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 7,1995
American Travellers Corporation
(Exact name of registrant as specified in charter)
Pennsylvania 0-14391 23-1738097
(State or other (Commission file (IRS employer
jurisdiction of Number) identification no.)
incorporation)
3220 Tillman Drive, Bensalem, Pennsylvania, 19020
(Address of principal executive offices)
Registrant's telephone number, including area code:
(215) 244-1600
N/A
(Former name or former address, if changed since last report)
INFORMATION TO BE INCLUDED IN THIS REPORT
Item 2.Acquisition or Disposition of Assets.
See Item 5.
Item 5. Other Events
On December 7, 1995, American Travellers Life Insurance
Company ("American Travellers"), a wholly owned subsidiary of
American Travellers Corporation("the Registrant"), closed on an
Umbrella Reinsurance Contract that it had signed on November 30,
1995, with respect to its purchase of a book of long term care
business from Transport Life Insurance Company and Continental
Life Insurance Company (collectively "Transport"), both of Fort
Worth, Texas, representing approximately $100 million of
annualized premium in force. Transport and Continental are
subsidiaries of Texas-based Transport Holdings Inc. The
transaction was effective as of October 1, 1995, and was
accomplished through a reinsurance transaction.
Under the terms of the Umbrella Reinsurance Agreement and
the Exhibits thereto, American Travellers assumed all existing
liabilities associated with Transport's long term care insurance
business, for which obligation Transport transferred
approximately $250 million in cash and marketable securities to
American Travellers. Under statutory accounting practices
("SAP"), American Travellers will recognize approximately $290
million of statutory liabilities and a $40 million ceding
allowance on the transaction; this will be recorded as a $40
million charge in its fourth quarter SAP operating results.
Under generally accepted accounting principles ("GAAP"), the
Company currently expects that the fair value of assets received
will equal the liabilities to be established; there is no initial
GAAP income statement impact as a result of the transaction.
Under both SAP and GAAP, the Company's future operating results
will reflect the ongoing reinsurance of this business, including
premiums earned and claims and expenses incurred, as well as the
investment income on the invested assets associated with the business.
Assets with market values equal to the statutory liabilities, net
of the statutory ceding allowance, were transferred into a trust with
Fleet National Bank of Massachusetts - the trustee. The obligations
of American Travellers arising out of this transaction were
guaranteed by the Registrant.
Due to the nature of this transaction, which is in the form
of an indemnity reinsurance transaction, no financial statements
are expected to be filed.
Item 7.Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired: NONE
(b) Pro Forma Financial Information: NONE
(c) Exhibits
1. Umbrella Reinsurance Transaction Agreement and Exhibits
A through E, thereto between American Travellers
Corporation and Transport Life Insurance Company and
Continental Life Insurance Company
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AMERICAN TRAVELLERS CORPORATION
By : /s/ John A. Powell
John A. Powell
President and Chairman
of the Board
Dated : December 22, 1995
Exhibit Index
Sequential
Exhibit NumberDescription of the Exhibit Numbered Pages
1. Umbrella Reinsurance 5
Transaction Agreement
and Exhibits A through E,
thereto, between American
Travellers and Transport
Life Insurance Company and
Continental Life Insurance Company.
CLOSING DOCUMENTS
FOR
REINSURANCE TRANSACTIONS
AMONG
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY
AND
TRANSPORT LIFE INSURANCE COMPANY
AND
CONTINENTAL LIFE INSURANCE COMPANY
December 8, 1995
INDEX TO CLOSING DOCUMENTS
DOCUMENT TAB
1.Umbrella Reinsurance Transaction Agreement 1
- - - Administration Services Sub-Agreement Exhibit A
- - - Assumption Reinsurance Agreement Exhibit B
- - - Guaranty Exhibit C
- - - Indemnity Reinsurance Agreement Exhibit D
- - - Trust Agreement Exhibit E
2.Letter of Intent 2
UMBRELLA REINSURANCE TRANSACTION AGREEMENT
BETWEEN
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY
AND
TRANSPORT LIFE INSURANCE COMPANY
AND
CONTINENTAL LIFE INSURANCE COMPANY
November 30, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Administration Services Sub-Agreement". . . . . . . . . . 2
1.2 "Administrative Transfer Date" . . . . . . . . . . . . . . 2
1.3 "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 "Agents" . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 "Assumed Policies" . . . . . . . . . . . . . . . . . . . . 2
1.6 "Assumption Agreement" . . . . . . . . . . . . . . . . . . 2
1.7 "Assumption Reinsurance Undertaking" . . . . . . . . . . . 3
1.1 "Best of ATL's Knowledge" and "Best of
Transports' Knowledge" 3
1.9 "Business Day" . . . . . . . . . . . . . . . . . . . . . . 3
1.10 "Ceded Policy" or "Ceded Policies" . . . . . . . . . . . . 3
1.11 "Closing Date" . . . . . . . . . . . . . . . . . . . . . . 3
1.12 "Documents". . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 "Effective Date" . . . . . . . . . . . . . . . . . . . . . 4
1.14 "Forms". . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.15 "Guarantor". . . . . . . . . . . . . . . . . . . . . . . . 4
1.16 "Guaranty" . . . . . . . . . . . . . . . . . . . . . . . . 4
1.17 "Indemnity Agreement". . . . . . . . . . . . . . . . . . . 4
1.18 "Markman Agent". . . . . . . . . . . . . . . . . . . . . . 4
1.19 "Marketing Agreements" . . . . . . . . . . . . . . . . . . 4
1.20 "Minimum Account Requirement". . . . . . . . . . . . . . . 4
1.21 "Obligation Amount". . . . . . . . . . . . . . . . . . . . 4
1.22 "Policy" or "Policies" . . . . . . . . . . . . . . . . . . 4
1.23 "Policyholder" . . . . . . . . . . . . . . . . . . . . . . 5
11 "Reinsure on an Assumption Basis or
Assumption Reinsurance Basis" 5
11 "Reinsure on an Indemnity Basis or Indemnity
Reinsurance Basis" 5
1.26 "Transition Period". . . . . . . . . . . . . . . . . . . . 5
1.27 "Trust Agreement". . . . . . . . . . . . . . . . . . . . . 5
1.28 "Trust Account". . . . . . . . . . . . . . . . . . . . . . 5
1.29 "Umbrella Agreement" . . . . . . . . . . . . . . . . . . . 6
ARTICLE II SCOPE OF TRANSACTION . . . . . . . . . . . . . . . . . . 6
2.1 Indemnity Reinsurance Transaction. . . . . . . . . . . . . 6
2.1 ATL Assumption of
2.2 Administrative Responsibility 6
2.3 Assumption Reinsurance Transaction . . . . . . . . . . . . 6
2.4 Administration of Policies Assumed . . . . . . . . . . . . 7
2.5 Administration Services Sub-Contract . . . . . . . . . . . 7
2.6 Transition Period. . . . . . . . . . . . . . . . . . . . . 7
2.7 Trust Account. . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IIIPAYMENTS AND OTHER TRANSFERS. . . . . . . . . . . . . . . 8
3.1 TLIC Payment of Obligation Amount. . . . . . . . . . . . . 8
3.2 CLIC Payment of Obligation Amount. . . . . . . . . . . . . 8
3.3 Ceding Commission. . . . . . . . . . . . . . . . . . . . . 8
3.4 Funding Trust Account by Transport . . . . . . . . . . . . 8
3.5 Funding Trust Account by ATL . . . . . . . . . . . . . . . 9
31 Determination of Obligation Amount and
31 Minimum Account Requirement 10
ARTICLE IVPOST EFFECTIVE DATE TRANSACTIONS . . . . . . . . . . . . 14
4.1 Assumption Reinsurance Undertaking . . . . . . . . . . . 14
4.2 ATL Option To Participate in Assumption
Reinsurance Undertaking 15
4.3 Policies Issued After Effective Date . . . . . . . . . . 15
4.4 Transport Assistance in Transition of
Administrative Responsibility 16
ARTICLE V AGENT RELATIONSHIPS. . . . . . . . . . . . . . . . . . . 17
5.1 Marketing Agreements . . . . . . . . . . . . . . . . . . 17
5.2 ATL Non-Solicitation of Agents . . . . . . . . . . . . . 18
5.3 Transport Non-Solicitation of Agents . . . . . . . . . . 18
5.4 Replacement of Policies. . . . . . . . . . . . . . . . . 18
5.5 Transport Replacement of Policies. . . . . . . . . . . . 19
5.6 Appointment of New Marketing General Agency. . . . . . . 19
ARTICLE VITRANSPORT'S REPRESENTATIONS AND WARRANTIES . . . . . . . 19
6.1 Organization . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Encumbrances . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Absence of Changes . . . . . . . . . . . . . . . . . . . 20
6.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . 20
6.5 Compliance with Law. . . . . . . . . . . . . . . . . . . 20
6.6 Governmental Authorities . . . . . . . . . . . . . . . . 20
6.7 Validity . . . . . . . . . . . . . . . . . . . . . . . . 21
6.8 Authority. . . . . . . . . . . . . . . . . . . . . . . . 22
6.9 Broker Fees. . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Reinsurance. . . . . . . . . . . . . . . . . . . . . . . 22
6.11 Marketing Agreements. . . . . . . . . . . . . . . . . . 22
ARTICLE VIIATL'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 22
7.1 Organization . . . . . . . . . . . . . . . . . . . . . . 23
7.2 Financial Statements . . . . . . . . . . . . . . . . . . 23
7.3 Absence of Changes . . . . . . . . . . . . . . . . . . . 23
7.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Compliance with Law. . . . . . . . . . . . . . . . . . . 23
7.6 Governmental Authorities . . . . . . . . . . . . . . . . 24
7.7 Required Filings . . . . . . . . . . . . . . . . . . . . 25
7.8 Broker Fees. . . . . . . . . . . . . . . . . . . . . . . 25
7.9 ATL's Due Diligence. . . . . . . . . . . . . . . . . . . 25
7.10 Validity . . . . . . . . . . . . . . . . . . . . . . . . 25
7.11 Authority. . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIIIATL COVENANTS. . . . . . . . . . . . . . . . . . . . . 26
8.1 Financial Statements and Other Reports . . . . . . . . . 27
8.2 Required Notices to Transport. . . . . . . . . . . . . . 27
8.3 Existence. . . . . . . . . . . . . . . . . . . . . . . . 28
8.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.5 Compliance . . . . . . . . . . . . . . . . . . . . . . . 28
8.6 Access . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IXCONDITIONS PRECEDENT TO ATL'S PERFORMANCE. . . . . . . . 29
9.1 Conditions . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3 Failure of Conditions. . . . . . . . . . . . . . . . . . 32
ARTICLE X CONDITIONS PRECEDENT TO TRANSPORT'S
PERFORMANCE 32
10.1 Conditions . . . . . . . . . . . . . . . . . . . . . . . 32
10.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.3 Failure of Conditions. . . . . . . . . . . . . . . . . . 35
ARTICLE XITHE CLOSING. . . . . . . . . . . . . . . . . . . . . . . 36
11.1 Transport's and ATL's Obligations. . . . . . . . . . . . 36
11.2 Transport's Obligations. . . . . . . . . . . . . . . . . 36
11.3 ATL'S Obligations. . . . . . . . . . . . . . . . . . . . 37
11.4 Location/Date. . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XIIATL INDEMNIFICATION OF TRANSPORT. . . . . . . . . . . . 39
12.1 Indemnification. . . . . . . . . . . . . . . . . . . . . 39
12.2 Claims; Assumption of Defense. . . . . . . . . . . . . . 41
ARTICLE XIIITRANSPORT INDEMNIFICATION OF ATL . . . . . . . . . . . 42
13.1 Indemnification. . . . . . . . . . . . . . . . . . . . . 42
13.2 Claims; Assumption of Defense. . . . . . . . . . . . . . 43
ARTICLE XIVDISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . 44
14.1 Arbitration. . . . . . . . . . . . . . . . . . . . . . . 44
14.2 Preliminary Relief . . . . . . . . . . . . . . . . . . . 46
ARTICLE XVSPECIAL DISPUTE RESOLUTION PROVISIONS. . . . . . . . . . 47
15.1 Obligation Amount Calculation Disputes . . . . . . . . . 47
15.2 Trustee Disputes . . . . . . . . . . . . . . . . . . . . 49
ARTICLE XVIMISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 49
16.1 Further Assurances . . . . . . . . . . . . . . . . . . . 49
16.2 Exclusive Remedy; Specific Performance . . . . . . . . . 49
16.3 Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 50
16.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . 50
16.5 Termination for Default. . . . . . . . . . . . . . . . . 50
16.6 Recapture. . . . . . . . . . . . . . . . . . . . . . . . 51
16.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . 55
16.8 Binding Agreement. . . . . . . . . . . . . . . . . . . . 56
16.9 Severability . . . . . . . . . . . . . . . . . . . . . . 56
16.10 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 56
16.11 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 57
16.12 Amendments . . . . . . . . . . . . . . . . . . . . . . . 58
16.13 Captions . . . . . . . . . . . . . . . . . . . . . . . . 58
16.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . 58
16.15 Nonreliance. . . . . . . . . . . . . . . . . . . . . . . 58
SCHEDULE 1.14 - Forms
SCHEDULE 1.19 - Marketing Agreements
SCHEDULE 3.4 - Transport Trust Assets
SCHEDULE 3.5 - ATL Trust Assets
SCHEDULE 4.3 - System Conversion Services
SCHEDULE 6.2 - Encumbrances
SCHEDULE 6.4 - Litigation
SCHEDULE 6.6 - Governmental Authorities
SCHEDULE 6.10 - Reinsurance Arrangements
SCHEDULE 7.4 - ATL Litigation
SCHEDULE 7.5 - ATL Compliance with Law
SCHEDULE 7.6 - ATL Governmental Authorities
Exhibit A - Administration Services Sub-Agreement
Exhibit B - Assumption Agreement
Exhibit C - Guaranty
Exhibit D - Indemnity Agreement
Exhibit E - Trust Agreement
UMBRELLA REINSURANCE TRANSACTION AGREEMENT
THIS UMBRELLA REINSURANCE TRANSACTION AGREEMENT, made and
entered into this 30th day of November, 1995, by and between
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY, a life insurance
company organized under the laws of Pennsylvania ("ATL"), with
its principal executive office at 3220 Tillman Drive, Bensalem,
Pennsylvania, and TRANSPORT LIFE INSURANCE COMPANY, a life
insurance company organized under the laws of the State of Texas
("TLIC"), and CONTINENTAL LIFE INSURANCE COMPANY, a life
insurance company organized under the laws of the State of Texas
("CLIC"), both with principal executive offices at 714 Main
Street, Fort Worth, Texas (collectively "Transport").
NOW, THEREFORE, the parties hereto, for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, agree as
follows:
ARTICLE I
DEFINITIONS
The following words and phrases shall have the meanings
specified below for purposes of this Agreement, whether used in
the singular or the plural:
I.1 "Administration Services Sub-Agreement" means and
refers to the Administration Services Sub-agreement between ATL
and TLIC substantially in the form attached hereto as Exhibit A.
I.2 "Administrative Transfer Date" means and refers to the
date, not later than December 31, 1996, determined pursuant to
Paragraph 4.3 hereof.
I.3 "Affiliate" means and refers to a legal person that,
directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with a
specified person.
I.4 "Agents" means and refers to brokers, marketing
managers, managing general agents, producers, general agents,
agents or the like with respect to whom Transport is
contractually obligated to pay commissions, fees, overrides,
allowances or other amounts pursuant to the terms of the
Marketing Agreements with respect to Policies.
I.5 "Assumed Policies" means and refers to those Policies
that the parties have agreed shall be deemed assumed pursuant to
the terms of the Assumption Agreement.
I.6 "Assumption Agreement" means and refers to the
Assumption Reinsurance Agreement entered into on the Closing Date
between ATL and Transport substantially in the form attached
hereto as Exhibit B and any other Assumption Reinsurance
Agreements entered into from time to time thereafter in
connection with this Agreement, in such forms as ATL and
Transport determine shall satisfy the intent of Paragraph 4.1
hereof.
I.7 "Assumption Reinsurance Undertaking" means and refers
to the process of obtaining such regulatory and Policyholder
approvals and the commitment to take such further steps as may be
necessary and/or appropriate as will enable the parties to
Reinsure on an Assumption Basis.
I.8 "Best of ATL's Knowledge" and "Best of Transports'
Knowledge" means and refers to the actual knowledge of officers
of the rank of vice president or higher of ATL or TLIC and CLIC,
as appropriate, it being understood that no such officer shall
have any duty of inquiry with respect thereto and no such officer
shall have any personal liability with respect to any statement
made by such officer which is so qualified.
I.9 "Business Day" means and refers to any day other than a
Saturday, Sunday or legal holiday on which banks are authorized
or required to be closed in Fort Worth, Texas.
I.10"Ceded Policy" or "Ceded Policies" means and refers to
Transport's retained interest, net of reinsurance, in the
Policies Reinsured on an Indemnity Basis.
I.11 "Closing Date" means and refers to the date specified
in Paragraph 11.4 hereof.
I.12 "Documents" means and refers to this Umbrella
Agreement, the Administration Services Sub-Agreement, the
Assumption Agreement, the Guaranty, the Trust Agreement, the
Indemnity Agreement and all other documents entered into and
delivered in connection herewith or therewith.
I.13 "Effective Date" means and refers to October 1, 1995.
I.14 "Forms" means and refers to those forms and
certificates identified on Schedule 1.14 attached hereto.
I.15 "Guarantor" means and refers to American Travellers
Corporation, a Pennsylvania corporation.
I.16 "Guaranty" means and refers to the guaranty of the
Guarantor substantially in the form attached hereto as Exhibit C.
I.17 "Indemnity Agreement" means and refers to the
Indemnity Reinsurance Agreement entered into on the Closing Date
between ATL and Transport substantially in the form attached
hereto as Exhibit D.
I.18 "Markman Agent" means an Agent of the Markman Company
or any Affiliate thereof.
I.19 "Marketing Agreements" means and refers to those
agreements identified on Schedule 1.19 attached hereto between
Transport and various marketing general agents and other general
agents.
I.20 "Minimum Account Requirement" means and refers to that
amount determined from time to time pursuant to the provisions of
Paragraph 3.6 hereof.
I.21 "Obligation Amount" means and refers to that amount
determined pursuant to the provisions of Paragraph 3.6 hereof.
I.22 "Policy" or "Policies" means and refers to the
individual and group policies, issued by Transport on the Forms,
and either (i) issued and in force as of the Effective Date or
(ii) issued between the Effective Date and February 1, 1996.
I.23 "Policyholder" means and refers to any individual
owner of a Policy and any individual certificate holder for a
Policy issued on a group basis.
I.24 "Reinsure on an Assumption Basis or Assumption
Reinsurance Basis" means and refers to reinsurance of Policies
issued by Transport pursuant to the terms and conditions of the
Assumption Agreement.
I.25 "Reinsure on an Indemnity Basis or Indemnity
Reinsurance Basis" means and refers to reinsurance of Ceded
Policies issued by Transport pursuant to the terms and conditions
of the Indemnity Agreement.
I.26 "Transition Period" means and refers to the period
from the Effective Date to the Administrative Transfer Date
during which TLIC administers the Policies pursuant to the
Administration Services Sub-Agreement.
I.27 "Trust Agreement" means and refers to the Trust
Agreement entered into on the Closing Date among ATL, Transport
and the Trustee named therein substantially in the form attached
hereto as Exhibit E.
I.28 "Trust Account" means and refers to the Trust Account
for the benefit of Transport called "American
Travellers/Transport/Continental Trust Fund" established pursuant
to the provisions of the Trust Agreement.
I.29 "Umbrella Agreement" means and refers to this Umbrella
Reinsurance Transaction Agreement.
ARTICLE II
SCOPE OF TRANSACTION
Pursuant to the terms and provisions of this Umbrella
Agreement, including the Documents, and with effect from the
Effective Date:
II.1 Indemnity Reinsurance Transaction. Transport agrees
to cede and ATL agrees to assume 100% of Transport's interest in
the Ceded Policies pursuant to an indemnity reinsurance
arrangement, as more fully described in the Indemnity Agreement.
II.2 ATL Assumption of Administrative Responsibility. ATL
agrees to accept the immediate primary responsibility of
administering the Policies as more fully described in the
Indemnity Agreement.
II.3 Assumption Reinsurance Transaction. While all Ceded
Policies will initially be reinsured pursuant to the Indemnity
Reinsurance Agreement, it is the intention of the parties that as
promptly as reasonably possible and to the fullest extent
reasonably possible, the Policies will be Reinsured on an
Assumption Basis. Accordingly, as part of the transaction
contemplated by this Umbrella Agreement, the parties shall enter
into the Assumption Agreement and have agreed upon the Assumption
Reinsurance Undertaking. At such time as the insurance
regulatory authorities of the state in which any Policy was
issued are willing to recognize such Policy as having been
assumed by ATL and to accord ATL the status of direct insurer of
such Policy for regulatory purposes, the parties will so confirm
in writing and such Policy will then be deemed to have been
Reinsured on an Assumption Basis.
II.4 Administration of Policies Assumed. ATL shall have
the immediate primary responsibility of administering the
Policies Reinsured on an Assumption Basis, pursuant to the terms
of the Assumption Agreement.
II.5 Administration Services Sub-Contract. During the
Transition Period, TLIC shall act as ATL's subcontractor with
respect to administering Policies, as more fully described in the
Administration Services Sub-Agreement.
II.6 Transition Period. During the Transition Period,
Transport shall provide ATL with such assistance as may
reasonably be required to enable ATL to administer the Policies
pursuant to the terms of the Indemnity Agreement and the
Assumption Agreement, all as more fully described in Paragraph
4.3 hereof.
II.7 Trust Account. ATL shall establish, fund and maintain
a Trust Account for the benefit of Transport in the amount of the
Minimum Account Requirement, all as more fully described in
Paragraphs 3.4 to 3.6 hereof and in the Trust Agreement.
ARTICLE III
PAYMENTS AND OTHER TRANSFERS
III.1TLIC Payment of Obligation Amount. Subject to
Paragraph 3.4 hereof, on the Closing Date TLIC shall pay to ATL
as reinsurance premium (i) $290,061,540 as of October 1, 1995 on
the Policies issued by TLIC; and (ii) interest at the annual rate
of 7 1/4% on such amount for the period October 1, 1995 to the
Closing Date.
III.2CLIC Payment of Obligation Amount. Subject to
Paragraph 3.4 hereof, on the Closing Date, CLIC shall pay to ATL
as reinsurance premium (i) $779,590 as of October 1, 1995 on the
Policies issued by CLIC, and (ii) interest at the annual rate of
7 1/4% on such amount for the period of October 1, 1995 to the
Closing Date.
III.3Ceding Commission. On the Closing Date, ATL shall pay
as ceding commission (i) the amount of $39,892,781 to TLIC and
$107,219 to CLIC, and (ii) interest at the annual rate of 7 1/4%
on such amount for the period October 1, 1995 to the Closing
Date.
III.4Funding Trust Account by Transport. Notwithstanding
the terms of Paragraphs 3.1 and 3.2 hereof, and in lieu of the
physical payments described therein, on the Closing Date and in
accordance with the Trust Agreement, Transport, acting on behalf
of ATL, shall cause to be deposited into the Trust Account an
amount equal to (i) the sum of the amounts payable by TLIC and
CLIC as reinsurance premium pursuant to Paragraphs 3.1 and 3.2 of
this Umbrella Agreement, less (ii) the amount payable by ATL as
ceding commission pursuant to Paragraph 3.3 of this Umbrella
Agreement. The assets to be so deposited are identified on
Schedule 3.4 hereto.
III.5Funding Trust Account by ATL.
(a) Closing Date Funding. On the Closing Date, and in
accordance with the Trust Agreement, ATL shall cause to be
deposited into the Trust Account an amount equal to the Minimum
Account Requirement less the amount deposited in the Trust
Account by Transport pursuant to Paragraph 3.4 of this Umbrella
Agreement. The assets to be so deposited are identified on
Schedule 3.5 hereto.
(b) Adjustment. The parties recognize that the amounts
stated in Paragraphs 3.1 and 3.2 are based on TLIC's and CLIC's
estimate as to reserves as of September 30, 1995. On or before
January 31, 1996, TLIC and CLIC will, in a manner consistent with
their practice prior to the Effective Date, finally calculate
their respective reserves for the Ceded Policies as of September
30, 1995. If such final calculation results in greater reserves
than were reported in TLIC's or CLIC's September 30, 1995
statutory statement, as applicable, an additional reinsurance
premium will be paid on January 31, 1996 by TLIC or CLIC, as
applicable, acting on behalf of ATL, to the Trust Account in an
amount equal to the amount of the excess of such entity's final
reserve calculation over the reserve reported by such entity at
September 30, 1995 plus interest at 7 1/4% for the period from
October 1, 1995 to the date such payment is made. If such final
calculation results in less reserves than were reported in TLIC's
or CLIC's September 30, 1995 statutory statement, as applicable,
Transport and ATL will cause the Trustee to refund from the Trust
Account on January 31, 1996 to TLIC or CLIC, as applicable,
reinsurance premium equal to the amount of the excess of the
reserve as reported at September 30, 1995 by such entity over the
final reserve calculation for such entity plus interest at 7 1/4%
for the period from October 1, 1995 to the date such payment is
made.
III.6Determination of Obligation Amount and Minimum Account
Requirement.
(a) Definition of Terms. In addition to the
Definitions set forth in Article I, the following words and
phrases shall have the meanings specified below for purposes of
this Paragraph 3.6:
(i) Annual Statement shall mean and refer to the 1994
Life and Accident and Health annual statement form issued by the
National Association of Insurance Commissioners.
(ii) Claim Liability shall mean and refer to the
amount labeled as Claim Liability in Exhibit 11 to the Annual
Statement, such liability to include incurred but not reported
liability established at least high enough to bring the developed
loss ratio for the prior twelve months to a level as high as the
developed loss ratio for duration months thirteen through twenty-
four.
(iii) Claim Reserves shall mean and refer to the
amount labeled as Claim Reserves in Exhibit 9 to the Annual
Statement, such term to include reserves for open (continuing)
claims established at a level at least as great as the level
determined according to the methods used by Transport for such
claims in its June 1995 quarterly statutory statement.
Transport's method shall include Transport's claim termination
rate, interest rate and method of determining open and closed
claims. If ATL develops experience data justifying the setting
of claim reserves using different claim termination rates and/or
claim closing methods, Transport agrees to consider in good faith
an adjustment to the claim reserve method to take into account
such termination rates and claim closing methods.
(iv) Unearned Premium Reserve shall mean and refer to
the amount labeled as Unearned Premium Reserve (on a gross
premium basis) in Exhibit 9 to the Annual Statement.
(v) Additional Active Life Reserve shall mean and
refer to amounts which would be carried on Exhibit 9, lines 2 and
3, of the Annual Statement, such amounts to be established at a
level at least as great as the level determined using claim
costs, interest rates (but not higher than the regulatory maximum
valuation rate), termination rates and methods used by Transport
in its June 1995 quarterly statutory statement.
(vi) Advance Premium shall mean and refer to
amounts which would be carried in Exhibit 1, part 1, lines 4 and
14 of the Annual Statement for the Policies.
(b) Calculation of Obligation Amount.
(i) The Obligation Amount shall be the amount of
aggregate liabilities of the Ceded Policies calculated at any
point in time as the sum of:
(A) Claim Liability;
(B) Claim Reserves;
(C) Unearned Premium Reserve;
(D) Additional Active Life Reserve; and
(E) Advance Premiums;
provided, however that the Obligation Amount shall never be less
than the greater of (1) the present value of future claims,
commissions, expenses, and premium taxes minus the present value
of future gross premiums using realistic assumptions (such
difference determined as of December 31 of each year or on such
other date as reasonably requested by Transport) or (2) the
reserves held by ATL for the Ceded Policies.
(ii) Procedure
(A) Once each calendar quarter, commencing with
the first calendar quarter after the Closing Date, an actuary
designated by ATL shall calculate the Obligation Amount under the
formula provided in paragraph 3.6 (b) above ("Initial Quarter
Calculation"). This Initial Quarter Calculation plus applicable
workpapers shall be sent to Transport's designated actuary, along
with a supporting actuarial opinion from a Member of the American
Academy of Actuaries or a Fellow of the Society of Actuaries in
substantially the form of the recommended language contained in
the Pennsylvania Actuarial Opinion and Memorandum Regulation.
Such supporting opinion shall be to the effect that the
establishment of reserves equal to the Obligation Amount
calculated by ATL meets the minimum requirements of all states
where ATL is admitted and that such reserves, when considered in
light of the assets held in the Trust Account and investment
earnings on such assets and considerations expected to be
received under such Policies, make adequate provision for the
anticipated cash flow and related expenses for the Ceded
Policies.
(B) Transport shall have the right to audit and
review all calculations of ATL and its actuaries, special
computer runs, and all other material or documents relating to
the calculation of the Obligation Amount. If the actuaries of
ATL and Transport cannot agree on the Obligation Amount for the
quarter in question and the difference between the ATL and
Transport calculation is greater than $5,000,000, then the
calculation shall be submitted to the Dallas office of Milliman
and Robertson ("M & R"), Actuarial Consultants, pursuant to the
provisions of Paragraph 15.1. If the difference is less than or
equal to $5,000,000, then the Obligation Amount shall be the
lower of the two amounts until the next quarterly calculation.
<PAGE>
(c) Calculation of Minimum Account Requirement.
The Minimum Account Requirement shall be $2,000,000 above
the Obligation Amount as calculated in Paragraph 3.6 (b) above.
In the event of a dispute between Transport and ATL concerning
the Obligation Amount, the lower of the Obligation Amounts
proposed by Transport or ATL shall be deemed the Obligation
Amount pending the conclusion of the Special Dispute Resolution
procedures conducted pursuant to the provisions of Paragraph 15.1
(if the difference is greater than $5,000,000) or until the next
quarterly calculation (in all other cases), and the Minimum
Account Requirement shall be determined on the basis of such
Obligation Amount for all purposes under the Documents until
otherwise determined by the Special Dispute Resolution procedure
set forth in Article XV or the provisions of this Paragraph, as
applicable.
