify the Company, the Reinsurer will report the net consideration as
determined by the Company in the Reinsurer's tax return for the previous year.
If the Reinsurer disputes the Company's calculation of the net consideration,
the parties will act in good faith to reach an agreement as to the correct
amount within forty-five (45) days of the date the Reinsurer submits its
alternative calculation. If the Company and the Reinsurer reach agreement on an
amount of net consideration, each party shall report such amount in their
respective tax returns for the previous calendar year. If the parties fail to
reach agreement on an amount of net consideration, the dispute shall be resolved
by arbitration as provided herein.
<PAGE>
ARTICLE XVI - CONDITIONS
The Company and the Administrator acknowledge and agree that each of their
agreement not to terminate, recapture the business under, or otherwise modify,
amend or alter the terms of the Initial Treaty is a material inducement to the
Reinsurer agreeing to enter into this Agreement, and that absent the Company's
and the Administrator's acknowledgement and agreement, the Reinsurer would not
have entered into this Agreement. Accordingly, as a condition to this Agreement
remaining in full force and effect, the Initial Treaty shall be in full force
and effect and in operation in accordance with its original terms and conditions
as of the date of its execution. The Company and the Administrator further agree
and acknowledge that upon any termination, recapture of the business under, or
otherwise modification, amendment or alteration of the terms of the Initial
Treaty, this Agreement shall automatically terminate and be of no further force
or effect, and the Company shall automatically recapture all of the Policies
then in force hereunder and shall pay the Reinsurer the loss carryforward (LCF)
specified in Schedule C hereto.
ARTICLE XVII - TAXES
The Company shall not claim a deduction in respect of the ceded Premium
hereunder when making tax returns, other than income or profits tax returns, to
any state or territory of the United States of America or the District of
Columbia.
Within fifteen (15) days after the Company files with all governmental
authorities its premium tax returns for the preceding calendar year, the Company
shall provide a copy of same to the Administrator and the Reinsurer. Within
fifteen (15) days thereafter, the Administrator and the Reinsurer shall compute
the excess or the deficiency of premium taxes actually paid to the Company for
such preceding calendar year based upon the estimated payment made by the
Administrator to the Company each month pursuant to Article IV hereof. If there
exists an excess, the Company agrees to pay such excess amount to the
Administrator, for the benefit of the Reinsurer, within fifteen (15) days after
receipt of written notice from the Administrator of such excess amount. If there
exists a deficiency, the Reinsurer agrees to pay such deficiency to the
Administrator, on behalf of the Company, within fifteen (15) days after receipt
of written notice from the Administrator of such deficiency amount. The
Administrator shall pay either party the actual funds due and received within
fifteen (15) days thereafter.
<PAGE>
ARTICLE XVIII - ACCESS TO RECORDS
The Company and the Administrator shall make available to the Reinsurer and the
Reinsurer shall have the right to inspect (at the Reinsurer's expense), through
its authorized representatives, at all reasonable times, the books, records and
papers of the Company and the Administrator pertaining to the reinsurance
provided hereunder and all Claims made and Losses paid in connection therewith.
<PAGE>
ARTICLE XIX - ARBITRATION
Any dispute arising out of this Agreement, whether arising before or after
termination, which is not resolved by the parties shall be submitted to
arbitration for decision by a board of arbitrators composed of two arbiters and
an umpire, meeting in Orlando, Florida unless otherwise agreed. Arbitration
shall be commenced by one party delivering to the other party(ies) written
notice of arbitration, which notice shall set forth the nature of the dispute
and the relief sought. Within thirty (30) days after receipt of such notice,
each party to the dispute shall appoint an arbiter, and within thirty (30) days
thereafter, such arbiters shall appoint the umpire. If any party fails to select
an arbiter within the period prescribed, the other party(ies) shall select the
arbiter(s). If the arbiters so selected fail to agree upon the appointment of an
umpire within such thirty (30) day period, each arbiter shall propose three
names, of whom the other shall decline two, and the decision shall be made by
drawing lots. The members of the board of arbitrators shall be active or
retired, disinterested officers of life, accident and health insurance or
reinsurance companies.
The arbitration hearing shall be commenced within thirty (30) days after the
selection of the umpire. During the pendency of the arbitration, the parties may
provide the board of arbitrators, as well as the other party(ies), briefs and
memorandum of law supporting their respective position in the dispute. The board
of arbitrators shall consider all such briefs and memoranda as well as testimony
at the arbitration.
The board of arbitrators shall follow the Commercial Arbitration Rules and shall
make its decision with due regard to applicable law and to custom and practice
in the insurance and reinsurance industry. The board of arbitrators shall issue
its decision in writing based upon a hearing in which evidence may be introduced
without following strict rules of evidence but in which cross-examination and
rebuttal shall be allowed. The board shall make its decision within sixty (60)
days following the termination of the hearing. The majority decision of the
board shall be final, binding, nonappealable and conclusive upon all parties to
the proceeding. The board's decision may be entered as a judgment in any court
having jurisdiction thereof.
<PAGE>
Each party shall bear the expenses of its own arbiter and the party against
which the decision of the arbitration board is rendered shall bear the expense
of the umpire, unless the arbitration board, in its discretion, otherwise
allocates expenses. Any remaining costs of the arbitration proceedings shall be
allocated by the arbitration board.
This Article XIX shall survive any termination of this Agreement.
ARTICLE XX - GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of Pennsylvania without regard to applicable principles of conflicts
of law.
ARTICLE XXI - SUBROGATION
The Reinsurer shall be credited with its proportionate share of subrogation
(i.e., reimbursement obtained or recovery made by the Company or the
Administrator, less the actual cost, excluding salaries of officials and
employees of the Company and sums paid to attorneys as retainer, of obtaining
such reimbursement or making such recovery) on account of Losses. The Company,
through the Administrator, hereby agrees to enforce its rights to subrogation
relating to any expenses if requested to do so by the Reinsurer (at the expense
of the Reinsurer), and to prosecute all claims arising out of such rights.
ARTICLE XXII - ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof. There are no
agreements or understandings among the parties with respect to the subject
matter hereof other than as expressed in this Agreement.
ARTICLE XXIII - POLICY CHANGES; RATE INCREASES
If any change is made in a Policy by the Company, or by the Administrator on
behalf of the Company, that affects reinsurance hereunder, the Administrator, on
behalf of the Company, shall immediately deliver written notice thereof to the
Reinsurer. Except for Policy changes required by state or federal law or
regulation, any proposed change shall not be effective until approved in writing
by the Reinsurer.
From and after the Effective Date, each of the Administrator and the Company,
shall, or shall cause its duly appointed actuary or representative to, timely
file with all applicable regulatory authorities a request for rate increases
with respect to the Policies reinsured under this Agreement. Such rate increase
filings shall be made (i) within fifteen (15) days after the date on which such
rate increase filings are requested in writing by the Reinsurer to the
Administrator, and (ii) in the amounts requested by the Reinsurer up to amounts
permitted by applicable law based upon all relevant factors, including without
limitation, loss experience for the Policies. The costs of calculating the rate
increase amount, if calculated by an outside actuary or other qualified outside
representative of the Administrator, shall be borne by the Reinsurer in
proportion to its share of liability hereunder.
<PAGE>
The Administrator, on behalf of the Company, agrees to deliver to the Reinsurer
within forty-five (45) days after the end of each calendar quarter a written
report showing:
1. The loss experience on the Policies reinsured under this Agreement
for the preceding quarter; and
2. The dates on which rate increase filings were actually made for
Policies reinsured under this Agreement for the preceding quarter, if
any; and
3. The amounts of the rate increases which were filed and the amounts
which were approved for Policies reinsured under this Agreement; and
4. Whether approval of the rate increase filings have been obtained; and
5. Any other information reasonably requested by the Reinsurer relating
to the Policies reinsured under this Agreement.
It is acknowledged and agreed that the making of timely rate increase filings as
requested by the Reinsurer under this Agreement is a material inducement to the
Reinsurer agreeing to enter into this Agreement and that absent the assurance
that such filings will be made and the Reinsurer's reliance on such assurance,
the Reinsurer would not have entered into this Agreement. Accordingly, the
parties hereto agree that the failure or refusal by the Administrator or the
Company to comply strictly with the material requirements of this Article XXIII
shall constitute a material breach of this Agreement by the Company and the
Reinsurer may, in its discretion, suspend performance of its obligations under
this Agreement (without incurring any liability, including without limitation,
interest or other penalties on amounts due from the Reinsurer hereunder) by
delivering to the Company and the Administrator written notice of the
Reinsurer's intent to suspend performance of its obligations under this
Agreement (the "Suspension Notice"). If the Administrator or the Company has not
cured, or diligently pursued the cure of, the material breach of this Article
XXIII within ten (10) business days after the date of the Suspension Notice,
then the Reinsurer may, in its discretion, continue to suspend performance of
its obligations, in which case the Reinsurer shall have no liability for such
suspension of performance. Upon a cure, to the Reinsurer's reasonable
satisfaction, of the material breach by the Administrator or the Company, the
Reinsurer shall perform its obligations with respect to such material breach
relating back to the date of such suspension of the Reinsurer's obligations with
no interruption of reinsurance coverage. The Administrator agrees to indemnify
and hold harmless the Company and the Reinsurer from and against any losses,
damages, liabilities, costs, or expenses (including, without limitation,
reasonably attorney's fees and interest) incurred by the Company or the
Reinsurer, as applicable, as a result of the Administrator's intentional or
grossly negligent failure or refusal to make timely rate increase filings as
requested by the Reinsurer as described in this Article XXIII.
