<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON _________, 1997
Registration No. 33-47786
Registration No. 811-5803
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 9 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 30 /X/
___________
VA-I SEPARATE ACCOUNT
of
UNUM LIFE INSURANCE COMPANY OF AMERICA
(Exact Name of Registrant)
UNUM LIFE INSURANCE COMPANY OF AMERICA
(Name of Depositor)
2211 Congress Street
Portland, Maine 04122
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: 800-341-0441
ROSEMARY A. MOORE, ESQUIRE
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 1997, pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on , pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
In accordance with Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite number or amount of its securities under
the Securities Act of 1933. That election was previously filed in Registrant's
Form N-4 registration statement (File No. 33-47786). The Registrant filed its
Rule 24f-2 Notice on February 27, 1997, for the fiscal year ended December
31, 1996.
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PROSPECTUS
<TABLE>
<CAPTION>
FORM N-4 PROSPECTUS CAPTION
- --------- ------------------
<S> <C> <C>
1. Cover Page........................... Cover Page
2. Definitions.......................... Definitions
3. Synopsis or Highlights............... Summary
4. Condensed Financial Information...... Condensed Financial Information
5. General Description of Registrant,
Depositor and Portfolio Companies.... UNUM/America, Lincoln Life, The Variable Investment Division and the Funds
6. Deductions and Expenses.............. Deductions and Charges
7. General Description of
Variable Annuity Contracts........... Contract Provisions; Other Contract Provisions
8. Annuity Period....................... Annuity Period
9. Death Benefit........................ Contract Provisions, Death Benefits
10. Purchases and Contract Values........ Contract Provisions
11. Redemptions.......................... Contract Provisions, Withdrawals
12. Taxes................................ Federal Income Tax Considerations
13. Legal Proceedings.................... Not Applicable
14. Table of Contents of the Statement
of Additional Information............ Contents of Statement of Additional Information
</TABLE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
INFORMATION CAPTION
FORM N-4 -------------------
<S> <C> <C>
15. Cover Page.......................... Cover Page
16. Table of Contents................... Table of Contents
17. General Information and History..... Prospectus - UNUM/America, Lincoln Life, The
Variable Investment Division and the Funds
18. Services............................ Not Applicable
19. Purchase of Securities being
Offered............................. Not Applicable
20. Underwriters........................ Distribution of the Contracts
21. Calculation of Yield Quotations of
Money Market Sub Accounts........... Not Applicable
22. Annuity Payments.................... Determination of Variable Annuity Payment
23. Financial Statements................ Financial Statements
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
SHOWING LOCATION OF INFORMATION IN PART C-OTHER INFORMATION
<TABLE>
<S> <C> <C>
24(a) Financial Statements and Exhibits................ Not Applicable
24(b) Exhibits......................................... Exhibits
25. Directors and Officers of the Director........... Directors and Officers of the Depositor
26. Persons Controlled by or Under
Common Control with the Depositor
or Registrant.................................... Organizational Chart
27. Number of Contract Owners........................ Number of Contract Owners
28. Indemnification.................................. Indemnification
29. Principal Underwriters........................... Principal Underwriters
30. Location of Accounts and Records................. Location of Accounts and Records
31. Management Services.............................. Management Services
32. Undertakings..................................... Undertakings
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
UNUMLIFE INSURANCE COMPANY OF AMERICA
Group Variable Annuity Contracts
VA-I Separate Account
2211 Congress Street
Portland, Maine 04122
(800) 341-0441
VARIABLE ANNUITY I
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
MAY 1, 1997
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF THE
APPLICABLE UNDERLYING FUNDS WHICH SHOULD BE RETAINED FOR FUTURE REFERENCE.
INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISK, INCLUDING MARKET FLUC-
TUATION AND POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
This prospectus describes group annuity contracts ("Contracts") offered by UNUM
Life Insurance Company of America ("UNUM/America"), a subsidiary of UNUM Hold-
ing Company and its wholly-owned parent company, UNUM Corporation. The Con-
tracts are designed to enable Participants and Employers to accumulate funds
for retirement programs meeting the requirements of the following Sections of
the Internal Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b), 408
and 457 and other related Sections as well as for programs offering non-quali-
fied annuities. A Participant is an employee or other person affiliated with
the Contractholder on whose behalf a Participant Account is maintained under
the terms of the Contract.
The Contracts permit Contributions to be deposited in the Guaranteed Interest
Division, which is part of UNUM/America's General Account, and in certain Sub-
Accounts in UNUM/America's VA-I Separate Account ("Variable Investment Divi-
sion"). Contributions to the Guaranteed Interest Division earn interest at a
guaranteed rate declared by UNUM/America. Contributions to the Variable Invest-
ment Division will increase or decrease in dollar value depending on the in-
vestment performance of the underlying funds in which the Sub-Accounts invest.
Currently, the Variable Investment Division consists of the nine Sub-Accounts
listed below: Next to each listed Sub-Account is the name of the fund (the
"Fund") in which the Sub-Account invests. For more information about the in-
vestment objectives, policies and risks of the Funds please refer to the pro-
spectus for each of the Funds.
<TABLE>
<S> <C>
Index Account.......................................... Dreyfus Stock Index Fund
Growth I Account....................................... Fidelity's Variable
Insurance Products Fund:
Growth Portfolio
Asset Manager Account.................................. Fidelity's Variable
Insurance Products Fund
II: Asset Manager
Portfolio
Growth II Account...................................... American Century
Variable Portfolios,
Inc.: VP Capital
Appreciation
Balanced Account....................................... American Century
Variable Portfolios,
Inc.: VP Balanced
International Stock Account............................ T. Rowe Price
International Series,
Inc.
Socially Responsible Account........................... Calvert Responsibly
Invested Balanced
Portfolio
Equity-Income Account.................................. Fidelity's Variable
Insurance Products Fund:
Equity-Income Portfolio
Small Cap Account...................................... Dreyfus Variable
Investment Fund: Small
Cap Portfolio
</TABLE>
This prospectus is intended to provide information regarding the Contracts of-
fered by UNUM/America that you should know before investing. Please read and
retain this prospectus for future reference. A Statement of Additional Informa-
tion, dated May 1, 1997, has been filed with the Securities and Exchange Com-
mission and is available at no charge by writing or calling P.O. Box 9740,
Portland, Maine 04104, (800) 341-0441, Attention: Tax Deferred Annuities.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS.............................................................. 3
SUMMARY (Including Fee Table and Performance Information)................ 6
CONDENSED FINANCIAL INFORMATION.......................................... 11
FINANCIAL STATEMENTS..................................................... 12
UNUM/AMERICA, LINCOLN LIFE, THE VARIABLE INVESTMENT DIVISION
AND THE FUNDS........................................................... 12
CONTRACT PROVISIONS...................................................... 17
DEDUCTIONS AND CHARGES................................................... 24
ANNUITY PERIOD........................................................... 26
FEDERAL INCOME TAX CONSIDERATIONS........................................ 28
VOTING RIGHTS............................................................ 31
OTHER CONTRACT PROVISIONS................................................ 32
GUARANTEED INTEREST DIVISION............................................. 33
TABLE OF CONTENTS FOR STATEMENT OF ADDITIONAL INFORMATION................ 35
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION UNIT: An accounting unit of measure used to record amounts of
increases to, decreases from and accumulations in each Sub-Account during the
Accumulation Period.
ACCUMULATION UNIT VALUE: The dollar value of an Accumulation Unit in each Sub-
Account on any Valuation Date.
ACCUMULATION PERIOD: The period commencing on a Participant's Participation
Date and terminating when the Participant's Account balance is reduced to zero,
either through withdrawal(s), conversion to an annuity, imposition of charges,
payment of a Death Benefit or a combination thereof.
ACQUISITION AGREEMENT: The Asset Transfer and Acquisition Agreement between
UNUM/America and Lincoln Life which provides for the sale of UNUM/America's tax
sheltered annuity business to Lincoln Life, the assumption of UNUM/America's
obligations under the Contracts (other than the New York Contracts) by Lincoln
Life, and the assumption of UNUM/America's obligations under the New York
Contracts by Lincoln-NY.
ANNUITANT: The person receiving annuity payments under the terms of the
Contract.
ANNUITY COMMENCEMENT DATE: The date on which UNUM/America makes the first
annuity payment to the Annuitant as required by the Retired Life Certificate.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an
annuity.
ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
BENEFICIARY: The person(s) designated to receive a Participant's Account
balance in the event of the Participant's death during the Accumulation Period
or the person(s) designated to receive any applicable remainder of an annuity
in the event of the Annuitant's death during the Annuity Period.
BUSINESS DAY: A day on which the New York Stock Exchange is customarily open
for business except for the following local business holidays: Veterans Day
(November 11) and the day after Thanksgiving.
CLOSING DATE: The date of closing as provided in the Acquisition Agreement.
CONTRIBUTIONS: All amounts deposited under a Contract, including any amount
transferred from another Contract or Trustee.
CONTRACT: A Group Variable Annuity Contract issued by UNUM/America to the
Contractholder.
CONTRACTHOLDER: The party named as the Contractholder on the group annuity
Contract issued by UNUM/America. The Contractholder may be an Employer, a
retirement plan trust, an association or any other entity allowed under the
law.
DIVISION(S): The Guaranteed Interest Division and/or the Variable Investment
Division.
EMPLOYER: The organization specified in the Contract which offers the Plan to
its employees.
FUNDS: The underlying funds in which the Sub-Accounts invest. Funds are
investment vehicles which offer their shares only to insurance companies'
separate accounts and other qualifying investors.
3
<PAGE>
GENERAL ACCOUNT: All assets of UNUM/America other than those in the Variable
Investment Division or any other separate account.
GROSS WITHDRAWAL AMOUNT: The amount by which a Participant's Account is reduced
when a withdrawal occurs, including any applicable contingent deferred sales
charge and Annual Administration Charge.
GUARANTEED ANNUITY: An annuity for which UNUM/America guarantees the amount of
each payment for as long as the annuity is payable.
GUARANTEED INTEREST DIVISION: The Division maintained by UNUM/America for the
Contracts and other contracts for which UNUM/America guarantees the principal
amount and interest credited thereto subject to any fees and charges as set
forth in the Contract. Amounts allocated to the Guaranteed Interest Division
are part of the General Account.
LINCOLN LIFE: The Lincoln National Life Insurance Company.
LINCOLN-NY: Lincoln Life & Annuity Company of New York, a New York domestic
life insurance company established by Lincoln Life as a subsidiary.
LNC: Lincoln National Corporation.
NET CONTRIBUTIONS: The sum of all Contributions credited to a Participant
Account less any Net Withdrawal Amounts, outstanding loan (including principal
and due and accrued interest) and amounts converted to a Payout Annuity.
NET WITHDRAWAL AMOUNT: The amount paid when a withdrawal occurs.
NEW YORK CONTRACTS: Contracts originally issued in New York by UNUM Life
Insurance Company and subsequently through UNUM/America.
PARTICIPANT: An employee or other person affiliated with the Contractholder on
whose behalf an Account is maintained under the terms of the Contract.
PARTICIPANT ACCOUNT: An account maintained for a Participant during the
Accumulation Period the total balance of which equals the Participant's Account
balance in the Variable Investment Division plus the Participant's Account
balance in the Guaranteed Interest Division.
PARTICIPATION ANNIVERSARY: For each Participant, a date at one year intervals
from the Participant's Participation Date. If an anniversary occurs on a non-
Business Day, it is treated as occurring on the next Business Day.
PARTICIPATION DATE: A date assigned to each Participant corresponding to the
date on which the first Contribution on behalf of that Participant is received
by UNUM/America. A Participant will receive a new Participation Date if such
Participant makes a Total Withdrawal, as defined in this prospectus, and
Contributions on behalf of the Participant are resumed under any Contract.
PARTICIPATION YEAR: A period beginning with one Participation Anniversary and
ending the day before the next Participation Anniversary, except for the first
Participation Year which begins with the Participation Date.
PAYOUT ANNUITY: A series of payments paid under the terms of a Contract to a
person. A Payout Annuity may be either a Guaranteed Annuity or a Variable
Annuity.
PLAN: The retirement program offered by an Employer to its employees for which
a Contract is used to accumulate funds.
4
<PAGE>
SUB-ACCOUNT: An account established in the Variable Investment Division which
invests in shares of a corresponding Fund.
UNUM/AMERICA: UNUM Life Insurance Company of America, at its home office in
Portland, Maine.
VALUATION DATE: A Business Day. Accumulation Units and Annuity Units are
computed as of the close of trading on the New York Stock Exchange.
VALUATION PERIOD: A period used in measuring the investment experience of each
Sub-Account. The Valuation Period begins at the close of trading on the New
York Stock Exchange on one Valuation Date and ends at the corresponding time on
the next Valuation Date.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Accounts.
VARIABLE INVESTMENT DIVISION: The Division which is maintained by UNUM/America
for these Contracts and certain other UNUM/America Contracts for which
UNUM/America does not guarantee the principal amount or investment results. The
Variable Investment Division is the VA-I Separate Account which is a group of
assets segregated from the General Account whose income, gains and losses,
realized or unrealized, are credited to or charged against the Variable
Investment Division without regard to other income, gains or losses of
UNUM/America. The Variable Investment Division currently consists of nine Sub-
Accounts. Additional Sub-Accounts may be added in the future.
5
<PAGE>
SUMMARY
UNUM LIFE INSURANCE COMPANY OF AMERICA
UNUM/America is a life insurance company founded in Maine in 1966.
UNUM/America is a subsidiary of UNUM Holding Company and its wholly-owned
parent company, UNUM Corporation whose stock is traded on the New York Stock
Exchange. The consolidated assets of UNUM Corporation as of December 31, 1996
were $15.5 billion.
LINCOLN LIFE
On October 1, 1996 (the "Closing Date"), UNUM/America completed the sale of
its tax-sheltered annuity business to The Lincoln National Life Insurance
Company ("Lincoln Life"), pursuant to an acquisition agreement with Lincoln
Life (the "Acquisition Agreement"). Under the Acquisition Agreement, Lincoln
Life assumed UNUM/America's obligations under the Contracts and Lincoln Life &
Annuity Company of New York ("Lincoln-NY") assumed UNUM/America's obligations
under Contracts originally issued in New York by UNUM Life Insurance Company
(the "New York Contracts") (other than those obligations to Contractholders
and/or Participants who neither consented nor were deemed to have consented to
the assumption).
Lincoln Life is a subsidiary of LNC, which is a publicly-owned company whose
stock is traded on the New York Stock Exchange. LNC had consolidated assets of
$71.7 billion as of December 31, 1996. See "Acquisition Agreement with The
Lincoln National Life Insurance Company."
CONTRACTS OFFERED
The Group Variable Annuity Contracts offered by this prospectus are available
to Employers and other entities to provide a way to accumulate funds for
retirement and to provide Payout Annuities. UNUM/America offers Contracts
designed to enable Participants and Employers to accumulate funds for
retirement programs meeting the requirements of the following Sections of the
Internal Revenue Code of 1986, as amended (the "Code"): 401(a), 403(b), 408,
457 and other related Sections as well as for programs offering non-qualified
annuities.
HOW CONTRIBUTIONS ARE MADE
Contributions under the Contract are deposited by the Contractholder.
Depending upon the type of Plan offered, Contributions may consist of salary
reduction Contributions, Employer Contributions or Participant post-tax
Contributions. Contributions are forwarded by the Contractholder to
UNUM/America and allocated among the two Divisions in accordance with
information provided by the Contractholder. See "Contract Provisions,
Contributions under the Contract".
DIVISIONS OFFERED
Contributions may be allocated to the Guaranteed Interest Division or to the
Variable Investment Division or to both Divisions. The Variable Investment
Division currently consists of nine Sub-Accounts. A Contractholder may choose
to offer between zero and nine of the Sub-Accounts to its Participants under a
Contract. The Sub-Accounts invest their assets in shares of a corresponding
Fund. For a full description of the Funds, see the prospectuses for the Funds.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period, a Participant or a Contractholder under
certain Plans may make transfers between and among Divisions and Sub-Accounts.
Certain Plans may limit the transfers in dollar amount, type of Contribution,
or frequency. Certain Plans may require Contractholder approval for a transfer.
See "Transfers between Divisions and Sub-Accounts".
WITHDRAWALS
During the Accumulation Period, a Participant may withdraw any part of their
account balance subject to the restrictions imposed by the Code and regulations
thereof and by the applicable Plan. With respect to Plans subject to Title I of
the Employee Retirement Income Security Act of 1974
6
<PAGE>
(ERISA), the Contractholder must authorize UNUM/America to process a withdrawal
request by a Participant. Withdrawal requests under Section 457 Plans must also
be authorized by the Contractholder. With respect to withdrawal requests by
Participants under Plans not subject to Title I of ERISA, certain Contracts may
require that the Participants must certify to UNUM/America that an eligible
event under the Code has occurred. Withdrawal requests must be in writing and
in a form acceptable to UNUM/America.
Certain Plans are also subject to distribution requirements under Section
401(a)(9) of the Code including the incidental death benefit requirements of
Section 401(a)(9)(G). Certain transfers from one Qualified Plan contract to
another Qualified Plan contract are not subject to withdrawal restrictions
under the Code. Certain withdrawals are subject to a 10% Federal Excise Tax for
premature distributions.
Certain types of withdrawals are subject to a contingent deferred sales
charge if taken within the first ten years of participation. See "Contract
Provisions, Deductions and Charges."
See "Federal Income Tax Considerations."
DEATH BENEFITS
The Contracts provide for a Death Benefit for a Participant who dies during
the Accumulation Period. See "Contract Provisions, Death Benefits."
PAYOUT ANNUITIES
As permitted by the applicable Plan, a Participant or a Beneficiary of a
deceased Participant may elect to convert all or part of the Participant's
Account balance or the Death Benefit, as appropriate, to a Payout Annuity.
UNUM/America offers both Guaranteed and Variable Annuities. The range of
annuity options available include life annuities and annuities for a specific
time period as well as others described more fully in this prospectus. See
"Annuity Period."
FREE-LOOK PROVISION
A Participant under a Section 403(b) or 408 Plan and certain Non-Qualified
Plans has ten days, in most cases, from the date the Participant receives an
Active Life Certificate to notify UNUM/America in writing that the Participant
does not choose to participate under the Contract and to receive a return of
funds. See "Free-Look Period."
FEE TABLE
The following table and examples, prescribed by the SEC, are included to
assist Contractholders and Participants in understanding the transaction and
operating expenses imposed directly or indirectly under the Contracts. The
standardized tables and examples assume the highest deductions possible under
the Contracts, whether or not such deductions actually would be made from a
Participant's Account. Contingent deferred sales charges ("CDSC") are deducted
from a Participant's Account balance only if a total or partial withdrawal is
made, and then only if one of the exceptions does not apply.
<TABLE>
<S> <C>
Contract Related Transaction Expenses/1//
Sales Load Imposed on Purchases: 0%
Maximum CDSC
(as a percentage of the Gross Withdrawal Amount): 5%
</TABLE>
<TABLE>
<CAPTION>
PARTICIPATION YEAR CDSC
------------------ ----
<S> <C>
1-6 5%
7 4%
8 3%
9 2%
10 1%
11 and later 0%
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Annual Administration Charge/2// $ 25
Separate Account Annual Expenses
(as a percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.20%
Other Charges: 0.00%
Total Separate Account
Annual Expenses: 1.20%
</TABLE>
Fund Expenses/4//
as a percentage of average daily net assets)
<TABLE>
<CAPTION>
G-
INDEX I/5// AMGR/5// G-II BAL INT'L SOC RES/6// EQI/5// SMCAP
----- ----- -------- ---- ---- ----- ----------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees: 0.245 0.61 0.64 1.00 1.00 1.05 0.71 0.51 0.75
Other Expenses: 0.055 0.08 0.10 0 0 0 0.13 0.07 0.04
Total Fund Expenses: 0.300 0.69 0.74 1.00 1.00 1.05 0.84 0.58 0.79
</TABLE>
Example #1: Assuming total withdrawal of the Participant's Account balance at
the end of the period shown./3//
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
G-
INDEX I/5// AMGR/5// G-II BAL INT'L SOC RES/6// EQI/5// SMCAP
------ ------ -------- ------ ------ ------ ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 67.36 71.09 71.57 74.04 74.04 74.52 72.52 70.04 72.04
3 Years 103.88 115.21 116.65 124.12 124.12 125.55 119.53 112.03 118.09
5 Years 142.95 162.06 164.48 176.97 176.97 179.35 169.30 156.71 166.89
10 Years 196.94 238.25 243.43 269.89 269.89 274.89 253.69 226.77 248.57
</TABLE>
Example #2: Assuming annuitization of the Contract at the end of the period
shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
G-
INDEX I/5// AMGR/5// G-II BAL INT'L SOC RES/6// EQI/5// SMCAP
------ ------ -------- ------ ------ ------ ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 15.64 19.57 20.07 22.68 22.68 23.18 21.07 18.46 20.57
3 Years 48.55 60.50 62.03 69.91 69.91 71.42 65.07 57.15 63.55
5 Years 83.75 103.97 106.53 119.76 119.76 122.28 111.64 98.31 109.09
10 Years 182.92 224.76 230.00 256.79 256.79 261.86 240.39 213.13 235.21
</TABLE>
Example #3: Assuming persistency of the Contracts through the periods shown.
A $1,000 investment would be subject to the expenses shown, assuming 5%
annual return on assets.
<TABLE>
<CAPTION>
G-
INDEX I/5// AMGR/5// G-II BAL INT'L SOC RES/6// EQI/5// SMCAP
------ ------ -------- ------ ------ ------ ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 15.64 19.57 20.07 22.68 22.68 23.18 21.07 18.46 20.57
3 Years 48.55 60.50 62.03 69.91 69.91 71.42 65.07 57.15 63.55
5 Years 83.75 103.97 106.53 119.76 119.76 122.28 111.64 98.31 109.09
10 Years 182.92 224.76 230.00 256.79 256.79 261.86 240.39 213.13 235.21
</TABLE>
The effect of the Annual Administration Charge for a period is determined by
dividing the total amount of such charges collected in the previous year by the
total average net assets of the accounts for the previous year, as of the
previous month ended; accounts include accounts available under Variable
Annuity I of UNUM/America and under corresponding accounts of Lincoln Life,
pending assumption reinsurance by Lincoln Life of Variable Annuity I contracts
issued through such UNUM/America accounts.
8
<PAGE>
- --------
/1//Premium taxes are not shown. UNUM/America deducts the amount of premium tax-
es, if any, when paid. Loans taken by a Participant with respect to the Par-
ticipant's Account balance in the Guaranteed Interest Division may be sub-
ject to a charge for establishing the loan.
/2//The Employer has the option of paying the Annual Administration Charge on
behalf of the Participants under a Contract. In such a situation, the pro-
jected expenses would be lower than those indicated in the examples. This
charge is not imposed during the Annuity Period. In certain situations the
Annual Administration Charge may be reduced or eliminated. See "Deductions &
Charges--Annual Administration Charge."
/3//The Contracts are designed for retirement planning. Withdrawals prior to re-
tirement or the Annuity Commencement Date are not consistent with the long-
term purposes of the Contracts and the applicable tax laws. Withdrawals may
also be subject to federal income tax and a 10% Federal tax penalty.
/4//Until complete order instructions are received, initial Contributions may be
allocated temporarily to Fidelity's Variable Insurance Products Fund: Money
Market Portfolio ("VIPF Money Market portfolio"). Management fees for this
fund are 0.21%. Other expenses are 0.09%. Total Fund Expenses are 0.30%. See
"Initial Contributions."
/5//A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into arrange-
ments with their custodian and transfer agent whereby interest earned on
uninvested cash balances was used to reduce custodian and transfer agent ex-
penses. Including these reductions, the total operating expenses presented
in the table would have been 0.56% for Equity-Income Portfolio, 0.67% for
Growth Portfolio, and 0.73% for Asset Manager Portfolio.
/6//The figures above are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03% ex-
pected to be incurred in 1997. "Management Fees" includes a performance ad-
justment, which could cause the fee to be as high as 0.85% or as low as
0.55%, depending on performance. "Other Expenses" reflects an indirect fee
of 0.03%. Net fund operating expenses after reductions for fees paid indi-
rectly (again, restated) would be 0.81%.
The fee table and examples reflect expenses and charges of the Sub-Accounts
and the expenses of the applicable Fund for the year ended December 31, 1996.
HOWEVER, THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND CHARGES OF THE SUB-ACCOUNTS OR THE FUNDS. SIMILARLY, THE
ASSUMED 5% ANNUAL RATE OF RETURN IS NOT AN ESTIMATE OR A GUARANTEE OF FUTURE
INVESTMENT PERFORMANCE. See "Deductions and Charges" in this prospectus and the
discussion of Fund Management in the prospectus for each of the Funds for
further information.
PERFORMANCE INFORMATION
From time-to-time the Variable Investment Division may advertise or use in
sales literature information concerning the investment performance of the
various Sub-Accounts. No performance presentation should be considered as
representative of future investment results. Actual performance is a function
not only of the investment management of the underlying Funds and market
forces, but of the time and frequency of Contributions, the charges and fees
imposed under the Contract, the fees and expenses of the Funds, and transfers
made by a Participant, among other factors.
The investment performance of the Sub-Accounts may be advertised in
comparison with the performances of other variable annuities, other investment
companies (such as mutual funds), and recognized indices (such as the Dow Jones
Industrial Average, Standard & Poor's 500 Composite
9
<PAGE>
Stock Price Index, NASDAQ Index, Consumer Price Index), and data published by
Lipper Analytical Services, Inc., Morningstar, and Variable Annuity Research
and Data Service or comparable services. Performance of the Sub-Accounts may
also be compared with performance of other types of investments. Some
advertisements may also include published editorial comments and performance
rankings by independent organizations and publications that monitor the
performance of separate accounts and mutual funds.
The Sub-Accounts may advertise average annual total return performance
information according to the SEC standardized formula. Average annual total
return shows the average annual percentage increase, or decrease, in the value
of a hypothetical $1,000 contribution allocated to a Sub-Account from the
beginning to the end of each specified period of time. The SEC standardized
formula gives effect to all applicable charges under the Contracts. This method
of calculating performance further assumes that (i) a $1,000 contribution was
allocated to a Sub-Account, (ii) no transfers or additional payments were made
and (iii) the withdrawal of the investment occurs at the end of the period.
Premium taxes are not included in the term "charges" for purposes of this
calculation. The Sub-Accounts may also advertise this total return performance
as described above on a cumulative basis.
The Sub-Accounts may present total return information computed on a calendar
year basis. The Sub-Accounts may also present total return information over
specified periods of time (computed on an average annual or cumulative basis)
either assuming that no CDSC will be deducted or assuming that no CDSC or
administrative charge will be deducted. The Sub-Accounts may present
hypothetical examples that apply the total return to a hypothetical initial
investment. The Sub-Accounts may also present total return information based on
different amounts of periodic investments. For additional performance
information, please refer to the Statement of Additional Information.
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contractholders,
UNUM/America may reflect endorsements. Endorsements are often in the form of a
list of organizations, individuals or other parties which recommend
UNUM/America or the Contracts. The endorser's name will be used only with the
endorser's consent. It should be noted that the list of endorsements may change
from time to time.
Also, from time to time, the rating of UNUM/America as an insurance company
by A.M. Best may be referred to in advertisements or in reports to
Contractholders. Each year the A.M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings.
These ratings reflect Best's opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance Industry. Best's ratings range from A++ to F.
In addition, the claims-paying ability of UNUM/America as measured by the
Standard and Poor's Rating Group may be referred to in advertisements or in
reports to Contractholders. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to CCC.
From time to time UNUM/America may refer to Moody's Investors Service rating
of UNUM/America. Moody's Investors Service financial strength ratings indicate
an insurance company's ability to discharge policyholder obligations and claims
and are based on an analysis of the insurance company and its relationship to
its parent, subsidiaries, and affiliates. Moody's Investors Service ratings
range from Aaa to C.
10
<PAGE>
CONDENSED FINANCIAL INFORMATION
The financial data included below should be read in conjunction with the
financial statements and the related data included in the Statement of
Additional Information.
ACCUMULATION UNIT VALUES
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SUB-ACCOUNT 1989 1990 1991 1992 1993 1994 1995 1996
- ----------- ------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index Account
December 12
Commencement $9.9060
Beginning of Period $9.9629 $ 9.4953 $12.1814 $12.8906 $13.9245 $13.8792 $18.7565
End of Period $9.9629 $9.4953 $12.1814 $12.8906 $13.9245 $13.8792 $18.7565 $22.7054
Growth I Account
May 1 Commencement $ 10.00
Beginning of Period $12.1759 $13.1505 $15.5094 $15.3208 $20.4909
End of Period $12.1759 $13.1505 $15.5094 $15.3208 $20.4909 $23.2198
Growth II Account
May 1 Commencement $ 10.00
Beginning of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840
End of Period $11.5975 $11.3049 $12.3212 $12.0313 $15.5840 $14.7133
Asset Manager Account
May 1 Commencement $ 10.00
Beginning of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510
End of Period $10.7598 $11.8933 $14.2241 $13.1979 $15.2510 $17.2668
Balanced Account
May 1 Commencement $ 10.00
Beginning of Period $12.4515 $11.5582 $12.2957 $12.2225 $14.6286
End of Period $12.4515 $11.5582 $12.2957 $12.2225 $14.6286 $16.2128
International Stock
Account
May 1 Commencement $ 10.00
Beginning of Period $ 9.8622 $10.8333
End of Period $ 9.8622 $10.8333 $12.2756
Socially Responsible
Account
May 1 Commencement $ 10.00
Beginning of Period $ 9.9692 $12.7827
End of Period $ 9.9692 $12.7827 $14.2222
Equity-Income Account
May 1 Commencement $ 10.00
Beginning of Period $10.4780 $13.9856
End of Period $10.4780 $13.9856 $15.7898
Small Cap Account
May 1 Commencement $ 10.00
Beginning of Period $10.3818 $13.2713
End of Period $10.3818 $13.2713 $15.2861
Pending Allocation
Account
October 15 Commencement $ 10.00
Beginning of Period $10.1054 $10.6938
End of Period $10.1054 $10.6938 $11.2772
</TABLE>
NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996
---- ------ ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Index Account 0 72,405 296,075 836,187 1,526,878 1,929,447 2,395,545 3,057,792
Growth I Account 5,166 317,275 1,340,146 3,071,862 4,459,417 5,843,047
Growth II Account 53,904 566,562 1,242,216 1,733,360 2,191,475 2,541,938
Asset Manager Account 36,645 462,405 2,232,731 4,369,937 4,882,920 5,447,414
Balanced Account 13,453 282,439 673,424 1,041,814 1,294,883 1,545,581
Socially Responsible
Account 26,073 133,871 328,168
Equity-Income Account 320,659 1,529,172 2,997,007
International Stock
Account 354,936 803,485 1,588,914
Small Cap Account 400,376 1,461,575 3,032,803
Pending Allocation
Account 11,980 21,372 35,465
</TABLE>
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<PAGE>
Number of Fund Shares held by each of the corresponding Sub-Accounts as of
December 31st of each year
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996
---- ------ ------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dreyfus Stock Index Fund 0 58,271 241,984 703,885 1,611,415 2,070,026 2,613,187 3,424,850
Fidelity's Variable
Insurance Products
Fund:
Growth Portfolio 0 0 3,399 211,238 900,965 2,170,399 3,130,382 4,358,634
American Century
Variable Portfolios,
Inc.:
VP Capital Appreciation 0 0 72,384 756,506 1,642,987 2,264,937 2,832,766 3,653,828
Fidelity's Variable
Insurance Products Fund II:
Asset Manager's
Portfolio 0 0 31,429 412,427 2,060,497 4,183,403 4,717,794 5,557,982
American Century
Variable Portfolios,
Inc.:
VP Balanced 0 0 27,075 568,960 1,364,740 2,137,066 2,691,551 3,324,693
Calvert Responsibly
Invested Balanced
Portfolio 0 0 0 0 0 180,421 1,005,155 2,631,922
Fidelity's Variable
Insurance Products
Fund:
Equity-Income Portfolio 0 0 0 0 0 218,939 1,110,190 2,251,100
T. Rowe Price
International Stock
Portfolio 0 0 0 0 0 343,942 773,288 1,543,703
Dreyfus Variable
Investment Fund:
Small Cap Portfolio 0 0 0 0 0 113,847 420,623 890,516
Fidelity's Variable
Insurance Products
Fund:
Money Market Portfolio 0 0 0 0 0 121,067 228,610 399,944
</TABLE>
FINANCIAL STATEMENTS
The financial statements of the Variable Investment Division and of
UNUM/America may be found in the Statement of Additional Information.
UNUM/AMERICA, LINCOLN LIFE,
THE VARIABLE INVESTMENT DIVISION AND THE FUNDS
UNUM LIFE INSURANCE COMPANY OF AMERICA
UNUM/America is a life insurance company originally chartered under Maine law
in 1966 as Unionmutual Stock Life Insurance Company of America. On November 18,
1986, its name was changed to UNUM Life Insurance Company of America. On
December 31, 1991, it was merged with UNUM Life Insurance Company and UNUM
Pension and Insurance Company, with the surviving company being UNUM Life
Insurance Company of America ("UNUM/America"). UNUM/America's principal
executive offices are located at 2211 Congress Street, Portland, Maine 04122.
UNUM/America's telephone number is (207)770-2211. UNUM/America provides a broad
line of disability, health and life insurance products, in addition to group
retirement products. UNUM/America is currently licensed to issue variable
contracts in 47 states and the District of Columbia. Administrative services
necessary for the operation of the Variable Investment Division and the
Contracts are provided by The Lincoln National Life Insurance Company. See
"Deductions and Charges--Annual Administration Charge."
UNUM/America is a subsidiary of UNUM Holding Company and its wholly-owned
parent company, UNUM Corporation. UNUM Corporation was organized under Delaware
law on January 11, 1985. UNUM Corporation is a publicly-owned company whose
stock is traded on the New York Stock Exchange. UNUM Corporation has
consolidated assets of $15.5 billion as of December 31, 1996.
ACQUISITION AGREEMENT WITH THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
On October 1, 1996 (the "Closing Date"), UNUM/America completed the sale of
its tax-sheltered annuity business to The Lincoln National Life Insurance
Company ("Lincoln Life"), pursuant to an acquisition agreement with Lincoln
Life (the "Acquisition Agreement"). Under the Acquisition
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<PAGE>
Agreement, Lincoln Life assumed UNUM/America's obligations under the Contracts
and Lincoln Life & Annuity Company of New York ("Lincoln-NY") assumed
UNUM/America's obligations under the New York Contracts (other than those
obligations to Contractholders and/or Participants who neither consented nor
were deemed to have consented to the assumption).
Lincoln Life is a stock life insurance company incorporated under the laws of
Indiana on June 12, 1905. Lincoln Life is principally engaged in offering life
insurance policies and annuity policies, and ranks among the largest United
States stock life insurance companies in terms of assets and life insurance in
force. Lincoln Life is also one of the leading life reinsurers in the United
States. Lincoln Life is licensed in all states (except New York) and the
District of Columbia, Guam, and the Virgin Islands.
Lincoln-NY is a life insurance company chartered under New York law on June
6, 1996. Lincoln-NY is licensed to sell variable contracts in New York.
Lincoln-NY is a subsidiary of Lincoln Life.
Lincoln Life is wholly owned by Lincoln National Corporation ("LNC"), a
publicly held insurance holding company incorporated under Indiana law on
January 5, 1968. The principal office of Lincoln Life is located at 1300 South
Clinton Street, Fort Wayne, Indiana 46801. The principal office of LNC is
located at 200 East Berry Street, Fort Wayne, Indiana 46802. Through
subsidiaries, LNC engages primarily in the issuance of life insurance and
annuities, property-casualty insurance, and other financial services.
UNUM/America and Lincoln Life have notified or will notify Contractholders
and/or Participants regarding the assumption of their Contracts (other than New
York Contracts) by Lincoln Life or, in the case of the New York Contracts, by
Lincoln-NY. In some states the Contractholder will be deemed to have consented
to the assumption if it does not opt out within a certain time period. In other
states affirmative consent will be sought. If the Contractholder opts out of
the assumption (or refuses to consent where affirmative consent is required),
UNUM/America will remain as the insurer of the Contract and Participants under
that Contract will not be given the opportunity to have their certificates
assumed by Lincoln Life. Whether or not a Contract is assumed by Lincoln Life,
it will be administered by Lincoln Life. If the Contractholder consents to the
assumption or is deemed to have consented to the assumption, as applicable,
UNUM/America and Lincoln Life will notify each Participant under the Contract
regarding the assumption and provide each Participant an opportunity to opt
out. (If required, affirmative Participant consent will be sought.) If, under a
Contract some Participants opt out and some do not, the Contract will be
bifurcated--one Contract will have UNUM/America as the insurer and the other
will have Lincoln Life as the insurer (or, for the New York Contracts, Lincoln-
NY). Both Contracts, however, will be administered by Lincoln Life. As noted
above, the notification process is subject to regulatory requirements which
vary from state to state. Thus the notification procedures employed by
UNUM/America and Lincoln Life may vary from those described above. In any
event, Contractholders and/or Participants will receive all notifications and
be given all consent and opt out rights required by law.
Assuming that an assumption is approved under the above procedures, the
effect of the assumption is to substitute Lincoln Life for UNUM/America as the
insurer. (For the New York Contracts, Lincoln-NY will be the insurer.) In
addition, a Participant's Account balance in the Variable Investment Division
will be transferred to a Lincoln Life or Lincoln-NY separate account as of the
effective date of the assumption of the obligations to the Participant under
the Contract by Lincoln Life or Lincoln-NY. The assumption will result in the
substitution of Lincoln Life or Lincoln-NY for UNUM/America as the insurer
under the Contracts (thus, Lincoln Life or Lincoln-NY will back the guarantees
of the Guaranteed Interest Division), and the transfer of Account balances to
the Lincoln Life or Lincoln-NY separate account. Otherwise, the rights of
Contractholders and Participants under the Contracts will not change solely as
a result of the assumption. There will be no adverse tax consequences to
Contractholders or Participants as a result of the transfer. See "Federal
Income Tax Considerations."
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<PAGE>
UNUM/America and Lincoln Life currently expect that UNUM/America will
continue to offer the Contracts after the Closing Date in those states where
Lincoln Life has not yet received all the approvals necessary to sell its own
group annuity Contracts. While such Contracts would be issued by UNUM/America,
Contractholders and/or Participants will be required to agree, at the time such
Contracts are issued, to an automatic transfer of such Contracts to Lincoln
Life at such time as Lincoln Life receives the necessary approvals to sell its
own Contracts. UNUM/America anticipates that it will continue to sell Contracts
on this basis for no more than eighteen months after the Closing Date.
In the event that, after the Closing Date, UNUM/America offers Contracts that
will be automatically assumed by Lincoln Life, Contractholders and Participants
will receive, at the time the Contract is offered or sold to them, a prospectus
or other disclosures pertaining to Lincoln Life. It is currently anticipated
that the Lincoln Life and Lincoln-NY separate accounts will continue to invest
in the underlying Funds that are currently available through the Sub-Accounts
of UNUM/America's Variable Investment Division, but there can be no assurance
that such Funds will always be made available through the Lincoln Life and
Lincoln-NY separate accounts.
LNC EQUITY SALES CORPORATION
LNC Equity Sales Corporation ("LNC Equity"), a registered broker-dealer, is
the principal underwriter of the Contracts. As such, LNC Equity will be
offering the Contracts and performing all duties and functions that are
necessary and proper for distribution of the Contracts. LNC Equity has also
entered into sales agreements with independent broker-dealers for the sale of
the Contracts. LNC Equity may pay sales commissions to broker-dealers up to an
amount equivalent to 3.5% of Contributions under a Contract. LNC Equity's
principal business office is at 3811 Illinois Road, Suite 205 , Fort Wayne,
Indiana 46804.
THE VARIABLE INVESTMENT DIVISION
On December 31, 1991, pursuant to the merger of UNUM Life Insurance Company
and UNUM Pension and Insurance Company into UNUM/America, the Variable
Investment Division was transferred intact to UNUM/America. Prior to that, on
July 8, 1988, the Board of Directors of UNUM Life Insurance Company authorized
the establishment of the Variable Investment Division called the TSAVA Separate
Account in accordance with the Maine Insurance Code. On February 7, 1991, the
Board of Directors of UNUM Life Insurance Company expanded the scope of the
Variable Investment Division and changed its name to the VA-I Separate Account.
Under Maine law, the funds in the Variable Investment Division are owned by
UNUM/America and UNUM/America is not, nor can UNUM/America be, a trustee with
respect to those funds. The Variable Investment Division is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Registration with the SEC does not
involve supervision of the management or investment practices or policies of
either the Variable Investment Division or UNUM/America by the SEC.
The Variable Investment Division currently consists of nine Sub-Accounts. The
Sub-Accounts invest in shares of the Funds. Therefore, the investment
experience of the Sub-Accounts depends on the performance of the Funds.
The income, gains and losses, realized or unrealized, from assets allocated
to the Variable Investment Division are credited to or charged against the
Variable Investment Division, without regard to other income, gains or losses
in UNUM/America's general account or any other separate account. The Contract
provides that the assets of the Variable Investment Division may not be charged
with liabilities arising out of any other business of UNUM/America.
UNUM/America may accumulate in the Variable Investment Division proceeds from
charges under the Contract and other amounts in excess of the Variable
Investment Division assets representing Contract reserves and
14
<PAGE>
liabilities. UNUM/America is the issuer of the Contracts and the obligations
set forth therein, other than those of the Contractholder or the Participant,
are UNUM/America's. As noted previously, however, UNUM/America has entered into
an agreement providing for the assumption of UNUM/America's obligations under
the Contracts by Lincoln Life. See "Acquisition Agreement With The Lincoln
National Life Insurance Company."
THE FUNDS
The nine Sub-Accounts invest directly in nine corresponding Funds. Each of
these Funds was formed as an investment vehicle for insurance company separate
accounts.
Information about each of the Funds, including their investment objectives
and investment management, is contained below. Additional information about the
Funds, their investment policies, risks, fees and expenses and all other
aspects of their operations, can be found in the prospectuses for the Funds,
which should be read carefully before investing. There is no assurance that any
Fund will achieve its stated objective. Additional copies of the Funds'
prospectuses, as well as their Statements of Additional Information, can be
obtained directly from each of the Funds without charge by writing to the
particular Funds at the addresses noted on the front of the Fund prospectus.