ARTICLE IV
POST EFFECTIVE DATE TRANSACTIONS
IV.1 Assumption Reinsurance Undertaking. Transport shall
control and have sole responsibility for the Assumption
Reinsurance Undertaking and shall exercise efforts, determined in
its sole discretion, with respect to the completion of such
Assumption Reinsurance Undertaking. ATL shall use its best
efforts to cooperate with Transport in connection with such
Undertaking. Transport shall be responsible for all costs and
expenses in connection with the Assumption Reinsurance
Undertaking, other than ATL's internal (exclusive of out-of-
pocket) expenses incurred in connection therewith.
IV.2 ATL Option To Participate in Assumption Reinsurance
Undertaking. If at any time on or after the first anniversary of
the Closing Date, ATL shall determine that Transport is not
making reasonable progress in completing the Assumption
Reinsurance Undertaking, it may so notify Transport and ATL may,
entirely at ATL's expense, attempt to complete the Assumption
Reinsurance Undertaking in any state, except those states in
which Transport has advised ATL that Transport is actively
attempting to complete the Assumption Reinsurance Undertaking;
provided however that ATL shall not attempt to complete any
portion of the Assumption Reinsurance Undertaking unless and
until Cologne Re Life Insurance Company shall have agreed to the
assignment by Transport to ATL of Cologne Re's reinsurance on any
Assumed Policy.
IV.3 Policies Issued After Effective Date. It is
understood and acknowledged that all policies of insurance
written on the Forms and underwritten and issued by Transport on
or after the Effective Date and on or before January 31, 1996
constitute Policies and Ceded Policies within the meaning of this
Umbrella Agreement and all of Transport's retained interest in
such Policies and Ceded Policies shall be deemed ceded to ATL
pursuant to the provisions of this Umbrella Agreement and the
Documents, immediately upon the issuance of such Policies and
Ceded Policies. Transport shall be entitled to no further ceding
commission for such Policies and Ceded Policies other than as
provided in Paragraph 3.3 hereof.
IV.4 Transport Assistance in Transition of Administrative
Responsibility. As is more fully described in the Administration
Services Sub-Agreement, TLIC will administer the Policies during
the Transition Period. The transition of administrative
responsibility from TLIC to ATL shall be conducted pursuant to
the following guidelines:
(a) TLIC shall furnish ATL such assistance as ATL may
reasonably require for the orderly transition of the
administration of the Policies;
(b) Such assistance shall include, but not be limited
to, the delivery of all applicable records, or copies thereof,
relating to the Policies, including, but not limited to, all
financial reports, agency agreements, reinsurance documents,
regulatory reports and filings, complaint logs, master files,
claims files, computer data, applications and associated
materials, application forms, marketing materials, premium and
claims history, reinsurance records and records relating to
regulatory matters, policy approvals, rate filing applications
and such other documents, records and materials as shall be
reasonably necessary to effect the transactions contemplated in
this Umbrella Agreement. Transport may retain such copies of the
applicable records as it may so determine.
(c) Such assistance shall include but not be limited
to provision of the systems conversion services described on
Schedule 4.3 attached hereto and the provision of such additional
information and data as ATL may reasonably require with respect
to the performance of the systems conversion.
(d) In the course of the process of transferring
administration responsibility from TLIC to ATL, the parties shall
by March 31, 1996 agree upon an Administrative Transfer Date,
such date to be no earlier than June 30, 1996 and no later than
December 31, 1996. In the event the parties fail to so agree,
the Administrative Transfer Date shall be December 31, 1996.
ARTICLE V
AGENT RELATIONSHIPS
V.1 Marketing Agreements. The parties acknowledge that,
as more fully described in the Indemnity Agreement, ATL is
assuming the obligation to pay all commissions, fees, overrides,
allowances or other amounts due solicitors, brokers, marketing
managers, managing general agents, producers, general agents,
agents or the like, on account of premiums collected on or after
the Effective Date due pursuant to the terms of the Marketing
Agreements. In the event of a breach of the Marketing
Agreements, ATL may enforce such Marketing Agreements in
Transport's name and Transport shall cooperate (at ATL's expense)
with ATL in such enforcement.
V.2 ATL Non-Solicitation of Agents. Unless the Agent
signatory to the appropriate Marketing Agreement otherwise
agrees, ATL will not, directly or indirectly, and will not permit
any Affiliate to (i) use any list of names and/or addresses
obtained by it pursuant to this Agreement (or otherwise obtained
by it from Transport in connection herewith) to knowingly and
systematically recruit into its own business the agents who
solicited applications for the Policies, or (ii) furnish such
list for such purpose to any third party. It is understood,
however, that ATL may already be in possession of, or may
independently come into the possession of, the identity of
certain of said agents and is not restricted from recruiting any
of such agents to the extent that it can reasonably be shown that
ATL had such information prior to the Effective Date or obtained
such information from an independent source.
V.3 Transport Non-Solicitation of Agents. Transport will
not, directly or indirectly, and will not permit any Affiliate to
(i) knowingly and systematically use any list of names obtained
in the course of its administration of the Policies to recruit
into its own business the Markman Agents or ATL agents who
solicit applications for long term care, home health care,
convalescent care and nursing home care lines of business, or
(ii) furnish such list for such purpose to any third party.
V.4 Replacement of Policies. Without the consent of the
applicable Agents, ATL will not, directly or indirectly, and will
not permit any Affiliate to, use any list of names and/or
addresses obtained by ATL pursuant to this Umbrella Agreement to
knowingly and systematically induce Policyholders to replace
Policies.
V.5 Transport Replacement of Policies. Transport will
not, directly or indirectly, and will not permit any Affiliate
to, knowingly and systematically use any list of names obtained
in the course of its administration of the Policies to induce
Policyholders to replace Policies with policies issued by
Transport or for any other commercial purpose.
V.6 Appointment of New Marketing General Agency. Until
after the second anniversary of the Closing Date, Transport will
not permit agents assigned to any new marketing general agency
directly contracted by Transport (but not its successors by
merger or otherwise) after the Closing Date to market long-term
care, home health care, convalescent care and nursing home care
lines of business.
ARTICLE VI
TRANSPORT'S REPRESENTATIONS AND WARRANTIES
Transport represents and warrants to ATL that (which
representations and warranties shall survive until the third
anniversary of the Closing Date):
VI.1 Organization. Transport is a life insurance company
duly organized and validly existing under the laws of the State
of Texas.
VI.2 Encumbrances. On the Closing Date, Transport's
retained interest in the Policies is free and clear of
restrictions on, or conditions to, transfer or assignment, and
free and clear of mortgages, liens, security interests, pledges,
or encumbrances, except, in any such case, for (i) those
disclosed on Schedule 6.2 hereto and (ii) the Marketing
Agreements.
VI.3 Absence of Changes. Since September 30, 1995, there
has not been any sale or other disposition of the Policies.
VI.4 Litigation. Except as set forth on Schedule 6.4
hereto, no litigation or proceedings, legal, equitable,
administrative, through arbitration, or otherwise, are pending
or, to the Best of Transport's Knowledge, threatened which might
affect the Policies or the consummation of the transactions
contemplated by the Documents. There is no judgment, order,
injunction or decree of any court, governmental authority or
regulatory agency to which Transport (or any of its Affiliates)
is subject relating to the transactions contemplated by the
Documents.
VI.5 Compliance with Law. Except as set forth on
Schedule 5.1 of the Indemnity Agreement or as otherwise disclosed
by Transport to ATL, to the Best of Transports' Knowledge,
Transport has complied in all material respects with each, and is
not in violation of any law, ordinance or governmental rule or
regulation to which the Policies are subject.
VI.6 Governmental Authorities. Except for any filings,
recordings, reports, notices or disclosures required by
applicable laws in connection with the Assumption Agreement,
Assumption Reinsurance Undertaking or the Indemnity Agreement,
notice and consent of the agencies who have issued any permit or
license listed on Schedule 6.6 hereto, any filing required under
the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 and the
regulations promulgated thereunder, to the Best of Transport's
Knowledge, Transport is not required to submit any notice,
report, disclosure or other filing with any governmental or
regulatory authority in connection with its execution or delivery
of the Documents to which it is a party, or the consummation of
the transactions contemplated thereby. To the Best of
Transport's Knowledge, no other consent, approval or
authorization of any governmental or regulatory authority is
required to be obtained by Transport in connection with its
execution, delivery and performance of the Documents to which it
is a party or the consummation of the transactions contemplated
thereby, other than the Assumption Reinsurance Undertaking.
VI.7 Validity. The Documents to which Transport is a party
have been duly executed and delivered by Transport and such
Documents constitute the legal, valid and binding obligations of
Transport, enforceable against it in accordance with their
respective terms. Subject to obtaining at or before the Closing
Date the consents of the parties referenced in Section 6.6
hereto, the execution and delivery of the Documents to which
Transport is a party and the consummation of the transactions
contemplated thereby and the performance by Transport of its
obligations thereunder (a) will not result in the creation or
imposition of any lien, charge or encumbrance of any kind on the
Policies, (b) are not prohibited by, do not violate or conflict
with any provision of, and do not result in default under or a
breach of, (i) Transport's organizational documents, (ii) any
material financing agreements to which Transport is a party,
(iii) any regulation, order, decree, injunction or judgment of
any court or other governmental authority or agency to which
Transport and the Policies are subject, or (iv) to the Best of
Transport's Knowledge, any law, rule or ordinance applicable to
Transport and to which the Policies are subject.
VI.8 Authority. The execution, delivery and performance of
the Documents to which Transport is a party have been duly
authorized by its board of directors and its sole stockholder.
VI.9 Broker Fees. Transport has not retained or incurred
any obligations for any investment banker, broker or finder in
connection with the Documents to which it is a party.
VI.10 Reinsurance. Except as set forth in Schedule 6.10
hereto, the Policies are not subject to any reinsurance
arrangement.
VI.11 Marketing Agreements. On the Closing Date, to the
Best of Transports' knowledge, Transport is not in violation of
any material provision of the Marketing Agreements.
ARTICLE VII
ATL'S REPRESENTATIONS AND WARRANTIES
ATL represents and warrants to Transport that (which
representations and warranties shall survive until the third
anniversary of the Closing Date):
VII.1Organization. ATL is a life insurance company duly
organized and validly existing under the laws of the Commonwealth
of Pennsylvania.
VII.2Financial Statements. ATL has delivered to Transport
true and complete copies of (i) its most recent audited financial
statements and (ii) its most recent unaudited financial
statements, all of which have been prepared in conformity with
accounting practices prescribed or permitted by the Pennsylvania
Department of Insurance.
VII.3Absence of Changes. Since September 30, 1995 there
has not been any material adverse change in the business,
operations, assets or condition (financial or otherwise) of ATL.
VII.4Litigation. Except as set forth on Schedule 7.4
hereto, no litigation or proceedings, legal, equitable,
administrative, through arbitration, or otherwise, are pending
or, to the Best of ATL'S Knowledge, threatened which might have a
material adverse effect on the financial condition and results of
operations and cash flows of ATL or the consummation of the
transactions contemplated by the Documents. There is no
judgment, order, injunction or decree of any court, governmental
authority or regulatory agency to which ATL (or any of its
Affiliates) is subject relating to the transactions contemplated
by the Documents.
VII.5Compliance with Law. Except as set forth in Schedule
7.5 hereto, to the Best of ATL's knowledge, ATL has complied in
all material respects with each, and is not in violation of any
law, ordinance or governmental rule or regulation applicable to
it, or the consummation of the transactions contemplated by the
Documents. Except as set forth on Schedule 7.5 hereto, ATL has
not failed to obtain any license, permit, certificate or other
governmental authorization necessary to permit ATL to obtain
Transport's retained interest in the Policies or otherwise to
consummate the transactions contemplated by the Documents.
VII.6Governmental Authorities. Except for any filings,
recordings, reports, notices or disclosures required by
applicable laws in connection with the Assumption Reinsurance
Undertaking, Assumption Agreement and the Indemnity Agreement,
notice and consent of the agencies who have issued any permit or
license listed in Schedule 7.6 hereto, or any filing required
under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976
and the regulations promulgated thereunder, to the Best of ATL's
Knowledge, ATL is not required to submit any notice, report,
disclosure or other filing with any governmental or regulatory
authority in connection with its execution or delivery of the
Documents to which it is a party, or the consummation of the
transactions contemplated thereby. To the Best of ATL's
Knowledge, no other consent, approval or authorization of any
governmental or regulatory authority is required to be obtained
by ATL in connection with its execution, delivery and performance
of the Documents to which it is a party or the consummation of
the transactions contemplated thereby, other than the Assumption
Reinsurance Undertaking.
VII.7Required Filings. ATL has made all notifications,
registrations and filings required of it in accordance with all
applicable laws, including the use of forms provided by state or
local agencies, where such forms exist, whether to Transport or
to or with the state or local agency, and where notification,
registration or filing was made to or with a state or local
agency, a copy of such notification, registration, or filing has
been provided to Transport.
VII.8Broker Fees. Except for the brokerage relationship
previously disclosed to Transport and which brokerage obligation
shall in no event be a cost or expense of Transport, ATL has not
retained or incurred any obligation for any investment banker,
broker or finder in connection with the Documents to which it is
a party.
VII.9ATL's Due Diligence. ATL acknowledges that it has
been given full and complete access to the books and records of
Transport related to the Policies and has conducted a thorough
investigation of the Policies, including, but not limited to, the
conducting of marketing studies and the review of all such
financial documentation as it deems necessary, and that it does
not require any further investigation or due diligence in
connection with the transactions contemplated by the Documents.
VII.10 Validity. The Documents to which ATL is a party
have been duly executed and delivered by ATL and such Documents
constitute the legal, valid and binding obligation of ATL,
enforceable against it in accordance with their respective terms.
Subject to obtaining at or before the Closing Date of the
consents of the parties referred to in Paragraph 7.6 hereof, the
execution and delivery of the Documents to which ATL is a party
and the consummation of the transactions contemplated thereby and
the performance by ATL of its obligations thereunder (a) will not
result in the creation or imposition of any lien, charge or
encumbrance of any kind on ATL or the acceleration of any
indebtedness or other obligation of ATL, and (b) are not
prohibited by, do not violate or conflict with any provision of,
and do not result in default under or a breach of (i) the
articles of incorporation or bylaws of ATL, (ii) any material
contract, agreement or other instrument to which ATL is a party,
(iii) any regulation, order, decree, injunction or judgment of
any court or other governmental authority or agency by which ATL
is bound, or (iv) to the Best of ATL's Knowledge, any law, rule
or ordinance applicable to ATL.
VII.11 Authority. The execution and delivery of the
Documents to which ATL is a party have been duly authorized by
its board of directors and sole stockholder.
ARTICLE VIII
ATL COVENANTS
From the Closing Date and thereafter until the first date on
which the Obligation Amount shall fall below $10,000,000, ATL
agrees that, unless Transport shall otherwise consent, it shall
comply with the covenants set forth in this Article VIII.
VIII.1 Financial Statements and Other Reports. Furnish
to Transport:
(a) Annual Audit Report. Within one hundred twenty
(120) days after each fiscal year of ATL, a copy of the
annual audit report of ATL and its subsidiaries prepared in
conformity with accounting practices prescribed or permitted
by the Pennsylvania Department of Insurance and certified by
an independent certified public accountant; and
(b) Quarterly Financial Statement. Within sixty (60)
days after each fiscal quarter (except the last fiscal
quarter) of each fiscal year of ATL, a copy of the unaudited
financial statement of ATL and its subsidiaries prepared in
the same manner as the audit report referred to in the
preceding clause (a), and consisting of at least a balance
sheet as at the close of such fiscal quarter and statements
of earnings for such fiscal quarter and for the period from
the beginning of such fiscal year to the close of such
fiscal quarter.
VIII.2 Required Notices To Transport. Notify Transport
in writing of any of the following immediately upon learning of
the occurrence thereof, describing the same and, if applicable,
the steps being taken with respect thereto:
(a) Litigation. The institution by or against ATL of
any litigation, arbitration proceeding or governmental
proceeding which is material and adverse to ATL;
(b) Judgment. The entry of any final non-appealable
judgment against ATL if the aggregate amount of all such
judgments then outstanding against ATL exceeds $5,000,000;
or
(c) Material Adverse Change. The occurrence of a
material adverse change in the business, operations,
prospects or financial condition of ATL.
VIII.3 Existence. Maintain and preserve its existence
as a stock life insurance company, and all rights, privileges,
licenses, franchises and other authority to the extent material
and necessary for the conduct of its business in the ordinary
course as conducted from time to time.
VIII.4 Taxes. Pay, and cause each subsidiary to pay,
when due, all of its taxes, unless and only to the extent that
ATL or such subsidiary, as the case may be, is contesting such
taxes in good faith and by appropriate proceedings and ATL or
such subsidiary has set aside on its books such reserves or other
appropriate provisions therefor as may be required by GAAP.
VIII.5 Compliance. Comply in all material respects, and
cause each subsidiary to so comply, with all material statutes
and governmental rules and regulations applicable to it.
VIII.6 Access. Provide Transport and its authorized
representatives full access during normal business hours to
inspect all properties, books, agreements, contracts, commitments
and records of ATL relating to the matters which are the subject
of the Documents, furnishing copies, at Transport's expense, of
all such information in respect thereto as Transport may
reasonably request, which information Transport agrees not to
disclose or use except as contemplated by the provisions of the
Documents.
ARTICLE IX
CONDITIONS PRECEDENT TO ATL'S PERFORMANCE
IX.1 Conditions. The obligations of ATL under the
Documents are subject to the satisfaction, at or before the
Closing Date, of all the conditions set out below in this
Article IX:
(a) Accuracy of Representations. All representations
and warranties of Transport in the Documents (other than the
Assumption Agreement) shall be true in all material respects
on and as of the Closing Date as though made at that time
and Transport shall have delivered updated Schedule(s), if
any, reflecting any changes required to be disclosed since
the previous Schedule(s) delivered to ATL, and no such
change shall be materially adverse to ATL's interests
herein.
(b) Performance of Transport. Transport shall have
executed, performed, satisfied, and complied with all
covenants, agreements, and conditions required by the
Documents (other than the Assumption Agreement) to be
performed or complied with by it on or before the Closing
Date.
(c) Hart-Scott-Rodino. Transport shall have fully
complied with the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976 ("Hart-Scott-Rodino"), and the regulations
promulgated pursuant thereto, and the requisite waiting
period and any extension thereof shall have expired.
(d) Delivery of Documents. Transport shall have
delivered the instruments and documents set forth in
Paragraphs 11.1(a) and 11.2.
(e) Absence of Litigation. (i) Except as set forth
herein or in the Schedules, no action, suit or proceeding
before any court or any governmental body or authority,
shall be pending or to the knowledge of ATL threatened with
respect to Transport which upon an adverse judgment (A)
would have a materially adverse effect on the Policies,
other than any such litigation, arbitration, claim,
governmental, administrative or other proceeding or
investigation listed on the Schedules hereto or (B) which
would prohibit or have a material adverse affect on the
ability of Transport to consummate the transactions
contemplated by the Documents.
(ii) No order, statute, rule, regulation, executive
order, injunction, stay, decree or restraining order shall
have been enacted, entered, promulgated or enforced by or
before any Federal or state or local United States court or
governmental or regulatory authority or instrumentality
which materially prohibits or materially restricts the
consummation of any of the transactions contemplated by the
Documents.
(iii) All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration
of waiting periods imposed by, any Federal or state or local
United States court, administrative agency or commission or
other governmental authority or instrumentality necessary to
consummate any of the transactions contemplated by the
Documents (other than the Assumption Agreement) shall have
been filed, have occurred or have been obtained, as the case
may be.
(f) Corporate Approval. The execution and delivery
of the Documents by Transport, and the performance of its
covenants and obligations thereunder, shall have been duly
authorized by its Board of Directors and its sole
stockholder.
(g) Consents. Except as otherwise provided herein or
in the Schedules, all necessary agreements and consents of
any third parties to the consummation of the transactions
contemplated by the Documents (other than the Assumption
Agreement) to have been obtained by Transport shall have
been obtained by Transport and delivered to ATL.
IX.2 Waiver. Notwithstanding anything to the contrary
herein, ATL may waive any or all of the above conditions in whole
or in part without prior notice; provided, however, that no such
waiver of a condition shall constitute a waiver by ATL of any of
its other rights or remedies, at law or in equity, if Transport
shall at the time of the waiver be in default of any of its
representations, warranties, or covenants under the Documents
(other than the Assumption Agreement).
IX.3 Failure of Conditions. In the event that any of the
conditions set forth in this Article IX shall not have been
fulfilled as of the Closing Date, and in the further event that
ATL shall not have elected to waive such condition and consummate
this transaction notwithstanding such non-fulfillment, ATL may at
its sole option elect to cancel this Agreement by written notice
to Transport, provided that such election shall not be deemed to
terminate any claims or causes of action in law or equity which
ATL may otherwise have against Transport by virtue of
misrepresentations or breaches of the obligations of Transport in
the Documents (other than the Assumption Agreement).
ARTICLE X
CONDITIONS PRECEDENT TO TRANSPORT'S PERFORMANCE
X.1 Conditions. The obligations of Transport under the
Documents are subject to the satisfaction, at or before the
Closing Date, of all the conditions set out below in this Article
X.
(a) Accuracy of Representations. All representations
and warranties of ATL contained in the Documents (other than
the Assumption Agreement) shall be true in all material
respects on and as of the Closing Date as though made at
that time and ATL shall have delivered updated Schedule(s),
if any, reflecting any changes required to be disclosed
since the previous Schedule(s) delivered to Transport,and no
such change shall be materially adverse to ATL's interests
herein.
(b) Performance of ATL. ATL shall have executed,
performed, satisfied and complied with all covenants,
agreements and conditions required by the Documents (other
than the Assumption Agreement) to be performed or complied
with by it on or before the Closing Date.
(c) Hart-Scott-Rodino. ATL shall have fully complied
with Hart-Scott-Rodino and the regulations promulgated
pursuant thereto, and the requisite waiting period and any
extension thereof shall have expired.
(d) Delivery of Documents. ATL shall have delivered
the instruments and documents set forth in Paragraphs
11.1(a) and 11.3.
(e) Absence of Litigation. (i) Except as set forth
herein or in the Schedules, no action, suit or proceeding
before any court or any governmental body or authority,
shall be pending or to the knowledge of Transport threatened
with respect to ATL which upon an adverse judgment (A) would
have a materially adverse effect on the business,
operations, assets or condition (financial or otherwise) of
ATL, other than any such litigation, arbitration, claim,
governmental, administrative or other proceeding or
investigation listed on the Schedules hereto or (B) which
would prohibit or have a material adverse affect on the
ability of ATL to consummate the transactions contemplated
by the Documents.
(ii) No order, statute, rule, regulation, executive
order, injunction, stay, decree or restraining order shall
have been enacted, entered, promulgated or enforced by or
before any Federal or state or local United States court or
governmental or regulatory authority or instrumentality
which materially prohibits or materially restricts the
consummation of any of the transactions contemplated by the
Documents.
(iii) All authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration
of waiting periods imposed by, any Federal or state or local
United States court, administrative agency or commission or
other governmental authority or instrumentality necessary to
consummate any of the transactions contemplated by the
Documents (other than the Assumption Agreement) shall have
been filed, have occurred or have been obtained, as the case
may be.
(f) Corporate Approval. The execution and delivery
of the Documents by ATL, and the performance of its
covenants and obligations thereunder, shall have been duly
authorized by its Board of Directors and its sole
stockholder.
(g) Consents. Except as otherwise
provided herein or in the Schedules, all necessary
agreements and consents of any third parties to the
consummation of the transactions contemplated by the
Documents (other than the Assumption Agreement) to have been
obtained by ATL shall have been obtained by ATL and
delivered to Transport.
X.2 Waiver. Notwithstanding anything to the contrary
herein, Transport may waive any or all of the above conditions in
whole or in part without prior notice; provided, however, that no
such waiver of a condition shall constitute a waiver by Transport
of any of its other rights or remedies, at law or in equity, if
ATL shall at the time of the waiver be in default of any of its
representations, warranties, or covenants under the Documents
(other than the Assumption Agreement).
X.3 Failure of Conditions. In the event that any of the
conditions set forth in this Article X shall not have been
fulfilled as of the Closing Date, and in the further event that
Transport shall not have elected to waive such condition and
consummate this transaction notwithstanding such non-fulfillment,
Transport may at its sole option elect to cancel this Agreement
by written notice to ATL, provided that such election shall not
be deemed to terminate any claims or causes of action Transport
may otherwise have against ATL by virtue of misrepresentations or
breaches of ATL's obligations in the Documents (other than the
Assumption Agreement).
ARTICLE XI
THE CLOSING
XI.1 Transport's and ATL's Obligations.
(a) Delivery of Documents. On the Closing Date, each
party shall execute and deliver, or shall cause the
execution and delivery by its Affiliates, as appropriate, of
the following Documents to which it (or any such Affiliate)
is party:
(i) the Guaranty;
(ii) the Trust Agreement;
(iii) the Indemnity Agreement;
(iv) the Assumption Agreement; and
(v) the Administration Services Sub-Agreement.
(b) Payments. On the Closing Date, each party shall
make the payments and other transfers applicable to it
described in Article III hereof.
XI.2 Transport's Obligations. On the Closing Date,
Transport shall deliver the following documents:
(a) Resolutions. A copy, duly certified by the
secretary or an assistant secretary of each of TLIC and
CLIC, of (i) resolutions of such entity's Board of Directors
authorizing or ratifying the execution and delivery of the
Documents and authorizing the performance of such entity's
obligations thereunder, (ii) all documents evidencing other
necessary corporate action, and (iii) all approvals or
consents, if any, with respect to the Documents.
(b) Shareholder Consent. A copy, duly certified by
the secretary or assistant secretary of each of TLIC and
CLIC, of the consent of its sole shareholder to the
execution and performance by it of this Umbrella Agreement
and the other Documents to which it is a party, and the
consummation of the transactions contemplated hereby and
thereby.
(c) Incumbency Certificate. A certificate of the
secretary or an assistant secretary of each of TLIC and CLIC
certifying the names of such entity's officers authorized to
sign the Documents and all other documents or certificates
to be delivered thereunder, together with the true
signatures of such officers.
XI.3 ATL'S Obligations. On the Closing Date, ATL shall
deliver or cause to be delivered the following documents:
(a) Resolutions. A copy, duly certified by the
secretary or an assistant secretary of ATL, of (i)
resolutions of ATL's Board of Directors authorizing or
ratifying the execution and delivery of the Documents and
authorizing the performance of its obligations thereunder,
(ii) all documents evidencing other necessary corporate
action, and (iii) all approvals or consents, if any, with
respect to the Documents.
(b) Shareholder Consent. A copy, duly certified by
the secretary or assistant secretary of ATL, of the consent
of ATL's sole shareholder to the execution and performance
by ATL of this Umbrella Agreement and the other Documents to
which ATL is a party, and the consummation of the
transactions contemplated hereby and thereby.
(c) Incumbency Certificate. A certificate of the
secretary or an assistant secretary of ATL certifying the
names of ATL officers authorized to sign the Documents and
all other documents or certificates to be delivered
thereunder, together with the true signatures of such
officers.
(d) Resolutions of Guarantor. A copy, duly certified
by the secretary or an assistant secretary of Guarantor, of
(i) resolutions of Guarantor's Board of Directors
authorizing or ratifying the execution and delivery of the
Guaranty and authorizing the performance of Guarantor's
obligations thereunder, (ii) all documents evidencing other
necessary corporate action, and (iii) all approvals or
consents, if any, with respect to the Guaranty.
(e) Incumbency Certificate of Guarantor. A
certificate of the secretary or an assistant secretary of
the Guarantor certifying the names of Guarantor's officers
authorized to sign the Guaranty and all other documents or
certificates to be delivered thereunder, together with the
true signatures of such officers.
XI.4 Location/Date. Subject to the performance of all of
the covenants and agreements of the parties to be performed, and
the fulfillment (or the waiver of the benefiting party) of all of
the conditions to be met at or as of the Closing Date, the
closing of this transaction shall take place not later than the
seventh day following the expiration or early termination of any
applicable waiting period under Hart-Scott-Rodino at 10:00 a.m.
at the offices of TLIC in Fort Worth, Texas or at such other
place and time as the parties may mutually agree. The closing
shall be effective as of 12:01 a.m. on such date (the "Closing
Date").
ARTICLE XII
ATL INDEMNIFICATION OF TRANSPORT
XII.1 Indemnification. ATL shall indemnify, defend and
hold harmless Transport (and its Affiliates and the past, present
and future officers, directors, shareholders, employees, lawyers,
representatives and agents of Transport and such Affiliates)
(collectively, the "Indemnified Parties") against any and all
losses, costs, damages (whether contractual or extra-contractual)
and expenses (including reasonable attorneys' fees and expenses)
incurred by the Indemnified Parties as a result of (i) ATL's
breach of any of its representations, warranties, covenants or
obligations under any of the Documents; (ii) any claim,
complaint, lawsuit or action brought by any person the
allegations of which, if true, would constitute a breach of ATL's
representations, warranties, covenants or obligations under any
of the Documents; (iii) any tort, violation of law or breach of
contract claim, regulatory action, or any other claim, arising
out of or relating to the Policies, including, without
limitation, the administration of the Policies, asserted before
or after the Effective Date; (iv) any claims and liabilities
arising out of or related to the Marketing Agreements, but only
to the extent related to the Policies, asserted after the
Effective Date (but exclusive of any such claims and liabilities
asserted by the Markman Company or its Affiliates with respect to
the transactions contemplated by the Documents); or (v) all
claims and liabilities associated with the Policies asserted
after the Effective Date (whether arising from facts and
circumstances manifested before, on, or after the Effective
Date); provided, however, that with respect to such regulatory
fines or penalties (including refunds of premium payments)
resulting from the actual or alleged misconduct of Transport or
its Agents occurring prior to the Effective Date, ATL and
Transport shall share such regulatory fines or penalties equally
up to a cumulative aggregate amount of $4,000,000 and all
regulatory fines or penalties over such amount shall be for the
account of Transport only.
