<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report November 23, 1999
(Date of earliest event reported)
THE CENTRIS GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 001-120996 33-0097221
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
650 Town Center Drive, Suite 1600
Costa Mesa, CA 92626
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 714/549- 1600
N/A
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
On December 31, 1998, The Centris Group, Inc. ("Centris") acquired a
group of companies from Eureko, B.V. of the Netherlands (the "Seller"). Among
these acquired companies was Seaboard Life Insurance Company (USA), whose name
was subsequently changed to Centris Life Insurance Company ("CLIC"). As a part
of this acquisition transaction, the Seller separately negotiated a reinsurance
agreement with Life Reassurance Corporation of America ("Life Re"), covering the
Seaboard Life Individual Life and Annuity business, which reinsurance agreement
provided that such business was to be retroactively reinsured by Life Re on a
100% indemnity basis effective as of July 1, 1998. In its financial statements,
Centris classified the assets relating to this reinsurance agreement as "assets
held for transfer," and classified the liabilities relating to this reinsurance
agreement as "pending transferable reinsurance." Under the acquisition agreement
between Centris and the Seller, any income earned or loss incurred from this
Individual Life and Annuity business line is credited to or charged to such
reinsurer.
On October 22, 1999, CLIC and Life Re consummated the reinsurance
transaction, after having received the necessary approvals of the Insurance
Departments of Indiana and California. The terms of this closure include a
requirement for a final accounting to be prepared prior to March 31, 2000.
Pertinent financial aspects of this transaction will be reflected in the records
of CLIC during the fourth quarter of 1999, upon receipt of all required
financial information by CLIC. The completion of the reinsurance transaction
will not have a material effect on the consolidated balance sheets of the
Company.
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(c) Exhibits
Set forth below is a list of exhibits included as part of this Current
Report on Form 8-K:
Exhibit Number Description of Exhibit
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10.01 INDEMNITY REINSURANCE AGREEMENT entered into on December 29,
1998, by and between Seaboard Life Insurance Company (USA), an
Indiana insurance company, and Life Reassurance Corporation of
America, a Connecticut corporation
10.02 PURCHASE AGREEMENT entered into on December 29, 1998, by and
among Life Reassurance Corporation of America, a Connecticut
corporation, Eureko B.V., a company organized under the laws of
the Netherlands and Seaboard Life Insurance Company (USA), an
Indiana insurance corporation.
10.03 ADMINISTRATIVE SERVICES AGREEMENT entered into as of December 29,
1998, by and among Seaboard Life Insurance Company, a Canadian
federal insurance company ("SLIC-Canada"), Seaboard Life
Insurance Company (USA), an Indiana insurance company and a
direct wholly owned Subsidiary of SLIC-Canada (the "Seller"), and
Life Reassurance Corporation of America, a Connecticut insurance
company ("the Administrator").
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Centris Group, Inc. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE CENTRIS GROUP, INC.
Date: November 23, 1999 By: /S/Charles M. Caporale
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Charles M. Caporale
Senior Vice President, Chief
Financial Officer and Treasurer
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
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10.01 INDEMNITY REINSURANCE AGREEMENT entered into on December 29,
1998, by and between Seaboard Life Insurance Company (USA), an
Indiana insurance company, and Life Reassurance Corporation of
America, a Connecticut corporation
10.02 PURCHASE AGREEMENT entered into on December 29, 1998, by and
among Life Reassurance Corporation of America, a Connecticut
corporation, Eureko B.V., a company organized under the laws of
the Netherlands and Seaboard Life Insurance Company (USA), an
Indiana insurance corporation.
10.03 ADMINISTRATIVE SERVICES AGREEMENT entered into as of December 29,
1998, by and among Seaboard Life Insurance Company, a Canadian
federal insurance company ("SLIC-Canada"), Seaboard Life
Insurance Company (USA), an Indiana insurance company and a
direct wholly owned Subsidiary of SLIC-Canada (the "Seller"), and
Life Reassurance Corporation of America, a Connecticut insurance
company ("the Administrator").
<PAGE>
EXHIBIT 10.01
INDEMNITY REINSURANCE AGREEMENT
THIS INDEMNITY REINSURANCE AGREEMENT (this "Agreement"), is made and
entered into on December 29, 1998, by and between Seaboard Life Insurance
Company (USA), an Indiana insurance company (the "Company"), and Life
Reassurance Corporation of America, a Connecticut corporation (the
"Reinsurer").
RECITALS:
WHEREAS, the Company and the Reinsurer are concurrently herewith
entering into a Purchase Agreement (the "Purchase Agreement"), which agreement
calls for, among other things, the reinsurance transactions described in this
Agreement;
WHEREAS, upon the terms and conditions set forth herein, the Company
desires to cede, on a coinsurance basis, to the Reinsurer the Company's rights,
liabilities, and obligations in respect of certain life insurance and annuity
products; and
WHEREAS, upon the terms and conditions set forth herein, the Reinsurer
desires to reinsure on a coinsurance basis all of the rights, liabilities, and
obligations in respect of the Company's products referred to above;
NOW, THEREFORE, in consideration of the mutual covenants and promises,
and upon the terms and conditions, hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I
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DEFINITIONS
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Unless otherwise defined herein, capitalized terms used herein shall
have the following meanings:
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
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which banking institutions in Indiana are permitted or obligated by Law to be
closed.
"Closing Date" shall have the meaning set forth in the Purchase Agreement.
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"Company Extra Contractual Obligations" shall mean Extra Contractual
-------------------------------------
Obligations based on acts, errors or omissions by the Company or any of its
officers, employees, agents or representatives, and any attorneys' fees incurred
by the Company related thereto.
"Effective Date" shall mean July 1, 1998.
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"Effective Time" shall mean 12:01 a.m. Eastern Daylight Time on the
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Effective Date.
"Extra Contractual Obligations" shall mean all liabilities and obligations
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for consequential, extra-contractual, exemplary, punitive, special or similar
damages (other than those arising under the express terms and conditions of the
Policies) which arise from any act, error or omission, whether or not
intentional, in bad faith or otherwise, including, without limitation, any act,
error or omission relating to (i) the marketing, underwriting, production,
issuance, cancellation or administration of the Policies, (ii) the
investigation, defense, trial, settlement or handling of claims, benefits, or
payments under the Policies, or (iii) the failure to pay or the delay in payment
of benefits, claims or any other amounts due or alleged to be due under or in
connection with the Policies.
"Final Closing Balance Sheet" shall have the meaning set forth in Section
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6.01.
"General Account" shall mean the general account of the Company relating to
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the Policies.
"Investment Assets" shall mean the mortgages and bonds identified on
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Schedule 6.01(a) hereto.
"Law" shall mean all domestic or foreign federal, state, local statute,
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law, ordinance or regulation.
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"LIBOR" shall mean a rate per annum equal to the three month London
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Interbank Offered Rate as published in The Wall Street Journal, Eastern Edition,
in effect on the Closing Date.
"Person" shall mean any individual, corporation, partnership, firm, joint
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venture, association, joint-stock company, limited liability company, trust,
unincorporated organization, governmental, judicial or regulatory body, business
unit, division or other entity.
"Policies" shall mean all binders, policies, endorsements, riders,
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certificates and other contracts of insurance and annuity contracts issued or
assumed by the Company on or prior to the Closing Date that are on forms
identified in Exhibit A attached hereto and made a part hereof. Also included
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in the definition of "Policies" are (i) any such insurance policies,
certificates and contracts that have lapsed and that otherwise would be eligible
for inclusion herein, subject to reinstatement pursuant to reinstatement
procedures contained in such policies, certificates and contracts, and (ii) all
individual life policies that are required to be issued by the Company prior to
or after the Closing Date following the exercise of conversion rights in
accordance with the terms of the individual life policies reinsured by the
Reinsurer hereunder.
"Policy Liabilities" shall mean the liability of the Company based upon or
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arising out of the Policies but shall not include (i) any Extra Contractual
Obligations, (ii) claims incurred but not reported prior to the Effective Date
or (iii) claims in the course of settlement as of the Effective Date. The term
"Policy Liabilities" shall include, without limitation, any and all of the
Company's liability:
(a) For liabilities and obligations in respect of the Policies, and
any attorneys' fees incurred by the Reinsurer related to such
liabilities and obligations;
(b) For premium taxes arising on account of premiums received by the
Company in respect of the Policies and remitted to the Reinsurer
or otherwise received by the Reinsurer at or after the Effective
Date or in connection with participation by the Company, whether
involuntary or voluntary, in any guaranty fund established or
governed by any state or jurisdiction;
(c) For returns or refunds of premiums (irrespective of when due)
under the Policies payable at or after the Effective Date; and
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(d) For commission payments and other compensation, if any, payable
at or after the Effective Date with respect to the Policies to or
for the benefit of agents and brokers.
"Qualifying Assets" shall mean assets which qualify as admissible assets of
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the Reinsurer under statutory accounting principles and the Laws of the State of
Indiana.
"Reinsurance Period" shall mean the period of time from the Effective Date
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of this Agreement through the termination of this Agreement.
"Revised Closing Balance Sheet" shall have the meaning set forth in Section
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6.01.
"Reinsurer Extra Contractual Obligations" shall mean (a) Extra Contractual
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Obligations based on acts, errors or omissions occurring on or after the
Effective Date by the Reinsurer or any of its officers, employees, agents or
representatives, and any attorneys' fees incurred by the Reinsurer related
thereto, and (b) Company Extra Contractual Obligations except to the extent
otherwise provided in Articles VIII and IX of the Purchase Agreement.
"SAP" shall mean statutory accounting practices prescribed or permitted by
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applicable insurance regulatory authorities consistently applied throughout the
specified period and in the comparable period in the immediately preceding year.
"Statutory Reserves" shall mean all reserves computed in accordance with
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statutory reserving requirements.
"Third Party Reinsurance Agreements" shall mean all reinsurance agreements
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to which the Company is a party and pursuant to which it cedes a portion of its
net risk retained under the Policies (other than this Agreement).
ARTICLE II
BUSINESS REINSURED
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Section 2.01 General. Effective as of 12:01 a.m., Eastern Daylight Time,
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on July 1, 1998 (the "Effective Time"), the Company hereby cedes to and
reinsures with the Reinsurer, and the Reinsurer hereby assumes and reinsures
from the Company, on an indemnity reinsurance basis (i) 100% of the Policy
Liabilities under any and all Policies and (ii) 100% of the Reinsurer Extra
Contractual Obligations.
Section 2.02
<PAGE>
(a) Policy Liabilities. From and after the Effective Time, as between
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the parties, the Reinsurer shall bear and shall have responsibility for paying
all Policy Liabilities, including but not limited to liabilities for surrenders,
withdrawals, and claims for benefits incurred on or after the Effective Time.
The Reinsurer hereby agrees to pay directly any Policy Liabilities under the
Policies on behalf of, and in the name of, the Company; provided, however, that
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the Reinsurer shall have no direct or indirect obligation itself to insureds,
claimants, or beneficiaries under such Policies. The liability of the Reinsurer
on any Policy shall begin simultaneously with that of the Company, but not prior
to the Effective Time.
(b) Reinsurer Extra Contractual Obligations. From and after the
----------------------------------------
Effective Time, as between the parties, the Reinsurer shall bear and shall have
responsibility for all Reinsurer Extra Contractual Obligations.
Section 2.03 Defenses. The Reinsurer accepts, reinsures, and assumes the
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Policy Liabilities and Reinsurer Extra Contractual Obligations subject to any
and all defenses, setoffs, and counterclaims to which the Company would be
entitled with respect to the Policy Liabilities or Reinsurer Extra Contractual
Obligations, as the case may be, it being expressly understood and agreed by the
parties hereto that no such defenses, setoffs, or counterclaims are or shall be
waived by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby and that the Reinsurer is and shall be
fully subrogated in and to all such defenses, setoffs, and counterclaims.
Section 2.04 Declaration of Policy Interest Rates. Some of the Policies
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ceded under this Agreement provide that the Company may in its discretion, from
time to time, as provided in the policy or contract, declare interest rates that
are used to determine policy or contract values. During the Reinsurance Period,
the Company agrees that the Reinsurer shall have the right to designate such
discretionary interest rates to be declared on the Policies and the effective
dates thereof. The Company agrees to allow the Reinsurer to be the source of
communication of such interest rate changes and their effective dates.
Section 2.05 Post-Closing Policies. The Company shall continue to issue
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individual life insurance coverage following the exercise of conversion rights
by policyholders in accordance with the terms and conditions of the Policies
giving rise to such rights. Any coverage issued by the Company pursuant to such
conversion rights shall be deemed a Policy for purposes of this Agreement and
accordingly will be reinsured by the Reinsurer and administered pursuant to the
terms of the Administrative Services Agreement. The Company and the Reinsurer
shall cooperate in good faith to
<PAGE>
facilitate the issuance of converted Policies in accordance with mutually
acceptable procedures.
ARTICLE III
GUARANTY FUND ASSESSMENTS
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Section 3.01 Reimbursement of the Company. In the event the Company is
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required to pay any assessment to any insurance guaranty, insolvency,
comprehensive health association or other similar fund maintained by any
jurisdiction allocable to any insurer insolvency that occurs on or after the
Effective Date, the portion, if any, of such assessment that relates to Policies
(the "Related Assessment") shall be reimbursed by the Reinsurer. The Reinsurer
shall not be obligated to reimburse the Company for any such assessment
allocable to any insurer insolvency that occurs at any time prior to the
Effective Date. The Reinsurer shall pay to the Company any Related Assessment
which shall have become due, promptly on written demand therefor by the Company,
submitted together with documentation evidencing such assessment and the payment
therefor by the Company. If at any time the Company shall subsequently recover
all or part of any such assessment reimbursed by the Reinsurer (e.g., through
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policy surcharges or through reduction of or credits against premium taxes as to
the Policies), the portion of any such recovery received or otherwise realized
by the Company attributable to the Related Assessment shall be reimbursed to the
Reinsurer (based upon the total portion of such recovery attributable to
Policies). The Company shall provide the Reinsurer with semi-annual reports of
any such recoveries regardless of the form in which received.
Section 3.02 Reimbursement of the Reinsurer. In the event the Reinsurer
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is required to pay any assessment to any insurance guaranty, insolvency,
comprehensive health association or other similar fund maintained by any
jurisdiction allocable to any insurer insolvency that occurs prior to the
Effective Date, the portion, if any, of such assessment that relates to Policies
(the "Related Prior Period Assessment") shall be reimbursed by the Company. The
Company shall not be obligated to reimburse the Reinsurer for any such
assessment allocable to any insurer insolvency that occurs at any time after the
Effective Date. The Company shall pay to the Reinsurer any Related Prior Period
Assessment which shall have become due, promptly on written demand therefor by
the Reinsurer, submitted together with documentation evidencing such assessment
and the payment therefor by the Reinsurer. If at any time the Reinsurer shall
subsequently recover all or part of any such assessment reimbursed by the
Company (e.g., through policy surcharges or through reduction of or credits
----
against premium taxes as to the Policies), the portion of any such recovery
received or otherwise realized by the Reinsurer attributable to the Related
Prior Period Assessment shall be reimbursed to the Company (based upon the total
portion of such recovery
<PAGE>
attributable to Policies). The Reinsurer shall provide the Company with semi-
annual reports of any such recoveries regardless of the form in which received.
ARTICLE IV
TERRITORY; TERM
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This Agreement shall apply to Policies covering lives and risks wherever
resident or situated. Subject to Article IX below, this Agreement shall remain
in full force and effect until the expiration or termination of all Policy
Liabilities in respect of the Policies and until all obligations of either party
hereunder have been discharged in full.
ARTICLE V
RESERVES
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Section 5.01 Establishment of General Account Reserves. The Reinsurer
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shall be responsible for establishing and maintaining the proper general account
Statutory Reserves for the Policies as required by state insurance regulatory
authorities.
Section 5.02 Reserve Reports. The Reinsurer or its designee shall provide
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the Company, within 20 Business Days after the end of each calendar quarter
other than the quarter ending December 31, and within 25 Business Days after the
end of the calendar quarter ending December 31, valuation summary reports which
shall itemize reserves and contracts in force by plan code, in a format mutually
agreed upon by the Company and the Reinsurer. Such reports shall reflect 100%
of any changes in the reserves described in Section 5.01 above which occurred
during the accounting period for which such reports are made. These reports
shall include statutory and tax reserves.