Shares of the Funds are sold not only to the Sub-Accounts but also to variable
annuity and variable life separate accounts of other insurance companies. For a
disclosure of possible conflicts involved in the Sub-Accounts investing in
Funds that are so offered, see the applicable Fund prospectus.
On the effective date of a Participant's transfer to Lincoln Life, the
Participant's Account balance in the Variable Investment Division will be
transferred to a Lincoln Life separate account. For Participants under the New
York Contracts, the Account balances will be transferred to a Lincoln-NY
separate account. UNUM/America and Lincoln Life intend that the Lincoln Life
separate account and the Lincoln-NY separate account will each have nine Sub-
Accounts which will invest in the same nine Funds currently offered by
UNUM/America's Variable Investment Division. Any deletion of Funds or
substitution of different Funds would require regulatory approval. Additional
Funds may nevertheless be added or deleted in the future.
DREYFUS STOCK INDEX FUND
Dreyfus Stock Index Fund is an open-end, non-diversified management
investment company known as an index fund. Its goal is to provide investment
results that correspond to the price and yield performance of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. The Fund is neither sponsored by nor affiliated
with Standard & Poor's Corporation.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, acts as the Fund manager and Mellon Equity Associates, an affiliate of
Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, is the
Fund index manager.
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO OF ACACIA CAPITAL CORPORATION
CALVERT RESPONSIBLY INVESTED BALANCED PORTFOLIO: The Calvert Responsibly
Invested Balanced Portfolio seeks total return above the rate of inflation
through an actively managed, nondiversified portfolio of common and preferred
stocks, bonds, and money market instruments which offer income and growth
opportunity and which satisfy the social concern criteria established for the
Portfolio. Shares of the Portfolio are offered only to insurance companies for
allocation to certain of their variable accounts.
The Calvert Asset Management Company, Inc., located at 4550 Montgomery
Avenue, Suite 1000N, Bethesda, Maryland 20814 serves as the Portfolio's
investment advisor.
15
<PAGE>
THE SMALL CAP PORTFOLIO OF DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, diversified management
investment company.
THE SMALL CAP PORTFOLIO: The Portfolio seeks to maximize capital appreciation.
The Small Cap Portfolio seeks out companies that The Dreyfus Corporation
believes have the potential for significant growth. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
companies with market capitalization of less than $1.5 billion, at the time of
purchase, both domestic and foreign , which the Portfolio believes to be
characterized by new or innovative products or services which should enhance
prospects for growth in future earnings. The Portfolio may also invest in
special situations such as corporate restructurings, mergers or acquisitions.
The Dreyfus Corporation, located at 200 Park Avenue, New York, New York
10166, serves as the Fund's investment adviser.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: EQUITY-INCOME PORTFOLIO, GROWTH
PORTFOLIO, AND MONEY MARKET PORTFOLIO
EQUITY-INCOME PORTFOLIO: The Portfolio seeks reasonable income by normally
investing at least 65% of its total assets in income-producing common or
preferred stock and the remainder in debt securities.
GROWTH PORTFOLIO: The Portfolio seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
MONEY MARKET PORTFOLIO: The Portfolio seeks to obtain as high a level of
current income as is consistent with preserving capital and providing
liquidity. For more information regarding the Portfolio, into which initial
Contributions are invested pending UNUM/America's receipt of a complete order,
please see the "Initial Contributions" section.
Fidelity Management & Research Company ("FMR") is the manager of the Equity-
Income Portfolio, the Growth Portfolio and the Money Market Portfolio and is
located at 82 Devonshire Street, Boston, Massachusetts 02109.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II: ASSET MANAGER PORTFOLIO
ASSET MANAGER PORTFOLIO: The Portfolio seeks high total return with reduced
risk over the long term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed income instruments.
FMR is the manager of the Portfolio and is located at 82 Devonshire Street,
Boston, Massachusetts 02109. FMR or its affiliate may compensate Lincoln Life
or its affiliate for administrative, distribution, or other services. Such
compensation would be based on assets of the Fidelity Funds attributable to the
Contracts and certain other contracts issued by Lincoln Life and its
affiliates.
VP CAPITAL APPRECIATION AND VP BALANCED OF AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP CAPITAL APPRECIATION: The Portfolio seeks capital growth by investing
primarily in common stocks that are considered by management to have better-
than-average prospects for appreciation.
16
<PAGE>
VP BALANCED: The Portfolio seeks capital growth and current income. Its
investment team intends to maintain approximately 60% of the portfolio's assets
in common stocks that are considered by its manager to have better than average
prospects for appreciation and the balance in bonds and other fixed income
securities.
American Century Variable Portfolios, Inc. is managed by American Century
Investment Management, Inc. (formerly Investors Research Corporation), which
also manages the American Century family of mutual funds. American Century
Investment Management, Inc. has its principal place of business at 4500 Main
Street, Kansas City, Missouri 64111.
Lincoln Life or its affiliate may perform certain administrative or other
services that would otherwise be performed by American Century Services
Corporation, and American Century Investment Management, Inc. may pay Lincoln
Life or its affiliate for such services. Such compensation would be based on
assets of the American Century Funds attributable to the Contracts and certain
other contracts issued by Lincoln Life and its affiliates.
INTERNATIONAL STOCK PORTFOLIO OF T. ROWE PRICE INTERNATIONAL SERIES, INC.
INTERNATIONAL STOCK PORTFOLIO: The International Stock Portfolio seeks long-
term growth of capital through investments primarily in common stocks of
established, non-U.S. companies.
The Series is managed by Rowe Price-Fleming International, Inc., one of
America's largest international no load mutual fund managers with approximately
$25 billion under management as of December 31, 1996, from its offices in
Baltimore, London, Tokyo, Hong Kong and Singapore.
CONTRACT PROVISIONS
GENERAL
UNUM/America has designed these Contracts for Employers and other entities to
enable Participants and Employers to accumulate funds for retirement programs
meeting the requirements of the following Sections of the Internal Revenue Code
of 1986, as amended (the "Code"): 401(a), 403(b), 408, 457 and other related
Sections as well as for programs offering non-qualified annuities. An Employer,
Association or trustee in some circumstances, may enter into a Contract with
UNUM/America by filling out an application and returning it to UNUM/America.
Upon UNUM/America's acceptance of the application, Contractholders or an
affiliated Employer can forward Contributions on behalf of employees who then
become Participants under the Contracts. For Plans that have allocated rights
to the Participant, UNUM/America will issue to each Participant a separate
Active Life Certificate that describes the basic provisions of the Contract to
each Participant.
CONTRIBUTIONS UNDER THE CONTRACT
Generally, under the Contracts, Contributions are forwarded by the
Contractholders to UNUM/America for investment. Depending on the Plan, the
Contributions may consist of salary reduction Contributions, Employer
Contributions or post-tax Contributions. Lincoln Life will administer the
Contracts after the Closing Date. Contractholders will be notified of any
change in procedures.
Contributions may accumulate on either a guaranteed or variable basis
depending upon the Divisions available under the Contract and/or the Division
in which the Contributions are deposited. Contributions to the Guaranteed
Interest Division become part of UNUM/America's General Account and are
guaranteed a minimum rate of interest.
UNUM/America will also declare in advance a guaranteed interest rate which
will be effective for all amounts in the Participant's Account balance in the
Guaranteed Interest Division during the
17
<PAGE>
designated year. This rate will never be less than the minimum rate of
interest. UNUM/America may also declare in advance separate interest rate
guarantees which are in excess of the guaranteed interest rate for some or all
of the Participant's Account balance in the Guaranteed Interest Division for
specific period(s) during the designated year. UNUM/America assumes the risk of
investment gain or loss on contributions to the Guaranteed Interest Division.
See "Guaranteed Interest Division." Contributions to the Variable Investment
Division are credited with a rate of return dependent upon the investment
experience of the Sub-Accounts in which the Contributions are invested.
Contributions by Participants may be in any amount unless there is a minimum
amount set by the Contractholder or Plan. A Contract may require the
Contractholder to contribute a minimum annual amount on behalf of all
Participants. Annual Contributions under Qualified Plans may be subject to
maximum limits imposed by the Code. Annual Contributions under non-qualified
plans may be limited by the terms of the Contract. In the Statement of
Additional Information see "Tax Law Considerations" for a discussion of these
limits. Subject to any restrictions imposed by the Plan or the Code, transfers
from other Contracts and qualified rollover Contributions will be accepted.
Section 830.205 of the Texas Education Code provides that Employer or state
Contributions (other than salary reduction Contributions) on behalf of
Participants in the Texas Optional Retirement Program ("ORP") vest after one
year of participation in the program. UNUM/America will return Employer
Contributions to the Contractholder for those employees who terminate
employment in all Texas institutions of higher education before becoming
vested. During this first participation year in the ORP, ORP Participants may
only direct Employer and state Contributions to the Guaranteed Interest
Division.
Contributions must be in United States funds unless UNUM/America agrees in
writing to accept other currencies. Any non-US funds will be converted to U.S.
funds. All withdrawals and distributions under this Contract will be in U.S.
funds. If a bank or other financial institution does not honor the check or
other payment method constituting a Contribution, UNUM/America will treat the
Contribution as invalid. All allocation and subsequent transfers resulting from
the invalid Contributions shall be reversed and the party responsible for the
invalid Contribution shall reimburse UNUM/America for any losses or expenses
resulting from the invalid Contribution.
INITIAL CONTRIBUTIONS
The initial Contribution for a Participant will be credited to the
Participant's Account no later than two Business Days after it is received by
UNUM/America if it is preceded or accompanied by a completed enrollment form
containing all the information necessary for processing the Participant's
Contribution. If UNUM/America does not receive a complete enrollment form,
UNUM/America will notify the Contractholder or the Participant that
UNUM/America does not have the necessary information to process the
Contribution. If the necessary information is not provided to UNUM/America
within five (5) Business Days after UNUM/America first receives the initial
Contribution, UNUM/America will return the initial Contribution less any
withdrawal(s) by the Participant or by the Contractholder, unless the
Participant or the Contractholder specifically consents to UNUM/America
retaining the Contribution until the enrollment form is made complete.
Notwithstanding the above, when the Contract includes language regarding the
"Pending Allocation Account", the following shall apply: Where state approval
has been obtained, if UNUM/America receives Contributions which are not
accompanied by a properly completed Enrollment Form, UNUM/America will notify
the Contractholder of that fact and deposit the Contributions to the Pending
Allocation Account, unless such Contributions are designated to another Account
in accordance with the Plan. Within two business days of receipt of a properly
completed Enrollment Form, the Participant's Account balance in the Pending
Allocation Account will be transferred in accordance with the allocation
percentages elected on the Enrollment Form. All future Contributions will also
be allocated in accordance with these percentages until such time as the
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<PAGE>
Participant may notify UNUM/America of a change. If a properly completed
Enrollment Form is not received after three monthly notices have been sent, the
Participant's Account balance in the Pending Allocation Account will be
refunded to the Contractholder within 105 days of the date of the initial
Contribution. The Pending Allocation Account invests in Fidelity's Variable
Insurance Products Fund: Money Market Portfolio and is not available as an
investment option under the group annuity Contract. Mortality & Expense Risk
Charges and the Annual Administration Charge do not apply to this Account.
These charges will be applicable upon receipt of a properly completed
Enrollment Form and the Participant's Contract Participation Date will be the
date money was deposited in the Pending Allocation Account.
ALLOCATION OF CONTRIBUTIONS
A Participant must designate in writing, subject to the Plan, the percent of
their Contribution which will be allocated to each Division and to each Sub-
Account available under their Contract. The Contributions allocation percentage
to the Guaranteed Investment Division or any Sub-Account can be in any whole
percent. A participant whose Employer offers two or more UNUM/America Contracts
for the same type of Qualified or Non-Qualified Plans may allocate
Contributions to a maximum of ten Sub-Accounts and the Guaranteed Interest
Division. Participants, subject to the terms of the Plan, may change the
allocation of Contributions by notifying UNUM/America in writing or by
telephone in accordance with procedures published by UNUM/America. Telephone
requests for allocation changes follow the same verification of identity rules
as for Transfers. (See "Telephone Transfers.") When UNUM/America receives a
notice in writing, the form must be acceptable to UNUM/America. Upon receipt by
UNUM/America, the change will be effective for all Contributions received
concurrently with the allocation change form and for all future Contributions,
unless a later date is requested. Changes in the allocation of future
Contributions have no effect on amounts a Participant may have already
contributed. Such amounts, however, may be transferred between Divisions and
Sub-Accounts pursuant to the requirements described in "Transfers between
Divisions and Sub-Accounts." Allocations of employer contributions may be
restricted by the applicable plan.
SUBSEQUENT CONTRIBUTIONS
The Contractholder will forward Contributions to UNUM/America specifying the
amount being contributed on behalf of each Participant. The Contractholder must
send Contributions and provide such allocation information in accordance with
procedures established by UNUM/America. The Contributions shall be allocated
among the Guaranteed Interest Division and the Variable Investment Division in
accordance with the Contractholder's or the Participant's written instructions
as described above in "Allocation of Contributions."
INVESTMENT OF CONTRIBUTIONS
Contributions are invested as of the date of receipt at UNUM/America,
provided that they are received on a Business Day and allocation information is
provided in a form acceptable to UNUM/America in accordance with procedures
established by UNUM/America. Contributions on behalf of a Participant which are
allocated to the Variable Investment Division will be credited with
Accumulation Units as of that date. A Participant's interest in the Variable
Investment Division during the Accumulation Period is the value of the
Participant's Accumulation Units in the Variable Investment Division. Upon
payment of a Contribution, the number of Accumulation Units credited to a
Participant's Account in a Sub-Account is calculated by dividing the
Contribution allocated to the Sub-Account by the dollar value of an
Accumulation Unit next determined after receipt of the Contribution. The number
of Accumulation Units purchased will not vary as a result of any subsequent
fluctuations in the Accumulation Unit Value. The Accumulation Unit Value, of
course, fluctuates with the investment performance of the underlying Fund and
also reflects deductions and charges made against the Variable Investment
Division.
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DETERMINATION OF ACCUMULATION UNIT VALUE
UNUM/America determines the Accumulation Unit Value of each Sub-Account on
each Valuation Date. The Accumulation Unit Values for all Sub-Accounts other
than the Index Account were initially set at ten dollars ($10). The
Accumulation Unit Value was initially set at $9.9060 for the Index Account.
Subsequent Accumulation Unit Values are determined by multiplying the Net
Investment Factor for the current Valuation Period by the Accumulation Unit
Value as of the end of the immediately preceding Valuation Period.
UNUM/America uses a Net Investment Factor to measure the daily fluctuations
in value of a Sub-Account. The Net Investment Factor for any Valuation Period
is determined as follows:
(a) The net asset value per share of the underlying Fund as of the end of
a Valuation Period is added to the amount per share of any dividends or
capital gain distributions paid by the Fund during that Valuation Period;
(b) The amount in (a) above is then divided by the net asset value per
share of the underlying Fund as of the end of the immediately preceding
Valuation Period;
(c) The result of (a) divided by (b) is then multiplied by one minus the
annual mortality and expense risk charge to the n/365th power where n
equals the number of calendar days since the immediately preceding Valua-
tion Date.
The above calculation will be adjusted by the amount per share of any taxes
which are incurred by UNUM/America because of the existence of the Variable
Investment Division.
The Participant's Account balance is equal to the sum of the Participant's
Account balances in both the Variable Investment Division and the Guaranteed
Interest Division.
TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
During the Accumulation Period and subject to the terms of the Plan,
transfers may be made of all or part of a Participant's Account balance in any
Division or Sub-Account to another Sub-Account or Division. Transfers will not
change the allocation of future Contributions to the Divisions and Sub-
Accounts. UNUM/America does not require that any minimum amount be transferred.
To effect a transfer, UNUM/America must receive a written transfer request in a
form acceptable to UNUM/America.
Transfers to or from the Variable Investment Division are made using the
Accumulation Unit Value next computed following UNUM/America's receipt of the
written transfer request.
TELEPHONE TRANSFERS BETWEEN DIVISIONS AND SUB-ACCOUNTS
UNUM/America may accept telephone transfers from Participants when this is
allowed by the Contractholder. In order to prevent unauthorized or fraudulent
transfers, UNUM/America will require a Participant to provide certain
identifying information before UNUM/America will act upon their instructions.
UNUM/America may also assign the Participant a Personal Identification Number
(PIN) to serve as identification. UNUM/America will not be liable for following
telephone instructions it reasonably believes are genuine. Telephone transfer
requests may be recorded and written confirmation of all transfer requests will
be mailed to the Participant or Contractholder on the next Business Day.
Telephone transfers will be processed on the Business Day that they are
received when they are received at the UNUM/America Home Office before 4:00
P.M. ET. If the Participant or Contractholder determines that a transfer has
been made in error, the Participant or Contractholder must notify UNUM/America
within 30 days of the confirmation notice date. See "Contract Provisions,
Transfers between Divisions and Sub-Accounts."
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WITHDRAWALS
During the Accumulation Period and subject to the terms of the Plan,
withdrawals may be made from either or both Divisions of all or part of the
Participant's Account balance in a Division or Sub-Account remaining after
deductions for any applicable (1) CDSC; (2) Annual Administration Charge
(imposed on Total Withdrawals), (3) premium taxes, and (4) outstanding loan
including loan security. Annuity Conversion Amounts are not considered
withdrawals. See "Annuity Period, Annuities: General."
All withdrawal requests must indicate the amount to be withdrawn and be
submitted in a form acceptable to UNUM/America. If the request does not specify
the Sub-Accounts and/or the Divisions from which the withdrawal is to be made,
the withdrawal will be made pro rata based on balances in the Sub-Accounts and
the Guaranteed Interest Division. UNUM/America does not require that any
minimum amount be withdrawn. Telephone withdrawal requests are not available.
Withdrawals from the Variable Investment Division are made by reducing the
Participant's number of Accumulation Units in the applicable Sub-Account. In
determining the number of Accumulation Units to be reduced, UNUM/America uses
the Accumulation Unit Value next computed after UNUM/America's receipt of the
written withdrawal request.
Payment of all Variable Investment Division withdrawal amounts will be made,
within the time period allowed under current Federal law but in no case later
than seven days, after receipt by UNUM/America of the withdrawal request in a
form acceptable to UNUM/America. See "Market Emergencies."
TOTAL WITHDRAWALS
A Total Withdrawal can only be made by a Participant who has no outstanding
loans under the Contract. A Total Withdrawal of a Participant's Account will
occur when (a) the Participant or Contractholder requests the liquidation of
the Participant's entire Account balance, or (b) the amount requested plus any
CDSC results in a remaining Participant's Account balance of less than or equal
to the Annual Administration Charge, in which case the request is treated as if
it were a request for liquidation of the Participant's entire account balance.
Any Active Life Certificate must be surrendered to UNUM/America when a Total
Withdrawal occurs. If a Contractholder resumes Contributions on behalf of a
Participant after a Total Withdrawal, the Participant will receive a new
Participation Date and Active Life Certificate.
A Participant refund under the free-look provisions is not considered a Total
Withdrawal.
PARTIAL WITHDRAWALS
A Partial Withdrawal of a Participant's Account will occur when less than a
Total Withdrawal is made from a Participant's Account.
SYSTEMATIC WITHDRAWAL OPTION
Participants who are at least age 59 1/2, are separated from service from
their employer or are disabled and certain spousal beneficiaries and alternate
payees who are former spouses may be eligible for a Systematic Withdrawal
Option ("SWO") under the Contract. Under the SWO a Participant may elect to
withdraw either a monthly amount which is an approximation of the interest
earned between each payment period based upon the interest rate in effect at
the beginning of each respective payment period or a flat dollar amount
withdrawn on a periodic basis. Payments are made only from the Guaranteed
Interest Account. A Participant must have a vested pre-tax account
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balance of at least $10,000 in order to select the SWO. A Participant may
transfer amounts from the Variable Investment Division to the Guaranteed
Interest Division in order to support SWO payments. These transfers, however,
are subject to the transfer restrictions described in this Prospectus and/or
imposed by any applicable Plan. A one-time fee of up to $30 may be charged to
set up the SWO. This charge is waived for total vested pre-tax account balances
of $25,000 or more. More information about SWO, including applicable fees and
charges, is available in the Contracts and Active Life Certificates as well as
from UNUM/America.
MAXIMUM CONSERVATION OPTION
Under certain Contracts participants who are at least age 70 1/2 may request
that UNUM/America calculate and pay to them the minimum annual distribution
required by Sections 401(a)(9), 403(b)(10), 408(a) or 457(d) of the Code. The
Participant must complete forms as required by UNUM/America in order to elect
this option. UNUM/America will base its calculation solely on the Participant's
Account Value with UNUM/America. Participants who select this option are
responsible for determining the minimum distributions amount applicable to
their non-UNUM/America Contract.
WITHDRAWAL RESTRICTIONS
Withdrawals under Section 403(b) Contracts are subject to the limitations
under Section 403(b)(11) of the Code and regulations thereof and in any
applicable Plan document. That section provides that salary reduction
Contributions deposited and earnings credited on any salary reduction
Contributions after December 31, 1988 may only be withdrawn if the Participant
has (1) died; (2) become disabled; (3) attained age 59 1/2; (4) separated from
service; or (5) incurred a hardship. Amounts accumulated in one Section
403(b)(1) Contract may be transferred to another Section 403(b)(1) Contract or
Section 403(b)(7) custodial account without a penalty under the Code. If
amounts accumulated in a Section 403(b)(7) custodial account are deposited in a
Contract, such amounts will be subject to the same withdrawal restrictions as
are applicable to post-1988 salary reduction Contributions under the Contracts.
For more information on these provisions see "Federal Income Tax
Considerations."
Withdrawal requests for a Participant under Section 457(b) Plans and Plans
subject to Title I of ERISA must be authorized by the Contractholder on behalf
of a Participant. All withdrawal requests will require the Contractholder's
written authorization and written documentation specifying the portion of the
Participant's Account balance which is available for distribution to the
Participant. Withdrawal requests for Section 457(f) Plans must be requested by
the Contractholder.
As required by Section 830.105 of the Texas Education Code, withdrawal
requests by Participants in the Texas Optional Retirement Program ("ORP") are
only permitted in the event of (1) death; (2) retirement; (3) termination of
employment in all Texas institutions of higher education; or (4) attainment of
age 70 1/2. A Participant in an ORP Contract is required to obtain a
certificate of termination from the Participant's Employer before a withdrawal
request can be granted.
For withdrawal requests (other than transfers to other investment vehicles),
by Participants under Plans not subject to Title I of ERISA and non-457 Plans,
the Participant must certify to UNUM/ America that one of the events listed in
the Code has occurred (and provide supporting information, if requested) and
that UNUM/America may rely on such representation in granting such withdrawal
request. See "Federal Income Tax Considerations." A Participant should consult
their tax adviser as well as review the provisions of their Plan before
requesting a withdrawal.
In addition to the restrictions noted above, a Plan may contain additional
withdrawal or transfer restrictions.
Early withdrawals, as defined under Section 72(q) and 72(t) of the Code, may
be subject to a ten percent excise tax.
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DEATH BENEFITS
The payment of death benefits will be governed by the provisions of the
applicable Plan and the Code. In the event of the death of a Participant during
the Accumulation Period, UNUM/America will pay the Beneficiary, if one is
living, or the Plan the greater of the following amounts:
(1) The Net Contributions, or
(2) The Participant's Account balance less any outstanding loan (includ-
ing principal and due and accrued interest), as of the date of notifica-
tion.
If UNUM/America is not notified of the Participant's death within six months
of such death, the Beneficiary will receive the Death Benefit amount described
in paragraph (2).
A Beneficiary may elect to have the Death Benefit (1) paid as a lump sum, (2)
converted to a Payout Annuity or (3) as a combination of a lump sum payment and
a Payout Annuity.
UNUM/America will calculate the Death Benefit as of the end of the Valuation
Period during which it receives both satisfactory notification of the
Participant's death and an election of a form of Death Benefit (as described
below). Payment of a lump sum election will be made within the time period
prescribed by Federal law but in no case later than seven days following such
calculation. Payment of an annuity option will be paid in accordance with the
provisions regarding annuities. See "Annuity Period." If no election is made
within sixty days following UNUM/America's receipt of satisfactory notice of
the Participant's death, the Death Benefit will be paid in the form of a lump
sum payment and will be calculated as of the end of the Valuation Period during
which that sixtieth day occurs (and payment will be made within the time period
prescribed by Federal law but in no case later than seven days after such
calculation date).
Satisfactory proof of death may consist of: a copy of a certified death
certificate; a copy of a certified decree of a court of competent jurisdiction
as to the finding of death; a written statement by a medical doctor who
attended the deceased at the time of death; or any other proof satisfactory to
UNUM/America.
Notwithstanding the above, if the Beneficiary is someone other than the
spouse of the deceased Participant, the Code provides that the Beneficiary may
not elect an annuity which would commence later than December 31st of the
calendar year following the calendar year of the Participant's death. If a non-
spousal Beneficiary elects to receive payment in a single lump sum, the Code
provides that such payment must be received no later than December 31st of the
fourth calendar year following the calendar year of the Participant's death.
If the Beneficiary is the surviving spouse of the deceased Participant,
distributions are not required under the Code to begin earlier than December
31st of the calendar year in which the Participant would have attained age 70
1/2. If the surviving spouse dies before the date distributions commence, then,
for purposes of determining the date distributions to the Beneficiary must
commence, the date of death of the surviving spouse is substituted for the date
of death of the Participant.
If there is no living named Beneficiary on file with UNUM/America at the time
of a Participant's death and unless the Plan directs otherwise, UNUM/America
will pay the Death Benefit to the Participant's estate in the form of a lump
sum payment, upon receipt of satisfactory proof of the Participant's death, but
only if such proof of death is received by UNUM/America no later than the end
of the fourth calendar year following the year of the Participant's death. In
such case, valuation of the Death Benefit will occur as of the end of the
Valuation Period during which due proof of death is received by UNUM/America,
and the lump sum Death Benefit will be paid within the time period prescribed
by Federal law but in no case later than seven days of that date.
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DEDUCTIONS AND CHARGES
CHARGES AGAINST THE VARIABLE INVESTMENT DIVISION
MORTALITY AND EXPENSE RISK CHARGES
Certain charges will be assessed as a percentage of the value of the net
assets of the Variable Investment Division to compensate UNUM/America for risks
assumed in connection with the Contracts.
UNUM/America deducts from the net assets of the Variable Investment Division
a daily charge of 1.20% on an annual basis.
This charge is assessed both during the Accumulation Period and the Annuity
Period although, during the Annuity Period, UNUM/America will bear no mortality
risk with respect to the Annuity Options that do not involve life
contingencies. This amount is intended to compensate UNUM/America for certain
Mortality and Expense Risks UNUM/America assumes in operating the Variable
Investment Division and for providing services to the Participant. The total
charge may not be altered.
The Expense Risk is the risk that UNUM/America's actual expenses in issuing
and administering the Contract will be more than UNUM/America estimated. The
Mortality Risk borne by UNUM/America arises from the chance that UNUM/America's
actuarial estimate of mortality rates during the Annuity Period, as guaranteed
in the Contract, may prove erroneous and that an Annuitant may live longer than
expected. This contractual guarantee assures that neither an Annuitant's own
longevity nor an improvement in life expectancy generally will have any adverse
effect under the Contracts. In addition, UNUM/America bears the Mortality Risk
that it guarantees to pay a Death Benefit that may be higher than the
Participant's Account balance upon the death of the Participant prior to the
Annuity Period.
CHARGES AGAINST THE CONTRACTS
The charges that UNUM/America assesses in connection with the Contracts are
described below.
ANNUAL ADMINISTRATION CHARGE
UNUM/America provides many administrative functions in connection with the
Contracts, including receiving and allocating Contributions in accordance with
the Contracts, making annuity payments when they become due, and preparing and
filing all reports required to be filed by the Variable Investment Division. In
addition, UNUM/America provides Participants with Account statements and
accounting services that keep track of pre-tax monies, employee and Employer
monies, vested Account balances and rollover or transferred monies.
In consideration for these administrative services, UNUM/America currently
deducts $25 (or the balance of the Participant's Account if less) per year from
each Participant's Account balance on the last Business Day of the month in
which a Participation Anniversary occurs. This charge is deducted only during
the Accumulation Period. This Annual Administration Charge is also withdrawn
from a Participant's Account balance if and when a Participant's Account is
totally withdrawn on any date other than the last Business Day of the month in
which the Participation Anniversary occurs.
The Annual Administration Charge may be reduced or waived for those
Participants who are participating under another UNUM/America Contract which
imposes an Annual Administration Charge or where UNUM/America's interest costs
or expenses are reduced due to the terms of the Contract, economies of scale or
administrative assistance provided by the Contractholder. In addition, the
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Employer has the option of paying the Annual Administration charge on behalf of
the Participants under a Contract.
Under certain Contracts, the Contractholder may also choose to have the
Annual Administration Charge paid only by those Participants in the Variable
Investment Division. Contracts offering this provision will typically have a
declared interest rate in the Guaranteed Interest Division which is lower than
under Contracts not offering this provision. For Contracts offering this
provision, the Annual Administration Charge will be withdrawn as described in
this section.
Since the Closing Date, Lincoln Life has administered the Contracts on behalf
of UNUM/America pursuant to an administrative services agreement. See
"Acquisition Agreement with The Lincoln National Life Insurance Company."
PREMIUM TAXES
Certain states require that a premium tax be paid on contributions to a
variable annuity Contract. Others assess a premium tax at the time of
annuitization. UNUM/America will deduct any applicable premium tax from the
Participant's Account balance at the time required by state law.
CONTINGENT DEFERRED SALES CHARGE
UNUM/America does not impose a sales charge at the time a Contribution is
made to a Participant's Account under the Contract. During the Accumulation
Period and prior to the 11th Participation Year, UNUM/America charges a CDSC on
all Withdrawals of a Participant's Account balance unless UNUM/America receives
at the time of the withdrawal request reasonable proof necessary to verify
that: (a) the Participant has attained age 59 1/2; (b) the Participant has
died; (c) the Participant has incurred a disability as defined under the
Contract; or (d) the Participant has terminated employment with the Employer.
The CDSC reimburses UNUM/America for part or all of its expenses related to
distributing the Contracts. If the revenues generated by the CDSC are not
sufficient to cover UNUM/America's actual costs of distribution, such costs
will be paid from UNUM/America's General Account assets, which may include any
ultimate profit derived from the mortality and expense risk charge.
Amounts subject to a CDSC are charged in accordance with the following
schedule:
<TABLE>
<CAPTION>
DURING PARTICIPATION YEAR CDSC
------------------------- ----
<S> <C>
1-6 5%
7 4%
8 3%
9 2%
10 1%
11 and later 0%
</TABLE>
Under certain Contracts, the Contractholder may choose to require that the
Participant be age 55 or older and have terminated employment in order to be
entitled to a withdrawal without a CDSC. Contracts containing this additional
restriction may receive a higher declared interest rate in the Guaranteed
Interest Division than the Contracts not containing this restriction. A
Contractholder has the option of adding financial hardship as an event
entitling the Participant to a withdrawal from the Contract without the
imposition of a CDSC. A Contractholder can also choose a provision under the
Contract permitting Participants to make a withdrawal, once in each calendar
year, of up to 20% of their Account balance without the imposition of a CDSC.
Contractholders choosing these additional benefits may receive a lower declared
interest rate under the Guaranteed Interest Division of their Contract than
under Contracts not offering these benefits.
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The CDSC on any withdrawal may be reduced or eliminated but only to the
extent that UNUM/America anticipates that it will incur lower sales expenses or
perform fewer sales services due to economies arising from (a) the size of the
particular group, (b) an existing relationship with the Contractholder or
Employer, (c) the utilization of mass enrollment procedures, or (d) the
performance of sales functions by the Contractholder or an Employer which
UNUM/America would otherwise be required to perform.
The CDSC is imposed on the Gross Withdrawal Amount. A Participant may request
to receive a specific Net Withdrawal Amount. If the Participant requests a
specific Net Withdrawal Amount, the CDSC will be imposed on a Gross Withdrawal
Amount, which after deducting the CDSC, gives the Participant the Net
Withdrawal Amount requested. The following example illustrates the formula:
Participant requests a Net Withdrawal Amount of $100 in their tenth
Participation Year. UNUM/America will impose the 1% CDSC on a Gross Withdrawal
Amount of $101.01 and the Participant will receive $100. This is the standard
procedure for withdrawals.
The CDSC will be deducted from the Divisions and Sub-Accounts in proportion
to amounts withdrawn therefrom. Death Benefit payments and amounts converted to
an annuity are not subject to a CDSC. In no event will the CDSC, when added to
any CDSC previously imposed due to a Participant withdrawal, exceed 8.5% of the
cumulative Contributions to a Participant's Account.
MISCELLANEOUS
The Variable Investment Division purchases shares from the Funds at net asset
value. The net asset value reflects investment management fees and other
expenses that have already been deducted from the assets of the Funds. The
Funds' investment management fees, expenses and expense limitations, if
applicable, are more fully described in each prospectus for the Funds.
ANNUITY PERIOD
PAYOUT ANNUITIES: GENERAL
To the extent permitted by the Plan, the Participant, or the Beneficiary of a
deceased Participant, may elect to convert all or part of the Participant's
Account balance or the Death Benefit to a Payout Annuity. Payout Annuities are
available as either a Guaranteed or Variable Annuity or a combination of both.
Annuity payments from the Guaranteed Interest Division remain constant
throughout the annuity period. Annuity payments from the Variable Investment
Division fluctuate depending upon the investment experience of the applicable
Sub-Accounts. Variable Annuity payments are based upon Annuity Unit Values. See
"Annuity Payments" below and "Determination of Variable Annuity Payments" in
the Statement of Additional Information for further information.
The Annuity Commencement Date marks the date on which the first annuity
payment is made to an Annuitant. For Plans subject to Section 401(a)(9)(B) of
the Code, a Beneficiary must select an Annuity Commencement Date that is not
later than one year after the date of the Participant's death. A Participant or
Contractholder may select any Annuity Commencement Date for the Annuitant which
is then reflected in the Retired Life Certificate. However, since an annuity
payment is considered a distribution under the Code, selection of an Annuity
Commencement Date may be affected by the distribution restrictions under the
Code and the minimum distribution requirements under Section 401(a)(9) of the
Code. See "Federal Income Tax Considerations." The selection of an Annuity
Commencement Date, the annuity option, the amount of the Payout Annuity and
whether the amount is to be paid as a Guaranteed or a Variable Annuity must be
made by the Participant in writing, in a satisfactory form, and received at
least 30 days in advance of the Annuity Commencement Date. After the Annuity
Commencement Date an Annuitant may not change either the annuity option or the
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<PAGE>
type (i.e., variable or guaranteed) of Payout Annuity for any amount applied
toward the purchase of an annuity.
The Annuity Conversion Amount is either the Participant's Account balance, or
a portion thereof, or the Death Benefit plus interest, as of the Annuity
Payment Calculation Date. For a Guaranteed Annuity, the Annuity Commencement
Date is typically one month after the Annuity Payment Calculation Date;
subsequent payments are at one month intervals from the Annuity Commencement
Date. For a Variable Annuity, the Annuity Commencement Date is 10 Business Days
after the initial Annuity Payment Calculation Date; subsequent monthly payments
have Annuity Payment Calculation Dates which are 10 business days prior. The 10
Business Days are necessary to calculate the amount of the Payout Annuity
payments and to mail the checks in advance of their monthly due dates.
If the Participant's Account balance or the Beneficiary's Death Benefit is
less than $2,000 or if the amount of the first scheduled payment is less than
$20, the annuity may be cancelled and the Participant or Beneficiary required
to accept payment of the entire amount in a lump sum.
PAYOUT ANNUITY PAYMENTS
The amount of each annuity payment will depend upon the Annuity Conversion
Amount, the annuity option, the age of the Participant(s) on the initial
Annuity Payment Calculation Date, and the length of time from the initial
Annuity Payment Calculation Date to the Annuity Commencement Date. Unless
otherwise notified, the Participant's Account balance in the Guaranteed
Interest Division will be applied toward a Guaranteed Annuity and the
Participant's Account balance in the Variable Investment Division toward a
Variable Annuity.
The payment amount for a Guaranteed Annuity is determined by dividing the
Participant's Annuity Conversion Amount in the Guaranteed Interest Division as
of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor.
The initial payment amount for a Variable Annuity is determined by dividing
the Participant's Annuity Conversion Amount(s) in the applicable Sub-Account(s)
as of the initial Annuity Payment Calculation Date by the applicable Annuity
Conversion Factor as defined in the Contract. The amounts of subsequent
payments vary depending on the investment experience of the Sub-Account(s) and
the interest rate option selected by the Participant. The payment amounts will
not be affected by mortality or expense experience and will not be reduced by
an Annual Administration Charge. For additional information on the
determination of subsequent payment amounts, refer to the Statement of
Additional Information, "Determination of Variable Annuity Payments."
PAYOUT ANNUITY OPTIONS
Participants are offered a range of annuity options including, but not
limited to, the following:
SINGLE LIFE ANNUITY
Payments are made monthly during the lifetime of the Annuitant, and the
annuity terminates with the last payment preceding death.
LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10, 15 OR 20 YEARS
Payments are made monthly during the lifetime of the Annuitant with a monthly
payment guaranteed to the Beneficiary for the remainder of the selected number
of years, if the Annuitant dies before the end of the period selected. Payments
under this annuity option are smaller than a Single Life Annuity without a
guaranteed payment period.
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JOINT LIFE ANNUITIES
Payments are made monthly during the joint lifetime of the Annuitant and a
designated second person.
NON-LIFE ANNUITIES
Annuity payments are guaranteed monthly for the selected number of years.
While there is no right to make any total or partial withdrawals during the
Annuity Period, an Annuitant who has selected this annuity option as a Variable
Annuity or a surviving Beneficiary may request at any time during the payment
period that the present value of any remaining installments be paid in one lump
sum. Such lump sum payment will be treated as a Total Withdrawal during the
Accumulation Period and may be subject to a CDSC. See, "Deductions and Charges"
and "Federal Income Tax Considerations."
Under Qualified Plans, any annuity selected must be payable over a period
that does not extend beyond the life expectancy of the Participant and the
Participant's designated Beneficiary. If the Beneficiary is someone other than
the Participant's spouse, the present value of payments to be made to the
Participant must be more than 50% of the present value of the total payments to
be made to the Participant and the Beneficiary.
In the event that an Annuitant dies before the end of a designated Annuity
period, the Beneficiary, if any, or the Annuitant's estate will receive any
remaining payments due under the annuity option in effect.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion assumes that the Contracts will qualify as annuity
Contracts for Federal income tax purposes. The description of the Federal
income tax status of amounts received under the Contracts is not exhaustive and
is not intended to cover all situations. Contractholders and Participants
should seek advice from their tax advisers on a regular basis as to the
application of Federal (and, where applicable, state and local) tax laws to
amounts received by them or their Beneficiaries under the Contracts. All dollar
amounts and percentages stated below are subject to change according to Federal
law. With respect to the transfer of Contracts from UNUM/America to Lincoln
Life or Lincoln-NY, there will be no adverse tax consequences to
Contractholders or participants as a result of the transfer. For additional
Federal Income Tax Considerations, please refer to the Statement of Additional
Information.
NON-QUALIFIED PLANS
Under a Non-Qualified Plan, an individual may make Contributions to the
Contract which are neither tax-deductible or tax deferred. The earnings on the
Contributions accumulate on a tax-deferred basis until withdrawn. Non-Qualified
Plans investing in annuity Contracts are subject to the Federal taxation rules
of Section 72 of the Code.
The Code does not limit the Participant's contributions to a Section 72 plan.
There are no Code restrictions on withdrawals or minimum age when the
Participant must begin withdrawals.
Section 401(a) Plans. Section 401(a) of the Code provides special tax
treatment for pension, profit sharing and stock bonus Plans established by
employers for their employees. Contributions to a Section 401(a) Plan and any
earnings attributable to such Contributions are currently excluded from the
Participant's income. Section 401(a) Plans are subject to, among other things,
limitations on: maximum contributions, minimum coverage and participation,
minimum funding, minimum vesting
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requirements and distribution requirements. The specific limitations are
outlined in the plan document adopted by the employer.
A Participant who makes a withdrawal from a Section 401(a) program must
include that amount in current income. In addition, Section 401(k)(2) of the
Code requires that salary reduction Contributions made and/or earnings credited
on any salary reduction Contributions may not be withdrawn from the
Participant's Section 401(k) program prior to the Participant having (1)
attained age 59 1/2, (2) separated from service, (3) become disabled, (4) died
or (5) incurred a hardship. Hardship withdrawals may not include any income
credited after December 31, 1988 that is attributable to any salary reduction
Contributions. In addition, Section 402 of the Code permits tax-free rollovers
from Section 401(a) programs to individual retirement annuities or certain
other Section 401(a) programs under certain circumstances.
Section 403(b) Plans. A Participant who is an employee of a hospital or other
tax-exempt organization described in Section 501(c)(3) or 501(e) of the Code
may exclude from current earnings amounts contributed to a Section 403(b)
program. Under the terms of a Section 403(b) program, an Employer may make
Contributions directly to the program on behalf of the Participant, the
Participant may enter into a salary reduction agreement with the Participant's
Employer authorizing the Employer to contribute a percentage of the
Participant's salary to the program and/or the Participant may authorize the
Employer to make after tax Contributions to the program. Currently, the Code
permits employees to defer up to $9,500 of their income through salary
agreements. All Contributions made to the Section 403(b) program are subject to
the limitations described in Code Sections 402(g) regarding elective deferral
amounts, 403(b)(2) regarding the maximum exclusion allowance, and 415(a)(2) and
415(c) regarding the limitations on annual additions.