<PAGE>
ARTICLE XXIV - OFFSET
The Company or the Reinsurer shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
Premiums or Losses or otherwise, due from one party with respect to this
Agreement.
ARTICLE XXV - WAIVER; AMENDMENT
Except as provided herein, any waiver by any party hereto of a breach by the
other party of any provision of this Agreement shall not operate or be construed
as a continuing waiver or a waiver of any subsequent breach by such party.
Except as otherwise provided herein, no waiver shall be valid unless in writing
and signed by the party exercising such waiver. Any modification or amendment of
this Agreement shall be in writing and signed by the parties hereto.
ARTICLE XXVI - NO ASSIGNMENT; BINDING EFFECT
Except as otherwise provided herein, the right, duties and obligations hereunder
of the parties hereto may not be assigned or delegated by any party hereto to
any other Person without the prior written consent of the parties hereto;
provided, however, that the Reinsurer may retrocede any portion of its liability
hereunder. This Agreement shall be binding upon and inure to the benefit of the
parties' respective successors and permitted assigns.
ARTICLE XXVII - SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of the remainder of this Agreement, and
any such invalid or unenforceable provision shall be severable from the
remainder of this Agreement.
ARTICLE XXVIII - NOTICES
Any notice or other communication which is required or permitted to be delivered
to any party hereunder shall be in writing and deemed delivered if sent by
government-sponsored mail; an internationally-recognized overnight carrier with
confirmation receipt of delivery; certified mail, return receipt requested; or
facsimile with confirmation receipt of successful and complete transmission
addressed as follows:
If to the Reinsurer: Reassurance Company of Hannover
800 N. Magnolia Avenue, Suite 1000
Orlando, Florida 32803
Facsimile: 407/649-8322
Attn: Mr. Craig Baldwin
If to the Company: Provident Indemnity Life Insurance Company
2500 DeKalb Pike
Norristown, Pennsylvania 19404
Facsimile: 610/279-1486
Attn: Mr. Anthony R. Verdi
If to the Administrator: Central Reserve Life Insurance Company
17800 Royalton Road
Strongsville, Ohio 44136-5197
Facsimile: 440/572-4500
Attn: Mr. Frank Grimone
<PAGE>
[SIGNATURES ON FOLLOWING PAGE]
ARTICLE XXIX - EXECUTION
The parties, by and through each of their respective authorized representatives,
have executed this Agreement as of the date below written.
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
Norristown, Pennsylvania
Taxpayer I.D.# 23-0990410
Date:
----------------------------------------
By:
----------------------------------------
Title:
----------------------------------------
Witness:
REASSURANCE COMPANY OF HANNOVER
Orlando, Florida
Taxpayer I.D. # 59-2859797
Date:
-----------------------------------------
By:
-----------------------------------------
Craig M. Baldwin
Title: Senior Vice President
-----------------------------------------
Witness:
-----------------------------------------
CENTRAL RESERVE LIFE INSURANCE COMPANY
Strongsville, Ohio
Taxpayer I.D. #34-0970995
Date:
-----------------------------------------
By:
-----------------------------------------
Title:
-----------------------------------------
Witness:
-----------------------------------------
<PAGE>
ACKNOWLEDGED AND AGREED TO AS TO
ARTICLE II AND ARTICLE V ONLY:
PROVIDENT AMERICAN LIFE AND HEALTH INSURANCE COMPANY
Norristown, Pennsylvania
Taxpayer I.D.# 23-1335885
Date:
-----------------------------------------
By:
Title:
-----------------------------------------
Witness:
-----------------------------------------
<PAGE>
SCHEDULE A
POLICY LISTING
The insurance Policy plans subject to this Agreement are as follows:
AMG
NIPI
Solution
Unitech
MaxNet - Group
MaxNet - One Life
MET
UBA
HealthQuest
Optimum
Personal Privilege
Solution Plus/HealthQuest Plus/Advantage
<PAGE>
SCHEDULE B
CEDING ALLOWANCE AND EXPENSE ALLOWANCES
The Initial Ceding Allowance shall be $10,000,000 cash for 100% of the Policies
as of the Effective Date.
The Overhead Expense Allowances: In conjunction with the quarterly accounting,
the following allowances will be credited to the Administrator at the start of
each quarter in the premium/claim calculation based on the number of Policies
and/or certificates in force and/or applicable Premium during the quarter. With
respect to the Reinsurer's proportionate share of liability hereunder, the
agreed-to Expense Allowances for maintenance:
1. for the first 12 calendar months of the Agreement (the
"Initial Period") will be:
a. the actually incurred expenses of Health Plan
Services (or its replacement), subject to a
maximum of 8%; plus
b. 2% for administration; plus
c. actual commissions paid up to a maximium of:
<TABLE>
<CAPTION>
Policy Policy Yr 1 Policy Yr 2 Policy Yr 3-5 Policy Yr 6+
------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Solution 28% 15% 10% 10%
HealthQuest 28% 10% 10% 10%
All others 28% 10% 10% 10%; plus
</TABLE>
d. the actually incurred expenses for Premium taxes,
licenses and fees.
2. for each 12 calendar month period of the Agreement after the Initial
Period will be:
a. the actually incurred expenses of Health Plan
Services (or its replacement) subject to
a maximum of 8%; plus
b. 1.75% for administration; plus
<PAGE>
SCHEDULE B - CONTINUED
CEDING ALLOWANCE AND EXPENSE ALLOWANCES
c. actual commissions paid up to a maximium of:
<TABLE>
<CAPTION>
Policy Policy Yr 1 Policy Yr 2 Policy Yr 3-5 Policy Yr 6+
------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Solution 28% 15% 10% 10%
HealthQuest 28% 10% 10% 10%
All others 28% 10% 10% 10%; plus
</TABLE>
d. the actually incurred expenses for Premium taxes,
licenses and fees.
Management Expense Allowance: The Administrator will be credited with an amount
equal to 3% of the Reinsurer's proportionate share of Premium hereunder until
the aggregate Premium collected equals $100,000,000 (the "Target Premium") in
total under this Agreement and under the reinsurance agreements between the
Company and Provident American Life and Health Insurance Company ("PALHIC"), on
the one hand, and PALHIC and the Reinsurer on the other hand, with respect to
(i) new direct business written by the Administrator, and (ii) new business sold
through HealthAxis via the Internet. The Administrator will be credited with an
amount equal to 2% of the Reinsurer's proportionate share of Premium in excess
of the Target Premium, the payment of which amount shall replace the 3% payment
and shall commence upon the Target Premium being achieved.
Policy Fees: The Administrator will be credited with 100% of all Policy fees
which form part of collected Premium until the loss carryforward as calculated
pursuant to Schedule C hereto is repaid in full by the Company to the Reinsurer.
Upon such repayment in full, the Administrator shall pay to the Company an
amount equal to (i) 66.67% of the Policy fees collected during calendar year
1999, plus (ii) 33.33% of Policy fees collected during calendar year 2000;
provided, however, that such Policy fees shall be paid to the extent positive
after-tax earnings from the Policies exist after the date of such repayment.
<PAGE>
SCHEDULE C
RECAPTURE; EXPERIENCE REFUND
At the end of each quarter, an experience refund will be calculated on
the Policies reinsured. If positive, this experience refund will be payable to
the Company by the Reinsurer. Should the Company be required to recapture the
Policies pursuant to Article XVI due to any termination, recapture of the
business under, or otherwise modification, amendment or alteration of the terms
of the Initial Treaty, the Company shall be liable for repayment of the then
outstanding LBF as defined below, in addition to an amount sufficient to assure
the Reinsurer of a 12% return on its investment from the Effective Date. Such
calculation shall include the provision for target surplus in the amount of 200%
of the Authorized Control Level RBC using the factor agreed to by the Company
and the Reinsurer as appropriate for the Policies reinsured. The formula for the
calculation of the recapture amount will be agreed to by the parties to this
Agreement. In addition, the recapture shall call for a net cash settlement, with
interest at the rate of "I" as defined below, of all outstanding reserve amounts
as of the recapture date.
Define the following for the Policies reinsured:
P = Premiums incurred during the quarter, and experience refunds
under other reinsurance treaties, net of any reinsurance
premiums for the Reinsurer's Share of the Policies reinsured.
I = Net Investment income, to be defined as the Reinsurer's net
portfolio rate for the quarter prior to the settlement date
applied to the total beginning reserves for the Policies
reinsured. The Company will provide the Reinsurer with a
breakdown of all pertinent reserve elements.
R = Statutory Unearned Premium and Active Life Reserve increase for
the quarter.
B = Policyholder Benefits incurred during the quarter, net of any
reinsurance benefits recovered under other reinsurance treaties
for the Policies reinsured (i.e. incurred benefits = paid +
change in aggregate claim reserve).