Section 5.03 Reinsurance Reserve Credits. If the full statutory
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reinsurance reserve credit contemplated by this Agreement is or becomes
unavailable to the Company with respect to any jurisdiction, the Reinsurer shall
take any and all action necessary to make such full statutory reinsurance
reserve credit available to the Company. In doing so, the Reinsurer shall have
the discretion to utilize any means available in the applicable jurisdiction to
make such full statutory reinsurance reserve credit available to the Company,
which may include, but not be limited to, permitting the Company to withhold
funds, establishing a reserve trust account or posting a letter of credit. If a
letter of credit is utilized it shall be furnished and maintained by the
Reinsurer for the benefit of the Company and be clean, irrevocable and
unconditional and otherwise of such nature and amount as to satisfy the
requirements of the particular
<PAGE>
jurisdiction for purposes of establishing full statutory reinsurance reserve
credit for the Company.
In the event that the Reinsurer shall fail or refuse to fulfill any of its
obligations under this Agreement relating to the payment of liability, the
Company shall be entitled to proceed under the terms and conditions of any
letter of credit, trust agreement or any other agreement relating to the same
and seize and take possession of the funds represented by the same and apply
those funds to reduce the Reinsurer's obligations to the Company.
ARTICLE VI
TRANSFER OF ASSETS; ACCOUNTING
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Section 6.01 Initial Transfer of Assets.
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(a) On the Closing Date, the Company shall transfer to
Reinsurer (i) Policy loans, (ii) due and accrued premiums on the Policies, (iii)
Investment Assets, and (iv) cash, having an aggregate value equal to the excess
of General Account Statutory Reserves as of July 1, 1998 over the amount of
goodwill attributable to the Business. For the purposes of this Section 6.01(a),
the value of each of the items (other than cash) identified in the preceding
sentence shall be the book value of such item as of June 30, 1998, as set forth
on Schedule 6.01(a). The assets to be transferred pursuant to this Section
6.01(a) shall consist first of Policy loans and due and accrued premiums on the
Policies and second of Investment Assets and cash; provided, that the amount of
cash transferred shall be the minimum amount necessary (taking into account any
inability to divide Investment Assets) to produce the correct value for
transferred assets in accordance with this Section 6.01(a). The individual
Investment Assets to be transferred shall be selected by the Company, but such
selection shall be made with the goal of minimizing the amount of cash to be
transferred to Reinsurer.
(b) In addition to the assets to be transferred to Reinsurer
pursuant to Section 6.01(a), on the Closing Date the Company shall transfer to
Reinsurer cash in an amount reflecting post-Effective Time cash flows up to and
including the last day of the last calendar quarter ending not less than 30 days
prior to the Closing Date, determined in accordance with Schedule 6.01(b) (the
"Post-Effective Time Cash Flows").
Section 6.02 Post-Closing Adjustments.
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(a) As promptly as practicable after the Closing (but in no
event more than 45 days thereafter), the Company shall recalculate each item
included in Post-
<PAGE>
Effective Time Cash Flows to reflect any inaccuracy in the calculation utilized
for the purposes of Section 6.01(b) and to include cash flows during the period
between the date through which such cash flows were calculated for the purposes
of Section 6.01(b) and the Closing Date. Once such items have been recalculated,
the Company shall provide to Reinsurer a revised Schedule 6.01(b) reflecting
such recalculations along with reasonably detailed supporting data.
(b) Reinsurer shall have the right to review the revised Schedule
6.01(b) and comment thereon for a period of forty-five (45) calendar days after
receipt thereof. In the event that Reinsurer and the Company are unable to
agree on the manner in which any item or items should be treated in the revised
Schedule 6.01(b) within such 45-day period, the Company, on the one hand, and
Reinsurer, on the other, shall prepare separate written reports of such items or
items and refer such reports to a qualified third party accountant or actuary,
as appropriate, mutually acceptable to Reinsurer and the Company (the "Third
Party Consultant") within ten (10) Business Days after the expiration of such
45-day period. The Third Party Consultant shall determine within ten (10)
Business Days the manner in which such item or items shall be treated in the
revised Schedule 6.01(b); provided, however, that the dollar amount of each item
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in dispute shall be determined within the range of dollar amounts proposed by
the Company on the one hand, and Reinsurer on the other hand. The
determinations by the Third Party Consultant as to the items in dispute shall be
in writing and shall be Final and Binding on the parties and shall be so
reflected in the revised Schedule 6.01(b). For purposes of this Agreement,
"Final and Binding" shall mean that the aforesaid determinations shall have the
same preclusive effect for all purposes as if such determinations had been
embodied in a final judgment, no longer subject to appeal, entered by a court of
competent jurisdiction. The fees, costs and expenses of retaining the Third
Party Consultant shall be shared 50% by the Company, on the one hand, and 50% by
Reinsurer, on the other.
(c) Not later than three Business Days following the resolution
of any disputes with respect to the revised Schedule 6.01(b), Reinsurer shall
pay to the Company or the Company shall pay to Reinsurer, as appropriate, the
amount necessary to put the parties in the same economic position as if the
revised Schedule 6.01(b) had been utilized for the purposes of the payment made
at Closing pursuant to Section 6.01(b), including interest on the amount so paid
from and including the Closing Date to but not including the date of such
transfer, computed at LIBOR.
Section 6.03 Net Quarterly Adjustment. With respect to any calendar
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quarter, the "Net Quarterly Adjustment" shall be the amount calculated by
comparing:
<PAGE>
(a) the sum of:
(i) the gross premium collected on all Policies;
(ii) the interest payments and principal repayments on all
Policy loans;
(iii) the administrative, cost of insurance, and other charges
deducted under the Policies; and
(iv) any other fees, charges, premiums, costs, or other
amounts, or portion(s) thereof;
in each case, collected during the preceding calendar quarter and which would be
payable to the Company in the absence of the reinsurance of the Policies
effected by this Agreement.
(b) with the sum of the following:
(i) the Policy benefits paid, including death benefits (net of
reimbursements under Third Party Reinsurance Agreements),
full or partial cash surrender benefits, full or partial
withdrawal benefits, maturity benefits, annuity payments,
Policy loan benefits and premium (or other) refunds;
(ii) the commissions paid (net of refunds) by or on behalf of
the Company for all Policies;
(iii) the amount of any state, municipal or other premium or
gross receipts taxes paid by or on behalf of the Company
with respect to Policy premiums collected;
(iv) the premiums (net of refunds) paid by or on behalf of the
Company under the Third Party Reinsurance Agreements; and
(v) any other fees, charges, premiums, costs, and other
amounts paid by or on behalf of the Company with respect
to the Policies;
<PAGE>
in each case, paid during the preceding calendar quarter and which would be
payable by the Company under the terms of the Policies in the absence of the
reinsurance of the Policies effected by this Agreement.
Reimbursements listed above shall not be made with respect to items
accrued by the Company prior to the Effective Date.
If the sum of items in Section 6.03(a) exceeds the sum of items in
Section 6.03(b) for the preceding calendar quarter, then (subject to the
provisions of Section 6.05) such excess (to the extent not already paid to or on
behalf of the Reinsurer) shall be paid by the Company to the Reinsurer by wire
transfer of immediately available funds before the end of business on the tenth
day of the current calendar quarter. Conversely, if the sum of the items in
Section 6.03(b) exceeds the sum of the items in Section 6.03(a) for the
preceding calendar quarter, then (subject to the provisions of Section 6.05)
such excess (to the extent not already paid to or on behalf of the Company)
shall be paid by the Reinsurer to the Company by wire transfer of immediately
available funds before the end of business on the tenth day of the current
calendar quarter.
Section 6.04 Benefit Payments. The Reinsurer shall have full
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responsibility and authority for all benefit payment determinations or
settlements, and shall be solely responsible for all expenses associated with
benefit payment determinations or settlements. Such benefit payment authority
shall be subject to the Company's guidelines as in effect at the Effective Date
and any amendments to such guidelines may only be made by mutual written
agreement of the Company and the Reinsurer.
Section 6.05 Cash Settlement and Accounting.
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(a) Quarterly Cash Statements. At the end of the tenth Business Day
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next succeeding the end of each calendar quarter, the Reinsurer will provide the
Company with a statement setting forth amounts payable to the Company and the
Reinsurer for such preceding calendar quarter.
(b) Form of Statements. All statements provided pursuant to Section
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6.05(a) above shall be in a form agreed to by the Company and the Reinsurer in
writing and shall summarize the items to be settled in reasonable detail.
(c) Right to Audit. The Company shall have the right to audit the
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amounts contained in any statements delivered under this Section 6.05. For such
purposes, the Company and its employees, professional advisors and agents shall
have a right to review and copy the relevant books and records of the Reinsurer
and to discuss such matters with employees or the Reinsurer during normal
business hours.
<PAGE>
The Reinsurer agrees to instruct its independent public accountants and
actuaries to provide information to the Company and render reasonable assistance
to them in conducting any such audit.
(d) General Right of Offset. Notwithstanding any provision of this
-----------------------
Agreement, any and all amounts due from one party to the other may be offset
against amounts due from the other party under this Agreement or under any other
written agreement hereafter entered into by and between the parties, in settling
and making payments on a net basis of amounts due under this Agreement and any
subsequent written agreements.
All settlements of account between the Company and the Reinsurer shall
be made in cash or its equivalent.
ARTICLE VII
ADMINISTRATION; RECORDS; NOTICES
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Section 7.01 Administration. Administration and servicing of all of the
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Policies shall be conducted pursuant to the terms and subject to the conditions
set forth in the Administrative Services Agreement, dated as of the date hereof,
between the Company, Seaboard Life Insurance Company, a Canadian Federal
insurance company, and the Reinsurer, as the same may be amended from time to
time (the "Administrative Services Agreement"). Reports, files, and other
records and information relating to the Policies shall be transferred and
maintained pursuant to the terms and subject to the conditions set forth in the
Administrative Services Agreement.
Section 7.02 Transfer of Books and Records. The Company shall forward to
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the Reinsurer all reports, records, underwriting files, policy files, claims
files and information in any form in its possession relating to the Policies
pursuant to and in accordance with the Administrative Services Agreement.
Section 7.03 Maintenance of Books and Records. The Reinsurer agrees to
--------------------------------
maintain a true and complete set of books and records relating to all
transactions under this Agreement, including without limitation all such records
as may be required by applicable Law. The Reinsurer shall maintain such books
and records at the Reinsurer's expense and in accordance with prudent standards
of insurance record-keeping and all applicable Law. The books and records shall
be available (at their place of keeping) for inspection, examination, and audit
by the Company and state and federal regulatory authorities (in each case
together with their respective representatives) at all reasonable times. The
Reinsurer shall furnish to the Company (i) at the Reinsurer's expense, copies of
any books or records relating to the transactions
<PAGE>
under this Agreement as may be reasonably required by the Company in connection
with the preparation of the Company's financial statements, state and federal
income and other tax returns, and any other filings or reports required to be
filed with, or requested by, state or federal regulatory authorities or any
rating agencies and (ii) at the Company's expense, copies of any such books and
records for any other reason. Without limiting the generality of the foregoing,
the Reinsurer shall provide the Company (at the Reinsurer's expense) with all
information concerning the Policies required to be included in the Company's
state premium tax returns (in a format suitable for direct insertion therein).
Section 7.04 Notices. The Company agrees that, after the Service
-------
Transition Date (as defined in the Administrative Services Agreement), it shall
forward promptly to the Reinsurer all notices and other written communications
received by it relating to the Policies (including without limitation all
inquiries or complaints from state insurance regulators, agents, brokers and
insureds and all notices of claims, suits and actions for which it receives
service of process). The Company shall be entitled to retain copies of all such
materials.
ARTICLE VIII
CONDITIONS PRECEDENT
--------------------
The consummation of this Agreement and the transactions contemplated
hereby are expressly contingent upon and subject to (i) obtaining any and all
such approvals and consents as may be required by applicable Law or regulatory
authority and (ii) the closing of the transactions contemplated by the Purchase
Agreement. No provision in this Agreement shall be deemed to require any party
hereto to take any action prohibited by applicable Law or regulatory authority.
ARTICLE IX
RECAPTURE; TRUST
----------------
Section 9.01 Right of Recapture or Trust. At any time after the
---------------------------
occurrence (or nonoccurrence, as the case may be) of any of the following, the
Company shall have the right, upon delivery of written notice to the Reinsurer,
to (i) recapture any and all of the Policies or (ii) require that the Reinsurer
establish a trust reasonably acceptable to the Company (the "Trust") and deposit
Qualifying Assets therein having a fair market value equal to the amount of the
general account Statutory Reserves with respect to the Policies:
<PAGE>
(a) if the Reinsurer fails to comply with any material provision of
this Agreement or the Administrative Services Agreement, and such failure is not
corrected within 60 days after written notice thereof is delivered to the
Reinsurer by the Company;
(b) if the Reinsurer receives a rating from A.M. Best of "A-" or
below or is no longer rated by A.M. Best; or
(c) if the Reinsurer is placed in receivership, conservatorship,
rehabilitation, or liquidation by any insurance regulatory authority or becomes
(whether voluntarily or involuntarily) the subject of a proceeding under any
local, state, or federal bankruptcy or insolvency Law.
Section 9.02 Effect of Recapture. Upon the receipt of the Company's
-------------------
notice to recapture pursuant to Section 9.01 hereof, and without further action
by the Reinsurer, the Reinsurer will be deemed to have (i) ceded, transferred,
and assigned to the Company all Policy Liabilities; (ii) transferred and
assigned to the Company Qualifying Assets (including all Policy loans) having an
aggregate statutory book value as of the date of recapture equal to the
aggregate General Account reserve liability amount established by the Company as
of such date with respect to the Policies (without giving effect to the
reinsurance under this Agreement), together with all interest, dividend, or
other investment income accrued on such assets from the date of the Reinsurer's
receipt of such recapture notice until the date of the Company's receipt of such
assets; and (iii) sold, transferred, and assigned to the Company any and all of
the Reinsurer's right, title, and interest in and to all gross premiums, premium
adjustments, amounts recoverable from reinsurers, and other similar payments and
receivables that are or may be due or payable under the Policies. The Reinsurer
shall cooperate with the Company in effecting any recapture of Policies pursuant
to Section 9.01 hereof, including without limitation by promptly transferring
amounts to the Company described in clause (ii) above and by executing and
delivering such other documents, instruments and certificates effectuating the
recapture described in this Article and reasonably requested by the Company.
Upon recapture, a recapture fee calculated in the manner set forth on Schedule
9.02 hereto, less the liquidated damages set forth in Section 9.04 below, shall
----
be payable to the Reinsurer by the Company.
Section 9.03 Trust. Upon the receipt of the Company's notice to require
-----
the establishment of a trust pursuant to Section 9.01 hereof, and without
further action by the Reinsurer, the Reinsurer will be deemed to have
transferred and assigned to the Trust assets of the Reinsurer having an
aggregate statutory book value as of the effective date of such notice equal to
the aggregate General Account reserve liability
<PAGE>
amount established by the Company as of such date with respect to the Policies
(without giving effect to the reinsurance under this Agreement), together with
all interest, dividend, or other investment income accrued on such assets from
the date of the Reinsurer's receipt of such notice until the date of the Trust's
receipt of such assets. The Reinsurer shall cooperate with the Company in
effecting the creation and funding of the Trust pursuant to Section 9.01 hereof,
including without limitation by promptly transferring amounts to the Trust
described in the preceding sentence and by executing and delivering such other
documents, instruments and certificates effectuating the establishment, funding,
and maintenance of the Trust described in this Section and reasonably requested
by the Company.
Section 9.04 Liquidated Damages. Upon the recapture of all Policies or
------------------
establishment of the Trust pursuant to Section 9.01 hereof, the Reinsurer shall
pay to the Company (within five Business Days after the Reinsurer's receipt of
the Company's notice under Section 9.01) liquidated damages in an amount equal
to $1,000,000.
ARTICLE X
RIGHT OF INSPECTION
-------------------
Each party hereto and its respective authorized representatives shall have
the right, at all reasonable times during normal business hours, to inspect and
review all books, records, accounts, reports, tax returns, files and information
of the other party hereto relating to the Policies and Policy Liabilities under
such Policies.
ARTICLE XI
INDEMNIFICATION
---------------
The indemnification rights of the parties to this Agreement are set forth
in the Purchase Agreement.