A Participant who makes a withdrawal from their Section 403(b) program must
include that amount in current income. In addition, Section 403(b)(11) of the
Code requires that salary reduction Contributions made and/or earnings credited
on any salary reduction Contributions after December 31, 1988 may not be
withdrawn from the Participant's Section 403(b) program prior to the
Participant having (1) attained age 59 1/2, (2) separated from service, (3)
become disabled, (4) died or (5) incurred a hardship. Hardship withdrawals may
not include any income credited after December 31, 1988 that is attributable to
any salary reduction Contributions. The Internal Revenue Service has ruled
(Revenue Ruling 90-24) that amounts may be transferred between Section 403(b)
investment vehicles as long as the transferred funds retain withdrawal
restrictions at least as restrictive as that of the transferring investment
vehicle. Such transferred amounts are considered withdrawals under the Contract
and will be subject to a CDSC, if applicable. See "Deductions and Charges--
Contingent Deferred Sales Charges." In addition, Section 403(b)(8) of the Code
permits tax-free rollovers from Section 403(b) programs to individual
retirement annuities or other Section 403(b) programs under certain
circumstances. Qualified distributions eligible for rollover treatment may be
subject to a 20% federal tax withholding depending on whether or not the
distribution is paid directly to an eligible retirement plan.
Section 408 Plans (IRAS). Under current law, individuals may contribute and
deduct the lesser of $2,000 or 100% of their compensation to an IRA. The $2,000
is increased to $4,000 when the IRA covers the taxpayer and a non-working
spouse. The deduction for Contributions is phased out for individuals who are
considered active participants under qualified Plans and whose Adjusted Gross
Income attains a certain level. For a single person the $2,000 deduction is
available when the taxpayers Adjusted Gross Income is $25,000 or less. For each
$50 that the taxpayer's Adjusted Gross Income rises above $25,000, the
taxpayer's deductible IRA is reduced by $10. When the single taxpayer's
Adjusted Gross Income is $35,000 or greater, a tax deduction for an IRA is no
longer available. For a married couple filing jointly, the threshold level is
$40,000 rather than $25,000. For a married person filing separately, the
threshold is $0.
In addition, certain amounts distributed from Section 401(a) and 403(b) Plans
may be rolled over to an IRA on a tax-free basis if done in a timely manner
(within 60 days of the Participant's receipt of
29
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the distribution). The limitations on contributions discussed above do not
apply to amounts rolled over to an IRA.
All Participants in an IRA receive an IRA Disclosure. This document explains
the tax rules that apply to IRAs in greater detail.
Eligible Section 457 Plans. Eligible Section 457 Plans may be established by
state and local governments as well as private tax-exempt organizations (other
than churches). Participants may contribute on a before tax basis to a deferred
compensation Plan of their employer in accordance with the employer's Plan and
Section 457 of the Code. Section 457 places limitations on the amount of
Contributions to these Plans. Generally, the limitation is one-third of
includable compensation or $7,500 whichever is less. In the Participant's final
year of employment the $7,500 limit is increased to $15,000.
Participants in an Eligible 457 Plan may not receive a withdrawal or other
distribution from their Plan except in the event of separation of service from
the employer, attainment of age 70 1/2, or when faced with an unforeseen
emergency. The Contractholder's Plan may further restrict the Participant's
rights to a withdrawal.
An employee electing to participate in an Eligible Section 457 Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any Contract issued with
respect to the Plan and that the Employer retains all rights under the Contract
issued with respect to the Plan. Participants under Eligible Section 457 Plans
should look to the terms of their Plan for any charges in regard to
participation other than those disclosed in this Prospectus.
Section 457(f) Plans. Section 457(f) Plans may be established by state and
local governments as well as private tax-exempt organizations. Employers and
Participants may contribute on a before-tax basis to a deferred compensation
Plan of their employer in accordance with the employer's Plan. Section 457(f)
does not place limitations on the amount of Contributions to these Plans;
however, the Internal Revenue Service may review these plans to determine if
the deferral amount is acceptable to the IRS based on the nature of the 457(f)
Plan.
Participants in 457(f) Plans may not receive a withdrawal or other
distribution from their 457(f) Plans until a distributable event occurs. The
Plan will define such events.
An employee electing to participate in a Section 457(f) Plan should
understand that their rights and benefits are governed strictly by the terms of
the Plan, that they are in fact a general creditor of the Employer under the
terms of the Plan, that the Employer is legal owner of any Contract issued with
respect to the Plan and that the Employer retains all rights under the Contract
issued with respect to the Plan. Participants under Section 457(f) Plans should
look to the terms of their Plan for any charges in regard to participating
other than those disclosed in this Prospectus.
Taxation of Annuities: General. In Qualified Plans such as 401(a), 403(b),
408 and Eligible 457 Plans, the Participant is not taxed on the value in their
accounts until they receive payments from the account. In some situations,
default or forgiveness of a loan will result in taxable income. Distributions
from all these Plans are taxed under the rules of Sections 72 and 402 of the
Code.
Taxation Prior to the Annuity Commencement Date. Section 72 of the Code
provides that a total or partial withdrawal prior to the Annuity Commencement
Date will be taxable to the extent the amount of the income in the
Participant's account exceeds the Participant's investment in the Participant's
account. In general, distributions from a Participant's account under Sections
401(a), 403(b) and 408 Plans under which the Participant made after-tax
contributions will be taxable according to a formula based on the ratio of the
Participant's investment in the Contract to the total
30
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value of the Participant's Account balance as of the date of the distribution.
Under an Eligible 457 Plan the Participant is taxed on the value when it is
made available to the Participant. In a 457(f) Plan the Participant is taxed
when their right to a distribution is no longer subject to a substantial risk
of forfeiture.
Penalty Tax for Premature Distributions. Sections 72(q) and 72(t) impose a
10% excise tax on certain premature distributions for non-qualified and Section
401(a), 403(b) and 408 Plans. The penalty tax will not apply to distributions
made on account of the Participant having (i) attained age 59 1/2; (ii) become
disabled; or (iii) died. The penalty tax will also not apply under 401(a) and
403(b) retirement plans where a Participant separates from service after age
55. In addition, the penalty does not apply if the distribution is received as
a series of substantially equal periodic payments made for the life (or life
expectancy) of the Participant or the joint lives (or life expectancies) of the
Participant and a designated Beneficiary. The 10% excise tax is an additional
tax; it does not apply to any money that the Participant receives as a return
of their cost basis. The 10% excise tax does not apply to Section 457 Plans.
Minimum Distributions. Participants in Plans subject to Code Sections 401(a),
403(b), 408 and Eligible 457 Plans are subject to Minimum Distribution Rules.
For a Participant who attains age 70 1/2 after December 31, 1987, distributions
must begin by April 1 of the calendar year following the calendar year in which
the Participant attains age 70 1/2. For a Participant who attains age 70 1/2
before January 1, 1988, distributions must begin on the April 1 of the calendar
year following the later of (1) the calendar year in which the Participant
attains age 70 1/2 or (2) the calendar year in which the Participant retires.
VOTING RIGHTS
UNUM/America is the legal owner of the shares of the Funds held by the
Variable Investment Division. As such, UNUM/America is entitled to vote those
Fund shares with respect to issues such as the election of a Fund's directors,
ratification of a Fund's choice of independent auditors and other matters
required by the 1940 Act to be voted on by shareholders.
In those years in which the Funds hold a shareholder meeting, UNUM/America
will solicit from Contractholders voting instructions with respect to Fund
shares held by the Variable Investment Division. Each Contractholder will
receive a number of votes in proportion to the Contractholder's investment in
the corresponding Sub-Account as of the record date established by the Fund.
During the Accumulation Period, a Participant has the right to instruct
Contractholders as to the votes attributable to their Participant Account
balance in the Sub-Accounts. Annuitants have similar rights with respect to the
annuity amount attributable to the Sub-Accounts.
UNUM/America will furnish Contractholders with sufficient Fund proxy material
and voting instruction forms for all Participants who have voting rights under
the Contract. UNUM/America will vote those Fund shares attributable to the
Contract for which UNUM/America receives no voting instructions in the same
proportion as UNUM/America will vote shares for which UNUM/America has received
instructions. UNUM/America will vote shares attributable to amounts
UNUM/America may have in the Variable Investment Division in the same
proportion as votes that UNUM/America receives from Contractholders. If the
federal securities laws or regulations or any interpretation of them changes so
that UNUM/America is permitted to vote shares of the Fund in UNUM/America's own
right or to restrict Participant voting, UNUM/America may do so.
Fund shares may be held by separate accounts of insurance companies
unaffiliated with UNUM/America. Fund shares held by those separate accounts
will be voted, in most cases, according to the instruction of owners of
insurance policies and Contracts issued by those other
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unaffiliated insurance companies. This will dilute the effect of the voting
instructions of the Contractholders in the Variable Investment Division.
UNUM/America does not foresee any disadvantage to this. Pursuant to conditions
imposed in connection with regulatory relief, the Fund's Board of Directors has
an obligation to monitor events to identify conflicts that may arise and to
determine what action, if any, should be taken. For further information, see
the prospectuses for the Funds.
OTHER CONTRACT PROVISIONS
RIGHTS RESERVED BY UNUM/AMERICA
UNUM/America reserves the right, subject to compliance with applicable law,
including approval by the Contractholder or the Participants if required by
law, (1) to create additional Sub-Accounts in the Variable Investment Division,
(2) to combine or eliminate Sub-Accounts in the Variable Investment Division,
(3) to transfer assets from one Sub-Account in the Variable Investment Division
to another, (4) to transfer assets to the General Account and other separate
accounts, (5) to cause the deregistration and subsequent re-registration of the
Variable Investment Division under the Investment Company Act of 1940, (6) to
operate the Variable Investment Division under a committee and to discharge
such committee at any time, and (7) to eliminate any voting rights which the
Contractholder or the Participants may have with respect to the Variable
Investment Division, (8) to amend the Contract to meet the requirements of the
Investment Company Act of 1940 or other federal securities laws and
regulations, (9) to operate the Variable Investment Division in any form
permitted by law, (10) to substitute shares of another fund for the shares held
by a Sub-Account, and (11) to make any change required by the Internal Revenue
Code, ERISA or the Securities Act of 1933. Participants will be notified if any
changes are made that result in a material change in the underlying investments
of the Variable Investment Division.
ASSIGNABILITY
The Contracts are not assignable without UNUM/America's prior written
consent. In addition, a Participant, a Beneficiary or an Annuitant may not,
unless permitted by law, assign or encumber any payment due under the Contract.
MARKET EMERGENCIES
While UNUM/America may not suspend the right of redemption or delay payment
from the Variable Investment Division for more than the time period allowed
under Federal law but in no case longer than seven days, the following events
may delay payment for more than seven days: (1) any period when the New York
Stock Exchange is closed (other than customary weekend and holiday closings);
(2) any period when trading in the markets normally utilized is restricted, or
an emergency exists as determined by the Securities and Exchange Commission, so
that disposal of investments or determination of the Accumulation Unit Value or
Variable Annuity payment value is not reasonably practicable; or (3) for such
other periods as the Securities and Exchange Commission by order may permit for
the protection of the Participants.
CONTRACT DEACTIVATION
Under certain Contracts, UNUM/America may deactivate a Contract by
prohibiting new contributions and/or new Participants after the date of
deactivation. UNUM/America will give the Contractholder and the Participants
not less than 90 days notice of the date of deactivation.
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FREE-LOOK PERIOD
Participants under Sections 403(b), 408 and certain Non-Qualified Plans will
receive an Active Life Certificate upon UNUM/America's receipt of a duly
completed participation enrollment form. If the Participant chooses not to
participate under the Contract, the Participant may exercise the free-look
right by sending a written notice to UNUM/America that the Participant does not
wish to participate under the Contract, within 10 days after the date the
Active Life Certificate is received by the Participant. For purposes of
determining the date on which the Participant has sent written notice, the
postmark date will be used.
If a Participant exercises the free-look right in accordance with the
foregoing procedure, UNUM/America will refund in full the Participant's
aggregate Contributions less aggregate withdrawals made on behalf of the
Participant or, if greater, with respect to Contributions to the Variable
Investment Division, the Participant's Account balance in the Variable
Investment Division on the date the Participant's written notice is received by
UNUM/America.
GUARANTEED INTEREST DIVISION
GENERAL
Contributions to the Guaranteed Interest Division become part of
UNUM/America's General Account. The General Account is subject to regulation
and supervision by the Maine Insurance Department as well as the insurance laws
and regulations of the jurisdictions in which the Contracts are distributed. In
reliance on certain exemptions, exclusions and rules, UNUM/America has not
registered the interests in the General Account as a security under the
Securities Act of 1933 and has not registered the General Account as an
investment company under the 1940 Act.
Accordingly, neither the General Account nor any interests therein are
subject to regulation under the 1933 Act or the 1940 Act. UNUM/America has been
advised that the staff of the SEC has not made a review of the disclosures
which are included in this prospectus which relate to the General Account and
the Guaranteed Interest Division. These disclosures, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. This
prospectus is generally intended to serve as a disclosure document only for
aspects of the Contract involving the Variable Investment Division and contains
only selected information regarding the Guaranteed Interest Division. Complete
details regarding the Guaranteed Interest Division are in the Contract.
Amounts contributed to the Guaranteed Interest Division are guaranteed a
minimum interest rate according to contract minimums of at least 3.0%.
UNUM/America will also declare in advance a guaranteed interest rate which will
be effective for all amounts in the Participant's Account balance in the
Guaranteed Interest Division during the designated year. This rate will never
be less than the minimum rate of interest. UNUM/America may also declare in
advance separate interest rate guarantees which are in excess of the guaranteed
interest rate for some or all of the Participant's Account balance in the
Guaranteed Interest Division for specific period(s) during the designated year.
A Participant who makes a Contribution to the Guaranteed Interest Division is
credited with interest beginning on the next calendar day following the date of
receipt if all Participant data is complete.
PARTICIPANT'S ACCOUNT BALANCE IN THE GUARANTEED INTEREST DIVISION
The Participant's Account balance in the Guaranteed Interest Division on any
Valuation Date will reflect the amount and frequency of any Contributions
allocated to the Guaranteed Interest Division, plus any transfers from the
Variable Investment Division and interest credited to the Guaranteed Interest
Division, less any withdrawals, CDSC, Annual Administration Charges and loan-
related charges allocated to the Guaranteed Interest Division and any transfers
to the Variable Investment Division.
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TRANSFERS, TOTAL AND PARTIAL WITHDRAWALS
Amounts in the Guaranteed Interest Division are generally subject to the same
rights and limitations and will be subject to the same charges as are amounts
allocated to the Variable Investment Division with respect to Total or Partial
Withdrawals. See "Deferral Periods."
LOANS
During a Participant's Accumulation Period, a Participant, whose Plan permits
loans, may apply for a loan under the Contract by completing a loan application
available from UNUM/America. Loans are secured by the Participant's Account
balance in the Guaranteed Interest Division. The amounts and terms of a
Participant loan may be subject to the restrictions imposed under Section 72(p)
of the Code, Title I of ERISA, and any applicable Plans. With respect to Plans
subject to Title I of ERISA, the initial amount of a Participant loan may not
exceed the lesser of 50% of the Participant's vested Account balance in the
Guaranteed Interest Division or $50,000 and must be at least $1,000. A
Participant in a Plan that is not subject to ERISA may borrow up to $10,000 of
their vested Account balance without regard to the 50% limitation stated above.
A Participant may have only one loan outstanding at any time and may not
establish more than one loan in any six month period. Amounts serving as
collateral for the loan are not subject to the minimum interest rate under the
Contract and will accrue interest at a rate which is below the loan interest
rate as provided in the Contract. Under certain Contracts, a one-time fee of up
to $50 may be charged to set up a loan. More information about loans, including
interest rates and applicable fees and charges, is available in the Contracts,
Active Life Certificates, and the Annuity Loan Agreement as well as from
UNUM/America.
DEFERRAL PERIODS
If a payment is to be made from the Guaranteed Interest Division,
UNUM/America may defer the payment for the period permitted by the law of the
jurisdiction in which the Contract is distributed, but in no event, for more
than 6 months after a written election is received by UNUM/America. During the
period of deferral, interest at the then current interest rate will continue to
be credited to a Participant's Account in the Guaranteed Interest Division.
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TABLE OF CONTENTS FOR
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS................................................................ 2
DETERMINATION OF ACCUMULATION UNIT VALUES.................................. 2
DETERMINATION OF VARIABLE ANNUITY PAYMENTS................................. 3
PERFORMANCE CALCULATIONS................................................... 4
TAX LAW CONSIDERATIONS..................................................... 9
DISTRIBUTION OF CONTRACTS.................................................. 12
CUSTODIAN.................................................................. 12
INDEPENDENT AUDITORS/ACCOUNTANTS........................................... 12
FINANCIAL STATEMENTS....................................................... 12
Financial Statements of UNUM/America......................................
Financial Statements of Variable Investment Division......................
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
GROUP ANNUITY CONTRACTS
FUNDED THROUGH THE INVESTMENT DIVISIONS OF
VA-I SEPARATE ACCOUNT
OF
UNUM LIFE INSURANCE COMPANY OF AMERICA
VARIABLE ANNUITY I
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................................ 2
Determination of Accumulation Unit Values.................................. 2
Determination of Variable Annuity Payments................................. 3
Performance Calculations................................................... 4
Tax Law Considerations..................................................... 9
Distribution of Contracts.................................................. 12
Custodian.................................................................. 12
Independent Accountants.................................................... 12
Financial Statements....................................................... 12
</TABLE>
Financial Statements of UNUM/America
Financial Statements of Variable Investment Division
This Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the prospectus for the Group Annuity Contracts (the
"Contracts"), dated May 1, 1997.
A copy of the prospectus to which this SAI relates is available at no charge by
writing to P.O. Box 9740, Portland, Maine 04104 Attention: Tax Deferred
Annuities; or by calling (800) 341-0441.
-1-
<PAGE>
DEFINITIONS
ANNUITANT: The person receiving annuity payments under the terms of this
Contract.
ANNUITY COMMENCEMENT DATE: The date on which UNUM/America makes the first
annuity payment to the Annuitant as required by the Retired Life Certificate.
This date, as well as the date each subsequent annuity payment is made, will be
the first day of a calendar month.
ANNUITY CONVERSION AMOUNT: The amount applied toward the purchase of an
Annuity.
ANNUITY CONVERSION FACTOR: The factor applied to the Annuity Conversion Amount
in determining the dollar amount of an Annuitant's annuity payments for
Guaranteed Annuities or the initial payment for Variable Annuities.
ANNUITY PAYMENT CALCULATION DATE: For Guaranteed Annuities, this is the first
day of a calendar month. For Variable Annuities, this is the Valuation Date ten
(10) business days prior to the first day of a calendar month.
ANNUITY PERIOD: The period concurrent with or following the Accumulation
Period, during which an Annuitant's annuity payments are made.
ANNUITY UNIT: An accounting unit of measure that is used in calculating the
amounts of annuity payments to be made from a Sub-Account during the Annuity
Period.
ANNUITY UNIT VALUE: The dollar value of an Annuity Unit in a Sub-Account on any
Valuation Date.
CODE: The Internal Revenue Code of 1986, as amended.
PAYOUT ANNUITY: A series of payments paid out under the terms of the Contract
as either a Guaranteed Annuity or as a Variable Annuity.
PLAN: The retirement program offered by an Employer to its employees to
accumulate funds for retirement.
VARIABLE ANNUITY: An annuity with payments that increase or decrease in
accordance with the investment results of the selected Sub-Accounts.
DETERMINATION OF ACCUMULATION UNIT VALUES
As described more fully in the prospectus, Contributions are allocated to the
Divisions in accordance with directions from the Employer. A Participant who
makes Contributions which are allocated to the Variable Investment Division is
credited with Accumulation Units. The following examples illustrate the method
by which UNUM/America determines the Net Investment Factor (NIF) for the current
Valuation Period and the Accumulation Unit Value as of the end of the current
Valuation Period.
Determination of NIF:
- --------------------
(a) Assumed Fund net asset value as of the close of the New York Stock Exchange
on June 1 = 10.45
(b) Assumed Fund net asset value as of the close of the New York Stock Exchange
on June 2 = 10.56 (no capital gains or dividend distributions or deductions
for taxes)
(c) The NIF for the current Valuation Period = (b) divided by (a) times (1-
annual M & E) to the 1/365th power
-2-
<PAGE>
(d) 1.010526 x .999966 = 1.0104916
Determination of Accumulation Unit Value:
- ----------------------------------------
The Accumulation Unit Value as of the end of the current Valuation Period is
determined by multiplying the NIF for the current Valuation Period by the
Accumulation Unit Value as of the end of the immediately preceding Valuation
Period.
(a) Assumed Accumulation Unit Value as of the end of the immediately preceding
Valuation Period = 11.125674.
(b) Accumulation Unit Value as of the end of the current Valuation Period =
11.125674 x 1.0104916 (NIF) = 11.2424.
The number of Accumulation Units which are credited to the Participant's Account
for each Sub-Account on each Valuation Date equals the amount of Contributions
allocated to the Sub-Account on each Valuation Date divided by the Accumulation
Unit Value rounded to four decimal places. For example,
(a) Participant's assumed Contribution allocated to a Sub-Account on June 2 =
$150.
(b) Number of Accumulation Units credited to Participant = $150 divided by
11.2424 = 13.3423.
DETERMINATION OF VARIABLE ANNUITY PAYMENTS
As stated in the prospectus, the amount of each Variable Annuity payment will
vary depending on the investment experience of the selected Sub-Accounts.
The initial payment amount of the Annuitant's Variable Annuity for each Sub-
Account is determined by dividing his Annuity Conversion Amount in each Sub-
Account as of the initial Annuity Payment Calculation Date by the Applicable
Annuity Conversion Factor as defined as follows:
The Annuity Conversion Factors which are used to determine the initial payments
are based on the 1983 Individual Annuity Mortality Table, set back four (4)
years, and an interest rate in an integral percentage ranging from zero to six
percent (0 to 6.00%) as selected by the Annuitant.
The amount of the Annuitant's subsequent Variable Annuity payment for each Sub-
Account is determined by:
(a) Dividing the Annuitant's initial Variable Annuity payment amount by the
Annuity Unit Value for that Sub-Account selected for his interest rate
option as described above as of his initial annuity Payment Calculation
Date; and
(b) Multiplying the resultant number of annuity units by the Annuity Unit
Values for the Sub-Account selected for his interest rate option for his
respective subsequent Annuity Payment Calculation Dates.
The Annuity Unit Value for all Sub-Accounts for all interest rate options will
initially be set at ten dollars ($10). Each subsequent Annuity Unit Value for a
Sub-Account for an interest rate option is determined by:
Dividing the Accumulation Unit Value for the Sub-Account as of subsequent
Annuity Payment Calculation Date (APCD) by the Accumulation Unit Value for
the Sub-Account as of the immediately preceding APCD;
Dividing the resultant factor by one (1.00) plus the interest rate option
to the n/365 power where n is the number of days from the immediately
preceding APCD to the subsequent APCD; and
-3-
<PAGE>
Multiplying this factor times the Annuity Unit Value as of the immediately
preceding APCD.
Illustration of Calculation of Annuity Unit Value
<TABLE>
<CAPTION>
<S> <C> <C>
1. Annuity Unit Value as of immediately preceding
Annuity Payment Calculation Date $11.0000
2. Accumulation Unit Value as of Annuity Payment
Calculation Date $20.0000
3. Accumulation Unit Value as of immediately preceding
Annuity Payment Calculation Date $19.0000
4 Interest Rate 6.00%
5. Interest Rate Factor (30 days) 1.0048
6. Annuity Unit Value as of Annuity Payment Calculation
Date = 1 times 2 divided by 3 divided by 5 $11.5236
</TABLE>
Illustration of Annuity Payments
<TABLE>
<CAPTION>
<S> <C> <C>
1. Annuity Conversion Amount as of Participant's
initial Annuity Payment Calculation Date $100,000.00
2. Assumed Annuity Conversion Factor per $1 of
Monthly Income for an individual age 65
selecting a Single Life Annuity with Assumed
Interest Rate of 6% $ 138.63
3. Participant's initial Annuity Payment
1 divided by 2 $ 721.34
4. Assumed Annuity Unit Value as of Participant's
initial Annuity Payment Calculation Date $ 11.5236
5. Number of Annuity Units = 3 divided by 4 62.5968
6. Assumed Annuity Unit Value as of Participant's
second Annuity Payment Calculation Date $ 11.9000
7. Participant's second Annuity Payment = 5 times 6 $ 744.90
</TABLE>
PERFORMANCE CALCULATIONS
STANDARD TOTAL RETURN CALCULATION
The Variable Investment Division may advertise average annual total return
information calculated according to a formula prescribed by the Securities and
Exchange Commission ("SEC"). Average annual total return shows the average
annual percentage increase, or decrease, in the value of a hypothetical
Contribution allocated to a Sub-Account from the beginning to the end of each
specified period of time. The SEC standardized version of this performance
information is based on an assumed Contribution of $1,000 allocated to a Sub-
Account at the beginning of each period and surrender or withdrawal of the value
of that amount at the end of each specified period, giving effect to any CDSC
and all other charges and fees applicable under the Contract. The effect of the
Annual Administration Charge for a period is determined by dividing the total
amount of such charges collected in the previous year by the total average net
assets of the accounts for the previous year, as of the previous month ended;
accounts include accounts available under Variable Annuity I of UNUM/America and
under corresponding accounts of Lincoln Life, pending assumption reinsurance by
Lincoln Life of Variable Annuity I contracts issued through such UNUM/America
accounts. This method of calculating performance further assumes that (i) a
$1,000 Contribution was allocated to a Sub-Account and (ii) no transfers or
additional payments were made. Premium taxes are not included in the terms
"charges" for purposes of this calculation. Average annual total return is
calculated by finding the average annual compounded rates of return of a
hypothetical Contribution that would compare the Accumulation Unit value on the
first day of the specified period to the ending redeemable value at the end of
the period according to the following formula:
T = (ERV/C) 1/n - 1
-4-
<PAGE>
Where T equals average annual total return, where ERV (the ending redeemable
value) is the value at the end of the applicable period of a hypothetical
Contribution of $1,000 made at the beginning of the applicable period, where C
equals a hypothetical Contribution of $1,000, and where n equals the number of
years.
NON-STANDARDIZED CALCULATION OF TOTAL RETURN PERFORMANCE
In addition to the standardized average annual total return information
described above, we may present total return information computed on bases
different from that standardized method. The Variable Investment Division may
present total return information computed on the same basis as the standardized
method except that charges deducted from the hypothetical Contribution will not
include any CDSC. Consistent with the long-term investment and retirement
objectives of the Contract, this total return presentation assumes either (i)
investment in the Contract continues beyond the Accumulation Period and/or
(ii) one or more of the conditions for Total or Partial Withdrawal without
incurring a CDSC are met. The Variable Investment Division may also present
total return information computed on the same basis as the standardized method
except that charges deducted from the hypothetical Contribution will not include
either the CDSC or the Annual Administration Charge. The total return percentage
under both of these non-standardized methods will be higher than that resulting
from the standardized method.
The Sub-Accounts also may present total return information calculated by
subtracting a Sub-Account's Accumulation Unit Value at the beginning of a period
from the Accumulation Unit Value of that Sub-Account at the end of the period
and dividing that difference (in that Sub-Account's Accumulation Unit Value) by
the Accumulation Unit Value of that Sub-Account at the beginning of the period.
This computation results in a total growth rate for the specified period which
we annualize in order to obtain the average annual percentage change in the
Accumulation Unit Value for the period used. This method of calculating
performance does not take into account CDSC, the Contract Annual Administration
Charge and premium taxes, and assumes no transfers. Such percentages would be
lower if these charges were included in the calculation.
In addition, the Variable Investment Division may present actual aggregate total
return figures for various periods, reflecting the cumulative change in value of
an investment in the Variable Investment Division for the specified period.
PERFORMANCE INFORMATION
The tables below provide performance information for each Sub-Account for
specified periods ending December 31, 1996. The performance information is
based on historical performance of the underlying Funds adjusted for charges
applicable to the Variable Annuity I Separate Account. This information does
not indicate or represent future performance.
TOTAL RETURN
Total returns quoted in sales literature or advertisements reflect all aspects
of a Sub-Account's return. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in the
Sub-Account over a stated period of time, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline had been constant over the period. Contractholders and
participants should recognize that average annual returns represent averaged
returns rather than actual year-to-year performance.
VA-I Sub-Accounts have inception dates as follows: Index Account - 12/12/89;
Balanced Account, Asset Manager Account, Growth I Account and Growth II Account
- - 5/1/91; and Equity-Income Account, Socially Responsible Account, International
Stock Account, and Small Cap Account - 5/2/94. However, the respective
underlying funds in which the Sub-Accounts invest had performance history prior
to the Sub-Accounts' inception. Performance information covering those periods
reflects a hypothetical return as if the funds were part of the VA-I Separate
Account at that time, using the charges applicable to the Contracts.
-5-
<PAGE>
Table 1A below assumes a hypothetical investment of $1,000 at the beginning of
the period via the Sub-Account investing in the applicable fund and withdrawal
of the investment on 12/31/96. The rates thus reflect the mortality and expense
risk charge, the withdrawal charge and a pro rata portion of the Annual
Administration Charge. Table 1B shows the cumulative total return on the same
basis.
TABLE 1A -- STANDARD AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
LIFE
1 YEAR 3 YEARS 5 YEARS 10 YEARS OF ACCT
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP Fund II: Asset Manager 09/06/89 7.52 4.82 8.75 N/A 9.77
(Asset Manager)
Calvert Responsibly Invested Balanced Portfolio 09/02/86 5.66 8.98 7.96 9.71 8.98
(Socially Responsible)
American Century VP Balanced 05/01/91 5.25 7.76 4.30 N/A 7.86
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 7.22 14.79 15.32 12.31 11.99
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 14.96 15.66 12.01 N/A 11.71
(Index)
Fidelity VIP Fund Growth 10/09/86 7.61 12.42 12.57 13.70 13.36
(Growth I)
American Century VP Capital Appreciation 11/20/87 -10.34 4.25 3.76 N/A 9.25
(Growth II)
T. Rowe Price International Stock 03/31/94 7.61 N/A N/A N/A 6.56
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 9.38 14.15 33.13 N/A 46.00
(Small Cap)
</TABLE>
TABLE 1B -- CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
LIFE
YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF ACCT
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP Fund II: Asset Manager 09/06/89 0.43 7.52 7.52 15.18 52.11 N/A 97.90
(Asset Manager)
Calvert Responsibly Invested
Balanced Portfolio 09/02/86 -1.90 5.66 5.66 29.42 46.67 152.58 143.30
(Socially Responsible)
American Century VP Balanced 05/01/91 -1.81 5.25 5.25 25.11 23.41 N/A 53.58
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 0.97 7.22 7.22 51.27 103.95 219.14 218.56
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 2.47 14.96 14.96 54.73 76.33 N/A 123.20
(Index)
Fidelity VIP Fund Growth 10/09/86 -3.37 7.61 7.61 42.06 80.77 261.19 260.90
(Growth I)
American Century VP Capital 11/20/87 -13.75 -10.34 -10.34 13.31 20.25 N/A 124.16
Appreciation (Growth II)
T. Rowe Price International Stock 03/31/94 -0.89 7.61 7.61 N/A N/A N/A 19.15
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 -2.95 9.38 9.38 48.74 318.20 N/A 1001.53
(Small Cap)
</TABLE>
-6-
<PAGE>
Table 2A below shows annual average total return on the same assumptions as
Table 1A except that the value in the Sub-Account is not withdrawn at the end
of the period or is withdrawn to affect an annuity. Table 2B shows the
cumulative total return on the same basis. The rates of return shown below
reflect the mortality and expense risk charge and a pro rata portion of the
Annual Administration Charge.
TABLE 2A -- AVERAGE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
LIFE
1 YEAR 3 YEARS 5 YEARS 10 YEARS OF ACCT
INCEPTION ENDING ENDING ENDING ENDING ENDING
DATE 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP Fund II: Asset Manager 09/06/89 13.18 6.63 9.87 N/A 10.23
(Asset Manager)
Calvert Responsibly Invested 09/02/86 11.22 10.86 9.07 9.71 8.98
Balanced Portfolio
(Socially Responsible)
American Century VP Balanced 05/01/91 10.79 9.61 5.37 N/A 8.84
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 12.86 16.77 16.51 12.31 11.99
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 21.01 17.66 13.17 N/A 12.18
(Index)
Fidelity VIP Fund Growth 10/09/86 13.28 14.35 13.73 13.70 13.36
(Growth I)
American Century VP Capital Appreciation 11/20/87 -5.62 6.05 4.83 N/A 9.37
(Growth II)
T. Rowe Price International Stock 03/31/94 13.27 N/A N/A N/A 8.56
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 15.14 16.12 34.50 N/A 46.95
(Small Cap)
</TABLE>
TABLE 2B -- CUMULATIVE TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
LIFE
YEAR TO 1 YEAR 3 YEARS 5 YEARS 10 YEARS OF ACCT
INCEPTION QUARTER DATE ENDING ENDING ENDING ENDING ENDING
DATE 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity VIP Fund II: Asset Manager 09/06/89 5.72 13.18 13.18 21.24 60.12 N/A 104.02
(Asset Manager)
Calvert Responsibly Invested 09/02/86 3.27 11.22 11.22 36.23 54.39 152.58 143.30
Balanced Portfolio
(Socially Responsible)
American Century VP Balanced 05/01/91 3.36 10.79 10.79 31.70 29.91 N/A 61.67
(Balanced)
Fidelity VIP Fund Equity-Income 10/09/86 6.28 12.86 12.86 59.23 114.69 219.14 218.56
(Equity-Income)
Dreyfus Stock Index Fund 09/29/89 7.86 21.01 21.01 62.87 85.61 N/A 130.10
(Index)
Fidelity VIP Fund Growth 10/09/86 1.72 13.28 13.28 49.54 90.28 261.19 260.90
(Growth I)
American Century VP Capital 11/20/87 -9.21 -5.62 -5.62 19.27 26.58 N/A 126.43
Appreciation (Growth II)
T. Rowe Price International Stock 03/31/94 4.32 13.27 13.27 N/A N/A N/A 25.42
Portfolio (International Stock)
Dreyfus Small Cap 08/31/90 2.16 15.14 15.14 56.57 340.21 N/A 1047.43
(Small Cap)
</TABLE>
-7-
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
Financial Statement Index
<TABLE>
<CAPTION>
Company Financial Statements Page
- ---------------------------- ----
<S> <C>
Report of Independent Accountants F-1
Statements of Income for the Years Ended
December 31, 1996, 1995, and 1994 F-2
Balance Sheets as of December 31, 1996 and 1995 F-3 to F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994 F-5
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 F-6 to F-7
Notes to Financial Statements F-8 to F-35
Separate Account Financial Statements Attached
</TABLE>
<PAGE>
UNUM Life Insurance Company of America
<TABLE>
<CAPTION>
S T A T E M E N T S O F I N C O M E
Year Ended December 31,
----------------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Premiums $2,293.3 $2,208.8 $1,943.0
Investment income 638.5 657.5 641.1
Net realized investment gains 5.9 184.7 39.5
Fees and other income 90.4 33.4 29.4
- ------------------------------------------------------------------------------
Total revenues 3,028.1 3,084.4 2,653.0
Benefits and expenses
Benefits to policyholders 1,803.9 1,931.1 1,712.8
Interest credited 189.8 217.9 235.9
Operating expenses 597.4 483.9 477.7
Commissions 229.2 230.9 230.8
Increase in deferred policy acquisition
costs (63.6) (78.4) (123.3)
Interest expense 0.6 5.5 --
- ------------------------------------------------------------------------------
Total benefits and expenses 2,757.3 2,790.9 2,533.9
- ------------------------------------------------------------------------------
Income before income taxes 270.8 293.5 119.1
Income taxes
Current 92.1 65.8 11.2
Deferred (13.8) 4.6 4.7
- ------------------------------------------------------------------------------
Total income taxes 78.3 70.4 15.9
- ------------------------------------------------------------------------------
Net income $ 192.5 $ 223.1 $ 103.2
==============================================================================
</TABLE>
See notes to financial statements.
F-2
<PAGE>
UNUM Life Insurance Company of America
<TABLE>
<CAPTION>
B A L A N C E S H E E T S
December 31,
----------------------
(Dollars in millions) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments
Fixed maturities available for sale-at fair value
(amortized cost: 1996-$4,822.0; 1995-$6,784.2) $ 5,024.3 $ 7,204.1
Equity securities available for sale-at fair value
(cost: 1996-$8.5; 1995-$8.5) 10.4 7.4
Mortgage loans 1,042.7 1,102.1
Real estate, net 233.1 209.6
Policy loans 215.6 203.7
Other long-term investments 12.2 27.1
Short-term investments 82.0 865.7
- ------------------------------------------------------------------------------
Total investments 6,620.3 9,619.7
Cash 34.0 12.8
Accrued investment income 116.2 158.3
Premiums due 205.1 168.6
Deferred policy acquisition costs 515.9 809.3
Property and equipment, net 89.6 69.2
Reinsurance receivables 1,017.6 377.2
Deposit assets 2,797.4 --
Amounts receivable from affiliates, net 9.6 0.1
Note receivable from affiliate -- 10.0
Other assets 199.2 152.0
Separate account assets 699.1 491.2
- ------------------------------------------------------------------------------
Total assets $12,304.0 $11,868.4
==============================================================================
</TABLE>
(Continued on next page)
F-3
<PAGE>
UNUM Life Insurance Company of America
<TABLE>
<CAPTION>
B A L A N C E S H E E T S
December 31,
-------------------------
(Dollars in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities
Future policy benefits $ 1,559.2 $ 1,383.1
Unpaid claims and claim expenses 4,056.6 3,774.0
Other policyholder funds 3,302.1 3,642.2
Income taxes
Current 27.0 --
Deferred 201.8 257.9
Notes payable to affiliate -- 50.0
Other liabilities 683.2 422.8
Separate account liabilities 699.1 491.2
- ------------------------------------------------------------------------------
Total liabilities 10,529.0 10,021.2
Stockholders' equity
Common stock, par value $10 per share, authorized
1,000,000 shares, issued 500,000 shares 5.0 5.0
Additional paid-in capital 350.7 347.4
Unrealized gains on available for sale securities,
net 55.9 144.2
Unrealized foreign currency translation adjustment (8.3) (7.7)
Retained earnings 1,371.7 1,358.3
- ------------------------------------------------------------------------------
Total stockholders' equity 1,775.0 1,847.2
- ------------------------------------------------------------------------------
Total liabilities and stockholders' equity $12,304.0 $11,868.4
==============================================================================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
UNUM Life Insurance Company of America
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gains (Losses) Unrealized
Common On Available Foreign
Stock Additional for Sale Currency
$0.10 Par Paid-in Securities, Translation Retained
(Dollars in millions) Value Capital Net Adjustment Earnings Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $5.0 $341.9 $125.5 $ -- $1,110.0 $1,582.4
1994 Transactions:
Net income 103.2 103.2
Unrealized losses on available for sale
securities, net (79.0) (79.0)
Unrealized foreign currency
translation adjustment (8.7) (8.7)
Dividends to stockholders (78.0) (78.0)
Other transactions 1.8 1.8
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 5.0 343.7 46.5 (8.7) 1,135.2 1,521.7
1995 Transactions:
Net income 223.1 223.1
Unrealized gains on available for sale
securities, net 97.7 97.7
Unrealized foreign currency
translation adjustment 1.0 1.0
Other transactions 3.7 3.7
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 5.0 347.4 144.2 (7.7) 1,358.3 1,847.2
1996 Transactions:
Net income 192.5 192.5
Unrealized losses on available for sale
securities, net (88.3) (88.3)
Unrealized foreign currency
translation adjustment (0.6) (0.6)
Dividends to stockholders (179.1) (179.1)
Other transactions 3.3 3.3
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $5.0 $350.7 $ 55.9 $(8.3) $1,371.7 $1,775.0
================================================================================================================================
</TABLE>
See notes to financial statements.
F-5
<PAGE>
UNUM Life Insurance Company of America
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------
(Dollars in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 192.5 $ 223.1 $ 103.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefits and
unpaid claims and claim expenses 542.8 757.2 569.4
Increase in amounts receivable under
reinsurance agreements (640.4) (61.4) (14.8)
Increase (decrease) in income tax liability 26.0 5.7 (17.0)
(Increase) decrease in deferred policy
acquisition costs 293.4 (78.6) (123.4)
Increase in deposit assets (382.9) -- --
Deferred gain on sale of tax sheltered
annuities 77.2 -- --
Charge for individual disability
reinsurance fees 49.7 -- --
Realized investment (gains) losses 1.8 (199.3) (48.9)
Other 44.1 (25.8) 43.7
- --------------------------------------------------------------------------------
Net cash provided by operating activities 204.2 620.9 512.2
- --------------------------------------------------------------------------------
Investing activities:
Maturities of fixed maturities held to
maturity -- 741.0 666.3
Maturities of fixed maturities available for
sale 684.4 61.0 23.2
Sales of fixed maturities held to maturity -- 2.8 32.4
Sales of fixed maturities available for sale 2,124.4 453.2 321.7
Sales of equity securities available for sale -- 682.0 259.5
Sales and maturities of other investments 256.3 293.6 397.1
Purchases of fixed maturities held to
maturity -- (169.2) (535.8)
Purchases of fixed maturities available for
sale (1,431.2) (1,487.4) (747.9)
Purchases of equity securities available for
sale -- (104.4) (173.6)
Purchases of other investments (218.1) (310.0) (205.9)
Net increase in short-term investments (1,042.1) (607.0) (210.5)
Net additions to property and equipment (37.0) (15.2) (20.3)
Repayment of note receivable from affiliate -- 50.0 --
- --------------------------------------------------------------------------------
Net cash provided by (used in) 336.7 (409.6) (193.8)
investing activities
- --------------------------------------------------------------------------------
Financing activities:
Deposits and interest credited to investment
contracts 536.9 601.1 544.3
Maturities and withdrawals from investment
contracts (877.0) (864.0) (782.1)
Dividends to stockholders (179.1) -- (78.0)
Proceeds from notes payable to affiliate -- 100.0 --
Repayment of notes payable to affiliate -- (50.0) --
Other -- 0.8 --
- --------------------------------------------------------------------------------
Net cash used in financing activities (519.2) (212.1) (315.8)
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash (0.5) -- --
- --------------------------------------------------------------------------------
Net increase (decrease) in cash 21.2 (0.8) 2.6
Cash at beginning of year 12.8 13.6 11.0
- --------------------------------------------------------------------------------
Cash at end of year $ 34.0 $ 12.8 $ 13.6
================================================================================
</TABLE>
(Continued on next page)
F-6
<PAGE>
UNUM Life Insurance Company of America
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (CONTINUED)
Year Ended December 31,
---------------------------------------
(Dollars in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes $ 47.4 $ 64.3 $ 26.4
Interest $ -- $ 5.5 $ --
================================================================================
</TABLE>
Supplemental disclosure of noncash operating and investing activities:
In conjunction with the sale of UNUM's tax sheltered annuity business, as
discussed in Note 5, fixed maturities available for sale of $588.6 million and
short-term investments of $1,825.9 million were transferred to the buyer on
October 1, 1996. Upon transfer, there was a corresponding increase in UNUM's
deposit assets.