ATL shall notify Transport within 10 days after ATL shall
become aware of any claim or potential claim for which Transport
is entitled or may be entitled to indemnification pursuant to
this Article XII.
XII.2 Claims; Assumption of Defense. As soon as is
reasonably practicable after becoming aware of a claim for
indemnification under this Agreement (including a claim or suit
by a third party), the Indemnified Party shall promptly give
written notice to ATL of such claim, which notice shall specify
in reasonable detail the facts relating to the claim. With
respect to claims arising in connection with suits, actions or
proceedings, ATL may, at its own expense, (a) participate in the
defense of such claim, suit, action or proceeding and (b) upon
notice to the Indemnified Party at any time during the course of
any such claim, suit, action or proceeding, assume the defense
thereof; provided, however, that ATL's counsel is reasonably
satisfactory to the Indemnified Party; provided, further, that
ATL shall have no right to participate in or assume the defense
of claims for regulatory fines or penalties resulting from the
actual or alleged misconduct of Transport or its Agents prior to
the Effective Date after the aggregate cumulative amount of all
such regulatory fines and penalties shall have exceeded
$4,000,000 in the aggregate. If ATL assumes such defense, the
Indemnified Party shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by ATL. Whether
or not ATL chooses to assume the defense of any such claim, suit,
action or proceeding, all of the parties hereto shall cooperate
in the defense or prosecution thereof. ATL shall be responsible
for, and bear the entire expense of, any settlement or compromise
made or caused to be made of any such claim, suit, action or
proceeding, provided, that ATL will give the Indemnified Party at
least 30 days' prior written notice of any proposed settlement or
compromise of any claim, suit, action or proceeding it is
defending, during which time such Indemnified Party may reject
such proposed settlement or compromise; provided further,
however, that from and after such rejection, the rejecting party
shall be obligated to assume the defense of, and assume full and
complete liability and responsibility for, such claim, suit,
action or proceeding and any and all losses, costs, damages and
expenses arising in connection therewith in excess of the amount
of losses, costs, damages and expenses which ATL would have been
obligated to pay under the proposed settlement or compromise.
ARTICLE XIII
TRANSPORT INDEMNIFICATION OF ATL
XIII.1 Indemnification. Transport shall indemnify,
defend and hold harmless ATL (and its Affiliates and the past,
present and future officers, directors, shareholders, employees,
lawyers, representatives and agents of ATL and such Affiliates)
(collectively, the "ATL Indemnified Parties") against any and all
losses, costs, damages (whether contractual or extra-contractual)
and expenses (including reasonable attorneys' fees and expenses)
incurred by the ATL Indemnified Parties as a result of (i)
Transport's breach of any of its representations or warranties
under any of the Documents and (ii) any claim, complaint, lawsuit
or action brought by any person the allegations of which, if
true, would constitute a breach of Transport's representations or
warranties under any of the Documents.
Transport shall notify ATL within 10 days after Transport
shall become aware of any claim or potential claim for which ATL
is entitled or may be entitled to indemnification pursuant to
this Article XIII.
XIII.2 Claims; Assumption of Defense. As soon as is
reasonably practicable after becoming aware of a claim for
indemnification under this Agreement (including a claim or suit
by a third party), the ATL Indemnified Party shall promptly give
written notice to Transport of such claim, which notice shall
specify in reasonable detail the facts relating to the claim.
With respect to claims arising in connection with suits, actions
or proceedings, Transport may, at its own expense, (a)
participate in the defense of such claim, suit, action or
proceeding and (b) upon notice to the ATL Indemnified Party at
any time during the course of any such claim, suit, action or
proceeding, assume the defense thereof; provided, however, that
Transport's counsel is reasonably satisfactory to the ATL
Indemnified Party. If Transport assumes such defense, the ATL
Indemnified Party shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by Transport.
Whether or not Transport chooses to assume the defense of any
such claim, suit, action or proceeding, all of the parties hereto
shall cooperate in the defense or prosecution thereof. Transport
shall be responsible for, and bear the entire expense of, any
settlement or compromise made or caused to be made of any such
claim, suit, action or proceeding, provided, that Transport will
give the ATL Indemnified Party at least 30 days' prior written
notice of any proposed settlement or compromise of any claim,
suit, action or proceeding it is defending, during which time
such ATL Indemnified Party may reject such proposed settlement or
compromise; provided further, however, that from and after such
rejection, the rejecting party shall be obligated to assume the
defense of, and assume full and complete liability and
responsibility for, such claim, suit, action or proceeding and
any and all losses, costs, damages and expenses arising in
connection therewith in excess of the amount of losses, costs,
damages and expenses which Transport would have been obligated to
pay under the proposed settlement or compromise.
ARTICLE XIV
DISPUTE RESOLUTION
XIV.1 Arbitration. As a precedent to any right of action
hereunder or under any of the Documents, if any differences shall
arise between Transport and ATL with reference to the
interpretation of, or the rights and obligations under, this
Umbrella Agreement or with reference to the interpretation of, or
the rights and obligations under, any of the other Documents
(except for the exceptions listed hereto and subject to the
Special Dispute Resolution Provisions of Article XV), whether
arising before or after termination of this Umbrella Agreement or
any of the other Documents, such differences shall be submitted
to arbitration upon the written request of either Transport or
ATL. For purposes of this Article XIV, TLIC and CLIC,
collectively "Transport," shall constitute one of the contracting
parties, and ATL shall constitute the other contracting party.
Transport and ATL shall each appoint an arbitrator within
thirty (30) days of being requested to do so by the other party,
and the two named shall select a third arbitrator before entering
upon the arbitration. If either Transport or ATL refuses or
neglects to appoint an arbitrator within the time specified, the
other party may appoint the second arbitrator. If the two
arbitrators fail to agree on a third arbitrator within thirty
(30) days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the choice
shall be made by drawing lots. All arbitrators shall be
disinterested in the dispute and neutral and impartial with
respect to the dispute and the parties. All arbitrators shall be
active or retired executive officers of insurance or reinsurance
companies or Underwriters at Lloyd's London, not under the
control of either Transport or ATL or otherwise associated with
Affiliates of either Transport or ATL.
Transport and ATL shall each submit its case to its
arbitrator within thirty (30) days of the appointment of the
third arbitrator or within such period as may be agreed by the
arbitrators. All arbitrators shall interpret the Documents as an
honorable engagement rather than as merely a legal obligation.
They are relieved of all judicial formalities and may abstain
from following the strict rules of law. They shall make their
award with a view to effecting the general purpose of the
agreements in a reasonable manner rather than in accordance with
a literal interpretation of the language.
The decision in writing of any two arbitrators, when filed
with the contracting parties, shall be final and binding on both
parties. Judgment upon the award rendered may be entered in any
court having jurisdiction thereof. Each party shall pay the fee
and expenses of its own arbitrator and one-half of the fee and
expenses of the third arbitrator. All other expenses of the
arbitration shall be equally divided between the parties. Any
arbitration shall take place in Fort Worth, Texas unless some
other place is mutually agreed upon by the contracting parties.
This Article XIV shall not apply to:
(1) Any dispute relating to any determination of the
Obligation Amount and/or Minimum Account Requirement pursuant to
Article III of this Umbrella Agreement and Section 3.5 of the
Trust Agreement; or
(2) Any dispute between the Trustee (as defined in the
Trust Agreement) and any party to the Trust Agreement.
XIV.2Preliminary Relief. Nothing in the provisions of
Paragraph 14.1 shall be deemed to prevent either party from
seeking emergency equitable relief from a court of law, whether
in the form of a temporary restraining order, preliminary
injunction, or otherwise, to the extent, and only to the extent,
that such party (a) meets the legal requirements for equitable
relief and (b) it is impracticable under the circumstances for
such party to obtain timely and adequate relief in arbitration.
Any court hearing a matter for emergency equitable relief under
the provisions of this Paragraph 14.2 shall, to the extent
consistent with the moving party's need to obtain emergency
equitable relief, defer to the jurisdiction of an arbitration
panel as provided in Paragraph 14.1 hereof.
ARTICLE XV
SPECIAL DISPUTE RESOLUTION PROVISIONS
XV.1 Obligation Amount Calculation Disputes. Any dispute
or difference arising between the parties to this Umbrella
Agreement and the Trust Agreement relating to any determination
of the Obligation Amount and/or Minimum Account Requirement
pursuant to Article III of this Umbrella Agreement (at any time
specified therein), whether arising before or after termination
of such Agreements or any of the Documents, shall be submitted to
arbitration in accordance with the following procedures:
(a) The parties hereby appoint M & R (as defined in
Paragraph 3.6(b)(ii)(B)) to make an independent determination of
the Obligation Amount and Minimum Account Requirement set forth
in Paragraph 3.6 of this Umbrella Agreement, provided however
that the amount so determined shall not exceed the largest amount
of the Obligation Amount and/or the Minimum Account Requirement
determinations proposed by the parties nor shall the amount so
determined be less than the smallest amount of the Obligation
Amount and/or the Minimum Account Requirement determinations
proposed by the parties. The parties agree that such
determination shall be final and conclusive, absent manifest
error. Any such determination shall not relieve the parties from
the obligations of Paragraph 3.6 of this Umbrella Agreement and
Section 3.5 of the Trust Agreement relating to any subsequent
determination of the Obligation Amount and Minimum Account
Requirement, except that the Obligation Amount and Minimum
Account Requirement for any time period specified that is
determined pursuant to this Special Dispute Resolution Provision
shall be final and conclusive for all purposes. The decision in
writing of the M & R representative, or the successor thereof,
when delivered to the contracting parties, shall be final and
binding on both parties. Judgment upon the award rendered may be
entered in any court having jurisdiction thereof. The fees and
expenses of M & R or the successor thereof, shall be equally
divided between the parties.
(b) In the event that M & R refuses or is unable to
act in accordance with this Article XV, a nationally recognized
independent actuarial consulting firm mutually acceptable to ATL
and Transport shall be appointed by the parties to carry out the
function set forth in Paragraph (1) of this Paragraph 15.1. If
the parties are unable to agree on the appointment of an
independent actuarial consulting firm, such appointment shall be
made by the President of the American Academy of Actuaries,
having its principal place of business in Washington, D.C.
XV.2 Trustee Disputes. Any dispute or difference arising
between the Trustee, as defined in the Trust Agreement, and ATL
and/or Transport with reference to the interpretation of the
Trust Agreement or any of the other Documents, whether arising
before or after termination of such Trust Agreement or any of the
other Documents, shall be resolved pursuant to and in accordance
with Article 17 of the Trust Agreement.
ARTICLE XVI
MISCELLANEOUS
XVI.1Further Assurances. Transport and ATL agree that
after the Closing Date, each will from time to time, upon the
reasonable request of the other and without further
consideration, execute, acknowledge and deliver in proper form
any further instruments of transfer and assignment and take such
other action as either party may reasonably require in order to
more effectively carry out the purposes and otherwise comply with
the true intent of the Documents.
XVI.2Exclusive Remedy; Specific Performance. Each party's
obligations under the Documents are unique. If any party should
default in its obligations under the Documents, or if any other
dispute or claim should arise in connection with this Agreement,
the parties each acknowledge that the other party's exclusive
remedies are set forth in Articles XIV and XV hereof.
XVI.3 Costs. If any legal action or other proceeding is
brought between the parties to the Documents for the enforcement
of the Documents, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the
provisions of the Documents, the successful or prevailing party
or parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding, in
addition to any other relief to which it or they may be entitled.
This Paragraph 16.3 shall not apply to a determination pursuant
to the provisions of Paragraph 15.1, nor shall it apply to the
fees and expenses of the arbitrators incurred pursuant to the
provisions of Article XIV.
XVI.4 Entire Agreement. The Documents (including the
Schedules and Exhibits attached thereto) contain the entire
agreement between the parties with respect to the transactions
contemplated thereby and supersede all written or verbal
negotiations, representations, warranties, commitments or other
understandings, including, but not limited to, the Letter of
Intent between Transport and ATL dated October 25, 1995, prior to
the date hereof between Transport and ATL.
XVI.5 Termination for Default. If either Transport or ATL
materially defaults in the due and timely performance of any of
its warranties, covenants, or agreements under any Document to
which it is a party prior to the Closing Date, the nondefaulting
party may give notice of termination of this Agreement, in the
manner provided in Paragraph 16.9 hereof. The notice shall
specify with particularity the default or defaults on which the
notice is based. The termination shall be effective ten (10)
days after the giving of notice, unless the specific default or
defaults have been cured on or before the effective date for
termination. In no event, however, shall any termination under
this paragraph of this Agreement be deemed a waiver by the non-
defaulting party of any claim, action or proceeding against the
defaulting party.
XVI.6Recapture. (a) Upon the occurrence of a Service
Termination Event (hereinafter defined), Transport, by giving
written notice to ATL, may terminate all or any part of the
rights and powers of ATL under (i) Article IV (other than
Paragraph 4.3 and the payment obligations of ATL under Paragraph
4.4) of the Indemnity Agreement and all ancillary provisions
relating to Administration Services (as defined in the Indemnity
Agreement) (such Paragraphs of Article IV and all ancillary
provisions of the Indemnity Agreement are hereinafter
collectively referred to as the "Indemnity Administration
Services Provisions") and (ii) under Article III (other than the
payment obligations of ATL under Paragraph 4.3) of the Assumption
Agreement and all ancillary provisions relating to Administration
Services (as defined in the Assumption Agreement (such Paragraph
of Article III and all ancillary provisions of the Assumption
Agreement are hereinafter collectively referred to us the
"Assumption Administration Services Provisions; together with the
Indemnity Administration Services Provisions, collectively the
"Administration Services Provisions").
Upon Transport's notice to ATL of the occurrence of a
Service Termination Event and Transport's exercise of its rights
hereunder, all or a portion, as applicable, of the rights,
powers, duties and responsibilities of ATL under the
Administration Services Provisions shall revert to and be assumed
by TLIC and TLIC is hereby irrevocably authorized and empowered
to execute and deliver, on behalf of ATL, as attorney-in-fact or
otherwise, all documents and other instruments (including any
notices to Policyholders deemed necessary or advisable by
Transport), and to do or accomplish all other acts or things
necessary or appropriate to effect such reversion and assumption,
including, without limitation, (A) directing the Policyholders to
remit Premiums and all other payments in respect of the Policies
and directing the Trustee to make all payments required under the
Trust Agreement to an account or address designated by Transport
and (B) removing from ATL all of Transport's books, records and
other property delivered pursuant to Paragraph 4.3(b) hereof or
any similar provision contained in the Documents or otherwise in
the possession of ATL related to the Policies. Upon the
reversion to and assumption by TLIC of the Administration
Services Provisions pursuant to this Paragraph 16.6, TLIC shall
perform all Administrative Services with respect to the Policies
as described in Paragraph 4.2 of each of the Indemnity Agreement
and Assumption Agreement. So long as TLIC is acting as the
servicer pursuant to this Paragraph, ATL shall pay to Transport
an expense allowance on a monthly basis equal to the greater of
(i) 7% of Collected Premium or (ii) 7% of Paid Claims (as such
terms are defined in the Administrative Services Sub-Agreement).
Transport shall keep account of all receipts and expenses in the
course of such administration and any net surplus amounts, at
such time as Transport in its sole discretion shall determine,
shall be paid to ATL.
Notwithstanding the termination of the ATL's rights and
powers under the Administration Services Provisions, ATL shall
remain obligated to perform the obligations contained in the
Indemnity Agreement, Assumption Agreement and the other Documents
not relating to the Administration Services Provisions.
(b) No Effect on ATL. Upon any termination of the
rights and powers of ATL from time to time pursuant to Paragraph
16.6 hereof, all the rights, powers, duties and obligations of
ATL under the Umbrella Agreement or under the other Documents
shall be unaffected by such termination and shall remain in full
force and effect thereafter.
(c) Service Termination Events. Any of the following
acts or occurrences shall constitute a Service Termination Event
under this Paragraph 16.6:
(i) ATL shall have failed to deposit or cause to be
deposited any amounts required to be deposited from time to
time in the Trust Account, pursuant to the Trust Agreement;
or
(ii) ATL shall default in the due performance and
observance of any material Administration Services Provision
and such default shall have continued for a period of
30 days after written notice thereof shall have been given
to ATL by Transport; or
(iii) The entry of a decree or order for relief by a
court or regulatory authority having jurisdiction in respect
of ATL or the Guarantor in an involuntary case under any
Federal bankruptcy laws, as now or hereafter in effect, or
under present or future, Federal or state, bankruptcy,
insolvency, or similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or
other similar official of ATL or the Guarantor or of any
substantial part of its property, or ordering the winding up
or liquidation of the affairs of ATL or the Guarantor and
the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(iv) ATL or the Guarantor shall have commenced a
voluntary case under any Federal bankruptcy laws, as now or
hereafter in effect, or any other present or future, Federal
or state, bankruptcy, insolvency or similar law, or the
consent by ATL or the Guarantor to the appointment of or
taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official
of ATL or the Guarantor or of any substantial part of its
property or the making by ATL or the Guarantor of an
assignment for the benefit of creditors or the failure by
ATL or the Guarantor generally to pay its debts as such
debts become due or the taking of corporate action by ATL or
the Guarantor in furtherance of any of the foregoing; or
(v) Any representation, warranty or statement of ATL
made in this Agreement or any other Document to which it is
a party or by which it is bound or any certificate, report
or other writing delivered pursuant hereto or thereto shall
prove to be incorrect in any material respect as of the time
when the same shall have been made and, within 30 days after
written notice thereof shall have been given to ATL by
Transport, the circumstance or condition in respect of which
such representation, warranty or statement was incorrect
shall not have been eliminated or otherwise cured.
XVI.7 Governing Law. This Agreement shall be subject to
and governed by the laws of the State of Texas, without regard to
conflicts of law principles.
XVI.8 Binding Agreement. ATL may not assign any of its
rights or obligations under any Document to which it is a party
without the prior written consent of Transport (which consent
shall not be unreasonably withheld), except as otherwise
expressly provided in the Documents. Transport may assign any of
its rights or obligations under the Documents; provided, however,
that Transport may not assign any of its rights or obligations
under the Administration Services Sub-Agreement without the prior
written consent of ATL. Subject to the foregoing, the Documents
shall be binding upon the parties and their respective permitted
successors and assigns and shall inure to the benefit of their
respective permitted successors and assigns.
XVI.9 Severability. If any provision of any Document is
declared or found by a court of competent jurisdiction to be
prohibited by or invalid under applicable law, then all parties
thereto shall be relieved of their respective obligations arising
under such provision to the extent of such prohibition or
invalidity without invalidating the remainder of such provision,
the remaining provisions of such Document and the other
Documents, and the remainder of such provision, the remaining
provisions of such Document and the other Documents shall be
interpreted so as to conform to the original intent of this
Agreement.
XVI.10 Waiver. No waiver of any provision of any Document
shall be effective unless it is in writing, and then only to the
extent specifically stated. Unless otherwise specifically stated
in the written waiver, no such waiver shall be construed as a
waiver of any continuing or succeeding breach of such provision,
a waiver or modification of the provision itself, or a waiver or
modification of any right under such Document.
XVI.11 Notices. All notices, requests, demands,
statements, acknowledgments and other communications provided for
in the Documents shall be in writing and shall be deemed given or
received (a) upon confirmation of receipt thereof, if transmitted
by facsimile or sent by overnight or same-day courier; or (b)
three (3) Business Days after mailing thereof, if mailed by
United States mail, certified mail, return receipt requested, in
either case to the following address of the respective addressee:
In the case of ATL:
American Travellers Life Insurance Company
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: Chairman
Telephone No.: (215) 244-1600
Facsimile No.: (215) 244-7711
In the case of the Transport:
Transport Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
and
Continental Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
or to such other address as the addressee shall, pursuant to
notice given to each other party in accordance with this
Paragraph 16.11, specify.
Each party shall be furnished with a copy of every notice,
request, demand, statement, acknowledgment or other communication
addressed and forwarded to any other party.
XVI.12 Amendments. No amendment, modification or waiver
of, or consent with respect to, any provision of the Documents
(other than the Trust Agreement) shall in any event be effective
unless the same shall be in writing and signed and delivered by
the parties to this Umbrella Agreement.
XVI.13 Captions. The captions of the various sections of
the Documents are for convenience only and shall be accorded no
weight in the construction of the Documents.
XVI.14 Counterparts. Each Document may be executed in one
or more counterparts, each of which shall be an original but all
of which together shall constitute one and the same instrument.
XVI.15 Nonreliance. Each party hereto acknowledges and
agrees, and represents and warrants to each other party, that it
is represented by legal counsel of its choosing and that it has
consulted with such legal, financial, tax, accounting, insurance
and other advisors as it deems appropriate in its sole judgment
in connection with its execution and performance of this Umbrella
Agreement and the other Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby.
No party hereto is relying upon any advice given to it by any
other party to this Umbrella Agreement or the other Documents, or
any Affiliate of any such party, in connection with such party's
entering into and performing this Umbrella Agreement and the
other Documents to which it is a party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have caused this Agreement to be executed
and delivered as of the date first above written.
AMERICAN TRAVELLERS LIFE
INSURANCE COMPANY
Attest: /s/ T.J. Parry By: /s/ John A. Powell
Chairman/President
TRANSPORT LIFE INSURANCE
COMPANY
Attest: /s/ Gary Cole By: /s/ Garland M. Lasater, Jr.
Secretary President
CONTINENTAL LIFE INSURANCE
COMPANY
Attest: /s/ Gary Cole By: /s/ Garland M. Lasater, Jr.
Secretary President
SCHEDULE 1.14
LONG TERM CARE, HOME HEALTH CARE AND NURSING HOME FORMS
TRANSPORT LIFE CONTINENTAL LIFE
Individual Policies Individual Policies
10576 - Convalescent Care 10854 - Long Term Care
10669 - Convalescent Care 10990 - Long Term Care
10773 - Long Term Care 10991 - Home Health Care
10853 - Long Term Care 10992 - Nursing Home Policy
10855 - Long Term Care 10995 - Home Health Care
10860 - Long Term Care 11003 - Long Term Care
10886 - Home Health Care 11007 - Nursing Home Policy
10903 - Home Health Care
10904 - Long Term Care
10921 - Long Term Care
10922 - Home Health Care
10927 - Home Health Care
10955 - Long Term Care
10967 - Nursing Home Policy
11001 - Long Term Care
11006 - Nursing Home Policy
D)
Group Policies and
Certificates Thereunder Group
10618 - Convalescent Care None
10674 - Convalescent Care
10770 - Long Term Care
10840 - Home Health Care
10841 - Long Term Care
10869 - Home Health Care
10902 - Long Term Care
10918 - Home Health Care
10956 - Long Term Care
SCHEDULE 1.19
MARKETING AGREEMENTS
I.MARKMAN DOCUMENTS
A. TLIC Contracts
1. Trinsman Company Marketing Agreement (4-1-82)
2. Trinsman/Markman Merger Agreement (6-29-83)
3. Markman/Markman of Delaware Merger Agreement (1-26-88)
4. Markman Indemnity Agreement (1-1-89)
5. Markman Company (DE) Marketing Agreement (7-1-91)
Amendment #1 (Supply Allowance) (1-1-95)
Amendment #2* (TLC Joint Marketing Program) (5-1-95)
*executed by Markman International
6. Markman Company of Texas Marketing Agreement (7-1-91)
7. Michael W. Warren Marketing Agreement (7-1-91)
B. CLIC Contracts
1. Markman Company Marketing Agreement (DE) (7-1-91)
2. Markman Company of Texas Marketing Agreement (7-1-91)
3. Michael W. Warren Marketing Agreement (7-1-91)
C. Cross Liability Agreement (7-1-91)
(for all six (6) TLIC and CLIC Marketing Agreements
above)
D. "Assignment" Agreements
1. TLIC/Markman Company (DE) Markman International (5-
1-95)
2. TLIC/Markman Company of Texas Markman International
(5-1-95)
3. TLIC/Michael W. Warren Markman International (5-1-
95)
E. Cross Liability Agreement (5-1-95)
(for all six (6) TLIC and CLIC Marketing Agreements
whether liabilities incurred by Markman or Markman
International)
F. Estoppel Agreement (7-95)
TLIC, CLIC, Comerica Bank-Texas, Markman Company (DE),
Markman Company of Texas, Michael W. Warren
G. Separation Agreement (_________)
presently under negotiation
II.NTA Documents
A. TLIC Contracts
Agreement
Execution
Date
1. National Teacher Associates, Inc. (TX) 07/01/86
2. Bill J. Ellard dba National Teacher Associates 07/22/80
3. National Teacher Associates, Inc. (DE) Pending
4. National Teacher Associates of Alabama, Inc. 07/01/86
5. National Teacher Associates Inc. of Arizona 07/01/86
6. National Teacher Associates of Arkansas, Inc. 07/01/86
7. National Teacher Associates of California, Inc. 07/01/86
8. National Teacher Associates of California, Inc. 07/01/86
Teachers Associates Insurance Agency
9. National Teacher Associates of Florida, Inc. 08/01/87
10. National Teacher Associates of Louisiana, Inc. 07/01/86
11. National Teacher Associates of Mississippi, Ltd.08/01/84
12. National Teacher Associates of New Mexico, Inc. Pending
13. National Teacher Associates of North Carolina, Inc. Pending
14. National Teacher Associates Agency of Ohio, Inc. Pending
15. National Teacher Associates of Oklahoma, Inc. 07/01/86
16. National Teacher Associates of South Carolina, Inc. 07/01/86
17. National Teacher Associates of Tennessee, Inc. 08/01/87
18. National Teacher Associates of Texas, Inc. Pending
19. National Teacher Associates of Utah, Inc. 07/01/86
20. National Teacher Associates of West Virginia, Inc. Pending
21. Assignment of Commission by B.J. Ellard to 07/01/86
National Teacher Associates, Inc.
22. National Business Associates, Inc. 08/01/87
23. National Business Associates of Alabama, Inc. 08/01/87
24. Assignment of Commission by National Business Pending
Associates, Inc. And National Business Associates
of Alabama, Inc. to B.J. Ellard
B. CLIC Contracts
Agreement
Execution
Date
1. National Business Associates, Inc. (TX) 08/01/87
2. National Business Associates of Alabama 08/01/87
3. National Business Associates of California, Inc. Pending
dba Business Associates Insurance Agency
4. National Business Associates of Mississippi, Ltd. Pending
5. Bill J. Ellard dba National Teacher Associates 07/22/80
6. National Business Associates of Texas, Inc. Pending
III.TLC COMPANIES AND B. BURKE BARR DOCUMENTS
A. TLIC Contracts
1. B.B. Barr dba TLC Associates General Agent's Agreement
(including original commission supplement) (5/1/75)
2. B.B. Barr dba TLC Associates Agreement: Non-
Competition and Trade Secrets (5/1/75)
3. Amendment to General Agent's Agreement (11/1/75)
4. Amendment to General Agent's Agreement (12/31/78)
5. General Agent's Supplement (3/3/82)
6. General Agent's Supplement (10/1/82, sic.)
7. Assignment of General Agent's Agreement, Agreement:
Non-Competition and Trade Secrets, and Commission
Supplements to General Agent's Agreement from B.B. Barr dba
TLC Associates to TLC National Marketing Company (4/30/86)
8. Assignment of Commissions from B. Burke Barr to TLC
National Marketing Company (9/15/88)
9. TLC National Marketing Company Letter Amendment to
General Agent's Agreement, Hawaii (9/22/88)
10. TLC National Marketing Company Letter Amendment to
General Agent's Agreement, Oregon (8/29/90)
11. TLC National Marketing Company Addendum to the General
Agent's Agreement (5/1/95)
12. TLC National Marketing Company Authorization and
Indemnification Agreement (9/20/95)
13. TLC National Marketing Company of Alabama, Inc. General
Agent's Agreement (execution pending)
14. TLC National Marketing Company of Hawaii, Inc. General
Agent's Agreement (execution pending)
15. TLC National Marketing Company of Delaware, Inc.
General Agent's Agreement (execution pending)
16. B. Burke Barr General Agent's Agreement (execution
pending)
SCHEDULE 3.4
TRANSPORT LIFE INSURANCE COMPANY
ASSETS TO BE TRANSFERRED
Cusip #Security Desc. Int/Dv Maturity Par Value 11/27/95 Market Val Rating
161610BVCHASE MANHATTAN 7.750 11/01/99 $2,000,000.00 $2,117,000.00 A2
312914THFHLMC 1468 G 7.000 06/15/18 10,000,000.00 10,167,000.00 AGY
3133T2R4FHLMC 1633 PG 6.000 10/15/19 5,000,000.00 4,931,000.00 AGY
3133T38NFHLMC 1644 F 5.750 06/15/22 10,000,000.00 9,732,000.00 AGY
3133558KFHLMC 1714 G 6.500 04/15/21 5,000,000.00 5,023,000.00 AGY
3133T5QSFHLMC 1737 G 6.000 09/15/19 5,000,000.00 4,936,000.00 AGY
3133T5EYFHLMC G029 E 6.500 06/25/20 5,000,000.00 4,990,000.00 AGY
3133T54WFHLMC G040 G 6.500 10/17/17 6,000,000.00 6,032,000.00 AGY
FNF06008FNMA 6.000 06/01/08 42,230,000.00 41,445,000.00 AGY
GN115019GNMA 11.500 06/01/19 10,247,000.00 11,741,000.00 AGY
3837HOACGNMA 1994-001-PC 7.250 12/25/16 3,200,000.00 3,281,000.00 AAA
441921ABHSEHLD C 1004-01-B 7.550 04/20/15 3,000,000.00 3,067,000.00 AAA
577778ASMAY DEPT STORES 9.750 02/15/21 1,500,000.00 1,899,000.00 A2
55263EACNBNA CORP 6.730 03/17/03 - 5,000,000.00* A3
59189GAHMETRO EDISON MTN 7.220 01/30/03 5,000,000.00 5,341,000.00 A3
620076AKMOTOROLA INC 6.500 09/01/25 10,000,000.00 10,340,000.00 AA3
74046RCJPREMIER AUTO -A7 8.100 03/25/01 5,000,000.00 5,227,000.00 AAA
826908APSIGNET MSTR TR 199 7.350 09/15/02 5,000,000.00 5,198,000.00 AAA
912810CEUS TREASURY BONDS 8.750 11/15/08 19,600,000.00 22,967,000.00 TSY
912810DZUS TREASURY BONDS 8.875 08/15/17 15,000,000.00 19,812,000.00 TSY
912810EVUS TREASURY BONDS 6.875 08/15/25 5,000,000.00 5,533,000.00 TSY
913827VWUS TREASURY NOTES 8.125 02/15/98 124,000.00 133,000.00 TSY
912827Q2US TREASURY NOTES 6.750 05/31/99 5,000,000.00 5,343,000.00 TSY
912912ABUS WEST CAP FDB INC6.750 10/01/05 10,000,000.00 10,200,000.00 A2
$204,455,000.00
NOTE: ANY EXCESS REQUIRED UNDER SECTIONS 3.1 AND 3.2 OF
THE UMBRELLA AGREEMENT WILL BE FUNDED IN CASH.