<PAGE>
ARTICLE XII
INSOLVENCY
----------
The Reinsurer hereby agrees that, as to all reinsurance made, ceded,
renewed or otherwise becoming effective hereunder, the portion of any risk or
obligation assumed by the Reinsurer, when such portion is ascertained, shall be
payable immediately on demand of the Company at the same time as the Company
shall pay its retained portion of such risk or obligation, with reasonable
provision for verification before payment, and the reinsurance shall be payable
by the Reinsurer on the basis of the liability of the Company under the Policy
or Policies reinsured, without diminution because of the insolvency of the
Company, directly to the Company or to its liquidator, receiver, or other
statutory successor. It is agreed that in the event of the insolvency of the
Company, the liquidator, receiver or other statutory successor of the Company
shall give prompt written notice to the Reinsurer of the pendency or submission
of a claim under the Policy or Policies reinsured. During the pendency of such
claim, the Reinsurer may investigate such claim and interpose, at its own
expense, in the proceeding where such claim is to be adjudicated any defense
available to the Company or its receiver. The expense thus incurred by the
Reinsurer is chargeable against the Company, subject to any court approval, as a
part of the expense of liquidation to the extent of a proportionate share of the
benefit which accrues to the Company solely as a result of the defense
undertaken by the Reinsurer.
ARTICLE XIII
NO THIRD PARTY RIGHTS
---------------------
The Reinsurer's coinsurance of the Policy Liabilities pursuant to this
Agreement with respect to any of the Policies is intended for the sole benefit
of the parties to this Agreement and shall not create any right on the part of
any policyholder, insured, claimant or beneficiary under such Policies against
the Reinsurer or any legal relationship between such policyholders, insureds,
claimants or beneficiaries and the Reinsurer.
ARTICLE XIV
DUTY OF COOPERATION
-------------------
Each party hereto shall cooperate fully with the other party hereto in all
reasonable respects in order to accomplish the objectives of this Agreement.
<PAGE>
ARTICLE XV
ARBITRATION
-----------
In the event any dispute arises between the parties hereto with reference
to any aspect of this Agreement, such dispute may be submitted for resolution by
arbitration if both parties hereto agree in writing. Within 30 days after such
agreement, each party shall select one arbitrator (for a total of two), and such
selected arbitrators shall select a third arbitrator within 60 days after such
agreement. If either party fails to select an arbitrator within such time
period, the arbitrator that was timely selected by the other party shall serve
as the sole arbitrator. All arbitrators shall have had experience serving as an
arbitrator for reinsurance disputes or shall have served as an officer of a
life, accident or health insurance or reinsurance company. No arbitrator shall
be or have been affiliated with or employed by any party hereto or their
respective affiliates. The arbitration shall occur in a mutually acceptable
location and be governed pursuant to the rules of commercial arbitration of the
American Arbitration Association and the Laws of the State of Indiana. The
arbitrators shall make their determination within 30 days after the appointment
of the last arbitrator. Judgment may be entered upon the final decision of the
arbitrators in any court having jurisdiction, and notwithstanding any provision
in this Agreement to the contrary, such arbitration determination shall be final
and conclusive for all legal purposes and may not be appealed to any court or
other forum. Each party shall pay the expenses incurred by it and by the one
arbitrator selected by it. Each party shall pay one-half of the fees and out-
of-pocket expenses of the American Arbitration Association (if any) and the
third arbitrator.
ARTICLE XVI
GENERAL PROVISIONS
------------------
Section 16.01 DAC Adjustment. (a) For purposes of this Agreement, the
--------------
term "DAC Adjustment" is calculated as follows: First, for each taxable year
with respect to each category of Policies, "the gross amount incurred by the
reinsurer with respect to this Agreement" (as defined in Section 1.848-
2(f)(2)(i)(A) of the regulations (the "Regulations") under the Internal Revenue
Code of 1986, as amended (the "Code"), for such category (but not including any
DAC Adjustment incurred in such year) is multiplied by the applicable percentage
set forth in Section 848 (c)(1) of the Code for such category. The amount, if
any, from the preceding sentence for a category of Policies is then reduced by
the amortization allowed the Company under Section 848(a)(2) of the Code for
such amount (without regard to any payment of any DAC Adjustment). The result
for a category, whether positive or negative, is then multiplied by the quotient
of: tr/(1-(tr x (1+Y))), where tr = the maximum applicable marginal corporate
federal income tax rate (as defined in Section 11(b)(1)(D) of the
<PAGE>
Code) for the taxable year, and Y = the applicable percentage set forth in
Section 848(c)(1) for such category of Policies. The aggregate amount of such
calculations for all categories of Policies for a taxable year (whether positive
or negative) is the DAC Adjustment for the year.
(b) Within 60 days of the end of the Company's taxable year, the
Reinsurer shall calculate the DAC Adjustment for the year and submit such
calculations to the Company for review. If, within 30 days of the Company's
receipt of such calculations, the Company shall not have objected in writing to
such calculations, the calculations shall become final. If, within 15 days of
any objection in writing to such calculations, the Company and the Reinsurer
shall not have agreed in writing to such calculations (in which case the
calculations shall become final), any disputed aspects of the calculations shall
be resolved by the Third Party Consultant within 30 days of the submission of
the dispute to the Third Party Consultant by the Company or the Reinsurer. The
decision of the Third Party Consultant shall be final (and the resulting
calculations shall be final), and the costs, expenses, and fees of the Third
Party Consultant shall be borne equally by the Company and the Reinsurer.
(c) If the amount of the DAC Adjustment for any taxable year of the
Company is positive, the Reinsurer shall pay such amount to the Company within
15 days of the date on which the calculations of the DAC Adjustment become
final. If the amount of the DAC adjustment for any taxable year of the Company
is negative, the Company shall pay such amount to the Reinsurer within 15 days
of the date on which the calculations of the DAC Adjustment become final.
(d) Notwithstanding any other provision of this Section 16.01, the
term "gross amount incurred by the reinsurer with respect to this Agreement"
shall not include (i) all or any part of the Purchase Price (as defined in the
Purchase Agreement) or (ii) the consequences of any recapture of the Policies
pursuant to Article IX hereof.
(e) In the event that Section 848 of the Code or the Regulations
thereunder are amended after the date hereof and any change is made to the
amortization period under Section 848(a)(2), the capitalization percentages in
Section 848(c)(1), or the definition of the term "gross amount incurred by the
reinsurer with respect to the reinsurance agreement" in Section 1.848-
2(f)(2)(i)(A) of the Regulations, the Company and the Reinsurer shall cooperate
in good faith to modify the definition of the term "DAC Adjustment" to reflect
such change, consistent with the principles and assumptions originally used in
defining that term in this Agreement.
Section 16.02 DAC Tax Election. With respect to this Agreement, the
----------------
Company and the Reinsurer hereby make the election provided for in Section
<PAGE>
1.848-2(g)(8) of the Treasury Regulations issued under Section 848 of the Code,
and as set forth in Exhibit B. Each of the parties hereto agrees to take such
---------
further actions as may be necessary to ensure the effectiveness of such
election.
Section 16.03 Notices. Any notice or communication given pursuant to this
-------
Agreement must be in writing and (a) delivered personally, (b) sent by facsimile
transmission, (c) delivered by overnight express, or (d) sent by registered or
certified mail, postage prepaid, as follows:
If to the Reinsurer: Life Re Corporation
969 High Ridge Road, Stanford CT 06905
Attention: W. Weldon Wilson
Facsimile No.: (203)968-0920
If to the Company: Seaboard Life Insurance Company (USA)
525 South Meridian
Indianapolis, Indiana 46225-1125
Attention: President
Facsimile No.: (317) 238-5611
with a copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Attention: David A. Massey, Esq.
Facsimile No.: (202) 637-3593
All notices and other communications required or permitted under the terms of
this Agreement that are addressed as provided in this Article shall (i) if
delivered personally or by overnight express, be deemed given upon delivery;
(ii) if delivered by facsimile transmission, be deemed given when electronically
confirmed; and (iii) if sent by registered or certified mail, be deemed given
when received. Any party from time to time may change its address for notice
purposes by giving a similar notice specifying a new address, but no such notice
shall be deemed to have been given until it is actually received by the party
sought to be charged with the contents thereof.
Section 16.04 Entire Agreement. This Agreement (including the Exhibits
----------------
hereto), the Purchase Agreement and the Administrative Services Agreement
contain the entire agreement and understanding between the parties with respect
to the
<PAGE>
transactions contemplated hereby and thereby, and supersede all prior
agreements and understandings, written or oral, with respect thereto.
Section 16.05 Expenses. Except as may be otherwise expressly provided in
--------
this Agreement, whether or not the transactions contemplated hereby are
consummated, each of the parties hereto shall pay its own costs and expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
Section 16.06 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
Section 16.07 No Third Party Beneficiary. Except as otherwise provided
--------------------------
herein, the terms and provisions of this Agreement are intended solely for the
benefit of the parties hereto, and their respective successors or permitted
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person, and no such rights shall be conferred
upon any Person or entity not a party to this Agreement.
Section 16.08 Amendment. This Agreement may only be amended or modified
---------
by a written instrument executed on behalf of both parties hereto.
Section 16.09 Assignment; Binding Effect. Neither this Agreement nor any
--------------------------
of the rights, interests or obligations under this Agreement shall be assigned,
in whole or in part, by any of the parties hereto without the prior written
consent of the other party, and any such assignment that is attempted without
such consent shall be null and void. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties and their respective successors and permitted assigns.
Section 16.10 Invalid Provisions. If any provision of this Agreement is
------------------
held to be illegal, invalid, or unenforceable under any present or future Law,
and if the rights or obligations of the parties hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision shall be
fully severable; (b) this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (c) the remaining provisions of this Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom.
<PAGE>
Section 16.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the State of Indiana, regardless of the
Laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 16.12 Waiver. Any term or condition of this Agreement may be
------
waived in writing at any time by the party that is entitled to the benefit
thereof. A waiver on one occasion shall not be deemed to be a waiver of the
same or any other breach or nonfulfillment on a future occasion. All remedies,
either under the terms of this Agreement, or by Law or otherwise afforded, shall
be cumulative and not alternative, except as otherwise provided by Law.
Section 16.13 Headings, etc. The headings used in this Agreement have
--------------
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words using the singular or plural number also
include the plural or singular number, respectively; (b) the terms "hereof,"
"herein," "hereby," "hereto," "hereunder," and derivative or similar words refer
to this entire Agreement (including the Exhibits hereto); (c) the term "Article"
refers to the specified Article of this Agreement; and (d) the term "party"
means, on the one hand, the Company, and on the other hand, the Reinsurer.
Section 16.14 Offset. The Company may, in its sole discretion and without
------
prior notice to the Reinsurer, reduce any amount the Company owes hereunder to
the Reinsurer by the amount, if any, that the Reinsurer owes to the Company at
such time.
Section 16.15 Compliance with Laws. The parties hereto shall at all times
--------------------
comply with all applicable Laws in performing their obligations under this
Agreement.
IN WITNESS WHEREOF, the Company and the Reinsurer have each executed this
Agreement as of the date first written above.
LIFE REASSURANCE CORPORATION
OF AMERICA
By:
--------------------------------
Name:
Title:
<PAGE>
SEABOARD LIFE INSURANCE COMPANY (USA)
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit A
POLICY FORMS
------------
<PAGE>
Exhibit B
TAX ELECTION
------------
The Company and the Reinsurer hereby make an election pursuant to Treasury
Regulations Section 1.848-2(g)(8), issued pursuant to Section 848 of the Code.
This election shall be effective for the tax year during which the Effective
Date falls and all subsequent taxable years for which this Agreement remains in
effect. Unless otherwise indicated, the terms used in this Exhibit are defined
by reference to Treasury Regulations Section 1.848-2 as in effect on the date
hereof. As used below, the term "party" or "parties" shall refer to the Company
or the Reinsurer, or both, as appropriate.
1. The party with the net positive consideration with respect to the
transactions contemplated under this Agreement for any taxable year
covered by this election will capitalize specified policy acquisition
expenses with respect to such transactions without regard to the general
deductions limitation of Section 848(c)(1) of the Code.
2. The parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency or as
is otherwise required by the Internal Revenue Service. The exchange of
information each year will follow the procedures set forth below:
(1) By June 1 of each year, the Reinsurer will submit a schedule to the
Company of its calculation of the net consideration for the preceding
calendar year. This schedule of calculations will be accompanied by a
statement signed by an officer of the Reinsurer stating the amount of
the net consideration the Reinsurer will report in its tax return for
the preceding calendar year.
(2) Within 30 days of the Company's receipt of the Reinsurer's calculation,
the Company may contest such calculation by providing an alternative
calculation to the Reinsurer in writing. If the Company does not notify
the Reinsurer that it contests such calculation within said 30-day
period, the calculation will be presumed correct and the Company shall
also report the net consideration as determined by the Reinsurer in the
Company's tax return for the preceding calendar year.
<PAGE>
(3) If the Company provides an alternative calculation of the net
consideration pursuant to clause (b), the parties will act in good faith
to reach an agreement as to the correct amount of net consideration
within 30 days of the date the Reinsurer receives the alternative
calculation from the Company. When the Company and the Reinsurer reach
agreement on an amount of net consideration, each party shall report the
applicable amount in their respective tax returns for the preceding
calendar year.
Agreed and accepted:
SEABOARD LIFE INSURANCE COMPANY (USA)
By: --------------------------------------
Name:
Title:
LIFE REASSURANCE CORPORATION OF AMERICA
By: --------------------------------------
Name:
Title:
<PAGE>
Schedule 6.01(b)
Post-Effective Time Cash Flows
------------------------------
Premium (net of third party reinsurance);
$
-------------------
Policy charges including policy loan principal
and interest repayments $
-------------------
Policy benefits and policy loan payments $( )
------------------
Premium taxes on premiums received and guaranty fund
assessments relating to insolvencies occurring after
the Effective Time $( )
------------------
Commission payments $( )
------------------
Administrative expenses $( )
------------------
Third party reinsurance recoveries $
-------------------
Sub-Total $
-------------------
Interest @.0001918 x one-half the number of days $
-------------------
Total $
-------------------
<PAGE>
Schedule 9.02
-------------
Recapture Fee
-------------
The amount of the Recapture Fee shall be determined in accordance with the
formula set forth below by a nationally recognized actuarial consulting firm
which shall not be affiliated with either the Company or the Reinsurer. The
actuarial firm selected to calculate the amount of the Recapture Fee is referred
to hereinafter as the "Actuary."
The Recapture Fee shall be equal to the Appraisal Value of the Business as
of the recapture date, adjusted for taxes as provided below.
Appraisal Value. The Appraisal Value of the Business shall be equal to the
---------------
present value (calculated at a 10 percent interest rate) as of the recapture
date of the following values for the Business: (a) After Tax Statutory Profits,
plus (b) After Tax Interest on Required Surplus, minus or plus (c) the Increase
- ---- ----- ----
or Decrease in Required Surplus, minus (d) the Initial Required Surplus.
-----
For these purposes, Required Surplus shall be calculated on the assumption
that Total Adjusted Capital to Company Action Level RBC, in each case with
respect to the Business, shall be 200 percent (Both Total Adjusted Capital and
Company Action Level RBC shall be determined as provided in the Risk-Based
Capital (RBC) Model Act or the NAIC's rules with respect thereto). In fixing
the other values required by the above formula, the Actuary shall use its best
estimates of future mortality, earned and credited interest rates, lapses and
surrenders, premium persistency, producer compensation, other taxes, licenses
and fees; provided, however, that the Actuary shall assume that the unit cost of
providing administrative services for the Business shall increase by three
percent per year over the estimated cost of such services for the twelve months
immediately following the recapture date.
Tax Adjustments. The Appraised Value shall be calculated net of any
---------------
Federal or state income Tax credits and charges inuring to or incurred by the
Company as a result of the recapture of the Business.
<PAGE>
EXHIBIT 10.2
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is made and entered into on
December 29, 1998, by and among Life Reassurance Corporation of America, a
Connecticut corporation ("Buyer"), Eureko B.V., a company organized under the
laws of the Netherlands ("Eureko") and Seaboard Life Insurance Company (USA), an
Indiana insurance corporation ("Seller").