================================================================================
See notes to financial statements.
F-7
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying financial statements of UNUM Life Insurance Company of America
("UNUM America") have been prepared on the basis of generally accepted
accounting principles. UNUM America is jointly owned by UNUM Holding Company and
UNUM Corporation. UNUM Holding Company is wholly-owned by UNUM Corporation. The
1995 and 1994 financial statements have been restated to include the accounts of
Commercial Life Insurance Company which was merged with UNUM America effective
December 31, 1996. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments
- -----------
Investments are reported as follows:
. Fixed maturities available for sale (certain bonds and redeemable preferred
stocks) - at fair value.
. Equity securities available for sale (common stocks and non-redeemable
preferred stocks) - at fair value.
. Mortgage loans - at amortized cost less an allowance for probable losses.
. Real estate - at cost less accumulated depreciation.
. Policy loans - at unpaid principal balance.
. Other long-term investments - at cost plus UNUM America's equity in
undistributed net earnings since acquisition.
. Short-term investments - are considered available for sale and are carried at
cost which approximates fair value.
Fixed maturities and equity securities are classified as available for sale as
they may be sold in response to changes in interest rates, resultant prepayment
risk, liquidity and capital needs, or other similar economic factors. Unrealized
gains and losses related to securities classified as available for sale are
excluded from net income and reported in a separate component of stockholders'
equity, net of applicable deferred taxes and related adjustments to unpaid
claims and claim expenses. The unrealized gains and losses are determined based
on estimated market values at the balance sheet date and are not necessarily the
amounts which would be realized upon sale of the securities or representative of
future market values. Changing interest rates affect the level of unrealized
gains and losses related to securities classified as available for sale. While
rising interest rates are beneficial when investing current cash flows, they can
also reduce the fair value of existing fixed rate long-term investments. In
addition, lower interest rates can lead to early payoffs and refinancing of some
of UNUM America's fixed rate investments. Management generally invests in fixed
rate instruments that are structured to limit the exposure to such reinvestment
risk.
F-8
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments (Continued)
- -----------
Realized investment gains and losses, which are determined on the basis of
specific identification and include adjustments for allowances for probable
losses, are reported separately in the Statements of Income.
If a decline in fair value of an invested asset is considered to be other than
temporary or if a long-lived asset is deemed to be permanently impaired, the
investment is reduced to its net realizable value and the reduction is accounted
for as a realized investment loss.
UNUM America discontinues the accrual of investment income on invested assets
when it is determined that collectability is doubtful. UNUM America recognizes
investment income on impaired loans when the income is received.
Real estate held for sale is included in other assets in the Balance Sheets and
is valued net of a valuation allowance which reduces the carrying value to the
lower of fair value less estimated costs to sell, or cost. This valuation
allowance is periodically adjusted based on subsequent changes in UNUM America's
estimate of fair value less costs to sell.
Purchases and sales of short-term financial instruments are part of investing
activities and not necessarily a part of the cash management program. Therefore,
short-term financial instruments are classified as investments in the Balance
Sheets and are included as investing activities in the Statements of Cash Flows.
Derivative Financial Instruments
- --------------------------------
Gains or losses on hedges of existing assets or liabilities are deferred and
included in the carrying amounts of those assets or liabilities. Gains or losses
related to qualifying hedges of firm commitments or anticipated transactions are
also deferred and recognized in the carrying amount of the underlying asset or
liability when the hedged transaction occurs.
Recognition of Premium Revenues and Related Expenses
- ----------------------------------------------------
Group insurance premiums are recognized as income over the period to which the
premiums relate. Individual disability premiums are recognized as income when
due. Benefits and expenses are associated with earned premiums to result in
recognition of profits over the life of the contracts. This association is
accomplished by recording a provision for future policy benefits and unpaid
claims and claim expenses, and by amortizing deferred policy acquisition costs.
For retirement and universal life products, premium and other policy fee revenue
consist of charges for the cost of insurance, policy administration and
surrenders assessed during the period. Charges related to services to be
performed in the future are deferred until earned. The amounts received in
excess of premium and fees are recorded as deposits and included in other
policyholder funds in the Balance Sheets. Benefits and expenses include benefit
claims in excess of related account balances, interest credited at various
rates, and amortization of deferred policy acquisition costs.
F-9
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Policy Acquisition Costs
- ---------------------------------
The costs of acquiring new business that vary with and are related primarily to
the production of new business have been deferred to the extent such costs are
deemed recoverable from future profits. Such costs include commissions, certain
costs of policy issue and underwriting, and certain variable field office
expenses.
For individual disability, group disability, and group life and health business,
the costs are amortized in proportion to expected future premiums. For universal
life products and retirement products the costs are amortized in proportion to
estimated gross profits from interest margins, mortality and other elements of
performance under the contracts. Amortization is adjusted periodically to
reflect differences between actual experience and original assumptions, with any
resulting changes reflected in current operating results. The amounts deferred
and amortized were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
(Dollars in millions) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred $ 194.7 $ 196.1 $207.1
Less amortized (131.1) (117.7) (83.8)
- ------------------------------------------------------------------------------
Increase in deferred policy acquisition costs $ 63.6 $ 78.4 $123.3
==============================================================================
</TABLE>
Reserves for Future Policy Benefits
- -----------------------------------
Reserves for future policy benefits are calculated by the net-level premium
method, and are based on UNUM America's expected morbidity, mortality and
interest rate assumptions at the time a policy is issued. These reserves
represent the portion of premiums received, accumulated with interest and held
to provide for claims that have not yet been incurred. The reserve assumptions
are periodically reviewed and compared to actual experience and are revised if
it is determined that future expected experience is different from the reserve
assumptions. Reserves for group insurance policies consist primarily of unearned
premiums.
The interest rates used in the calculation of reserves for future policy
benefits at December 31, 1996, and 1995, principally ranged from:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Individual disability 6.0% to 9.5% 5.5% to 9.5%
Group annuities 5.0% to 9.0% 5.0% to 9.0%
- -------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reserves for Unpaid Claims and Claim Expenses
- ---------------------------------------------
Unpaid claims and claim expense reserves represent the amount estimated to fund
claims that have been reported but not settled and claims incurred but not
reported. Reserves for unpaid claims are estimated based on UNUM America's
historical experience and other actuarial assumptions that consider the effects
of current developments, anticipated trends, risk management programs and
renewal actions. Many factors affect actuarial calculations of claim reserves,
including but not limited to interest rates and current and anticipated
incidence rates, recovery rates, and economic and societal conditions. Reserve
estimates and assumptions are periodically reviewed and updated with any
resulting adjustments to reserves reflected in current operating results. Given
the complexity of the reserving process, the ultimate liability may be more or
less than such estimates indicate.
The interest rates used in the calculation of disability claims reserves at
December 31, 1996, and 1995, were principally as follows:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Group long term disability 7.88% 7.94%
Individual disability 7.00% to 9.46% 6.75% to 9.67%
- -----------------------------------------------------------------------------
</TABLE>
The interest rate used to discount the disability reserves is a composite of the
yields on assets specifically identified with each block of business. Management
expects the reserve discount rate for certain disability products will further
decline, since current cash flows are invested in high quality assets at current
yields, which are below the composite yield of the existing assets purchased in
prior years. UNUM America periodically adjusts prices on both existing and new
business in an effort to mitigate the impact of the current interest rate
environment.
For other accident and health business, reserves are based on projections of
historical claims run-out patterns.
F-11
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reserves for Unpaid Claims and Claim Expenses (Continued)
- ---------------------------------------------
Activity in the liability for unpaid claims and claim expenses is summarized as
follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $3,774.0 $2,939.0 $2,558.2
Less reinsurance recoverables (87.3) (53.9) (42.4)
Effect of unrealized gains on fixed maturities (203.4) -- --
- ---------------------------------------------------------------------------------------------------
Net Balance at January 1 3,483.3 2,885.1 2,515.8
Incurred related to:
Current year 1,245.4 1,403.0 1,159.5
Prior years 263.7 410.4 358.4
- ---------------------------------------------------------------------------------------------------
Total incurred 1,509.1 1,813.4 1,517.9
Paid related to:
Current year 380.6 366.5 356.5
Prior years 941.8 848.7 792.1
- ---------------------------------------------------------------------------------------------------
Total paid 1,322.4 1,215.2 1,148.6
Net Balance at December 31 3,670.0 3,483.3 2,885.1
Plus reinsurance recoverables 254.3 87.3 53.9
Effect of unrealized gains on fixed maturities 119.3 203.4 --
- ---------------------------------------------------------------------------------------------------
Balance at December 31 $4,043.6 $3,774.0 $2,939.0
===================================================================================================
<CAPTION>
The components of the increase in unpaid claims and claims expenses incurred and
related to prior years were as follows:
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest accrued on reserves $228.0 $214.2 $207.9
Changes in reserve estimates and assumptions 35.7 196.2 150.5
- -------------------------------------------------------------------------------------------------
Increase in incurrals related to prior years $263.7 $410.4 $358.4
=================================================================================================
</TABLE>
The increases in incurrals related to prior years were primarily the result of
interest accrued on reserves and changes in reserve estimates and assumptions of
interest rates, morbidity, mortality and expense costs. Due to the long-term
claim payment patterns of some of UNUM America's businesses, certain reserves,
particularly disability, are discounted for interest.
The effects of changes in reserve estimates and assumptions were more
significant in 1995 and 1994, primarily as a result of increased reserves from
lower discount rates for certain disability products following the sale of the
common stock portfolio in 1995, and adjustments to strengthen certain disability
reserves in 1995 and 1994.
F-12
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reserves for Unpaid Claims and Claim Expenses (Continued)
- ---------------------------------------------
Beginning in 1995, as explained in Note 2, unpaid claims are adjusted to reflect
changes that would have been necessary if the unrealized gains and losses
related to fixed maturities classified as available for sale had been realized.
Where applicable, UNUM America has reflected those adjustments in the liability
balances with corresponding credits or charges, net of related deferred taxes,
reported as a component of unrealized gains on available for sale securities in
stockholders' equity.
Changes in Accounting Estimates
- -------------------------------
During 1995, UNUM America sold virtually all of its common stock portfolio. The
sale of the common stock portfolio, which partially supported certain disability
reserves, and the reinvestment of the proceeds primarily in investment grade
fixed income assets at yields below the average portfolio yield, resulted in
lower reserve discount rates for certain disability products reported in the
Disability Insurance segment. This change in accounting estimate to lower
certain discount rates resulted in an increase of $114.1 million to benefits to
policyholders in the Statement of Income, and a decrease to net income of $74.2
million.
During 1995, UNUM America increased the group long term disability reserves for
incurred but not reported ("IBNR") claims, as reported in the Disability
Insurance segment. The increased IBNR reserves were based on management's
judgment that claims incurred but not yet reported would reflect increased
levels of claims incidence and severity. This change in accounting estimate
resulted in an increase to benefits to policyholders in the Statement of Income
of $34.3 million, and a decrease to net income of $22.3 million.
During 1995, UNUM America increased reserves for unpaid claims related to the
Association Group disability business by $15.0 million to reflect management's
expectations of slower than expected claim recoveries. This change in accounting
estimate, which was reflected in the Disability Insurance segment, decreased net
income by $9.8 million.
During 1994, UNUM America increased reserves for existing claims by $78.0
million and strengthened reserves for estimated future losses by $101.5 million.
These increased reserves reflected management's expectations of morbidity trends
for the existing non-cancellable individual disability business as reported in
the Disability Insurance segment. This change in accounting estimate resulted in
an increase to benefits to policyholders in the Statement of Income of $179.5
million, and a decrease to net income of $116.7 million.
Other Policyholder Funds
- ------------------------
Other policyholder funds are liabilities for investment-type contracts and
represent customer deposits plus interest credited to those deposits at various
rates.
F-13
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Liabilities for Restructuring Activities
- ----------------------------------------
Liabilities for restructuring activities are recorded when management, prior to
the balance sheet date, commits to execute an exit plan that will result in the
incurral of costs that have no future economic benefit, or approves a plan of
termination and communicates sufficient detail of the plan to employees.
Liabilities for restructuring activities are included in other liabilities in
the Balance Sheets.
Separate Accounts
- -----------------
Certain assets from tax sheltered annuity ("TSA") contracts and UNUM America's
defined benefit plans are in separate accounts that are pooled investment funds
of securities. Investment income and realized gains and losses on these accounts
accrue directly to the contractholders. Assets, carried at market value, and
liabilities of the separate accounts are shown separately in the Balance Sheets.
The assets of the separate accounts are legally segregated and are not subject
to claims that arise out of any other business of UNUM America.
On October 1, 1996, UNUM America closed the sale of its TSA business to The
Lincoln National Life Insurance Company, a subsidiary of Lincoln National
Corporation (see Note 5). For legal considerations, the separate account's TSA-
related assets were not transferred on October 1, 1996. TSA-related assets will
be transferred only upon receipt of a contractholder and/or participant's
consent for assumption reinsurance. Beginning in 1997, the assets of UNUM
Corporation's defined benefit plan are no longer held in the UNUM America's
separate accounts (See Note 8).
Accounting for Participating Individual Life Insurance
- ------------------------------------------------------
Participating policies issued by the former Union Mutual Life Insurance Company
("Union Mutual") prior to UNUM America's conversion to a stock life insurance
company on November 14, 1986, will remain participating as long as they remain
in force. A Participation Fund Account ("PFA") was established for the sole
benefit of all of Union Mutual's individual participating life and annuity
policies and contracts.
The assets of the PFA are to provide for the benefit, dividend and certain
expense obligations of the participating individual life insurance policies and
annuity contracts. This line of business participates in the experience of the
PFA and its operations have been excluded from the Statements of Income. The PFA
represented approximately 2.9% and 3.1% of total assets and 3.4% and 3.5% of
total liabilities at December 31, 1996, and 1995, respectively.
Income Taxes
- ------------
The provision for income taxes includes amounts currently payable and deferred
income taxes, which result from differences between financial reporting and tax
bases of assets and liabilities, and are measured using enacted tax rates and
laws.
F-14
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation
- ----------------------------
UNUM America has several branch operations located in foreign countries, the
largest being in Canada. These branches generally maintain their balance sheet
and income statement accounts in local functional currencies. These currencies
are translated to U.S. dollars using ending and quarterly average exchange
rates, respectively. The resulting translation adjustments are reported in a
separate component of stockholders' equity.
Reinsurance
- -----------
UNUM America is involved in both the cession and assumption of reinsurance with
other companies. Risks are reinsured with other companies to reduce UNUM
America's exposure to large losses and permit recovery of a portion of direct
losses. UNUM America remains liable to the insured for the payment of policy
benefits if the reinsurers cannot meet their obligations under the reinsurance
agreements. Deferred policy acquisition costs, premiums, benefits and expenses
are stated net of reinsurance ceded to other companies. UNUM America evaluates
the financial condition of its reinsurers and monitors concentrations of credit
risk to minimize exposure to significant losses from reinsurer insolvencies.
New Accounting Pronouncements
- -----------------------------
In June 1996, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard ("FAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which establishes
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The statement provides guidance for
recognition or derecognition of assets and liabilities, focusing on the concepts
of control and extinguishment. UNUM America is required to adopt FAS 125
effective January 1, 1997. The adoption of FAS 125 is not expected to have a
material effect on UNUM America's results of operations or financial position.
In March 1997, the FASB issued FAS No. 129, "Disclosures of Information About
Capital Structure," which clarifies disclosure requirements related to the type,
and nature, of securities contained in an entity's capital structure. UNUM
America is required to adopt FAS 129 effective December 31, 1997.
F-15
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS
In November 1995, the FASB issued "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities," which
provided a one-time opportunity to reassess the appropriateness of the
classifications of securities described in FAS 115, and to reclassify fixed
maturities from the held to maturity category without calling into question the
intent to hold other debt securities to maturity in the future. On December 31,
1995, UNUM America reassessed its fixed maturity portfolio and as allowed under
the implementation guidance, reclassified fixed maturities with an amortized
cost of $5,073.3 million and a related unrealized gain of $304.9 million from
the held to maturity category to available for sale. The unrealized gain on the
total available for sale fixed maturity portfolio was $419.9 million at December
31, 1995. In connection with the reclassification of the held to maturity fixed
maturities to available for sale, on December 31, 1995, UNUM America adjusted
its unpaid claims by $203.4 million to reflect the changes that would have been
necessary if the unrealized gains and losses related to fixed maturities
classified as available for sale had been realized. At December 31, 1996, the
unrealized gain on available for sale fixed maturities was $202.3 million and
the related unpaid claims adjustment was $119.3 million.
The following tables summarize the components of investment income, net realized
investment gains, and changes in unrealized investment gains on available for
sale securities:
<TABLE>
<CAPTION>
Investment Income
- -----------------
Year Ended December 31,
- -------------------------------------------------------------------------------
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Available for sale $496.1 $390.3 $453.7
Held to maturity -- 145.9 65.7
Equity securities available for sale -- 4.3 8.3
Mortgage loans 104.6 113.4 129.9
Real estate 19.0 13.8 14.9
Policy loans 9.0 7.6 9.3
Other long-term investments 6.5 1.6 0.8
Short-term investments 42.5 20.3 4.9
- -------------------------------------------------------------------------------
Gross investment income 677.7 697.2 687.5
Less investment expenses (14.7) (15.1) (21.3)
Less investment income on participating
individual life insurance policies and annuity
contracts (24.5) (24.6) (25.1)
- -------------------------------------------------------------------------------
Investment income $638.5 $657.5 $641.1
===============================================================================
</TABLE>
F-16
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS (Continued)
<TABLE>
<CAPTION>
Net Realized Investment Gains
- -----------------------------
Year Ended December 31,
-------------------------------
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized investment gains:
Fixed maturities:
Available for sale $ 19.1 $ 9.7 $ 7.4
Held to maturity -- 0.1 --
Equity securities available for sale -- 210.8 80.0
Mortgage loans, real estate and other 17.2 17.9 11.4
- -------------------------------------------------------------------------------
Gross realized investment gains $ 36.3 $ 238.5 $ 98.8
- -------------------------------------------------------------------------------
Gross realized investment losses:
Fixed maturities:
Available for sale (23.5) (10.0) (25.1)
Held to maturity -- (0.8) (3.0)
Equity securities available for sale -- (14.8) ( 9.5)
Mortgage loans, real estate and other (6.9) (28.2) (21.7)
- -------------------------------------------------------------------------------
Gross realized investment losses (30.4) (53.8) (59.3)
- -------------------------------------------------------------------------------
Net realized investment gains $ 5.9 $ 184.7 $ 39.5
===============================================================================
Change in Unrealized Gains (Losses) on Available For Sale Securities
- --------------------------------------------------------------------
Year Ended December 31,
-------------------------------
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Fixed maturities available for sale $(217.6) $ 465.7 $(45.7)
Equity securities available for sale 3.0 (113.0) (74.3)
Unpaid claims adjustment 84.1 (203.4) --
Deferred taxes 42.2 (51.6) 41.0
- -------------------------------------------------------------------------------
Total change in unrealized gains (losses)
on available for sale securities,
as included in stockholders' equity $ (88.3) $ 97.7 $(79.0)
===============================================================================
</TABLE>
F-17
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS (Continued)
Fixed Maturities
- ----------------
The amortized cost and fair values of fixed maturities available for sale at
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 25.8 $ 1.8 $ -- $ 27.6
States and municipalities 402.4 9.2 (0.7) 410.9
Foreign governments 137.9 10.5 (0.2) 148.2
Public utilities 983.3 47.7 (1.4) 1,029.6
Corporate bonds 3,267.2 147.6 (12.0) 3,402.8
Redeemable preferred stocks 2.0 -- (0.4) 1.6
Mortgage-backed securities 3.4 0.2 -- 3.6
- ----------------------------------------------------------------------------------------------
Total $4,822.0 $217.0 $(14.7) $5,024.3
==============================================================================================
</TABLE>
The amortized cost and fair values of fixed maturities available for sale at
December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government $ 338.8 $ 6.9 $(0.1) $ 345.6
States and municipalities 519.0 15.5 (0.6) 533.9
Foreign governments 22.2 1.9 -- 24.1
Public utilities 1,306.0 95.9 (0.1) 1,401.8
Corporate bonds 4,576.5 302.0 (1.9) 4,876.6
Redeemable preferred stocks 16.6 0.8 (0.8) 16.6
Mortgage-backed securities 5.1 0.4 -- 5.5
- ----------------------------------------------------------------------------------------------
Total $6,784.2 $423.4 $(3.5) $7,204.1
==============================================================================================
</TABLE>
F-18
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS (Continued)
Fixed Maturities (Continued)
- ----------------
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1996, by contractual maturity date, are shown below. Expected
maturities will differ from contractual maturities since certain borrowers have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized
(Dollars in millions) Cost Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 207.5 $ 213.4
Due after one year through five years 1,669.0 1,748.3
Due after five years through ten years 2,580.2 2,674.1
Due after ten years 361.9 384.9
- --------------------------------------------------------------------------------
4,818.6 5,020.7
Mortgage-backed securities (primarily due after 10 years) 3.4 3.6
- --------------------------------------------------------------------------------
Total $4,822.0 $5,024.3
================================================================================
</TABLE>
During 1995, UNUM America sold fixed maturities of two issuers classified as
held to maturity with an amortized cost of $4.0 million due to evidence of
significant deterioration of the issuers' creditworthiness, as evidenced by
bankruptcy filings. These sales resulted in a net realized loss of $1.2 million
in 1995.
During 1994, UNUM America sold fixed maturities of two issuers classified as
held to maturity with an amortized cost of $32.4 million due to evidence of
significant deterioration of the issuers' creditworthiness. These sales
resulted in a net realized loss of $2.6 million.
Equity Securities
- -----------------
The fair values, which also represent carrying amounts, and the cost of equity
securities available for sale were as follows at December 31, 1996:
<TABLE>
<CAPTION>
Fair
(Dollars in millions) Cost Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Common stocks:
Industrial, miscellaneous and all other $ 8.5 $ 10.4
===============================================================================
</TABLE>
Gross unrealized investment gains on equity securities available for sale
totaled $1.9 million at December 31, 1996 and there were no gross unrealized
investment gains at December 31, 1995. There were no gross unrealized
investment losses at December 31, 1996, and gross unrealized investment losses
totaled $1.1 million at December 31, 1995.
F-19
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS (Continued)
Mortgages
- ---------
Effective January 1, 1995, UNUM America adopted Financial Accounting Standard
("FAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and FAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures," which defined the principles to measure and record an impaired
loan. When it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of a loan agreement, the loan is deemed
impaired. Once a loan is determined to be impaired, an allowance for probable
losses is established for the difference between the carrying amount of the loan
and its estimated value. The estimated value is based on either the present
value of expected future cash flows discounted using the loan's effective
interest rate, the loan's observable market price, or the fair value of the
collateral. The adoption of FAS 114 and FAS 118 did not have a material effect
on UNUM America's results of operations or financial position.
At December 31, 1996, and 1995, impaired loans totaled $48.9 million and $48.0
million, respectively. Included in the $48.9 million were $37.4 million of loans
which had a related allowance for probable losses of $5.5 million, and a loan of
$11.5 million which had no related allowance for probable losses. Included in
the $48.0 million of impaired loans at December 31, 1995, were $36.3 million of
loans which had a related allowance for probable losses of $6.8 million, and a
loan of $11.7 million which had no related allowance for probable losses.
Mortgage loans that were restructured prior to the adoption of FAS 114 amounted
to $50.1 million and $55.0 million at December 31, 1996, and 1995, respectively.
Troubled debt restructurings represent loans that are refinanced with terms more
favorable to the borrower. Interest lost on restructured loans was not material
for the years ended December 31, 1996, 1995 or 1994.
Real Estate and Other
- ---------------------
Effective January 1, 1996, UNUM America adopted FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. FAS 121 applies to both real estate held for investment and real
estate held for sale. The adoption of FAS 121 did not have a material effect on
UNUM America's results of operations or financial position.
Real estate acquired in satisfaction of debt cumulatively amounts to $83.3
million at December 31, 1996. Real estate held for sale amounted to $9.8
million at December 31, 1996, and $33.5 million at December 31, 1995.
F-20
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVESTMENTS (Continued)
Real Estate and Other (Continued)
- ---------------------
Real estate with a depreciated cost of $7.7 million and no bonds or mortgages
were non-income producing for the twelve months ended December 31, 1996.
Interest lost on these investments was not material in 1996, 1995 or 1994.
UNUM America was committed at December 31, 1996, to purchase fixed maturities
and other invested assets in the amount of $94.0 million.
NOTE 3. ALLOWANCE FOR PROBABLE LOSSES ON INVESTED ASSETS AND
REAL ESTATE HELD FOR SALE
Changes in the allowance for probable losses on invested assets and real estate
held for sale were as follows:
<TABLE>
<CAPTION>
Balance at Balance
beginning at end
(Dollars in millions) of year Additions Deductions of year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Mortgage loans $37.3 $ 1.0 $ (2.3) $36.0
Real estate held for sale 18.0 (0.4) (3.3) 14.3
- --------------------------------------------------------------------------------
Total $55.3 $ 0.6 $ (5.6) $50.3
================================================================================
Year Ended December 31, 1995
Mortgage loans $41.7 $ 8.9 $(13.3) $37.3
Real estate held for sale 12.7 5.7 (0.4) 18.0
- --------------------------------------------------------------------------------
Total $54.4 $14.6 $(13.7) $55.3
================================================================================
Year Ended December 31, 1994
Fixed maturities held to
maturity and
available for sale $ 0.2 $ -- $ (0.2) $ --
Mortgage loans 46.8 8.5 (13.6) 41.7
Real estate held for sale 19.2 0.9 (7.4) 12.7
- --------------------------------------------------------------------------------
Total $66.2 $ 9.4 $(21.2) $54.4
================================================================================
</TABLE>
Additions represent charges to net realized investment gains less recoveries,
and deductions represent reserves released upon disposal or restructuring of the
related asset.
F-21
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS
UNUM America periodically uses common derivative financial instruments such as
options, futures and forward exchange contracts to hedge certain risks
associated with anticipated purchases and sales of investments and certain
payments denominated in foreign currencies, primarily Canadian dollar and
Japanese yen. These derivative financial instruments are used to protect UNUM
America from the effect of market fluctuations in interest and exchange rates
between the contract date and the date on which the hedged transaction occurs.
In using these instruments, UNUM America is subject to the off-balance-sheet
risk that the counterparties of the transactions will fail to perform as
contracted. UNUM America manages this risk by only entering into contracts with
highly rated institutions and listed exchanges. UNUM America does not hold
derivative financial instruments for the purpose of trading.
At December 31, 1996, UNUM America had open interest rate futures contracts with
notional amounts of $159.7 million to hedge anticipated sales of investments in
1997. These contracts had a related net unrealized gain of $1.3 million. At
December 31, 1995, UNUM America had no open derivative financial instruments.
NOTE 5. SALE OF TAX SHELTERED ANNUITY BUSINESS
On October 1, 1996, UNUM America closed the sale of its group tax-sheltered
annuity ("TSA") business to The Lincoln National Life Insurance Company
("Lincoln"), a subsidiary of Lincoln National Corporation. The sale involved
approximately 1,650 group contractholders and assets under management of
approximately $3.2 billion. The contracts have initially been reinsured on an
indemnity basis. Upon consent of the TSA contractholders and/or participants,
the contracts will be considered reinsured on an assumption basis, legally
releasing UNUM America from future contractual obligation to the respective
contractholders and/or participants.
To effect the sale of the TSA business, UNUM America transferred into a trust
account held for the benefit of Lincoln approximately $2,641 million of assets.
The assets transferred consisted of approximately $1,826 million of short-term
investments, $589 million of fixed maturities, and $226 million of cash. The
amount of assets in the trust will increase or decrease in conjunction with the
on-going activity in participant accounts, and assets will be released from the
trust to Lincoln upon consents for assumption reinsurance. UNUM America has
recorded a deposit asset in its Balance Sheet representing the assets remaining
in the trust, which supports the TSA contracts of those contractholders and/or
participants that have not given consent for assumption reinsurance. At December
31, 1996, the deposit asset related to the TSA transaction was approximately
$2,602 million.
The sale resulted in a deferred pretax gain of $77.2 million, which will be
recognized in income in proportion to contractholder and/or participant consents
for assumption reinsurance, the majority of which management believes will occur
during 1997. The purchase price (ceding commission) paid upon closing was
approximately $69 million, and the transaction generated statutory capital of
approximately $157 million. As of March 1, 1997, consent for assumption
reinsurance has been provided by TSA contractholders and/or participants owning
approximately 60% of assets under management.
F-22
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 5. SALE OF TAX SHELTERED ANNUITY BUSINESS (Continued)
Historical results of the TSA business included in UNUM America's Statements of
Income were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(Dollars in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $203.1 $244.4 $236.7
Net income $ 12.2 $ 30.1 $ 29.2
- --------------------------------------------------------------------------------
</TABLE>
NOTE 6. REINSURANCE
UNUM America is involved in both the cession and assumption of reinsurance with
other companies.
UNUM America and its affiliate, First UNUM Life Insurance Company ("First
UNUM"), a New York corporation, entered into a 100% coinsurance reinsurance
agreement covering the active life reserves of First UNUM's non-cancellable
individual disability business. The agreement was effective December 31, 1996,
for disabilities occurring on or after January 1, 1996.
On October 23, 1996, UNUM America announced the execution of a definitive
reinsurance agreement between UNUM America and Centre Life Reinsurance Limited
("Centre Re"), a Bermuda based reinsurance specialist, for reinsurance coverage
of the active life reserves of UNUM America's existing United States non-
cancellable individual disability ("ID") block of business, including those
ceded under the aforementioned agreement with First UNUM. This agreement does
not reinsure any claims incurred prior to January 1, 1996. The agreement follows
UNUM America's announcement in late 1994 that it would no longer market the non-
cancellable form of ID coverage in the United States.
The agreement is a finite reinsurance arrangement that transfers liabilities to
Centre Re based on the level of statutory reserves. At December 31, 1996, active
life reserves of $427 million and reserves established for claims in 1996 of
$137 million were ceded to Centre Re. Under the agreement, Centre Re has an
obligation to fund a defined risk layer, while UNUM America will retain the
earnings risk related to potential adverse claims experience up to a certain
threshold. This threshold amount represents the existence of an experience layer
with a value of $195 million at December 31, 1996. UNUM America has recorded the
value of the experience layer on its Balance Sheet as a deposit asset. UNUM
America funded its obligation under the agreement by transferring assets
totaling approximately $403 million into a trust account in late December 1996.
The assets transferred were equal to the experience layer plus reserves,
determined under generally accepted accounting principles, net of related
deferred acquisition costs. Future net cash flows of the block will be
transferred to/from the trust account and, together with changes in reserve
levels, will determine the value of UNUM America's deposit asset. Changes in the
deposit asset will flow through UNUM America's results of operations. The
agreement generated slightly more than $200 million of statutory capital.
In fourth quarter 1996, UNUM America recognized a pretax charge of $49.7
million, which represents the present value of the anticipated minimum amount of
fees to be paid to Centre Re under the agreement. UNUM America has the right,
but no obligation, to recapture the business after five years, with certain
penalties.
F-23
<PAGE>
UHUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 6. REINSURANCE (Continued)
The effect of reinsurance on premiums earned and written for the years ended
December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- ----------------------- --------- --------- ---------
<S> <C> <C> <C>
Premiums earned:
Direct $2,112.2 $2,024.3 $1,877.1
Assumed 251.2 239.5 169.8
Ceded (70.1) (55.0) (103.9)
- ----------------------- -------- -------- --------
Premiums earned $2,293.3 $2,208.8 $1,943.0
======================= ======== ======== ========
Premiums written:
Direct $2,114.9 $2,025.0 $1,890.5
Assumed 285.8 248.4 169.8
Ceded (95.6) (56.1) (105.2)
- ----------------------- -------- -------- --------
Premiums written $2,305.1 $2,217.3 $1,955.1
======================= ======== ======== ========
</TABLE>
For the years ended December 31, 1996, 1995 and 1994, recoveries recognized
under reinsurance agreements reduced benefits to policyholders by $65.7 million,
$50.7 million and $44.4 million, respectively.
NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES
Business Restructuring
Charges of $7.2 million, $8.4 million and $13.6 million were recorded in 1996,
1995 and 1994, respectively. The charge in 1996 was related to the merger of
Commercial Life Insurance Company ("Commercial Life") into UNUM America, and
consisted of $2.8 million of severance costs for 120 employees and $4.4 million
of lease exit costs. The charges in 1995 and 1994 relate to the acceleration of
organizational changes within UNUM America and the decision to discontinue the
individual disability non-cancellable product. Partially offsetting the charge
recorded in 1995 was a $3.4 million curtailment gain, related to workforce
reductions in UNUM Corporation's noncontributory defined benefit pension plan
which includes UNUM America. As of December 31, 1996, the liability carried in
the Balance Sheet for all three charges was $5.3 million.
Intangible Asset Write-offs and Future Loss Reserves
In connection with the merger of Commercial Life into UNUM America, the sale of
the tax-sheltered annuity business (see Note 5), as well as UNUM America's
continued efforts to strengthen its focus on its core products, the company
initiated a review of certain products, which resulted in the recognition of
pretax charges totaling $37.5 million during 1996. These charges reduced income
before income taxes by $13.1 million in the Disability Insurance segment, $9.4
million in the Special Risk Insurance segment, and $15.0 million in the
Retirement Products segment. On an after-tax basis the charges reduced net
income by $25.1 million.
F-24
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 7. BUSINESS RESTRUCTURING AND OTHER CHARGES (Continued)
The charges include the write-off of certain intangible assets, primarily
deferred acquisition costs, totaling $12.7 million. These intangible assets
have been deemed unrecoverable primarily due to the expectation of continued
losses in the Association Group disability business. Additionally, in
conjunction with the completion of a review of UNUM America's discontinued
product portfolio, a $22.4 million charge was taken to establish a reserve for
the present value of expected future losses on certain discontinued products.
Future losses for these products will be charged to the reserve at the time the
losses are realized. The products incorporated in the charge consist of certain
discontinued special risk, retirement and medical products. UNUM America is
pursuing the sale of some of these discontinued product lines.
NOTE 8. EMPLOYEE BENEFIT PLANS
Pension Plans
- -------------
UNUM America participates in UNUM Corporation and subsidiaries' noncontributory
defined benefit pension plan covering substantially all domestic employees. The
plan provided benefits based on the employee's years of service and compensation
during the highest five consecutive years out of the last ten years of
employment. Plan assets, which were held in UNUM America's separate accounts,
consisted primarily of group annuity contracts and 224,392 shares of UNUM
Corporation common stock. UNUM America funds its pension plan in accordance
with the requirements of the Employee Retirement Income Security Act of 1974, as
amended. Net pension cost for 1996 was $6.0 million. Net pension cost for 1995
was $2.1 million which included the $3.4 million pension curtailment gain from
the business restructuring activities described in Note 7. Net pension cost for
1994 was $6.7 million.
Effective January 1, 1997, UNUM Corporation replaced its existing pension plans
with a new noncontributory defined benefit pension plan ("Lifecycle Plan")
covering substantially all domestic employees. Under the Lifecycle Plan, a new
benefit formula is used, resulting in benefits being earned more consistently
over an employee's career, and is based on the employee's age at retirement,
years of service, and earnings during the highest five of the last ten years of
employment. Beginning in 1997, plan assets were transferred from UNUM America's
separate accounts into a trust for the exclusive benefit of plan participants.
F-25
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 8. EMPLOYEE BENEFIT PLANS (Continued)
Postretirement Health Care and Life Insurance Benefits
- ------------------------------------------------------
UNUM America provides certain health care and life insurance benefits for
retired employees and covered dependents. Substantially all domestic employees
of UNUM America may become eligible for these benefits if they meet minimum age
and service requirements, if they are eligible for retirement benefits and if
they agree to contribute a portion of the cost. UNUM America has the right to
modify or terminate these benefits. The underlying plans are not currently
funded. The cost of these plans was $8.0 million, $8.5 million and $6.8 million
for the years ended December 31, 1996, 1995 and 1994, respectively. At December
31, 1996, and 1995 the liability associated with these plans was $64.8 million
and $63.2 million, respectively.
Retirement Savings Plans
- ------------------------
UNUM America participates in UNUM Corporation and subsidiaries' retirement
savings plan for substantially all full-time and part-time employees who work
1,000 hours a year and have been employed for at least one year. Eligible
employees may contribute up to 10% of their annual base salary, and UNUM America
matches a portion of each employee's contribution up to 4% of the employee's
compensation. Employees become 100% vested immediately upon becoming eligible
to participate in the plan. Expense for this plan amounted to $5.6 million,
$6.3 million and $6.2 million in 1996, 1995 and 1994, respectively.
Effective January 1, 1997, UNUM Corporation introduced a single retirement
savings plan for all domestic employees who meet the eligibility requirement of
one year of service, including all employees eligible under the former plans.
Dependent upon the employee's annual earnings, eligible employees may contribute
up to 15% of their annual compensation, including incentive payouts. UNUM
America will match 100% of the employee's contribution up to 3% of the
employee's compensation, plus 50% of the employee's contribution on the next 2%
of the employee's compensation, to a maximum of 4%. Employees become 100%
vested immediately upon becoming eligible to participate.
Annual Incentive Plans
- ----------------------
UNUM America has an annual incentive plan for certain employees and executive
officers that provide additional compensation based on achievement of
predetermined annual corporate financial and non-financial goals. In 1996, 1995
and 1994, expense for these plans was $31.1 million, $14.7 million and $2.7
million, respectively.
F-26
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES
A reconciliation of income taxes computed by applying the federal income tax
rate to income before income taxes and the income tax expense charged to
operations follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
(Dollars in millions) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate of 35% $ 94.8 $102.7 $ 41.7
Tax-exempt income (15.4) (24.6) (26.0)
Prior years' taxes (0.3) (6.6) (0.7)
State income tax 1.6 1.1 0.4
Realized investment gains -- (3.6) --
Other (2.4) 1.4 0.5
- ------------------------------------------------------------------------------
Income taxes $ 78.3 $ 70.4 $ 15.9
==============================================================================
Deferred income tax liabilities and assets consist
of the following:
December 31,
---------------
(Dollars in millions) 1996 1995
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs $146.6 $247.0
Policy reserve adjustments 89.1 --
Net unrealized gains 70.7 142.3
Value of business acquired 1.2 1.4
Invested assets -- 10.4
Other -- 5.6
- ------------------------------------------------------------------------------
Gross deferred tax liabilities 307.6 406.7
- ------------------------------------------------------------------------------
Deferred tax assets:
Alternative minimum tax credit carryforwards -- 17.4
Policy reserve adjustments -- 88.6
Net realized losses 16.8 22.5
Postretirement benefits 24.4 20.3
Deferred gains 27.0 --
Accrued liabilities 26.6 --
Other 11.0 --
- ------------------------------------------------------------------------------
Gross deferred tax assets 105.8 148.8
- ------------------------------------------------------------------------------
Net deferred tax liability $201.8 $257.9
==============================================================================
</TABLE>
UNUM America's operations are included with those of UNUM Corporation and
subsidiaries in a consolidated income tax return. Under provisions of a tax-
sharing agreement among the members of the consolidated tax return group, tax is
allocated based on the separate return taxable income of each company with
companies being reimbursed currently for their capital and ordinary losses.
F-27
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES (Continued)
Deferred income taxes relating to cumulative net unrealized gains on available
for sale fixed maturity and equity securities were $70.7 million, $142.3 million
and $23.8 million at December 31, 1996, 1995 and 1994, respectively.
UNUM America's Statement of Income for 1996, 1995 and 1994, included the
following amounts of foreign income and related income tax expense:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(Dollars in millions) 1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Income $11.5 -- --
- ---------------------------------------------------------------------------
Income tax expense (credit):
Current (1.5) -- --
Deferred 5.6 -- --
- ---------------------------------------------------------------------------
Total $ 4.1 -- --
===========================================================================
</TABLE>
NOTE 10. DIVIDEND RESTRICTIONS
UNUM America is subject to various state insurance regulatory restrictions that
limit the maximum amount of dividends available to UNUM Corporation without
prior approval. The amount available under current law for payment of dividends
during 1997 to UNUM Corporation from UNUM America without state insurance
regulatory approval is approximately $113 million. Dividends in excess of this
amount may only be paid with state insurance regulatory approval. The aggregate
statutory capital and surplus of UNUM America was approximately $961 million and
$905 million, at December 31, 1996, and 1995, respectively. The aggregate
statutory net operating income, which excludes realized investment gains net of
tax, of UNUM America was approximately $113 million, $227 million and $45
million for 1996, 1995 and 1994, respectively. State insurance regulatory
authorities prescribe statutory accounting practices that differ in certain
respects from generally accepted accounting principles. The significant
differences relate to deferred acquisition costs, deferred income taxes, non-
admitted asset balances, required investment risk reserves and reserve
calculation assumptions.
F-28
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 11. AFFILIATED COMPANIES AND RELATED PARTY TRANSACTIONS
UNUM America provides management and administrative services to affiliates,
which are wholly owned by UNUM Corporation. UNUM America allocates, principally
at cost, the related expenses based on direct association whenever possible. If
however expenses cannot be readily associated, the costs are allocated based on
ratios of the relative time spent, extent of usage or varying volume of work
performed.
On February 28, 1995, UNUM Corporation borrowed $100 million under its revolving
credit facility, which was infused into UNUM America in exchange for surplus
debentures which mature on August 31, 1996, and accrue interest at 5.66%
annually. Repayment of principal and interest on the surplus debentures is
subject to state insurance regulatory approval. On December 31, 1995, UNUM
America repaid $50 million of the surplus debentures, plus accrued interest of
$5.5 million to UNUM Corporation. In April, 1996, UNUM America received
approval from the Maine Bureau of Insurance to repay the remaining $50 million
in surplus debentures. The company repaid the principal and interest in April
1996.