* LIMITED TO $5,000,000 MARKET VALUE
<PAGE>
SCHEDULE 3.5
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY
ASSETS TO BE TRANSFERRED
Cusip Security Desc Int Rate Maturity Par Value 11/27/95 Mkt Sec Rate
3134AO-LZ-3 FHLMC 6.890 Oct-2005 $10,000,000.00 $9,962,500.00 AAA
3133T5-E9-0 FHLMC 1747 H Gold 7.875 Jun-2023 10,000,000.00 10,323,100.00 AAA
3133T5-XU-2 FHLMG CM10SER1767 7.000 Sep-2022 10,000,000.00 10,354,100.00 AAA
31371E-4M-4 FNMA #250228 8.940 Apr-2025 9,800,002.20 10,213,439.80 AAA
$40,853,139.80
NOTE: ANY EXCESS REQUIRED UNDER SECTION 3.3 OF
THE UMBRELLA AGREEMENT WILL BE FUNDED IN CASH.
<PAGE>
SCHEDULE 4.3
<PAGE>
SYSTEMS CONVERSION SERVICES
Transport Life Insurance Company agrees to provide the following
master data files with record layouts for all in force long term
and home health care policies, in fixed length records, EBCDIC
format:
Policy Master File
Paid Claims File
Reserve Files
English Plan Description File
Policy Billing Information
Cross-reference Table of Commission Codes/Percentages
Agent Financial Data including name, address, social
security number or FID, agent balances for the specific
purpose of paying commissions and reporting 1099
information
1099 Data for Agents and Medical Providers for 1996
In addition, Transport Life Insurance Company will provide
reasonable consultation and advice on data, record formats, and
files in support of the conversion.<PAGE>
SCHEDULE 6.2
ENCUMBRANCES
1. Reinsurance Agreement no. T029-100-000 effective October 1,
1993 between TLIC and Cologne Life Reinsurance Company.
2. Any assignment of commission contained in the Marketing
Agreements described in Schedule 1.20.<PAGE>
SCHEDULE 6.4
LITIGATION
1. Carl J. Bost v. TLIC, Case No. 143,971-B in the District
Court of Wichita County, Texas.
2. Florida Department of Insurance inquiry on Assisted
Congregate Living Facilities (ACLF's) coverage.
SCHEDULE 6.6
GOVERNMENTAL AUTHORITIES
NONE<PAGE>
SCHEDULE 6.10
REINSURANCE ARRANGEMENTS
COLOGNE LIFE REINSURANCE COMPANY - Treaty effective October 1,
1993.<PAGE>
SCHEDULE 7.4
ATL LITIGATION
There is, to the best of American Travellers Life Insurance
Company's knowledge, no litigation or proceedings, legal,
equitable, administrative, through arbitration, or otherwise,
pending or threatened which might have a material adverse effect
on the financial condition and results of operations and cash
flows of American Travellers Life Insurance Company or the
consummation of the transactions contemplated by the Documents
except as follows:
The matter entitled T. Eugene Caldwell, Individually and as
Conservator of the Estate and Person of Myrtle C. Caldwell
vs. American Travellers Life Insurance Company, L.D. O'Mire,
Individually and d/b/a L.D. O'Mire Agency; and Joseph D.
Waldrip in the Chancery Court of the First Judicial District
of Hinds County, Mississippi, Civil Action No. G95-1855 S/2,
wherein actual and punitive damages of $2,500,000 are sought
as well as reformation of contract based on American
Travellers Life Insurance Company's denial of policy
benefits.<PAGE>
SCHEDULE 7.5
COMPLIANCE WITH LAW
None
SCHEDULE 7.6
GOVERNMENTAL AUTHORITIES
None
ADMINISTRATION SERVICES SUB-AGREEMENT
BETWEEN
TRANSPORT LIFE INSURANCE COMPANY
AND
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY
DECEMBER 8, 1995
TABLE OF CONTENTS
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Administration Sub-Services. . . . . . . . . . . . . . . . 2
ARTICLE II ADMINISTRATION SERVICES. . . . . . . . . . . . . . . . . . 2
2.1 Assumption of Administration Services 2
2.2 Description of Administration Sub-Services . . . . . . . . 3
2.3 Net Cash Flow Accounting . . . . . . . . . . . . . . . . . 4
2.4 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Independent Contractor . . . . . . . . . . . . . . . . . . 8
3.2 Notification of Regulatory Inquiry . . . . . . . . . . . . 9
3.3 ATL's Cooperation. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV EXPENSE ALLOWANCE. . . . . . . . . . . . . . . . . . . . 10
4.1 Expense Allowance. . . . . . . . . . . . . . . . . . . . 10
ARTICLE V RIGHTS OF INSPECTION . . . . . . . . . . . . . . . . . . 10
5.1 Access To Records. . . . . . . . . . . . . . . . . . . . 10
5.2 Site Access. . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VI TERM . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VII LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . 10
7.1 Indemnification. . . . . . . . . . . . . . . . . . . . . 10
7.2 Limitation of Liability. . . . . . . . . . . . . . . . . .11
ARTICLE VIII GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . 11
8.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . 11
8.2 Dispute Resolution. . . . . . . . . . . . . . . . . . . 12
8.3 Umbrella Agreement . . . . . . . . . . . . . . . . . . 13
8.4 Governing Law. . . . . . . . . . . . . . . . . . . . . 13
8.5 Counterparts . . . . . . . . . . . . . . . . . . . . . 13
SCHEDULE 1 - Definitions
SCHEDULE 2.3 - Form of Monthly Statement
ADMINISTRATION SERVICES SUB-AGREEMENT
This Administration Services Sub-Agreement, dated as of
December 8, 1995 (this "Administration Sub-Agreement") is by and
between Transport Life Insurance Company ("TLIC"), and American
Travellers Life Insurance Company ("ATL")
WHEREAS, Transport has issued certain Ceded Policies; and
WHEREAS, pursuant to the terms of that certain Umbrella
Reinsurance Transaction Agreement dated November 30, 1995 to
which Transport and ATL are parties (the "Umbrella Agreement"),
Transport and ATL have agreed to enter into an Indemnity
Reinsurance Agreement (the "Indemnity Agreement") whereby
Transport shall cede 100% of its risks with respect to the Ceded
Policies to ATL, and ATL shall provide indemnity reinsurance of
such risks and assume responsibility for providing Administration
Services for such Ceded Policies; and
WHEREAS, pursuant to the terms of the Umbrella Agreement,
Transport and ATL have agreed to enter into an Assumption
Reinsurance Agreement (the "Assumption Agreement") whereby ATL
shall assume all rights and liabilities in and with respect to
Assumed Policies, including all responsibility for providing
Administration Services for such Assumed Policies;
WHEREAS, pursuant to the terms of the Umbrella Agreement
Transport and ATL have agreed that during the Transition Period
TLIC will provide Administration Services as a sub-contractor to
ATL pursuant to this Administration Services Sub-Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and in the Documents, receipt of which
is expressly acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for herein,
capitalized terms shall have the meaning provided for in the
Umbrella Agreement, the Indemnity Agreement and the Assumption
Agreement. For purposes of this Administration Sub-Agreement,
the following terms shall have the following definitions. For the
convenience of the parties, attached hereto as Schedule 1 is a
consolidated table of all defined terms used in the Documents.
I.1 Administration Sub-Services shall mean and refer to all
services required to be performed by TLIC pursuant to Paragraph
2.2 of this Administration Sub-Agreement.
ARTICLE II
ADMINISTRATION SERVICES
II.1 Assumption of Administration Services. As of the
Effective Date, TLIC shall perform Administration Sub-Services as
a sub-contractor to ATL under the Indemnity Agreement and the
Assumption Agreement during the Transition Period, such
performance to be subject to such reasonable supervision and
oversight as ATL may provide, including setting restrictions on
TLIC's discretion to begin processing new claims and on amount of
payments per claim.
II.2 Description of Administration Sub-Services.
"Administration Sub-Services" means and includes all
Administration Services and the following:
(a) The preparation and/or submission on behalf of ATL of
such statements, exhibits, reports and forms as are requested
and/or required by Regulatory Authorities with respect to the
Policies;
(b) The provision of such other information to ATL as ATL
may require to complete annual statements or other statements and
reports required by law;
(c) Under ATL's supervision the preparation and/or
submission of such rate increase filings as ATL may direct,
provided, however, that TLIC shall not be required to expend a
greater level of effort with respect to such filings than it did
during comparable periods of time prior to the Effective Date;
provided, however, that notwithstanding any other provision in
the Documents to the contrary, the parties acknowledge that
Administration Sub-Services does not include responsibility for
(i) actuarial calculations or (ii) preparation of any accounting
materials on a GAAP reporting basis.
II.3 Net Cash Flow Accounting.
(a) Definitions of Terms. In addition to the Definitions
set forth in Article I, the following words and phrases shall
have the meanings specified below for purposes of this Paragraph
2.3:
(1) Additional Active Life Reserve means and refers to
amounts which would be carried in Exhibit 9, Lines 2 and 3,
of the Annual Statement for the Policies at the end of the
Reporting Period.
(2) Advance Premium means and refers to amounts which would
be carried in Exhibit 1, Part 1, Lines 4 and 14 of the Annual
Statement for the Policies at the end of the Reporting Period.
(3) Annual Statement means and refers to the 1994 Life and
Accident and Health annual statement form issued by the
National Association of Insurance Commissioners.
(4) Collected Premium means and refers to gross premium on
Policies collected by TLIC, less any refund of premium to
the Policyholder.
(5) Claim Liability means and refers to the amount labeled
as Claim Liability in Exhibit 11 of the Annual Statement for
the Policies at the end of the Reporting Period.
(6) Claim Reserves means and refers to the amount labeled
as Claim Reserves in Exhibit 9 of the Annual Statement for
the Policies at the end of the Reporting Period.
(7) Due Premium means and refers to amounts which would be
carried on the assets page (page 2) of the Annual Statement
for the Policies at the end of the Reporting Period.
(8) Expense Allowance means and refers to the expense
allowance provided for in Paragraph 4.1 of this
Administration Sub-Agreement;
(9) Paid Claims means and refers to amounts paid to or on
behalf of Policyholders.
(10) Paid Commissions means and refers to the commissions
paid and payable to Agents on Collected Premium on or after
the Effective Date.
(11) Reporting Period means and refers to the period of time
for which accounting reports shall be provided, established
as monthly unless otherwise agreed by ATL and TLIC.
(12) Unearned Premium Reserve means and refers to the amount
labeled as Unearned Premium Reserve (on a gross premium
basis) in Exhibit 9 of the Annual Statement for the Policies
at the end of the Reporting Period.
(13) Waived Premium means and refers to premium due but not
required to be paid by a Policyholder on account of such
Policyholder's qualification for waiver of premium benefits
under such Policyholder's Policy.
(b) Monthly Statements. Each month, commencing as of the
calendar month ending immediately following the Closing Date,
TLIC shall send to ATL by the 21st day of the month following the
end of such month, a Monthly Statement similar to the form
described in Schedule 2.3, including a Monthly Statement prepared
separately for the Assumed Policies and Ceded Policies, showing
direct amounts, amounts ceded to Cologne Re and the net amount
for ATL; provided, however, that, for the first monthly reporting
period, Collected Premiums, Paid Claims and Paid Commissions will
include amounts collected and paid on September calendar dates
regularly included in TLIC's fourth quarter accounting. Such
statements shall contain the following with respect to ATL for
the Reporting Period:
(1) Collected Premiums (first year and renewal separately);
(2) Waived Premium (included in Collected Premium)
(3) Paid Claims;
(4) Commissions paid to Agents on the Collected Premium
(first year and renewal separately);
(5) Expense allowance as provided in Paragraph 4.1 hereof;
(6) Current Amounts for:
(i) Unearned Premium Reserve;
(ii) Additional Active Life Reserve;
(iii) Claim Reserve;
(iv) Claim Liability;
(v) Due Premium (first year and renewal separately);
(vi) Advance Premium (first year and renewal
separately); and
(vii) Number of Policies in force.
(c) Amount Due. Each Monthly Statement provided in
Paragraph 2.3 (b), above, shall contain a report of the amount
due TLIC or ATL with respect to the Policies; and calculated as
ATL's portion of the following amount:
(1) Collected Premium
Less
(2) Paid Claims
Less
(3) Paid Commissions
Less
(4) Expense Allowance
Less
(5) Premium Taxes
Less
(6) Net Amount Paid to Cologne Re
Less
(7) Guaranty Fund Assessments
Less
(8) Outside costs and expenses of claims administration,
litigation and other matters handled at ATL's request or
with ATL's approval.
Any positive amounts resulting from the calculation
report provided in this Paragraph 2.3 shall be paid by TLIC
to ATL within five (5) days of mailing the Monthly
Statement. Any negative amounts resulting shall be paid by
ATL to TLIC within five (5) days of receipt of the Monthly
Statement. Such payments shall be in United States
currency.
(d) Calculation of Premium Taxes. For purposes of each
Monthly Statement, and on an interim basis, Premium Taxes will be
calculated at 2.5% of Collected Premium less Waived Premium.
Transport shall make a final calculation of Premium Taxes during
the second quarter of the year following the end of each calendar
year during the Transition Period and shall furnish such
calculation to ATL. The parties shall then make such refunds or
additional payments to each other as shall conform the amounts
reported in the Monthly Statements to the actual Premium Taxes.
II.4 Claims. Subject especially to the provisions of
Paragraph 4.5 of the Indemnity Agreement, Paragraph 3.4 of the
Assumption Agreement, Paragraphs 12.1 and 12.2 of the Umbrella
Agreement and reasonable oversight by ATL, TLIC shall during the
Transition Period administer, manage and supervise such claims
litigation as ATL shall request and shall keep ATL notified on a
timely basis of the status of such claims litigation.
COVENANTS
ARTICLE III
III.1 Independent Contractor. TLIC shall be deemed an
independent contractor, with the right to supervise, manage,
administer, direct, procure, perform or cause to be performed all
acts required of ATL hereunder. All employees, agents,
representatives, assigns or affiliates used by TLIC in carrying
out the Administration Sub-Services shall be under the sole
control and direction of TLIC in the performance of their duties
and obligations. TLIC shall be solely responsible for their
work, direction, compensation, actions and personal conduct while
performing or otherwise carrying out the duties and obligations
of TLIC under this Administration Services Sub-Agreement.
III.2 Notification of Regulatory Inquiry. TLIC shall
promptly notify ATL of any claim, complaint or inquiry to or from
any Regulatory Authority which it or any of its Affiliates or
agents receives in connection with any transaction covered by
this Administration Sub-Agreement and shall, upon ATL's request,
provide ATL with such relevant information available to TLIC as
ATL may request with respect thereto.
III.3 ATL's Cooperation. The parties acknowledge that
the transactions contemplated by this Administration Sub-
Agreement require continued cooperation between TLIC and ATL for
an extended period of time with respect to Administration
Services. ATL shall use reasonable efforts to cooperate with
TLIC with respect to Administration Sub-Services including, but
not limited to, forwarding claims, communications, payments and
notifications to TLIC and responding in a timely manner to
written requests from TLIC for information, approvals, or data
which TLIC reasonably requires to perform its obligations under
this Administration Sub-Agreement with respect to Administration
Sub-Services.
ARTICLE IV
EXPENSE ALLOWANCE
IV.1 Expense Allowance. ATL will pay TLIC an Expense
Allowance on a monthly basis equal to 4.0% of Collected Premium.
ARTICLE V
RIGHTS OF INSPECTION
V.1 Access To Records. ATL or its designated representative
shall have free access to the books and records of TLIC relating
to its obligations under this Administration Sub-Agreement at all
reasonable times.
V.2 Site Access. TLIC shall allow ATL reasonable site
access to personnel, facilities and equipment used by TLIC or its
affiliates or representatives in connection with or related to
its performance of its duties or obligations hereunder.
ARTICLE VI
TERM
VI.1 Term. This Administration Sub-Agreement shall be in
effect from the Effective Date to the Administrative Transfer
Date.
ARTICLE VII
LIMITATION OF LIABILITY
VII.1 Indemnification. While TLIC intends to provide the
same level of service with respect to the Policies as it did
prior to the Effective Date, the parties nonetheless acknowledge
and agree that the provisions of Article XII of the Umbrella
Agreement shall cover and apply to all services, acts and/or
omissions of TLIC and/or its Affiliates under or pursuant to this
Administration Sub-Agreement except to the extent such services,
acts, and/or omissions constitute (a) willful misfeasance, bad
faith or gross negligence of or by TLIC; or (b) reckless
disregard of TLIC's obligations and duties under this
Administration Sub-Agreement.
VII.2 Limitation of Liability. TLIC and its Affiliates
shall have no liability of any kind, whether in tort or contract
or otherwise, to ATL for any act, service or omission under or
pursuant to this Administration Sub-Agreement except to the
extent such services, acts, and/or omissions constitute (a)
willful misfeasance, bad faith or gross negligence of or by TLIC;
or (b) reckless disregard of TLIC's obligations and duties under
this Administration Sub-Agreement.
ARTICLE VIII
GENERAL PROVISIONS
VIII.1 Notices. All notices, requests, demands,
statements, acknowledgments and other communications provided for
in the Documents shall be in writing and shall be deemed given or
received (a) upon confirmation of receipt thereof, if transmitted
by facsimile or sent by overnight or same-day courier; or (b)
three (3) Business Days after mailing thereof, if mailed by
United States mail, certified mail, return receipt requested, in
either case to the following address of the respective addressee:
In the case of ATL:
American Travellers Life Insurance Company
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: Chairman
Telephone No.: (215) 244-1600
Facsimile No.: (215) 244-7711
In the case of the TLIC:
Transport Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
and
Continental Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
or to such other address as the addressee shall, pursuant to
notice given to each other party in accordance with this
Paragraph 8.1, specify.
Each party shall be furnished with a copy of every notice,
request, demand, statement, acknowledgment or other communication
addressed and forwarded to any other party.
VIII.2 Dispute Resolution. As a precedent to any right
of action hereunder, if any differences shall arise between TLIC
and ATL with reference to the interpretation of or obligations
under this Administration Sub-Agreement, whether arising before
or after termination of this Administration Sub-Agreement, such
differences shall be submitted to arbitration pursuant to the
provisions of Article XIV of the Umbrella Agreement.
VIII.3 Umbrella Agreement. The parties acknowledge that
certain rights, obligations and duties under this Administration
Sub-Agreement are controlled by and subject to the provisions of
the Umbrella Agreement, all as provided for therein.
VIII.4 Governing Law. This Administration Sub-Agreement
shall be governed by and interpreted in accordance with the laws
of Texas without reference to conflict of laws.
VIII.5 Counterparts. Each Document may be executed in
one or more counterparts, each of which shall be an original but
all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have caused this Administration Sub-
Agreement to be executed and delivered as of the date first above
written.
AMERICAN TRAVELLERS LIFE
INSURANCE COMPANY
Attest:_/s/ T.J. Parry____ By:_/s/John A. Powell______
Chairman/President
TRANSPORT LIFE INSURANCE
COMPANY
Attest:_/s/Gary Cole______ By:_/s/___Garland M. Lasater, Jr,
Secretary President
SCHEDULE 1
DEFINITIONS
SCHEDULE 2.3
Form of Monthly Statement
(See Attached)
ASSUMPTION REINSURANCE AGREEMENT
BETWEEN
TRANSPORT LIFE INSURANCE COMPANY
CONTINENTAL LIFE INSURANCE COMPANY
AND
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY
DECEMBER 8, 1995
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . 2
1.1 Administration Services . . . . . . . . . . . . 2
1.2 Agent Debit Balances. . . . . . . . . . . . . . 2
1.3 Agents. . . . . . . . . . . . . . . . . . . . . 2
1.4 Association . . . . . . . . . . . . . . . . . . 2
1.5 Assumption Date . . . . . . . . . . . . . . . . 2
1.6 Assumed Policy. . . . . . . . . . . . . . . . . 3
1.7 Cologne Re. . . . . . . . . . . . . . . . . . . 3
1.8 Premium . . . . . . . . . . . . . . . . . . . . 3
1.9 Regulatory Authorities. . . . . . . . . . . . . 3
1.10 Related Assessment. . . . . . . . . . . . . . . 3
ARTICLE II
ASSUMPTION REINSURANCE . . . . . . . . . . . . . 3
2.1 Assumption Reinsurance.. . . . . . . . . . . . . 3
2.2 Obligations With Respect to Assumed Policy . . . 4
2.3 Assumption Certificates . . . . . . . . . . . . 4
ARTICLE III
INSOLVENCY . . . . . . . . .. . . . 4
3.1 Insolvency. . . . . . . . . . . . . . . .. . . . 4
ARTICLE IV
ADMINISTRATION SERVICES. . . . . . . . . . . . . 6
4.1 Assumption of Administration Services . . . . . 6
4.2 Description of Administration Services . . . . . 6
4.3 Guaranty Fund Assessments . . . . . . . . . . . 8
4.4 Claims. . . . . . . . . . . . . . . . . . . . . 8
4.5 Assumed Policy Rights . . . . . . . . . . . . . 9
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . 9
5.1 Standard of Performance .. . . . . . . . . . . . 9
5.2 Independent Contractor. .. . . . . . . . . . . . 9
5.3 Notification of Regulatory Inquiry. . . . . . .10
5.4 Transport's Cooperation . . . . . . . . . . . .10
ARTICLE VIRIGHTS OF INSPECTION. . . . . . . . . . . . . . . .10
6.1 Access To Records . . . . . . . . . . . . . . .10
6.2 Site Access . . . . . . . . . . . . . . . . . .11
ARTICLE VII
TERM . . . . . . . . . . . . . . . . . . . . .11
7.1 Term. .. . . . . . . . . . . . . . . . . . . . .11
ARTICLE VIII
GENERAL PROVISIONS . . . . . . . . . . . . . . . . .11
8.1 Notices . . . . . . . . . . . . . . . . . . . .11
8.2 Credit For Reinsurance. . . . . . . . . . . . .12
8.3 Submission to Jurisdiction. . . . . . . . . . .13
8.4 Umbrella Agreement. . . . . . . . . . . . . . . .13
8.5 Governing Law . . . . . . . . . . . . . . . . .13
8.6 Counterparts. . . . . . . . . . . . . . . . . .14
SCHEDULE 5.1 - Standards of Performance
ASSUMPTION REINSURANCE AGREEMENT
This Assumption Reinsurance Agreement, dated as of December
8, 1995 (this "Assumption Agreement") is by and between Transport
Life Insurance Company ("TLIC"), Continental Life Insurance
Company ("CLIC"), and American Travellers Life Insurance Company
("ATL") (TLIC and CLIC being jointly referred to as "Transport").
WHEREAS, Transport has issued certain Ceded Policies; and
WHEREAS, pursuant to the terms of that certain Umbrella
Reinsurance Transaction Agreement dated November 30, 1995 to
which Transport and ATL are parties (the "Umbrella Agreement"),
Transport and ATL have agreed to enter into an Indemnity
Agreement whereby Transport shall cede 100% of its risks with
respect to the Ceded Policies to ATL, and ATL shall provide
indemnity reinsurance of such risks;
WHEREAS, pursuant to the terms of the Umbrella Agreement
Transport and ATL have further agreed to enter into an Assumption
Reinsurance Undertaking whereby the parties will attempt to
obtain such regulatory and Policyholder approvals and will enable
ATL to assume direct liability to the Policyholders;
WHEREAS, the parties intend that such Policies as ATL may
assume shall be assumed pursuant to the terms of this Assumption
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and in the Documents, receipt of which
is expressly acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for herein,
capitalized terms shall have the meaning provided for in the
Umbrella Agreement. For purposes of this Assumption Agreement,
the following terms shall have the following definitions.
I.1 Administration Services shall mean and refer to all
services required to be performed by ATL pursuant to Paragraph
3.2 of this Assumption Agreement.
I.2 Agent Debit Balances shall mean and refer to any
indebtedness owing to Transport by any Agent relating to the
Policies.
I.3 Agents shall mean and refer to brokers, marketing
managers, managing general agents, producers, general agents,
agents or the like with respect to whom Transport is
contractually obligated to pay commissions, fees, overrides,
allowances or other amounts pursuant to the terms of the
Marketing Agreements with respect to Policies.
I.4 Association shall mean and refer to North American
Consumer Alliance and National Teachers Benefit Association.
I.5 Assumption Date shall, with respect to each Policy,
mean and refer to the date agreed by the parties as the date on
which such Policy shall be deemed assumed pursuant to the terms
of Paragraph 2.3 of the Umbrella Agreement.
I.6 Assumed Policy shall mean and refer to a Policy that
the parties have agreed shall be deemed assumed pursuant to the
terms of this Assumption Agreement.
I.7 Cologne Re shall mean and refer to the Cologne Life
Reinsurance Company under that certain reinsurance agreement
between Transport Life Insurance Company and Cologne Life
Reinsurance Company effective as of October 1, 1993, as amended.
I.8 Premium shall mean and refer to the payment owed by the
Policyholder to Transport or ATL under the Assumed Policies.
I.9 Regulatory Authorities shall mean and refer to those
governmental authorities having jurisdiction over the
administration, rates, form and handling of the Assumed Policies.
I.10 Related Assessment shall have the meaning provided in
Paragraph 3.3 hereof.
ARTICLE II
ASSUMPTION REINSURANCE
II.1 Assumption Reinsurance. Pursuant to the terms of
Paragraph 2.3 of the Umbrella Agreement, at such time as the
insurance regulatory authorities of the state in which such
Policy was issued are willing to recognize such Policy as having
been assumed by ATL and to accord ATL the status of direct
insurer of the Assumed Policy for regulatory purposes, the
parties will so confirm in writing, shall designate an Assumption
Date and such Policy will then be deemed to have assumed pursuant
to the terms of this Assumption Agreement.
II.2 Obligations With Respect to Assumed Policy. ATL will
assume directly all obligations and liabilities of the issuer of
the Assumed Policy, with the same effect as if such Assumed
Policy had been issued by ATL since its inception. From and
after each Assumption Date, Transport shall have no further
obligation under such Assumed Policies.
2.3 Assumption Certificates. ATL will prepare, issue and
distribute to Policyholders of Assumed Policies assumption
certificates evidencing ATL's assumption of the Assumed Policies
in such form as will meet the requirements of the applicable
Regulatory Authority.
ARTICLE III
INSOLVENCY
III.1 Insolvency.
In the event of the insolvency of Transport, this
reinsurance shall be payable directly to Transport or to its
liquidator, receiver, conservator, or statutory successor on the
basis of the liability of Transport without diminution because of
the insolvency of Transport or because the liquidator, receiver,
conservator or statutory successor of Transport has failed to pay
all or a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
Transport shall give written notice to ATL of the pendency of a
claim against Transport indicating the policy reinsured which
claim would involve a possible liability on the part of ATL
within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership,
and that during the pendency of such claim, ATL 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 Transport or its liquidator,
receiver, conservator or statutory successor.
It is further understood and agreed that, in the event of
the insolvency of Transport, the reinsurance under this
Assumption Agreement shall be payable directly by ATL to
Transport or to its liquidator, receiver, conservator, or
statutory successor, except as otherwise provided by law or
except (a) where this Assumption Agreement or the Documents
specifically provide another payee of such reinsurance in the
event of the insolvency of Transport and (b) where ATL with the
consent of the direct insured or insureds has assumed such policy
obligations of Transport as direct obligations of ATL to the
payees under such policies and in substitution for the
obligations of Transport to such payees.
ARTICLE IV
ADMINISTRATION SERVICES
IV.1 Assumption of Administration Services. ATL shall be
responsibility for and perform all Administration Services with
respect to Assumed Policies.
IV.2 Description of Administration Services.
"Administration Services" means and includes all of Transport's
original duties and obligations to the Policyholders, Cologne Re,
Agents, Associations, and Regulatory Authorities under the
Assumed Policies on all matters relating to the Assumed Policies
after the Assumption Date, regardless of whether any such duty or
obligation arises before or after the Assumption Date. Such
Administration Services shall include the performance on a timely
basis of all of the insurance administration services necessary
or appropriate to the Assumed Policies, including, but not
limited to:
(a) The billing and collection of Premium;
(b) The calculation, payment and/or recovery of
Agent's commissions, fees, overrides, allowances
or other amounts due pursuant to the terms of the
Marketing Agreements;
(c) The collection from Agent's commissions on behalf
of Transport of Agent Debit Balances as they may
be due to Transport from time to time;
(d) The calculation, payment and/or recovery of
reinsurance premium and proceeds;
(e) The receipt, review, processing and payment of
claims and benefits due;
(f) The payment of all premium taxes, guaranty fund
assessments, and such other and further taxes,
levies, charges or payments as are required by
Regulatory Authorities with respect to the Assumed
Policies;
(g) The performance of all obligations between
Transport and Association relating to the Assumed
Policies;
(h) The maintenance on a current basis of all files
relating to the Policies, the reinsurance and
administration thereof;
(i) The preparation and submission of such statements,
exhibits, reports and forms as are requested
and/or required by Regulatory Authorities;
(j) In connection with all of the foregoing services
the provision, either through the use of its own
personnel and equipment, or through the
maintenance of contracts with third parties, of
appropriate data processing services;
(k) The provision of such other information to
Transport as Transport may require to complete
annual statements or other statements and reports
required by law; and
(l) The provision of all such additional services as
may be required to carry out the purposes and
intent of Subparagraphs (a) through (k) of this
Paragraph 3.2.