A = Overhead Expense Allowances incurred during the quarter.
T = Premium Taxes.
LBF = Loss Brought Forward from prior quarter end.
(The initial value for LBF will be the Initial Ceding Allowance set
forth in Schedule B)
Then:
C = Commission allowances incurred during the quarter.
N = Net gain during the quarter. = P + I - R - B - C - A - T and:
LCF = Loss Carried Forward from current quarter end (= LBF for next
quarter), defined as:
= {1.12.25 x LBF} - N, but not less than zero.
<PAGE>
REINSURANCE AGREEMENT
(hereafter referred to as the "Agreement")
among
PROVIDENT AMERICAN LIFE & HEALTH
INSURANCE COMPANY
(hereafter referred to as the "Company")
and
PROVIDENT INDEMNITY LIFE
INSURANCE COMPANY
(hereafter referred to as the "Reinsurer")
and
PROVIDENT INDEMNITY LIFE
INSURANCE COMPANY
(hereafter referred to as the "Administrator")
Effective Date: 11:59 P.M., Local Standard Time, December 31, 1998
Term: Continuous
Type: COINSURANCE
<PAGE>
REINSURANCE AGREEMENT
(hereafter referred to as the "Agreement")
among
PROVIDENT AMERICAN LIFE & HEALTH
INSURANCE COMPANY
(hereafter referred to as the "Company")
and
PROVIDENT INDEMNITY LIFE
INSURANCE COMPANY
(hereafter referred to as the "Reinsurer")
and
PROVIDENT INDEMNITY LIFE
INSURANCE COMPANY
(hereafter referred to as the "Administrator")
PREAMBLE
In consideration of the mutual covenants hereinafter contained the parties
hereto agree as follows:
ARTICLE I - DEFINITIONS
"Administrator" means Provident Indemnity Life Insurance Company, a Pennsylvania
corporation.
"Claim" means a claim made to the Company or the Administrator by a
policyholder, insured, certificate holder or dependent thereof who is entitled
to coverage under a Policy for which medical treatment facilities or services
contractually covered by such Policy, and not excluded by such Policy, were
rendered or provided to such policyholder, insured, certificate holder or
dependent thereof. A Claim is incurred on the date it is regarded as being
incurred in the administration of the insured's Claim relating to the same
medical treatment, facilities or services.
"Coinsurance Basis" means reinsurance on a basis whereby the Company cedes to
the Reinsurer reserves underlying the Policies and assets, valued at book value
in accordance with SAPand which satisfy the reserve requirements necessary or
required by applicable law or regulation with respect to the Reinsurer's
proportionate share of liability hereunder, and such reserves and assets are
held by the Reinsurer. :
"Company" means Provident American Life & Health Insurance Company, a
Pennsylvania corporation.
"Contested Claim" has the meaning assigned to such term in Article XI hereof.
"Effective Date" means 11:59 P.M., Local St. Standard Time, December 31 1998.
"Extra Contractual Obligations" means all reasonable costs, expenses, damages,
liabilities or obligations of any kind or nature (including without limitation
attorneys fees, consequential and incidental damages, and punitive and exemplary
damages) which are incurred by the Company and arise out of, result from or
relate to any act or omission, whether or not in bad faith, intentional,
willful, negligent, reckless, careless or otherwise, of the Company or the
Administrator in connection with a Policy, and which are not contractually
covered by the terms and conditions of such Policy.
"Treaty" means the reinsurance agreements set forth in this Agreement.
"Liability" means (1) a Claim that has been actually paid by the Company on an
underlying Policy and (2) all Losses. A Liability is incurred on the date that
the Loss is actually paid by the Company
"Liability Adjustment Expenses" means all reasonable payments to other than
employees of fees and expenses associated with investigation, litigation
(including without limitation reasonable attorney's fees) and settlement of
Claims, as distinguished from the amount of a claimant's recovery from the
Company under such claimant's Policy.
<PAGE>
"Local Standard Time" means the time at the Location of the Company's home of
office.
"Loss(es)" means the liability of the Company under all life insurance policies
and annuities.
"Person" means an individual, firm, corporation or entity.
"Policy" means the plans of insurance policies, riders, and binders listed on
Schedule A attached hereto and incorporated herein by reference which were
issued by the Company and by the Administrator prior to the Effective Date and
are in force on the Effective Date.
"Premium" means premium required by a Policy to be paid and which is actually
collected and received by the Company or the Administrator, on behalf of the
Company, less premium returned to a Person after actual collection and receipt
by the Company or the Administrator due to rescission or cancellation of a
Policy or reductions or terminations in coverage or benefits under a Policy.
Premium shall exclude fees collected on behalf of associations and other third
parties by the Company or the Administrator
"Reinsurer" means Provident Indemnity Life Insurance Company, a Pennsylvania
corporation.
"Services" means all of the usual and customary servicing and administrative
functions and duties associated with the policies, including but not limited to,
premium payments; claims administration, customer services for insureds, owners,
beneficiaries, agents and other interested Persons; file and record maintenance
and administration including system maintenance and administration; billing and
collection of premium; maintenance of policy financial data in such form to
allow the Company and Reinsurer to meet any and all reporting requirements it
may have; and payment of agents' commissions related to Policies, it being
understood that provision of funds for the payment of claims and commissions, to
the extent, if any, that Premiums are insufficient for that purpose, are the
sole responsibility of the Reinsurer.
"Suspension Notice" has the meaning assigned to such term in Article XXIII
hereof.
"Transferred Reserve" means assets acceptable to the Reinsurer (if other than
cash assets valued at a book value or current market value in the case of
marketable securities in accordance with SAP) comprised of claims due and
unpaid, claims incurred but not reported, unearned premium reserve and advance
premiums, policy reserves, dividend accumulations and other contract deposit
funds, statutory life and annuity reserves, less due and uncollected and
deferred premiums, net of loading, and policy loans.
ARTICLE II - LIABILITY; ALLOWANCES
The Company agrees to cede to the Reinsurer, and the Reinsurer agrees to
reinsure from the Company, 100% of the Liabilities incurred after the Effective
Date on the underlying Policies. The Reinsurer agrees to indemnify the Company
for such Liabilities to the extent provided by this Article II. The Company and
the Reinsurer acknowledge and agree that the reinsurance provided to the Company
by the Reinsurer hereunder is on an original terms basis on the underlying
Policies reinsured hereby.
In connection with the reinsurance hereunder, on the Effective Date. the Company
shall pay the Transferred Reserve to the Reinsurer.
<PAGE>
ARTICLE III - COMMENCEMENT AND TERMINATION: RECAPTURE
This Agreement, and the rights, obligations and duties hereunder of the parties
hereto shall become effective on the Effective Date provided the transfer of
assets set forth in Article IV has occurred. The Reinsurer shall continue to
provide reinsurance only for Liabilities incurred by the Company under Policies
so long as such Policies continue to be in force and this Agreement continues to
be in effect as to such Policies. The Reinsurer shall have no liability
hereunder for Liabilities paid by the Company under Policies prior to the
Effective Date.
This Agreement is unlimited in duration with respect to the Policies. This
Agreement shall automatically terminate when no Policies are in force.
ARTICLE IV - POLICY REDUCTIONS AND TERMINATIONS
The Reinsurer's liability hereunder shall not be increased by reason of the
inability of the Company to collect from any other reinsurers any amounts which
may become due from such reinsurers which amounts arise, relate to or result
from reinsurance of risk by such reinsurers under Policies or any other policy
issued by the Company.
Reductions and terminations of coverage and benefits under Policies shall reduce
or terminate the Reinsurer's liability hereunder in a corresponding amount as of
the same date.
ARTICLE V - PREMIUM
The Administrator, on behalf of the Company shall pay to the Reinsurer an amount
equal to 100% of Premium relating to coverage after the Effective Date, and pay
to the Company Premium collected for coverage prior to the Effective Date. The
Company shall immediately deliver to the Administrator any Premium received by
the Company for payment to the Reinsurer.
ARTICLE VI - REPORTS AND REMITTANCES; POWER OF ATTORNEY
The Premiums collected by the Administrator with respect to the Policies shall
be deposited in a bank account or accounts under the control of Administrator,
and identified as the Company's Premiums account(s). The Company authorizes the
deposit of checks drawn to its order in this account, as well as the use of this
account for the payment of the following:
1. To pay return Premiums to policyholders (provided that such Premiums
were received by the Administrator on behalf of the Company hereunder);
<PAGE>
2. To pay Liabilities or fund a bank account identified as the Company's
account for the payment of Liabilities and Liability Adjustment
Expenses with respect to Policies;
3. To pay commissions with respect to Premiums on Policies;
4. To pay the Company estimated Premium taxes with respect to the
Policies;
5. To pay association fees collected from policyholders to the respective
associations based on specified fee schedules and to pay the residual
amounts of the association fees to the Company.
6. To pay the net balance due from Premiums each month to the Reinsurer.
Any expenses associated with this account shall be borne by, and interest earned
thereon credited to, the Administrator.