During December, 1993, UNUM America loaned $60 million to UNUM Corporation.
These notes mature on December 20, 1996, and accrue interest at 5.66% annually.
On December 31, 1995, UNUM Corporation repaid $50 million of these notes to UNUM
America. UNUM Corporation repaid the $10 million outstanding note to UNUM
America in April 1996.
NOTE 12. LITIGATION
In the normal course of its business operations, UNUM America is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1996. In some instances, these
proceedings include claims for punitive damages and similar types of relief in
unspecified or substantial amounts, in addition to amounts for alleged
contractual liability or other compensatory damages. In the opinion of
management, the ultimate liability, if any, arising from this litigation is not
expected to have a material adverse effect on the financial position or the
operating results of UNUM America.
On December 29, 1993, UNUM America filed a suit in the United States District
Court for the District of Maine, seeking a federal income tax refund. The suit
is based on a claim for a deduction in certain prior tax years, for $652 million
in cash and stock distributed to policyholders in connection with the 1986
conversion of Union Mutual Life Insurance Company to a stock company. UNUM
America has fully paid, and provided for in prior years' financial statements,
the tax at issue in this litigation. On May 23, 1996, the District Court issued
its decision that the distribution in question was not a deductible expenditure.
UNUM America believes its claims are meritorious, and has appealed the decision
to the United States Court of Appeals for the First Circuit. The ultimate
recovery, if any, cannot be determined at this time.
F-29
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values are based on quoted market prices, when available. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. These valuation techniques require
management to develop a significant number of assumptions, including discount
rates and estimates of future cash flow. Derived fair value estimates cannot be
substantiated by comparison to independent markets or to disclosures by other
companies with similar financial instruments. These fair value disclosures do
not purport to be the amount that could be realized in immediate settlement of
the financial instrument.
The following table summarizes the carrying amounts and fair values of UNUM
America's financial instruments at December 31, 1996, and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
Carrying Fair Carrying Fair
(Dollars in millions) Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available for sale $5,024.3 $5,024.3 $7,204.1 $7,204.1
Equity securities available for sale 10.4 10.4 7.4 7.4
Mortgage loans 1,042.7 1,119.7 1,102.1 1,207.2
Policy loans 215.6 215.6 203.7 203.7
Short-term investments 82.0 82.0 865.7 865.7
Cash 34.0 34.0 12.8 12.8
Accrued investment income 116.2 116.2 158.3 158.3
Deposit assets 2,797.4 2,797.4 -- --
Note receivable from affiliate -- -- 10.0 10.0
Financial liabilities:
Other policyholder funds:
Investment-type insurance contracts:
With defined maturities $ 191.0 $ 216.0 $ 400.0 $ 440.0
With no defined maturities 2,848.0 2,787.0 2,982.0 2,919.0
Individual annuities and
supplementary contracts not
involving life contingencies 69.1 69.1 74.4 74.4
Note payable to affiliate -- -- 50.0 50.0
=====================================================================================================
</TABLE>
F-30
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 13. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Fixed Maturities Available for Sale: Fair values for fixed maturities are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using values obtained from independent
pricing services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate applicable to
the yield, credit quality and maturity of the investments.
Equity Securities Available for Sale: Fair values for equity securities
available for sale are based on quoted market prices and are reported in the
Balance Sheets at these values.
Mortgage Loans: Fair values for mortgage loans are estimated based on discounted
cash flow analyses using interest rates currently being offered for similar
mortgage loans to borrowers with similar credit ratings and maturities. Mortgage
loans with similar characteristics are aggregated for purposes of the
calculations.
Policy Loans, Short-term Investments, Cash, Accrued Investment Income, Note
Receivable from Affiliate, Note Payable to Affiliate and Deposit Assets : Fair
values for these instruments approximate the carrying amounts reported in the
Balance Sheets.
Investment-type Insurance Contracts: Fair values for liabilities under
investment-type insurance contracts with defined maturities are estimated using
discounted cash flow calculations based on interest rates that would be offered
currently for similar contracts with maturities consistent with those remaining
for the contracts being valued. Fair values for liabilities under investment-
type insurance contracts with no defined maturities are the amounts payable on
demand after surrender charges at the balance sheet date.
The estimated fair values of liabilities under all insurance contracts
(investment-type and other than investment-type) are taken into consideration in
UNUM America's overall management of interest rate risk, which minimizes
exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
Individual Annuities and Supplementary Contracts not Involving Life
Contingencies: Fair values approximate the carrying amounts reported in other
policyholder funds in the Balance Sheets.
F-31
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 14. SEGMENT INFORMATION
UNUM America's principal market for its disability insurance, special risk and
retirement income products is the United States. UNUM America and First UNUM
Life Insurance Company combined are the leading provider of group long term
disability insurance in the United States. Products are marketed through sales
personnel and brokers. UNUM America targets sales of its disability products to
executive, administrative and management personnel, and other professionals such
as doctors, attorneys, accountants and engineers.
To more clearly reflect UNUM America's management of its businesses and to more
appropriately group its product portfolios, UNUM America began reporting its
operations, effective January 1, 1995, principally in three business segments:
Disability Insurance, Special Risk Insurance, and Retirement Products. For
comparative purposes, prior period information has been restated to reflect
reporting in these segments.
The Disability Insurance segment includes disability products offered in North
America and Japan including: group long term disability, group short term
disability, individual disability, association group disability, disability
reinsurance operations and long term care insurance. The Special Risk Insurance
segment includes group life, special risk accident insurance, non-disability
reinsurance operations and other special risk insurance products. The Retirement
Products segment includes tax sheltered annuities, guaranteed investment
contracts, deposit administration accounts, 401(k) plans, individual life and
group medical products, all of which are no longer actively marketed by UNUM
America. Corporate includes transactions that are generally non-insurance
related.
Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the products
in each segment. Operating expenses are allocated to the segments based on
direct association with a product whenever possible. If the expense cannot be
readily associated with a particular product, the costs are allocated based on
ratios of the relative time spent, extent of usage or varying volume of work
performed for each segment.
F-32
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 14. SEGMENT INFORMATION (Continued)
Summarized financial information for the three business segments and Corporate
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
(Dollars in millions) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Disability Insurance $ 2,008.2 $ 2,056.7 $ 1,730.4
Special Risk Insurance 732.3 671.8 561.2
Retirement Products 277.8 353.0 366.5
Corporate 9.8 2.9 (5.1)
- ----------------------------------------------------------------------
Total revenues $ 3,028.1 $ 3,084.4 $ 2,653.0
======================================================================
Income (loss) before income taxes:
Disability Insurance $ 195.7 $ 192.5 $ 21.3
Special Risk Insurance 77.9 55.9 59.0
Retirement Products 1.3 45.0 42.2
Corporate (4.1) 0.1 (3.4)
- ----------------------------------------------------------------------
Income before income taxes 270.8 293.5 119.1
Income taxes 78.3 70.4 15.9
- ----------------------------------------------------------------------
Net income $ 192.5 $ 223.1 $ 103.2
======================================================================
<CAPTION>
Year Ended December 31,
-----------------------------
(Dollars in millions) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Identifiable Assets:
Disability Insurance $ 6,164.6 $ 5,777.5 $ 4,825.7
Special Risk Insurance 1,082.6 894.9 673.9
Retirement Products 4,427.4 4,626.4 4,438.0
Corporate 275.4 206.7 330.8
Individual Participating
Life and Annuity 354.0 362.9 347.0
- ----------------------------------------------------------------------
Total assets $12,304.0 $11,868.4 $10,615.4
======================================================================
</TABLE>
F-33
<PAGE>
UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 15. SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
(1) (2)
Future policy (4) (5)
Deferred benefits and Net Benefits to
policy unpaid claims (3) investment policyholders
Segment acquisition and claim Premium income and interest
(Dollars in Millions) costs expenses revenue (expense) credited
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Disability Insurance $396.0 $4,414.1 $1,637.4 $370.8 $1,257.4
Special Risk Insurance 119.0 588.7 682.3 50.0 484.6
Retirement Products 0.9 613.0 64.0 213.8 251.7
Corporate 0.0 0.0 0.0 9.8 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total $515.9 $5,615.8 $2,383.7 $644.4 $1,993.7
===================================================================================================================================
Year Ended December 31, 1995
Disability Insurance $681.7 $4,114.8 $1,580.5 $476.1 $1,412.4
Special Risk Insurance 94.0 451.8 628.6 44.2 465.6
Retirement Products 33.6 590.5 33.3 319.7 271.0
Corporate 0.0 0.0 (0.2) 2.2 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total $809.3 $5,157.1 $2,242.2 $842.2 $2,149.0
===================================================================================================================================
Year Ended December 31, 1994
Disability Insurance $629.2 $3,322.8 $1,416.3 $314.2 $1,298.2
Special Risk Insurance 77.8 253.0 525.3 36.1 363.9
Retirement Products 30.6 576.5 30.8 335.7 286.6
Corporate 0.0 (0.6) 0.0 (5.4) 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total $737.6 $4,151.7 $1,972.4 $680.6 $1,948.7
===================================================================================================================================
<CAPTION>
Amortization
of deferred (5)
policy Other (6)
Segment acquisition operating Premiums
(Dollars in Millions) costs expenses written
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Disability Insurance $ 90.2 $465.1 $1,596.1
Special Risk Insurance 40.9 129.0 214.0
Retirement Products 0.0 24.6 14.9
Corporate 0.0 13.8 0.0
- ----------------------------------------------------------------------------------------------
Total $131.1 $632.5 $1,825.0
==============================================================================================
Year Ended December 31, 1995
Disability Insurance $ 83.0 $368.7 $1,554.3
Special Risk Insurance 33.9 115.5 231.7
Retirement Products 0.8 36.3 23.3
Corporate 0.0 3.7 0.0
- ----------------------------------------------------------------------------------------------
Total $117.7 $524.2 $1,809.3
==============================================================================================
Year Ended December 31, 1994
Disability Insurance $ 63.4 $347.5 $1,408.7
Special Risk Insurance 18.2 120.2 163.6
Retirement Products 2.2 35.5 21.6
Corporate 0.0 (1.8) 0.0
- ----------------------------------------------------------------------------------------------
Total $ 83.8 $501.4 $1,593.9
==============================================================================================
</TABLE>
F-34
<PAGE>
UNUM Life Insurance Company of America
NOTES TO FINANCIAL STATEMENTS
NOTE 15. SUPPLEMENTARY INSURANCE INFORMATION (Continued)
(1) Excludes other policyholder funds, as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Disability Insurance $ 5.7 $ 2.8 $ 1.8
Special Risk Insurance 10.9 13.3 6.6
Retirement Products 3,285.5 3,626.1 3,896.0
- -----------------------------------------------------------------------------
Total $3,302.1 $3,642.2 $3,904.4
</TABLE>
(2) Includes unearned premiums, other policy claims and benefits payable.
(3) Includes fees and other income (expense).
(4) Includes investment income (expense) and net realized investment gains.
(5) Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the
segments. Operating expenses are allocated to segments based on direct
association with a product whenever possible. If, however, the expense
cannot be readily associated with a particular product, the costs are
allocated based on ratios of the relative time spent, extent of usage or
varying volume of work performed for each segment.
(6) Premiums written for health and disability income policies.
F-35
<PAGE>
Additional information on federal income taxation is included in the prospectus.
DISTRIBUTION OF CONTRACTS
LNC Equity Sales Corporation ("LNC Equity"), an indirect subsidiary of Lincoln
National Corporation, is registered with the Securities and Exchange Commission
as a broker-dealer under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. LNC Equity is the Variable
Investment Division's principal underwriter and also enters into selling
agreements with other unaffiliated broker-dealers authorizing them to offer the
Contracts. LNC Equity will pay these unaffiliated broker-dealers a distribution
allowance which will be used to pay commissions to their registered
representatives. This distribution allowance will not be deducted from
Participant Contributions or Account balances but will be paid from
UNUM/America's General Account assets (including any charges collected).
UNUM Sales Corporation ("UNUM Sales"), which served as the principal underwriter
to the Variable Investment Division prior to October 1, 1996, received
underwriting commissions from UNUM/America of $4,223,000, $6,130,700, and
$4,665,000 in 1996, 1995, and 1994, respectively. LNC Equity received no
underwriting commissions from UNUM/America prior to December 31, 1996.
CUSTODIAN
UNUM/America is the custodian for the Fund's shares owned by the Variable
Investment Division. The Fund's shares are held in uncertificated form separate
and apart from UNUM/America's other assets.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., independent accountants, performs certain accounting
services for UNUM/America and has performed the same services for the Variable
Investment Division. The financial statements included in this SAI have been
audited to the extent and for the periods indicated in their reports thereon.
Those financial statements have been included herein in reliance on such reports
given on the authority of such firm as experts in auditing and accounting.
FINANCIAL STATEMENTS
This SAI contains financial statements for the Variable Investment Division, as
of December 31, 1996 and for the two years then ended.
The financial statements of UNUM/America which are included in this SAI, should
be considered only as bearing on the ability of UNUM/America to meet its
obligations under the Contracts. The financial statements of UNUM/America are
presented in accordance with generally accepted accounting principles.
-12-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
UNUM Life Insurance Company of America
We have audited the accompanying balance sheets of UNUM Life Insurance Company
of America as of December 31, 1996 and 1995, and the related statements of
income, stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UNUM Life Insurance Company of
America as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principals.
Portland, Maine
February 5, 1997, except for Note 5
for which the date is March 1, 1997
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Dreyfus Dreyfus TCI TCI VIPF
Stock Small Cap Growth Balanced Growth
Combined Index Fund Portfolio Portfolio Portfolio Portfolio
-------- ---------- --------- --------- --------- ---------
<C> <C> <C> <C> <C> <C>
Assets
Investments at market $480,063,896 $69,455,958 $46,378,052 $37,415,198 $25,068,184 $135,727,863
Liabilities
Contract charges payable to
UNUM Life Insurance Company
of America 189,283 27,575 18,325 14,902 9,991 53,473
------------ ----------- ----------- ----------- ----------- ------------
Net assets $479,874,613 $69,428,383 $46,359,727 $37,400,296 $25,058,193 $135,674,390
============ =========== =========== =========== =========== ============
Percent of net assets 100.0% 14.4% 9.6% 7.8% 5.2% 28.3%
====== ===== ==== ==== ==== =====
<CAPTION>
Calvert
VIPF II VIPF Responsibly T. Rowe VIPF
Asset Equity- Invested Price Money
Manager Income Balanced International Market
Portfolio Portfolio Portfolio Series Portfolio
--------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Investments at market $94,096,633 $47,340,632 $4,669,029 $19,512,403 $399,944
Liabilities
Contract charges payable to
UNUM Life Insurance Company of
America 37,220 18,449 1,762 7,536 -
----------- ----------- ----------- ------------- ---------
Net assets $94,059,413 $47,322,133 $4,667,267 $19,504,867 $399,944
=========== =========== =========== ============= =========
Percent of net assets 19.6% 9.9% 1.0% 4.1% 0.1%
===== ==== ==== ==== ====
</TABLE>
See notes to financial statements.
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Dreyfus Stock
Combined Index Fund
-------- ----------
Year Ended December 31, Year Ended December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income
Dividends from investment income $22,369,654 $4,210,276 $2,312,264 $1,121,517
Less contract charges - mortality and
expense fees to UNUM Life Insurance
Company of America 4,927,857 3,020,144 689,522 440,924
------------ ------------ ----------- -----------
Net investment income (loss) 17,441,797 1,190,132 1,622,742 680,593
Net realized and unrealized gains (losses)
on investments
Net realized gains 1,584,234 529,207 310,151 48,200
Net change in unrealized gains (losses) 27,245,960 52,595,346 8,880,241 9,620,468
------------ ------------ ----------- -----------
28,830,194 53,124,553 9,190,392 9,668,668
------------ ------------ ----------- -----------
Net increase (decrease) in net assets resulting
from operations 46,271,991 54,314,685 10,813,134 10,349,261
Net increase in net assets from principal
transactions 118,301,806 84,483,498 13,683,201 7,803,607
------------ ------------ ----------- -----------
Net increase in net assets 164,573,797 138,798,183 24,496,335 18,152,868
Net assets at beginning of year 315,300,816 176,502,633 44,932,048 26,779,180
------------ ------------ ----------- -----------
Net assets at end of year $479,874,613 $315,300,816 $69,428,383 $44,932,048
============ ============ =========== ===========
<CAPTION>
Dreyfus Small Cap
Portfolio TCI Growth Portfolio
--------- --------------------
Year Ended December 31, Year Ended December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income
Dividends from investment income $1,409,239 $436,176 $4,132,202 $24,157
Less contract charges - mortality and
expense fees to UNUM Life Insurance
Company of America 396,340 138,786 492,841 342,765
----------- ----------- ----------- -----------
Net investment income (loss) 1,012,899 297,390 3,639,361 (318,608)
Net realized and unrealized gains (losses)
on investments
Net realized gains 102,971 34,387 195,252 118,135
Net change in unrealized gains (losses) 3,324,631 2,382,357 (5,940,416) 6,901,049
----------- ----------- ----------- -----------
3,427,602 2,416,744 (5,745,164) 7,019,184
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations 4,440,501 2,714,134 (2,105,803) 6,700,576
Net increase in net assets from principal
transactions 22,522,224 12,526,244 5,354,160 6,596,791
----------- ----------- ----------- -----------
Net increase in net assets 26,962,725 15,240,378 3,248,357 13,297,367
Net assets at beginning of 19,397,002 4,156,624 34,151,939 20,854,572
year ----------- ----------- ----------- -----------
Net assets at end of year $46,359,727 $19,397,002 $37,400,296 $34,151,939
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
TCI Balanced Portfolio VIPF Growth Portfolio
------------------------ -----------------------
Year Ended December 31, Year Ended December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net investment income
Dividends from investment income $976,670 $416,885 $6,781,982 $270,826
Less contract charges - mortality and
expense fees to UNUM Life Insurance
Company of America 274,016 193,030 1,418,576 871,499
----------- ----------- ------------ -----------
Net investment income (loss) 702,654 223,855 5,363,406 (600,673)
Net realized and gains
(losses) on investments
Net realized gains 178,468 53,908 376,660 125,948
Net change in unrealized gains (losses) 1,418,087 2,527,661 8,126,147 18,518,723
----------- ----------- ------------ -----------
1,596,555 2,581,569 8,502,807 18,644,671
----------- ----------- ------------ -----------
Net increase (decrease) in net assets
resulting from operations 2,299,209 2,805,424 13,866,213 18,043,998
Net increase in net assets
from principal transactions 3,816,661 3,403,330 30,430,707 26,270,087
----------- ----------- ------------ -----------
Net increase in net assets 6,115,870 6,208,754 44,296,920 44,314,085
Net assets at beginning of year 18,942,323 12,733,569 91,377,470 47,063,385
----------- ----------- ------------ -----------
Net assets at end of year $25,058,193 $18,942,323 $135,674,390 $91,377,470
=========== =========== ============ ===========
<CAPTION>
VIPF II Asset VIPF Equity-
Manager Portfolio Income Portfolio
----------------- ----------------
Year Ended December 31, Year Ended December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net investment income
Dividends from investment income $4,987,786 $1,224,098 $1,084,893 $532,318
Less contract charges - mortality and
expense fees to UNUM Life Insurance
Company of America 1,023,895 804,364 422,194 143,334
----------- ----------- ----------- -----------
Net investment income (loss) 3,963,891 419,734 662,699 388,984
Net realized and gains
(losses) on investments
Net realized gains 350,985 78,788 38,616 44,530
Net change in unrealized gains (losses) 6,245,079 9,161,873 3,590,870 2,759,848
----------- ----------- ----------- -----------
6,596,064 9,240,661 3,629,486 2,804,378
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations 10,559,955 9,660,395 4,292,185 3,193,362
Net increase in net assets from principal
transactions 9,030,051 7,135,021 21,643,563 14,833,158
----------- ----------- ----------- -----------
Net increase in net assets 19,590,006 16,795,416 25,935,748 18,026,520
Net assets at beginning of year 74,469,407 57,673,991 21,386,385 3,359,865
----------- ----------- ----------- -----------
Net assets at end of year $94,059,413 $74,469,407 $47,322,133 $21,386,385
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Calvert Responsibly T. Rowe Price VIPF Money
Invested Balanced Portfolio International Series Market Portfolio
--------------------------- -------------------- ----------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net investment income
Dividends from investment income $348,555 $152,564 $324,206 $20,506 $11,857 $11,229
Less contract charges - mortality
and expense fees to UNUM Life
Insurance Company of America 38,017 10,132 172,456 75,310 - -
---------- ---------- ----------- ---------- -------- --------
Net investment income (loss) 310,538 142,432 151,750 (54,804) 11,857 11,229
Net realized and unrealized gains
(losses) on investments
Net realized gains 5,529 17,360 25,602 7,951 - -
Net change in unrealized gains (losses) 35,140 18,874 1,566,181 704,493 - -
---------- ---------- ----------- ---------- -------- --------
40,669 36,234 1,591,783 712,444 - -
---------- ---------- ----------- ---------- -------- --------
Net increase (decrease) in net assets
resulting from operations 351,207 178,666 1,743,533 657,640 11,857 11,229
Net increase in net assets from
principal transactions 2,604,832 1,272,631 9,056,936 4,546,310 159,471 96,319
---------- ---------- ----------- ---------- -------- --------
Net increase in net assets 2,956,039 1,451,297 10,800,469 5,203,950 171,328 107,548
Net assets at beginning of year 1,711,228 259,931 8,704,398 3,500,448 228,616 121,068
---------- ---------- ----------- ---------- -------- --------
Net assets at end of year $4,667,267 $1,711,228 $19,504,867 $8,704,398 $399,944 $228,616
========== ========== =========== ========== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES
Organization:
- -------------
VA-1 Separate Account of UNUM Life Insurance Company of America ("UNUM America")
is registered under the Investment Company Act of 1940. The Separate Account
was established in accordance with the laws of the State of Maine. Its
registration statement became effective in December 1989. The assets are held
for the exclusive benefit of the variable annuity contract owners and may not
be used to satisfy any obligations that may arise from any other business
conducted by UNUM America. Any excess of assets over reserves and other
contract liabilities may be transferred to UNUM America's General Account.
Principal markets are hospitals and non-profit organizations located throughout
the United States of America, with specific concentrations in the states of New
York and California.
On October 1, 1996, UNUM America completed the sale of its group tax-sheltered
annuity ("TSA") business to The Lincoln National Life Insurance Company
("Lincoln Life") and Lincoln Life & Annuity Company of New York ("Lincoln New
York"), a wholly owned subsidiary of Lincoln Life. The sale involved Separate
Account assets of approximately $436,590,000. The contracts have initially been
reinsured on an indemnity basis. Upon consent of the TSA contractholders and/or
participants, the contracts will be considered reinsured on an assumption basis,
legally releasing UNUM America from future contractual obligation to the
respective contractholders and/or participants. Assets attributable to such
participants' contracts will be transferred to separate accounts of Lincoln Life
and Lincoln New York. Assets attributable to contracts of participants with
respect to which such consent is not obtained will remain in the Separate
Account.
Investments:
- ------------
In accordance with the terms of the variable annuity contracts, all payments
transferred to the Separate Account by the contract owners are allocated to
purchase shares of either Dreyfus Stock Index Fund, Dreyfus Variable Investment
Fund: Small Cap Portfolio ("Dreyfus Small Cap Portfolio"), Twentieth Century's
TCI Portfolios, Inc.: TCI Growth ("TCI Growth Portfolio") and TCI Balanced
("TCI Balanced Portfolio"), Fidelity's Variable Insurance Products Fund: Growth
Portfolio ("VIPF Growth Portfolio"), Fidelity's Variable Insurance Products Fund
II: Asset Manager Portfolio ("VIPF II Asset Manager Portfolio"), Fidelity's
Variable Insurance Products Fund: Equity-Income Portfolio ("VIPF Equity-Income
Portfolio"), Calvert Responsibly Invested Balanced Portfolio or T. Rowe Price
International Series, Inc. ("T. Rowe Price International Series"). Fidelity's
Variable Insurance Products Funds: Money Market Portfolio ("VIPF Money Market
Portfolio") is used only for investment of initial contributions for which UNUM
America has not received complete order instructions. Upon receipt of complete
order instructions, the payments transferred to VIPF Money Market Portfolio are
allocated to purchase shares of one of the above funds.
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES (continued)
Investments: (continued)
- ------------
The Separate Account is fully invested in shares of Dreyfus Stock Index Fund,
Dreyfus Small Cap Portfolio, TCI Growth Portfolio, TCI Balanced Portfolio, VIPF
Growth Portfolio, VIPF II Asset Manager Portfolio, VIPF Equity-Income Portfolio,
Calvert Responsibly Invested Balanced Portfolio, T. Rowe Price International
Series and VIPF Money Market Portfolio, which are carried at market value.
Security transactions are recorded on the trade date. All contracts
participating in the Separate Account are in the accumulation phase. Dividends
are fully reinvested and immediately credited to participant accounts with the
exception of VIPF Money Market Portfolio which is invested monthly. Unrealized
gain and loss represent the difference between the cost and market value of
invested assets. Realized gain and loss are reported on an average cost basis.
Gross unrealized gains for all investments were $122,283,976 as of December 31,
1996 and $76,893,903 as of December 31, 1995. Gross unrealized losses for all
investments were $44,966,769 as of December 31, 1996 and $26,822,656 as of
December 31, 1995.
The market value and cost of investments at December 31, 1996, was distributed
as follows:
<TABLE>
<CAPTION>
Market Value
------------
Shares Share Price Cost
------ ----------- ----
<S> <C> <C> <C>
Dreyfus Stock Index Fund 3,424,850.0090 $20.28 $ 53,721,665
Dreyfus Small Cap Portfolio 890,515.5850 52.08 40,664,734
TCI Growth Portfolio 3,653,827.9700 10.24 35,475,201
TCI Balanced Portfolio 3,324,692.8500 7.54 21,028,630
VIPF Growth Portfolio 4,358,634.0000 31.14 108,054,222
VIPF II Asset Manager Portfolio 5,557,981.8950 16.93 80,404,799
VIPF Equity-Income Portfolio 2,251,099.9630 21.03 41,022,846
Calvert Responsibly Invested Balanced
Portfolio 2,631,921.8250 1.774 4,622,794
T. Rowe Price International Series 1,543,702.7960 12.64 17,351,856
VIPF Money Market Portfolio 399,943.8100 1.00 399,944
</TABLE>
Contract Charges:
- -----------------
UNUM America is the depositor for the Separate Account. Administrative services
necessary for the operation of the Separate Account and the variable annuity
contracts are provided by UNUM America. Although UNUM America deducts for sales
and administrative expenses under the contracts, UNUM America assumes an expense
risk that these deductions may prove insufficient to cover the cost of those
expenses.
In addition, UNUM America assumes a mortality risk under the contracts in that
it agrees to make annuity payments regardless of how long a particular annuitant
or their payee lives and how long all annuitants or other payees in a class
live, if payment options involving life contingencies are chosen. Those annuity
payments are determined in accordance with annuity purchase rate provisions
established at the time the contracts are issued. UNUM America also assumes a
mortality risk in providing a death benefit under the contracts.
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACCOUNTING POLICIES (continued)
Contract Charges: (continued)
- -----------------
To compensate UNUM America for assuming these mortality and expense risks, an
effective annual mortality and expense risk charge of 1.20% of each portfolio's
average daily net assets is imposed on each portfolio within the Separate
Account with the exception of VIPF Money Market Portfolio. For 1996 and 1995,
the mortality and expense risk charges totaled $4,927,857 and $3,020,144,
respectively.
Federal Income Taxes:
- ---------------------
For purposes of federal income taxes, the Separate Account is considered to be
part of UNUM America for the years ended December 31, 1996 and 1995, and its
operations are not taxed separately. The liability for any federal income taxes
generated by the Separate Account is attributable to UNUM America. UNUM America
is taxed as a property and casualty insurance company under the applicable
provisions of the Internal Revenue Code.
Premium Taxes:
- --------------
Applicable state premium taxes are paid by UNUM America and deducted from the
account balances of contract owners at the time of an annuity purchase.
NOTE 2. CAPITAL SHARE TRANSACTIONS
During 1996 and 1995, the following transactions in capital stock occurred:
The Separate Account funds that invest in Dreyfus Stock Index Fund held
3,057,791.6697 units at a net asset value of $22.7054 and 2,395,545.4406 units
at a net asset value of $18.7565 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 729,318.8159 $15,112,646 505,864.5836 $8,445,355
Units redeemed 67,072.5868 1,429,445 39,765.9760 641,748
------------ ----------- ------------ ----------
Net increase 662,246.2291 $13,683,201 466,098.6076 $7,803,607
============ =========== ============ ==========
</TABLE>
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 2. CAPITAL SHARE TRANSACTIONS (continued)
The Separate Account funds that invest in Dreyfus Small Cap Portfolio held
3,032,802.7702 units at a net asset value of $15.2861 and 1,461,574.8990 units
at a net asset value of $13.2713 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 1,630,716.9673 $23,438,013 1,080,522.3668 $12,786,970
Units redeemed 59,489.0961 915,789 19,323.4514 260,726
-------------- ----------- -------------- -----------
Net increase 1,571,227.8712 $22,522,224 1,061,198.9154 $12,526,244
============== =========== ============== ===========
</TABLE>
The Separate Account funds that invest in TCI Growth Portfolio held
2,541,937.9972 units at a net asset value of $14.7133 and 2,191,474.5278 units
at a net asset value of $15.5840 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 444,571.1658 $6,869,563 491,599.7304 $7,065,251
Units redeemed 94,107.6964 1,515,403 33,484.9815 468,460
------------ ---------- ------------ ----------
Net increase 350,463.4694 $5,354,160 458,114.7489 $6,596,791
============ ========== ============ ==========
</TABLE>
The Separate Account funds that invest in TCI Balanced Portfolio held
1,545,580.8344 units at a net asset value of $16.2128 and 1,294,882.9012 units
at a net asset value of $14.6286 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 329,338.1231 $5,034,023 293,210.1829 $3,936,485
Units redeemed 78,640.1899 1,217,362 40,141.1930 533,155
------------ ---------- ------------ ----------
Net increase 250,697.9332 $3,816,661 253,068.9899 $3,403,330
============ ========== ============ ==========
</TABLE>
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 2. CAPITAL SHARE TRANSACTIONS (continued)
The Separate Account funds that invest in VIPF Growth Portfolio held
5,843,047.2941 units at a net asset value of $23.2198 and 4,459,417.0777 units
at a net asset value of $20.4909 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 1,448,572.4268 $31,961,921 1,408,315.0268 $26,646,045
Units redeemed 64,942.2104 1,531,214 20,760.0224 375,958
-------------- ----------- -------------- -----------
Net increase 1,383,630.2164 $30,430,707 1,387,555.0044 $26,270,087
============== =========== ============== ===========
</TABLE>
The Separate Account funds that invest in VIPF II Asset Manager Portfolio held
5,447,414.3329 units at a net asset value of $17.2668 and 4,882,919.6584 units
at a net asset value of $15.2510 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ------ ------
<S> <C> <C> <C> <C>
Units sold 776,904.8813 $12,476,352 772,704.8532 $10,804,649
Units redeemed 212,410.2068 3,446,301 259,722.2139 3,669,628
------------ ----------- ------------ -----------
Net increase 564,494.6745 $ 9,030,051 512,982.6393 $ 7,135,021
============ =========== ============ ===========
</TABLE>
The Separate Account funds that invest in VIPF Equity-Income Portfolio held
2,997,006.5180 units at a net asset value of $15.7898 and 1,529,171.7672 units
at a net asset value of $13.9856 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 1,505,157.0265 $22,213,213 1,281,538.6369 $15,768,284
Units redeemed 37,322.2757 569,650 73,025.8659 935,126
-------------- ----------- -------------- -----------
Net increase 1,467,834.7508 $21,643,563 1,208,512.7710 $14,833,158
============== =========== ============== ===========
</TABLE>
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 2. CAPITAL SHARE TRANSACTIONS (continued)
The Separate Account funds that invest in Calvert Responsibly Invested Balanced
Portfolio held 328,167.7828 units at a net asset value of $14.2222 and
133,870.5801 units at a net asset value of $12.7827 at December 31, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 207,778.4639 $2,784,761 124,412.3448 $1,474,505
Units redeemed 13,481.2612 179,929 16,615.2632 201,874
------------ ---------- ------------ ----------
Net increase 194,297.2027 $2,604,832 107,797.0816 $1,272,631
============ ========== ============ ==========
</TABLE>
The Separate Account funds that invest in T. Rowe Price International Series
held 1,588,913.5294 units at a net asset value of $12.2756 and 803,484.7277
units at a net asset value of $10.8333 at December 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 804,268.0124 $9,291,422 504,969.4785 $5,127,746
Units redeemed 18,839.2107 234,486 56,420.6745 581,436
------------ ---------- ------------ ----------
Net increase 785,428.8017 $9,056,936 448,548.8040 $4,546,310
============ ========== ============ ==========
</TABLE>
The Separate Account funds that invest in VIPF Money Market Portfolio held
35,464.9671 units at a net asset value of $11.2772 and 21,371.9053 units at a
net asset value of $10.6987 at December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Units sold 169,399.3668 $1,863,371 208,957.5381 $2,170,365
Units redeemed 155,306.3050 1,703,900 199,566.0400 2,074,046
------------ ---------- ------------ ----------
Net increase 14,093.0618 $ 159,471 9,391.4981 $ 96,319
============ ========== ============ ==========
</TABLE>
NOTE 3. RELATED PARTY TRANSACTIONS
UNUM Sales Corporation, an affiliate, acted as the distributor and principal
underwriter of the Separate Account prior to October 1, 1996. Effective October
1, 1996, LNC Equity Sales Corporation, a non-affiliate, acted as a distributor
and principal underwriter of the Separate Account.
<PAGE>
VA-1 SEPARATE ACCOUNT OF UNUM LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 4. SUBSEQUENT EVENT
Through March 1, 1997, the net assets of the Separate Account have decreased by
approximately $327,621,000 from novations of assets to the separate accounts of
Lincoln Life and Lincoln New York.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial statements and Exhibits
(a) The following financial statements are included in Part B:
Financial Statements of Registrant - VA-I Separate Account of UNUM
Life Insurance Company of America.
Audited statement of assets and liabilities as of December
31, 1996 and statement of operations and changes in net
assets for the two years ended December 31, 1996.
Financial Statements of Depositor - UNUM Life Insurance Company of
America.
Audited balance sheets as of December 31, 1996 and 1995 and
audited statements of income, stockholder's equity and cash
flows for each of the three years in the period ended
December 31, 1996.
(b) Exhibits
1. Resolution adopted by the Board of Directors of UNUM Life
Insurance Company on July 8, 1988 establishing the TSAVA
Separate Account of UNUM Life Insurance Company. *
1(a) Resolution adopted by the Board of Directors of UNUM Life
Insurance Company on February 7, 1991 changing the name and
broadening the scope of the VA-I Separate Account. ***
1(b) Resolution adopted by the Board of Directors and the
Stockholders of UNUM Life Insurance Company on September 13,
1991, authorizing the merger of UNUM Life Insurance Company
and UNUM Life Insurance Company of America. //
1(c) Resolution adopted by the Board of Directors and the
Stockholders of UNUM Life Insurance Company of America on
September 13, 1991, authorizing the merger of UNUM Life
Insurance Company of America and UNUM Life Insurance
Company. //
1(d) Plan of Merger for UNUM Life Insurance Company of America
and UNUM Life Insurance Company dated September 13, 1991.
//
2. Not applicable.
3(a) Distribution agreement between UNUM Life Insurance Company
of America and UNUM Sales Corporation. *
3(b) Broker-dealer sales agreement. **
3(c) Principal underwriting agreement between UNUM Life Insurance
Company of America and LNC Equity Sales Corporation.
3(d) Form of broker-dealer sales agreement.
4(a) Forms of Group Annuity Contracts for UNUM Life Insurance
Company of America. #
4(b) Form of Contract Rider providing for automatic assumption of
certain contracts by The Lincoln National Life Insurance
Company. ##
5(a) Form of application for Group Annuity Contract. //
-1-
<PAGE>
5(b) Form of Participant enrollment form (including
acknowledgement of restrictions on redemption imposed by
I.R.C. Section 403(b)). //
6. Copy of certificate of incorporation and by-laws of UNUM
Life Insurance Company of America. //
7(a) Assumption Reinsurance Agreement by and between UNUM Life
Insurance Company of America and The Lincoln National Life
Insurance Company.
7(b) Assumption Reinsurance Agreement by and between UNUM Life
Insurance Company of America and Lincoln Life & Annuity
Company of New York.
7(c) Coinsurance and Assumption Agreement by and between UNUM
Life Insurance Company of America and The Lincoln National
Life Insurance Company.
7(d) Indemnity Reinsurance Agreement by and between UNUM Life
Insurance Company of America and The Lincoln National Life
Insurance Company.
7(e) Indemnity Reinsurance Agreement by and between UNUM Life
Insurance Company of America and Lincoln Life & Annuity
Company of New York.
8(a) Participation Agreement between UNUM Life Insurance Company
and Dreyfus Life & Annuity Index Fund, Inc. **
8(b) Participation Agreement between UNUM Life Insurance Company
and Variable Insurance Products Fund I and Fidelity
Distributors Corporation. /
8(c) Participation Agreement between UNUM Life Insurance Company
and Variable Insurance Products Fund II and Fidelity
Distributors Corporation. /
8(d) Participation Agreement between UNUM Life Insurance Company
and Twentieth Century Management Company. /
8(e) Service Agreement and Amendments between UNUM Life Insurance
Company and UNUM Sales Corporation. *
8(f) Participation Agreement between UNUM Life Insurance Company
of America and Dreyfus Variable Investment Fund and Dreyfus
Corporation. #
8(g) Participation Agreement between UNUM Life Insurance Company
of America and Acacia Capital Corporation. #
8(h) Participation Agreement between UNUM Life Insurance Company
of America and T. Rowe Price. #
8(i) Administrative Services Agreement by and between UNUM Life
Insurance Company of America and The Lincoln National Life
Insurance Company.
9. Consent and opinion of Kevin J. Tierney, General Counsel of
UNUM Life Insurance Company of America, as to the legality
of the securities being registered. ##
10(a) Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
-2-
<PAGE>
10(b) Powers of Attorney. //
10(c) Power of Attorney for Elaine D. Rosen. ++
10(d) Powers of Attorney for Kevin P. O'Connell and Robert W.
Crispin. ##
11. No financial statements are omitted from Item 23 (other than
any that will be filed by subsequent amendment).
12. Not Applicable.
13. Schedule for computation of Performance Quotations. ###
14. Not Applicable.
* Incorporated herein by reference to initial Registration
Statement on Form N-4 filed by the TSAVA Separate Account of
UNUM Life Insurance Company with the Securities and Exchange
Commission on April 24, 1989.
** Incorporated herein by reference to Pre-effective Amendment
No. 1 on Form N-4 filed by the TSAVA Separate Account of
UNUM Life Insurance Company with the Securities and Exchange
Commission on October 18, 1989.
*** Incorporated herein by reference to Post-effective Amendment
No. 2 filed by the VA-I Separate Account of UNUM Life
Insurance Company on Form N-4 with the Securities and
Exchange Commission on March 1, 1991.
/ Incorporated herein by reference to post-effective Amendment
No. 3 filed by the VA-I Separate Account of UNUM Life
Insurance Company on Form N-4 with the Securities and
Exchange Commission on May 1, 1991.
// Incorporated herein by reference to Amendment No. 4 filed by
the VA-I Separate Account of UNUM Life Insurance Company on
November 1, 1991.
/// Incorporated herein by reference to Amendment No. 5 filed by
the VA-I Separate Account of UNUM Life Insurance Company of
America on December 31, 1991.
//// Incorporated herein by reference to Amendment No. 7 filed by
the VA-I Separate Account of UNUM Life Insurance Company of
America on February 14, 1992.
+ Incorporated herein by reference to Amendment No. 13 filed
by the VA-I Separate Account of UNUM Life Insurance Company
of America on May 3, 1993.
++ Incorporated herein by reference to Amendment No. 16 filed
by the VA-I Separate Account of UNUM Life Insurance Company
of America on March 2, 1994.
# Incorporated herein by reference to Amendment No. 19 filed
by the VA-I Separate Account of UNUM Life Insurance Company
of America on May 2, 1994.
## Incorporated herein by reference to Amendment No. 27 filed
by the VA-I Separate Account of UNUM Life Insurance Company
of America on May 1, 1996.
### Incorporated herein by reference to Amendment No. 6 filed by
Lincoln National Variable Annuity Account L of the Lincoln
National Life Insurance Company on April 29, 1997
-3-
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following list contains the officers and directors of UNUM Life Insurance
Company of America who are engaged directly or indirectly in activities relating
to the VA-I Separate Account as well as the Contracts. The list also shows UNUM
Life Insurance Company of America's executive officers.
<TABLE>
<CAPTION>
Name and Address Positions and Offices with UNUM/America
<S> <C>
James F. Orr III* Chairman of the Board of Directors, Chief
Executive Officer
Elaine D. Rosen* Director and President
Robert W. Crispin* Director and Executive Vice President
Kevin P. O'Connell* Director and Executive Vice President
Peter J. Moynihan* Director and Senior Vice President
Gary E. Kirkner* Senior Vice President
Robert G. Ostrander* Senior Vice President
Peter S. Adams* Vice President
Diane M. Garofalo* Vice President
Nicholas J. Desiderio* Vice President and Chief Financial Officer
Kevin J. Tierney* Director, Senior Vice President, General Counsel
and Secretary
</TABLE>
* Principal business address of each person is 2211 Congress Street,
Portland, Maine 04122.
Item 26. Persons Controlled by or Under Common Control with UNUM Life Insurance
Company of America ("UNUM/America") or the VA-I Separate Account
The VA-I Separate Account is a separate account of UNUM/America and may be
deemed to be controlled by UNUM/America although UNUM/America will follow voting
instructions of Contractholders with respect to voting on certain important
matters requiring a vote of Contractholders.