RECITALS:
WHEREAS, Seller is engaged in, among other things, the business of
underwriting, issuing and administering certain life insurance and annuity
products, as more particularly described in Exhibit A hereto (the "Business");
---------
WHEREAS, Seller desires to cede to Buyer, and Buyer desires to reinsure
from Seller, all of Seller's rights, liabilities and obligations in respect of
the life insurance products and annuity products constituting the Business
effective as of the Effective Date;
WHEREAS, the parties hereto desire that Buyer assume and provide all
support and administrative services relating to the Business effective as of the
Effective Date; and
WHEREAS, each of Buyer, Eureko and Seller desire to make certain
representations, warranties and agreements in connection with the transactions
contemplated by this Agreement (the "Transactions") and also desire to set forth
various conditions precedent thereto.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE TRANSACTIONS
----------------
<PAGE>
SECTION 1.1. Reinsurance and Administration. Concurrently with the
------------------------------
execution of this Agreement, (i) Buyer and Seller are executing and delivering
an indemnity reinsurance agreement (the "Indemnity Reinsurance Agreement"), and
(ii) Buyer, Seller and Seaboard Life Insurance Company ("SLIC-Canada") are
executing and delivering an administrative services agreement (the
"Administrative Services Agreement").
SECTION 1.2. Consideration for the Transaction. The aggregate consideration
---------------------------------
payable by Buyer in respect of the Transactions shall be a cash ceding
commission equal to $8.32 million (the "Purchase Price").
SECTION 1.3. Closing.
-------
(a) "Closing" means the closing of the Transactions. "Effective
Date" means July 1, 1998. "Closing Date" means (i) the first day of the month
immediately following the month in which the last of the conditions to closing
set forth in this Agreement is satisfied or waived in writing, if the last of
such conditions was so satisfied or waived on or prior to the 15th day of such
prior month or (ii) the first day of the second month immediately following the
month in which the last of such conditions is so satisfied or waived, if the
last of such conditions was so satisfied or waived after the 15th day of such
prior month; provided, however, that if such date is not a Business Day, the
-------- -------
Closing Date shall be the immediately succeeding Business Day, and provided
further, that the Closing may occur on such other day as the parties may agree
to in writing. "Business Day" means any day other than a Saturday, Sunday or a
day on which banking institutions in Indiana are permitted or obligated by law
to be closed.
(b) The Closing will take place at the offices of Sutherland, Asbill &
Brennan LLP, 1275 Pennsylvania Avenue, N.W., Washington, D.C. 20004, at 10:00
a.m., Eastern Time on the Closing Date or such other time or place as the
parties may mutually agree (the "Closing Date").
(c) At the Closing, Buyer shall (i) pay the Purchase Price to Seller,
together with interest thereon from and including July 1, 1998, to but excluding
the Closing Date at a rate of 7 percent per annum, by wire transfer of
immediately available funds to such accounts as Seller shall specify to Buyer;
and (ii) deliver to Seller such documents and instruments as are required to be
delivered by Buyer under the terms of this Agreement (including without
limitation the documents required to be executed and delivered by Buyer pursuant
to Section 6.2, the "Buyer Documents").
<PAGE>
(d) At the Closing, Seller shall deliver to Buyer such documents and
instruments as are required to be delivered by Seller under the terms of this
Agreement (including without limitation the documents required to be executed
and delivered by Seller pursuant to Section 6.1, the "Seller Documents").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EUREKO AND SELLER
----------------------------------------------------
Eureko and Seller make the following representations and warranties to
Buyer:
SECTION 2.1. Organization and Good Standing. Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the Laws (as defined
below) of Indiana. Seller has all requisite corporate power and authority to
own, lease or otherwise hold its assets and to conduct the Business as presently
conducted. Seller is duly qualified as a foreign corporation and is in good
standing in each jurisdiction which its ownership, lease or use of assets or
property or conduct of business makes such qualification necessary, except where
the failure to be so qualified does not have and cannot reasonably be expected
to have a Material Adverse Effect (as defined below). Eureko is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation (to the extent that the concept of good standing
has legal significance in such jurisdiction) and has all corporate powers
required to carry on its business as now conducted. As used in this Agreement,
the term "Laws" shall mean all domestic or foreign federal, state, local
statutes, laws, ordinances or regulations. As used in this Agreement, the term
"Material Adverse Effect" shall mean a material adverse effect on (i) the
Business, (ii) the validity or enforceability of this Agreement, or (iii) on
Eureko's or Seller's ability to perform its obligations under this Agreement.
SECTION 2.2. Authorization of Agreement; Binding Obligation. Each of
----------------------------------------------
Eureko and Seller has all requisite corporate power and authority to execute and
deliver this Agreement and the Seller Documents and to perform its respective
obligations hereunder and thereunder. The execution and delivery by Eureko and
Seller of this Agreement and the Seller Documents and the performance by Eureko
and Seller of their respective obligations hereunder and thereunder have been
duly authorized by all necessary corporate and stockholder action on the part of
Eureko and Seller. This Agreement has been (and the Seller Documents will be)
duly executed and delivered by duly authorized officers of Eureko and Seller
and, assuming the due execution and delivery of this Agreement and the Seller
Documents by the other parties hereto and thereto, constitutes (and each of the
Seller Documents will constitute) valid and binding obligations of Eureko and
Seller enforceable against Eureko and Seller in accordance
<PAGE>
with their respective terms, except to the extent enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar Laws
affecting creditors' rights in general and subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
SECTION 2.3. No Conflicts. The execution and delivery of this Agreement and
------------
the Seller Documents by Eureko and Seller do not, and the performance by Eureko
and Seller of their respective obligations hereunder and thereunder will not,
(a) conflict with the articles or certificate of incorporation or by-laws of
Eureko or Seller, (b) conflict with, result in any violation of, constitute a
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration under, any contract,
permit, order, judgment or decree to which Eureko or Seller is a party other
than those that individually or in the aggregate with other such conflicts,
violations, defaults, and rights of termination, cancellation, and acceleration,
do not have and cannot reasonably be expected to have a Material Adverse Effect,
(c) subject to obtaining the approvals and making the filings described on
Schedule 2.3, constitute a violation of any Law applicable to Eureko or Seller
other than those that, individually or in the aggregate with other such
violations, do not have and cannot reasonably be expected to have a Material
Adverse Effect, (d) require Eureko or Seller to obtain or make any consent,
approval, order or authorization of, or registration, declaration or filing
with, any domestic or foreign court, government, governmental agency, authority,
entity or instrumentality (collectively, "Governmental Entity") or other person
or entity, other than (i) as described on Schedule 2.3 and (ii) those which the
failure to obtain, make, or give individually or in the aggregate with other
such failures do not have and cannot reasonably be expected to have a Material
Adverse Effect.
SECTION 2.4. Licenses.
--------
(a) Seller owns or holds all licenses, permits and authorizations
required in connection with the conduct of the Business other than those that
the failure to own or hold individually or in the aggregate with other such
failures do not have and cannot reasonably be expected to have a Material
Adverse Effect.
(b) Seller has complied with the material terms and conditions of each
license, permit and authorization required in connection with the conduct of the
Business, and all such licenses, permits and authorizations are valid, binding
and in full force and effect.
SECTION 2.5. Reinsurance. Set forth on Schedule 2.5 is a list of all
-----------
reinsurance agreements relating to all or any portion of the Business. Each such
<PAGE>
reinsurance agreement is in full force and effect and constitutes a legal,
valid, and binding obligation of each party thereto. Seller has not received any
written notice of termination or intention to terminate from any other party to
such reinsurance agreements. Neither Seller nor, to the best knowledge of
Seller, any other party to such reinsurance agreements is in violation or breach
of or default under any such reinsurance agreements (or with or without notice
or lapse of time or both, would be in violation or breach of or default under
any such reinsurance agreements) other than those violations, breaches, or
defaults that individually or in the aggregate with other such violations,
breaches, or defaults do not have and cannot reasonably be expected to have a
Material Adverse Effect.
SECTION 2.6. Litigation. Except as set forth on Schedule 2.6, there are no
----------
actions, suits, investigations, arbitrations, or similar proceedings pending, or
(to the knowledge of Eureko or Seller) threatened, against Eureko or Seller or
any of their assets or properties, at law or in equity, in, before, or by any
Governmental Entity other than actions, suits, investigations, arbitrations or
proceedings that individually or in the aggregate with other such actions,
suits, investigations, arbitrations or proceedings do not have and cannot
reasonably be expected to have a Material Adverse Effect. There is no order,
writ, judgment, injunction or decree outstanding against Eureko or Seller or any
of their assets or properties other than orders, writs, judgments, injunctions
or decrees that individually or in the aggregate with other such orders, writs,
judgments, injunctions or decrees do not have and cannot reasonably be expected
to have a Material Adverse Effect.
SECTION 2.7. Compliance with Laws. Seller is not in violation (or with or
--------------------
without notice or lapse of time or both, would be in violation) of any Law,
order, writ, judgment, injunction or decree applicable to its Business,
operations, affairs, assets or properties other than such violations which
individually or in the aggregate with other such violations do not have and
cannot reasonably be expected to have a Material Adverse Effect.
SECTION 2.8. Seller Financial Statements. Seller has previously delivered
---------------------------
or made available to Buyer true and complete copies of the annual statements for
Seller as of and for the years ended December 31, 1996 and 1997. Each such
statement (i) was prepared in all material respects in accordance with the
accounting practices required or permitted by the insurance regulatory authority
in the applicable state, consistently applied throughout the specified period
and in the comparable period in the immediately preceding year and (ii) presents
fairly in all material respects the financial position of Seller as of the
respective dates thereof and the related summary of operations and changes in
capital and surplus and in cash flows of Seller for and during the respective
<PAGE>
periods covered thereby (subject, in the case of the quarterly statements, to
normal year-end adjustments).
SECTION 2.9. Material Changes. Except as disclosed in Schedule 2.9, since
----------------
December 31, 1997:
(a) there has not been, occurred, or arisen any change, event
(including without limitation any damage, destruction, or loss, whether or not
covered by insurance), condition, circumstance, or development of any character
other than those that individually or in the aggregate with other such changes,
events, conditions, circumstances, and developments do not have and cannot
reasonably be expected to have a Material Adverse Effect; and
(b) Seller has conducted the Business solely in the ordinary course of
business and consistent with past practice.
SECTION 2.10. Brokers' Fees and Commissions. Except for Merrill Lynch (all
-----------------------------
of the fees, expenses, and other liabilities of which will be paid by Eureko or
SLIC-Canada), neither Seller nor any of its directors, officers, employees or
agents has employed any investment banker, broker or finder in connection with
the Transactions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer makes the following representations and warranties to Eureko and
Seller:
SECTION 3.1. Organization and Qualification. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation, with all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as presently conducted. Buyer is qualified or licensed to do business and is in
good standing in each jurisdiction in which the ownership or leasing of property
by it or the conduct of its business requires such licensing or qualification,
except where the failure to be so qualified or licensed does not have and cannot
reasonably be expected to have a Buyer Material Adverse Effect (as defined
below). As used in this Agreement, the term "Buyer Material Adverse Effect"
shall mean a material adverse effect on (i) the validity or enforceability of
this Agreement or (ii) on Buyer's ability to perform its obligations under this
Agreement.
<PAGE>
SECTION 3.2. Authorization of Agreement; Binding Obligation. Buyer has all
----------------------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and the Buyer Documents and to perform its obligations hereunder and thereunder.
The execution and delivery by Buyer of this Agreement and the Buyer Documents
and the performance by it of its obligations hereunder and thereunder have been
duly authorized by all necessary corporate action on the part of Buyer. This
Agreement has been (and the Buyer Documents will be) duly executed and delivered
by Buyer and, assuming the due execution and delivery of this Agreement and the
Buyer Documents by the other parties hereto and thereto, constitutes (and each
of the Buyer Documents will constitute) valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their terms, except to the extent
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar Laws affecting creditors' rights in general and subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
SECTION 3.3. No Conflicts. The execution and delivery of this Agreement
------------
and the Buyer Documents by Buyer do not, and the performance by Buyer of its
obligations hereunder and thereunder will not, (a) conflict with the articles or
certificate of incorporation or by-laws of Buyer, (b) conflict with, result in
any violation of, constitute a default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration under, any contract, permit, order, judgment or decree to which
Buyer is a party other than those which individually or in the aggregate with
other such conflicts, violations, defaults, and rights of termination,
cancellation, and acceleration do not have and cannot reasonably be expected to
have a Buyer Material Adverse Effect, (c) subject to obtaining the approvals
described on Schedule 3.3, constitute a violation of any Law applicable to
Buyer, other than violations which individually or in the aggregate with other
such violations do not have and cannot reasonably be expected to have a Buyer
Material Adverse Effect, (d) require Buyer to obtain or make any consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity or other person or entity, other than (i) as
described on Schedule 3.3 and (ii) those which the failure to obtain, make, or
give individually or in the aggregate with other such failures do not have and
cannot reasonably be expected to have a Buyer Material Adverse Effect.
SECTION 3.4. Licenses.
--------
(a) Buyer owns or holds all licenses, permits and authorizations
required in order to perform its obligations under this Agreement and the Buyer
Documents other than those that the failure to own or hold individually or in
the
<PAGE>
aggregate with other such failures do not have and cannot reasonably be expected
to have a Buyer Material Adverse Effect.
(b) Buyer has complied with the material terms and conditions of each
license, permit and authorization required in order to perform its obligations
under this Agreement and the Buyer Documents, and all such licenses, permits and
authorizations are valid, binding and in full force and effect.
SECTION 3.5. Brokers' Fees and Commissions. Neither Buyer nor any of its
-----------------------------
directors, officers, employees or agents has employed any investment banker,
broker or finder in connection with the Transactions.
SECTION 3.6. Litigation. There are no actions, suits, investigations,
----------
arbitrations, or similar proceedings pending, or (to the knowledge of Buyer)
threatened, against Buyer or any of its assets or properties, at law or in
equity, in, before, or by any Governmental Entity other than actions, suits,
investigations, arbitrations, or proceedings that individually or in the
aggregate with other such actions, suits, investigations, arbitrations, and
proceedings do not have and cannot reasonably be expected to have a Buyer
Material Adverse Effect. There is no order, writ, judgment, injunction or
decree outstanding against Buyer or any of its assets or properties other than
orders, writs, judgments, injunctions or decrees that individually or in the
aggregate with other such orders, writs, judgments, injunctions or decrees do
not have and cannot reasonably be expected to have a Buyer Material Adverse
Effect.
SECTION 3.7. Compliance with Laws. Buyer is not in violation (or with or
--------------------
without notice or lapse of time or both, would be in violation) of any Law,
order, writ, judgment, injunction or decree applicable to its business,
operations, affairs, assets or properties other than such violations which
individually or in the aggregate with other such violations do not have and
cannot reasonably be expected to have a Buyer Material Adverse Effect.
ARTICLE IV
COVENANTS
---------
Each of the parties hereto covenants and agrees that it shall comply with
all covenants and provisions of this Article IV applicable to it, except to the
extent (i) Buyer may otherwise consent in writing, (ii) otherwise required by
applicable Law, or (iii) otherwise required or permitted by this Agreement.
<PAGE>
SECTION 4.1. Access to Information. Prior to the Closing, Seller will
---------------------
provide to the officers, employees, attorneys, accountants and other
representatives of Buyer full access during normal business hours to the
employees, agents, facilities and books and records of such entity reasonably
related to this Agreement and the Transactions. Buyer will be permitted to make
copies of such books and records at Buyer's sole expense as may be reasonably
necessary in connection therewith.
SECTION 4.2. Conduct of Business. Except as otherwise provided by this
-------------------
Agreement and except as set forth in Schedule 4.2, during the period from the
date of this Agreement and continuing until the Closing Date:
(a) Seller shall carry on the Business in the usual, regular and
ordinary course as presently conducted and consistent with past practice; and
(b) Seller shall use all commercially reasonable efforts to (i)
maintain in full force and effect all licenses, permits and authorizations
necessary to conduct the Business, (ii) keep available the services of the
present employees of the Business, and (iii) maintain the goodwill associated
with the Business, including but not limited to preserving the relationships
with policyholders, agents, suppliers and others having business dealings with
Seller.