Within thirty (30) days after the end of each calendar month the Administrator
shall deliver in writing to the Company and the Reinsurer a report delineating
all of the foregoing, and shall also include in such report (i) reserves,
calculated in accordance with SAP, on the Policies in force as of the end of the
preceding calendar quarter (reported on a quarterly basis only), and (ii) such
other information as the Reinsurer may reasonably Request.
Together with the delivery of each such report by the Administrator to the
Reinsurer, the Administrator shall remit all amounts due and payable by the
Company to the Reinsurer, if any, as indicated by such report. Within ten (10)
business days after the Reinsurer's receipt of the report, the Reinsurer shall
pay the Administrator all amounts due and payable to the Company by the
Reinsurer, if any as indicated by such report. All payments owed by the
Reinsurer to the Company and made to the Administrator shall be deemed to be
made to the Company. All payments owed by the Company to the Reinsurer and made
by the administrator shall be deemed to be made by the Company. If the
Administrator decides to deliver such report via electronic media, the
Administrator shall consult with the Reinsurer to determine the appropriate
reporting format. Should the Administrator subsequently desire to make changes
in the data, format or the code structure, the Administrator shall communicate
such changes to the Company and Reinsurer prior to the use of such changes in
reports to the Reinsurer.
Upon receipt of a report, the Reinsurer may, in its discretion and upon
reasonable information and belief, contest the information contained in report.
If the Reinsurer so contests, the Reinsurer shall deliver to the Administrator
and the Company written notice thereof stating the reasons upon which the
Reinsurer disputes the report, and the parties shall use their best efforts to
resolve the dispute within twenty (20) days thereafter. If the parties fail to
resolve such dispute within such period, the dispute shall be resolved by
arbitrations as provided herein. During the time such dispute is pending, the
Reinsurer shall have the right to suspend all payment obligations relating to
the disputed portion(s) of such report until resolution of such dispute. If such
dispute is resolved by arbitration in favor of the Administrator, the Reinsurer
shall be liable for interest (as provided below) on the amount owed by the
Reinsurer to the Company as of the date such amount became past due.
The Company hereby irrevocably constitutes and appoints the Administrator, or
its delegate, as its attorney-in-fact with full power of substitution, and with
full power and authority to act in its name, place, and stead to execute, swear
to, acknowledge, deliver, and file all instruments and documents as may be
required or necessary, in the reasonable discretion of the Administrator or its
delegate, to perform the Services and all administrative obligations of the
Administrator hereunder relating to the Policies. This power of attorney shall
be deemed coupled with an interest, shall be irrevocable, and shall survive the
insolvency of the Company.
Interest at a rate equal to .5833% per month (7% per annum) shall be charged on
all amounts due and owing which have not been paid when due by and to the
Company or the Reinsurer, as applicable.
ARTICLE VII - EXTRA CONTRACTUAL OBLIGATIONS
The Reinsurer shall have no liability for Extra Contractual Obligations, unless
the Reinsurer was an active party or directed, consented to, or ratified the
act, omission or course of conduct which ultimately resulted in assessment of
Extra Contractual Obligations against the Company, in which case the Reinsurer
shall share pro rata in such Extra Contractual Obligations in proportion to the
Reinsurer's liability for a Liability hereunder.
<PAGE>
ARTICLE VIII - REINSURER'S RIGHT OF NOTICE OF UNUSUAL PRACTICES
The parties acknowledge and agree that the Reinsurer has placed its utmost good
faith and confidence in the Administrator, and the parties assume that except as
otherwise notified by the Administrator, the underwriting, claims and other
insurance practices employed by the Administrator with respect to the
reinsurance under this Agreement are consistent with the customary and usual
practices of the insurance industry as a whole. Where the Administrator does
engage in exceptional or uncustomary practices, the Company and the
Administrator agrees to notify the Reinsurer of such practices. The parties
agree that the Administrator's failure to so notify the Reinsurer will result in
the Reinsurer having no liability hereunder with respect to Liabilities relating
to such exceptional or uncustomary practices.
ARTICLE IX ADMINISTRATION OF THE POLICIES
As of the Effective Date, the Administrator agrees to perform the Services with
the utmost good faith for as long as the Reinsurer is required to provide
reinsurance hereunder. The Administrator agrees to indemnify and hold harmless
the Company from and against any losses, damages, liabilities, costs, or
expenses incurred by the Company as result of the Administrator's material
breach of this Article IX. If the Reinsurer reasonably believes that the
Administrator has failed to perform the Services, the Reinsurer shall notify the
Administrator in writing of such failure and the Administrator shall have ten
(10) business days to cure such failure to the reasonable satisfaction of the
Reinsurer. If the Administrator fails or refuses to cure such failure within
such period, or has become financially impaired, the Reinsurer may request the
Administrator to secure another Person to perform the Services, in which case
the Company shall engage another Person selected by the Administrator and
reasonably satisfactory to the Company and the Reinsurer to perform the
Services. Such other Person shall have in good standing all governmental
regulatory and other licenses, permits and authorizations necessary or required
by law to perform the Services.
In the event the Administrator is removed from performing the Services pursuant
to this Article, the Company and the Administrator shall deliver to the
replacement Person providing the Services all reports, records, documents,
instruments and other information necessary or required to perform
satisfactorily the Services. All costs associated with the transfer of the
Services to another Person shall be borne by the Administrator.
ARTICLE X - REPRESENTATIONS WARRANTIES AND COVENANTS
The Company and the Administrator represent and warrant to the Reinsurer that:
1. There are no governmental or regulatory consents, approvals or other
authorizations necessary or required by law, regulation, order, decree,
judgment or otherwise to be obtained to consummate the transactions
contemplated by this Agreement; and
2. If required by applicable law, rule or regulation, each Policy has been
filed with the appropriate governmental or regulatory agency or
authority and approval of such filed Policy has been obtained by the
Company or the Administrator, as applicable, from such agency or
authority.
The Company and the Administrator covenant and agree:
1. To request promptly any such consents, approvals or other
authorizations, if necessary or required, relating to this Agreement
and the transactions contemplated hereby, and to pursue diligently such
request. The and the Administrator Jointly and severally agree to
indemnify and hold harmless the Reinsurer from and against any and all
losses, damages, costs, expenses or liabilities suffered or incurred by
the Reinsurer arising out of a breach of this Agreement by the Company;
and
2. To perform all of their respective duties and obligations hereunder
with the utmost good faith.
<PAGE>
ARTICLE XI - LIABILITY SETTLEMENTS
The Reinsurer shall accept the decision of the Administrator with respect to a
Claim and the incurrence of a Liability, except as otherwise provided herein.
The Administrator agrees to deliver written notice to the Reinsurer of each
Claim which would, if paid, cause the Reinsurer's liability hereunder to be
$25,000 or more prior to such Claim actually being paid. The Administrator
agrees to deliver to the Reinsurer all documents, reports and other information
in the possession of or known by the Administrator relating to such, Claim to
permit the Reinsurer to evaluate the Claim and advise the Administrator in
writing with respect to payment of the Claim. If the Reinsurer fails to advise
the Administrator in writing within ten (10) days after the Administrator's
delivery to the Reinsurer of the documents, reports and other information
relating to such Claim, the Administrator shall pay the Claim and the Reinsurer
shall be estopped from denying reinsurance liability hereunder for such
Liability.
The Administrator may, in its discretion, deliver written notice to the
Reinsurer of each Claim as to which the Administrator is uncertain, or has
reasonable cause to believe, that such Claim is or may not be properly payable.
In addition, the Administrator shall deliver immediately such a notice to the
Reinsurer and the Company as to each Claim denied in whole or in part by the
administrator if a notice of litigation or threatened litigation is filed with
the Company or the Administrator relating to such denied Claim (each Claim as to
which such a notice is delivered is referred to herein as a "Contested Claim").
The Company and the Administrator agree to deliver immediately to the Reinsurer
all documents, reports and other information relating to such Contested Claim to
permit the Reinsurer to evaluate the Contested Claim and advise the Company and
the Administrator in writing with respect to payment of the Contested Claim. In
the event the Company or the Administrator complies with the Reinsurer's advice
with respect to a Contested Claim, and Extra Contractual Obligations later arise
with respect to such Contested Claim, the Reinsurer shall share in the Extra
Contractual Obligations in proportion to the Reinsurer's liability for a
Liability hereunder, but if the Company or the Administrator fails to give such
notice or to comply with such advice, the Reinsurer shall not share in any of
the Extra Contractual Obligations. In no event shall the Reinsurer be liable for
any Extra Contractual Obligations based upon acts, omissions, facts,
circumstances or events which occurred prior to the Effective Date. The
Administrator agrees to deliver written notice to the Reinsurer of each Policy
that the Administrator reasonably believes should be rescinded and Premium
reimbursed to the policyholder prior to the Administrator, on behalf of the
Company, actually rescinding such Policy. The Reinsurer, shall review facts
surrounding the Policy and the reasons for the reasonable belief of the
Administrator that the Policy should be rescinded and the Reinsurer will advise
the Administrator in writing with respect to the rescission of the Policy within
fifteen (15) business days after the Administrator delivers its written notice
to the Reinsurer regarding the Policy. In the event the Reinsurer advises the
Administrator to rescind the Policy and Extra Contractual Obligations later
arise due to such advice from the Reinsurer, the Reinsurer shall share in the
Extra Contractual Obligations in proportion to the Reinsurer's liability for a
loss hereunder, but if the Administrator fails to comply with such advice, the
Reinsurer shall not share in any of the Extra Contractual Obligations.