The following chart indicates the persons controlled by or under common control
with UNUM/America and the VA-I Separate Account:
-4-
<PAGE>
<TABLE>
<CAPTION>
CORPORATE STRUCTURE/(1)/
<S> <C> <C> <C>
- -------------------- ------------------------ -------------------- ----------------------------
UNUM HOLDING COMPANY UNUM EUROPEAN HOLDING MINDTASK LIMITED DUNCANSON & HOLT, INC.
(DELAWARE) COMPANY LIMITED (UNITED KINGDOM) (NEW YORK)
(UNITED KINGDOM)
- ---------------------- ----------------------- -------------------- ----------------------------
---------------------- ----------------------- ----------------------------
FIRST UNUM UNUM GENERAL INSURANCE DUNCANSON & HOLT, SERVICES
LIFE INSURANCE COMPANY COMPANY LIMITED INC.
(NEW YORK) (UNITED KINGDOM) (MAINE)
---------------------- ----------------------- ----------------------------
-------------------- ----------------------- ----------------------------
NY HOLDINGS 1994-1 UNUM MANAGEMENT GROUP MANAGEMENT
NY HOLDINGS 1994-2 COMPANY LIMITED SERVICES, INC.
NY HOLDINGS 1994-3 (UNITED KINGDOM) (WASHINGTON)
NY HOLDINGS 1994-4
(MAINE)
-------------------- ----------------------- ------------------------------
---------------------- ----------------------- ------------------------------
UNUM SALES CORPORATION UNUM LIMITED DUNCANSON & HOLT,
(DELAWARE) (UNITED KINGDOM) ADMINISTRATIVE SERVICES,
INC. (DELAWARE)
---------------------- ----------------------- ------------------------------
---------------------- --------------------- ------------------------------
CLAIMS SERVICE OPEN DOOR DUNCANSON & HOLT
INTERNATIONAL, INC. VAC EUROPE LTD.
(DELAWARE) LIMITED (UNITED KINGDOM)
(UNITED KINGDOM)
---------------------- --------------------- ------------------------------
---------------------- ----------------------- ----------------------------
UNUM DEVELOPMENT CLAIMS SERVICE DUNCANSON & HOLT
CORPORATION INTERNATIONAL LIMITED (CONTINGENCY), LTD.
(MAINE) (UNITED KINGDOM) (UNITED KINGDOM)
---------------------- ----------------------- ---------------------------
---------------------- ---------------------------
UNUM INTERNATIONAL DUNCANSON & HOLT
UNDERWRITERS INC. UNDERWRITERS LTD.
(DELAWARE) ( UNITED KINGDOM)
---------------------- ---------------------------
---------------------- ---------------------------
UNUM LIFE INSURANCE DUNCANSON & HOLT
(2)COMPANY OF AMERICA AGENCIES LTD.
(MAINE) (UNITED KINGDOM)
---------------------- ---------------------------
-------------------- ---------------------------
UA HOLDINGS 1994-1 DUNCANSON & HOLT
UA HOLDINGS 1994-3 SYNDICATE
UA HOLDINGS 1994-5 MANAGEMENT LTD.
(MAINE) (UNITED KINGDOM)
-------------------- ---------------------------
-------------------- ---------------------------
SP ADMINISTRATOR, LLC TRAFALGAR UNDERWRITING
(3) (CALIFORNIA) AGENCIES LTD.
(UNITED KINGDOM)
-------------------- ---------------------------
------------------------------
DUNCANSON & HOLT
CANADA LTD.
(CANADA)
------------------------------
------------------------------
TRI-CAN
REINSURANCE INC.
(CANADA)
------------------------------
------------------------------
DUNCANSON & HOLT
ASIA PTE LTD.
(SINGAPORE)
------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------
UNUM MARCH 21, 1997
CORPORATION
(DELAWARE)
- ----------------------
<S> <C> <C> <C> <C>
------------------------ ------------------- ------------------ ------------------------- -----------------------
COLONIAL COMPANIES, INC. UNUM JAPAN UNUM (BERMUDA) CONTINENTAL NATIONAL LIFE CONTINENTAL INTERNATIONAL
(DELAWARE) ACCIDENT INSURANCE HOLDINGS LTD. INSURANCE COMPANY LIFE INSURANCE COMPANY
COMPANY LIMITED (BERMUDA) (DELAWARE) (DELAWARE)
JAPAN
------------------------ ------------------- ------------------ ---------------------- -----------------------
------------------------ ------------------
COLONIAL LIFE & ACCIDENT DUNCANSON & HOLT
INSURANCE COMPANY (BERMUDA) LTD.
(SOUTH CAROLINA) (BERMUDA)
------------------------ ------------------
---------------------- ------------------
CLA HOLDINGS 1994-1 UNUM
CLA HOLDINGS 1994-2 INTERNATIONAL LTD.
(MAINE) (BERMUDA)
---------------------- ------------------
------------------------
BENEFITAMERICA, INC.
(SOUTH CAROLINA)
------------------------
</TABLE>
1 PERCENTAGE OF OWNERSHIP IS 100% UNLESS OTHERWISE NOTED
2 REFLECTS SPLIT OWNERSHIP: 82.72% BY UNUM HOLDING COMPANY AND 17.28% BY UNUM
CORPORATION.
3 50% OWNED BY UNUM LIFE INSURANCE COMPANY OF AMERICA; 50% OWNED BY AN ENTITY
OUTSIDE OF UNUM CORPORATION'S HOLDING COMPANY STRUCTURE.
3/6/97
<PAGE>
Item 27. Number of Contractholders
As of March 31, 1997, Registrant had 507 Contractholders.
Item 28. Indemnification
Under the Participation Agreements entered into between UNUM/America and the
Dreyfus Life & Annuity Index Fund, Inc., Dreyfus Variable Investment Fund and
Dreyfus Corporation, Variable Insurance Products Funds I and II and Fidelity
Distributors Corporation, Twentieth Century Management Company, Acacia Capital
Corporation, and T. Rowe Price (the "Funds"), UNUM/America and its directors,
officers, employees, agents and control persons have been indemnified by the
Fund against any losses, claims or liabilities that arise out of any untrue
statement or alleged untrue statement or omission of a material fact in the
Funds' registration statements, prospectuses or sales literature. In addition,
the Funds will indemnify UNUM/America against any liability, loss, damages,
costs or expenses which UNUM/America may incur as a result of the Funds'
incorrect calculations, incorrect reporting and/or untimely reporting of the
Funds' net asset values, dividend rates or capital gain distribution rates.
UNUM/America's by-laws provide that UNUM/America "may indemnify any person made
or threatened to be made a party of any action or proceeding, including an
action by or in the right of any other corporation of any type or kind, domestic
or foreign, which any director, officer or employee of the Corporation served in
any capacity at the request of the Corporation, by reason of the fact that he,
his testator or intestate, was a director, officer or employee of the
Corporation or served such other corporation in any capacity, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director, officer, or employee acted,
in good faith, for a purpose which he or she reasonably believed to be in the
best interests of the corporation."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriter
(a) LNC Equity Sales Corporation also acts as the principal
underwriter for the VA-I Separate Account of First UNUM Life
Insurance Company, Lincoln National Variable Annuity Account
L, and Lincoln Life & Annuity Variable Annuity Account L.
(b)(1) The following table sets forth certain information regarding
the officers and directors of LNC Equity Sales
Corporation.
-5-
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME AND ADDRESS WITH LNC EQUITY SALES
<S> <C>
J. Michael Hemp* President and Director
Priscilla S. Brown* Chief Operating Officer, Sales and Marketing, and
Director
John M. Behrendt* Vice President and Director
Richard C. Boyles*** Chief Financial Officer and Administrative Officer
Kenneth Ehinger*** Chief Operating Officer and Director
Gary D. Giller**** Director
Janet C. Whitney** Vice President and Treasurer
C. Suzanne Womack** Secretary
</TABLE>
* Principal business address of each person is 1300 S. Clinton Street, Fort
Wayne, Indiana 46802.
** Principal business address of each person is 200 East Berry Street, Fort
Wayne, Indiana 46802-2706.
*** Principal business address of each person is 3811 Illinois Road, Suite
205, Fort Wayne, Indiana 46804-1202.
**** 7650 Rivers Edge Dr., Suite 250, Columbus, OH 43235.
c)
<TABLE>
<CAPTION>
Net Underwriting
Name of Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
LNC Equity Sales $0 N/A N/A N/A
Corporation
UNUM Sales $4,223,000 N/A N/A N/A
Corporation
</TABLE>
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and Rules 31a-1 to 31a-3 thereunder are maintained by UNUM/America
at 2211 Congress Street, Portland, Maine 04122.
Item 31. Management Services
None
Item 32. Undertakings and Representations
The Registrant hereby undertakes:
-6-
<PAGE>
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial statements
in this registration statement are never more than 16 months old for so long
as payments under the variable annuity contracts may be accepted, unless
otherwise permitted.
(b) to include either (1) as part of any application to purchase a Contract
offered by the prospectus, a space that an applicant can check to request a
Statement of Additional Information, or (2) a post card or similar written
communication affixed to or included in the prospectus that the applicant
can remove to send for a Statement of Additional Information.
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form promptly upon
written or oral request.
(d) The Registrant intends to rely on the no-action response dated November 28,
1988, from Ms. Angela C. Goelzer of the Commission staff to the American
Council of Life Insurance concerning the redeemability of Section 403(b)
annuity contracts and the Registrant has complied with the provisions of
paragraphs (1)-(4) thereof.
(e) The Registrant intends to offer Contracts to Participants in the Texas
Optional Retirement Program. In connection with that offering, Rule 6c-7 of
the Investment Company Act of 1940 is being relied upon and paragraphs (a)-
(d) of that Section will be complied with.
(f) UNUM Life Insurance Company of America hereby represents that the fees and
charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by UNUM Life Insurance Company of America.
-7-
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor have caused this Post-effective Amendment
to the Registration Statement to be signed on their behalf, in the City of
Portland, and State of Maine on this 28th day of April, 1997, and the Registrant
certifies that this Amendment is filed solely for one or more of the purposes
specified in Rule 485(b)(1) under the Securities Act of 1933 and that no
material event requiring disclosure in the prospectus, other than one listed in
Rule 485(b)(1), has occurred since the effective date of the most recent Post-
Effective Amendment to the Registration Statement which included a
prospectus.
VA-I Separate Account of
UNUM Life Insurance Company of America
(Registrant)
By:
/s/ Elaine D. Rosen
-------------------
Elaine D. Rosen
President
UNUM Life Insurance Company of America
UNUM Life Insurance Company of America
(Depositor)
By:
/s/ Elaine D. Rosen
-------------------
Elaine D. Rosen
President
As required by the Securities Act of 1933 this Post-effective Amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/Elaine D. Rosen President April 28, 1997
- --------------------
Elaine D. Rosen (Principal Executive Officer)
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C> <C>
/s/Nicholas J. Desiderio April 28, 1997
- ------------------------
Nicholas J. Desiderio Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/Charles W. Tarbell April 28, 1997
- ----------------------
Charles W. Tarbell Vice President, Treasurer
and Controller
(Principal Accounting Officer)
*
- -------------------- April 28, 1997
Elaine D. Rosen Director
*
- --------------------- April 28, 1997
Peter J. Moynihan Director
*
- --------------------- April 28, 1997
James F. Orr III Director
*
- -------------------- April 28, 1997
Robert W. Crispin Director
*
- ----------------- April 28, 1997
Kevin P. O'Connell Director
/s/Kevin J. Tierney April 28, 1997
- -------------------
Kevin J. Tierney Director
*By: /s/Kevin J. Tierney April 28, 1997
-----------------------
Kevin J. Tierney
Attorney-in-fact
</TABLE>
-9-
<PAGE>
Execution Copy
--------------
UNUM Life Insurance Company of America --
Variable Annuity I, II, and III
PRINCIPAL UNDERWRITING AGREEMENT
--------------------------------
THIS AGREEMENT is made as of the 1st day of October, 1996 and
effective as of the date specified in Section 19 hereof, among UNUM Life
Insurance Company of America ("UNUM"), a life insurance company organized and
existing under the laws of the State of Maine on behalf of itself and SEPARATE
ACCOUNT VA-1 OF UNUM (the "Separate Account"), a separate account established by
UNUM and existing pursuant to the Maine Insurance Code and LNC EQUITY SALES
CORPORATION ("Equity Sales"), a corporation organized and existing under the
laws of the State of Indiana.
W I T N E S S E T H:
WHEREAS, UNUM has issued and proposes to continue to issue to the
public certain group variable annuity contracts known as Variable Annuity I,
Variable Annuity II, and Variable Annuity III (the "Contracts") and has, by
resolution of its predecessor's Board of Directors on July 8, 1988, created a
segregated investment account in connection therewith; and
WHEREAS, UNUM has established the Separate Account for the purpose of
issuing the Contracts and has registered the Separate Account with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Contracts previously issued and to be issued by UNUM are
and will be registered with the Commission for offer and sale to the public, and
otherwise are in compliance with all applicable laws; and
WHEREAS, Equity Sales is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act") and a member of the
National Association of Securities Dealers, Inc. (along with any affiliates
thereof, "NASD"), and proposes to form a selling group for the distribution of
said Contracts; and
WHEREAS, Equity Sales is an affiliate of The Lincoln National Life
Insurance Company, a life insurance company organized and existing under the
laws of the State of Indiana ("LNL") and Lincoln Life & Annuity Company of New
York ("LLANY"); and
<PAGE>
WHEREAS, LNL and UNUM have entered into that certain Amended and
Restated Asset Transfer and Acquisition Agreement, dated as of January 24, 1996
(as amended, the "Acquisition Agreement"), the provisions of which are not
intended to be affected or modified hereby, whereby certain Contracts will be
indemnity reinsured and assumptively reinsured by LNL while additional premiums
may be paid and additional contracts may be issued by UNUM on a coinsurance
basis with LNL; and
WHEREAS, the parties hereto intend this Agreement to become effective
as of and from the Closing, as defined in the Transfer and Acquisition
Agreement; and
WHEREAS, pursuant to the Acquisition Agreement, LNL and UNUM and/or
affiliates of each also intend to enter into one or more Administrative Services
Agreement(s) (the "Administrative Services Agreement(s)") as of the Closing, the
provisions of which are not intended to be affected or modified hereby; and
WHEREAS, UNUM desires to retain the services of Equity Sales as
principal underwriter of the Contracts issued by UNUM through the Separate
Account that are not assumptively reinsured by LNL and of any additional
Contracts issued after the Closing pursuant to that certain Coinsurance and
Assumption Agreement ("the Coinsurance and Assumption Agreement") and that
certain Post-Closing Indemnity Reinsurance Agreement (the "Post-Closing
Indemnity Reinsurance Agreement"), each of which will be entered into by LNL and
UNUM as of the Closing, the provisions of which are not intended to be affected
or modified hereby;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
UNUM, the Separate Account and Equity Sales hereby agree as follows:
Duties of Equity Sales
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1. Selling Group. Equity Sales will contract with a selling group
consisting of broker-dealers appointed by UNUM to distribute the Contracts which
are issued by UNUM through the Separate Account and are registered with the
Commission for offer and sale to the public. Subject to Section 2 of this
Agreement, the initial selling group shall consist of those broker-dealers
listed in the attached Schedule A who enter into dealer agreements with Equity
Sales. Said Schedule A may be amended from time to time by the mutual consent
of the parties to this Agreement. Equity Sales will also distribute the
Contracts through its own duly licensed registered representatives.
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2. Selling Group Agreements. Equity Sales will enter into and
maintain a dealer agreement with each broker-dealer listed in Schedule A and
each broker-dealer joining such selling group ("member"), and an executed copy
of each will be provided to UNUM; provided, however, that Equity Sales shall not
be required to enter into any dealer agreement with any broker-dealer listed in
Schedule A if Equity Sales does not believe that such person is qualified to act
in such capacity. Any such dealer agreement will provide:
(a) that each member will distribute the Contracts only in those
jurisdictions in which the Contracts are registered or qualified
for sale and only through duly licensed registered
representatives of such member who are fully licensed with UNUM
to sell the Contracts in the applicable jurisdiction(s);
(b) that all applications and initial and subsequent payments
under the Contracts collected by the member will be remitted
promptly by the member to UNUM at such address as it may from
time to time designate; and
(c) that each member will comply with all applicable federal and
state laws, rules and regulations.
3. Sales Efforts. Equity Sales will use reasonable efforts to provide
information and reasonable marketing assistance to the members, including
preparing and providing members with advertising materials and sales literature,
and providing members with current Prospectuses for the Contracts and the funds
listed on Schedule B hereto (the "Funds"). Equity Sales will use reasonable
efforts to ensure that members deliver only the currently effective Prospectuses
of the Contracts and the Funds. Equity Sales and UNUM will cooperate in the
development of advertising and sales literature. Equity Sales will deliver to
members, and use reasonable efforts to ensure that members use, only sales
literature and advertising material which conforms to the requirements of
federal and state laws and regulations and which has been authorized by UNUM and
Equity Sales. Equity Sales will be responsible for filing sales literature and
advertising material, where necessary, with appropriate securities regulatory
authorities, including the NASD. UNUM understands and agrees that Equity Sales
is not required to promote or encourage the sale of additional Contracts and
that Equity Sales will actively solicit owners of Contracts to novate their
Contracts with LNL as contemplated by the Transfer and Acquisition Agreement.
In addition, UNUM understands and agrees that Equity Sales and its affiliates
intend to promote actively and sell products that are directly competitive with
the Contracts. UNUM reserves the right in its sole discretion without notice to
Equity Sales to suspend, withdraw or modify the offering of Contracts or to
change the conditions of their offering with respect to anyone or any class.
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4. Exclusions from Equity Sales Obligations. Equity Sales shall not
be responsible for:
(a) taking or transmitting applications for the Contracts;
(b) examining or inspecting risks or approving, issuing or
delivering Contracts;
(c) receiving, collecting or transmitting premium payments;
(d) assisting in the completion of applications for Contracts;
(e) remitting sales commissions to licensed broker-dealers and
insurance agents, if such payments must be made by UNUM under
applicable state insurance law;
(f) supervising the activities of the members of the selling
group or their registered representatives (other than registered
representatives of Equity Sales); and
(g) offering and selling Contracts except to the extent
necessary to provide continuing servicing, including continued
receipt of contributions and enrollment of new participants under
Contracts issued prior to the Closing and to issue and service
new Contracts pursuant to the Coinsurance and Assumption
Agreement and the Post-Closing Indemnity Reinsurance Agreement,
all on a reasonable efforts basis only.
5. Certain Expenses. Equity Sales will bear all its expenses of
providing services under this Agreement, including the cost of preparing,
printing and mailing advertising and sales literature, and the cost of printing
and mailing Contract and Fund Prospectuses which are used for sales purposes.
Equity Sales shall bear the expenses of registering and qualifying Contracts
for sale under federal and state laws and expenses of printing and mailing
Prospectuses, proxies and shareholder reports. Equity Sales will not pay, or
reimburse UNUM for, state appointing fees and associated renewal fees incurred
to enable members to sell the Contracts; provided, however, that Equity Sales
will pay, or reimburse UNUM for payment of , any state appointing fees and
associated renewal fees incurred by members selling only, and receiving
commissions for, Contracts issued under the Coinsurance and Assumption Agreement
and the Post-Closing Indemnity Reinsurance Agreement.
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<PAGE>
6. Certain Regulatory Matters. Equity Sales will advise UNUM
immediately upon Equity Sales becoming aware of:
(a) any request by the Commission (i) for amendment of the
registration statement relating to the Contracts or the Funds or
(ii) for additional information;
(b) the issuance by the Commission of any stop order suspending
the effectiveness of the registration statement of the Contracts
or the Fund or the initiation of and proceedings for that
purpose;
(c) the institution of any proceeding, investigation or hearing
involving the offer or sale of the Contracts or the Fund of which
it becomes aware; or
(d) the happening of any material event which makes untrue any
statement made in the registration statement of the Contracts or
the Fund or which requires the making of a change therein in
order to make any statement made therein not misleading.
Duties of UNUM
- --------------
7. Applications and Premiums. UNUM will receive and process
applications and premium payments in accordance with the terms of the Contracts
and the current Prospectuses. All applications for Contracts are subject to
acceptance or rejection by UNUM in its sole discretion. UNUM will inform Equity
Sales of any such rejection and the reason therefor.
8. Insurance Regulatory Matters. UNUM will be responsible for filing
the Contracts, applications, forms, sales literature and advertising material,
where necessary, with appropriate insurance regulatory authorities. UNUM
represents and warrants that all of the persons listed on Schedule A hereto have
been duly appointed as insurance agents for UNUM under applicable state law.
UNUM represents and warrants that such appointments will remain in effect after
the effective date of this Agreement, and UNUM will promptly notify Equity Sales
if any such appointment lapses for any reason.
9. Certain Regulatory Matters.
(a) UNUM will furnish to Equity Sales such information with
respect to the Separate Account and the Contracts in such form and signed by
such of its officers as Equity
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Sales may reasonably request, and will warrant that the statements therein
contained when so signed will be true and correct.
(b) UNUM will advise Equity Sales immediately of:
(i) any request by the Commission (i) for amendment of the
registration statement relating to the Contracts or the
Funds or (ii) for additional information;
(ii) the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement
of the Contracts or the Funds or the initiation of any
proceedings for that purpose;
(iii) the institution of any proceeding, investigation,
hearing or any action involving the offer or sale of the
Contracts or the Funds of which it becomes aware; and
(iv) the happening of any material event, if known, which
makes untrue any statement made in the registration
statement of the Contracts or the Funds or which requires
the making of a change therein in order to make may
statement made therein not misleading.
10. Additional Registrations. UNUM will use reasonable efforts to
register for sale, from time to time as necessary, additional dollar amounts of
the Contracts under the 1933 Act, and under state securities laws should it
ever be required, and to file for approval under state insurance laws when
necessary and will maintain the 1940 Act registration of the Separate Account.
11. Payments of Commissions. Equity Sales will pay all commissions
and service fees due by reason of sales of the Contracts (including continuing
commissions and service fees) to members of the selling group, as are from time
to time set forth in dealer agreements. Such dealer agreements shall provide
for the return of sales commissions by the members if the Contracts are tendered
for redemption to UNUM in accordance with the 10-day review ("free-look")
provision in the Contract.
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Representations and Warranties
- ------------------------------
12. Representations and Warranties by UNUM. UNUM represents and
warrants to Equity sales that:
(a) registration statements under the 1933 Act (File Nos. 33-
45846, 33-45851, 33-47786) and under the 1940 Act (File No. 811-
5803) on Form N-4 with respect to the Contracts and Separate
Account have been filed with the Commission in the form
previously delivered to Equity Sales, and copies of any and all
amendments thereto will be forwarded to Equity Sales at the time
that they are filed with the Commission;
(b) the registration statements and any amendments or
supplements thereto have become effective, conform in all
material respects to the requirements of the 1933 Act and the
1940 Act, and the rules and regulations of the Commission
thereunder, and do not and will not contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and
warranty shall not apply to any statement or omission made in
reliance upon and in conformity with information furnished in
writing to UNUM by Equity Sales expressly for use therein;
(c) UNUM is validly existing as a stock life insurance company
in good standing under the laws of the State of Maine, with power
(corporate or other) to own its properties and conduct its
business as described in the Acquisition Agreement, and has been
duly qualified for the transaction of business and is in good
standing under the laws of each other jurisdiction in which such
qualification is required in order for UNUM to conduct the
Business;
(d) the Contracts issued and to be issued through the Separate
Account have been duly and validly authorized and, when issued
and delivered against payment therefor as provided in the
Prospectuses and in the Contracts, were or will be (as the case
may be) duly and validly issued and conform and will conform to
the description of such Contracts contained in the Prospectuses
relating thereto;
(e) UNUM will not pay commissions or direct Equity Sales to pay
commissions to persons who, to the best of UNUM's knowledge, are
not
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<PAGE>
appropriately licensed in a manner as to comply with the state
insurance laws;
(f) the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a breach
or violation of any of the terms or provisions of, or constitute
a default under any statute, any indenture, mortgage, deed of
trust, note agreement or other agreement or instrument to which
UNUM is a party or by which UNUM is bound, UNUM's charter as a
stock life insurance company or by-laws, or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over UNUM or any of its properties, and no consent,
approval, authorization or order of any court or governmental
agency or body which has not been obtained by the effective date
of this Agreement is required for the consummation by UNUM of the
transactions undertaken pursuant to this Agreement;
(g) there are no material legal or governmental proceedings
threatened or pending to which UNUM or the Separate Account is a
party or of which any property of UNUM or the Separate Account is
the subject, other than as set forth in the Prospectus relating
to the Contracts, and other than litigation incident to the kind
of business conducted by UNUM which, if determined adversely to
UNUM, would not individually or in the aggregate have a material
adverse effect on the separate account operations of UNUM;
(h) none of the information furnished in writing by UNUM for use
in the registration statements of the Contracts will not result
in the registration statements' failing to conform in all
respects to the requirements of the 1933 Act and the 1940 Act and
the rules and regulations thereunder contain any untrue statement
or a material fact or omit a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and
(i) neither the existence nor the performance of this Agreement
or the Acquisition Agreement (including any additional agreements
contemplated thereby) will cause any participation or similar
agreements with the Funds with respect to the Contracts to be
breached, terminated or give any party to any such agreement the
right to terminate any such agreement (whether with or without
notice or lapse of time).
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<PAGE>
13. Representations and Warranties by Equity Sales. Equity Sales
represents and warrants to UNUM that:
(a) the performance of its duties under this Agreement by Equity
Sales will not result in a breach or violation of any of the
terms or provisions or constitute a default under any statute,
any indenture, mortgage, deed of trust, note, agreement or other
agreement or instrument to which Equity Sales is a party or by
which Equity Sales is bound, the Certificate of Incorporation or
By-Laws of Equity Sales, or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over
Equity Sales;
(b) any statement or omission made by UNUM in reliance upon and
in conformity with information furnished in writing to UNUM by
Equity Sales expressly for use in the registration statements for
the Contracts will not result in the registration statements'
failing to conform in all respects to the requirements of the
1933 Act and the rules and regulations thereunder or containing
any untrue statement of a material fact or omission of a material
fact required to be stated therein or necessary to make the
statements therein not misleading;
(c) it is a broker-dealer duly registered with the Commission
pursuant to the 1934 Act and a member in good standing of the
NASD and is in compliance in all material respects with all state
and federal securities and insurance laws and regulations in
those states in which it conducts business as a broker-dealer;
(d) it will use reasonable efforts to ensure that any offering,
sale or other disposition of the Contracts will be limited to
those jurisdictions that have been approved by UNUM or otherwise
permit the offer and sale of the Contracts by UNUM; and
(e) it will comply in all material respects with the
requirements of state broker-dealer statutes and regulations and
the 1934 Act and the rules and regulations thereunder as each
applies to Equity Sales and shall conduct its affairs in
accordance with the Rules of Fair Practice of the NASD.
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Confirmations and Recordkeeping
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14. (a) Confirmations. Equity Sales, as agent for UNUM, shall
confirm to each applicant for and purchaser of a Contract, in accordance with
Rule 10b-10 under the 1934 Act, acceptance of premiums and such other
transactions as are required to be confirmed by Rule 10b-10 or administrative
interpretations thereunder, or any NASD requirements. Equity Sales shall not be
separately compensated for these services.
(b) Recordkeeping. Equity Sales shall maintain and preserve
such books and records with respect to the Contracts as required to be in
conformity with the requirements of Rules 17a-3 and 17a-4 under the 1934 Act
including, to the extent such requirements apply, all books and records with
respect to confirmations provided under Rule 10b-10. UNUM shall cooperate in
maintaining such books and records to the extent that it is not practicable for
Equity Sales to do so. UNUM shall not be separately compensated for these
services.
Miscellaneous
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15. No Duty to Promote Sales. Equity Sales makes no representation
or warranty regarding the number of Contracts to be sold by licensed broker-
dealers and insurance agents or the amount to be paid thereunder. Equity Sales
and UNUM agree that it is not the purpose of this Agreement actively to sell
additional Contracts.
16. No Exclusivity. Equity Sales may act as principal underwriter,
sponsor, distributor or dealer for issuers other than UNUM or its affiliates in
connection with mutual funds and insurance products and otherwise.
17. No Additional Agents. Nothing in this Agreement shall obligate
Equity Sales to appoint any additional member or registered representative of a
member its agent for purposes of the distribution of the Contracts.
18. Indemnification.
(a) By UNUM. UNUM shall indemnify and hold harmless Equity
Sales and each person who controls or is associated with the Equity Sales within
the meaning of such terms under the federal securities laws, and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which Equity Sales
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and/or any such person may become subject, under any statute or regulation, any
NASD rule or interpretation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of a
material fact or omission or alleged omission
to state a material fact required to be stated
therein or necessary to make the statements
therein not misleading, in light of the
circumstances in which they were made,
contained in any (i) registration statement or
in any prospectus for the Contracts; or (ii)
blue-sky application or other document
executed by UNUM specifically for the purpose
of qualifying any or all of the Contracts for
sale under the securities laws of any
jurisdiction; provided that UNUM shall not be
liable in any such case to the extent that
such loss, claim, damage or liability arises
out of, or is based upon, an untrue statement
or alleged untrue statement or omission or
alleged omission: (i) made in reliance upon
information furnished in writing to UNUM by
Equity Sales specifically for use in the
preparation of any such registration statement
or any such blue-sky application or any
amendment thereof or supplement thereto; or
(ii) contained in (A) any registration
statement, or any post-effective amendment
thereto which becomes effective, filed by a
Fund with the Commission relating to shares of
such Fund (the "Shares"), including any
financial statements included in, or any
exhibit to, such registration statement or
post-effective amendment, (B) any prospectus
of a Fund relating to the Shares either
contained in any such registration statement
or post-effective amendment or filed pursuant
to Rule 497(c) or Rule 497(e) under the 1933
Act, (C) in any blue-sky application or other
document executed by a Fund specifically for
the purpose of qualifying any or all of the
shares of such Fund for sale under the
securities law of any jurisdiction or (D) in
any promotional, sales or advertising material
or written information relating to the Shares
authorized by a Fund; or
(ii) result because of the terms of any Contract or
because of any breach by UNUM of any provision
of this Agreement or of any Contract; or
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<PAGE>
(iii) result from any breach of any representation
or warranty made by UNUM under this Agreement.
This indemnification agreement shall be in addition to any liability that UNUM
may otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision if such loss, claim, damage or
liability is due to the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the person seeking indemnification.
(b) By Equity Sales. Equity Sales shall indemnify and
hold harmless UNUM and each person who controls or is associated with UNUM
within the meaning of such terms under the federal securities laws, and any
officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted), to which UNUM and/or any such person may become subject under
any statute or regulation, any NASD rule or interpretation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of a
material fact or omission or alleged omission
to state a material fact required to be stated
therein or necessary in order to make the
statements therein not misleading, in light of
the circumstances in which they were made,
contained in any (i) registration statement or
in any prospectus for the Contracts (ii) blue-
sky application or other document executed by
UNUM specifically for the purpose of
qualifying any or all of the Contracts for
sale under the securities laws of any
jurisdiction; in each case to the extent, but
only to the extent, that such untrue statement
or alleged untrue statement or omission or
alleged omission is made in reliance upon
information furnished in writing to UNUM by
Equity Sales specifically for use in the
preparation of any such registration statement
or any such blue-sky application or any
amendment thereof, or supplement thereto;
(ii) result because of any use by Equity Sales of
promotional, sales or advertising material not
authorized by UNUM or any verbal or written
misrepresentations by Equity Sales or any
unlawful sales practices concerning the
Contracts by Equity Sales under federal or
state laws or NASD
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<PAGE>
regulations, but not including any state
insurance law, compliance with which is a
responsibility of UNUM under this Agreement or
otherwise;
(iii) result from any claims by agents or
representatives or employees of Equity Sales
for commissions or other compensation or
remuneration of any type with respect to
periods after the Closing; or
(iv) result from any breach of any provision of
this Agreement, including a breach of any
representation or warranty made by Equity
Sales under this Agreement.
This indemnification shall be in addition to any liability that Equity Sales may
otherwise have; provided, however, that no person shall be entitled to
indemnification pursuant to this provision to the extent such loss, claims,
damage or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking indemnification.
(c) General. After receipt by a party entitled to
indemnification ("indemnified party") under this Section 18 of notice of the
commencement of any action, if a claim in respect thereof is to be made against
any person obligated to provide indemnification under this Section 18
("indemnifying party"), such indemnified party shall notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party shall not relieve
the indemnifying party from any liability under this Section 18, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (1) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (2) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party shall indemnify the indemnified party from and against any
loss or liability by reason of such settlement or judgment.
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<PAGE>
The indemnification provisions contained in this Section 19 shall
remain operative in full force and effect, regardless of (1) any investigation
made by or on behalf of either party or by or on behalf of any controlling
person thereof, (2) delivery of any Contracts and premiums therefor, and (3) any
termination of this Agreement. A successor by law of Equity Sales or UNUM, as
the case may be, shall be entitled to the benefits and bound by the obligations
of the indemnification provisions contained in this Section 18.
19. Term; Termination; No Assignment.
(a) The term of this Agreement shall commence as of the Closing.
(b) This Agreement will terminate automatically upon its
assignment, as that term is defined in the 1940 Act. This Agreement will also
terminate, without the payment of any penalty by either party:
(i) at the option of UNUM upon institution of formal
proceedings against Equity Sales by the NASD, by the
Commission or by any state securities commission;
(ii) at the option of Equity Sales upon the institution of
formal proceedings against UNUM by the Department of
Insurance of any state, the NASD, the Commission or any
state execution commission;
(iii) at the option of UNUM upon the termination of the
Administrative Services Agreement(s);
(iv) at the option of either party following the material
breach of this agreement by the other party, if such breach
is not cured within 30 days following notice by the
terminating party to the breaching party stating intent to
terminate and the nature of the breach; or
(v) as otherwise provided in the 1940 Act.
20. Arbitration. In the event of any disputes or differences arising
between the parties hereto with reference to any transaction under or relating
to any way to this Agreement as to which agreement between the parties cannot be
reached, the same shall be submitted to arbitration, which shall be mandatory
and binding. The arbitration shall be held in New York, New York. The
arbitration panel shall consist of three arbitrators who must be officers of
life insurance companies other than the parties to this Agreement or their
respective affiliates or subsidiaries.
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<PAGE>
UNUM shall appoint one arbitrator and Equity Sales the second. Such arbitrators
shall then select the third arbitrator before arbitration commences. Should one
of the parties decline to appoint an arbitrator, or should the two arbitrators
be unable to agree upon the choice of a third, such appointment shall be left to
the American Arbitration Association. Decisions of the arbitrators shall be by
majority vote, and from their written decision there shall be no appeal. The
costs of arbitration, including the fees of the arbitrators, shall be borne as
the arbitrators shall decide. Judgment upon any award granted by the arbitrators
may be entered in a Federal court of competent jurisdiction located in New York,
New York. The provisions of this Section shall survive the termination of this
Agreement.
21. Notices. Any notice required or permitted hereunder shall be in
writing and shall be delivered personally (by courier or otherwise), sent by
confirmed facsimile transmission (with a confirmation copy sent by first class
U.S. mail, postage pre-paid, within 24 hours after transmission) or sent by
certified, registered or express U.S. mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(a) If to Equity Sales to:
LNC Equity Sales Corporation
3811 Illinois Road
Suite 205
Fort Wayne, Indiana 48604
Attention: Richard Boyles
Telecopier No.: (219) 455-4343
With a concurrent copy to
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(b) If to UNUM to:
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<PAGE>
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
With a concurrent copy to:
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attention: William R. Galeota
Telecopier No.: (202) 828-4346
22. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, permitted assigns
and legal representatives. Neither this Agreement, nor any right hereunder, may
be assigned by either party (in whole or in part) without the prior written
consent of the other party, subject to any additional requirements of the 1940
Act.
23. Amendments. This Agreement cannot be amended, modified, changed
or discharged, except by an instrument in writing signed by an authorized
officer of each of UNUM and Equity Sales, subject to any additional requirements
of the 1940 Act.
24. Execution in Counterparts. This Agreement may be executed by the
parties hereto in any number of separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute one (1) and the same instrument. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, of the parties hereto.
25. No Third Party Beneficiaries. Except as otherwise specifically
provided for herein, nothing in this Agreement is intended or shall be construed
to give any person, other than the parties hereto, their successors and
permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
26. Headings and Schedules. Headings used herein are not a part of
this Agreement and shall not affect the terms hereof. The attached Schedules
are a part of this Agreement.
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27. Standard of Conduct and Interpretation. Without in any way
limiting their obligations under this Agreement, the parties hereto agree to
carry out the intent and purposes of this Agreement in good faith, and any
interpretation of this Agreement or of the respective rights and obligations of
the parties established thereby shall be consistent with the intent and purposes
of this Agreement as stated in the recitals above.
28. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
29. No Joint Venture. The parties understand that there is no
intention to create a joint venture in the subject matter of this Agreement.
Accordingly, the right to terminate this Agreement and to engage in any activity
not inconsistent with this Agreement is absolute.
30. Relationship to Other Agreements. This Agreement does not affect
the provisions of the Acquisition Agreements, the Administrative Services
Agreements, the Coinsurance and Assumption Agreement, the Post-Closing Indemnity
Reinsurance Agreement or any other written agreement between UNUM and Equity
Sales or LNL. Any obligations of UNUM under this Agreement, and any
responsibilities excluded from Equity Sales' obligations under this Agreement,
shall nonetheless be performed, in whole or in part, by LNL or an affiliate of
LNL as agent for UNUM if so required by the terms of the Administrative Services
Agreement(s) or the Acquisition Agreement. The parties recognize that certain
obligations of UNUM under this Agreement are contemplated to be performed by
UNUM's agents, including LNL and its affiliates.
-17-
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be duly executed and attested as follows:
UNUM LIFE INSURANCE COMPANY
OF AMERICA on behalf of
itself and Separate Account VA-1
of UNUM Life Insurance
Company of America
Attest:
/s/ Vicki J. Gordan By: /s/ Kevin J. Tierney
- ---------------------------- ----------------------------
Name: Vicki J. Gordan Name: Kevin J. Tierney
Title: Senior Vice President
and General Counsel
LNC EQUITY SALES CORPORATION
Attest:
/s/ Kelly D. Clevenger By: /s/ Kenneth R. Ehinger
- ----------------------------- ----------------------------
Name: Kelly D. Clevenger Name: Kenneth R. Ehinger
Title: Executive Director,
Chief Operating Officer
<PAGE>
FORM OF
SELLING AGREEMENT
AGREEMENT AMONG INSURANCE COMPANY
and
LNC EQUITY SALES CORPORATION
and
FORM OF SELLING AGREEMENT
Agreement made as of the day of , 1996, between Insurance Company,
the principal underwriter of variable products funded through Separate Account,
and ("Dealer"), an entity registered as a broker-dealer under the Securities
Exchange Act of 1934. (All variable products are hereinafter referred
collectively as the "Contracts" or individually as a "Contract".) Dealer desires
to sell the Contracts underwritten by which are listed on Schedule A.
This Agreement will record the understandings between Insurance Company, LNC
Equity Sales Corporation ("LNCESC") and Dealer relating to sales of the
Contracts and certain other services agreed to be performed by Dealer pursuant
to this Agreement.
SECTION 1. DEFINITIONS
1.1 "Applicant" shall mean either a prospective Contractholder or a prospective
Participant under the Contract.
1.2 "Commission" shall mean the Securities and Exchange Commission.
1.3 "Contractholder" shall mean any entity that is a party to a Contract with
Insurance Company.
<PAGE>
1.4 "Contributions" shall mean amounts deposited by Contractholders on behalf
of Participants under a Contract.
1.5 "Dealer" shall mean any broker-dealer who has entered into a selling
agreement with Insurance Company and LNCESC for the purpose of distributing
Contracts.
1.6 "Fund" shall mean the fund or investment company that is the underlying
investment vehicle for Separate Account.
1.7 "Participant" shall mean a person who has enrolled under a Contract and
maintains a Participant Account.
1.8 "Separate Account" shall mean the Separate Account, a separate account
established by Insurance Company in accordance with the laws of the State
of .
SECTION 2. REPRESENTATIONS OF INSURANCE COMPANY AND LNCESC
2.1 REGISTRATION STATEMENTS AND PROSPECTUSES.
Insurance Company and LNCESC represent to Dealer as follows, with respect to
each Contract.
(a) A Registration Statement under the Securities Act of 1933 (the "1933
Act") has become effective.
(b) The prospectus relating to each Contract contained in the appropriate
Registration Statement or any supplement or amendment thereto ("Prospectus"), as
of their respective effective dates, contains all statements and information
which are required to be stated therein by the 1933 Act and in all respects
conform to the requirements thereof, and the Prospectus does not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
<PAGE>
misleading; provided, however, that the foregoing representations shall not
apply to information contained in or omitted from the Prospectus in reliance
upon, and in conformity with, information furnished by any of the Dealers
specifically for use in the preparation thereof.
SECTION 3. REPRESENTATIONS OF DEALER
3.1 LICENSES.
Dealer represents to LNCESC that it is and will remain, registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended, and in such
other jurisdictions as the business transaction by it requires, is a member in
good standing of the National Association of Securities dealers, Inc. ("NASD"),
has obtained any other approvals, licenses, authorizations, orders or consents
which are necessary to enter into this Agreement, and is bonded as required by
all applicable laws and regulations.
Dealer represents that there are no proceedings threatened or pending against
them which could result in the suspension or loss of license to act as a broker
or dealer in any jurisdiction or loss of membership in the NASD.
Dealer further represents that it or its subsidiaries or affiliated companies,
as appropriate, are licensed as insurance agencies in all states which require
such licensing and in which the Contracts are sold by Broker-Dealer or its
subsidiaries or its affiliated companies.
3.2 QUALIFICATIONS OF REGISTERED REPRESENTATIVES.
Dealer represents to LNCESC that each person signing an application as agent
or receiving compensation for soliciting purchases of the Contracts will be a
registered representative or principal of Dealer with all licenses necessary or
appropriate to sell life insurance in the state of such signing or
<PAGE>
solicitation (and to sell variable contracts if required by such state), and
will have received an appropriate appointment or license by Insurance Company
and a level of qualification with the NASD appropriate for the Contracts
("Registered Representative").