IV.3 Guaranty Fund Assessments. In the event Transport is
required to pay any assessment to any insurance guaranty or
insolvency or similar fund maintained by any jurisdiction, the
portion, if any, of the assessment that relates to the Assumed
Policies arising for periods prior to the Effective Date
(assuming for purposes of this calculation only that the Policies
were never assumed by ATL) (the "Related Assessment") shall be
paid by Transport and the remainder shall be paid by ATL. ATL
shall pay directly or reimburse Transport for any assessment
(other than the Related Assessment) which shall have become due,
promptly on demand and presentation of reasonable supporting
documentation therefore, by Transport. If, at any time Transport
shall be allowed to recover any assessment (e.g., through policy
surcharges or reduction of premium taxes) other than the Related
Assessment, such portion of any such recovery not constituting
Related Assessment received or otherwise realized by Transport
shall be paid promptly to ATL and such payment shall be
accompanied by reasonable supporting documentation.
IV.4
Claims. ATL shall have the right and duty to institute,
prosecute or maintain any legal proceedings on behalf of
Transport with respect to any claim arising under an Assumed
Policy. Transport agrees to be bound by ATL's disposition of
claims made under any Assumed Policy.
IV.5 Assumed Policy Rights. All of Transports rights and
remedies under the Assumed Policies shall be exercisable by or on
behalf of ATL.
ARTICLE V
COVENANTS
V.1 Standard of Performance. ATL shall perform all
Administration Services acting diligently and in good faith in
accordance with the terms and provisions of the Assumed Policies,
special prevailing industry standards, Transport practices and
procedures identified in Schedule 5.1 hereof (as may be modified
from time to time by prevailing industry standards), and
applicable state and federal laws and regulations.
V.2 Independent Contractor. ATL shall be deemed an
independent contractor, with the sole right to supervise, manage,
administer, direct, procure, perform or cause to be performed all
acts required of ATL hereunder. All employees, agents,
representatives, assigns or affiliates used by ATL in carrying
out the Administration Services shall be under the sole control
and direction of ATL in the performance of their duties and
obligations. ATL shall be solely responsible for their work,
direction, compensation, actions and personal conduct while
performing or otherwise carrying out the duties and obligations
of ATL under this Assumption Agreement or the Assumed Policies.
V.3 Notification of Regulatory Inquiry. ATL shall promptly
notify Transport of any material claim, complaint or inquiry to
or from any Regulatory Authority which it or any of its
Affiliates or agents receives in connection with any transaction
covered by this Assumption Agreement and shall, upon Transport's
request, provide Transport with such relevant information
available to ATL as Transport may request with respect thereto.
V.4 Transport's Cooperation. The parties acknowledge that
the transactions contemplated by this Assumption Agreement
require continued cooperation between Transport and ATL for an
extended period of time with respect to Administration Services.
Transport shall use reasonable efforts to cooperate with ATL with
respect to Administration Services including, but not limited to,
forwarding claims, communications, payments and notifications to
ATL, responding in a timely manner to written requests from ATL
for information, approvals, or data which ATL reasonably requires
to perform its obligations under this Assumption Agreement with
respect to Administration Services and providing for ATL to be
able to endorse for collection premium checks relating to the
Policies in Transport's name.
ARTICLE VI
RIGHTS OF INSPECTION
VI.1 Access To Records. Transport or its designated
representative shall have free access to the books and records of
ATL relating to its obligations under this Assumption Agreement
at all reasonable times.
VI.2 Site Access. ATL shall allow Transport reasonable site
access to personnel, facilities and equipment used by ATL or its
affiliates or representatives in connection with or related to
its performance of its duties or obligations hereunder.
ARTICLE VII
TERM
VII.1 Term. This Assumption Agreement, including but not
limited to the reinsurance provided pursuant to the provisions of
Article II hereof, shall continue in effect with respect to each
Assumed Policy until discharge of all insurer's liability to the
Policyholder under such Assumed Policy.
ARTICLE VIII
GENERAL PROVISIONS
VIII.1 Notices. All notices, requests, demands,
statements, acknowledgments and other communications provided for
in the Documents shall be in writing and shall be deemed given or
received (a) upon confirmation of receipt thereof, if transmitted
by facsimile or sent by overnight or same-day courier; or (b)
three (3) Business Days after mailing thereof, if mailed by
United States mail, certified mail, return receipt requested, in
either case to the following address of the respective addressee:
In the case of ATL:
American Travellers Life Insurance Company
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: Chairman
Telephone No.: (215) 244-1600
Facsimile No.: (215) 244-7711
In the case of the Transport:
Transport Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
and
Continental Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
or to such other address as the addressee shall, pursuant to
notice given to each other party in accordance with this
Paragraph 7.1, specify.
Each party shall be furnished with a copy of every notice,
request, demand, statement, acknowledgment or other communication
addressed and forwarded to any other party.
VIII.2 Credit For Reinsurance. In the event Transport
shall be denied, or have a reasonable basis to believe it will be
denied, statutory credit by any Regulatory Authority for all or
any of the reinsurance provided by ATL on the Policies pursuant
to this Assumption Agreement, and such denial relates in any way
to ATL's financial condition or to its status as a non-admitted,
unapproved or unaccredited insurer or reinsurer, Transport may
immediately so notify ATL and the Trustee under the Trust
Agreement, and upon receipt of such notification, the provisions
of Section 5.4 of the Trust Agreement shall be effective, provided,
however that Transport shall in advance and as promptly as may be
practicable under the circumstances notify ATL of any situation
that might result in such notification. At such time as
Transport no longer has reason to believe it will be denied
statutory credit by any Regulatory Authority for all or any of
the reinsurance provided by ATL on the Policies pursuant to this
Assumption Agreement, or such denial no longer relates in any way
to ATL's financial condition or to its status as a non-admitted,
unapproved or unaccredited insurer or reinsurer, Transport shall
immediately so notify ATL and the Trustee and the provisions of
Section 5.3 of the Trust Agreement shall again become effective.
VIII.3 Submission to Jurisdiction. ATL shall consent to
submit to jurisdiction in all states in which it is not an
authorized insurer and shall appoint the chief insurance
regulatory official in each such state as its agent for service
of process. ATL shall file its annual statutory financial
statement with such states at the same time as its files such
statement in the states in which it is an authorized insurer.
VIII.4 Umbrella Agreement. The parties acknowledge that
certain rights, obligations and duties under this Assumption
Agreement are controlled by and subject to the provisions of the
Umbrella Agreement, all as provided for therein.
VIII.5 Governing Law. This Assumption Agreement shall be
governed by and interpreted in accordance with the laws of Texas
without reference to conflict of laws.
VIII.6 Counterparts. Each Document may be executed in
one or more counterparts, each of which shall be an original but
all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have caused this Assumption Agreement to be
executed and delivered as of the date first above written.
AMERICAN TRAVELLERS LIFE
INSURANCE COMPANY
Attest:_/s/ T.J. Parry____ By:_/s/ John A. Powell_____
Chairman/President
TRANSPORT LIFE INSURANCE
COMPANY
Attest:_/s/ Gary Cole______ By:_/s/ Garland M. Lasater, Jr
Secretary President
CONTINENTAL LIFE INSURANCE
COMPANY
Attest:_/s/ Gary Cole_____ By:_/s/ Garland M. Lasater, Jr
Secretary President
<PAGE>
SCHEDULE 5.1
STANDARDS OF PERFORMANCE
TRANSPORT/CONTINENTAL LIFE INSURANCE COMPANY
LONG TERM CARE/HOME HEALTH CARE/CON CARE
SPECIAL CLAIM SITUATIONS
Administrative Decisions:
<PAGE>
1. All LTC/HHC/Con Care - Beginning in 1993 all policies
written prior to policy form 11011 are to be reinstated
for lapse due to cognitive impairment as in policy form
11011 - i.e no evidence of insurability is required in
these circumstances, but proof of cognitive impairment
will be required.
2. All LTC/HHC/Con Care - Transport is no longer denying
claims for late proof of loss unless the late proof of
loss would prejudice the ability to investigate the
claim.
3. All LTC - Long term care benefits are provided for
confinement to a hospice facility.
4. All LTC - Adult Congregate Living Facilities (ACLF's) -
If the facility can split the charges for personal care
from the charges for room and board, ACLF's can be
considered for payment under the home health care
provisions of an LTC contract.
5. Florida HHC Form 10922 - Under Home Health Care policy
form 10922 issued in Florida, the Lifetime Maximum
Benefit Period of 365 days is considered unlimited.
This is consistent with contracts issued in other
states.
6. TLC HHC Contracts - Home Health Care policies written
by the TLC Market prior to 10/1/91 provide benefits for
Homemaker Services.
Contract Clarification/Regulatory Interpretations:
1. Florida LTC Form 10955 - For those contracts issued in
Florida, the Home Health Care benefit period is
administered as equal to the LTC benefit period. This
interpretation is consistent with form 11001 where the
schedule page shows separate benefit periods.
2. LTC/HHC - Nurse registries are considered as Home
Health Care Agencies in Arkansas, California, and
Florida based on state regulations. Other states
adopting similar legislation would be handled
accordingly.
3. California 10770 - Under certain circumstances a prior
long term care confinement is not required for
consideration for the Home Medical Services Benefit.
See Attachment A. Changes made to coverage under these
contracts were viewed as bringing the contracts under
later long term care regulation which did not permit
the "gate keepers" in our policy form.
4. Con Care - These contracts had provision for two levels
of benefits. In Illinois, Iowa, Indiana, Kentucky,
North Carolina, North Dakota, and Virginia, skilled
care benefits are provided for days on which medication
is administered.
5. Con Care - If the Convalescent Care Benefit requires an
elimination period, basic benefits are paid during that
period.
6. North Carolina Con Care - The lifetime maximum for
Basic Care benefits is increased to the lifetime
maximum for Skilled Care benefits.
7. Texas Form 10770-88 - Attachment B is a copy of
Transport's Assurance of Voluntary Compliance to the
Texas Department concerning the handling of future
allegations from insureds as they may pertain to the
reinstatement of benefits.
8. Florida LTC - Attachment C is a copy of a March 30,
1995 letter indicating that Transport has not paid
nursing home benefits for ACLF confinements on Florida
LTC contracts issued since 1/1/92. (This is in
accordance with our interpretation of our contracts.)
Attachment D is a June 13, 1995 letter to the Florida
Department indicating ACLF history on some earlier
specific cases. In particular we have indicated that
if we had provided an insured confirmation of coverage
in an ACLF, we would honor that commitment.
This Schedule does not address single cases which have been
handled on an exception basis.
GUARANTY
1. Guaranty of Payment and Performance. For value
received, and in consideration of the ceding for indemnity
reinsurance or assumption reinsurance of Policies (as defined in
the Umbrella Agreement hereinafter defined) pursuant to that
certain Umbrella Reinsurance Transaction Agreement, dated November
30, 1995 (as amended, modified or supplemented from time to time,
the "Umbrella Agreement") between Transport Life Insurance Company
("TLIC"), Continental Life Insurance Company ("CLIC"; together with
TLIC and their respective successors and assigns, individually and
collectively, "Transport") and American Travellers Life Insurance
Company (hereinafter called the "Debtor"), and all other financial
accommodations heretofore or hereafter at any time made or granted
to Debtor by Transport, the undersigned hereby unconditionally
guarantees the full and prompt payment when due and complete
performance (whether directly or indirectly) when due, whether at
maturity, upon default or otherwise, and at all times thereafter,
of all payment and performance obligations of the Debtor to
Transport, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, or now or hereafter existing,
or due or to become due under the Umbrella Agreement, under the
Trust Agreement (as defined in the Umbrella Agreement) including
the Minimum Account Requirement (as defined in the Trust Agreement)
contained therein and under the other Documents (as defined in the
Umbrella Agreement) to which Debtor is a party (all such payment
and performance obligations, together with any extensions,
renewals, or deferrals thereof, being hereinafter collectively
called the "Liabilities"), and the undersigned further agrees to
pay all expenses (including, attorneys' and legal assistants' fees
and legal expenses) paid or incurred by Transport in endeavoring to
collect or obtain performance of the Liabilities, or any part
thereof, and in enforcing this Guaranty. The right of recovery
against the undersigned under this Guaranty is unlimited and shall
include, (a) interest on the Liabilities and (b) all expenses of
enforcing this Guaranty.
2. Acceleration of the Time of Payment of Amount Payable
Under Guaranty. The undersigned agrees that, in the event of the
dissolution or insolvency of the Debtor or the undersigned, or the
inability of the Debtor or the undersigned to pay debts as they
mature, or an assignment by the Debtor or the undersigned for the
benefit of creditors, or the institution of any proceeding by or
against the Debtor or the undersigned alleging that the Debtor or
the undersigned is insolvent or unable to pay debts as they mature,
and in the case of an involuntary proceeding, upon the earlier of
(i) entry of an order for relief or decree or (ii) any claim not
being dismissed within 120 days of the filing thereof, the
undersigned will pay to Transport forthwith the full amount which
would be payable hereunder by the undersigned as if all of the
Liabilities were then due and payable and perform (whether directly
or indirectly) all such actions forthwith which remain to be
performed regardless that at such time the Liabilities may not then
be due and payable or that performance of the Liabilities may not
then be required.
3. Continuing Guaranty. This Guaranty shall in all
respects be a continuing, absolute and unconditional guaranty of
payment (and not collection) and performance, and shall remain in
full force and effect (notwithstanding, without limitation, the
dissolution of the undersigned or that at any time or from time to
time all of the Liabilities may have been paid in full or performed
in full), subject to discontinuance as to the undersigned only upon
actual receipt by Transport of written notice from the undersigned,
or any person duly authorized and acting on behalf of the
undersigned, of the discontinuance hereof as to the undersigned;
provided, however, that no such notice of discontinuance shall
affect or impair any of the agreements and obligations of the
undersigned hereunder with respect to any and all Liabilities
existing prior to the time of actual receipt of such notice by
Transport, any and all Liabilities created or acquired thereafter
pursuant to any previous commitments made by Transport, any and all
extensions or renewals of any of the foregoing, any and all
interest on any of the foregoing, and any and all expenses paid or
incurred by Transport in endeavoring to collect or obtain
performance of any of the foregoing and in enforcing this Guaranty
against the undersigned; and all of the agreements and obligations
of the undersigned under this Guaranty shall, notwithstanding any
such notice of discontinuance, remain fully in effect until all
such Liabilities (including any extensions or renewals of any
thereof) shall have been fully performed and all such interest and
expenses shall have been paid in full.
4. Rescission or Return of Payment on Liabilities. The
undersigned further agrees that, if at any time all or any part of
any payment theretofore applied by Transport to any of the
Liabilities is or must be rescinded or returned by Transport for
any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of the Debtor), such
Liabilities shall, for the purposes of this Guaranty, to the extent
that such payment is or must be rescinded or returned, be deemed to
have continued in existence, notwithstanding such application by
Transport, and this Guaranty shall continue to be effective or be
reinstated, as the case may be, as to such Liabilities, all as
though such application by Transport had not been made.
5. Transport Permitted to Take Certain Actions. Transport
may, from time to time (but shall not be obligated to), whether
before or after any discontinuance of this Guaranty, at its sole
discretion and without notice to the undersigned, take any or all
of the following actions: (a) extend or renew for one or more
periods (whether or not longer than the original period), alter or
exchange any of the Liabilities, or release or compromise any
obligation of the undersigned hereunder or any obligation of any
nature of any other obligor with respect to any of the Liabilities;
(b) release its security interest in, or surrender, release or
permit any substitution or exchange for, all or any part of any
property securing any of the Liabilities or any obligation
hereunder (including, without limitation, the Trust Agreement, as
defined in the Umbrella Agreement), or extend or renew for one or
more periods (whether or not longer than the original period) or
release, compromise, alter or exchange any obligations of any
nature of any obligor with respect to any such property; and
(c) resort to the undersigned for payment or performance (whether
directly or indirectly) of any of the Liabilities, whether or not
Transport (i) shall have proceeded against the undersigned with
respect to the Liabilities or shall have resorted to any property
securing any of the Liabilities or any obligation hereunder;
provided, however, that Transport shall have given a notice of
withdrawal of Assets from the Trust Account to the Trustee (as such
terms are defined in the Trust Agreement) and its withdrawal shall
not have been paid within 10 days, or such withdrawal would reduce
the Value of the Assets in the Trust Account below the Minimum
Account Requirement (as defined in the Umbrella Agreement) as last
determined pursuant to the Umbrella Agreement or (ii) shall have
proceeded against any other obligor primarily or secondarily
obligated with respect to any of the Liabilities (all of the
actions referred to in the preceding clauses (i) and (ii) as
limited therein, being hereby waived by the undersigned).
6. Application of Payments. Any amounts received by
Transport from whatsoever source on account of the Liabilities will
be applied by it toward the payment of such of the Liabilities, and
in such order of application, as Transport may from time to time
elect.
7. Waiver of Notice and Other Matters. The undersigned
waives: (a) notice of the acceptance by Transport of this
Guaranty; (b) notice of the existence or creation, non-payment or
non-performance of all or any of the Liabilities; (c) presentment,
demand, demand for performance, notice of dishonor, protest, and
all other notices whatsoever; and (d) all diligence in collection
or protection of or realization upon the Liabilities or any
thereof, any obligation hereunder, or any security for or guaranty
of any of the foregoing.
8. Assignment of Liabilities. Except as otherwise
expressly provided in the Documents (as defined in the Umbrella
Agreement), Transport may, from time to time, whether before or
after any discontinuance of this Guaranty, without notice to the
undersigned, assign or transfer any or all of the Liabilities or
any interest therein; and, notwithstanding any such assignment or
transfer or any subsequent assignment or transfer thereof, such
Liabilities shall be and remain Liabilities for the purposes of
this Guaranty, and each and every immediate and successive assignee
or transferee of any of the Liabilities or of any interest therein
shall, to the extent of the interest of such assignee or transferee
in the Liabilities, be entitled to the benefits of this Guaranty to
the same extent as if such assignee or transferee were Transport;
provided, however, that, unless Transport shall otherwise consent
in writing, Transport shall have an unimpaired right, prior and
superior to that of any such assignee or transferee, to enforce
this Guaranty, for the benefit of Transport, as to those of the
Liabilities which Transport has not assigned or transferred.
9. Information Concerning Debtor; No Reliance on
Representations by Transport. The undersigned hereby warrants to
Transport that the undersigned now has and will continue to have
independent means of obtaining information concerning the affairs,
financial condition and business of the Debtor. Transport shall
not have any duty or responsibility to provide the undersigned with
any credit or other information concerning the affairs, financial
condition or business of the Debtor which may come into Transport's
possession. The undersigned has executed and delivered this
Guaranty without reliance upon any representation or warranty by
Transport with respect to (a) the due execution, validity,
effectiveness or enforceability of the Umbrella Agreement, any
Document (as defined in the Umbrella Agreement) or any other
instrument, document or agreement evidencing or relating to any of
the Liabilities; (b) the validity, genuineness, enforceability,
existence, value or sufficiency of any property securing any of the
Liabilities (including, without limitation, pursuant to the Trust
Agreement as defined in the Umbrella Agreement) or the creation,
perfection or priority of any lien or security interest in such
property; or (c) the existence, number, financial condition or
creditworthiness of other guarantors or sureties with respect to
any of the Liabilities.
10. Waiver and Modifications. No delay on the part of
Transport in the exercise of any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by Transport of
any right or remedy shall preclude other or further exercise
thereof or the exercise of any other right or remedy; nor shall any
modification or waiver of any of the provisions of this Guaranty be
binding upon Transport except as expressly set forth in a writing
duly signed and delivered on behalf of Transport.
11. Obligations Under Guaranty. No action of Transport
permitted hereunder shall in any way affect or impair the rights of
Transport and the obligations of the undersigned under this
Guaranty. For the purposes of this Guaranty, Liabilities shall
include all payment and performance obligations of the Debtor to
Transport under the Umbrella Agreement and the other Documents (as
defined in the Umbrella Agreement), notwithstanding any right or
power of the Debtor or anyone else to assert any claim or defense
as to the invalidity or unenforceability of any such obligation,
and no such claim or defense shall affect or impair the obligations
of the undersigned hereunder. The obligations of the undersigned
under this Guaranty shall be absolute and unconditional
irrespective of any circumstance whatsoever which might constitute
a legal or equitable discharge or defense of the undersigned.
Except as expressly provided in the Documents, the undersigned
acknowledges that there are no conditions to the effectiveness of
this Guaranty.
12. Financial Statements and Other Reports. From the date
of this Guaranty and thereafter until the Liabilities are paid in
full and fully performed, the undersigned agrees that it will
furnish to Transport:
(a) Annual Audit Report. Within ninety (90) days after
each fiscal year of the undersigned, a copy of the annual
audit report of the undersigned and its subsidiaries prepared
on a consolidated basis and in conformity with generally
accepted accounting principles ("GAAP") and certified by an
independent certified public accountant;
(b) Quarterly Financial Statement. Within forty-five
(45) days after each fiscal quarter (except the last fiscal
quarter) of each fiscal year of the undersigned, a copy of
the unaudited financial statement of the undersigned and its
subsidiaries made available to its shareholders prepared in
the same manner as the audit report referred to in preceding
clause (a), signed by the undersigned's chief financial
officer and consisting of at least a balance sheet as at the
close of such fiscal quarter and statements of earnings and
cash flows for such fiscal quarter and for the period from
the beginning of such fiscal year to the close of such fiscal
quarter;
(c) SEC and Other Reports. Copies of each filing and
report made by the undersigned with or to any securities
exchange, the Securities and Exchange Commission or any
regulatory authority and of each communication from the
undersigned to its shareholders generally, promptly upon the
filing or making thereof; and
(d) Requested Information. Promptly from time to time,
such other reports or information as Transport may reasonably
request.
13. Successors. This Guaranty shall be binding upon the
undersigned, and upon the successors and assigns of the
undersigned; all references herein to the Debtor and to the
undersigned, respectively, shall be deemed to include any successor
or successors, whether immediate or remote.
14. Law. THIS GUARANTY HAS BEEN DELIVERED AT FORT WORTH,
TEXAS, AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF TEXAS.
15. Severability. Wherever possible, each provision of this
Guaranty shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Guaranty
shall be prohibited by or invalid under such 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 Guaranty.
16. Captions. Section captions used in this Guaranty are
for convenience only, and shall not affect the construction of this
Guaranty.
17. Dispute Resolution. The dispute resolution provisions
contained in Article XIV of the Umbrella Agreement are hereby
incorporated into this Guaranty by reference as if such terms were
set forth herein in full, and without regard to any termination of
the Umbrella Agreement; provided, however, that all references in
the incorporated provisions of the Umbrella Agreement to the
following terms shall, for the purpose of this Guaranty and unless
otherwise provided, be read as though the following definitions
were substituted for the definitions of such terms set forth in the
Umbrella Agreement:
"Umbrella Agreement" or "Documents" shall mean this Guaranty.
"ATL" shall mean the undersigned.
SIGNED AND DELIVERED this 8th day of December, 1995.
AMERICAN TRAVELLERS CORPORATION
By: /s/ John A. Powell
Name: John A. Powell
Title: President &
Chairman of the Board
INDEMNITY REINSURANCE AGREEMENT
BETWEEN
TRANSPORT LIFE INSURANCE COMPANY
AND
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY
DECEMBER 8, 1995
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS. . . . . . . . . . . . 1
1.1 Administration Services . . . . . . . . . . . . . . . . . . 2
1.2 Agent Debit Balances. . . . . . . . . . . . . . . . . . . . 2
1.3 Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Association . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Cologne Re. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Premium . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Regulatory Authorities. . . . . . . . . . . . . . . . . . . 2
1.8 Related Assessment. . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
INDEMNITY REINSURANCE COVERAGE . . . . . . . 3
2.1 Reinsurance and Indemnification . . . . . . . . . . . . . . 3
2.2 Effective Date. . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
INSOLVENCY . . . . . . . . . . . . 3
3.1 Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV
ADMINISTRATION SERVICES. . . . . . . . . 4
4.1 Assumption of Administration Services . . . . . . . . . . . 4
4.2 Description of Administration Services. . . . . . . . . . . 4
4.3 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Guaranty Fund Assessments . . . . . . . . . . . . . . . . . 7
4.5 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Policy Rights . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V
COVENANTS . . . . . . . . . . . . 8
5.1 Standard of Performance . . . . . . . . . . . . . . . . . . 8
5.2 Independent Contractor. . . . . . . . . . . . . . . . . . . 8
5.3 Notification of Regulatory Inquiry. . . . . . . . . . . . . 9
5.4 Transport's Cooperation . . . . . . . . . . . . . . . . . . 9
ARTICLE VI
COMPENSATION, FEES AND EXPENSES. . . . . . .10
6.1 Acknowledgment of Compensation. . . . . . . . . . . . . . .10
6.2 Responsibility for Costs and Expenses . . . . . . . . . . .10
ARTICLE VII
RIGHTS OF INSPECTION. . . . . . . . . .10
7.1 Access To Records . . . . . . . . . . . . . . . . . . . . .10
7.2 Site Access . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE VIII
TERM . . . . . . . . . . . . . .10
8.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE IX
DAC TAX. . . . . . . . . . . . .11
9.1 Party . . . . . . . . . . . . . . . . . . . . . . . . . . .11
9.2 Definition by Reference . . . . . . . . . . . . . . . . . .11
9.3 Policy Acquisition Expenses . . . . . . . . . . . . . . . .11
9.4 Exchange of Information . . . . . . . . . . . . . . . . . .11
9.5 Initial Calculation . . . . . . . . . . . . . . . . . . . .12
9.6 ATL Calculation . . . . . . . . . . . . . . . . . . . . . .12
9.7 Final Agreement on Calculation. . . . . . . . . . . . . . .12
ARTICLE X
GENERAL PROVISIONS . . . . . . . . . .13
10.1 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . .13
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . .13
10.3 Credit For Reinsurance. . . . . . . . . . . . . . . . . . .14
10.4 Submission to Jurisdiction. . . . . . . . . . . . . . . . .15
10.5 Dispute Resolution. . . . . . . . . . . . . . . . . . . . .15
10.6 Umbrella Agreement. . . . . . . . . . . . . . . . . . . . . .15
10.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . .16
10.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . .16
SCHEDULE 5.1 Standards of Performance
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
This Indemnity Reinsurance Agreement, dated as of December
8, 1995 (this "Indemnity Agreement") , is by and between
Transport Life Insurance Company ("TLIC"), Continental Life
Insurance Company ("CLIC"), and American Travellers Life
Insurance Company ("ATL") (TLIC and CLIC being jointly referred
to as "Transport").
WHEREAS, Transport has issued certain Ceded Policies; and
WHEREAS, pursuant to the terms of that certain Umbrella
Reinsurance Transaction Agreement dated November 30, 1995 to
which Transport and ATL are parties (the "Umbrella Agreement"),
Transport and ATL have agreed to enter into this Indemnity
Agreement whereby Transport shall cede 100% of its risks with
respect to the Ceded Policies to ATL, and ATL shall provide
indemnity reinsurance of such risks.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and in the Documents, receipt of which
is expressly acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise expressly provided for herein,
capitalized terms shall have the meaning provided for in the
Umbrella Agreement. For purposes of this Indemnity Agreement,
the following terms shall have the following definitions.
I.1 Administration Services shall mean and refer to all
services required to be performed by ATL pursuant to Paragraph
4.2 of this Indemnity Agreement.
I.2 Agent Debit Balances shall mean and refer to any
indebtedness owing to Transport by any Agent relating to the
Policies.
I.3 Agents shall mean and refer to brokers, marketing
managers, managing general agents, producers, general agents,
agents or the like with respect to whom Transport is
contractually obligated to pay commissions, fees, overrides,
allowances or other amounts pursuant to the terms of the
Marketing Agreements with respect to Policies.
I.4 Association shall mean and refer to North American
Consumer Alliance and National Teachers Benefit Association.
I.5 Cologne Re shall mean and refer to the Cologne Life
Reinsurance Company under that certain reinsurance agreement
between Transport Life Insurance Company and Cologne Life
Reinsurance Company effective as of October 1, 1993, as amended.
I.6 Premium shall mean and refer to the payment owed by the
Policyholder to Transport or ATL under the Policies.
I.7 Regulatory Authorities shall mean and refer to those
governmental authorities having jurisdiction over the
administration, rates, form and handling of the Policies.
I.8 Related Assessment shall have the meaning provided in
Paragraph 4.4 hereof.<PAGE>
ARTICLE II
INDEMNITY REINSURANCE COVERAGE
II.1 Reinsurance and Indemnification. Subject to the terms
and conditions of this Indemnity Agreement, Transport cedes to
ATL and ATL assumes, one hundred percent (100%) of Transport's
liability with respect to the Ceded Policies. As of the
Effective Date ATL does and agrees to indemnify and reimburse
Transport for 100% of Transport's liability under the Ceded
Policies
II.2 Effective Date. The liability of ATL shall commence on
the Effective Date and shall remain continuously in force until
terminated as provided pursuant to the provisions of Paragraph
8.1 hereof.
ARTICLE III
INSOLVENCY
III.1 Insolvency.
In the event of the insolvency of Transport, this
reinsurance shall be payable directly to Transport or to its
liquidator, receiver, conservator, or statutory successor on the
basis of the liability of Transport without diminution because of
the insolvency of Transport or because the liquidator, receiver,
conservator or statutory successor of Transport has failed to pay
all or a portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of
Transport shall give written notice to ATL of the pendency of a
claim against Transport indicating the policy reinsured which
claim would involve a possible liability on the part of ATL
within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership,
and that during the pendency of such claim, ATL 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 Transport or its liquidator,
receiver, conservator or statutory successor.