The parties agree that the Company's and the Administrator's intentional or
grossly negligent acts or omissions with respect to this Article XI shall
relieve the Reinsurer of any liability hereunder with respect to any such Claim,
Liability or Policy.
ARTICLE XII - COINSURANCE; RESERVES
The reinsurance hereunder shall be on a Coinsurance Basis. The parties agree
that the SAP reserves relating to the Policies, including the advance premiums,
and unearned premiums which shall be reviewed and the amounts therefor shall be
calculated as November 30, 1998 and determined by an actuary designated by the
Company, which actuary shall be a Fellow of the Society of Actuaries ("FSA").
Upon the FSA's completion of such calculation, the FSA shall deliver to an
actuary designated by the Reinsurer (the Reinsurer's Actuary" ") such
calculation for review and approval by the Reinsurer's Actuary on behalf of the
Reinsurer. If the Reinsurer's Actuary does not approve the calculation, the
Reinsurer's Actuary and the FSA shall use their good faith best efforts to reach
an agreement as to such calculation. Thereafter, the FSA and the Reinsurer's
Actuary continue to disagree with respect to such calculation, the parties agree
that the calculation shall be determined by the independent actuarial firm of
Tillinghast, Milliman & Robertson or Wakely & Associates, which firm shall be
selected by the Company. The determination of the calculation by such firm shall
be final, binding, conclusive and nonappealable upon the Company and the
Reinsurer. The parties agree that all fees of the FSA shall be borne by the
Company, all fees of the Reinsurer's Actuary shall be borne by the Reinsurer,
and all fees of the independent actuarial firm shall be borne by each of the
Company and the Reinsurer in the proportion of the difference that each of their
respective representatives' calculations bears to the calculation of the
independent actuarial firm. By way of example, if the FSA determines the SAP
reserves to be $2 million, the Reinsurer's Actuary determines the SAP reserves
to be $3 million, and the independent actuarial firm determines the SAP reserves
to be $2.5 million, each of the Company and the Reinsurer shall be liable for
50% of the fees of the independent actuarial firm.
<PAGE>
If any due premiums allowed as an offset in computing the Transferred Reserves
are not received by the Administrator on behalf of the Company within forty-five
(45) days after the Effective Date, the Company shall pay the amount net of
offsetting reductions to unearned premium reserves thereof to the Reinsurer upon
demand by the Reinsurer.
ARTICLE XIII - ERRORS AND OMISSIONS
Any inadvertent or clerical delay, error or omission made by any party hereto in
connection with this Agreement shall not relieve either party from any liability
of such party hereunder had such inadvertent or clerical delay, error or
omission not occurred. The parties agree to cure all inadvertent and clerical
delays, errors and omissions immediately upon discovery thereof.
ARTICLE XIV INSOLVENCY
In the event of insolvency of the Company, all payments of the Reinsurer for
Liabilities shall be payable directly to the Administrator for the account of
the Company, or to the Company's liquidator, receiver, conservator or statutory
successor without diminution because of the insolvency of the Company, except
where this Agreement specifically provides for another payee of such Liabilities
in the event of the insolvency of the Company.
The Company or its liquidator, receiver, conservator or statutory successor
shall give written notice to the Reinsurer of the pendency of a Claim indicating
the Policy under which such Claim is pending, within a reasonable time after
such Claim is filed in the insolvency proceeding. During the pendency of such
Claim, the Reinsurer may investigate such Claim and interpose, at its own
expense, in the proceeding where such Claim is to be adjudicated any defense or
defenses that it may deem available to the Company or its liquidator, receiver
conservator or statutory successor. The expense thus incurred by the Reinsurer
shall be chargeable, subject to the approval of the insolvency court, against
the Company as part of the administrative expenses of the estate to the extent
of a pro rata share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.
ARTICLE XV - TREASURY REGULATION SECTION 1.848-2(g) (8) JOINT ELECTION
The Company and the Reinsurer hereby agree to the following pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations issued December 1992, under Section
848 of the Internal Revenue Code of 1986, as amended. This election shall be
effective for the taxable year ended December 31, 1998 and for all subsequent
taxable years for which this Agreement remains in effect unless such election is
terminated by mutual written agreement of the parties hereto with the consent,
if required, of the Commissioner of the Internal Revenue Service.
As used in this Article XV, the term "party"' will refer to either the Company
or the Reinsurer as appropriate.
The terms used in this Article XV are defined by reference to Treasury
Regulation Section 1.848-2 in effect as of December 29, 1992. The term "net
consideration" will refer to either net consideration as defined in Treasury
Regulation Section 1.848-2(f) or "gross premium and other consideration" as
defined in Treasury Regulation Section 1.848-2(b) as appropriate.
Both parties agree to identify this Agreement as one for which the joint
election under Treasury Regulation Section 1.848-2(g)(8) has been made in a
schedule attached to their respective federal income tax returns for the taxable
period ended December 31, 1998.
The party with the positive net consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expenses with respect
to this Agreement without regard to the general deductions limitation of Section
848(c)(1).
Both parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
otherwise required by the Internal Revenue Service.
The Company will submit a schedule to the Reinsurer by July 1st of each year of
its calculation of the net consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a statement signed by an officer
of the Company stating that the Company will report such net consideration in
its tax return for the preceding calendar year.
The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within forty-five (45) days of the
Reinsurer receipt of the Company's calculation. If the Reinsurer does not so
notify the Company, the Reinsurer will report the net consideration as
determined by the Company in the Reinsurer's tax return for the previous year.
<PAGE>
If the Reinsurer disputes the Company's calculation of the net consideration,
the parties will act in good faith to reach an agreement as to the correct
amount within forty-five (45) days of the date the Reinsurer submits its
alternative calculation. If the Company and the Reinsurer reach agreement on an
amount of net consideration, each party shall report such amount in their
respective tax returns for the previous calendar year. If the parties fail to
reach agreement on an amount of net consideration, the dispute shall be resolved
by arbitration as provided herein.
ARTICLE XVI - CONDITIONS
The Company and the Administrator acknowledge and agree that each of their
agreement not to terminate, recapture the business under, or otherwise modify,
amend or alter the terms of the Initial Treaty is a material inducement to the
Reinsurer agreeing to enter into this Agreement, and that absent the Company's
and the Administrator's acknowledgement and agreement, the Reinsurer would not
have entered into this Agreement. Accordingly, as a condition to this Agreement
remaining in full force and effect, the Initial Treaty shall be in full force
and effect and in operation in accordance with its original terms and conditions
as of the date of its execution. The Company and the Administrator further agree
and acknowledge that neither shall terminate, recapture the business under, or
otherwise modify, amend or alter any of the terms of the Initial Treaty, without
the prior written consent of the Reinsurer.
<PAGE>
ARTICLE XVII - TAXES
The Company shall not claim a deduction in respect of the Premium ceded
chereunder when making tax returns, other than income or profits tax returns, to
any state or territory of the United States of America or the District of
Columbia.
Within fifteen (15) days after the Company files with all governmental
authorities its premium tax returns for the preceding calendar year, the Company
shall provide a copy of same to the Administrator and the Reinsurer. Within
fifteen (15) days thereafter, the Administrator and the Reinsurer shall compute
the excess or the deficiency of premium taxes actually paid to the Company for
such preceding calendar year based upon the estimated payment made by the
Administrator to the Company each month pursuant to Article VI hereof. If there
exists an excess, the Company agrees to pay such excess amount to the
Administrator for the benefit of the Reinsurer, within fifteen (15) days after
receipt of written notice from the Administrator of such excess amount. If there
exists a deficiency, the Reinsurer agrees to pay such deficiency to the
Administrator, on behalf of the Company, within fifteen (15) days after receipt
of written notice from the Administrator of such deficiency amount. The
Administrator shall pay either party the actual funds due and received within
fifteen (15) days thereafter.
ARTICLE XVIII - ACCESS TO RECORDS
The Company and the Administrator shall make available to the Reinsurer and the
Reinsurer shall have the right to inspect at the Reinsurer's expense), through
its authorized representatives, at all reasonable times, the books, records and
papers of the Company and the Administrator pertaining to the reinsurance
provided hereunder and all Claims made and Liabilities paid in
connection/herewith.
ARTICLE XIX - ARBITRATION
Any dispute arising out of this Agreement, whether arising before or after
termination, which is not resolved by the parties shall be submitted to
arbitration for decision by a board of arbitrators composed of two arbiters and
an umpire, meeting in Montgomery County, Pennsylvania unless otherwise agreed.
Arbitration shall be commenced by one party delivering to the other party(ies)
written notice of arbitration, which notice shall set forth the nature of the
dispute and the relief sought. Within thirty (30) days after receipt of such
notice, each party to the dispute shall appoint an arbiter, and within thirty
(30) days thereafter, such arbiters shall appoint the umpire. If any party fails
to select an arbiter within the period prescribed, the other party(ies) shall
select the arbiter(s). If the arbiters so selected fail to agree upon the
appointment of an umpire within such thirty (30) day period, each arbiter shall
propose three names, of whom the other shall decline two and the decision shall
be made by drawing lots. The members of the board of arbitrators shall be active
or retired, disinterested of officers of life, accident and health insurance or
reinsurance companies.