SECTION 4.3. Consents. Each party hereto will (a) use all commercially
--------
reasonable efforts to obtain before Closing all consents, approvals, orders and
authorizations of (and prepare and submit all filings and notifications to)
every Governmental Entity and other person or entity necessary for such party to
perform its obligations hereunder, and (b) cooperate with the other parties
hereto in obtaining before Closing all consents, approvals, orders and
authorizations of (and preparing and submitting all filings and notifications
to) every Governmental Entity and other person or entity necessary for such
other parties to perform their obligations hereunder.
SECTION 4.4. Public Announcements. At all times prior to the Closing Date,
--------------------
Buyer and Seller will consult with each other and will mutually agree (the
agreement of each party not to be unreasonably withheld) upon the content and
timing of any press release with respect to the Transactions and shall not issue
any such press release prior to such consultation and agreement, except as may
be required by applicable Law; provided, however, that, if possible, Buyer and
-------- -------
Seller will give prior notice to the other party as promptly as practicable
under the circumstances of the content and timing of any such press release
required by applicable Law.
SECTION 4.5. Disclosure Supplements. From time to time prior to the
----------------------
Closing, each of the parties hereto will supplement or amend the schedules
delivered in
<PAGE>
connection herewith with respect to any matter which, if existing or occurring
at or prior to the date of this Agreement, would have been required to be set
forth or described in any such schedule or which is necessary to correct any
information in such schedule which has been rendered inaccurate thereby. If the
Closing occurs, Buyer waives any right or claim it may otherwise have or have
had on account of any matter so disclosed in such supplement or amendment.
SECTION 4.6. Financial Statements. As promptly as practicable until the
--------------------
Closing Date, Seller shall deliver to Buyer true and complete copies of each
quarterly statement filed by Seller with its state of domicile for calendar
quarters ended after December 31, 1997. Each such statement will be prepared in
all material respects in accordance with the accounting practices required or
permitted by the insurance regulatory authority in Indiana, consistently applied
throughout the specified period and in the comparable period in the immediately
preceding year.
SECTION 4.7. Administration. From and after the Closing Date, the Business
--------------
will be administered pursuant to and in accordance with the terms of the
Administrative Services Agreement.
SECTION 4.8. Reinsurance. Prior to the Closing Date, Seller shall use its
-----------
commercially reasonable efforts to obtain any endorsements from the reinsurers
under all reinsurance agreements relating to the Business (other than the
Indemnity Reinsurance Agreement) to ensure that Buyer is entitled to enforce
such reinsurance agreements against the reinsurer in its own name; provided,
--------
however, that Seller shall be under no obligation to make payments or incur
- -------
other liabilities to any person in connection with such endorsements. If Seller
is unable to obtain such endorsements notwithstanding such efforts, Seller shall
place Buyer in the same net economic position as if such endorsements had been
obtained (by continuing to use commercially reasonable efforts to enforce its
rights under such reinsurance agreements and ensuring that all benefits
thereunder received, directly or indirectly, by the Seller flow to Buyer).
SECTION 4.9. Disclosure. Buyer and Seller shall (i) draft disclosure
----------
materials describing the Transactions to be distributed to policyholders and
contractholders of Seller in accordance with applicable Law and (ii) ensure that
such materials are finalized by the Closing Date. As promptly as practicable
after the Closing Date (but in no event more than 10 Business Days thereafter),
Buyer shall distribute such materials by first class U.S. mail to all holders of
insurance policies and annuity contracts constituting the Business.
<PAGE>
ARTICLE V
CONDITIONS TO CLOSING
---------------------
SECTION 5.1. Conditions Precedent to Obligations of Buyer. The obligations
--------------------------------------------
of Buyer under this Agreement to consummate the Transactions will be subject to
the satisfaction, at or prior to Closing, of all of the following conditions,
any one or more of which may be waived in whole or in part at the option of
Buyer:
(a) Representations, Warranties and Covenants.
-----------------------------------------
(i) All representations and warranties of Seller made in this
Agreement or in any Exhibit, Schedule, certificate or document delivered
pursuant to this Agreement shall be true and complete in all material
respects as of the date hereof and on and as of the Closing Date as if made
on and as of the Closing Date (except to the extent that they expressly
relate only to an earlier time, in which case they shall have been true and
complete as of such earlier time).
(ii) All of the terms, covenants and conditions to be complied with
and performed by Seller on or prior to the Closing Date shall have been
complied with or performed in all material respects.
(iii) Buyer shall have received a certificate, dated as of the
Closing Date, executed by Seller, certifying that the conditions specified
in Sections 5.1(a)(i) and (ii) have been satisfied.
(b) Closing Documents. Seller shall have executed and delivered the Seller
-----------------
Documents.
(c) No Injunction. There shall not be in effect on the Closing Date any
-------------
writ, judgment, injunction, decree, or similar order of any court or
governmental or regulatory authority restraining, enjoining, or otherwise
preventing consummation of any of the Transactions in accordance with the terms
of this Agreement.
(d) Consents. The consents, approvals, orders, authorizations, filings,
--------
and notifications described on Schedules 2.3 and 3.3 shall have been obtained or
made.
<PAGE>
SECTION 5.2. Conditions Precedent to Obligations of Seller. The
---------------------------------------------
obligations of Seller under this Agreement to consummate the Transactions will
be subject to the satisfaction, at or prior to the Closing, of all the following
conditions, any one or more of which may be waived at the option of Seller:
(a) Representations, Warranties and Covenants.
-----------------------------------------
(i) All representations and warranties of Buyer made in this
Agreement or in any Exhibit, Schedule, certificate or document delivered
pursuant to this Agreement shall be true and complete in all material
respects as of the date hereof and on and as of the Closing Date as if made
on and as of the Closing Date (except to the extent that they expressly
relate only to an earlier time, in which case they shall have been true and
complete as of such earlier time).
(ii) All of the terms, covenants and conditions to be complied with
and performed by Buyer on or prior to the Closing Date shall have been
complied with or performed in all material respects.
(iii) Seller shall have received a certificate, dated as of the
Closing Date, executed by Buyer, certifying that the conditions specified
in Sections 5.2(a)(i) and (ii) have been satisfied.
(b) Closing Documents. Buyer shall have executed and delivered the Buyer
-----------------
Documents.
(c) No Injunction. There shall not be in effect on the Closing Date any
-------------
writ, judgment, injunction, decree, or similar order of any court or
governmental or regulatory authority restraining, enjoining, or otherwise
preventing consummation of any of the Transactions in accordance with the terms
of this Agreement.
(d) Consents. The consents, approvals, orders, authorizations, filings,
--------
and notifications described on Schedules 2.3 and 3.3 shall have been obtained or
made.
ARTICLE VI
DOCUMENTS TO BE DELIVERED AT THE CLOSING
----------------------------------------
SECTION 6.1. Documents to be Delivered by Seller. At the Closing, Seller
-----------------------------------
shall deliver to Buyer the following:
<PAGE>
(a) Certified Resolutions. Certified resolutions of the Boards of
---------------------
Directors of Seller approving the execution and delivery of this Agreement and
each of the other documents delivered by Seller pursuant hereto and authorizing
the consummation of the Transactions.
(b) Officer's Certificate. The certificate, dated the Closing Date,
---------------------
duly executed by Seller as required by Section 5.1(a)(iii).
(c) Evidence of Approvals. Evidence of receipt of the consents and
---------------------
approvals described on Schedule 2.3.
SECTION 6.2. Documents to be Delivered by Buyer. At the Closing, Buyer
----------------------------------
shall deliver to Seller the following:
(a) Purchase Price. Evidence of a wire transfer in the amount of the
--------------
Purchase Price in accordance with Section 1.2.
(b) Certified Resolutions. Certified resolutions of the Board of
---------------------
Directors of Buyer approving the execution and delivery of this Agreement and
each of the other documents delivered by Buyer pursuant hereto and authorizing
the consummation of the Transactions.
(c) Officer's Certificate. The certificate, dated the Closing Date,
---------------------
duly executed by Buyer as required by Section 5.2(a)(iii).
(d) Evidence of Approvals. Evidence of receipt of the consents and
---------------------
approvals described on Schedule 3.3.
ARTICLE VII
TERMINATION AND ABANDONMENT
---------------------------
SECTION 7.1. Termination. This Agreement may be terminated and the
-----------
Transactions may be abandoned at any time prior to the Closing:
(a) by mutual consent of Seller and Buyer; or
(b) by Seller or Buyer:
(i) if a court of competent jurisdiction or any Governmental
Entity shall have issued an order, decree or ruling or taken any other
<PAGE>
action (which order, decree or ruling the parties hereto shall use
their best efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the Transactions, and such order,
decree, ruling or other action shall have become final and
nonappealable; or
(ii) if the Closing shall not have occurred on or before April
30, 1999; provided, however, that the right to terminate this
-------- -------
Agreement shall not be available to any party whose breach of this
Agreement has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date.
SECTION 7.2. Procedure and Effect of Termination. In the event of
-----------------------------------
termination and abandonment of the Transactions pursuant to Section 7.1, written
notice thereof shall be given to the other parties to this Agreement and this
Agreement shall terminate and the Transactions shall be abandoned, without
further action by any of the parties hereto. If this Agreement is terminated as
provided herein:
(a) Upon request therefor, each party will redeliver all documents,
work papers and other material of any other party relating to the Transactions,
whether obtained before or after the execution hereof, to the party furnishing
the same; and
(b) No party hereto shall have any liability or further obligation to
any other party to this Agreement resulting from such termination except (i)
that the provision of this Section 7.2 and Sections 10.4 and 10.13 shall remain
in full force and effect, and (ii) no party waives any claim or right against a
breaching party to the extent that such termination results from the breach by a
party hereto of any of its representations, warranties, covenants or agreements
set forth in this Agreement.
ARTICLE VIII
SURVIVAL OF PROVISIONS
----------------------
SECTION 8.1. Survival. (a) The representations and warranties required to
--------
be made by Seller and Buyer in this Agreement or in any certificate delivered
pursuant hereto will expire on the first anniversary of the Closing Date, except
that (i) the representations and warranties of Seller set forth in Section 2.10
hereof will survive until 30 days after the expiration of all statutes of
limitation applicable to such Section and (ii) the representations and
warranties of Buyer set forth in Section 3.5 hereof will survive until 30 days
after the expiration of all statutes of limitation applicable to such Section.
Notwithstanding the foregoing, any representation or warranty shall survive the
time it would otherwise terminate pursuant to this Section to the extent that
notice
<PAGE>
of a breach thereof giving rise to a right of indemnification shall have been
given by a party hereto prior to the expiration of the relevant survival period
in accordance with Article IX below.
(b) Eureko's obligation to indemnify Buyer against Company Extra
Contractual Obligations (as defined in the Indemnity Reinsurance Agreement)
shall terminate and expire on the second anniversary of the Closing Date, other
than such claims for which a notice of claim has been given by Buyer to Eureko
prior to such expiration date.
ARTICLE IX
INDEMNIFICATION
---------------
SECTION 9.1. Indemnification by Eureko. Subject to the provisions of
-------------------------
Sections 8.1, 9.3, and 9.4 hereof, Eureko shall indemnify and hold harmless
Buyer for any and all monetary damages, charges, losses, deficiencies,
liabilities, obligations, costs, fees, and expenses (including, without
limitation, reasonable fees and disbursements of counsel incident to the
enforcement of rights under Section 9.1 or 9.2 hereof) (collectively, "Damages")
resulting from or relating to (i) any breach by Seller or Eureko of any
representation, warranty, covenant, or agreement made by Seller or Eureko in
this Agreement, the Indemnity Reinsurance Agreement or the Administrative
Services Agreement, and (ii) any Company Extra Contractual Obligations (as
defined in the Indemnity Reinsurance Agreement) arising from actions or
omissions prior to the Closing Date.
SECTION 9.2. Indemnification by Buyer. Subject to the provisions of
------------------------
Sections 8.1, 9.3, and 9.4 hereof, Buyer shall indemnify and hold harmless
Seller in respect of any and all Damages resulting from or relating to (i) any
breach by Buyer of any representation, warranty, covenant, or agreement made by
Buyer in this Agreement, the Indemnity Reinsurance Agreement or the
Administrative Services Agreement, (ii) all Policy Liabilities (as defined in
the Indemnity Reinsurance Agreement), (iii) any claims that constitute Reinsurer
Extra Contractual Obligations (as defined in the Indemnity Reinsurance
Agreement), and (iv) any claims that constitute Company Extra Contractual
Obligations as to which Eureko's indemnification obligation has expired pursuant
to Section 8.1(b) hereof.
SECTION 9.3. Limitations on Indemnification.
------------------------------
(a) No claim by any person for indemnification under this Article IX
(an "Indemnitee") against any person (an "Indemnifying Party"), relating to a
breach
<PAGE>
of a representation or warranty made in this Agreement may be made unless notice
of such breach is given in accordance with this Article IX prior to the time the
survival period for such representation or warranty expired.
(b) If an Indemnitee recovers from any third party (including
insurers) all or any part of any amount paid to it by an Indemnifying Party
pursuant to Section 9.1 or 9.2 hereof, such Indemnitee will promptly pay over to
the Indemnifying Party the amount so recovered (after deducting therefrom the
full amount of the expenses incurred by it in procuring such recovery, including
any taxes and net of any tax benefit resulting from such recovery and payment),
but not in excess of any amount previously so paid by the Indemnifying Party.
If an Indemnitee recovers from any third party (including insurers) any amount
as to which indemnification may be claimed pursuant to Section 9.1 or 9.2
hereof, such Indemnitee will have no right to claim indemnification for such
amount from the Indemnifying Party.
(c) The Indemnitee shall prosecute diligently and in good faith any
claim for indemnification with any applicable third party (including insurers)
prior to collecting any indemnification payment pursuant to Section 9.1 or 9.2
hereof.
(d) Eureko shall be obligated to provide indemnification on account of
(i) any misrepresentation or breach of warranty referred to in Section 9.1 and
(ii) Company Extra Contractual Obligations only to the extent that the aggregate
dollar amount of Damages with respect thereto exceeds $332,800.
(e) The maximum aggregate liability of Eureko for indemnification for
all Damages subject to indemnification under this Article IX including, without
limitation, any amount paid pursuant to Section 9.3(d) shall be $2,912,000.
SECTION 9.4. Notice of Defense of Claims. Promptly after receipt of
---------------------------
notice of any claim or Damages for which an Indemnitee seeks indemnification
under this Article, such Indemnitee shall give written notice thereof to the
Indemnifying Party, but such notification shall not be a condition to
indemnification hereunder except to the extent of actual prejudice to the
Indemnifying Party. The notice shall state the information then available
regarding the amount and nature of such claim or Damages and shall specify the
provision or provisions of this Agreement under which the right to
indemnification is asserted. If within 30 days after receiving such notice the
Indemnifying Party gives written notice to the Indemnitee stating that it
intends to defend against such claim or Damages at its own cost and expense,
then defense of such matter, including selection of counsel (subject to the
consent of the Indemnitee, which consent shall not be unreasonably withheld),
shall be by the Indemnifying Party and the Indemnitee shall make no payment in
respect of such claim or Damages as long as the
<PAGE>
Indemnifying Party is conducting a good faith and diligent defense.
Notwithstanding the foregoing, the Indemnitee shall at all times have the right
to fully participate in such defense at its own expense directly or through
counsel; provided, however, if the named parties to the action or proceeding
-------- -------
include both the Indemnifying Party and the Indemnitee and representation of
both parties by the same counsel would be inappropriate under applicable
standards of professional conduct, the expenses of one separate counsel for the
Indemnitee shall be paid by the Indemnifying Party. If no such notice of intent
to dispute and defend is given by the Indemnifying Party, or if such diligent
good faith defense is not being or ceases to be conducted, the Indemnitee shall,
at the expense of the Indemnifying Party, undertake the defense of such claim or
Damages with counsel selected by the Indemnitee, and shall have the right to
compromise or settle the same exercising reasonable business judgment with the
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld. The Indemnitee shall make available all information and assistance
that the Indemnifying Party may reasonably request and shall cooperate with the
Indemnifying Party in such defense. Notwithstanding anything herein to the
contrary, the Indemnifying Party shall have the right to settle all claims of
third parties for which indemnification is payable hereunder without the consent
of the Indemnitee so long as such settlement releases the Indemnitee from all
liability for or in connection with such action and does not materially and
adversely impair the ability of the Indemnitee to carry on its business and does
not contain any admission of wrong doing on the part of the Indemnitee.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
SECTION 10.1. Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented by a written instrument signed by the parties hereto.