It is further understood and agreed that, in the event of
the insolvency of Transport, the reinsurance under this Indemnity
Agreement shall be payable directly by ATL to Transport or to its
liquidator, receiver, conservator, or statutory successor, except
as otherwise provided by Law or except (a) where this Indemnity
Agreement or the Documents specifically provide another payee of
such reinsurance in the event of the insolvency of Transport and
(b) where ATL with the consent of the direct insured or insureds
has assumed such policy obligations of Transport as direct
obligations of ATL to the payees under such policies and in
substitution for the obligations of Transport to such payees.
ARTICLE IV
ADMINISTRATION SERVICES
IV.1 Assumption of Administration Services. As of the
Effective Date, ATL shall assume responsibility for and perform
all Administration Services with respect to Policies.
IV.2 Description of Administration Services.
"Administration Services" means and includes all of Transport's
duties and obligations to the Policyholders, Cologne Re, Agents,
Associations, and Regulatory Authorities under the Policies on
all matters arising with respect to the Policies after the
Effective Date, regardless of whether any such duty or obligation
arises before or after the Effective Date. Such Administration
Services shall include the performance on a timely basis of all
of the insurance administration services necessary or appropriate
to the Policies, including, but not limited to:
(a) The billing and collection of Premium;
(b) The calculation, payment and/or recovery of
Agent's commissions, fees, overrides, allowances
or other amounts due pursuant to the terms of the
Marketing Agreements;
(c) The collection from Agent's commissions on behalf
of Transport of Agent Debit Balances as they may
be due to Transport from time to time;
(d) The calculation, payment and/or recovery of
reinsurance premium and proceeds;
(e) The receipt, review, processing and payment of
claims and benefits due;
(f) The reimbursement of Transport's payment of all
premium taxes, guaranty fund assessments, and such
other and further taxes, levies, charges or
payments as are required by Regulatory Authorities
with respect to the Policies;
(g) The performance of all obligations between
Transport and Associations relating to the
Policies;
(h) The maintenance on a current basis of all files
relating to the Policies, the reinsurance and
administration thereof;
(i) The preparation and/or submission on behalf of
Transport of such statements, exhibits, reports
and forms as are requested and/or required by
Regulatory Authorities;
(j) In connection with all of the foregoing services
the provision, either through the use of its own
personnel and equipment, or through the
maintenance of contracts with third parties, of
appropriate data processing services;
(k) The provision of such other information to
Transport as Transport may require to complete
annual statements or other statements and reports
required by law; and
(l) The provision of all such additional services as
may be required to carry out the purposes and
intent of Subparagraphs (a) through (k) of this
Paragraph 4.2.
IV.3 Reinstatement. If a Policy is terminated and
subsequently reinstated during the period that this Indemnity
Agreement would otherwise be effective with respect to such
Policy, ATL shall automatically reinstate, in accordance with
such Policy's provisions, its reinsurance applicable to such
Policy.
IV.4 Guaranty Fund Assessments. In the event Transport is
required to pay any assessment to any insurance guaranty or
insolvency or similar fund maintained by any jurisdiction, the
portion, if any, of the assessment that relates to the Policies
reinsured hereunder arising for periods prior to the Effective
Date (assuming for purposes of this calculation only that the
Policies were never indemnity reinsured by ATL) (the "Related
Assessment") shall be paid by Transport and the remainder shall
be paid by ATL. ATL shall pay directly or reimburse Transport
for any assessment (other than the Related Assessment) which
shall have become due, promptly on demand and presentation of
reasonable supporting documentation therefore, by Transport. If,
at any time Transport shall be allowed to recover any assessment
(e.g., through policy surcharges or reduction of premium taxes)
other than the Related Assessment, such portion of any such
recovery not constituting Related Assessment received or
otherwise realized by Transport shall be paid promptly to ATL and
such payment shall be accompanied by reasonable supporting
documentation.
IV.5 Claims. ATL shall have the right and duty to
institute, prosecute or maintain any legal proceedings on behalf
of Transport with respect to any claim arising under a Policy.
Transport agrees to be bound by ATL's disposition of claims made
under any Policy.
IV.6 Policy Rights. Except as provided in Paragraph 4.1 of
the Umbrella Agreement and with respect to Cologne Re, all of
Transport's rights and remedies under the Policies shall be
exercisable by or on behalf of ATL. Transport may exercise such
rights under the Policies as may be reasonable to complete the
Assumption Reinsurance Undertaking.
ARTICLE V
COVENANTS
V.1 Standard of Performance. ATL shall perform all
Administration Services acting diligently and in good faith in
accordance with the terms and provisions of the Policies, special
prevailing industry standards, Transport practices and procedures
identified in Schedule 5.1 hereof (as may be modified from time
to time by prevailing industry standards), and applicable state
and federal laws and regulations.
V.2 Independent Contractor. ATL shall be deemed an
independent contractor, with the sole right to supervise, manage,
administer, direct, procure, perform or cause to be performed all
acts required of ATL hereunder. All employees, agents,
representatives, assigns or affiliates used by ATL in carrying
out the Administration Services shall be under the sole control
and direction of ATL in the performance of their duties and
obligations. ATL shall be solely responsible for their work,
direction, compensation, actions and personal conduct while
performing or otherwise carrying out the duties and obligations
of ATL under this Indemnity Agreement or the Policies.
V.3 Notification of Regulatory Inquiry. ATL shall promptly
notify Transport of any material claim, complaint or inquiry to
or from any Regulatory Authority which it or any of its
Affiliates or agents receives in connection with any transaction
covered by this Indemnity Agreement and shall, upon Transport's
request, provide Transport with such relevant information
available to ATL as Transport may request with respect thereto.
V.4 Transport's Cooperation. The parties acknowledge that
the transactions contemplated by this Indemnity Agreement require
continued cooperation between Transport and ATL for an extended
period of time with respect to Administration Services.
Transport shall use reasonable efforts to cooperate with ATL with
respect to Administration Services including, but not limited to,
promptly forwarding claims, communications, payments and
notifications to ATL and responding in a timely manner to written
requests from ATL for information, approvals, or data which ATL
reasonably requires to perform its obligations under this
Indemnity Agreement with respect to Administration Services and
providing for ATL to be able to endorse for collection premium
checks relating to the Policies in Transport's name.
ARTICLE VI
COMPENSATION, FEES AND EXPENSES
VI.1 Acknowledgment of Compensation. ATL acknowledges that
it has been fully compensated for its services under this
Indemnity Agreement pursuant to the provisions of the Umbrella
Agreement and is not entitled to any further or additional fees
or compensation from Transport.
VI.2 Responsibility for Costs and Expenses. Except as
expressly provided herein, each of the parties shall be
responsible for such costs and expenses as it may incur in the
performance of their respective obligations hereunder.
ARTICLE VII
RIGHTS OF INSPECTION
VII.1 Access To Records. Transport or its designated
representative shall have free access to the books and records of
ATL relating to its obligations under this Indemnity Agreement at
all reasonable times.
VII.2 Site Access. ATL shall allow Transport reasonable
site access to personnel, facilities and equipment used by ATL or
its affiliates or representatives in connection with or related
to its performance of its duties or obligations hereunder.
ARTICLE VIII
TERM
VIII.1 Term. This Indemnity Agreement, including but not
limited to the reinsurance provided pursuant to the provisions of
Article II hereof, shall continue in effect with respect to each
Ceded Policy until all liabilities and risks of Transport
thereunder have been assumed by ATL or its nominee pursuant to
the Assumption Agreement, or the earlier discharge of all
liability of Transport under such Policy.
ARTICLE IX
DAC TAX
Transport and ATL hereby agree to the following pursuant to
Section 1.848-2(g)(8) of the Income Tax Regulations issued
December 29, 1992, under Section 848 of the Internal Revenue Code
1986, as amended. This election shall be effective on the
Effective Date of this Indemnity Agreement and all subsequent
taxable years for which this Agreement remains in effect.
IX.1 Party. The term "party" will refer to either Transport
or ATL as appropriate.
IX.2 Definition by Reference. The terms used in this Article
are defined by reference to Treasury Regulations Section 1.848-2
in effect as of December 29, 1992.
IX.3 Policy Acquisition Expenses. The party with the net
positive consideration as determined under Section 1.848-2(f) and
1.848-3 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
IRC Section 848(c)(1).
IX.4 Exchange of Information. Both parties agree to exchange
information pertaining to the amount of net consideration under
this Agreement each year to ensure consistency. The parties also
agree to exchange information which may be otherwise required by
the IRS.
IX.5 Initial Calculation. Transport will submit a schedule
to ATL by April 1 of each year of its calculation of the net
consideration for the preceding calendar year for this Agreement.
This schedule will be accompanied by a statement signed by an
officer of Transport stating that Transport will report such net
consideration in its tax return for the preceding calendar year.
IX.6 ATL Calculation. ATL may contest such calculation by
providing an alternate calculation to Transport in writing within
30 days of ATL's receipt of the calculation. If ATL does not so
notify Transport, ATL will report the net consideration as
determined by Transport in ATL's tax return for the previous
calendar year.
IX.7 Final Agreement on Calculation. If ATL contests
Transport's calculation of the net consideration, the parties
will act in good faith to reach an agreement as to the correct
amount within 30 days of the date ATL submits its alternate
calculation. It is the non-binding intent of the parties that in
the event of a prolonged disagreement over such calculation, they
will request an appropriate partner in one of the major national
independent auditing firms to mediate such disagreement. If ATL
and Transport reach agreement on an amount of net consideration,
each party shall report such amount in their respective tax
returns for the previous calendar year.
ARTICLE X
GENERAL PROVISIONS
X.1 Setoff. Transport and ATL may offset any balance or
amount due from one party to the other under this Indemnity
Agreement or any other contract heretofore or hereafter entered
into between Transport and ATL, whether acting as assuming
reinsurer or ceding company. However, in the event of the
insolvency of any party hereto, offset shall only be allowed in
accordance with applicable law.
X.2 Notices. All notices, requests, demands,
statements, acknowledgments and other communications provided for
in the Documents shall be in writing and shall be deemed given or
received (a) upon confirmation of receipt thereof, if transmitted
by facsimile or sent by overnight or same-day courier; or (b)
three (3) Business Days after mailing thereof, if mailed by
United States mail, certified mail, return receipt requested, in
either case to the following address of the respective addressee:
In the case of ATL:
American Travellers Life Insurance Company
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: Chairman
Telephone No.: (215) 244-1600
Facsimile No.: (215) 244-7711
In the case of the Transport:
Transport Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
and
Continental Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
or to such other address as the addressee shall, pursuant to
notice given to each other party in accordance with this
Paragraph 10.2, specify.
Each party shall be furnished with a copy of every notice,
request, demand, statement, acknowledgment or other communication
addressed and forwarded to any other party.
X.3 Credit For Reinsurance. In the event Transport shall be
denied, or have a reasonable basis to believe it will be denied,
statutory credit by any Regulatory Authority for all or any of
the reinsurance provided by ATL on the Policies pursuant to this
Indemnity Agreement, and such denial relates in any way to ATL's
financial condition or to its status as a non-admitted,
unapproved or unaccredited insurer or reinsurer, Transport may
immediately so notify ATL and the Trustee under the Trust
Agreement, and upon receipt of such notification, the provisions
of Section 5.4 of the Trust Agreement shall be effective,
provided however that Transport shall in advance and as promptly
as may be practicable under the circumstances notify ATL of any
situation that might result in such notification. At such time
as Transport no longer has reason to believe it will be denied
statutory credit by any Regulatory Authority for all or any of
the reinsurance provided by ATL on the Policies pursuant to this
Indemnity Agreement, or such denial no longer relates in any way
to ATL's financial condition or to its status as a non-admitted,
unapproved or unaccredited insurer or reinsurer, Transport shall
immediately so notify ATL and the Trustee and the provisions of
Section 5.3 of the Trust Agreement shall again become effective.
X.4 Submission to Jurisdiction. ATL shall consent to
submit to jurisdiction in all states in which it is not an
authorized insurer and shall appoint the chief insurance
regulatory official in each such state as its agent for service
of process. ATL shall file its annual statutory financial
statement with such states at the same time as its files such
statement in the states in which it is an authorized insurer.
X.5 Dispute Resolution. As a precedent to any right of
action hereunder, if any differences shall arise between
Transport and ATL with reference to the interpretation of or
obligations under this Indemnity Agreement, whether arising
before or after termination of this Indemnity Agreement, such
differences shall be submitted to arbitration pursuant to the
provisions of Article XIV of the Umbrella Agreement.
X.6 Umbrella Agreement. The parties acknowledge that certain
rights, obligations and duties under this Indemnity Agreement are
controlled by and subject to the provisions of the Umbrella
Agreement, all as provided for therein.
X.7 Governing Law. This Indemnity Agreement shall be
governed by and interpreted in accordance with the laws of Texas
without reference to conflict of laws.
X.8 Counterparts. Each Document may be executed in one or
more counterparts, each of which shall be an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have caused this Indemnity Agreement to be
executed and delivered as of the date first above written.
AMERICAN TRAVELLERS LIFE
INSURANCE COMPANY
Attest:_/s/T.J. Parry__________ By:_/s/John A. Powell________
Secretary Chairman/President
TRANSPORT LIFE INSURANCE
COMPANY
Attest:_/s/Gary Cole___________ By:_/s/Garland M. Laseter, JR___
Secretary President
CONTINENTAL LIFE INSURANCE
COMPANY
Attest: /s/ Gary Cole__________ By:___/s/ Garland M. Lasater, Jr
Secretary President
SCHEDULE 5.1
STANDARDS OF PERFORMANCE
TRANSPORT/CONTINENTAL LIFE INSURANCE COMPANY
LONG TERM CARE/HOME HEALTH CARE/CON CARE
SPECIAL CLAIM SITUATIONS
Administrative Decisions:
<PAGE>
1. All LTC/HHC/Con Care - Beginning in 1993 all policies
written prior to policy form 11011 are to be reinstated
for lapse due to cognitive impairment as in policy form
11011 - i.e no evidence of insurability is required in
these circumstances, but proof of cognitive impairment
will be required.
2. All LTC/HHC/Con Care - Transport is no longer denying
claims for late proof of loss unless the late proof of
loss would prejudice the ability to investigate the
claim.
3. All LTC - Long term care benefits are provided for
confinement to a hospice facility.
4. All LTC - Adult Congregate Living Facilities (ACLF's) -
If the facility can split the charges for personal care
from the charges for room and board, ACLF's can be
considered for payment under the home health care
provisions of an LTC contract.
5. Florida HHC Form 10922 - Under Home Health Care policy
form 10922 issued in Florida, the Lifetime Maximum
Benefit Period of 365 days is considered unlimited.
This is consistent with contracts issued in other
states.
6. TLC HHC Contracts - Home Health Care policies written
by the TLC Market prior to 10/1/91 provide benefits for
Homemaker Services.
Contract Clarification/Regulatory Interpretations:
1. Florida LTC Form 10955 - For those contracts issued in
Florida, the Home Health Care benefit period is
administered as equal to the LTC benefit period. This
interpretation is consistent with form 11001 where the
schedule page shows separate benefit periods.
2. LTC/HHC - Nurse registries are considered as Home
Health Care Agencies in Arkansas, California, and
Florida based on state regulations. Other states
adopting similar legislation would be handled
accordingly.
3. California 10770 - Under certain circumstances a prior
long term care confinement is not required for
consideration for the Home Medical Services Benefit.
See Attachment A. Changes made to coverage under these
contracts were viewed as bringing the contracts under
later long term care regulation which did not permit
the "gate keepers" in our policy form.
4. Con Care - These contracts had provision for two levels
of benefits. In Illinois, Iowa, Indiana, Kentucky,
North Carolina, North Dakota, and Virginia, skilled
care benefits are provided for days on which medication
is administered.
5. Con Care - If the Convalescent Care Benefit requires an
elimination period, basic benefits are paid during that
period.
6. North Carolina Con Care - The lifetime maximum for
Basic Care benefits is increased to the lifetime
maximum for Skilled Care benefits.
7. Texas Form 10770-88 - Attachment B is a copy of
Transport's Assurance of Voluntary Compliance to the
Texas Department concerning the handling of future
allegations from insureds as they may pertain to the
reinstatement of benefits.
8. Florida LTC - Attachment C is a copy of a March 30,
1995 letter indicating that Transport has not paid
nursing home benefits for ACLF confinements on Florida
LTC contracts issued since 1/1/92. (This is in
accordance with our interpretation of our contracts.)
Attachment D is a June 13, 1995 letter to the Florida
Department indicating ACLF history on some earlier
specific cases. In particular we have indicated that
if we had provided an insured confirmation of coverage
in an ACLF, we would honor that commitment.
This Schedule does not address single cases which have been
handled on an exception basis.
TRUST AGREEMENT
THIS TRUST AGREEMENT (as amended from time to time, this
"Agreement") is made as of the 8th day of December, 1995 by and
among AMERICAN TRAVELLERS LIFE INSURANCE COMPANY, an insurance
company organized under the laws of the Commonwealth of
Pennsylvania with its principal place of business located at 3220
Tillman Drive, Bensalem, Pennsylvania (the "Grantor"); TRANSPORT
LIFE INSURANCE COMPANY, an insurance company organized under the
laws of the State of Texas ("TLIC"), and CONTINENTAL LIFE INSURANCE
COMPANY, an insurance company organized under the laws of the State
of Texas ("CLIC"), each with its principal place of business
located at 714 Main Street, Fort Worth, Texas (collectively, TLIC
and CLIC the "Beneficiary"); and FLEET NATIONAL BANK OF
MASSACHUSETTS, a bank organized under the National Bank Act of the
United States of America (the "Trustee") (the Grantor, the
Beneficiary and the Trustee being hereinafter sometimes referred to
individually as a "Party" and referred to collectively as the
"Parties").
WHEREAS, the Grantor and the Beneficiary are party to the
Umbrella Agreement (hereinafter defined) which, among other things,
requires as a condition to its effectiveness that this Agreement
and the Reinsurance Contracts (hereinafter defined) be entered into
by the Parties;
WHEREAS, pursuant to the Reinsurance Contracts the Grantor is
a reinsurer of the Beneficiary;
WHEREAS, pursuant to the Umbrella Agreement the Grantor and
the Beneficiary have agreed to establish a trust account into which
(i) the Beneficiary, acting on behalf of the Grantor, shall
transfer approximately $254,179,465 of assets as of the date
hereof, (ii) the Grantor shall transfer approximately $38,661,665
of additional assets as of the date hereof, and (iii) the Grantor
shall transfer assets, from time to time thereafter, in accordance
with the provisions hereof, in each case in order to secure the
performance by the Grantor of its obligations under the Reinsurance
Contracts; and
WHEREAS, the Trustee has agreed to act as the Trustee with
respect to such trust account, and subject to the terms hereof to
hold such assets in trust for the benefit of the Beneficiary;
NOW, THEREFORE, in consideration of the premises and the
mutual promises and covenants contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereto agree as follows:
ARTICLE 1 Definitions.
As used herein, the following terms shall have the following
meanings:
"Agreement" shall have the meaning set forth in the preamble
hereto.
"Assets" shall mean the assets and property from time to time
held in the Trust Account established pursuant to this Agreement
or, as the context requires, the assets and property delivered by
or on behalf of the Grantor (including, without limitation, the
assets delivered by the Beneficiary acting on behalf of the
Grantor) to the Trustee for deposit in or transfer to the Trust
Account from time to time pursuant to this Agreement, and shall
also include (but not by way of limitation) such assets and
property as may be delivered or transferred to the Beneficiary by
the Trustee or the Grantor pursuant to the provisions of this
Agreement (whether following termination of the Trust Account or
otherwise), the rights and benefits attaching to, and all proceeds
of sale of, any Asset, and any account or accounts to which such
proceeds may be credited, and the rights of the Grantor, the
Trustee or the Beneficiary against any Securities System or against
any other third party in respect of any Asset.
"Beneficiary" shall have the meaning set forth in the preamble
hereto.
"Business Day" shall mean any day of the year (other than a
Saturday or Sunday) on which the Trustee is open for business in
Boston, Massachusetts.
"Designated Investment Advisor" or "Designated Investment
Advisors" shall mean one or more investment advisors, as the case
may be, acceptable to the Beneficiary and designated by the Grantor
pursuant to Section 10.1 hereof to act on its behalf as provided in
this Agreement, and shall initially be Van Kampen American Capital
Management, Inc.
"Encumbrance" shall mean any mortgage, charge, pledge,
encumbrance, lien or other security interest of any kind
whatsoever.
"Fiscal Quarter End" shall mean the last day of each of March,
June, September and December in each year.
"Grantor" shall have the meaning set forth in the preamble
hereto.
"Investment Guidelines" shall have the meaning set forth in
Section 3.1 hereof.
"Minimum Account Requirement" shall have the meaning given
thereto in the Umbrella Agreement.
"Month End" shall mean the last day of each calendar month in
each year.
"Obligation Amount" shall have the meaning given thereto in
the Umbrella Agreement and shall include, without limitation, the
aggregate liabilities of the Grantor under each of the Reinsurance
Contracts, together with all associated liabilities, all as set
forth in the Umbrella Agreement. Notwithstanding the foregoing, on
the date of execution of this Agreement and until the first
Obligations Notice is given pursuant to Section 3.5, the Obligation
Amount shall be deemed to be $290,841,130.
"Obligations Notice" shall have the meaning set forth in
Section 3.5.
"Reinsurance Contracts" shall mean, collectively, (i) that
certain Indemnity Reinsurance Agreement, dated as of December 8,
1995, between the Grantor and each of TLIC and CLIC, as amended and
in effect from time to time, and (ii) one or more Assumption
Reinsurance Agreements to be entered into from time to time after
the date hereof in accordance with the terms of the Umbrella
Agreement between the Grantor and either or both of TLIC and CLIC,
in each case as amended and in effect from time to time.
"Securities System" shall mean any Federal Reserve Bank of the
United States, Depository Trust Company, Participants Trust
Company, and any such other securities depository, clearing agency,
subcustodian or book entry system as the Trustee may select for
purposes of this Agreement from time to time.
"Statement of Account" shall have the meaning specified in
Section 8.1 hereof.
"Subaccount" shall have the meaning set forth in Section 2.1
hereof.
"Termination Date" shall have the meaning set forth in Section
15.1 hereof.
"Termination Notice" shall have the meaning set forth in
Section 15.1 hereof.
"Transaction" shall have the meaning set forth in Section 7.2
hereof.
"Trust Account" shall mean the trust account established
pursuant to Section 2.1 of this Agreement and, unless the context
otherwise requires, shall include any and all Subaccounts thereof.
"Trustee" shall have the meaning set forth in the preamble
hereto and shall include any successor thereto pursuant to Article
14 hereof.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of Texas.
"Umbrella Agreement" shall mean that certain Umbrella
Reinsurance Transaction Agreement, of even date herewith, among the
Grantor, TLIC and CLIC, as amended and in effect from time to time.
"Value" shall mean, with respect to any Asset, the Trustee's
valuation of such Asset, or, with respect to all Assets to be
valued by the Trustee, the Trustee's aggregate valuation of all
such Assets, in each case calculated by the Trustee on the basis of
market value. For purposes of this Agreement, "market value" shall
be determined by using in the case of debt securities, the mean of
the bid price and ask price thereof (including accrued and unpaid
interest, if any) and in the case of other securities, the daily
prices for the purchase of securities, in each case, as quoted by
Interactive Data Services for the day as of which the valuation is
to be made or, if such mean prices or daily prices for purchase are
not quoted by Interactive Data Services for the relevant
securities, then by using the price quoted to the Trustee by
Interactive Data Services (or a primary dealer in the relevant
securities as is agreed upon by the parties hereto) for the
purchase of the relevant securities for the day as of which the
valuation is to be made. Notwithstanding the foregoing, if,
neither such mean prices or daily prices for the purchase of the
relevant securities, as applicable, are quoted by Interactive Data
Services and there is not a primary dealer in the relevant
securities that will quote prices for purchase and that is
agreeable to the parties hereto, then "market value" shall be
determined based upon the Trustee's good faith estimate of the
price (including accrued and unpaid interest, if any) that a
willing seller would accept and a willing buyer would pay for the
relevant securities in an arms-length transaction.
ARTICLE 2 Establishment of Trust Account.
Section 2.1 The Trustee shall establish, as of the date of
this Agreement, a trust account for the benefit of the Beneficiary,
called "American Travellers/Transport/Continental Trust Fund", into
which the Trustee shall deposit or transfer and shall continue to
deposit or transfer Assets from time to time as provided in this
Agreement. Upon the instruction of the Grantor, at any time that
there shall be more than one Designated Investment Advisor, the
Trustee shall divide the Trust Account into two or more subaccounts
(individually, a "Subaccount") for the purpose of segregating the
Assets in the Trust Account to be managed by the different
Designated Investment Advisors. Unless and until the Trustee
notifies the Beneficiary and the Grantor to the contrary, all
certificates received by the Trustee for Assets deposited in or
transferred to the Trust Account in certificated form, and the
records of the Trustee for all other Assets deposited in the Trust
Account, shall be kept by the Trustee.
Section 2.2 The Trustee is authorized and empowered to
register any Asset in the Trust Account in the Trustee's own name
or in the name of a nominee, and to hold any Assets in the Trust
Account, in nominee name or otherwise, directly or by a Securities
System, provided that (a) the books and records of the Trustee
shall at all times show that all such Assets are part of the Trust
Account, (b) if any Assets in the Trust Account are held in a
commingled account (whether "book entry" or otherwise) (i) such
account shall consist exclusively of assets of the Trustee's
clients; (ii) the Trustee's records shall clearly reflect the
Assets that are part of the Trust Account; and (iii) such
commingled account shall be designated a "Client Account" or
similarly designated so as to clearly indicate that the account
contains assets of the Trustee's clients and not assets of the
Trustee or any person other than a client of the Trustee, and (c)
such registration or holding shall neither increase nor decrease
the liability of the Trustee. Assets in the Trust Account shall
not be commingled (whether in an account or otherwise) with assets
of the Trustee or with any other assets of the Grantor or any other
person.
Section 2.3 From and after such time as the Grantor ceases to
have any actual or contingent liability to the Beneficiary under
any of the Reinsurance Contracts, the Beneficiary shall, within ten
(10) Business Days of its receipt of a written request from the
Grantor, instruct the Trustee to withdraw all of the Assets in the
Trust Account from the Trust Account and deliver the same to the
Grantor or its designee, together with a release executed by the
Beneficiary of such Assets from any security interest granted
pursuant to this Agreement. At such time as the Minimum Account
Requirement is equal to less than ten million dollars
($10,000,000), Grantor and Beneficiary shall negotiate with each
other in good faith to determine whether, and to what extent, any
commercial or regulatory considerations exist for the maintenance
and continuation of this Trust Agreement.
Section 2.4 To the extent that the creation of the Trust and
transfer of the Assets hereunder does not pass beneficial title in
the Assets to the Beneficiary, the Grantor hereby grants a security
interest in the Assets to the Beneficiary as security for the
performance of the Obligation Amount. The Trustee shall not have
any responsibility to perfect or cause to be perfected such
security interest.
ARTICLE 3 Deposit of Assets.
Section 3.1 The Beneficiary, acting on behalf of the Grantor
and in accordance with the terms of the Umbrella Agreement,
directly or through one or more agents, shall deliver to the
Trustee or its agent for deposit in or transfer to the Trust
Account upon the execution of this Agreement the Assets listed on
Schedule A hereto. The Grantor, in accordance with the terms of
the Umbrella Agreement, directly or through one or more agents,
shall deliver to the Trustee or its agent for deposit in or
transfer to the Trust Account upon the execution of this Agreement
the Assets listed on Schedule B hereto. From time to time after
the execution of this Agreement, the Grantor, directly or through
one or more agents, shall deliver or cause to be delivered to the
Trustee or its agent for deposit in or transfer to the Trust
Account such other Assets as are appropriate to satisfy its
obligations hereunder. By execution of this Agreement, the Grantor
does hereby assign, transfer and otherwise convey to the Trustee
from time to time, without recourse (except as specifically
provided herein), and without any other formal or other written
instrument of assignment, all of the Grantor's right, title and
interest in, to and under all the Assets, as identified in
Schedules A and B hereto, all additional Assets delivered to the
Trust Account from time to time pursuant to Sections 3.2, 3.4 and
3.5 hereof, and all proceeds (as defined in the UCC) of any of the
foregoing. All Assets delivered by or on behalf of the Grantor to
the Trustee or its agent from time to time for deposit in or
transfer to the Trust Account shall conform to the requirements of,
and be accompanied by the documentation provided for in, Article 7
hereof and the investment guidelines set forth in Schedule C hereto
as from time to time in effect (the "Investment Guidelines");
provided that such investments shall not be issued by the Trustee,
the Grantor or any affiliate of the Grantor; and provided further,
that it shall be the responsibility of the Grantor, and not the
Beneficiary, to determine whether such Assets satisfy the
requirements of this sentence. The Grantor hereby represents and
warrants to the Beneficiary and the Trustee that the Assets listed
on Schedules A and B conform to the aforesaid requirements. The
Trustee shall also have the responsibilities with respect to the
Assets in the Trust Account that are specified in Article 7 hereof.
All Assets shall be subject to the terms hereof.
Section 3.2 Subject to and in accordance with Sections 3.3,
3.4 and 3.5 hereof, the Grantor shall maintain Assets in the Trust
Account having a Value equal to or in excess of the Minimum Account
Requirement.
Section 3.3 In consideration of the premises and mutual
covenants set forth herein, the Trustee hereby declares that it
holds and will hold as trustee in trust under this Agreement all of
its right, title and interest in, to and under, and hereby
acknowledges its acceptance on behalf of the trust created hereby
of all right, title and interest in, to and under, the property,
whether now existing and hereafter created, transferred at any time
to the Trust Account pursuant to Sections 3.1, 3.2, 3.4 and 3.5; to
have and to hold such property unto the Trustee and its successors
in trust under and subject to the terms and conditions set forth in
this Agreement, for the benefit of the Beneficiary.