The arbitration hearing shall be commenced within thinly (30) days after the
selection of the umpire. During the pendency of the arbitration, the parties may
provide the board of arbitrators, as well as the other party(ies), briefs and
memorandum of law supporting their respective position in the dispute. The board
of arbitrators shall consider all such briefs and memoranda as well as testimony
at the arbitration.
<PAGE>
The board of arbitrators shall follow the Commercial Arbitration Rules and shall
make its decision with due regard to applicable law and to custom and practice
in the insurance and reinsurance industry. The board of arbitrators shall issue
its decision in writing based upon a hearing in which evidence may be introduced
without following strict rules of evidence but in which cross examination and
rebuttal shall be allowed. The board shall make its decision within sixty (60)
days following the termination of the hearing. The majority decision of the
board shall be final, binding, nonappealable and conclusive upon all parties to
the proceeding. The board's decision may be entered as a judgment in any court
having jurisdiction thereof.
Each party shall bear the expenses of its own arbiter and the party against
which the decision of the arbitration board is rendered shall bear the expense
of the umpire unless the arbitration board, in its discretion, otherwise
allocates expenses. Any remaining costs of the arbitration proceedings shall be
allocated by the arbitration board.
This Article XIX shall survive any termination of this Agreement.
ARTICLE XX GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of Pennsylvania without regard to applicable principles of conflicts
of law.
ARTICLE XXI - SUBROGATION
The Reinsurer shall be credited with its proportionate share of subrogation
(i.e., reimbursement obtained or recovery made by the Company or the
Administrator, less the actual cost, excluding salaries of officials and
employees of the Company and sums paid to attorneys as retainer, of obtaining
such reimbursement or making such recovery) on account of Liabilities. The
Company, through the Administrator, hereby agrees to enforce its rights to
subrogation relating to any expenses if requested to do so by the Reinsurer (at
the expense of the Reinsurer), and to prosecute all claims arising out of such
rights.
<PAGE>
ARTICLE XXII - ENTIRE AGREEMENT
This Agreement constitutes the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof. There are no
agreements or understandings among the parties with respect to the subject
matter hereof other than as expressed in this Agreement.
ARTICLE XXIII - POLICY CHANGES: RATE INCREASES
If any change is made in a Policy by the Company that affects reinsurance
hereunder, the Administrator shall immediately deliver written notice thereof to
the Reinsurer. Except for Policy changes required by state or federal law or
regulation any proposed change shall not be effective until approved in writing
by the Reinsurer.
From and after the Effective Date, each of the Administrator and the Company,
shall, or shall cause its duly appointed actuary or representative to, timely
file with all applicable regulatory authorities a request for rate increases
with respect to the Policies reinsured under this agreement. Such rate increase
filings shall be made (i) within fifteen (15) days after the date on which such
rate increase filings are requested in writing by the Reinsurer to the
Administrator, and (ii) in the amounts requested by the Reinsurer up to amounts
permitted by applicable law based upon all relevant factors, including without
limitation, loss experience for the Policies. The costs of calculating the rate
increase amount, if calculated by an outside actuary or other qualified outside
representative of he Administrator, shall be borne by the Reinsurer in
proportion to its share of liability hereunder.
The Administrator, on behalf of the Company, agrees to deliver to the Reinsurer
within forty-five (45) days after the end of each calendar quarter a written
report showing:
1. The loss experience on the Policies reinsured under this Agreement for
the preceding quarter; and
2. The dates on which increase filings were actually made for Policies
reinsured under this Agreement for the preceding quarter if any; and
3. The amounts of the rate increases which were filed and the amounts
which were approved for Policies reinsured under this Agreement; and
4. Whether approval of the rate increase filings have been obtained, and
5. Any other information reasonably requested by the Reinsurer relating to
the Policies reinsured under this Agreement.
<PAGE>
It is acknowledged and agreed that the making of timely rate increase filings as
requested by the Reinsurer under this Agreement is a material inducement to the
Reinsurer agreeing to enter into this Agreement and that absent the assurance
that such filings will be made and the Reinsurer's reliance on such assurance,
the Reinsurer would not have entered into this Agreement. Accordingly, the
parties hereto agree that the failure or refusal by the Administrator or the
Company to comply strictly with the material requirements of this Article XXIII
shall constitute a material breach of this Agreement by the Company, and the
Reinsurer may, in its discretion, suspend performance of its obligations under
this Agreement (without incurring an any liability, including without
limitation, interest or other penalties on amounts due from the Reinsurer
hereunder) by delivering to the Company and the Administrator written notice of
the Reinsurer's intent to suspend performance of its obligations under this
Agreement (the "Suspension Notice"). If the Administrator or the Company has not
cured, or diligently pursued the cure of, the material breach this Article XXIII
within ten (10) business days after the date of the Suspension Notice, then the
Reinsurer may, in its discretion, immediately terminate this Agreement, in which
case the Reinsurer shall have no further liability or obligations whatsoever
under this Agreement from and after the date of such termination. Upon a cure of
the material breach by the Administrator or the Company, the Reinsurer shall
perform its obligations with respect to such material breach relating back to
the date of such suspension of the Reinsurer's obligations with no interruption
of reinsurance coverage.
ARTICLE XXIV - OFFSET
The Company or the Reinsurer shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
Premiums or Liabilities or otherwise, due from one party with respect to this
Agreement.
ARTICLE XXV - WAIVER; AMENDMENT
Except as provided herein, any waiver by any party hereto of a breach by the
other party of any provision of this Agreement shall not operate or be construed
led as a continuing waiver or a waiver of any subsequent breach by such party.
Except as otherwise provided herein, no waiver shall be valid unless in writing
and signed by the party exercising such waiver. Any modification or amendment of
this Agreement shall be in writing and signed by the parties hereto.
ARTICLE XXVI - ASSIGNMENT BINDING EFFECT
Except as otherwise provided herein, the right, duties and obligations hereunder
of the parties hereto may not be assigned or delegated by any party hereto to
any other Person without the prior written consent of the parties hereto,
provided, however that the Reinsurer may retrocede any portion of its liability
hereunder. This Agreement shall be binding upon and inure to the benefit of the
parties' respective successors and permitted assigns.
ARTICLE XXVII - SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of the remainder of this Agreement, and
any such invalid or unenforceable provision shall be severable from the
remainder of this Agreement.
<PAGE>
ARTICLE XXVIII - NOTICES
Any notice or other communication which is required or permitted to be delivered
to any party hereunder shall be in writing and deemed delivered if sent by
government-sponsored mail; an internationally-recognized overnight carrier with
confirmation receipt of delivery; certified mail, return receipt requested; or
facsimile with confirmation receipt of successful and complete transmission
addressed as follows:
If to the Reinsurer: Provident Indemnity Life
Insurance Company
2500 DeKalb Pike
Norristown, PA 19404
Facsimile: 610-279-1486
Attn: Anthony R. Verdi
If to the Company: Provident American Life & Health
Insurance Company
2500 DeKalb Pike
Norristown, PA 19404
Facsimile: 610-279-1486
Attn: Anthony R. Verdi
If to the Administrator: Provident Indemnity Life
Insurance Company
2500 DeKalb Pike
Norristown, PA 19404
Facsimile: (610) 279-1486
Attn: Anthony R. Verdi
<PAGE>
ARTICLE XXIX - EXECUTION
The parties, by and through each of their respective authorized representatives,
have executed this Agreement as of the date below written
PROVIDENT AMERICAN LIFE & HEALTH
INSURANCE COMPANY
Taxpayer I.D.# 23-1335885
Date:
By:
Anthony R. Verdi
Title: Chief Operating Officer
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
Norristown, Pennsylvania
Taxpayer I.D. # 23-0990410
Date:
By:
Anthony R. Verdi
Title: President
<PAGE>
SCHEDULE A
POLICY
The term "Policy" means all products of insurance presently written by Company,
including, but not limited to, the HealthQuest, HealthEdge, Optimum, Personal
Privilege, Solution Plus, HealthQuest Plus, and AdvantEdge policies.
<PAGE>
ASSIGNMENT AND ASSUMPTION OF CONTRACTS
THIS ASSIGNMENT AND ASSUMPTION OF CONTRACTS ("Assignment") is effective
as of 11:59 p.m., Eastern Standard Time, on December 31, 1998 (the "Effective
Time"), by and among CENTRAL RESERVE LIFE INSURANCE COMPANY, an Ohio corporation
("CRL"), and each of PROVIDENT AMERICAN CORPORATION, a Pennsylvania corporation
("PAMCO"), PROVIDENT INDEMNITY LIFE INSURANCE COMPANY, a Pennsylvania
corporation ("PILIC"), and PROVIDENT HEALTH SERVICES, INC., a Pennsylvania
corporation ("PHS"). Capitalized terms used in this Assignment that are not
defined shall have the same meaning ascribed to them in that certain Stock
Purchase Agreement, dated as of December 29, 1998, by and among CRL, PAMCO and
PILIC (the "Stock Purchase Agreement"), which by this reference is incorporated
into and made a part of this Assignment.