SECTION 10.2. Waiver of Compliance; Consents. Any failure of Buyer, on
------------------------------
the one hand, or of Seller on the other hand, to comply with any obligation,
covenant, agreement or condition contained herein may be waived in writing by
Seller or Buyer, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any other failure.
SECTION 10.3. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
<PAGE>
SECTION 10.4. Expenses and Obligations. All costs and expenses incurred
------------------------
in connection with the consummation of the Transactions by Buyer shall be paid
by Buyer, and all costs and expenses incurred in connection with the
consummation of the Transactions by Seller shall be paid by Seller. Buyer shall
pay the cost of the filing fees in connection with the filings by any of the
parties hereto under the HSR Act with respect to the Transactions.
SECTION 10.5. Notices. Any notice or other communication given pursuant
-------
to this Agreement must be in writing and (a) delivered personally, (b) sent by
facsimile or other similar facsimile transmission, (c) delivered by overnight
express, or (d) sent by registered or certified mail, postage prepaid, as
follows:
If to Buyer, to:
Life Re Corporation
969 High Ridge Road, Stanford CT 06905
Attention: W. Weldon Wilson
Facsimile No.: (203)968-0920
If to Eureko, to:
Eureko, B.V.
Entrada 111, P. O. Box 94215
1090 GE Amsterdam
The Netherlands
Attention: Jeff Medlock
Fax: 011-31-20-6903-481
with a copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Attention: David A. Massey, Esq.
Facsimile No.: (202) 637-3593
<PAGE>
If to Seller, to:
Seaboard Life Insurance Company (USA)
525 South Meridian
Indianapolis, Indiana 46225-1125
Attention: President
Facsimile No.: (317) 238-5611
with a copy to:
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Attention: David A. Massey, Esq.
Facsimile No.: (202) 637-3593
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section will (A) if delivered personally
or by overnight express, be deemed given upon delivery; (B) if delivered by
facsimile or similar facsimile transmission, be deemed given when electronically
confirmed; and (C) if sent by registered or certified mail, be deemed given when
received. Any party from time to time may change its address for the purpose of
notices to that party by giving a similar notice specifying a new address, but
no such notice will be deemed to have been given until it is actually received
by the party sought to be charged with the contents thereof.
SECTION 10.6. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the State of Indiana.
SECTION 10.7. No Third Party Beneficiary. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of Eureko, Seller, Buyer, and
their respective successors and permitted assigns, and it is not the intention
of the parties to confer third-party beneficiary rights upon any other person or
entity.
SECTION 10.8. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.9. Headings. The article and section headings contained in this
--------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect in any way the meaning or interpretation of
this Agreement.
<PAGE>
SECTION 10.10. Entire Agreement. This Agreement (including the Exhibits
----------------
and Schedules attached hereto), the Indemnity Reinsurance Agreement, and the
Administrative Services Agreement embody the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein or
therein. There are no agreements, representations, warranties or covenants
other than those expressly set forth herein or therein. This Agreement
(including the Exhibits and Schedules attached hereto), the Indemnity
Reinsurance Agreement, and the Administrative Services Agreement supersede all
prior agreements and understandings between the parties with respect to such
subject matter.
SECTION 10.11. Assignment. Neither this Agreement nor any right or
----------
obligation hereunder or part hereof may be assigned by any party hereto without
the prior written consent of the other party hereto (and any attempt to do so
will be void), except as otherwise specifically provided herein.
SECTION 10.12. Jurisdiction and Venue. The parties hereto agree that any
----------------------
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted only in the United States District Court for the Southern District of
Indiana or any Indiana court sitting in Indiana. Each party waives any
objection it may have now or hereafter to the laying of the venue of any such
suit, action or proceeding, and irrevocably submits to the jurisdiction of any
such court in any such suit, action or proceeding.
SECTION 10.13. Confidentiality. From and after the date hereof, Buyer
---------------
shall refrain, and shall cause its officers, directors, employees, agents,
auditors, counsel, affiliates and other representatives (collectively,
"Representatives") to refrain, from directly or indirectly:
(a) disclosing to any person or entity (other than Buyer's
Representatives) the terms and conditions of this Agreement or any records,
files, documents, data (including without limitation claims or loss data), or
information concerning Seller or its affiliates that Buyer prepares, maintains,
uses, or receives in connection with the transactions contemplated by this
Agreement, unless (i) disclosure is compelled by any court or administrative
agency or by other applicable requirements of law or (ii) such records, files,
documents, data, or information can be shown to have been (x) generally
available to the public other than as a result of a disclosure by Buyer or its
Representatives or (y) available to Buyer on a non-confidential basis from a
source other than Seller or its Representatives, provided that such source is
not known
<PAGE>
by Buyer to be bound by a confidentiality agreement with, or other obligation of
secrecy of, Seller or another party; or
(b) using such records, files, documents, data or information for any
purpose (including without limitation directly or indirectly competing with
Seller or any affiliate thereof) except pursuant to this Agreement.
Notwithstanding the foregoing, from and after the Closing Date, Buyer shall
be entitled to use information concerning, derived from, or related to the
Business for any lawful purpose in connection with the transaction of Buyer's
business under the Indemnity Reinsurance Agreement, provided that Buyer shall
comply with all Laws applicable to the use of such information (including,
without limitation, Laws relating to the use of such information that would
otherwise be applicable to Seller as the issuer of the insurance policies and
annuity contracts constituting the Business).
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed on its behalf by its duly authorized officers, all as of the day and
year first above written.
LIFE REASSURANCE CORPORATION
OF AMERICA
By:________________________________
Name:
Title:
EUREKO B.V.
By:________________________________
Name:
Title:
SEABOARD LIFE INSURANCE
COMPANY (USA)
By:________________________________
Name:
Title:
<PAGE>
Exhibit A
Description of Life Insurance Policies and Annuity Contracts
------------------------------------------------------------
A. All individual life insurance policies and annuity contracts issued or
assumed by Seller.
B. All group life insurance certificates acquired with California Casualty &
Life Insurance Company which are in force under waiver of premium benefit
provisions.
C. California Casualty & Life Insurance Company Pension Certificate A and B
monthly payments.
<PAGE>
Schedule 2.3
Governmental Approvals
----------------------
Approval of California Department of Insurance
Approval of Indiana Department of Insurance
Approval of Wisconsin Department of Insurance
<PAGE>
Schedule 2.5
Reinsurance
-----------
Policies issued by Seller:
- -------------------------
Swiss Re Life & Health #A044-89 dated January 1, 1989
Swiss Re Life & Health #A057-90 dated November 1, 1989
Swiss Re Life & Health #AF111-91 dated February 1, 1991
Transamerica Occidental Life #6302-3 dated August 1, 1988
Transamerica Occidental Life #6302-4 dated January 1, 1991
Transamerica Occidental Life #6302-14 dated January 1, 1995
Munich American Reassurance Company #1488 dated May 1, 1997
Policies acquired with Enumclaw Life Insurance Company:
- ------------------------------------------------------
Connecticut General Life dated May 1, 1989
Transamerica Occidental Life dated August 1, 1973
Transamerica Occidental Life #2118-2 dated October 1, 1986
Transamerica Occidental Life #2118-3 dated March 1, 1988
Transamerica Occidental Life #2118-4 dated October 1, 1988
Transamerica Occidental Life #2118-5 dated January 1, 1989
Policies acquired with California Casualty & Life:
- --------------------------------------------------
Lincoln National Life dated July 1, 1972
Lincoln National Life dated October 1, 1984
Lincoln National Life dated March 1, 1987
Transamerica Occidental Life #6302-15 dated November 1, 1967
Munich American Reassurance dated December 21, 1966
<PAGE>
Schedule 2.6
Litigation
----------
None.
<PAGE>
Schedule 2.9
Material Changes
----------------
Seller ceased accepting new individual life insurance policies and annuity
contracts on October 1, 1998.
<PAGE>
Schedule 3.3
Governmental Approvals
----------------------
None.
<PAGE>
Schedule 4.2
Conduct of Business Exceptions
------------------------------
The Seller shall not accept new individual life insurance policies or annuity
contracts after the date of this Agreement.
<PAGE>
EXHIBIT 10.03
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of December 29, 1998, by and among Seaboard Life Insurance
Company, a Canadian federal insurance company ("SLIC-Canada"), Seaboard Life
Insurance Company (USA), an Indiana insurance company and a direct wholly owned
Subsidiary of SLIC-Canada (the "Seller"), and Life Reassurance Corporation of
America, a Connecticut insurance company ("the Administrator").
RECITALS:
WHEREAS, the Seller and the Administrator are concurrently herewith
entering into a purchase agreement (the "Purchase Agreement"), which agreement
calls for, among other things, the provision of administrative services
described in this Agreement;
WHEREAS, the Seller and the Administrator are concurrently herewith
entering into an indemnity reinsurance agreement (the "Indemnity Reinsurance
Agreement"), pursuant to which the Seller shall cede to the Administrator, on a
100% coinsurance basis, the Seller's rights, liabilities, and obligations in
respect of the life insurance and annuity products identified in the Indemnity
Reinsurance Agreement (the "Reinsured Policies");
WHEREAS, in connection with the Indemnity Reinsurance Agreement, the
parties hereto desire that the Administrator perform, after the date which is
180 days after the Closing Date (the "Service Transition Date"), all services
required for complete support and administration of the Reinsured Policies on
behalf of the Seller in accordance with the terms and subject to the conditions
of this Agreement; and
WHEREAS, SLIC-Canada is currently performing certain administrative
services with respect to the Reinsured Policies of the Seller;
WHEREAS, the parties hereto desire to cooperatively provide for an orderly
transition in the performance of administrative services to the Administrator,
and the Seller and SLIC-Canada are willing to provide certain transitional
services from and after the Closing Date to the Service Transition Date so as to
enable the Administrator
<PAGE>
to provide Administrative Services (as hereinafter defined) with respect to the
Reinsured Policies.
NOW, THEREFORE, in consideration of the transactions contemplated pursuant
to the Purchase Agreement and the Indemnity Reinsurance Agreement and the mutual
covenants and promises contained herein and for other good and valuable
consideration, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
-----------
Unless otherwise defined herein, capitalized terms used herein shall
have the meanings given them in the Purchase Agreement and the Indemnity
Reinsurance Agreement.
ARTICLE II
SERVICES; COMPENSATION
----------------------
SECTION 2.1. Support Services. During the period from the Closing
----------------
Date to the Service Transition Date (the "Transition Period"), SLIC-Canada shall
provide to the Seller all services being provided by SLIC-Canada to Seller as of
the date hereof, including but not limited to the services set forth on Exhibit
-------
A hereto (the "Support Services"), it being understood that any and all previous
- -
arrangements between SLIC-Canada and the Seller regarding services to be
rendered are terminated and replaced by this Agreement.
SECTION 2.2. Compensation for Support Services. As compensation for
---------------------------------
the Support Services provided by SLIC-Canada hereunder, the Seller shall pay, or
cause to be paid, to SLIC-Canada a fee equal to 100% of SLIC-Canada's actual
cost of performing such Support Services (including without limitation any fees
or expenses paid by SLIC-Canada to consultants or other third parties in
connection with the provision of the Support Services). In determining such
actual cost, it is understood that the Seller will be charged for the actual
cost of any materials required for the rendering of Support Services, plus an
allocable portion (based on time devoted to the rendering of Support Services)
of the salaries of SLIC-Canada employees engaged, and the indirect expenses
(including without limitation the following expense categories: employee
benefits, payroll, taxes, rent, supplies and other overhead expenses incurred
<PAGE>
by SLIC-Canada, in the rendering of Support Services), (such costs,
collectively, being referred to as SLIC-Canada's "Fully Loaded Costs").
SECTION 2.3. Data Conversion Services.
------------------------
(a) Data Conversion Services. During the Transition Period, SLIC-
------------------------
Canada will (i) provide the Administrator with reasonable access for the
Administrator, through its own efforts, to plan and move the data associated
with the Reinsured Policies from SLIC-Canada's computer systems to the
Administrator's computer systems, (ii) respond to the Administrator's questions
on product design and/or processing logic and (iii) provide a reasonable amount
of business analyst/system expertise to consult in the data migration effort
(collectively, the "Data Conversion Services"). SLIC-Canada is making such Data
Conversion Services available to the Administrator as an accommodation and, in
no event, will SLIC-Canada's liability for any damages whatsoever arising from
SLIC-Canada's delivery of, or failure to deliver, the Data Conversion Services
exceed the total price actually paid by the Seller for the Data Conversion
Services.
(b) Transition Matters.
------------------
(i) SLIC-Canada will provide the Data Conversion Services for
the Transition Period.
(ii) Prior to the Closing Date, the Administrator and SLIC-Canada
will use their respective commercially reasonable efforts to jointly develop a
detailed plan for the data conversion contemplated by Section 2.3(a).
(c) Fees for Data Conversion Services. The fees charged by SLIC-
---------------------------------
Canada for the Data Conversion Services will not exceed SLIC-Canada's Fully
Loaded Costs for providing such services.
(d) Orderly Transfer. SLIC-Canada will use its commercially
----------------
reasonable efforts to assist and cooperate with the Administrator in the orderly
transfer of the Business. SLIC-Canada will provide the Administrator a
reasonable level of access to SLIC-Canada's personnel skilled in delivering the
Data Conversion Services for purposes of general consultation and knowledge
transfer related to the Business. All costs of such transfer, including all
applicable taxes, will be borne by the Administrator.
(e) Data. The Administrator acknowledges that SLIC-Canada will
----
archive all data related to the Business consistent with its current practices.
<PAGE>
SECTION 2.4. Transition Services. From and after the Closing Date
-------------------
and until the Service Transition Date, the Seller shall provide, or arrange to
provide all services (excluding the Support Services and the Data Conversion
Services) required for complete support and administration of all Reinsured
Policies (the "Transition Services").
SECTION 2.5. Compensation for Services. As compensation for the
-------------------------
Transition Services provided by the Seller hereunder, the Administrator shall
pay, or cause to be paid, to the Seller a fee equal to 100% of the Seller's
actual cost of performing such Transition Services (including without limitation
any fees or expenses paid by the Seller to consultants or other third parties in
connection with the provision of the Transition Services). In determining such
actual cost, it is understood that the Administrator will be charged for the
actual cost of any materials required for the rendering of Transition Services,
plus an allocable portion (based on time devoted to the rendering of Transition
Services) of the salaries of the Seller's employees engaged, and the indirect
expenses (including without limitation the following expense categories:
employee benefits, payroll, taxes, rent, supplies and other overhead expenses
incurred by the Seller, in the rendering of Transition Services), such costs,
collectively, being referred to as the Seller's "Fully Loaded Costs." In
addition, the Administrator shall pay to Seller the amount of fees paid by
Seller to SLIC-Canada under Section 2.2 and 2.3; provided, that in no event
shall the aggregate amount paid by the Administrator pursuant to this Section
2.5 exceed the expense levels reflected in the "Actuarial Appraisal of Seaboard
Life Insurance Company (USA) dated May 12, 1998 as of December 31, 1997 prepared
by Milliman & Robertson."
SECTION 2.6. Payment Procedures. On or before the 15th day of each
------------------
month, SLIC-Canada shall provide the Seller with a reasonably detailed invoice
setting forth amounts due with respect to the Support Services and Data
Conversion Services provided hereunder during the immediately preceding month.
On or before the 20th day of each month, Seller shall provide the Administrator
with a reasonably detailed invoice setting forth amounts due with respect to the
Transition Services, Support Services and Data Conversion Services provided
hereunder during the immediately preceding month. Within ten Business Days
after receipt by the Administrator of each such invoice, the Administrator shall
pay to the Seller in cash the amounts payable to Seller and SLIC-Canada. Within
twenty Business Days after receipt by the Seller of SLIC-Canada's invoice
required by the first sentence of this Section 2.6, Seller shall pay to SLIC-
Canada the amounts payable to SLIC-Canada as reflected in such invoice.
<PAGE>
SECTION 2.7. Administrative Services. From and after the Service
-----------------------
Transition Date the Administrator shall provide to the Seller all services
required for complete support and administration of all Reinsured Policies,
including without limitation the services set forth on Exhibit B hereto (the
---------
"Administrative Services").