3.3 COMPENSATION.
Dealer represents that it will not pay any commissions, or portions thereof,
or other compensation based upon a percentage of Contributions or other valuable
consideration to any person or entity which is not duly licensed or appointed by
Insurance Company to sell life insurance in the state of such payment (and to
sell variable contracts if required by the state in question).
3.4 REPRESENTATIONS UPON ASSIGNMENT.
If Dealer assigns this Agreement as provided in paragraph 7.1 below, the
representations made in paragraphs 3.1 through 3.3 above shall be read to apply
to the affiliate where the context so requires.
SECTION 4. SALE OF THE CONTRACTS
4.1 AUTHORIZATION.
Dealer is hereby authorized to solicit applications for the purchase of the
Contracts through its Registered Representatives in such states where Dealer and
its Registered Representatives are appropriately licensed. This authorization is
non-exclusive and is limited to the states in which the Contracts are approved
for sale.
4.2 SUITABILITY.
Insurance Company and LNCESC wishes to ensure that the Contracts solicited by
Dealer will be issued to persons for whom the Contracts will be suitable. Dealer
shall take reasonable steps to ensure that the Registered
<PAGE>
Representatives shall not make recommendations to an Applicant to purchase any
of the Contracts in the absence of reasonable grounds to believe that the
purchase of or participation under any of the Contracts is suitable for such
Applicant. While not limited to the following, a determination of suitability
shall be based on information furnished to a Registered Representative after
reasonable inquiry of such Applicant concerning the Applicant's insurance and
investment objectives, financial situation and retirement needs.
4.3 DISTRIBUTION ALLOWANCE.
Insurance Company and LNCESC agree to pay Dealer a sales commission as
indicated on the attached Schedule B as may be amended. The amount of the total
sales commission may be changed from time to time by Insurance Company and
LNCESC and any such change will apply prospectively to sales of the Contracts.
Where state law prohibits direct payment to Dealer, payments will be made in
accordance with the applicable state law.
Such commissions shall be payable only for a period during which the
Contractholder has designated Dealer as the "Broker-of-Record". The "Broker-of-
Record" designation shall be in writing and in a form satisfactory to Insurance
Company.
Insurance Company and LNCESC may offset against commissions due or to become
due hereunder any amounts owed by Dealer to Insurance Company or LNCESC or to
their affiliates, and the amount of such indebtedness shall be and remain a
first lien against such commissions until the indebtedness has been paid in
full. For purposes of this paragraph affiliate shall mean any corporation
directly or indirectly controlling, controlled by, or under common control with
Insurance Company or LNCESC. This provision shall survive the termination of
this Agreement.
<PAGE>
Subject to paragraph 4.4 below, Dealer agrees to pay on behalf of Insurance
Company and LNCESC any compensation due to the Registered Representatives.
4.4 NO COMPENSATION PAYABLE.
No compensation shall be payable, and any compensation already paid, shall be
retured to LNCESC on request under each of the following conditions:
(a) If Insurance Company or LNCESC, in its sole discretion, determine not
to issue the Contracts applied for,
(b) If a Contract is discontinued within the twelve (12) month period
following the effective date of the Contract,
(c) If Insurance Company or LNCESC refunds any Contributions deposited by
the Contractholder or Participant, which Insurance Company or LNCESC will do by
check directly to such person or entity, upon the exercise of any applicable
"free look" period,
(d) If Insurance Company or LNCESC refunds any Contributions deposited by
the Contractholder or Participant as a result of an error in the amount
contributed,
(e) If Insurance Company or LNCESC refunds any Contributions deposited by
the Applicant, Contractholder or Participant as a result of a complaint by such
person or entity, which Insurance Company or LNCESC will do by direct check,
recognizing that Insurance Company or LNCESC has sole discretion to refund such
Contributions, or
(f) If Insurance Company or LNCESC determines that any person signing an
application or any person or entity receiving compensation for soliciting
purchases of Contracts is not duly licensed to sell the Contracts in the
jurisdiction of such attempted sale.
<PAGE>
4.5 CONTRIBUTIONS.
Contributions under the Contracts must be forwarded by the Applicant directly
to Insurance Company.
Dealer has no authority to accept for Insurance Company any Contribution under
the Contracts and payment or delivery of such Contribution to Dealer will not be
considered as having been received by Insurance Company until Insurance Company
receives cash therefor.
4.6 APPLICATIONS.
The Registered Representatives shall transmit promptly all applications they
receive for the Contracts, together with required documentation, to LNCESC. All
such applications shall be on the appropriate Insurance Company form.
4.7 UNDERWRITING.
Insurance Company and LNCESC maintain responsibility for Contract underwriting
and, in its sole discretion, will determine whether to issue any of the
Contracts to each Applicant.
4.8 PROSPECTUSES AND SALES LITERATURE.
The Prospectus for a Contract, the Fund Prospectus (generally attached
thereto) and any supplements or amendments provided by Insurance Company or
LNCESC from time to time, shall be delivered to every Applicant by Dealer or its
registered representative. The Statements of Additional Information ("SAI")
shall be delivered to any Applicant who requests one. LNCESC shall keep Dealer
informed of the date for the appropriate current Prospectus, Fund Prospectus and
SAI and the dates of any supplements or amendments required to be delivered to
an Applicant. Dealer shall not use any sales literature or advertisements, as
defined in the next sentence, for the Policies, for the Fund or mentioning
Insurance Company or LNCESC without the prior written permission of Insurance
Company or LNCESC. For purposes of
<PAGE>
this Agreement, "sales literature and advertisements" means brochures, letters,
illustrations, training materials, materials for oral presentation and all other
similar materials, whether transmitted directly to potential Applicants or
published in print or audio-visual media, but does not include generic materials
which do not make reference to Insurance Company or LNCESC, the Fund or the
Contracts.
4.9 UNAUTHORIZED INFORMATION.
Dealer shall not give any information or make any representations concerning
any aspect of any of the Contracts, the Fund, Insurance Company or LNCESC or its
operations unless the information or representations are contained in the
appropriate Prospectus or SAI, as supplemented or amended from time to time, or
are contained in sales literature, advertisements or other promotional
literature approved pursuant to paragraph 4.8 above.
4.10 CONTRACT DELIVERY.
All Contracts issued by Insurance Company and transmitted to Dealer for
delivery shall be promptly delivered to the Contractholder.
4.11 MATERIALS FURNISHED BY LNCESC.
LNCESC, at its own expense, shall furnish to Dealer the following:
(a) the appropriate Prospectus, SAI, if any, and any supplements or
amendments thereto,
(b) the Fund Prospectus, SAI and any supplements or amendments thereto,
(c) applications,
(d) specimen Contracts,
(e) the most recent Semi-Annual or Annual Report of the Fund and the
Separate Account, and
<PAGE>
(f) any sales literature and advertisements which LNCESC chooses to make
available in its sole discretion.
Dealer, either directly or by reimbursing LNCESC on request, shall pay all
other expenses of soliciting applications for the Contracts, including but not
limited to expenses relating to sales literature and advertisements originated
by Dealer.
4.12 MAINTENANCE OF BOOKS AND RECORDS.
LNCESC and Dealer agree to keep all records required by federal and state
laws, to maintain books, accounts and records so as to clearly and accurately
disclose the precise nature and details of the transaction, and to assist one
another in the timely preparation of records. Dealer agrees that all records and
other data pertaining to the Contracts are the exclusive property of Insurance
Company and LNCESC, but this shall not preclude Dealer from keeping copies of
such data or records for its own files. Furthermore, upon Insurance Company or
LNCESC's request, Dealer shall deliver to Insurance Company or LNCESC, as soon
as practical, data held by it pursuant to this Agreement in a form mutually
agreed to by the parties.
4.13 REGULATORY MATTERS.
Insurance Company, LNCESC and Dealer shall each submit to all regulatory and
administrative bodies which have jurisdiction over the Contracts any
information, reports or other material required pursuant to applicable laws or
regulations.
4.14 REPORTING.
Each party hereto shall promptly furnish to the other party any reports and
information which the other party may request for the purpose of meeting
reporting and recordkeeping requirements under the insurance
<PAGE>
laws of the state of and any other state or jurisdiction and under the
federal or state securities laws or the rules of the NASD.
4.15 CONFIDENTIALITY.
Dealer shall keep confidential any information obtained pursuant to this
Agreement or the transactions contemplated herein and shall disclose such
information only if Insurance Company or LNCESC has authorized such disclosure,
or if such disclosure is required by state or federal regulatory bodies.
4.16 NOTIFICATION OF COMPLAINTS.
Dealer shall immediately notify Insurance Company and LNCESC, at the addresses
in the notice provision of this Agreement, of any sales- related or other
complaint or grievance relating to the Contracts or the transactions
contemplated herein and shall promptly reduce such notice to writing if oral.
Dealer shall promptly furnish all written materials in connection with any such
complaints or grievances to Insurance Company and LNCESC and will cooperate in
Insurance Company and LNCESC investigation of all such complaints or grievances.
Insurance Company and LNCESC retains discretion to resolve complaints or
grievances of Applicants, Contractholders, Participants or others, by settlement
or any other means, against Dealer or any of the Registered Representatives with
respect to the Contracts or any transactions arising out of this Agreement, upon
receipt of proof satisfactory to Insurance Company or LNCESC of the justice of
such claim. Insurance Company and LNCESC's decision shall be binding and
conclusive, and Dealer shall be liable for disbursements and agrees to reimburse
LNCESC therefore. If Insurance Company or LNCESC renders such a liability to
Dealer, it shall do so with full rights of subrogation to Dealer against any
Registered Representative involved.
4.17 COMPLIANCE, SUPERVISION AND TRAINING.
<PAGE>
LNCESC and Dealer will each comply with all applicable federal and state
laws and regulations and the rules of the NASD relating to the issuance and sale
of the Contracts. Dealer will bear full responsibility for the supervision of
the Registered Representatives in their solicitation of applications for the
Contracts and all activities relating to this Agreement. Dealer agrees that the
Registered Representatives will maintain a proficiency in insurance knowledge
and sales techniques as is necessary to solicit and service the Contracts.
Insurance Company and LNCESC will assist Dealer by assisting in the training of
Dealer's training personnel in product specifications and markets.
Dealer shall establish and implement reasonable procedures for periodic
inspection and supervision of sales practices of the Registered Representatives
and submit reports to LNCESC as requested from time to time on the result of
such inspections and the compliance with such procedures.
4.18 NOTIFICATION OF REGULATORY PROCEEDINGS.
Insurance Company or LNCESC shall immediately notify Dealer, at the address
in the notice provision of this Agreement, of the issuance by any regulatory
body of any stop order with respect to any of the Prospectuses, or the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Contracts or the Fund shares, and of any
other action or circumstances that may prevent the lawful offer or sale of any
of the Contracts in any state or jurisdiction.
Dealer shall immediately notify Insurance Company and LNCESC, at the
address in the notice provision of this Agreement, of the issuance by any
regulatory body of any order with respect to the operation or business of
Dealer, or the initiation of any proceeding for any purpose
<PAGE>
relating to the sale of the Contracts, and of any other actions or circumstances
that may prevent the lawful offer or sale of any of the Contracts in any state
or jurisdiction. In addition, Dealer shall promptly advise LNCESC if any of the
Registered Representatives is subject to any proceedings or any sanctioned or
suspended by the NASD or in any state or other jurisdiction.
4.19 RELATIONSHIP BETWEEN THE PARTIES.
Dealer is an independent contractor. Nothing contained in this Agreement
shall create, or shall be construed to create, the relationship of an employer
and employee between Insurance Company, LNCESC and Dealer or the Registered
Representatives.
4.20 LIMITS ON AUTHORITY.
Neither Dealer nor the Registered Representatives shall have any authority
on behalf of LNCESC or Insurance Company to:
(a) make, alter or discharge any Contract,
(b) incur any indebtedness or liability or expend or contract for the
expenditure of the funds of Insurance Company or LNCESC,
(c) bind Insurance Company or LNCESC to the reinstatement of any
terminated Contract, or accept or give a receipt for any Contributions
under the Contract,
(d) waive or modify any terms, conditions or limitations of any Contract
and related forms or instructions, grant permits, name special rates
or guarantee dividends or interest rates, make endorsements on any
Contracts,
(e) adjust or settle any claim or commit Insurance Company or LNCESC with
respect thereto, or bind Insurance Company or LNCESC or any of its
affiliates in any way,
<PAGE>
(f) enter into legal proceedings in connection with any matter pertaining
to Insurance Company or LNCESC's business without the prior written
consent of Insurance Company or LNCESC unless Dealer is named in such
proceedings. Where Dealer is named, it may retain counsel of its
choice.
4.21 VIOLATION OF LAW.
Nothing contained in this Agreement shall require Insurance Company, LNCESC
or Dealer to do anything which, in its judgment, would be a violation of any
federal or state law or regulation or NASD rule applicable to it.
SECTION 5. INDEMNIFICATION
5.1 OF DEALER WITH RESPECT TO THE PROSPECTUS.
Insurance Company and LNCESC will indemnify and hold harmless Dealer
against any losses, claims, damages or liabilities (or actions in respect
thereof) to which Dealer may become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Prospectus or SAI for any of the Contracts or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
Dealer for any legal or other expenses reasonably incurred by it in connection
with investigating or defending against such loss, claim, damage, liability or
action in respect thereof; provided, however, that Insurance Company and LNCESC
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon
<PAGE>
an untrue statement or alleged untrue statement or omission made in the
Prospectus or SAI for any of the Contracts or any such amendment or supplement
in reliance upon and in conformity with information furnished by Dealer,
specifically for use in the preparation thereof.
Insurance Company and LNCESC shall not indemnify Dealer for any action
where an Applicant for any of the Contracts was not furnished or sent or given,
at or prior to written confirmation of a Contribution under the Contract, a copy
of the appropriate Prospectus together with the Fund Prospectus, the SAI or Fund
SAI, if requested, and any supplements or amendments to either furnished to
Dealer by Insurance Company or LNCESC.
The foregoing indemnities shall, upon the same terms and conditions, extend
to and inure to the benefit of each director and officer of Dealer and any
person controlling Dealer.
5.2 OF INSURANCE COMPANY AND LNCESC WITH RESPECT TO THE PROSPECTUS.
Except as provided in paragraph 5.3 below, Dealer will indemnify and hold
harmless Insurance Company and LNCESC against any losses, claims, damages or
liabilities (or actions in respect thereof) to which Insurance Company and
LNCESC may become subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Prospectus or SAI for any of the Contracts or any amendment or supplement
thereto or the Fund Prospectus and SAI or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent that such untrue
statement or alleged untrue statement or omission or alleged
<PAGE>
omission was made, in reliance upon and in conformity with information furnished
to Insurance Company or LNCESC by Dealer, specifically for use in the
preparation thereof; and will reimburse LNCESC or Insurance Company for any
legal or other expenses reasonably incurred by LNCESC or Insurance Company in
connection with investigating or defending against any such loss, claim, damage,
liability or action.
The foregoing indemnity agreement shall, upon the same terms and
conditions, extend to and inure to the benefit of each director and officer of
LNCESC and Insurance Company and any person controlling Insurance Company and
LNCESC.
5.3 OF LNCESC AND Insurance Company WITH RESPECT TO NEGLIGENCE.
Dealer shall indemnify and hold harmless Insurance Company and LNCESC from
any and all losses, claims, damages or liabilities (or actions in respect
thereof) to which Insurance Company or LNCESC may be subject, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or result from negligent, intentional, improper, fraudulent or unauthorized
acts or errors or omissions by Dealer, its employees or Registered
Representatives or principals, including but not limited to improper
solicitation of applications for the Contracts, except as stated herein.
Dealer shall indemnify and hold harmless Insurance Company and LNCESC for
any losses, claims, damages or liabilities (or actions in respect thereof) to
which LNCESC or Insurance Company may become subject, insofar as the losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any unauthorized use of sales materials or advertisements or any
oral or written misrepresentations or any unlawful sales practices concerning
the Contracts of Insurance Company and LNCESC by Dealer, except as stated
<PAGE>
below.
Dealer shall indemnify and hold Insurance Company and LNCESC harmless for
any penalties, losses or liabilities resulting from Insurance Company or LNCESC
improperly paying any compensation under this Agreement, unless such improper
payment was caused by Insurance Company or LNCESC's negligence. Unless such
improper payment was caused by Dealer's negligence, the indemnity under the
immediately preceding sentence shall be limited to all compensation payable to
and by Dealer pursuant to this Agreement.
The foregoing indemnities shall, upon the same terms and conditions, extend
to and inure to the benefit of each director and officer of Insurance Company
and LNCESC and any person controlling Insurance Company or LNCESC.
5.4 OF DEALER WITH RESPECT TO NEGLIGENCE.
Insurance Company and LNCESC shall indemnify and hold harmless Dealer
against any losses, claims, damages or liabilities (or actions in respect
thereof) to which Dealer may become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) result from negligent,
intentional, improper, fraudulent or unauthorized acts or errors or omissions by
LNCESC or Insurance Company or their employees.
The foregoing indemnities shall, upon the same terms and conditions, extend
to and inure to the benefit of each director and officer of Dealer and any
person controlling Dealer.
5.5 OF INSURANCE COMPANY AND LNCESC WITH RESPECT TO COMPENSATION OF THE
REGISTERED REPRESENTATIVES.
Dealer shall indemnify and hold harmless LNCESC and Insurance Company for
any losses, claims, damages or liabilities (or actions in respect thereof) to
which Insurance Company or LNCESC may become subject, insofar as the losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
<PAGE>
or result from the payments to the Registered Representatives for sale of the
Contracts. The foregoing indemnities shall, upon the same terms and conditions,
extend to and inure to the benefit of each director and officer of Insurance
Company and LNCESC and any person controlling Insurance Company and LNCESC.
5.6 NOTICE OF ACTIONS.
Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party, notify the indemnifying
party in writing of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may
otherwise have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party, similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs of
investigation.
SECTION 6. EFFECTIVENESS AND TERMINATION
6.1 EFFECTIVENESS.
This Agreement shall be effective upon execution of both parties and will
remain in effect unless terminated
<PAGE>
as provided in paragraph 6.2, 6.3 or 7.1 below.
6.2 TERMINATION.
This Agreement may be terminated by either Insurance Company, LNCESC or
Dealer at any time by sixty (60) days written notice to the other.
6.3 AUTOMATIC TERMINATION.
This Agreement shall terminate:
(a) On the death or adjudication of incompetency of Dealer if name is a
natural person,
(b) On the dissolution of Dealer if Dealer is a Corporation, or
(c) Upon termination or expiration of any Insurance Company broker
license or appointment.
6.4 TERMINATION FOR CAUSE.
In the event of any material breach (as defined in paragraphs 6.5 and 6.6
below) of this Agreement by any party, the other party may, at its option,
terminate this Agreement by giving notice of termination, effective upon the
date specified in such termination notice. This remedy shall be in addition to
any other remedies available under this Agreement or at law.
6.5 MATERIAL BREACH BY LNCESC AND INSURANCE COMPANY.
Insurance Company and LNCESC shall be deemed to have materially breached
this Agreement and failed to perform hereunder upon the occurrence of any of the
following events:
(a) Insurance Company or LNCESC shall become insolvent or otherwise admit
in writing their inability to pay its debts when they become due,
become bankrupt, seek protection under any law for the protection of
insolvents, or have a receiver or conservator appointed for it under
any law pertaining to LNCESC or Insurance Company's insolvency; or
<PAGE>
(b) Insurance Company or LNCESC shall breach any material provision of
this Agreement and such breach shall remain uncured for more than
ninety (90) days following LNCESC or Insurance Company's receipt of
Dealer written notice of such breach.
6.6 MATERIAL BREACH BY DEALER.
Dealer shall be deemed to have materially breached this Agreement and
failed to perform hereunder upon the occurrence of any of the following events:
(a) Dealer shall become insolvent or otherwise admit in writing its
inability to pay its debts when they become due, become bankrupt,
seek protection under any law for the protection of insolvents, or
have a receiver or conservator appointed for it under any law
pertaining to Dealer's insolvency; or
(b) Dealer shall breach any material provision of this Agreement and such
breach shall remain uncured for more than thirty (30) days following
Dealer's receipt of LNCESC or Insurance Company's written notice of
such breach. In the event of a breach of the provisions of paragraph
4.17 or 4.18, the thirty (30) day period for cure is reduced to seven
(7) days.
SECTION 7. MISCELLANEOUS
7.1 ASSIGNMENT.
This Agreement is not assignable by Dealer except to an affiliate of Dealer
in order to comply with applicable laws or regulations and will terminate
automatically in the event of a purported assignment. If this Agreement is
assigned to an affiliate as permitted herein, Dealer shall not be relieved of
any of its obligations hereunder.
7.2 APPLICABLE LAW.
<PAGE>
This Agreement shall be subject to the 1933 Act, the Securities Exchange
Act of 1934 and the Investment Company Act of 1940, and the rules, regulations,
and rulings issued thereunder, including such exemptions as the Commission may
grant. This Agreement shall also be subject to the rules of the NASD.
Except as provided in this paragraph, this Agreement shall be construed in
accordance with the laws of the State of and shall be subject to its
insurance and securities laws and the applicable insurance and securities laws
of any other state or jurisdiction in which the Contracts are sold by Dealer.
7.3 ENFORCEABILITY.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
7.4 FORFEITURE.
Any fraud in connection with these Contracts, failure to promptly remit
funds collected on behalf of Insurance Company or LNCESC, or willful violation
of any of the terms of this Agreement shall result in the immediate termination
of this Agreement if then in force and the immediate termination of Dealer right
to any further compensation otherwise payable hereunder. This paragraph shall
survive the termination of this Agreement.
7.5 ENTIRE AGREEMENT.
The parties declare that there are no oral or other agreements or
understandings between them affecting this Agreement or relating to the selling
or servicing of the Contracts, except as disclosed herein. This Agreement
supersedes all prior agreements between the parties and constitutes the entire
Agreement between the parties.
This Agreement may be modified only if in writing and if
<PAGE>
attested to by those persons authorized to enter into Agreements on behalf of
Insurance Company and LNCESC and Dealer, respectively.
7.6 NO WAIVER.
If either party fails to require performance by the other party of any
provision of this Agreement, that party does not waive its right to require such
performance at a later time. If either party waives the breach of any provision
of this Agreement by the other party, the waiving party still has the right to
require performance of that provision and its conduct shall not be construed to
waive succeeding breaches of that provision or any breaches of any other
provision.
7.7 With respect to the Contracts specified in the attached Schedule, this
Agreement supersedes any prior agreement, contract or understanding between the
parties. Commissions payable under any such prior agreements shall be determined
and paid as specified therein. The right of lien and offset for the security of
any indebtedness due to Insurance Company or LNCESC under such prior agreements
are reserved and continued.
7.8 NOTICES.
Unless otherwise provided in this Agreement, all notices, requests, demands
and other communications which must be provided under this Agreement shall be in
writing and shall be deemed to have been given on the date of service if served
personally on the party to whom notice is to be given or on the date of mailing
if sent by first class mail, registered or certified, postage prepaid.
7.9 MISCELLANEOUS.
The headings in this Agreement are for purposes of reference only and shall
not limit or define the meaning hereof.
<PAGE>
This Agreement may be executed in several counterparts, each of which is an
original, but all of which together shall constitute one instrument.
The parties hereto have caused this Agreement to be executed in their names
and on their behalf by and through their duly authorized officers.
INSURANCE COMPANY
By
---------------------------
Date
-------------------------
Title
------------------------
LNC EQUITY SALES CORPORATION
By
---------------------------
Date
-------------------------
Title
------------------------
SEPARATE ACCOUNT
By
---------------------------
Date
-------------------------
Title
------------------------
<PAGE>
- --------------------------------------------------------------------------------
ASSUMPTION REINSURANCE AGREEMENT
by and between
UNUM LIFE INSURANCE COMPANY OF AMERICA
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of October 1, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS................................... 1
ARTICLE II BUSINESS ASSUMED.............................. 4
ARTICLE III NOTICES; ASSUMPTION CERTIFICATES; NOVATIONS... 4
ARTICLE IV TERRITORY..................................... 6
ARTICLE V CONTRACT ADMINISTRATION....................... 6
ARTICLE VI PREMIUMS; RECOVERIES.......................... 6
ARTICLE VII TRANSFER OF ASSETS............................ 7
ARTICLE VIII OFFSETS....................................... 7
ARTICLE IX ERRORS AND OMISSIONS.......................... 8
ARTICLE X DUTY OF COOPERATION........................... 8
ARTICLE XI ARBITRATION................................... 8
ARTICLE XII MISCELLANEOUS PROVISIONS...................... 9
Section 12.01. Notices.................................... 9
Section 12.02. Amendment.................................. 10
Section 12.03. Counterparts............................... 10
Section 12.04. No Third Party Beneficiaries............... 10
Section 12.05. Assignment................................. 10
Section 12.06. Governing Law.............................. 10
</TABLE>
-i-
<PAGE>
EXHIBITS
EXHIBIT A Option Letters
EXHIBIT B Certificates of Assumption
SCHEDULES
SCHEDULE 1.01 Insurance Contracts
SCHEDULE 1.02 Purchaser Separate Account
SCHEDULE 1.03 Seller Separate Account
SCHEDULE 3.01 Notices and Consents
-ii-
<PAGE>
ASSUMPTION REINSURANCE AGREEMENT
--------------------------------
THIS ASSUMPTION REINSURANCE AGREEMENT (this "Agreement"), dated as of
October 1, 1996, is made by and between UNUM Life Insurance Company of America,
a Maine domiciled stock life insurance company ("Seller"), and The Lincoln
National Life Insurance Company, an Indiana domiciled stock life insurance
company ("Purchaser").
WHEREAS, Seller has agreed to cede and transfer to Purchaser the
Insurance Contracts (as defined below) and Purchaser has agreed to assume the
rights, obligations and liabilities of Seller under the Insurance Contracts; and
WHEREAS, Seller and Purchaser are, concurrently with the execution of
this Agreement, entering into an Indemnity Reinsurance Agreement (the "Indemnity
Reinsurance Agreement") whereby Seller will cede and Purchaser will reinsure, on
an indemnity reinsurance basis, the general account obligations of Seller under
the Insurance Contracts pending the assumption of the Insurance Contracts by
Purchaser under this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"Acquisition Agreement" means the Second Amended and Restated Asset
---------------------
Transfer and Acquisition Agreement entered into by and between Purchaser and
Seller dated as of January 24, 1996, to which LLANY (as defined herein) has been
added as a party.
"Administrative Services Agreement" means the Administrative Services
---------------------------------
Agreement entered into by and between Purchaser and Seller dated as of the date
hereof.
"Affiliate" means, with respect to any Person, at the time in
---------
question, any other Person controlling, controlled by or under common control
with such Person.
"Agreement" means this Assumption Reinsurance Agreement.
---------
"Certificateholder Notice" shall have the meaning set forth in Article
------------------------
III.
<PAGE>
"Certificateholders" means the certificateholders under the group
------------------
annuity contracts included within the Insurance Contracts.
"Certificates of Assumption" shall have the meaning set forth in
--------------------------
Article III hereof.
"Contractholder Notice" shall have the meaning set forth in Article
---------------------
III.
"Contractholders" means the holders of the group annuity contracts
---------------
included within the Insurance Contracts.
"Effective Date" means October 1, 1996.
--------------
"Extra Contractual Obligations" means all liabilities for
-----------------------------
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Seller or any
of its Affiliates prior to the date hereof, whether intentional or otherwise, or
from any reckless conduct or bad faith by Seller or any of its Affiliates, in
connection with the handling of any claim under any of the Insurance Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Insurance Contracts (provided that no liability with respect to which
Purchaser or LLANY shall be entitled to indemnification under Section
10.01(a)(ii) of the Acquisition Agreement shall be deemed to be an Extra
Contractual Obligation).
"General Account Liabilities" means those Insurance Liabilities which
---------------------------
are general account obligations of Seller, excluding any general account
liabilities which relate to (i) amounts transferred from the Seller Separate
Account to the general account of Seller pending distribution to holders of the
Insurance Contracts and (ii) amounts held in the general account of Seller
pending transfer to the Seller Separate Account.
"Indemnity Reinsurance Agreement" shall have the meaning set forth in
-------------------------------
the second recital of this Agreement.
"Insurance Contracts" means all group annuity contracts issued by
-------------------
Seller that are listed on Schedule 1.01 hereto and in effect on the Effective
Date and all certificates and participation agreements in effect as of the
Effective Date issued in accordance with the terms of such group annuity
contracts (including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"Insurance Liabilities" means all liabilities and obligations arising
---------------------
under the Insurance Contracts (including, without limitation, the Seller
Separate Account Liabilities, but excluding any Extra Contractual Obligations),
including, without limitation: (i) all liability for premium taxes arising on
account of premiums paid or annuities purchased on or after the Effective Date,
(ii) all amounts payable on or after the Effective Date for returns or refunds
of premiums under the Insurance Contracts, (iii) all liability for commission
payments and other fees or compensation payable with respect to the Insurance
Contracts to
-2-
<PAGE>
or for the benefit of brokers and service providers, to the extent that such
amounts are or become payable on or after the Effective Date, (iv) all guaranty
fund assessments and similar charges imposed with respect to the Insurance
Contracts based on premiums paid on or after the Effective Date.
"LLANY" means Lincoln Life & Annuity Company of New York, an
-----
Affiliate of Purchaser.
"Notice" means a Contractholder Notice or a Certificateholder Notice.
------
"Novated Contracts" shall have the meaning set forth in Article III
-----------------
hereof.
"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"Purchaser" shall have the meaning set forth in the introductory
---------
paragraph of this Agreement.
"Purchaser Separate Account" means the separate account of Purchaser
--------------------------
described on Schedule 1.02 hereto.
"Seller" shall have the meaning set forth in the introductory
------
paragraph of this Agreement.
"Seller Separate Account" means the separate account of Seller
-----------------------
described on Schedule 1.03 hereto.
"Seller Separate Account Liabilities" means those insurance
-----------------------------------
liabilities that are reflected in the Seller Separate Account and that relate to
Insurance Contracts.
"Trust Account" means the Trust Account established pursuant to the
-------------
Trust Agreement.
"Trust Agreement" means the Trust Agreement entered into by and among
---------------
the Purchaser, Seller and Trustee dated as of the date hereof.
"Trustee" means the trustee named as such in the Trust Agreement and
-------
any successor trustee appointed as such pursuant to the terms of the Trust
Agreement.
-3-
<PAGE>
ARTICLE II
BUSINESS ASSUMED
----------------
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, Seller hereby agrees to cede to Purchaser and Purchaser hereby agrees
to accept and assume the Insurance Contracts. Purchaser agrees to indemnify,
defend and hold harmless Seller (and its directors, officers, employees,
Affiliates, successors and permitted assigns), in accordance with the procedures
set forth in Section 10.02 and Section 10.03 of the Acquisition Agreement, from
and against all Insurance Liabilities assumed by Purchaser pursuant to this
Agreement.
ARTICLE III
NOTICES; ASSUMPTION CERTIFICATES; NOVATIONS
-------------------------------------------
Purchaser shall prepare for mailing to each Contractholder that is
resident in a state where Seller and Purchaser have obtained all required
regulatory approvals for the assumption of the Insurance Contracts, an option
letter, including a rejection form, substantially in the form attached hereto as
Exhibit A-1 (such option letters are hereinafter referred to as the
"Contractholder Notices"). The Contractholder Notices shall be mailed by
Purchaser to each such Contractholder, at the sole expense of Purchaser, on the
date when all required regulatory approvals have been obtained for the
assumption of each such Insurance Contract by Purchaser or as soon as
practicable thereafter. Each Contractholder Notice shall be dated the date upon
which it is mailed.
Subject to regulatory requirements of the various states with respect
to Contractholders resident in such states, Seller and Purchaser agree that a
Contractholder will remain a Contractholder of Seller if a rejection of the
assumption is delivered by such Contractholder to Seller or Purchaser prior to
the expiration of the 30-day period which will commence on the date that the
Contractholder Notice is sent to such Contractholder. In the event of such
rejection, Certificateholder Notices will not be sent to Certificateholders
under the Insurance Contracts held by such Contractholder (as otherwise provided
for below) and such Certificateholders will remain as Certificateholders of
Seller.
Following the expiration of the 30-day period referred to above (or,
if earlier, following the receipt of any affirmative consent from a
Contractholder), Purchaser shall prepare for mailing to each Certificateholder
under the applicable Insurance Contracts an option letter, including a rejection
form, substantially in the form attached hereto as Exhibit A-2 (such option
letters are hereinafter referred to as the "Certificateholder Notices"). The
Certificateholder Notices shall be mailed promptly by Purchaser to each such
-4-
<PAGE>
Certificateholder, at the sole expense of Purchaser. Each Certificateholder
Notice will be dated the date upon which it is mailed.
Subject to regulatory requirements of the various states with respect
to Certificateholders resident in such states, Seller and Purchaser agree that a
Certificateholder will remain a Certificateholder of Seller if a rejection of
the assumption is delivered by such Certificateholder to Seller or Purchaser
prior to the expiration of the 30-day period which will commence on the date
that the Certificateholder Notice is sent to such Certificateholder. Seller and
Purchaser agree further that, where the regulatory requirements of a particular
state provide for a novation procedure different from that set forth in the
preceding sentence, Insurance Contracts owned by a Certificateholder resident in
such state will be novated in accordance with such procedure.
Purchaser shall also prepare and mail certificates of assumption in
the form attached hereto as Exhibit B-1 or B-2, as applicable (the "Certificates
of Assumption").
Insurance Contracts assumed by Purchaser hereunder as provided for
above shall be deemed to have been assumed by novation and shall be defined
herein as "Novated Contracts." Except as set forth below in this Article III,
the effective date of novation of an Insurance Contract shall be the effective
date of novation specified in the Certificateholder Notices sent in respect of
such Insurance Contract, which date shall be (i) if the Certificateholder
Notices are mailed on or prior to the 25th day of any month, the first day of
the second month following the month in which such Certificateholder Notices are
mailed, and (ii) if the Certificateholder Notices are mailed after the 25th day
of any month, the first day of the third month following the month in which such
Certificateholder Notices are mailed. With respect to an Insurance Contract
held by a Contractholder or Certificateholder resident in a state where the
regulatory requirements provide for a novation procedure different from the
novation procedure set forth in the preceding sentence, the effective date of
Novation shall be as set forth in the Notice sent to such Contractholder or
Certificateholder, such Notice to be prepared in accordance with such regulatory
requirements. Notwithstanding the foregoing, the effective date of novation of
an Insurance Contract that has Seller Separate Account Liabilities related
thereto shall be no earlier than the date upon which the assets supporting such
Seller Separate Account Liabilities are transferred to the Purchaser Separate
Account.
Purchaser shall be the successor to Seller under the Novated Contracts
as if the Novated Contracts were direct obligations originally issued by
Purchaser. Purchaser shall be substituted in the place and stead of Seller, and
each Contractholder and Certificateholder under a Novated Contract shall be
entitled to disregard Seller as a party thereto and treat Purchaser as if it had
been originally obligated thereunder. Each such Contractholder and
Certificateholder shall have the right to file claims arising under the Novated
Contracts on or after the effective date of such novation directly with
Purchaser and shall have a direct right of action for Insurance Liabilities
reinsured thereunder against Purchaser, and Purchaser hereby consents to be
subject to direct action taken by any Contractholder or Certificateholder under
a Novated Contract. Purchaser accepts and
-5-
<PAGE>
assumes the Novated Contracts subject to any and all defenses, setoffs and
counterclaims to which Seller would be entitled in relation to the Insurance
Liabilities, it being expressly understood and agreed by the parties hereto that
no such defenses, setoffs or counterclaims are waived by the execution of this
Agreement or the consummation of the transactions contemplated hereby and that
Purchaser shall be fully subrogated to all such defenses, setoffs and
counterclaims.
Seller and Purchaser agree that, where the regulatory requirements of
a particular state provide for a novation procedure different from that set
forth in this Article III, Insurance Contracts owned by a Contractholder
resident in such state will be novated in accordance with such procedure. In
addition, notwithstanding the form of the Exhibits referred to above in this
Article III, the parties agree that such Exhibits will be modified for use in
the various states to the extent required to comply with local regulatory
requirements or as agreed by the parties. The parties generally intend to mail
Notices and to seek consents as described in Schedule 3.01 hereto.
ARTICLE IV
TERRITORY
---------
This Agreement shall apply to Insurance Contracts covering lives and
risks wherever resident or situated.
ARTICLE V
CONTRACT ADMINISTRATION
-----------------------
Following the respective effective dates of novation of the Novated
Contracts, Purchaser shall have sole direct responsibility for the
administration and servicing of the Novated Contracts. Seller agrees that,
after the respective effective dates of novation of the Novated Contracts, it
will forward to Purchaser immediately upon receipt all notices and other written
communications received by it relating to Novated Contracts (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).
ARTICLE VI
PREMIUMS; RECOVERIES
--------------------
Seller shall remit to Purchaser or Purchaser shall retain, as
applicable, 100% of all premiums, contract loan repayments and other amounts
received by Seller or Purchaser with respect to the Novated Contracts on or
after the respective dates of novation including,
-6-
<PAGE>
but not limited to, all administrative expense and deposit charges deducted from
the remittance of premiums or other amounts billed separately, asset charges
collected, market value adjustments collected and back-end loadings collected
under the Novated Contracts.
Effective on the respective effective dates of novation, Purchaser
shall have sole direct responsibility for billing and collecting premiums in
respect of, and principal and interest payments on contract loans under, the
Novated Contracts.
ARTICLE VII
TRANSFER OF ASSETS
------------------
On the respective dates of novation, Seller shall transfer and assign
to Purchaser all contract loans under the Novated Contracts. In addition,
Seller shall, on the effective date of novation specified in the Notice sent in
respect of an Insurance Contract which has Seller Separate Account Liabilities
related thereto, transfer to the appropriate Purchaser Separate Account the
assets of the Seller Separate Account which support the Seller Separate Account
Liabilities arising under each Insurance Contract so novated.
In the event that contract loans are transferred by Seller to
Purchaser or assets are transferred from the Trust Account to Purchaser with
respect to a Novated Contract which is subsequently finally determined in a
judicial proceeding or by regulatory action not to have been novated, Purchaser
shall transfer any contract loans under such Insurance Contract to Seller and
shall transfer to the Trust Account assets with a market value on the date of
transfer in an amount at least equal to the General Account Liabilities (less
any contract loans) arising under such Insurance Contract on the date of
transfer. In the event that assets are transferred to the Purchaser Separate
Account with respect to a Novated Contract which is subsequently determined not
to have been novated, Purchaser shall transfer to the Seller Separate Account
the assets in the Purchaser Separate Account relating to the Purchaser separate
account liabilities arising under such Insurance Contract on the date of
transfer.
ARTICLE VII
OFFSETS
-------
Any debts or credits between Seller and Purchaser arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
-7-
<PAGE>
ARTICLE IX
ERRORS AND OMISSIONS
--------------------
Inadvertent delays, errors or omissions made by either Seller or
Purchaser in connection with this Agreement or any transaction hereunder shall
not relieve the other party from any liability which would have attached to such
party had such delay, error or omission not occurred, provided that the party
causing such delay error or omission rectifies the same as soon as possible
after its discovery thereof.
ARTICLE X
DUTY OF COOPERATION
-------------------
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
This duty to cooperate shall include obtaining the governmental and regulatory
consents and approvals and taking the other steps necessary for the assumption
of the Insurance Contracts, as described in Article III hereof.
ARTICLE XI
ARBITRATION
-----------
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent
that the unique aspects of the transaction render such customs and usages
inapplicable. The parties hereto shall act in all things with the highest good
faith. Any dispute or difference with respect to the operation or
interpretation of this Agreement on which an amicable understanding cannot be
reached shall be submitted to arbitration, which shall be mandatory and binding;
provided, however, that this Article XI shall not apply in the event Purchaser
shall become subject to a delinquency proceeding as defined in Section 27-9-1-2
of the Indiana Insurance Law. The arbitrators shall be free to reach their
decision from the standpoint of equity and customary practices of the insurance
and reinsurance industry rather than from that of strict legal principles.
The arbitration shall be held in Portland, Maine, and shall consist of
three arbitrators who must be active or retired executive officers of life
insurance companies other than the parties to this Agreement, their Affiliates
or subsidiaries. Seller shall appoint one arbitrator and Purchaser the second.
Such arbitrators shall then select the third arbitrator before arbitration
commences. Should one of the parties decline to appoint an arbitrator or should
the two arbitrators be unable to agree upon the choice of a third, such
appointment shall be left to the President of the American Academy of Actuaries.
-8-
<PAGE>
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide.
Judgment upon any award granted by the arbitrators may be entered in a
Federal court of competent jurisdiction in Portland, Maine.
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
Section 12.01. Notices. Any notice required or permitted hereunder
-------
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(1) If to Purchaser to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to Seller to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
-9-
<PAGE>
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 12.02. Amendment. This Agreement may not be modified,
---------
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 12.03. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
Section 12.04. No Third Party Beneficiaries. Except as otherwise
----------------------------
specifically provided for herein, nothing in this Agreement is intended or shall
be construed to give any Person, other than the parties hereto, their successors
and permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 12.05. Assignment. This Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto.
Section 12.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MAINE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
-10-
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement
as of the Effective Date.