In consideration of the mutual agreements contained in the Stock
Purchase Agreement and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Assignment and Assumption of Contracts
1.1 Assignment by PAMCO. In accordance with Section 2.3 of the
Stock Purchase Agreement, as of the Effective Time, PAMCO hereby assigns,
transfers and grants to CRL all of its rights under any and all agreements with
agents and brokers for the sale of health insurance products.
1.2 Assignment by PILIC. In accordance with Section 2.3 of the
Stock Purchase Agreement, as of the Effective Time, PILIC hereby assigns,
transfers and grants to CRL all of its rights under any and all agreements with
agents and brokers for the sale of health insurance products.
1.3 Assignment by PHS. In accordance with Section 2.3 of the
Stock Purchase Agreement, as of the Effective Time, PHS hereby assigns,
transfers and grants to CRL all of its rights under any and all agreements with
agents and brokers for the sale of health insurance products.
1.4 Acceptance and Assumption by CRL. In accordance with
Section 2.3 of the Stock Purchase Agreement, CRL hereby accepts the foregoing
assignments of the respective contracts of each of PAMCO, PILIC and PHS, and
assumes such duties and obligations of PAMCO, PILIC and PHS thereunder as may
accrue on or following the Effective Time in accordance with the terms thereof.
<PAGE>
2. Miscellaneous Provisions
2.1 Binding Effect. This Assignment shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. This Assignment shall not be assignable by
PAMCO, PILIC or PHS.
2.2 Governing Law. The validity and effect of this instrument
shall be governed by and construed and enforced in accordance with the laws of
the State of Ohio, without regard to conflict of law principles.
2.3 Counterparts. This Assignment may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall comprise a single agreement. The signature of any party to any counterpart
shall be deemed to be a signature to, and may be appended to, any other
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused their
respective representative to execute this Assignment as of the date first above
written.
CENTRAL RESERVE LIFE INSURANCE COMPANY
By: /s/ Linda S. Standish
------------------------------------
Name: Linda S. Standish
Title: Vice President
PROVIDENT AMERICAN CORPORATION
By: /s/ Anthony R. Verdi
------------------------------------
Name: Anthony R. Verdi
Title: Chief Operating Officer
PROVIDENT INDEMNITY LIFE INSURANCE COMPANY
By: /s/ Anthony R. Verdi
------------------------------------
Name: Anthony R. Verdi
Title: President
PROVIDENT HEALTH SERVICES, INC.
By: /s/ Anthony R. Verdi
------------------------------------
Name: Anthony R. Verdi
Title: Treasurer
<PAGE>
INDIVIDUAL MEDICAL PRODUCTS
CARRIER PARTNER AGREEMENT
Agreement made and entered into as of the 29th day of December, 1998
between HealthAxis.com, Inc., a Pennsylvania corporation ("HealthAxis"),
Provident American Life & Health Insurance Company, an insurance company
domiciled in the State of Pennsylvania ("PALHIC"), and Central Reserve Life
Insurance Corporation, an insurance company domiciled in the State of Ohio
("CRLC").
BACKGROUND
A. PALHIC is desirous of becoming a carrier partner ("CP") with
HealthAxis in order to cause HealthAxis to distribute certain insurance products
of PALHIC through the HealthAxis website and other electronic distribution
methods within the HealthAxis distribution network.
B. CRLC is desirous of joining in this agreement to provide assurances
to HealthAxis on behalf of PALHIC during the first three (3) years of the term
of this Agreement.
C. The parties may enter into other or additional carrier partner
agreements with respect to the sale of products other than those which are the
subject of this Agreement.
D. The parties are entering into this Agreement to set forth the
rights, duties, and obligations of each of them.
NOW, THEREFORE, in consideration of the agreements, covenants and
conditions contained herein and intending to be legally bound hereby, the
parties hereto agree as follows:
1. PERFORMANCE OBLIGATIONS OF HEALTHAXIS.
a. HealthAxis agrees to promote PALHIC through the
HealthAxis electronic distribution network as a supplier of the internet version
of the insurance products described on Exhibit "A" attached hereto (the
"Individual Medical Products") on all of the HealthAxis websites and with the
HealthAxis internet marketing partners, ISP's and other content providers with
whom HealthAxis has entered into marketing agreements.
b. HealthAxis agrees to use its best efforts to
maintain a position as a leading distribution system in electronic commerce
dedicated to the sale of healthcare insurance products over the Internet, to
continue to expand its electronic distribution network of HealthAxis, and to
manage that network in order to make available to PALHIC the most favorable
online demographics as economically possible.
c. HealthAxis agrees to work directly with PALHIC in
the development of advertising/marketing materials, both for online and off-line
purposes.
d. During the term of this Agreement, the obligation
of HealthAxis to offer the health products issued by PALHIC or CRLC shall be
non-exclusive, and HealthAxis shall have the right to offer the Individual
Medical Products issued by other insurance companies, and other products.
<PAGE>
2. REPRESENTATIONS, WARRANTIES, AND PERFORMANCE OBLIGATIONS OF
PALHIC AND CRLC:
a. PALHIC agrees to issue the Individual Medical
Products only to those persons who become insureds as a result of the activities
of HealthAxis and agrees to make available to HealthAxis for sale on the
Internet the Individual Medical Products which are specifically designed to meet
the needs of the HealthAxis customer base to be identified from data generated
by HealthAxis's Standard Promotional Efforts. However, HealthAxis reserves the
right to approve the design and pricing of all Individual Medical Products,
which approval shall not unreasonably be withheld.
b. PALHIC agrees to cooperate with HealthAxis and
use its best efforts (i) to offer the Individual Medical Products at the most
competitive premiums reasonably possible, (ii) that the premium for the sale of
the Individual Medical Products over the HealthAxis website shall be not less
than twelve (12%) percent less than the premiums for the sale of the same or
substantially similar policies sold by agents, and lowering of commissions shall
be based on to the consumer; and (iii) will not offer the Individual Medical
Products through any other distribution, at premiums lower than premiums made
available to customers generated by HealthAxis.
c. PALHIC and CRLC agree to use their best efforts
to develop and design additional health insurance products for sale over the
Internet that will be both competitive and responsive to the needs of the
HealthAxis customer demographics; when developed, the products shall be added to
Exhibit "A" by the mutual agreement between the parties.
d. PALHIC represents and warrants that (i) it has
full power and authority to issue the Product in the States in which PALHIC is
licensed to sell health insurance, and that the sale of the Individual Medical
Products shall be in compliance with all applicable state and federal laws and
regulations relating to the sale of health insurance; and (ii) it will maintain
at least a BEST Rating of B or better during the first three (3) year term of
this Agreement.
e. CRLC represents and warrants that (i) it will
cause PALHIC to possess sufficient capital and surplus to perform the
obligations of PALHIC as set forth in this Agreement, (ii) it shall be in
compliance with all applicable state and federal laws and regulations relating
to the sale of health insurance, and (iii) in the event that it is determined
that the Individual Medical Products must be issued by an insurance company
having a higher BEST than either CRLC or PALHIC, CRLC will use its best efforts
in cooperation with HealthAxis to engage such an insurance company, and
thereafter will assist such insurance company in the issuance of the Individual
Medical Products.
f. PALHIC and CRLC agree that during the first three
(3) years of the term of this Agreement, that neither shall offer the Product in
any form of E-commerce marketing except through the electronic distribution
network established by HealthAxis.
g. Within sixty (60) days from the date of this
Agreement, the parties shall enter into an agreement setting forth performance
standards with respect to the issuance of Individual Medical Products by PALHIC
or CRLC as the case may be, including, but not limited to, processing and
administration of claims, customer service, and regulatory matters.
<PAGE>
3. PRODUCT ADMINISTRATION
a. HealthAxis shall provide or cause to be provided
the following services related to front end sales and administration:
[ ] sale completion activity (including sales
call center)
[ ] sales activity;
[ ] electronic application processing; and
[ ] electronic policy issuance and renewal.
b. Except as set forth in subparagraph 3.(a) above,
PALHIC shall be responsible for the underwriting and administration of the
Individual Medical Products, including, but not limited to, the mailing of
premium notices, the receipt and processing of premium payments, claims, and
policyholder service and information.
c. PALHIC will provide HealthAxis with monthly
statements showing premiums collected, claims made, claims paid reserves, and
all financial and other information relating to the sale of the Individual
Medical Products.
4. TECHNICAL SUPPORT
a. HealthAxis agrees to build and maintain a
state-of-the-art technological infrastructure capable of supporting the sale of
the Individual Medical Products by CP.
b. PALHIC agrees to commit the resources to create a
seamless interface with the HealthAxis website and electronic administration
system.