SECTION 2.8. Compensation for Administrative Services. The
----------------------------------------
Administrator shall provide the Administrative Services in consideration of the
execution and delivery by the Seller of the Purchase Agreement and the Indemnity
Reinsurance Agreement and the consummation of the transactions contemplated
thereby, and the Administrator shall neither impose on the Seller nor otherwise
be entitled to receive any additional or separate consideration for the
provision of Administrative Services in accordance with this Agreement.
ARTICLE III
PERFORMANCE STANDARDS; AUTHORITY
--------------------------------
SECTION 3.1. Performance Standards. SLIC-Canada shall provide the
---------------------
Support Services, the Seller shall provide the Transition Services, and the
Administrator shall provide the Administrative Services (i) at a level of
accuracy and responsiveness not less favorable than the practices of such party
in administering products comparable to the Reinsured Policies issued by it or
serviced by it for other companies prior to and during the term of this
Agreement, (ii) in accordance with all applicable Laws and insurance department
requirements, (iii) in accordance with industry standards in effect as of the
date hereof and (iv) as the parties may agree in writing from time to time.
SECTION 3.3. Authority. The Administrator shall perform the
---------
Administrative Services in the name and on behalf of the Seller only as provided
in this Agreement or as directed by the Seller in writing. Except as
specifically set forth in this Agreement or authorized by the Seller in writing,
the Administrator shall not have authority to issue new insurance policies or
annuity contracts in the name of the Seller (except for reinstatements,
conversion policies or riders currently provided for under the Reinsured
Policies) or enter into any agreements on the Seller's behalf. None of the
terms or provisions of this Agreement shall prohibit the Administrator or any of
its affiliates from conducting business of whatever nature in their own names
and on behalf of any person or entity other than the Seller.
ARTICLE IV
SUPERVISION; PERSONNEL; FACILITIES AND COSTS
--------------------------------------------
<PAGE>
SECTION 4.1. Supervision by Board of Directors. The Administrator
---------------------------------
acknowledges that the Board of Directors of the Seller is vested with the power,
authority and responsibility for managing the business and affairs of the
Seller, including administrative services. The Administrator acknowledges that
any and all actions or services, whether supervisory or ministerial, taken or
provided pursuant to this Agreement by the Administrator shall be subject to the
continuous supervision by the Board of Directors of the Seller and, to the
extent designated by such Board of Directors, the appropriate designated
officers of the Seller.
SECTION 4.2. Personnel. The Administrator shall furnish all
---------
personnel necessary to provide the Administrative Services.
SECTION 4.3. Facilities. The Administrative Services shall be
----------
performed by Administrator using furniture, fixtures, and equipment (including
computer hardware) owned or leased by the Administrator (collectively, the
"Facilities"). All Facilities owned by Administrator shall remain the property
of Administrator, and the Seller acknowledges and agrees that it shall not have
any right, title, or interest in or to the Facilities.
SECTION 4.4. Systems. The Administrator shall furnish all Systems
-------
(as hereinafter defined) that are necessary for the Administrator to provide the
Administrative Services. The term "Systems" shall mean all computer programs
and programming aids (together with supporting documentation), including without
limitation input and output formats, program listings, systems flow charts,
narrative descriptions, operating instructions, and the tangible media upon
which such programs are recorded.
SECTION 4.5. Costs. The Administrator shall pay all personnel and
-----
other costs and expenses to provide the Administrative Services (including
without limitation all applicable filing and similar fees).
ARTICLE V
MAINTENANCE OF RECORDS
----------------------
SECTION 5.1. Transfer of Records. Within ten Business Days after the
-------------------
Service Transition Date or on such other date as the parties may agree, the
Seller shall forward to the Administrator (at the Administrator's expense) all
reports, records, underwriting files, policy files, claims files and information
in any form in its possession relating to the Reinsured Policies (the
"Transferred Records"). All of such Transferred Records shall remain the
property of the Seller or the party on whose behalf the Seller is maintaining
such records, as applicable. Such Transferred Records
<PAGE>
shall be available (at their place of keeping) for inspection, examination, and
audit by the Seller (and its representatives) at all reasonable times. The
Administrator shall provide to the Seller (a) at the Administrator's expense,
copies of such Transferred Records as may be reasonably required in connection
with the preparation of the Seller's financial statements, state and federal
income and other tax returns, and any other filings or reports required to be
filed with, or requested by, state or federal regulatory authorities or any
rating agencies and (b) at the Seller's expense, copies of such Transferred
Records for any other reason.
SECTION 5.2. Maintenance of Records. The Administrator agrees to (a)
----------------------
maintain a true and complete set of books and records relating to all
transactions under this Agreement and (b) preserve such books and records for
the term of this Agreement plus five years thereafter (or such longer period as
may be required by applicable Law). The Administrator shall maintain such books
and records and the Transferred Records at the Administrator's expense and in
accordance with prudent standards of insurance recordkeeping and all applicable
Laws. The books and records shall be available (at their place of keeping) for
inspection, examination, and audit by the Seller and state and federal
regulatory authorities (in each case together with their respective
representatives) at all reasonable times. The Administrator shall furnish to
the Seller (i) at the Administrator's expense, copies of any books or records
relating to the transactions under this Agreement as may be reasonably required
by the Seller in connection with the preparation of the Seller's financial
statements, state and federal income and other tax returns, and any other
filings or reports required to be filed with, or requested by, state or federal
regulatory authorities or any rating agencies and (ii) at the Seller's expense,
copies of any such books and records for any other reason.
ARTICLE VI
REGULATORY MATTERS
------------------
SECTION 6.1. Compliance with Applicable Laws. Each of the parties
-------------------------------
hereto agrees to comply with all applicable Laws as they apply to the
performance of such party's obligations under this Agreement.
SECTION 6.2. Licensing. The Administrator hereby represents and
---------
warrants to the Seller that the Administrator has all licenses, qualifications,
and other authorizations necessary to provide the Administrative Services to or
on behalf of the Seller. At all times during the term of this Agreement, the
Administrator shall maintain in full force and effect all licenses,
qualifications, and other authorizations necessary under applicable Laws to
provide the Administrative Services to or on behalf
<PAGE>
of the Seller. The Administrator agrees to provide the Seller with copies of any
such documents upon request.
SECTION 6.3. Regulatory Approvals; Closing Under Purchase Agreement.
------------------------------------------------------
The effectiveness of this Agreement is conditioned upon (i) the receipt of all
required regulatory approvals and (ii) the closing of the transactions
contemplated by the Purchase Agreement.
ARTICLE VII
TERM; TERMINATION
-----------------
SECTION 7.1. Term. This Agreement shall be effective as of the
----
Effective Date, and shall remain in full force and effect until terminated in
accordance with Section 7.2 below.
SECTION 7.2. Termination by the Seller. The Seller may terminate
-------------------------
this Agreement immediately, by delivery of written notice to the Administrator,
upon the occurrence of any of the following events:
(a) The Administrator pursuant to or within the meaning of Title 11,
U.S. Code, or any similar federal, state or foreign Law for the relief of
debtors, including without limitation any state insolvency or rehabilitation
statutes (collectively, "Bankruptcy Laws"):
(1) commences a voluntary case or proceeding;
(2) consents to the entry of an order for relief against it in
an involuntary case or proceeding;
(3) consents to the appointment of a custodian of it or for all
or for a substantial part of its property;
(4) makes a general assignment for the benefit of its creditors;
or
(5) fails to contest any involuntary case or proceeding filed
against it within the time period fixed by any applicable
rules, and any extensions granted by the court where such
involuntary case or proceeding is pending; or
<PAGE>
(b) A court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that remains unstayed and in effect for 60 days and that:
(1) is for relief against the Administrator in an involuntary
case or proceeding;
(2) appoints a custodian of the Administrator or a custodian for
all or for a substantial part of the property of the
Administrator; or
(3) orders the liquidation of the Administrator; or
(c) Failure by the Administrator to comply with any material
provision of this Agreement which has not been corrected within 60 days after
written notice thereof is delivered to the Administrator by the Seller.
SECTION 7.3. Effect of Termination. Upon termination of this
---------------------
Agreement, Administrator shall take all steps necessary to arrange for a third-
party administrator reasonably acceptable to the Seller to provide all services
required to be provided hereunder, such services to be performed pursuant to an
agreement reasonably acceptable to the Seller, all at the cost of the
Administrator. In addition, in the event of any such termination, (i) no party
hereto shall be relieved of any liability for any breach of any provision of
this Agreement, (ii) any amounts owing hereunder by either party hereto to the
other party hereto shall be immediately due and payable (pro-rated for any
partial periods), and (iii) all rights and obligations hereunder will terminate
except that Articles V, VIII and IX and Sections 7.3, 10.2 and 10.4 hereof will
continue to survive any such termination.
ARTICLE VIII
INDEMNIFICATION
---------------
SECTION 8.01. Indemnification between the Seller and the
------------------------------------------
Administrator. The indemnification rights of the Seller and the Administrator
- -------------
are set forth in the Purchase Agreement.
SECTION 8.02. Indemnification among SLIC-Canada, Seller and the
-------------------------------------------------
Administrator. (a) From and after the Closing Date, SLIC-Canada hereby agrees
- -------------
to indemnify, defend and hold harmless Seller and the Administrator and each of
their respective directors, officers, employees, representatives, Affiliates,
successors and permitted assigns from and against all Losses (as hereinafter
defined) asserted against,
<PAGE>
imposed upon or incurred by such person arising from (i) any breach or
nonfulfillment by SLIC-Canada of, or any failure by SLIC-Canada to perform, any
of the covenants, terms or conditions of, or any of its duties or obligations
under, this Agreement; and (ii) any enforcement of this indemnity.
(b) From and after the Closing Date, the Administrator hereby agrees
to indemnify, defend and hold harmless SLIC-Canada and its respective directors,
officers, employees, representatives, Affiliates, successors and permitted
assigns from and against all Losses (as hereinafter defined) asserted against,
imposed upon or incurred by such person arising from (i) any breach or
nonfulfillment by the Administrator, of, or any failure by the Administrator to
perform, any of the covenants, terms or conditions of, or any of its duties or
obligations under, this Agreement, or (ii) any enforcement of this indemnity.
(c) From and after the Closing Date, Seller hereby agrees to
indemnify, defend and hold harmless SLIC-Canada and its respective directors,
officers, employees, representatives, Affiliates, successors and permitted
assigns from and against all Losses (as hereinafter defined) asserted against,
imposed upon or incurred by such person arising from (i) any breach or
nonfulfillment by Seller, of, or any failure by Seller to perform, any of the
covenants, terms or conditions of, or any of its duties or obligations under,
this Agreement, or (ii) any enforcement of this indemnity.
(d) As used in this Section, "Loss" and/or "Losses" shall mean
actions, claims, losses, liabilities, damages, costs, expenses (including
reasonable attorneys' fees), interest and penalties. The parties shall follow
the procedures set forth in Sections 9.3 and 9.4 of the Purchase Agreement with
respect to any claim for indemnification under the terms of this Agreement.
ARTICLE IX
CONFIDENTIALITY
---------------
SECTION 9.1. Administrator's Confidentiality Obligation. From and
------------------------------------------
after the date hereof, the Administrator shall refrain, and shall cause its
officers, directors, employees, agents, auditors, counsel, affiliates and other
representatives (collectively, the "Administrator's Representatives") to
refrain, from directly or indirectly:
(a) disclosing to any person or entity (other than the Administrator's
Representatives) the terms and conditions of this Agreement or any records,
files,
<PAGE>
documents, data (including without limitation claims or loss data), or
information concerning the Seller or its affiliates that the Administrator
prepares, maintains, uses, or receives in connection with the transactions
contemplated by this Agreement, unless (i) disclosure is compelled by any court
or administrative agency or by other applicable requirements of Law or (ii) such
records, files, documents, data, or information can be shown to have been (x)
generally available to the public other than as a result of a disclosure by the
Administrator or the Administrator's Representatives or (y) available to the
Administrator on a non-confidential basis from a source other than the Seller or
its Representatives, provided that such source is not known by the Administrator
to be bound by a confidentiality agreement with, or other obligation of secrecy
of, the Seller or another party; or
(b) using such records, files, documents, data or information for any
purpose (including without limitation directly or indirectly competing with the
Seller or any affiliate thereof) except pursuant to this Agreement.
Notwithstanding the foregoing, the Administrator shall be entitled to
use information concerning, derived from, or related to the Business for any
lawful purpose in connection with the transaction of the Administrator's
business under the Indemnity Reinsurance Agreement, provided that the
Administrator shall comply with all Laws applicable to the use of such
information (including, without limitation, Laws relating to the use of such
information that would otherwise be applicable to the Seller as the issuer of
the Reinsured Policies).
SECTION 9.2. Seller's and SLIC-Canada's Confidentiality Obligation.
-----------------------------------------------------
From and after the date hereof, the Seller and SLIC-Canada shall refrain, and
shall cause their respective officers, directors, employees, agents, auditors,
counsel, affiliates and other representatives (collectively, the
"Representatives") to refrain, from directly or indirectly:
(a) disclosing to any person or entity (other than the Seller's or
SLIC-Canada's Representatives) the terms and conditions of this Agreement or any
records, files, documents, data (including without limitation claims or loss
data), or information concerning the Administrator or its affiliates that the
Seller or SLIC-Canada prepares, maintains, uses, or receives in connection with
the transactions contemplated by this Agreement, unless (i) disclosure is
compelled by any court or administrative agency or by other applicable
requirements of Law or (ii) such records, files, documents, data, or information
can be shown to have been (x) generally available to the public other than as a
result of a disclosure by the Seller, SLIC-Canada or their respective
Representatives or (y) available to the Seller or SLIC-Canada on a non-
confidential basis from a source other than the Administrator or the
Administrator's Representatives, provided that such source is not known by the
Seller or SLIC-Canada
<PAGE>
to be bound by a confidentiality agreement with, or other obligation of secrecy
of, the Administrator or another party; or
(b) using such records, files, documents, data or information for any
purpose (including without limitation directly or indirectly competing with the
Administrator or any affiliate thereof) except pursuant to this Agreement.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1. Power of Attorney. The Seller grants to the
-----------------
Administrator authority in all matters relating to risk management and
administration of the Policies to the extent such authority (a) may be granted
pursuant to applicable Law and (b) is reasonably necessary for the Administrator
to provide the Administrative Services hereunder. In order to assist and to
more fully evidence this authority, the Seller hereby nominates, constitutes,
and appoints the Administrator as its attorney-in-fact with respect to the
rights, duties, privileges, and obligations of the Seller in, to and under the
Reinsured Policies, with full power and authority to act in the name, place, and
stead of the Seller with respect to the Reinsured Policies, including, without
limitation, the power, without reservation, to service all Reinsured Policies,
to adjust, to defend, to settle, and to pay all claims and benefits and to take
such other and further actions as may be reasonably necessary to effect the
transactions contemplated by this Agreement, the Purchase Agreement and the
Indemnity Reinsurance Agreement.
SECTION 10.2. Notification. The Seller shall forward promptly to
------------
SLIC-Canada and the Administrator all notices and other written communications
received by or served upon the Seller relating to the Administrative Services or
the Reinsured Policies, including, without limitation (a) all inquiries or
complaints from state insurance regulators, agents, brokers and insureds and (b)
all notices of claims, suits and actions for which the Seller receives service
of process. The Seller shall be entitled to retain copies of all such
materials.
The Administrator shall forward promptly to the Seller copies of all
notices and other written communications received by or served upon the
Administrator relating to the Administrative Services or the Reinsured Policies
including, without limitation (a) all inquiries or complaints from state
insurance regulators, agents, brokers and insureds and (b) all notices of claims
(excluding routine claim notices), suits and actions for which the Administrator
receives service of process.
<PAGE>
SECTION 10.3. Notice. Any notice or communication given pursuant to
------
this Agreement must be in writing and (a) delivered personally, (b) sent by
facsimile transmission, (c) delivered by overnight express, or (d) sent by
registered or certified mail, postage prepaid as follows:
If to the Administrator: Life Reassurance Corporation of America
969 High Ridge Road, Stanford CT 06905
Attention: General Counsel
Facsimile No.: (203)968-0920
If to the Seller: Seaboard Life Insurance Company (USA)
525 South Meridian
Indianapolis, Indiana 46225-1125
Attention: President
Facsimile No: (317) 238-5611
If to SLIC-Canada: Seaboard Life Insurance Company
2165 West Broadway
P.O. Box 5900
Vancouver BC
Canada V6B 5H6
Attention: Chief Financial Officer
Fax: (604) 734-8221
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 10.3 shall (i) if delivered
personally or by overnight express, be deemed given upon delivery; (ii) if
delivered by facsimile transmission, be deemed given when electronically
confirmed; and (iii) if sent by registered or certified mail, be deemed given
when received. Any party from time to time may change its address for notice
purposes by giving a similar notice specifying a new address, but no such notice
shall be deemed to have been given until it is actually received by the party
sought to be charged with the contents thereof.