Section 3.4 Within ten (10) Business Days after receipt of
any Statement of Account, if such Statement of Account reflects
that the Value of the Assets as of the date of such Statement of
Account is (a) less than the Minimum Account Requirement as last
determined, if the Statement of Account has been prepared as of any
Fiscal Quarter End, or (b) less than ninety-five percent (95%) of
the Minimum Account Requirement as last determined, if the
Statement of Account has been prepared as of any other date, then
the Grantor shall deliver, or cause to be delivered, to the Trustee
or its agent for deposit in or transfer to the Trust Account Assets
having a Value such that the aggregate Value of the Assets as
reflected in the Statement of Account (as such aggregate Value of
the Assets may be reduced to reflect the Value of any Assets that
have been released from the Trust Account and as such aggregate
Value may be adjusted to reflect the Value of any substituted
Assets in the Trust Account, in each case since the date as of
which such Statement of Account was prepared) plus the Value of the
new Assets (determined as of the most recent practicable date)
equals or exceeds the Minimum Account Requirement (as such Minimum
Account Requirement may be adjusted to reflect changes in the
Obligation Amount as described in Section 3.5). The Trustee shall
not be responsible in any way for any failure of the Grantor to
make deliveries in accordance with the foregoing provision of this
Section 3.4 and shall not be obligated to procure such deliveries.
The Grantor shall not be entitled to any withdrawal of Assets
pursuant to this Section 3.4, even if a Statement of Account
reflects that the Value of Assets exceeds the Minimum Account
Requirement, it being understood that the Grantor shall be entitled
to a withdrawal of Assets only under the circumstances specified
in, and in the manner provided in, Section 3.5.
Section 3.5 Pursuant to the terms of the Umbrella Agreement,
the Grantor and/or the Beneficiary, in the manner and at the times
specified therein, shall make a conclusive determination of (i) the
Obligation Amount and (ii) the Minimum Account Requirement in
existence at such times, and written notice of such conclusive
determinations shall be given to each Party in the manner and at
the times specified in the Umbrella Agreement (each an "Obligations
Notice"). Each such determination shall be deemed final and
binding on the Parties for purposes of this Agreement. Within ten
(10) Business Days following the receipt by the Grantor of the
Obligations Notice, the Grantor shall deliver, or cause to be
delivered, to the Trustee or its agent for deposit in or transfer
to the Trust Account Assets in the amount equal to or in excess of
the positive amount, if any, determined by subtracting from the
Minimum Account Requirement (determined using the Obligations
Notice so received) the aggregate Value of the Assets in the Trust
Account as reflected in the most recent Statement of Account
received by the Grantor (as such aggregate Value may be reduced to
reflect the Value of any Assets that have been released from the
Trust Account and as such aggregate Value may be adjusted to
reflect the Value of any substituted Assets in the Trust Account,
in each case since the date as of which the Statement of Account
was prepared). The Trustee shall not be responsible in any way for
any failure of the Grantor to make deliveries in accordance with
the foregoing provision of this Section 3.5 and shall not be
obligated to procure such deliveries.
If, for purposes of the preceding sentence, the Value of the
Assets reflected in the most recent Statement of Account received
by the Grantor exceeds the Minimum Account Requirement, the
Beneficiary shall, within ten (10) Business Days of its receipt of
a written request from the Grantor, instruct the Trustee pursuant
to Section 4.1 to withdraw from the Trust Account and deliver to
the Grantor or its designee, together with a release executed by
the Beneficiary from any security interest created by this
Agreement of such Assets so withdrawn, Assets designated by the
Grantor approximately equal in Value (as reflected in the most
recent Statement of Account) to the difference between the
aggregate Value of Assets reflected in the most recent Statement of
Account (as such aggregate Value may be adjusted to reflect the
Value of any released or substituted Assets since the date of such
Statement of Account), and the Minimum Account Requirement
(determined using the Obligations Notice so received).
Section 3.6 If at the time of any delivery of Assets for
deposit in or transfer to the Trust Account pursuant to
Section 3.1, 3.2, 3.4 or 3.5 there shall be more than one
Designated Investment Advisor, the Grantor shall, by written notice
to the Trustee and the respective Designated Investment Advisor,
designate the respective Designated Investment Advisor responsible
for managing each such Asset being delivered. The Trustee shall
thereupon deposit or transfer such Assets to the appropriate
Subaccount(s) of the respective Designated Investment Advisor(s)
managing such Assets, and maintain such Assets in such
Subaccount(s) subject to the provisions of this Agreement. Any
designation pursuant to this Section 3.6 or Section 10.1 may be
revoked at any time by written notice from the Grantor to the
Trustee and the Beneficiary. If at the time of revocation there is
more than one Designated Investment Advisor, such notice of
revocation may contain a new designation of the Designated
Investment Advisor responsible for managing the Assets affected by
such revocation, and the Trustee shall thereupon transfer such
Assets to the Subaccount for such Designated Investment Advisor,
and maintain such Assets in such Subaccount subject to the
provisions of this Agreement.
Section 3.7 The Trustee shall give notice to the Grantor, the
Beneficiary and the Designated Investment Advisor responsible for
managing the Assets being deposited or transferred to the Trust
Account within five (5) Business Days following each deposit or
transfer to the Trust Account.
ARTICLE 4 Withdrawal of Assets by the Beneficiary.
Section 4.1 Upon written notice from the Beneficiary to the
Trustee, and, in the event Section 5.3 is applicable, the Trustee
having received the 10 day notice provided in Section 5.3, the
Beneficiary shall have the right, at any time and from time to
time, to direct the Trustee to transfer the Assets, or any portion
thereof, from the Trust Account to the Beneficiary. Such notice to
the Trustee (i) shall designate particular Assets to be withdrawn
and particular Subaccounts, if any, from which the Assets are to be
withdrawn if fewer than all of the Assets in the Trust Account are
being withdrawn, (ii) may (at the option of the Beneficiary)
designate a third person to whom such Assets shall be delivered,
(iii) may (at the option of the Beneficiary) condition any delivery
to a third person upon receipt by the Trustee from the Grantor,
directly or indirectly, of other Assets specified in such notice,
and (iv) may (at the option of the Beneficiary) identify the
purpose specified in Section 5.3 or Section 5.4, as the case may
be, for which the Assets are being withdrawn. As between the
Beneficiary and the Trustee the rights of the Beneficiary and the
obligations of the Trustee set forth in this Section 4.1 and
Section 4.2 are absolute, and no breach by the Beneficiary of its
undertakings pursuant to Section 5.3 shall be construed to limit
such rights and obligations.
Section 4.2 Upon receipt of the written notice of the
Beneficiary referred to in Section 4.1, the Trustee shall
immediately take any and all steps necessary to transfer absolutely
and unequivocally all right, title and interest in the withdrawn
Assets to the Beneficiary, or to any third person designated in
such written notice, and shall when applicable deliver or procure
delivery of custody of such Assets to the Beneficiary or such
designated third person in accordance with the terms and conditions
specified in the notice.
Section 4.3 The Trustee shall allow no substitutions or
withdrawals of the Assets in the Trust Account, or any portion
thereof, from the Trust Account, except (a) upon the instruction of
the Grantor for the purpose of transferring Assets to or among
Subaccounts, (b) upon the instruction of the Grantor or one or more
of the Designated Investment Advisors for the purpose of receiving
or delivering or substituting Assets in the Trust Account of equal
or greater value as provided in Article 10 hereof, or (c) upon the
written instruction of the Beneficiary as provided in Sections 4.1
and 4.2 of this Agreement.
Section 4.4 Other than the written notice referred to in
Section 4.1 hereof, the Beneficiary need present no statement or
document, and the Beneficiary need not take any other action, in
order to withdraw the Assets, or any portion thereof.
Section 4.5 The Beneficiary (or the Grantor, in case the
Beneficiary has designated the Grantor as a third person to whom
such Assets shall be delivered), shall provide the Trustee with
written acknowledgment of receipt of withdrawn Assets delivered to
it pursuant to the instruction of the Beneficiary as provided in
Section 4.1.
Section 4.6 The Trustee shall give notice to the Grantor, the
respective Designated Investment Advisor(s), if any, responsible
for managing the Assets being withdrawn and the Beneficiary within
five (5) Business Days following each withdrawal from the Trust
Account or any Subaccount.
ARTICLE 5 Power of Sale; Application of Assets.
Section 5.1 Upon withdrawal of any or all Assets pursuant to
Section 4.1 or otherwise pursuant to this Agreement, the
Beneficiary shall be entitled at any time to sell or otherwise
realize upon all or any of such Assets in such manner, at such time
or times and to such person or persons as the Beneficiary may in
its sole discretion elect, and shall apply the proceeds received
therefrom in or towards payment of the Obligation Amount in such
order and manner as the Beneficiary shall elect in its sole
discretion.
Section 5.2 The Beneficiary (or any person authorized by the
Beneficiary pursuant to this Agreement) is hereby authorized to
sign, transfer or deliver any of the Assets and to give a good
discharge for any moneys received by it either in exercise of its
power of sale or realization or otherwise as a result of a payment
being made to the Beneficiary in respect of any Assets during the
subsistence of the Trust. No purchaser from the Beneficiary shall
have need to inquire whether the power of sale has become
exercisable or whether the exercise or purported exercise of any
such power is proper or valid.
Section 5.3 Except as provided in Section 5.4, the
Beneficiary covenants with the Grantor to give the Grantor 10 days
advance notice (with a copy of such notice sent concurrently to the
Trustee) of any withdrawal of Assets and to use and apply any
withdrawn Assets for the following purposes only:
(a) to pay or reimburse the Beneficiary for the unpaid
or unreimbursed portion of the Obligation Amount;
(b) to deliver to or on the instruction of the Grantor
any Assets held in the Trust Account that have a Value in
excess of the Minimum Account Requirement, all in accordance
with Section 3.5;
(c) if the Beneficiary receives notice of the
Grantor's insolvency or the filing of rehabilitation or
liquidation proceedings against the Grantor and if at such
time all or any part of the Obligation Amount remains
unliquidated and undischarged, to withdraw Assets having a
Value equal to such unliquidated and undischarged Obligation
Amount to be held as continuing security for such Obligation
Amount; and
(d) if the Grantor has materially breached any of the
provisions of this Agreement or of any of the Reinsurance
Contracts, and if at such time any of the Obligation Amount
remains unliquidated and undischarged, to withdraw Assets
having a Value equal to the sum of such unliquidated and
undischarged Obligation Amount and any damages incurred by the
Beneficiary as a result of such breaches to be held as
continuing security for such Obligation Amount and the payment
of such damages.
The Beneficiary agrees with the Grantor to provide to the Grantor
a copy of any notice to the Trustee pursuant to Section 4.1
concurrently with the giving of such notice to the Trustee, and at
such time to identify for the Grantor the purpose specified in this
Section 5.3 for which the withdrawal is being made. Nothing in
this Section 5.3 shall be construed to obligate or permit the
Trustee to determine whether any withdrawal of Assets by the
Beneficiary is in accordance with this Section 5.3, the Trustee's
obligations under Sections 4.1 and 4.2, and the rights of the
Beneficiary under Sections 4.1 and 4.2, as between the Beneficiary
and the Trustee, being absolute.
Section 5.4 In the event that the Beneficiary has given the
Grantor notice that it has been denied, or has a reasonable basis
to believe it will be denied, statutory credit by any Regulatory
Authority for all or any of the reinsurance provided by Grantor to
Beneficiary pursuant to the Reinsurance Contracts and that such
denial relates in any way to Grantor's financial condition or to
its status as a non-admitted, unapproved or unaccredited insurer or
reinsurer, then the provisions of this Section 5.4 apply instead of
those of Section 5.3 and Beneficiary covenants with the Grantor to
withdraw Assets and to use and apply any withdrawn Assets for the
following purposes only:
(a) to pay or reimburse the Beneficiary for the unpaid
or unreimbursed portion of the Obligation Amount;
(b) to deliver to or on the instruction of the Grantor
any Assets held in the Trust Account that have a Value in
excess of the Minimum Account Requirement, all in accordance
with Section 3.5;
(c) if the Beneficiary receives notice of the
Grantor's insolvency or the filing of rehabilitation or
liquidation proceedings against the Grantor and if at such
time all or a part of the Obligation Amount remains
unliquidated and undischarged, to withdraw Assets having a
Value equal to such unliquidated and undischarged Obligation
Amount to be held as continuing security for such Obligation
Amount; and
(d) if the Grantor has materially breached any of the
provisions of this Agreement or of any of the Reinsurance
Contracts, and if at such time any of the Obligation Amount
remains unliquidated and undischarged, to withdraw Assets
having a Value equal to the sum of such unliquidated and
undischarged Obligation Amount and any damages incurred by the
Beneficiary as a result of such breaches to be held as
continuing security for such Obligation Amount and the payment
of such damages.
The Beneficiary agrees with the Grantor to provide to the Grantor
a copy of any notice to the Trustee pursuant to Section 4.1
concurrently with the giving of such notice to the Trustee, and at
such time to identify for the Grantor the purpose specified in this
Section 5.4 for which the withdrawal is being made. Nothing in
this Section 5.4 shall be construed to obligate or permit the
Trustee to determine whether any withdrawal of Assets by the
Beneficiary is in accordance with this Section 5.4, the Trustee's
obligations under Sections 4.1 and 4.2, and the rights of the
Beneficiary under Sections 4.1 and 4.2, as between the Beneficiary
and the Trustee, being absolute.
At such time as the Beneficiary no longer has reason to
believe it will be denied statutory credit by any Regulatory
Authority for all or any of the reinsurance provided by Grantor to
Beneficiary pursuant to the Reinsurance Contracts, or such denial
no longer relates in any way to Grantor's financial condition or to
its status as a nonadmitted, unapproved or unaccredited insurer or
reinsurer, Beneficiary shall immediately so notify Grantor and the
Trustee of such fact and the provisions of Section 5.3 shall again
become effective.
ARTICLE 6 Trust Agreement for Benefit of Beneficiary. This
Agreement shall be for the sole use and benefit of the Beneficiary,
and no other person or entity shall be deemed to be a third-party
beneficiary hereof.
ARTICLE 7 Form of Assets.
Section 7.1 The Trustee shall ensure that all Assets from
time to time in the Trust Account are in such form and are so held
by the Trustee that the Beneficiary, or the Trustee upon direction
by the Beneficiary, may, whenever called for by this Agreement,
negotiate any such Assets (which power to negotiate shall include,
without limitation, the transfer by endorsement or delivery or
other means so as to pass to the transferee all right, title and
interest therein), without consent or signature from the Grantor or
any person or entity other than the Trustee in accordance with the
terms of this Agreement. In furtherance of, but not in limitation
of, the foregoing, at the time of any deposit or transfer to the
Trust Account of Assets that are not in certificated form, the
Grantor shall take such action as may be necessary so that the
records of the issuer, any financial intermediary and any nominee
which had reflected the interest of the Grantor in such Assets are
modified to reflect the transfer of such interest to the Trustee
pursuant to this Agreement. For purposes of determining the Value
of any Assets in the Trust Account other than cash deposited or
transferred by the Grantor to the Trust Account, such deposit or
transfer shall be accompanied or preceded by copies of
confirmations and/or such other documentation as the Trustee may
reasonably request in order to establish the Value of such Assets.
Section 7.2 In connection with any deposit, investment,
reinvestment, transfer of Assets or substitution of Assets, or
other dealings of any kind in respect of the Assets other than a
withdrawal (for purposes of this Section 7.2, each a "Transaction")
by the Grantor pursuant to this Agreement, the Trustee shall
request that the Designated Investment Advisor or Grantor (only if
the first provisio in Section 10.1 is applicable) make a
determination as to whether the Transaction conforms to the
requirements of the Investment Guidelines. The Trustee shall be
responsible for making such request as promptly as practicable, and
the Designated Investment Advisor shall make a decision as to
conformity, if reasonably practicable, prior to execution of the
Transaction. If a determination of non-conformity is made prior to
execution, the Trustee shall refuse to execute the Transaction if
not theretofore executed, and any loss occasioned thereby shall be
borne by the Grantor. The Trustee shall notify the Beneficiary and
the Grantor of any such determination of non-conformity as promptly
as practicable, but in any event within five (5) Business Days of
the Designated Investment Advisor or the Grantor (only if the first
proviso in Section 10.1 is applicable) making any such
determination. The Grantor shall be responsible for remedying any
such non-conformity of the Assets, by substituting Assets which
conform to the requirements of the Investment Guidelines and this
Agreement as promptly as practicable, but in any event within five
(5) Business Days of receipt of notice of the non-conformity from
the Designated Investment Advisor or the Grantor making such
determination, as applicable. Absent manifest error or wrongful
conduct, the Designated Investment Advisor's determination of
conformity or non-conformity to the Investment Guidelines shall be
final and binding on the Grantor and the Beneficiary.
ARTICLE 8 Statement of Account.
Section 8.1 The Trustee shall furnish to the Grantor and the
Beneficiary a complete statement issued by the Trustee of all
Assets in the Trust Account and each Subaccount and the Value
thereof (a "Statement of Account") upon the establishment of the
Trust Account and the initial deposit of Assets pursuant to
Section 3.1, as of each Month End, including each Fiscal Quarter
End, and at such other intervals as may be requested by the Grantor
or the Beneficiary.
Section 8.2 Upon the written request of the Grantor or the
Beneficiary, the Trustee shall promptly permit the Grantor or the
Beneficiary, as the case may be, or any agent, employee or
independent auditor designated by any of them, to examine, audit,
excerpt, transcribe and copy, during normal business hours, any
books, documents, papers and records relating to the Trust Account
or the Assets in the Trust Account. All such examinations, audits,
making of excerpts, transcriptions and copies undertaken by the
Grantor shall be at the Grantor's expense, and the Grantor shall
reimburse the Beneficiary and the Trustee for all costs and
expenses incurred by them of not more than one such audit per year
undertaken by the Beneficiary.
ARTICLE 9 Right to Vote Securities and Payment of Dividends
and Interest. The Grantor shall have the full and unqualified
right to vote any shares of stock or other voting securities in the
Trust Account, which right, at the sole discretion of the Grantor
and upon written notice to the Trustee, may be delegated to one or
more Designated Investment Advisors. The Trustee shall promptly
clip and present for payment all coupons attached to any of the
Assets in the Trust Account and otherwise attend to such details as
are necessary and incident to the receipt of interest, dividends or
other income from the Assets in the Trust Account, and furnish an
accounting thereof to the Grantor. Upon any such distribution of
interest, dividends or other income on or from the Assets in the
Trust Account, the interest, dividends or other income shall be
deposited in and become Assets of the Trust Account.
ARTICLE 10 Investment of Assets.
Section 10.1 The Grantor may, at any time or from time to
time, by written notice to the Trustee and the Beneficiary,
designate one or more persons to act as the Grantor's Designated
Investment Advisors hereunder; provided, that if the Beneficiary
notifies the Trustee and the Grantor at any time that any person so
designated is not acceptable to the Beneficiary, and has reasonable
cause to do so, then such person shall not thereafter be entitled
to serve as a Designated Investment Advisor hereunder and the
Grantor shall serve as the Designated Investment Advisor until such
time as the Beneficiary and Grantor agree upon a substitute
Designated Investment Advisor pursuant to this sentence. If more
than one person is appointed as a Designated Investment Advisor
(or, if at the time of designation, there is already at least one
person serving as a Designated Investment Advisor), the written
notice given to the Trustee shall designate the Designated
Investment Advisor responsible (subject to Section 7.2 and Section
10.3 hereof) for the management of each of the Assets in the Trust
Account as of the date of such appointment, in which case the
Trustee shall transfer the respective Assets to the Subaccounts for
the respective Designated Investment Advisors managing such Assets,
and maintain such Assets in such Subaccounts subject to the
provisions of this Agreement. Each such Designated Investment
Advisor shall be deemed to be an agent of the Grantor for purposes
of this Agreement with respect to that portion of the Assets
managed by it. Any such designation may be revoked at any time by
the Grantor by written notice to the Trustee and the Beneficiary.
Section 10.2 Subject in all respects to Section 10.3 hereof
and the other terms and conditions of this Agreement, the Assets in
the Trust Account shall be managed by the Grantor, directly or
through one or more Designated Investment Advisors, who shall have
full power and authority from time to time to direct the Trustee to
receive and deliver the Assets (or, in the case of multiple
Designated Investment Advisors, the respective Assets managed by
them) in the Trust Account, with full power of substitution being
vested in the Grantor, in such investments as are permitted under
Section 3.1 hereof, and the Grantor or the relevant Designated
Investment Advisor shall promptly notify the Trustee of the details
of each transaction and the Trustee shall have no responsibility in
respect of such instructions except as expressly provided in this
Agreement. Except as provided in Article 4 hereof, unless and
until directed by the Grantor directly or through one or more of
the Designated Investment Advisors and such direction has been
authorized or approved by or on behalf of the Beneficiary in
accordance with Section 10.3 hereof, the Trustee shall not take any
action with respect to the receipt or delivery of the Assets in the
Trust Account; provided, that the Grantor, directly or through one
or more of its Designated Investment Advisors, shall establish
procedures which shall take effect, subject in all respects to
Section 10.3 hereof and the other terms and conditions of this
Agreement, for the immediate investment of any cash in the Trust
Account or in the respective Subaccount managed by the respective
Designated Investment Advisor, as the case may be, into investments
permitted under Section 3.1 hereof in order that no cash be held
uninvested overnight in the Trust Account; and provided further,
that the Value of the Assets proposed for substitution in the Trust
Account shall not be less than the Value as of the most recent
practicable date preceding the proposed substitution of the Assets
in the Trust Account (including cash) for which the substitution is
proposed. The foregoing sentence notwithstanding, the Trustee
shall deliver securities held in the Trust Account pursuant to this
Agreement at the time of maturity or call of such securities to the
original obligor, or its agents or assigns, without further
instruction from the Beneficiary, the Grantor or any Designated
Investment Advisor, and shall deposit the proceeds therefrom in the
Trust Account, whereupon such proceeds shall become Assets for
purposes of this Agreement.
Section 10.3 No withdrawal in respect of any of the Assets
may be made by the Grantor (nor shall an instruction to effect the
same be deemed validly issued by the Grantor or any Designated
Investment Advisor) without the prior written consent of the
Beneficiary.
Section 10.4 In connection with each receipt, delivery or
substitution of Assets in or to the Trust Account, the Trustee
shall determine the Value of the new Assets and the Value of the
Assets in the Trust Account, if any, proposed to be substituted
(including cash) for such new Assets. If the Value of new Assets
proposed to be substituted in the Trust Account for Assets in the
Trust Account does not satisfy the requirements of the second
proviso to the penultimate sentence of Section 10.2 hereof, then
the Trustee shall not permit the proposed substitution of Assets to
occur. If the new Assets are proposed to be added to the Trust
Account to increase the Value thereof for purposes of Section 3.2,
3.4 or 3.5 hereof without any requirement that any Asset be
withdrawn from the Trust Account in connection therewith, but the
Value of the new Assets would not result in the aggregate Value of
the Assets in the Trust Account equalling the Minimum Account
Requirement, then the Trustee shall give notice to the Grantor and
the Beneficiary as promptly as practicable, but in any event with
five (5) Business Days after receipt of such Assets. In either
such case, any loss occasioned thereby shall be borne by the
Grantor. If the Trustee shall fail to satisfy its obligations
under this Section 10.4, it shall nonetheless be the responsibility
of the Grantor to assure that the requirements of the second
proviso to the second sentence of Section 10.2 hereof, or of
Section 3.2, 3.4 or 3.5 hereof, as applicable, have been satisfied.
ARTICLE 11 Compensation of the Trustee. The Grantor hereby
agrees to compensate the Trustee for the services to be rendered
hereunder at such rates and at such times as the Grantor and the
Trustee shall agree, to pay or reimburse the Trustee upon request
for all expenses, disbursements and advances, including reasonable
attorney's fees, incurred or made by it in connection with carrying
out its duties hereunder, and to indemnify and hold harmless the
Trustee from and against any and all losses, damages and
liabilities, including reasonable attorney's fees, suffered or
incurred by the Trustee in complying with its obligations pursuant
to Section 7.2 or 10.4. The Grantor and the Trustee acknowledge
that the Trust Account is established solely for the benefit of the
Beneficiary and may not be invaded, among other things and without
limitation, for the purposes of paying compensation to, or
reimbursing, the Trustee or any Designated Investment Advisor.
ARTICLE 12 Liability of the Trustee. The Trustee shall not
be liable for:
(a) any loss, damage or injury sustained by the
Grantor, or the Beneficiary, or both, with respect to the
Assets in the Trust Account, or any portion thereof; or
(b) any failure of any investment to realize its
expected value on redemption, repayment or other maturity; or
(c) any depreciation in value or loss of profit which
may be suffered in respect of the Trust Account;
irrespective of how the events described in subparagraphs (a), (b)
or (c) above may have occurred or howsoever they may have been
caused, unless such loss, damage, injury, failure, depreciation in
value or loss of profit is due to the Trustee's own gross
negligence, willful misconduct or lack of good faith.
The Trustee may act directly or indirectly through agents or
attorneys and shall not be liable or responsible for the acts or
negligence of agents appointed with due care. The Trustee shall
have no liability or responsibility for any action or omission of
any Federal Reserve Bank of the United States or the Depository
Trust Company ("DTC"), including any error or delay by such Bank or
DTC to remit any payment or deliver any notice or other
information.
In the event of any such loss, damage, injury, failure,
depreciation in value or loss of profit caused by the Trustee's
gross negligence, wilful misconduct or lack of good faith, the
Trustee shall promptly replace any lost, damaged, injured, failed
or depreciated Assets that were in the Trust Account with other
Assets of like kind, quality and Value, if reasonably available, or
with such other Assets of equivalent Value as may be approved by
the Beneficiary and the Grantor. The Trustee shall maintain
adequate insurance covering all of the Assets in the Trust Account
for such risks as is customary under relevant trade practices. The
Trustee shall give the Grantor at least thirty (30) days' prior
written notice of any change in the insurance coverage or the terms
thereof which may result in the Trustee's inability to satisfy its
obligations hereunder with respect to the maintenance of insurance,
or, if the insurer informs the Trustee of any unilateral change in
such insurance coverage on less than thirty (30) days' notice, the
Trustee shall notify the Grantor within five (5) days after receipt
of such notice.
Except as otherwise provided herein, the Trustee shall be without
liability to the Beneficiary or the Grantor or anyone else for the
performance of any investment and the Trustee shall not be
responsible for any loss.
The Trustee shall be required to perform only those duties that are
specifically set forth in this Agreement and not others, and no
implied covenants or obligations shall be read into this Agreement
against the Trustee.
ARTICLE 13 Reliance on Signatures. In carrying out its
duties under this Agreement, the Trustee shall be entitled to rely
on the signatures of those individuals who are authorized to
execute any document, certificate or other instrument on behalf of
the Grantor, any Designated Investment Advisor or the Beneficiary,
as the case may be, by proper resolution of the Board of Directors
of the Grantor, the Designated Investment Advisor or the
Beneficiary, respectively; provided that a certified copy of such
resolution shall have been delivered to the Trustee, stating that
such resolution is and shall remain in full force and effect until
delivery to the Trustee of a certified copy of a superseding or
modifying resolution; and provided further that such certified copy
shall be accompanied by specimen signatures of such officers,
agents or representatives as may be designated by such resolution.
ARTICLE 14 Resignation or Removal of the Trustee; Appointment
of Successor Trustee. The Trustee may resign at any Fiscal Quarter
End by delivery to the Beneficiary and the Grantor of a written
notice of resignation, not less than ninety (90) days prior to the
end of such Fiscal Quarter End; provided that such resignation
shall not be effective until a successor Trustee has been duly
appointed and approved by the Beneficiary and the Grantor and all
Assets in the Trust Account have been duly transferred to the
successor Trustee; provided further, that if the Beneficiary and
the Grantor shall have failed to designate a successor Trustee
prior to or concurrently with the Fiscal Quarter End as of which
such resignation is to become effective, then from and after such
Fiscal Quarter End, unless a successor Trustee is thereafter
appointed by the Beneficiary and the Grantor, the Trustee may
appoint a successor Trustee that (a) is an entity which is
incorporated under United States state or federal law and
authorized to carry on a banking business in the United States or
any state thereof, and (b) has a combined capital and surplus of at
least $500,000,000 (and the Trustee may reasonably rely on such
successor Trustee's representations as to its qualifications), in
which case the Trustee's resignation shall become effective at such
time as all of the Assets in the Trust Account have been duly
transferred by the resigning Trustee to the successor Trustee and
the successor Trustee shall have executed and delivered to the
Beneficiary and the Grantor and the resigning Trustee an
instrument, in form and substance acceptable to the Grantor and the
Beneficiary, accepting the appointment as the Trustee hereunder.
The Trustee also may be removed at any time by the Beneficiary and
the Grantor, acting together, by delivery to the Trustee of a
written notice of removal, executed by the Beneficiary and the
Grantor, naming the successor Trustee duly appointed by the
Beneficiary and the Grantor and the effective date of such
succession. The Trustee shall promptly take such steps as may be
necessary, or as may be required by the Grantor or the Beneficiary,
in order to fully vest in any successor Trustee appointed pursuant
to this Article 14 the rights, authority and responsibilities of
the Trustee pursuant to this Agreement. In the event of
resignation of the Trustee in accordance with this Article 14, all
expenses of taking such steps shall be borne by the Grantor; in the
event of removal of the Trustee in accordance with this Article 14,
all expenses of taking such steps shall be borne by the party
requesting such removal.
Nothing herein contained shall be construed so as to prevent
the Trustee from (i) acting as trustee, manager and/or banker for
trusts separate and distinct from the Trust or (ii) petitioning a
court of competent jurisdiction for an order permitting it to
resign its duties.
ARTICLE 15 Termination.
Section 15.1 The Trust Account may be terminated only after
(a) the Grantor ceases to have any actual or contingent liability
to the Beneficiary under each of the Reinsurance Contracts, (b) the
Grantor or the Beneficiary has given the Trustee and the other
Party hereto written notice of its intention to terminate the Trust
Account (the "Termination Notice"), and (c) the Party receiving the
Termination Notice has failed to object to the termination in
accordance with Section 15.2. The Termination Notice shall specify
the date on which the notifying party intends the Trust Account to
terminate, which shall be not less than thirty (30) nor more than
forty-five (45) days from the date as of which the Termination
Notice is given (the "Termination Date").