5. COMMISSIONS AND FEES
a. PALHIC shall pay to HealthAxis a first-year
commission of thirteen (13%) percent of collected premium from the sale of the
Individual Medical Products, and a second and subsequent commission of five (5%)
percent of collected premium from the sale of Individual Medical Products. For
the purposes of computing the premium with respect to which commissions shall be
payable hereunder, the parties agree that the sale of Individual Medical
Products or substantially similar products by persons who at any time are
licensed to sell insurance by PALHIC prior to the date hereof, persons who
become licensed to sell insurance by PALHIC or CRLC after the date of this
Agreement, and premiums received from policies initially issued by PALHIC and
subsequently rewritten by any other affiliated insurance company shall be
included.
b. The first $10,000,000.00 of administrative fees
shall be paid to HealthAxis to assist HealthAxis in recovering the costs
incurred to initiate the HealthAxis E-Commerce website and internet health
insurance sales program. After HealthAxis has received $10,000,000.00 in fees,
the additional fees received in the calendar years 1999 and 2000 shall be paid
fifty (50%) percent to HealthAxis and fifty (50%) percent to PALHIC; beginning
January 1, 2001, notwithstanding the amount of administrative fees collected
prior to that date, the administrative fees shall be paid eighty (80%) percent
to PALHIC and twenty (20%) percent to HealthAxis. PALHIC agrees to pay to
HealthAxis all association fees.
c. In the event of any termination of this
Agreement, PALHIC agrees to continue to pay to HealthAxis all renewal
commissions on the in force policies of the Individual Medical Products existing
on the date of termination, through and including the termination of each
policy.
<PAGE>
6. OTHER AGREEMENTS
a. (1) HealthAxis is or agrees to become licensed to
sell insurance in all the states wherein products are to be sold, and agrees to
comply with all applicable insurance and other laws, rules, and regulations
applicable to the sale of health insurance in the states in which PALHIC is
licensed to sell health insurance.
(2) PALHIC agrees to and does hereby appoint
HealthAxis as its exclusive agent for the sale of the Individual Medical
Products in the states in which PALHIC is licensed to sell health insurance.
b. PALHIC and HealthAxis agree that neither shall
disclose to any other person the terms and conditions of this Agreement, and
each agree that the transactions contemplated herein and all documents,
materials, and other information relative to the business of each of HealthAxis
and PALHIC shall be held in confidence and not disclosed to others without the
prior written consent or except as may be required by law.
c. HealthAxis agrees to use its best efforts to void
incorrect or invalid results or abnormal software or hardware operation related
to calendar "Year 2000" compliant.
d. CRLC hereby agrees to and does indemnify
HealthAxis from all damages, liabilities, claims, or demands, including
reasonable attorneys' fees, arising as a result of the breach by PALHIC or CRLC
of any material term or condition of this Agreement, negligence, misconduct or,
noncompliance with any law or regulation applicable to the sale of individual
medical products, and by insureds and policyholders.
e. The parties agree and acknowledge that, as a
result of negotiating, entering into and performing this Agreement, each party
has and will have access to certain of the other party's Confidential
Information (as defined below). Each party also understands and agrees that
misuse and/or disclosure of that information could adversely affect the other
party's business. Accordingly, the parties agree that, during the term of this
Agreement and thereafter, each party shall use and reproduce the other party's
Confidential Information only for purposes of this Agreement and only to the
extent necessary for such purpose and shall restrict disclosure of the other
party's Confidential Information to its employees, consultants or independent
contractors with a need to know and who are under a legal or contractual duty to
maintain confidentiality and shall not disclose the other party's Confidential
Information to any third party without the prior written approval of the other
party. Notwithstanding the foregoing, it shall not be a breach of this Agreement
for either party to disclose Confidential Information of the other party if
required to do so under law or in a judicial or other governmental investigation
or proceeding, provided the other party has been given prior notice and the
disclosing party has sought all available safeguards against widespread
dissemination prior to such disclosure.
f. As used in this Agreement, the term "Confidential
Information" refers to: (i) the terms and conditions of this Agreement; (ii)
each party's trade secrets, business plans, strategies, methods and/or
practices; and (iii) other information relating to either party that is not
generally known to the public, including information about either party's
personnel, products, customers, marketing strategies, services or future
business plans. Notwithstanding the foregoing, the term "Confidential
Information" specifically excludes (A) information that is now in the public
domain or subsequently enters the public domain by publication or otherwise
through no action or fault of the other party; (B) information that is known to
either party without restriction, prior to receipt from the other party under
this Agreement, from its own independent sources as evidenced by such party's
written records, and which was not acquired, directly or indirectly, from the
other party; (C) information that either party receives from any third party
reasonably known by such receiving party to have a legal right to transmit such
information, and not under any obligation to keep such information confidential;
and (D) information independently developed by either party's employees or
agents provided that either party can show that those same employees or agents
had no access to the Confidential Information received hereunder.
g. CRLC has reviewed all material computer software
used by it and the areas within its business and operations that could be
adversely affected by the "year 2000 computer issue" (that is, the risk that
such software may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), and has developed or is developing a program to address this issue on a
timely basis. Based on such review and program, the year 2000 computer issue is
not reasonably likely to impair the ability of CRLC to use such software after
December 31, 1999.
<PAGE>
7. TERMINATION.
a. This Agreement shall commence effective as of
January 1, 1999, and shall continue in effect for an initial term of three (3)
years ending on December 31, 2001. Notwithstanding the foregoing, this
Agreement, unless terminated by either party upon ninety (90) days notice prior
to the end of any current term, shall automatically renew for an additional one
(1) year term.
b. Notwithstanding the provisions of subparagraph
7(a) above, in the event that any party hereto breaches a material term or
condition hereof and such breach continues uncured for a period of ninety (90)
days following written notice to such effect, the non-breaching party shall have
the right to terminate this Agreement upon providing thirty (30) days notice
thereof.
8. MISCELLANEOUS.
a. Governing Law/Consent to Jurisdiction. This
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania. The parties hereto agree to consent to the
jurisdiction and venue of the courts of the Commonwealth of Pennsylvania located
in Montgomery county, Pennsylvania, and of the United States District Court for
the Eastern District of Pennsylvania, and agree that all disputes between the
parties shall be litigated only therein. Neither PALHIC nor CRLC shall be
entitled to assign this Agreement without the prior written consent of
HealthAxis, except that PALHIC shall have the right to assign the Agreement to
CRLC or an affiliate of CRLC. HealthAxis shall be entitled to assign this
Agreement without the consent of PALHIC or CRLC.
b. Successors and Assigns. The Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, administrators, successors and assigns.
c. Notices. Any notices hereunder, if mailed, shall
be deemed given and received 72 hours after mailing, and if sent by professional
express service, notice shall be deemed given and received at the time of actual
delivery. Notices shall be sent to the parties at the addresses set forth
herein, or such other addresses as the parties shall designate in writing from
time to time.
d. Expenses. Each party hereto shall pay its own
expenses including, without limitation, legal and accounting fees and expenses,
incident to the negotiation and preparation of this Agreement and to its
performance and compliance with the provisions contained herein.
e. Entire Agreement; Amendments; and Waivers. This
Agreement constitutes the entire understanding and agreement among the parties
hereto relative to the subject matter hereof. Any amendments to the Agreement
must be in writing, signed by each party hereto. The failure of any party hereto
to enforce at any time any provision of this Agreement shall not be construed to
be a waiver of the provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to constitute a waiver of any other or subsequent breach.
f. Partial Invalidity. In case any one or more of
the provisions contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein, unless the deletion of the provision
or provisions would result in such a material change as to cause completion of
the transactions contemplated herein to be unreasonable.
<PAGE>
g. Execution in Counterparts. This Agreement may be
executed by the parties hereto signing the same instrument, or by each party
hereto signing a separate counterpart or counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same instrument. The parties agree that documents executed by facsimile shall be
acceptable in his transaction, and the signatures thereof shall have the same
force and effect as original signatures.
h. Waivers. Any one party may, by written
instrument, extend the time for the performance of any of the obligations or
other acts of the other party and with respect to this Agreement (a) waive any
inaccuracies in the representations and warranties of the other party in this
Agreement or in any document delivered pursuant to this Agreement, (b) waive
compliance with any of the covenants of the other party contained in this
Agreement, and (c) waive the other party's performance of any of its obligations
set out in this Agreement. Any agreement on the part of the parties hereto for
any such extension or waiver shall be validly and sufficiently authorized for
the purposes of this Agreement if it is approved by the persons authorized to
make such agreements on behalf of the parties hereto.
i. Titles and Headings. Titles and headings to
Paragraphs herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
j. Exhibits. The Exhibits to this Agreement shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the day and year first above-written.
HEALTHAXIS.COM, INC. PROVIDENT AMERICAN LIFE & HEALTH
INSURANCE COMPANY
By: By:
-------------------------------- ----------------------------------
Michael Ashker Anthony R. Verdi
President Chief Operating Officer
CENTRAL RESERVE LIFE INSURANCE
COMPANY
By:
--------------------------------
<PAGE>
EXHIBIT "A"
THE INDIVIDUAL MEDICAL PRODUCTS
<PAGE>
1. HealthQuest (Internet Version)
2. Optimum (Internet Version)
3. Personal Privilege (Internet Version)
4. Solution Plus/HealthQuest Plus/AdvantEdge (Internet Version)
5. Policies Similar in Form, Content, and Coverage to Those
Listed in Paragraphs 1 through 4 above