SECTION 10.4. Expenses. Except as otherwise expressly provided
--------
herein, each of the parties hereto shall pay its own costs and expenses in
connection with this Agreement and its respective obligations hereunder.
SECTION 10.5. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the State of Indiana, regardless of the
<PAGE>
Laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 10.6. Integration. This Agreement (including the Exhibits
-----------
hereto), together with the Purchase Agreement and the Indemnity Reinsurance
Agreement, contain the entire agreement and understanding among the parties with
respect to the transactions contemplated hereby and thereby, and supersede all
prior agreements and understandings, written or oral, with respect thereto.
SECTION 10.7. Assignment; Binding Effect. Neither this Agreement nor
--------------------------
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by any of the parties hereto without the prior
written consent of the other parties in their sole discretion, and any such
assignment that is attempted without such consent shall be null and void.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the parties and their respective
successors and permitted assigns.
SECTION 10.8. Amendment. This Agreement may only be amended or
---------
modified by a written instrument executed on behalf of all the parties hereto.
SECTION 10.9. Independent Contractors. The Administrator and SLIC-
-----------------------
Canada shall be deemed independent contractors of the Seller for all purposes
hereunder. This Agreement shall not be construed to create an employment,
partnership, or joint venture relationship between any of the parties hereto.
SECTION 10.10. Headings; Interpretation. The headings used in this
------------------------
Agreement have been inserted for convenience and do not constitute matter to be
construed or interpreted in connection with this Agreement. Unless the context
of this Agreement otherwise requires, (a) words using the singular or plural
number also include the plural or singular number, respectively; (b) the terms
"hereof," "herein," "hereby," "hereto," and derivative or similar words refer to
this entire Agreement (including the exhibits hereto); (c) the term "Section"
refers to the specified Section of this Agreement; (d) the term "party" means
any one of the Seller, SLIC-Canada or the Administrator, as the case may be; and
(e) with respect to any party, the term "affiliate" shall include, without
limitation, any person or entity that becomes an affiliate of such party after
the date of this Agreement.
SECTION 10.11. Remedies. Any term or condition of this Agreement may
--------
be waived in writing at any time by the party that is entitled to the benefit
thereof. A waiver on one occasion shall not be deemed to be a waiver of the
same or any other
<PAGE>
breach or nonfulfillment on a future occasion. All remedies, either under this
Agreement, or by Law or otherwise afforded, shall be cumulative and not
alternative.
SECTION 10.12. Severability. If any provision of this Agreement is
------------
held to be illegal, invalid, or unenforceable under any present or future Law,
and if the rights or obligations of the parties hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision shall be
fully severable; (b) this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (c) the remaining provisions of this Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom.
SECTION 10.13. Counterparts. This Agreement may be executed in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
SECTION 10.14. No Third Party Beneficiary. Except as otherwise
--------------------------
provided herein, the terms and provisions of this Agreement are intended solely
for the benefit of the parties hereto, and their respective successors or
permitted assigns, and it is not the intention of the parties to confer third-
party beneficiary rights upon any other person, and no such rights shall be
conferred upon any person or entity not a party to this Agreement.
SECTION 10.15. Subcontracting. The Administrator may subcontract the
--------------
services to be performed by it under this Agreement to a subcontractor
reasonably acceptable to the Seller; provided, that the Administrator shall not
be released by any such subcontracting arrangement from its obligations
hereunder; provided, further, that the Cybertek Corporation shall be deemed to
be acceptable to the Seller as a subcontractor.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers as of the date first set forth above.
SEABOARD LIFE INSURANCE COMPANY
By:
- -------------------------------------------------
Name:
Title:
SEABOARD LIFE INSURANCE COMPANY
(USA)
By:
------------------------------------
Name:
Title:
LIFE REASSURANCE CORPORATION OF
AMERICA
By:
------------------------------------
Name:
Title:
<PAGE>
Exhibit A
---------
Support Services
1. Investment management
2. Accounting
3. Computer Systems Support
<PAGE>
Exhibit B
---------
Administrative Services
The Administrator shall provide the following services to the Seller:
1. Premium Collection. The Administrator shall bill and collect all premiums
due under the Reinsured Policies, return any unearned premiums or other
premiums to be refunded, and reconcile amounts paid with returned billing
statements or other remittance media. The Administrator shall update the
contract owner master records and all other records to reflect payments
received.
2. Premium Auditing. The Administrator shall audit premium payments with
respect to the Reinsured Policies to ensure the accuracy and acceptability
of such payments.
3. Records Maintenance. The Administrator shall maintain applications,
policyholder, annuitant, participant, contract owner, premium, and other
necessary records, including all computer records, to determine the true
and accurate status of the Reinsured Policies. Such records on any
Reinsured Policy are and shall remain the property of the Seller. Upon
request of the Seller or any state or federal regulatory authorities, the
Administrator shall forward a complete copy of any record to the requesting
party by overnight delivery.
4. Lapse of Coverage. The Administrator shall inform policyholders of any
lapse in coverage under the Reinsured Policies.
5. Provision of Forms. The Administrator shall provide, at the Administrator's
own expense, forms and supplies necessary to the performance of the
Administrator's obligations under this Agreement including, without
limitation, policy holder reports and issue-related forms, contracts,
endorsements, and adoption agreements.
6. Claims Administration. The Administrator shall administer claims on the
Reinsured Policies as appropriate, including the following:
(a) Reviewing and paying all claims for benefits which the Administrator's
review determines to be qualified for payment in accordance with
applicable Reinsured Policy provisions. Any such payments shall be
made within the time periods and in the manner prescribed by
applicable law. Each payment made by the Administrator with respect
to claims subject to this Agreement shall, where appropriate, be made
in full and final discharge of the obligations of the Seller or the
Administrator under the applicable Reinsured Policy with respect to
such payment;
<PAGE>
(b) Reviewing and compromising or denying, as is appropriate based on the
guidelines of the Seller in effect immediately prior to the Effective
Date, all claims for benefits which the Administrator's review
determines to be qualified for such denial or compromise, in reliance
on applicable Reinsured Policy provisions. In the event of non-
payment of claims on account of incomplete or insufficient data, the
Administrator shall acknowledge such fact to the claimant by the
earlier of (i) ten working days from date of receipt of the claim or
(ii) the number of days provided by applicable law;
(c) Communicating with claimants with respect to the submission, approval
and payment, compromise or denial of claims made under the Reinsured
Policies administered under this Agreement;
(d) Maintaining such files and records as are necessary to enable the
Seller, at any time, to determine the true and accurate claim
experience on the Reinsured Policies. Said files and records on any
Reinsured Policy are and shall remain the property of the Seller;
(e) Conforming to the reasonable requirements set by the Seller for
monthly submission of claims reports;
(f) Performing such other claim services as may be reasonably required in
connection with the support and administration of the Reinsured
Policies;
(g) Preparing all required Federal and state tax reports, including
without limitation 1099-R, W-2P, W-2 and 5498 for contract owners and
beneficiaries as required and distributing the same to contract owners
and beneficiaries and appropriate authorities;
(h) Responding to any requests from plan administrators or trustees for
policy information affecting the plan or participants for qualified
plans; and
(i) Responding to requests for calculations applicable to annuity payments
as may be necessary for tax calculations.
7. Litigation.
(a) The Administrator shall defend and prosecute in a manner consistent
with all applicable Law, at its sole cost and expense, all suits,
actions and proceedings arising out of underwriting of the Reinsured
Policies and
C-2
<PAGE>
claims for benefits thereunder. The Seller shall have the right, at
its sole cost and expense, to participate in any suit, action or
proceeding arising under the Reinsured Policies. Notwithstanding any
provision in this Agreement to the contrary, the Administrator shall
have final authority with respect to such defense and prosecution,
including any settlement or compromise thereof without the consent of
the Seller, so long as all amounts for which the Seller may be held
liable are 100% reinsured under the Indemnity Reinsurance Agreement
and any such settlement or compromise releases the Seller from all
liability for or in connection with such suit, action or proceeding
and does not materially and adversely impair the ability of the Seller
to carry on its business and does not contain any admission of
wrongdoing on the part of the Seller.
(b) As soon as practicable after receipt by the Administrator of notice or
threat of the commencement of any suit, action or proceeding naming
the Seller as a party, the Administrator shall provide a copy of all
documentation received in respect thereof (with, where appropriate,
notation as to time and place of service and the identity of the
person served) to the Seller. If the Seller receives notice or threat
of the commencement of any suit, action or proceeding naming the
Administrator as a party, the Seller shall promptly deliver all
documentation received in respect thereof (with, where appropriate,
notation as to time and place of service and the identity of the
person served) to the Administrator. The Seller shall have the right,
at its sole cost and expense, to examine all files and papers relating
to all claims, suits, actions or proceedings arising under the
Reinsured Policies, and the Administrator shall cooperate in such
examination and consultation. The parties shall provide each other
with a quarterly statement of litigation in progress. The
Administrator shall not file any complaint or initiate any legal
proceeding in the name of the Seller without the written consent of
the Seller.
8. Policyholder Services. The Administrator shall provide general policyholder
services to individuals under the Reinsured Policies, including, but not
limited to, the following:
(a) Responding to inquiries with respect to the scope and amounts of
coverage provided under the Reinsured Policies;
(b) Supplying claimants, policyowners and insureds with appropriate
instructions and forms for reporting claims and for submitting
relevant information;
C-3
<PAGE>
(c) Issuing timely reports, statements, and confirmations as required by
the Reinsured Policies or the Seller's practices in effect immediately
prior to the Effective Date;
(d) Issuing tax reporting forms and other information as required by
applicable regulatory rules;
(e) Processing and recording changes in the Reinsured Policies (such
changes may include but are not limited to, (i) changes of ownership,
beneficiary, amount of insurance, options under the Reinsured
Policies, and (ii) changes in name, changes in address and changes in
other data related to the policyowners and insureds under the
Reinsured Policies), reissuances, and transfer requests (i.e., from
one subaccount to another);
(f) Processing policy loans, surrenders, policy conversions and
reinstatements;
(g) Complying with Seller guidelines in effect immediately prior to the
Effective Date (subject to adjustment as required by applicable Law)
with respect to replacements and exchange requests; and
(h) Calculating (on a daily basis) the mortality and expense charges,
administrative charges, and cost of insurance in accordance with the
provisions of the Reinsured Policies.
9. Agent Compensation. The Administrator shall, on behalf of the Seller, pay
the compensation due from the Seller to the agents or brokers of record for
the Reinsured Policies as determined pursuant to any agreements under which
any payments become due after the Effective Term and make any required tax
filings with respect to such compensation.
10. Accounting and Reporting Services. With respect to the Reinsured Policies,
the Administrator shall perform all accounting and reporting of direct and
ceded premiums, claims and other policyholder disbursements, reserves,
policy loans, commissions, and premium tax payments and accruals. Such
services shall include all accounting and reporting necessary to provide
the Seller with all required statutory and regulatory data needed for
financial statements and filings and state and federal income and premium
tax reporting and filings.
11. Agent Licensing. The Administrator shall (i) maintain the appointment of
all necessary resident/countersignature and other agents used by the Seller
and (ii) remit compensation
C-4
<PAGE>
to such agents in accordance with the terms and provisions of their
agreements with the Seller.
12. Actuarial Services. The Administrator shall provide the Seller with the
following actuarial services:
(a) Calculation of all actuarial reserves and liabilities and other
actuarial items necessary to prepare SAP financial statements and
supporting exhibits and tax filings and schedules;
(b) Calculation of tax reserves;
(c) Preparation of all necessary actuarial opinions, memoranda and/or
certifications for annual and quarterly statements;
(d) Maintenance of product files on system;
(e) Ongoing support, as necessary, to compliance function;
(f) Providing responses to state regulators as required;
(g) Providing miscellaneous support to policyowner service; and
(h) Providing the formal actuarial opinions and related reports required
by the NAIC Annual Statement blank and other state requirements, or
any other regulatory authorities, and external auditors.
13. Compliance Services. The Administrator shall provide the Seller with the
following compliance services:
(a) Federal and state regulatory review and compliance;
(b) Subject to the restrictions set forth in Section 2.3 of the Agreement,
the development and filing of policy forms, riders, endorsements, and
disclosure statements as may be required from time to time by
applicable Law;
(c) Filing of rate changes, as required;
(d) Review and approval of customer communications;
(e) Coordination of special mailings;
C-5
<PAGE>
(f) Handling complaints;
With respect to the Reinsured Policies:
(i) The Administrator shall advise the Seller of any customer
complaint threatening the commencement of legal action or
regulatory action or of any inquiry or complaint received from or
forwarded by a state insurance department or other government
agency, better business bureau or an attorney representing any
customer (collectively, a "customer complaint") within 24 hours
of receipt, if possible, but in no instance later than five
business days after receipt thereof, and shall, if requested by
the Seller, provide the Seller with copies of all pertinent files
and correspondence relating thereto.
(ii) The Administrator shall be responsible for the investigation and
preparation of responses to all customer complaints and
regulatory inquiries or complaints, provided that no response to
a customer complaint threatening the commencement of legal action
or regulatory action or an inquiry or complaint received from or
forwarded by a state insurance department or other government
agency, better business bureau or any attorney representing any
customer shall be sent to said customer, government agency,
better business bureau or attorney if the Seller promptly
notifies the Administrator that the Seller intends to respond to
such complaint.
(iii) Subject to the foregoing, all customer complaints shall be
handled in accordance with applicable Law (including without
limitation any response time requirements applicable thereto).
With respect to each customer complaint, the Administrator shall
use all commercially reasonable efforts to resolve or acknowledge
such customer complaint by the fifth Business Day after receipt
thereof (with respect to customer complaints from state insurance
departments, other regulatory agencies, or attorneys threatening
legal or regulatory action) or by the tenth Business Day after
receipt thereof (with respect to customer complaints from
consumers or others). A record of all customer complaints shall
be maintained in a log showing the date received, the nature of
the complaint, the action taken (if any) and the date of the
response.
C-6
<PAGE>
(iv) As used herein, a "customer complaint" shall be deemed to include
any written communication primarily expressing a grievance
against the Seller or the Administrator.
(g) Making all filings and obtaining all regulatory approvals required
with regard to advertising of the Reinsured Policies;
(h) Providing regulatory supervision and compliance, to the extent the
Reinsurer is legally permitted, as to all servicing functions
contemplated by this Agreement;
(i) Monitoring statutes and regulations of the insurance departments in
the various states in which the policy owners or Reinsured Policies
are located to ensure compliance therewith and to ensure that any
actions or communications required by such regulations or statutes are
properly made;
C-7
<PAGE>
(j) Monitoring the federal tax and labor statutes and the rules,
regulations, orders, and interpretations thereunder and the tax and
labor statutes and rules, regulations, orders, and interpretations
thereunder of the various states in which policy owners or Reinsured
Policies are located to ensure compliance therewith and to ensure that
any actions or communications required thereby are properly made; and
(k) Providing such services as the Seller may require under its direction
in connection with responding to inquiries from the NAIC or the
insurance departments of the various states in which the policy owners
or the Reinsured Policies are located.
14. Data Processing. The Administrator shall provide all data processing
services, software, and facilities necessary to provide the Services.
15. General Services and Oversight. The Administrator shall provide
appropriate management oversight of the financial performance and monitor
significant activities relating to the Reinsured Policies, providing
appropriate data to the Seller in an agreed upon format, including the
following:
(a) Making all records relating to the Reinsured Policies available to the
Seller for audit upon reasonable notice and during the regular
business hours of the Administrator. Such records shall include, but
not be limited to, federal tax documentation, policyholder records,
in-force listings, premium records, claim forms, itemized billings,
eligibility documentation, and agent records and files; and
(b) Performing such other administrative services as may be reasonably
required in connection with the support and administration of the
Reinsured Policies.