Section 15.2 The Party receiving the Termination Notice
shall have fifteen (15) Business Days after receipt of such Notice
(for purposes of Sections 15.1 and 15.2, the Termination Notice
shall be deemed received on the Business Day next succeeding the
day on which such Termination Notice was received by the Trustee
and the Trustee has notified the Parties of such date) to give
written notice to the Trustee and the other Party of its objection
to the requested termination of the Trust Account if such Party
reasonably believes the conditions set forth in Section 15.1 shall
not have been satisfied. Upon receipt by the Trustee of any such
notice of objection, the Trustee shall not take the action set
forth in Section 15.3 hereof unless and until the Trustee is
directed to do so either by written direction received jointly from
the Grantor and the Beneficiary or by the order of a court of
competent jurisdiction.
Section 15.3 Upon the Termination Date, but subject to the
final sentence of Section 15.2 hereof, the Assets in the Trust
Account shall be delivered promptly by the Trustee to the Grantor;
provided, that termination of the Trust Account and the delivery of
such Assets shall not affect the rights or obligations of the
Grantor and the Beneficiary under any of the Reinsurance Contracts.
ARTICLE 16 Further Assurances; Power of Attorney.
Section 16.1 The Grantor shall, at its own expense and in
such manner and form as the Beneficiary may require, execute such
documents and do such acts and things as may be necessary in order
to create, preserve, perfect or validate the security interest
hereby granted or to enable the Beneficiary to exercise and enforce
its rights hereunder with respect to the Trust Account or any of
the Assets from time to time.
Section 16.2 The Grantor hereby irrevocably appoints by way
of security the Beneficiary as its attorney, with full power of
delegation, for it and in its name and on its behalf, and as its
act and deed or otherwise, to seal, deliver and otherwise perfect
any deed, assurance, agreement, instrument or act which the
Beneficiary determines is reasonably required on the part of the
Grantor pursuant to the terms hereof in order to fully effectuate
the intents and purposes hereof.
ARTICLE 17 Dispute Resolution; Governing Law and
Jurisdiction. All disputes between the Grantor and the Beneficiary
under or related to this Agreement shall be resolved pursuant to
the terms of the Umbrella Agreement. All disputes between the
Trustee and any of TLIC, CLIC or the Grantor shall be subject to
the following:
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
(b) Each of the Parties irrevocably agrees for the
benefit of the other Parties that any State or Federal Court
sitting in Fort Worth, Texas shall have exclusive jurisdiction
to hear and determine any suit, action or proceeding, and to
settle any disputes which may arise out of or in connection
with this Agreement which involve the Trustee and, for such
purposes, irrevocably submits to the jurisdiction of such
courts, and each Party irrevocably waives any objection which
it may now or hereafter have to the jurisdiction of such
courts.
Notwithstanding the foregoing, the Beneficiary or Grantor shall be
entitled to sue in any jurisdiction in which any relevant Asset or
any Securities System for any relevant Asset is located to the
extent necessary or advisable in connection with the Beneficiary's
recovery of, or realization against, any such relevant Asset, and,
each of the parties hereto irrevocably agrees that the courts of
any such jurisdiction shall for such purposes have jurisdiction to
hear and determine any suit, action or proceeding, and to settle
any disputes, which may arise out of or in connection with such
recovery or realization and, for such purposes, each of the parties
irrevocably submits to the jurisdiction of any such courts.
ARTICLE 18 Representations and Warranties of Parties. Each
of the Parties hereby represents and warrants to the other Parties
as follows:
(a) It has all requisite power and authority to enter
into and perform this Agreement and to consummate the
transactions contemplated hereby;
(b) the execution, delivery and performance by it of
this Agreement has been duly authorized by all necessary
action on its part; and
(c) this Agreement has been duly and validly executed
and delivered by it and, assuming due authorization, execution
and delivery by the other Parties hereto, constitutes its
legal, valid and binding obligations enforceable against it in
accordance with the terms hereof.
ARTICLE 19 Binding Agreement. Without the written consent of
the other Parties hereto, no Party may assign this Agreement or any
of its rights or obligations hereunder, whether by merger,
consolidation, sale of all or substantially all of its assets,
liquidation, dissolution, operation of law or otherwise, except as
expressly provided herein. Subject to the foregoing, this
Agreement shall be binding upon the Parties and their respective
successors and assigns and shall inure to the benefit of the
respective permitted successors and permitted assigns of each
Party.
ARTICLE 20 Severability. If any provision of this Agreement
is declared or found by a court of competent jurisdiction to be
prohibited by or invalid under applicable law, then all Parties
shall be relieved of their respective obligations arising under
such provision to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the
remaining provisions of this Agreement, and the remainder of such
provision and the remaining provisions of this Agreement shall be
interpreted so as to conform to the original intent of this
Agreement.
ARTICLE 21 Entire Agreement. This Agreement, together with
the Reinsurance Contracts and the Umbrella Agreement, constitute
the entire agreement among the Parties with respect to the subject
matter hereof, and supersedes any other prior or contemporaneous
agreements, whether written or oral, with respect to the subject
matter hereof. There are no understandings or agreements,
conditions or qualifications relative hereto or to the Reinsurance
Contracts which are not fully expressed herein or therein and no
change or discharge hereof shall be valid unless in a writing
executed by each Party.
ARTICLE 22 Waiver. No waiver of any provision of this
Agreement shall be effective unless it is in writing, and then only
to the extent specifically stated. Unless otherwise specifically
stated in the written waiver, no such waiver shall be construed as
a waiver of any continuing or succeeding breach of such provision,
a waiver or modification of the provision itself, or a waiver or
modification of any right under this Agreement.
ARTICLE 23 Notices. All notices, requests, demands,
statements, acknowledgments, instructions and other communications
provided for in this Agreement shall be in writing and shall be
deemed given or received (i) upon confirmation of receipt thereof,
if transmitted by facsimile or sent by overnight or same-day
courier; or (ii) three (3) Business Days after mailing thereof, if
mailed by United States mail, certified mail, return receipt
requested, in either case to the following address of the
respective addressee:
In the case of the Grantor:
American Travellers Life Insurance Company
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: Chairman
Telephone No.:(215) 244-1600
Facsimile No.:(215) 244-7711
In the case of the Beneficiary:
Transport Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
and
Continental Life Insurance Company
714 Main Street
Fort Worth, Texas 76102-5217
Attention: President
Telephone No.: (817) 390-8000
Facsimile No.: (817) 347-3297
In the case of the Trustee:
Fleet National Bank of Massachusetts
One Federal Street
Boston, Massachusetts 02211
Attention: Corporate Trust Administration
Telephone No.: (617) 292-3106
Facsimile No.: (617) 292-4289
or to such other address as the addressee shall, pursuant to notice
given to each other Party in accordance with this Article 23,
specify.
Each Party shall be furnished with a copy of every notice,
request, demand, statement, acknowledgment, instruction or other
communication addressed and forwarded to any other Party.
Any instructions to the Trustee hereunder by Beneficiary
and/or Grantor shall contain a certification that such instruction
is being given an accordance with the terms of the Documents (as
defined in the Umbrella Agreement); provided, however, that no such
certification shall be given if the Parties are operating under
Section 5.4 of this Agreement.
ARTICLE 24 Force Majeure. The Trustee does not have any
responsibility if for any reason or cause beyond its reasonable
control, including (without limitation) government action, currency
restrictions, acts of war, acts of God, breakdown or failure of
transmission or communications or computer facilities, postal or
other strikes or industrial action or the failure or disruption of
any stock exchange, clearing house, settlement system or market,
the Trustee's ability to perform its duties under this Agreement is
restricted, removed or subject to delay in any way.
ARTICLE 25 Captions. The captions of the various sections of
this Agreement are for convenience only and shall be accorded no
weight in the construction of this Agreement.
ARTICLE 26 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be an original but
all of which together shall constitute one and the same instrument.
<PAGE>
EXECUTED AND DELIVERED as of the date first set forth above.
AMERICAN TRAVELLERS LIFE
INSURANCE COMPANY
By: /s/ John A. Powell
Name: John A. Powell
Title:President &
Chairman of the Board
TRANSPORT LIFE INSURANCE COMPANY
By: /s/ Garland M. Lasater, Jr
Name: Garland M. Lasater, Jr
Title: President
CONTINENTAL LIFE INSURANCE
COMPANY
By: /s/Garland M. Lasater, Jr
Name: Garland M. Lasater, Jr
Title: President
FLEET NATIONAL BANK OF
MASSACHUSETTS, as
Trustee
By: /s/ Fleet National Bank
Name: Fleet National Bank
Title:
<PAGE>
Schedule A
List of Initial Assets Delivered by the
Beneficiary on behalf of the Grantor
Cusip Nu Security Des Int/Rt Mat Date Par Value** 11/27/95*** Sec
312914TH FHLMC 1468 G 7.000 06/15/18 10,000,000.00 10,167,000.00 AGY
3133T2R4 FHLMC 1633 PG 6.000 10/15/19 5,000,000.00 4,931,000.00 AGY
3133T38N FHLMC 1644 F 5.750 06/15/22 10,000,000.00 9,732,000.00 AGY
3133558K FHLMC 1714 G 6.500 04/15/21 5,000,000.00 5,023,000.00 AGY
3133T5QS FHLMC 1737 G 6.000 09/15/19 5,000,000.00 4,936,000.00 AGY
3133T5EY FHLMC G029 E 6.500 06/25/20 5,000,000.00 4,990,000.00 AGY
3133T54W FHLMC G040 G 6.500 10/17/17 6,000,000.00 6,032,000.00 AGY
FNF06008 FNMA 6.000 06/01/08 30,526,000.00 29,959,000.00 AGY
GN115019 GNMA 11.500 06/01/19 10,247,000.00 11,741,000.00 AGY
3837HOAC GNMA 1994-00 7.250 12/25/16 3,200,000.00 3,281,000.00 AAA
912810CE US TREASURY 8.750 11/15/08 19,045,000.00 22,317,000.00 TSY
912827Q2 US TREASURY N 6.750 05/31/99 5,000,000.00 5,343,000.00 TSY
912912AB US WEST CAP F 6.750 10/01/05 5,000,000.00 5,100,000.00* A2
$123,552,000.00
NOTE: ANY EXCESS REQUIRED UNDER SECTIONS 3.1 AND 3.2 OF THE
UMBRELLA AGREEMENT WILL BE FUNDED IN CASH.
* LIMITED TO $5,000,000 PAR VALUE
** Subject to Adjustment For Final Valuation
*** MV on day of Closing<PAGE>
Schedule B
List of Initial Assets Delivered by the Grantor
Cusip Security Desc Int Rate Maturity Par Value 11/27/95 Mkt Sec Rate
3134AO-LZ-3 FHLMC 6.890 Oct-2005 $10,000,000.00 $9,962,500.00 AAA
3133T5-E9-0 FHLMC 1747 H Gold 7.875 Jun-2023 10,000,000.00 10,323,100.00 AAA
3133T5-XU-2 FHLMG CM10SER1767 7.000 Sep-2022 10,000,000.00 10,354,100.00 AAA
31371E-4M-4 FNMA #250228 8.940 Apr-2025 9,800,002.20 10,213,439.80 AAA
$40,853,139.80
NOTE: ANY EXCESS REQUIRED UNDER SECTION 3.3 OF THE
UMBRELLA AGREEMENT WILL BE FUNDED IN CASH.
Investment Guidelines
I. POLICY
1. It will be the policy of the Grantor to manage the Assets
in the Trust Account in accordance with these Investment
Guidelines ("Guidelines").
2. The Guidelines will be presented to the Board of
Directors of the Grantor for review and approval
annually, provided, that the Guidelines may not be
changed without the written consent of the Beneficiary.
II. GENERAL
1. An issue or a portion thereof which ceases to meet the
requirements of these Guidelines, or is reasonably
expected to do so, shall be sold as promptly as possible,
taking into account market conditions, but in no event
will the sale take longer than six months.
III. RISK MANAGEMENT
1. Duration
The weighted average duration of the Assets in the Trust
Account shall not exceed seven (7.0) years.
Notwithstanding the foregoing, if the weighted average
duration of the Assets listed on Schedules A and B to
the Trust Agreement exceeds 7.0 years, then this
requirement shall not apply until the first anniversary
of the date of the Trust Agreement, and during the first
year of the Trust Agreement, as Assets mature or are
added to or withdrawn from the Trust Account, Grantor
shall cause the average duration of the Assets in the
Trust Account to be reduced to the 7.0 year requirement.
2. Maximum Maturity
No Asset in the Trust Account shall have a maturity or
holder's put option of longer than 15 years from
settlement date, except that not more than 10% of the
value of the Assets in the Trust Account may be invested
in instruments having a maturity or holders' put option
of between 15 and 30 years from settlement date. In the
case of collateralized mortgage obligations ("CMO"), the
average life of the entire CMO portfolio shall not exceed
10 years.
IV. QUALITY GUIDE
1. Security Investments - Grantor's investments in security
investments shall follow the overall approach of
investing in entities that are in sound financial
condition and are expected to produce a satisfactory
yield. The following are guidelines for security
investments:
a. Corporate Bonds and Obligations - Rated A or A-1 or
better by Standard and Poor's Bond Rating Service,
or A or P-1 or better by Moody's Bond Rating
Service. A Corporate Bond or Obligation not rated,
but which is pari passu with or senior to any
security of the same issuer, of any guarantor of the
security to be acquired, or of another issuer
guaranteed by such guarantor, which is so rated
shall be deemed to have the same rating as such
other security or the equivalent higher rating if
ranking senior to such security.
b. United States Government Bonds or United States
Government Agency Bonds - Constitute acceptable
investments at all times, from a quality standpoint.
2. Time and Savings Deposits - Constitute acceptable
investments up to the amount of federal deposit insurance
coverage pertaining to such deposit.
3. All investments shall meet the minimum standards
prescribed by Article 3.33 of the Texas Insurance Code.
V. DIVERSIFICATION GUIDE
1. Investments in all types (excepting United States
Government Obligations) of securities, loans, obligations
or evidence of indebtedness of a single issuer or
borrower (including its majority-owned subsidiaries,
parent or the majority-owned subsidiaries of such parent)
shall not exceed 3% of Trust Account Assets. In
instances where a specific category of investment
specifies a lesser amount, such amount shall not be
exceeded.
VI. UNITED STATES DOLLARS
1. All investments in the Trust Account shall be denominated
in United States dollars.
VII. DEFINITION:
1. Corporate Bonds: Bonds, evidences of indebtedness or
obligations of corporations organized under the laws of
the United States of America or its states or Canada or
any state, district, province, or territory of Canada.
2. United States Government Obligations: Bonds, evidences
of indebtedness or obligations of the United States of
America, or bonds, evidences of indebtedness or
obligations guaranteed as to principal and interest by
the full faith and credit of the United States of
America, and bonds, evidences of indebtedness, or
obligations of agencies and instrumentalities of the
government of the United States of America.
3. Time and Savings Deposits: Any type or form of savings
deposits, time deposits, certificates of deposit, NOW
accounts, and money market accounts in solvent banks and
savings and loan associations organized under the laws
of the United States of America, or its states, when made
in accordance with the laws or regulations applicable to
such entities.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
Definitions. . . . . . . . . . . . . . . . . . 2
ARTICLE 2
Establishment of Trust Account . . . . . . . . . . . . . 4
Section 2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
Deposit of Assets . . . . . . . . . . . . . . . . 6
Section 3.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4
Withdrawal of Assets by the Beneficiary. . . . . . . . 9
Section 4.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5
Power of Sale; Application of Assets. . . . . . . . . . . . 10
Section 5.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 6
rust Agreement for Benefit of Beneficiary . . . . . . . . . . 12
ARTICLE 7
Form of Assets . . . . . . . . . . . . . . . . . 13
Section 7.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 8
Statement of Account. . . . . . . . . . . . . . . . 14
Section 8.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 9
Right to Vote Securities and Payment of
Dividends and Interest . . . . . . . . . . . . . . . 14
ARTICLE 10
Investment of Assets. . . . . . . . . . . . . . . . 15
Section 10.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 10.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 10.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 10.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 11
Compensation of the Trustee. . . . . . . . . . . . . . 17
ARTICLE 12
Liability of the Trustee. . . . . . . . . . . . . . . 17
ARTICLE 13
Reliance on Signatures . . . . . . . . . . . . . . . 18
ARTICLE 14
Resignation or Removal of the Trustee; Appointment
of Successor Trustee. . . . . . . . . . . . . . . . 18
ARTICLE 15
Termination. . . . . . . . . . . . . . . . . . 19
Section 15.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 15.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 15.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 16
Further Assurances; Power of Attorney . . . . . . . . . . . 20
Section 16.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 16.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 17
Dispute Resolution; Governing Law and Jurisdiction . . . . . . . . 21
ARTICLE 18
Representations and Warranties of Parties . . . . . . . . . . 21
ARTICLE 19
Binding Agreement . . . . . . . . . . . . . . . . 22
ARTICLE 20
Severability. . . . . . . . . . . . . . . . . . 22
ARTICLE 21
Entire Agreement. . . . . . . . . . . . . . . . . 22
ARTICLE 22
Waiver . . . . . . . . . . . . . . . . . . . 22
ARTICLE 23
Notices. . . . . . . . . . . . . . . . . . . 22
ARTICLE 24
Force Majeure . . . . . . . . . . . . . . . . . 24
ARTICLE 25
Captions. . . . . . . . . . . . . . . . . . . 24
ARTICLE 26
Counterparts. . . . . . . . . . . . . . . . . . 24
SCHEDULE A - Initial Assets Delivered by Beneficiary
SCHEDULE B - Initial Assets Delivered by Grantor
SCHEDULE C - Investment Guidelines
TRUST AGREEMENT
by and among
AMERICAN TRAVELLERS LIFE INSURANCE COMPANY,
(the "Grantor")
TRANSPORT LIFE INSURANCE COMPANY,
("TLIC")
CONTINENTAL LIFE INSURANCE COMPANY
("CLIC")
and
FLEET NATIONAL BANK OF MASSACHUSETTS
("Trustee")
December 8, 1995
October 25, 1995
VIA FACSIMILE
Mr. Earl J. Hoover, Jr.
Executive Vice President
Transport Life Insurance Company
714 Main Street
Fort Worth, Texas 76102
Re: Letter of Intent ("Letter of Intent") to Negotiate For
The Acquisition of Long Term Care Insurance Book of
Business
Dear Mr. Hoover:
As a result of discussions since early October and following
our proposal to you in mid-October, this letter sets forth the
general framework for negotiations between American Travellers
Corporation and/or its subsidiary, American Travellers Life
Insurance Company (collectively, "American Travellers") and
Transport Life Insurance Company and its subsidiary, Continental
Life Insurance Company (collectively, "Transport") for the
acquisition by American Travellers of Transport's long term care
business (sometimes referred to herein as "Transaction.") The
Transaction is expected to include all of Transport's retained
interest in individual and group long term care insurance
policies in force as of October 1, 1995, as further described in
Exhibit A ("Policies.")
While it is the hope and expectation of the parties that
they would reach an agreement as contemplated herein, it is
expressly agreed that this Letter of Intent is a statement of
interest only, and that none of the parties is legally bound by
any provisions contained herein (excepting those provisions
expressly designated as "Binding Provisions" below) and will not
be legally bound (excepting those provisions expressly designated
as "Binding Provisions" below) until a fully integrated
definitive agreement (if one is successfully negotiated) and
other related documents are prepared, authorized, executed and
delivered by and among all parties.
Overview of Proposed Transaction
Assumption Transaction
The parties acknowledge the uncertain regulatory framework
governing the Transaction contemplated herein. Subject to
regulatory and legal constraints, the parties anticipate that the
Transaction would be structured so that American Travellers
would, either initially or over a period of time, establish a
relationship of direct privity to the underlying policyholders or
certificate holders and Transport would be relieved of or
indemnified for any and all liabilities (including but not
limited to contractual and extra-contractual liabilities) to the
policyholders, certificate holders, agents, representatives,
associations, trusts and reinsurers relating directly or
indirectly to all acts, omissions, and transactions taking place
prior to, on or after the date that all documents necessary to
the completion of the Transaction are executed and all
consideration relating to the Transaction is transferred (the
"Closing Date") (such transaction being hereafter referred to as
an "Assumption" transaction.)
Indemnity Transaction
To the extent the parties are unable to transfer Policies
through an Assumption transaction, the parties contemplate a
structure whereby American Travellers would (i) reinsure 100% of
Transport's retained interest in the Policies; (ii) indemnify
Transport for any and all of Transport's liabilities (including
but not limited to contractual and extra-contractual liabilities)
to policyholders, certificate holders, agents, representatives,
associations, trusts and reinsurers relating directly or
indirectly to all acts, omissions and transactions taking place
prior to, on or after the Closing Date relating thereto; and
(iii) administer the Policies through a Third Party
Administration ("TPA") agreement (such transaction being
hereafter referred to as an "Indemnity" transaction.)
Reinsurance Premium and Ceding Commission
On the Closing Date, it is expected Transport would pay to
American Travellers an amount equal to the statutory liabilities,
as defined in Exhibit B, net of reinsurance, that are calculated
by Transport on a statutory basis as of September 30, 1995, less
a ceding allowance of $40 million cash. The statutory
liabilities to be transferred to American Travellers shall be
calculated as of September 30, 1995, using the same actuarial
methodology as employed by Transport in the calculation of the
statutory liabilities reported in its June 30, 1995 statutory
financial statement. It is expected that with respect to the
adequacy of such statutory liabilities, American Travellers would
rely solely on its due diligence investigation rather than on
representations or warranties from Transport. The net funds
transferred to American Travellers are expected to be paid in
cash or investment grade securities at market value.
Security and Collateral
It is expected that American Travellers would, on the
Closing Date, establish and maintain trust accounts and/or
letters of credit for the benefit of and satisfactory to
Transport in such amount as would fully secure the statutory
liability under the Policies, as such liability may from time to
time be determined using the same actuarial methodology as
employed by Transport in the calculation of the statutory
liabilities reported in its June 30, 1995 statutory financial
statement, and that all such trust accounts and/or letters of
credit, wherever situated, would further comply with the
regulatory requirements of the states of California, New York and
Texas applicable to credit for unapproved reinsurers.
All obligations of American Travellers Life Insurance
Company under the transactions contemplated in this Letter of
Intent would be fully guaranteed by American Travellers
Corporation.
As further provision of security to Transport, the parties
contemplate that a reinsurance company satisfactory to the
parties may participate in the Transaction either as an
intermediate fronting reinsurer between Transport and American
Travellers and/or as a guarantor of American Travellers'
performance of its obligations.
The parties expect that all third party charges and fees
associated with collateral and security arrangements would
be borne by American Travellers.
Additional Pre-Conditions to Transaction
<PAGE>
(1) The parties express the mutual hope that they would be able to
complete the Transaction through the execution of definitive agreement(s)
no later than November 30, 1995;
(2) The parties contemplate that the definitive agreements would
include, but not be limited to, such matters as:
a. Indemnity and Assumption Reinsurance
b. Collateral and Trust Deposits and/or Letters of Credit;
c. Asset Management relating to any trust arrangements;
d. Cooperation between American Travellers and Transport in
American Travellers regulatory filings related to Policies;
e. Cooperation between American Travellers and Transport in
dealings with Transport's Agents;
f. Administration by American Travellers of Policies 100%
reinsured by American Travellers;
(3) The Parties also contemplate that the definitive agreements may
include agreements with a reinsurer satisfactory to the parties;
(4) The parties contemplate that immediately upon the execution of
this Letter of Intent, each party would undertake "due diligence"
as is commercially reasonable and with respect to which each
party would provide the other reasonable access to all records
prepared in the ordinary course of such party's business as might
be requested to complete such investigation. Furthermore,
Transport will attempt to get Milliman & Robertson's consent to
furnish American Travellers those portions of the report
pertaining to long term care, which report is dated October 4,
1994. American Travellers would undertake such due diligence
pursuant to that certain confidentiality agreement between the
parties dated October 3, 1995.
(5) Transport would have the option, at its sole discretion, to
continue to administer the Policies for the benefit of American
Travellers for a period of time to be determined by Transport, at
its sole discretion, provided that such period would end not
later than December 31, 1996, under a TPA agreement to be
negotiated as part of the Transaction. While the terms of the
TPA Agreement are expected to be negotiated as part of the
Transaction, it is contemplated that under the TPA Agreement:
(a) American Travellers would pay Transport an administration
fee equal to 4% of premiums collected plus related premium
tax during the term of Transport's administration of the
business;
(b) Transport to remit to American Travellers, on a monthly
basis, the "Net Cash Flow" relating to the book of business
during the term of Transport's administration of the
business;
(c) American Travellers would indemnify and save Transport
harmless for any and all liabilities (including but not
limited to contractual and extra-contractual liabilities)
incurred in the administration of the business except for
such liabilities incurred as a result of Transport's fraud
or gross negligence;
(d) Provision for adequate notice and cooperation by and
between Transport and American Travellers on the transfer
of administrative responsibilities;
(6) It is contemplated that Transport's tax reserves as of September
30, 1995 would be calculated using the same actuarial methodology
as utilized by Transport in preparing its 1994 Federal Income Tax
Return;
(7) It is expected that the final agreement would include a warranty
that neither party has utilized a broker or other intermediary in
this transaction and that no fees in the nature of brokerage
would become due or payable as a result of the Transaction;
(8) American Travellers acknowledges that Transport is currently
party to various agent marketing agreements. The parties expect
that the Transaction would provide that American Travellers would
assume Transport's continuing obligations and rights in such
agreements as are applicable to the Policies.
(9) It is recognized that the parties have not in this Letter of
Intent addressed the consequences of objections from agents to
the Transaction itself. It is the expectation of the parties
that such objections, if any, generally would be handled by
Transport, depending on the circumstances.
(10) It is further expected that American Travellers would agree that
it would not use any information obtained as a result of the due
diligence investigation contemplated in paragraph (4) of this
Letter of Intent, or as a result of the Transaction to knowingly
and systematically:
a. Use the names of policyholders to rewrite the Policies;
b. Use the names of agents to solicit agents connected with
such Policies to become agents of American Travellers or
any other underwriter; and
(11) The parties recognize that any ultimate agreement would be
contingent upon and subject to:
a. Obtaining any and all required regulatory approvals;
b. Obtaining any and all consents that may be required;
c. Approval by the Boards of Directors of Transport and
American Travellers and any and all shareholder approvals
that may be required; and
d. Completion by American Travellers and Transport of their
respective due diligence investigations and their
satisfaction therewith.
Binding Provisions
Upon the execution of this Letter of Intent by Transport, the
following numbered paragraphs will constitute the legally binding and
enforceable agreements of American Travellers and Transport (the "Binding
Provisions"):
1. This Letter of Intent is a statement of interest only, and none
of the parties is legally bound by any provisions contained herein except
those provisions specifically designated as Binding Provisions and will not
be legally bound (excepting those provisions expressly designated as
"Binding Provisions") until a fully integrated definitive agreement (if one
is successfully negotiated) and other related documents are prepared,
authorized, executed and delivered by and among all parties;
2. Either party may at any time terminate the negotiations
contemplated herein without any liability or obligation whatsoever, except
as to those provisions specifically designated as Binding Provisions.
Because this Letter of Intent is nonbinding (except for those provisions
designated as "Binding Provisions") it does not impose any obligation on
the parties to negotiate in good faith;
3. In the event that the negotiations contemplated herein have not
been terminated at an earlier time, the negotiations contemplated herein
will automatically terminate on November 30, 1995 unless the parties
otherwise mutually agree in writing;
4. Transport agrees that from the date it executes this Letter of
Intent until the termination of the negotiations contemplated herein, it
will not engage or enter into negotiations of any sort for the purpose of
reinsuring or selling the Policies to any acquirer other than American
Travelers;
5. American Travellers and Transport agree to maintain the
confidentiality of the contents of this Letter of Intent and the existence
of the possibility of the Transaction until they otherwise mutually agree,
and the parties agree to attempt to coordinate communications and press
releases to the media and communications to regulatory authorities when
they deem such disclosures appropriate; provided, however, that either
party (i) may make such disclosures to any governmental authority as it may
reasonably believe it is so required by law or as may be reasonably
necessary in the context of regulatory relations; (ii) may make such
further disclosures as appears reasonably necessary to employees, agents,
representatives, and service providers assisting it or otherwise involved
in the Transaction; and (iii) may further may make such disclosures as
appears reasonably necessary to financial analysts, bankers and other
members of the financial community, including A.M. Best and other rating
agencies;
6. Each party will bear all of its own costs and expenses related to
the Transaction and this Letter of Intent, except as otherwise specifically
provided in writing.
7. These Binding Provisions may be terminated upon written notice by
either party if the definitive agreements and related documents referred to
in paragraph 1 of these Binding Provisions have not been executed and
delivered by November 30, 1995; provided that upon termination of these
Binding Provisions the parties shall have no further obligations thereafter
except as to paragraphs 1, 2 and 6 of these Binding Provisions, which shall
survive termination of these Binding Provisions; provided further that any
termination of these Binding Provisions shall not operate as a termination
of that certain Confidentiality Agreement dated October 3, 1995 between the
parties, which shall survive the termination of the Binding Provisions of
this Letter of Intent.
8. This Letter of Intent may be executed in counterparts. <PAGE>
If this Letter of Intent meets with your approval, please so indicate
by signing and dating this letter and faxing it to me (215/244-4893) by
November 1, 1995.
Sincerely,
John A. Powell
Chairman/C.E.O.
Agreed and accepted:
TRANSPORT LIFE INSURANCE COMPANY
714 Main Street
Fort Worth, Texas 76102
By_/s/ Garland M. Lasater, Jr._ President
Title
______10/25/95_________________
Date
CONTINENTAL LIFE INSURANCE COMPANY
714 Main Street
Fort Worth, Texas 76102
By_/s/ Garland M. Lasater President
Title
______10/25/95_________________
Date