UNUM LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ Kevin J. Tierney
----------------------
Name: Kevin J. Tierney
Title: Senior Vice President and
General Counsel
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: /s/ Kelly D. Clevenger
------------------------
Name: Kelly D. Clevenger
Title: Vice President
-11-
<PAGE>
- --------------------------------------------------------------------------------
ASSUMPTION REINSURANCE AGREEMENT
by and between
UNUM LIFE INSURANCE COMPANY OF AMERICA
and
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Dated as of October 1, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.................................. 1
ARTICLE II BUSINESS ASSUMED............................. 3
ARTICLE III NOTICES; ASSUMPTION CERTIFICATES; NOVATIONS.. 4
ARTICLE IV TERRITORY.................................... 6
ARTICLE V CONTRACT ADMINISTRATION...................... 6
ARTICLE VI PREMIUMS; RECOVERIES......................... 6
ARTICLE VII TRANSFER OF ASSETS........................... 6
ARTICLE VIII OFFSETS...................................... 7
ARTICLE IX ERRORS AND OMISSIONS......................... 7
ARTICLE X DUTY OF COOPERATION.......................... 7
ARTICLE XI ARBITRATION.................................. 8
ARTICLE XII MISCELLANEOUS PROVISIONS..................... 8
Section 12.01. Notices................................... 8
Section 12.02. Amendment................................. 9
Section 12.03. Counterparts.............................. 10
Section 12.04. No Third Party Beneficiaries.............. 10
Section 12.05. Assignment................................ 10
Section 12.06. Governing Law............................. 10
Section 12.07. Entire Agreement.......................... 10
</TABLE>
-i-
<PAGE>
EXHIBITS
EXHIBIT A Option Letters
EXHIBIT B Certificates of Assumption
SCHEDULES
SCHEDULE 1.01 Insurance Contracts
SCHEDULE 1.02 LLANY Separate Account
SCHEDULE 1.03 Seller Separate Account
<PAGE>
ASSUMPTION REINSURANCE AGREEMENT
--------------------------------
THIS ASSUMPTION REINSURANCE AGREEMENT (this "Agreement"), dated as of
October 1, 1996, is made by and between UNUM Life Insurance Company of America,
a Maine domiciled stock life insurance company ("Seller"), and Lincoln Life &
Annuity Company of New York, a New York domiciled stock life insurance company
("LLANY").
WHEREAS, Seller has agreed to cede and transfer to LLANY the Insurance
Contracts (as defined below) and LLANY has agreed to assume the rights,
obligations and liabilities of Seller under the Insurance Contracts; and
WHEREAS, Seller and LLANY are, concurrently with the execution of this
Agreement, entering into an Indemnity Reinsurance Agreement (the "Indemnity
Reinsurance Agreement") whereby Seller will cede and LLANY will reinsure, on an
indemnity reinsurance basis, the general account obligations of Seller under the
Insurance Contracts pending the assumption of the Insurance Contracts by LLANY
under this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"Acquisition Agreement" means the Second Amended and Restated Asset
---------------------
Transfer and Acquisition Agreement entered into by and between Purchaser (as
defined below) and Seller dated as of January 24, 1996, to which LLANY has been
added as a party.
"Affiliate" means, with respect to any Person, at the time in
---------
question, any other Person controlling, controlled by or under common control
with such Person.
"Agreement" means this Assumption Reinsurance Agreement.
---------
"Certificateholder Notice" shall have the meaning set forth in Article
------------------------
III.
"Certificateholders" means the certificateholders under the group
------------------
annuity contracts included within the Insurance Contracts.
"Certificates of Assumption" shall have the meaning set forth in
--------------------------
Article III.
<PAGE>
"Contractholder Notice" shall have the meaning set forth in Article
---------------------
III.
"Contractholders" means the holders of the group annuity contracts
---------------
included within the Insurance Contracts.
"Custodian Account" means the Custodian Account established pursuant
-----------------
to the Custodian Agreement entered into by and among Seller, LLANY and the
custodian named therein dated the date hereof.
"Effective Date" means October 1, 1996.
--------------
"Extra Contractual Obligations" means all liabilities for
-----------------------------
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Seller or any
of its Affiliates prior to the date hereof, whether intentional or otherwise, or
from any reckless conduct or bad faith by Seller or any of its Affiliates, in
connection with the handling of any claim under any of the Insurance Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Insurance Contracts (provided that no liability with respect to which
Purchaser or LLANY shall be entitled to indemnification under Section
10.01(a)(ii) of the Acquisition Agreement shall be deemed to be an Extra
Contractual Obligation).
"General Account Liabilities" means those Insurance Liabilities which
---------------------------
are general account obligations of Seller, excluding any general account
liabilities which relate to (i) amounts transferred from the Seller Separate
Account to the general account of Seller pending distribution to holders of the
Insurance Contracts and (ii) amounts held in the general account of Seller
pending transfer to the Seller Separate Account.
"Inactive Certificateholder" means a Certificateholder under an
--------------------------
Insurance Contract with respect to which regular periodic deposits are not being
made by the Contractholder.
"Indemnity Reinsurance Agreement" shall have the meaning set forth in
-------------------------------
the second recital of this Agreement.
"Insurance Contracts" means all group annuity contracts issued by
-------------------
Seller that are listed on Schedule 1.01 hereto and in effect on the Effective
Date and all certificates and participation agreements in effect as of the
Effective Date issued in accordance with the terms of such group annuity
contracts (including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"Insurance Liabilities" means all liabilities and obligations arising
---------------------
under the Insurance Contracts (including, without limitation, the Seller
Separate Account Liabilities, but excluding any Extra Contractual Obligations),
including, without limitation: (i) all liability for premium taxes arising on
account of premiums paid or annuities purchased on or after the Effective Date,
(ii) all amounts payable on or after the Effective Date for returns or
-2-
<PAGE>
refunds of premiums under the Insurance Contracts, (iii) all liability for
commission payments and other fees or compensation payable with respect to the
Insurance Contracts to or for the benefit of brokers and service providers, to
the extent that such amounts are or become payable on or after the Effective
Date, (iv) all guaranty fund assessments and similar charges imposed with
respect to the Insurance Contracts based on premiums paid on or after the
Effective Date.
"LLANY" shall have the meaning set forth in the introductory paragraph
-----
of this Agreement.
"LLANY Separate Account" means the separate account of LLANY described
----------------------
on Schedule 1.02 hereto.
"Notice" means a Contractholder Notice or a Certificateholder Notice.
------
"Novated Contracts" shall have the meaning set forth in Article III.
-----------------
"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"Purchaser" means The Lincoln National Life Insurance Company, an
---------
Affiliate of LLANY.
"Seller" shall have the meaning set forth in the introductory
------
paragraph of this Agreement.
"Seller Separate Account" means the separate account of Seller
-----------------------
described on Schedule 1.03 hereto.
"Seller Separate Account Liabilities" means those insurance
-----------------------------------
liabilities that are reflected in the Seller Separate Account and that relate to
Insurance Contracts.
ARTICLE II
BUSINESS ASSUMED
----------------
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, Seller hereby agrees to cede to LLANY and LLANY hereby agrees to
accept and assume the Insurance Contracts. LLANY agrees to indemnify, defend
and hold harmless Seller (and its directors, officers, employees, Affiliates,
successors and permitted assigns), in accordance with the procedures set forth
in Section 10.02 and Section 10.03 of the Acquisition
-3-
<PAGE>
Agreement, from and against all Insurance Liabilities assumed by LLANY pursuant
to this Agreement.
ARTICLE III
NOTICES; ASSUMPTION CERTIFICATES; NOVATIONS
-------------------------------------------
LLANY shall prepare for mailing to each Contractholder an option
letter, including a rejection form, substantially in the form attached hereto as
Exhibit A-1 (such option letters are hereinafter referred to as the
"Contractholder Notices"). The Contractholder Notices shall be mailed by LLANY
to each such Contractholder, at the sole expense of LLANY, on the date when all
required regulatory approvals have been obtained for the assumption of each such
Insurance Contract by LLANY or as soon as practicable thereafter. Each
Contractholder Notice shall be dated the date upon which it is mailed.
Seller and LLANY agree that a Contractholder will remain a
Contractholder of Seller if a rejection of the assumption is delivered by such
Contractholder to Seller or LLANY prior to the later of (i) the expiration of
the 30-day period which will commence on the date that the Contractholder Notice
is sent to such Contractholder or (ii) with respect to active Insurance
Contracts under which regular periodic deposits are being made, the date of the
next deposit under the relevant Insurance Contract. In the event of such
rejection, Certificateholder Notices will not be sent to Certificateholders
under the Insurance Contracts held by such Contractholder (as otherwise provided
for below) and such Certificateholders will remain as Certificateholders of
Seller.
Following the expiration of the rejection period referred to above
(or, if earlier, following the receipt of any affirmative consent from a
Contractholder), LLANY shall prepare for mailing to each Certificateholder under
the applicable Insurance Contracts who is a resident of New York at the time of
mailing an option letter, including a rejection form, substantially in the form
attached hereto as Exhibit A-2. LLANY shall also prepare for mailing to each
Certificateholder under the applicable Insurance Contracts who is not a resident
of New York at the time of the mailing an option letter, including an
affirmative consent form, substantially in the form attached hereto as Exhibit
A-3. The option letters, rejection forms and affirmative consent forms to be
mailed to Certificateholders in accordance with the foregoing are referred to
herein as the "Certificateholder Notices." The Certificateholder Notices shall
be mailed promptly by LLANY to each such Certificateholder, at the sole expense
of LLANY. Each Certificateholder Notice will be dated the date upon which it is
mailed.
Seller and LLANY agree that a Certificateholder will remain a
Certificateholder of Seller if a rejection of the assumption is delivered by
such Certificateholder to Seller or LLANY prior to the later of (i) the
expiration of the 30-day period which will commence on the date that the
Certificateholder Notice is sent to such Certificateholder or (ii) with respect
to active Insurance Contracts under which regular
-4-
<PAGE>
periodic deposits are being made, the date of the next deposit under the
relevant Insurance Contract. If a rejection of the assumption is not delivered
by a Certificateholder as described in the preceding sentence, such
Certificateholder will become a Certificateholder of LLANY as described below;
provided, however, that if an Inactive Certificateholder, prior to his taking
action that indicates his acceptance of LLANY as the assuming insurer (e.g., by
----
making a request to LLANY for a contract loan, withdrawal, transfer or change in
beneficiary, making a payment to LLANY with respect to a contract loan, or any
similar action), objects to the transfer of his certificate to LLANY and
requests in writing that his certificate revert to Seller, the certificate of
such Inactive Certificateholder will promptly revert to Seller.
LLANY shall also prepare and mail certificates of assumption in the
form attached hereto as Exhibit B-1 or B-2, as applicable (the "Certificates of
Assumption").
Insurance Contracts assumed by LLANY hereunder as provided for above
shall be deemed to have been assumed by novation and shall be defined herein as
"Novated Contracts." Except as set forth below in this Article III, the
effective date of novation of an Insurance Contract shall be the effective date
of novation specified in the Certificateholder Notices sent in respect of such
Insurance Contract, which date shall be (i) if the Certificateholder Notices are
mailed on or prior to the 25th day of any month, the first day of the second
month following the month in which such Certificateholder Notices are mailed,
and (ii) if the Certificateholder Notices are mailed after the 25th day of any
month, the first day of the third month following the month in which such
Certificateholder Notices are mailed. Notwithstanding the foregoing, the
effective date of novation of an Insurance Contract that has Seller Separate
Account Liabilities related thereto shall be no earlier than the date upon which
the assets supporting such Seller Separate Account Liabilities are transferred
to the LLANY Separate Account.
LLANY shall be the successor to Seller under the Novated Contracts as
if the Novated Contracts were direct obligations originally issued by LLANY.
LLANY shall be substituted in the place and stead of Seller, and each
Contractholder and Certificateholder under a Novated Contract shall be entitled
to disregard Seller as a party thereto and treat LLANY as if it had been
originally obligated thereunder. Each such Contractholder and Certificateholder
shall have the right to file claims arising under the Novated Contracts on or
after the effective date of such novation directly with LLANY and shall have a
direct right of action for Insurance Liabilities reinsured thereunder against
LLANY, and LLANY hereby consents to be subject to direct action taken by any
Contractholder or Certificateholder under a Novated Contract. LLANY accepts and
assumes the Novated Contracts subject to any and all defenses, setoffs and
counterclaims to which Seller would be entitled in relation to the Insurance
Liabilities, it being expressly understood and agreed by the parties hereto that
no such defenses, setoffs or counterclaims are waived by the execution of this
Agreement or the consummation of the transactions contemplated hereby and that
LLANY shall be fully subrogated to all such defenses, setoffs and counterclaims.
-5-
<PAGE>
ARTICLE IV
TERRITORY
---------
This Agreement shall apply to Insurance Contracts covering lives and
risks wherever resident or situated.
ARTICLE V
CONTRACT ADMINISTRATION
-----------------------
Following the respective effective dates of novation of the Novated
Contracts, LLANY shall have sole direct responsibility for the administration
and servicing of the Novated Contracts. Seller agrees that, after the
respective effective dates of novation of the Novated Contracts, it will forward
to LLANY immediately upon receipt all notices and other written communications
received by it relating to Novated Contracts (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).
ARTICLE VI
PREMIUMS; RECOVERIES
--------------------
Seller shall remit to LLANY or LLANY shall retain, as applicable, 100%
of all premiums, contract loan repayments and other amounts received by Seller
or LLANY with respect to the Novated Contracts on or after the respective dates
of novation including, but not limited to, all administrative expense and
deposit charges deducted from the remittance of premiums or other amounts billed
separately, asset charges collected, market value adjustments collected and
back-end loadings collected under the Novated Contracts.
Effective on the respective effective dates of novation, LLANY shall
have sole direct responsibility for billing and collecting premiums in respect
of, and principal and interest payments on contract loans under, the Novated
Contracts.
ARTICLE VII
TRANSFER OF ASSETS
------------------
On the respective dates of novation, Seller shall transfer and assign
to LLANY all contract loans under the Novated Contracts. In addition, Seller
shall, on the effective date of novation specified in the Notice sent in respect
of an Insurance Contract which has Seller Separate Account Liabilities related
thereto, transfer to the appropriate LLANY
-6-
<PAGE>
Separate Account the assets of the Seller Separate Account which support the
Seller Separate Account Liabilities arising under each Insurance Contract so
novated.
In the event that contract loans are transferred by Seller to LLANY or
assets are transferred from the Custodian Account to LLANY with respect to (i) a
Novated Contract that is subsequently finally determined in a judicial
proceeding or by regulatory action not to have been novated or (ii) a
certificate of an Inactive Certificateholder that reverts to Seller pursuant to
Article III, LLANY shall transfer any contract loans under such Insurance
Contract to Seller and shall transfer to the Custodian Account assets with a
market value on the date of transfer in an amount at least equal to the General
Account Liabilities (less any contract loans) arising under such Insurance
Contract on the date of transfer. In the event that assets are transferred to
the LLANY Separate Account with respect to (i) a Novated Contract that is
subsequently determined not to have been novated or (ii) a certificate of an
Inactive Certificateholder that reverts to Seller, LLANY shall transfer to the
Seller Separate Account the assets in the LLANY Separate Account relating to the
LLANY separate account liabilities arising under such Insurance Contract on the
date of transfer.
ARTICLE VII
OFFSETS
-------
Any debts or credits between Seller and LLANY arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
ARTICLE IX
ERRORS AND OMISSIONS
--------------------
Inadvertent delays, errors or omissions made by either Seller or LLANY
in connection with this Agreement or any transaction hereunder shall not relieve
the other party from any liability which would have attached to such party had
such delay, error or omission not occurred, provided that the party causing such
delay error or omission rectifies the same as soon as possible after its
discovery thereof.
ARTICLE X
DUTY OF COOPERATION
-------------------
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
This duty to cooperate shall include
-7-
<PAGE>
obtaining the governmental and regulatory consents and approvals and taking the
other steps necessary for the assumption of the Insurance Contracts, as
described in Article III.
ARTICLE XI
ARBITRATION
-----------
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent
that the unique aspects of the transaction render such customs and usages
inapplicable. The parties hereto shall act in all things with the highest good
faith. Any dispute or difference with respect to the operation or
interpretation of this Agreement on which an amicable understanding cannot be
reached shall be submitted to arbitration, which shall be mandatory and binding.
The arbitrators shall be free to reach their decision from the standpoint of
equity and customary practices of the insurance and reinsurance industry rather
than from that of strict legal principles.
The arbitration shall be held in Portland, Maine, and shall consist of
three arbitrators who must be active or retired executive officers of life
insurance companies other than the parties to this Agreement, their Affiliates
or subsidiaries. Seller shall appoint one arbitrator and LLANY the second.
Such arbitrators shall then select the third arbitrator before arbitration
commences. Should one of the parties decline to appoint an arbitrator or should
the two arbitrators be unable to agree upon the choice of a third, such
appointment shall be left to the President of the American Academy of Actuaries.
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide.
Judgment upon any award granted by the arbitrators may be entered in a
Federal court of competent jurisdiction in Portland, Maine.
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
Section 12.01. Notices. Any notice required or permitted hereunder
-------
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
-8-
<PAGE>
(1) If to LLANY to:
Lincoln Life & Annuity Company of New York
120 Madison Street, 17th Floor
Syracuse, New York 13202
Attention: Phil Holstein
Telecopier No.: (315) 469-4636
With concurrent copies to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to Seller to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 12.02. Amendment. This Agreement may not be modified,
---------
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
-9-
<PAGE>
Section 12.03. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
Section 12.04. No Third Party Beneficiaries. Except as otherwise
----------------------------
specifically provided for herein, nothing in this Agreement is intended or shall
be construed to give any Person, other than the parties hereto, their successors
and permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Section 12.05. Assignment. This Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto.
Section 12.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MAINE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 12.07. Entire Agreement. This Agreement, together with the
----------------
Acquisition Agreement and the other Ancillary Agreements (as defined in the
Acquisition Agreement), constitutes the entire agreement between the parties
relating to the assumption of the Insurance Contracts by LLANY, and there are no
other agreements between the parties hereto, either existing or contemplated,
written or oral, relating to such assumption.
-10-
<PAGE>
IN WITNESS WHEREOF, Seller and LLANY have executed this Agreement as
of the Effective Date.
UNUM LIFE INSURANCE COMPANY
OF AMERICA
By: /s/ Kevin J. Tierney
----------------------
Name: Kevin J. Tierney
Title: Senior Vice President and
General Counsel
LINCOLN LIFE & ANNUITY COMPANY
OF NEW YORK
By: /s/ Philip L. Holstein
------------------------
Name: Philip L. Holstein
Title: President
-11-
<PAGE>
- --------------------------------------------------------------------------------
COINSURANCE AND ASSUMPTION AGREEMENT
by and between
UNUM LIFE INSURANCE COMPANY OF AMERICA
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of October 1, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS........................................... 1
ARTICLE II BUSINESS REINSURED.................................... 4
ARTICLE III ASSUMPTION OF DIRECT LIABILITY........................ 5
ARTICLE IV TERRITORY............................................. 6
ARTICLE V ADMINISTRATION; CHANGES; CREDITING RATES.............. 6
Section 5.01. Administration.................................... 6
Section 5.02. Contract Changes or Reserve Assumption Changes.... 6
Section 5.03. Crediting Rates................................... 6
ARTICLE VI INDEMNIFICATION....................................... 7
Section 6.01. Obligation to Indemnify........................... 7
Section 6.02. Notice of Asserted Liability...................... 7
Section 6.03. Right to Contest Claims of Third Parties.......... 7
Section 6.04. Indemnification Payments.......................... 8
ARTICLE VII PREMIUMS; RECOVERIES.................................. 8
ARTICLE VIII EXPENSE ALLOWANCE..................................... 9
ARTICLE IX ACCOUNTING............................................ 9
ARTICLE X TRANSFER OF ASSETS.................................... 9
ARTICLE XI TRUST ACCOUNT......................................... 10
Section 11.01. General Account Reserves.......................... 10
Section 11.02. Trust Fund........................................ 10
ARTICLE XII INSOLVENCY............................................ 12
ARTICLE XIII OFFSETS............................................... 12
ARTICLE XIV RIGHTS WITH RESPECT TO COINSURED LIABILITIES.......... 13
ARTICLE XV ERRORS AND OMISSIONS.................................. 13
ARTICLE XVI DUTY OF COOPERATION................................... 13
ARTICLE XVII ARBITRATION........................................... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XVIII TERMINATION........................................... 14
ARTICLE XIX MISCELLANEOUS PROVISIONS.............................. 14
Section 19.01. Notices........................................... 14
Section 19.02. Amendment......................................... 15
Section 19.03. Counterparts...................................... 15
Section 19.04. No Third Party Beneficiaries...................... 16
Section 19.05. Assignment........................................ 16
Section 19.06. Governing Law..................................... 16
</TABLE>
EXHIBITS
EXHIBIT A - 1 Endorsement - Contractholder
EXHIBIT A - 2 Endorsement - Certificateholder
EXHIBIT B - 1 Certificate of Assumption - Contractholder
EXHIBIT B - 2 Certificate of Assumption - Certificateholder
SCHEDULES
SCHEDULE 1.01 Coinsured Contracts
SCHEDULE 1.02 States in Which Coinsured Contracts May be Issued
SCHEDULE 1.03 Lincoln Separate Account
SCHEDULE 1.04 UNUM Separate Account
SCHEDULE 11.02 Authorized Investments
-ii-
<PAGE>
COINSURANCE AND ASSUMPTION AGREEMENT
------------------------------------
THIS COINSURANCE AND ASSUMPTION AGREEMENT (this "Agreement"), dated as
of October 1, 1996, is made by and between UNUM Life Insurance Company of
America, a Maine domiciled stock life insurance company ("UNUM"), and The
Lincoln National Life Insurance Company, an Indiana domiciled stock life
insurance company ("Lincoln").
WHEREAS, UNUM has agreed to issue certain group annuity contracts upon
the written request of Lincoln; and
WHEREAS, Lincoln has agreed to reinsure the general account
obligations of UNUM under the group annuity contracts referred to above on the
terms and conditions set forth herein; and
WHEREAS, Lincoln has agreed to assume such group annuity contracts on
a state by state basis upon the receipt of applicable regulatory approvals; and
WHEREAS, UNUM desires that Lincoln perform all administrative
functions on behalf of UNUM with respect to such group annuity contracts and
Lincoln has agreed to provide such services pursuant to the terms of the
Administrative Services Agreement (as defined below);
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"Administrative Services Agreement" means the Administrative Services
---------------------------------
Agreement entered into by and between UNUM and Lincoln, dated as of the date
hereof.
"Affiliate" means, with respect to any Person, at the time in
---------
question, any other Person controlling, controlled by or under common control
with such Person.
"Agreement" means this Coinsurance and Assumption Agreement.
---------
"Asserted Liability" shall have the meaning set forth in Section 6.03
------------------
hereof.
<PAGE>
"Assumption Date" shall have the meaning set forth in Article III
---------------
hereof.
"Business Day" means any day other than a Saturday, Sunday, a day on
------------
which banking institutions in either the State of Maine or Indiana are permitted
or obligated by law to be closed or a day on which the New York Stock Exchange
is closed for trading.
"Calculated Asset Value" shall have the meaning set forth in Section
----------------------
11.01 hereof.
"Certificate of Assumption" shall have the meaning set forth in
-------------------------
Article III hereof.
"Claims Notice" shall have the meaning set forth in Section 6.02
-------------
hereof.
"Coinsured Contracts" means all group annuity contracts of the types
-------------------
which are described on Schedule 1.01 hereto and issued by UNUM after the date
hereof pursuant to the written request of Lincoln prior to the date which is 18
months from the date hereof (unless extended by the written consent of the
parties hereto) in any of the states listed on Schedule 1.02 hereto, and all
certificates and participation agreements issued in accordance with the terms of
such group annuity contracts (including all supplements, endorsements, riders
and ancillary agreements in connection therewith).
"Coinsured Liabilities" means those Insurance Liabilities which are
---------------------
general account obligations of UNUM, excluding any general account liabilities
that relate to (i) amounts transferred from the UNUM Separate Account to the
general account of UNUM pending distribution to holders of the Coinsured
Contracts, (ii) amounts held in the general account of UNUM pending transfer to
the UNUM Separate Account and (iii) guaranteed death benefits under the UNUM
Separate Account in excess of account values.
"Contractholders" means the holders of the Coinsured Contracts and the
---------------
certificateholders under the Coinsured Contracts.
"Expense Allowance" shall have the meaning set forth in Article VIII
-----------------
of this Agreement.
"Extra Contractual Obligations" means all liabilities for
-----------------------------
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Lincoln or
any of its Affiliates, whether intentional or otherwise, or from any reckless
conduct or bad faith, in connection with the handling of any claim under any of
the Coinsured Contracts or in connection with the issuance, delivery,
cancellation or administration of any of the Coinsured Contracts.
"General Account Reserves" means the general account statutory
------------------------
reserves of UNUM (without regard to this Agreement) with respect to the Non-
Novated Contracts determined pursuant to Maine SAP, as such reserves would be
included in lines 1, 10.2
-2-
<PAGE>
or 10.3 of the Liabilities, Surplus and Other Funds page of the NAIC Annual
Statement Blank (1994 format), including (for the avoidance of doubt) any
general account statutory reserve adjustments in relation to UNUM Separate
Account Liabilities.
"General Account Reserves Statement" shall have the meaning set forth
----------------------------------
in Section 11.01 hereof.
"Indemnified Party" shall have the meaning set forth in Section 6.02
-----------------
hereof.
"Indemnifying Party" shall have the meaning set forth in Section 6.02
------------------
hereof.
"Indemnity Reinsurance Agreement" means the Indemnity Reinsurance
-------------------------------
Agreement entered into by and between UNUM and Lincoln dated as of the date
hereof.
"Insurance Liabilities" means all liabilities and obligations arising
---------------------
under the Coinsured Contracts (including, without limitation, UNUM Separate
Account Liabilities) including without limitation: (i) all liability for
premium taxes, (ii) all liability for returns or refunds of premiums under the
Coinsured Contracts, (iii) all liability for commission payments and other fees
or compensation payable with respect to the Coinsured Contracts to or for the
benefit of agents, brokers and service providers, (iv) Extra Contractual
Obligations and (v) all guaranty fund assessments and similar charges imposed
with respect to the Coinsured Contracts based on premiums paid.
"Lincoln" shall have the meaning set forth in the introductory
-------
paragraph hereof.
"Lincoln Certificate" means a certificate substantially in the form of
-------------------
Exhibit B-2 to the Trust Agreement.
"Lincoln Separate Account" means the separate account of Lincoln
------------------------
described on Schedule 1.03 hereto.
"Loss" shall have the meaning set forth in Section 6.01 hereof.
----
"Maine SAP" means the statutory accounting principles and practices
---------
prescribed or permitted by the Bureau of Insurance of the State of Maine.
"Non-Novated Contracts" means Coinsured Contracts that are not Novated
---------------------
Contracts.
"Novated Contracts" shall have the meaning set forth in Article III
-----------------
hereof.
"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
-3-
<PAGE>
"Post-Closing Indemnity Reinsurance Agreement" means the Post-Closing
--------------------------------------------
Indemnity Reinsurance Agreement entered into by and between Lincoln and UNUM
dated as of the date hereof.
"Required Amount" shall have the meaning set forth in Section 11.02
---------------
hereof.
"Termination Certificate" means a certificate substantially in the
-----------------------
form of Exhibit C to the Trust Agreement.
"Third Party Claimants" shall have the meaning set forth in Section
---------------------
6.03 hereof.
"Trust Account" shall have the meaning set forth in Section 11.02
-------------
hereof.
"Trust Agreement" means the Trust Agreement entered into by and among
---------------
Lincoln, UNUM and Trustee dated as of the date hereof.
"Trustee" means the trustee named in the Trust Agreement and any
-------
successor trustee appointed as such pursuant to the terms of the Trust
Agreement.
"UNUM" shall have the meaning set forth in the introductory paragraph
----
hereof.
"UNUM Separate Account" means the separate account of UNUM described
---------------------
on Schedule 1.04 hereto.
"UNUM Separate Account Liabilities" means the insurance liabilities
---------------------------------
that are reflected in the UNUM Separate Account and that relate to the Coinsured
Contracts.
ARTICLE II
BUSINESS REINSURED
------------------
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, UNUM hereby agrees to cede and transfer to Lincoln, and Lincoln
hereby agrees to accept and indemnity reinsure, on a coinsurance basis, 100% of
the Coinsured Liabilities.
-4-
<PAGE>
ARTICLE III
ASSUMPTION OF DIRECT LIABILITY
------------------------------
Notwithstanding any other provision in this Agreement to the contrary,
Lincoln agrees to assume the Insurance Liabilities under a Coinsured Contract,
on a state by state basis, at such time as it receives from the insurance
regulatory authority of such state approval for a group annuity contract policy
form which is substantially similar to the form of such Coinsured Contract and
obtains any other regulatory approvals which are required for it to assume such
Coinsured Contracts issued to residents of such state. A rider substantially in
the form attached hereto as Exhibit A-1 or A-2, as applicable, shall be issued
with the original issuance of every Coinsured Contract covered hereunder. Upon
Lincoln receiving approval for a group annuity contract policy form in a
particular state and obtaining any other required regulatory approvals, it shall
promptly provide notice to UNUM of the receipt of such approvals. Lincoln shall
thereafter assume the applicable Coinsured Contracts issued to insureds in such
state as of (i) if such notice is given on or prior to the 25th day of any
month, the first day of the second month following the month in which such
notice is given, and (ii) if such notice is given after the 25th day of any
month, the first day of the third month following the month in which such notice
is given (each such date hereinafter being referred to as the "Assumption Date"
and the Coinsured Contracts so assumed hereinafter being referred to as the
"Novated Contracts"). Lincoln shall issue to the insureds under the Coinsured
Contracts in force in such state a Certificate of Assumption substantially in
the form attached hereto as Exhibit B-1 or B-2, as applicable (the "Certificate
of Assumption").
Lincoln shall be the successor to UNUM under the Novated Contracts as
if the Novated Contracts were direct obligations originally issued by Lincoln.
Lincoln shall be substituted in the place and stead of UNUM, and each
Contractholder under a Novated Contract shall be entitled to disregard UNUM as a
party thereto and treat Lincoln as if it had been originally obligated
thereunder. The Contractholders shall have the right to file claims arising
under the Novated Contracts on or after the effective date of such novation,
directly with Lincoln and shall have a direct right of action for Insurance
Liabilities reinsured thereunder against Lincoln, and Lincoln hereby consents to
be subject to direct action taken by any Contractholder under a Novated
Contract. Lincoln accepts and assumes the Novated Contracts subject to any and
all defenses, setoffs and counterclaims to which UNUM would be entitled in
relation to the Insurance Liabilities, it being expressly understood and agreed
by the parties hereto that no such defenses, setoffs or counterclaims are waived
by the execution of this Agreement or the consummation of the transactions
contemplated hereby and that Lincoln shall be fully subrogated to all such
defenses, setoffs and counterclaims.
-5-
<PAGE>
ARTICLE IV
TERRITORY
---------
This Agreement shall apply to Coinsured Contracts covering lives and
risks wherever resident or situated.
ARTICLE V
ADMINISTRATION; CHANGES; CREDITING RATES
----------------------------------------
Section 5.01. Administration. Pursuant to the Administrative
--------------
Services Agreement, UNUM has appointed Lincoln to perform all administrative
services with respect to the Non-Novated Contracts and Lincoln has agreed to
perform such services on behalf of UNUM, including, but not limited to, the
collection of premiums and other amounts due from Contractholders, the direct
payment of all Coinsured Liabilities and the administration of claims. In the
event of the termination of the Administrative Services Agreement pursuant to
Section 8.02(a) thereof, UNUM will assume all administrative services with
respect to the Non-Novated Contracts and Lincoln will pay to UNUM a monthly
expense allowance in accordance with the terms of the Administrative Services
Agreement. In addition, in the event of such termination, UNUM will indemnify
and hold Lincoln harmless against all liabilities for consequential, exemplary,
punitive or similar damages which relate to or arise in connection with any
alleged or actual act, error or omission by UNUM or any of its Affiliates
subsequent to the date of termination, whether intentional or otherwise, or from
any reckless conduct or bad faith by UNUM or any of its Affiliates, in
connection with the handling of any claim under any of the Non-Novated Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Coinsured Contracts.
Section 5.02. Contract Changes or Reserve Assumption Changes. UNUM,
----------------------------------------------
on its own initiative, shall not change (a) the terms and conditions of any
Coinsured Contracts or (b) the assumptions and methods used by UNUM to establish
the General Account Reserves. Lincoln shall share proportionately, on a 100%
coinsurance basis, in any contract changes or changes in the assumptions and
methods used to establish the General Account Reserves that are required by any
regulatory authority having jurisdiction over UNUM in the ordinary course of
such authority's exercise of its powers or otherwise required by law, provided
that prior to effectuating any such change UNUM shall promptly notify Lincoln of
such proposed change and afford Lincoln the opportunity, to the extent practical
under applicable law, to object to such change under applicable administrative
procedures (both formal and informal).
Section 5.03. Crediting Rates. UNUM shall set crediting rates with
---------------
respect to the Non-Novated Contracts as directed by Lincoln after consultation
with UNUM.
-6-
<PAGE>
ARTICLE VI
INDEMNIFICATION
---------------
Section 6.01. Obligation to Indemnify. Lincoln agrees, subject to
-----------------------
the terms and conditions set forth below in this Article VI, to indemnify,
defend and hold harmless UNUM (and its directors, officers, employees,
affiliates, successors and permitted assigns) from and against all Losses (as
hereinafter defined) arising from Insurance Liabilities assumed by Lincoln
pursuant to this Agreement.
As used in this Article VI, Loss and/or Losses shall mean claims,
losses, liabilities, damages, deficiencies, costs, expenses (including
attorneys' fees), interest, taxes and penalties.
Section 6.02. Notice of Asserted Liability. Subject to Section 6.03,
----------------------------
in the event that any party hereto wishes to assert a claim for indemnification
hereunder, such party seeking indemnification (the "Indemnified Party") shall
deliver written notice (a "Claims Notice") to the other party (the "Indemnifying
Party") no later than 45 days after such claim becomes known to the Indemnified
Party, specifying the facts constituting the basis for, and the amount (if
known) of, the claim asserted.
Section 6.03. Right to Contest Claims of Third Parties. (a) If an
----------------------------------------
Indemnified Party asserts a claim for indemnification hereunder because of a
claim or demand made, or an action, proceeding or investigation instituted, by
any Person not a party to this Agreement (a "Third Party Claimant") that may
result in a Loss with respect to which the Indemnified Party is entitled to
indemnification pursuant to this Article VI (an "Asserted Liability"), the
Indemnified Party shall deliver to the Indemnifying Party a Claims Notice with
respect thereto, which Claims Notice shall, in accordance with the provisions of
Section 6.02 hereof, be delivered no later than 45 days after such Asserted
Liability is actually known to the Indemnified Party. Failure to deliver a
Claims Notice with respect to an Asserted Liability in a timely manner shall not
be deemed a waiver of the Indemnified Party's right to indemnification for
Losses in connection with such Asserted Liability but the amount of
reimbursement to which the Indemnified Party is entitled shall be reduced by the
amount, if any, by which the Indemnified Party's Losses would have been less had
such Claims Notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party, to investigate, contest, defend or settle the Asserted
Liability; provided, that the Indemnified Party may, at its option and at its
own expense, participate in the investigation, contesting, defense or settlement
of any such Asserted Liability through representatives and counsel of its own
choosing; and provided, further, that the Indemnifying Party shall not settle
any Asserted Liability unless (i) such settlement is on exclusively monetary
terms or (ii) the Indemnified Party shall have consented to the terms of such
settlement, which consent shall not unreasonably be withheld. The failure of
the Indemnifying Party to provide the above-mentioned written notice of an
Asserted Liability
-7-
<PAGE>
within 30 days after receipt of a Claims Notice with respect to an Asserted
Liability shall be deemed an election not to defend the same. Unless and until
the Indemnifying Party elects to defend the Asserted Liability, the Indemnified
Party shall have the right, at its option and at the Indemnifying Party's
expense, to do so in such manner as it deems appropriate; provided, however,
that the Indemnified Party shall not settle or compromise any Asserted Liability
for which it seeks indemnification hereunder during such 30 day period without
the prior written consent of the Indemnifying Party (which shall not be
unreasonably withheld).
(c) The Indemnifying Party shall be entitled to participate in (but
not to control) the defense of any Asserted Liability which it has elected, or
is deemed to have elected, not to defend, with its own counsel and at its own
expense. If the Indemnifying Party seeks to question (i) the manner in which
the Indemnified Party defended an Asserted Liability with respect to which the
Indemnifying Party elected, or is deemed to have elected, not to defend or (ii)
the amount or nature of any settlement entered into by the Indemnified Party in
connection with such Asserted Liability, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such Asserted Liability in a reasonably prudent manner.
(d) Except as provided in the first sentence of paragraph (b) of this
Section 6.03, the Indemnifying Party shall bear all costs of defending any
Asserted Liability and shall indemnify and hold the Indemnified Party harmless
against and from all costs, fees and expenses incurred in connection therewith.
(e) Lincoln and UNUM shall make mutually available to each other all
relevant information in their possession relating to any Asserted Liability and
shall cooperate with each other in the defense thereof.
Section 6.04. Indemnification Payments. Subject to a party's right
------------------------
to defend pursuant to Section 6.03 hereof, an Indemnifying Party hereunder shall
make an indemnification payment with respect to a Loss promptly after a Claims
Notice is received. All such payments shall be made by wire transfer of
immediately available funds to such account or accounts as the Indemnified Party
shall designate to the Indemnifying Party in writing.
ARTICLE VII
PREMIUMS; RECOVERIES
--------------------
As consideration for the indemnity reinsurance of the Coinsured
Liabilities, Lincoln shall, pursuant to the Administrative Services Agreement,
collect and retain all premiums, contract loan repayments and other amounts
payable with respect to the general account portion of the Non-Novated
Contracts. UNUM shall promptly pay to Lincoln any such amounts actually
received by UNUM. However, as security for the payment of Lincoln's obligations
hereunder, UNUM shall be entitled to withhold actual ownership of
-8-
<PAGE>
contract loans under the Non-Novated Contracts. In addition, UNUM shall have the
right to retain contract loan repayments under the Non-Novated Contracts, and
Lincoln shall pay UNUM all such contract loan repayment amounts collected by
Lincoln pursuant to the Administrative Services Agreement, upon the occurrence
of any of the events specified in Section 11.02 hereof that would entitle UNUM
to withdraw amounts from the Trust Account, subject to the limitations specified
therein on the use of funds withdrawn from the Trust Account.
ARTICLE VIII
EXPENSE ALLOWANCE
-----------------
Lincoln shall pay UNUM a monthly expense allowance (the "Expense
Allowance") equal to the product of (x) and (y), where (x) is .0001666 and (y)
is the mean level of General Account Reserves with respect to the Coinsured
Contracts for such month; provided, however, that, for purposes of calculating
the Expense Allowance, General Account Reserves shall not be included during the
first six months after the date hereof with respect to Coinsured Contracts for
which either (i) all necessary contract filings have been made by June 1, 1996
or (ii) all necessary contract filings are made at the earliest date permitted
by the Securities and Exchange Commission and/or the New York Insurance
Department (as the case may be) if such earliest date permitted is later than
June 1, 1996.
ARTICLE IX
ACCOUNTING
----------
Pursuant to and in accordance with the terms of the Administrative
Services Agreement, Lincoln will provide to UNUM accounting and settlement
reports as to the Coinsured Contracts.
ARTICLE X
TRANSFER OF ASSETS
------------------
In consideration of the assumption of the UNUM Separate Account
Liabilities under the Novated Contracts, UNUM shall, on the Assumption Date of
each Coinsured Contract which has UNUM Separate Account Liabilities related
thereto, transfer to the appropriate Lincoln Separate Account the assets of the
UNUM Separate Account which relate to the UNUM Separate Account Liabilities
arising under each Coinsured Contract so novated. In addition, on the
respective Assumption Dates of the Coinsured Contracts, UNUM shall transfer and
assign to Lincoln all contract loans under the Novated Contracts.
-9-
<PAGE>
ARTICLE XI
TRUST ACCOUNT
-------------
Section 11.01. General Account Reserves. UNUM agrees that it will
------------------------
establish General Account Reserves as of the last day of each month during the
term of this Agreement and will forward to Lincoln a statement showing such
General Account Reserves and the aggregate amount of contract loans under the
Non-Novated Contracts (the "General Account Reserves Statement") within five
Business Days after receipt from Lincoln of the monthly accounting statement for
such month pursuant to the terms of the Administrative Services Agreement.
Section 11.02. Trust Fund. (a) Lincoln has entered into the Trust
----------
Agreement and has established a trust account (the "Trust Account") thereunder
for the benefit of UNUM with respect to the General Account Reserves. Lincoln
agrees that it will maintain in the Trust Account (in addition to any assets
required to be maintained in the Trust Account under the Indemnity Reinsurance
Agreement and the Post-Closing Indemnity Reinsurance Agreement) assets having a
market value not less than an amount equal to the General Account Reserves less
the aggregate amount of contract loans under the Non-Novated Contracts (the
"Required Amount"), to be held in trust by Trustee for the benefit of UNUM as
security for the payment of Lincoln's obligations to UNUM under this Agreement.
Following the receipt of each General Account Reserves Statement, Lincoln shall,
to the extent that the market value of the assets held in the Trust Account on
the last day of the month just ended (the "Calculated Asset Value") is less than
the Required Amount so calculated, within five Business Days of its receipt of
such General Account Reserves Statement, transfer to the Trust Account assets
with a market value on the date of transfer at least equal to the difference
between the Required Amount and the Calculated Asset Value.
(b) Lincoln agrees that the assets so deposited shall be valued
according to their current fair market value and shall consist only of
investments of the type specified on Schedule 11.02 hereto and that the
investment and reinvestment thereof shall be consistent with Lincoln's
investment strategy in connection with its general account.
(c) Lincoln and UNUM, prior to depositing assets with Trustee, shall
execute all assignments, endorsements in blank, or transfer legal title to
Trustee of all shares, obligations or any other assets requiring assignments, in
order that Trustee may whenever necessary negotiate any such assets without
consent or signature from Lincoln, UNUM or any other Person.
(d) Lincoln and UNUM agree that the assets in the Trust Account may
be withdrawn by UNUM in accordance with the procedures set forth in the Trust
Agreement; provided such assets are applied and utilized by UNUM (or any
--------
successor of UNUM by operation of law, including, without limitation, any
liquidator, rehabilitator, receiver or conservator of UNUM) solely on the basis
of the liability of UNUM under the Non-Novated
-10-
<PAGE>
Contracts, without diminution because of the insolvency of UNUM or the Lincoln,
under the following circumstances and for the following purposes:
(i) in the event that (A) the Standard & Poor's Corporation
Claims-Paying Ability rating of Lincoln becomes less than A+ or the
Moody's Investors Service, Inc. Financial Strength rating of Lincoln
becomes less than A1 or (B) Lincoln becomes the subject of a
delinquency proceeding within the meaning of Section 27-9-1-2 of the
Indiana Insurance Law, in each case:
(x) to reimburse UNUM for Lincoln's share of surrenders,
contract loans and benefits paid by UNUM pursuant to the
provisions of the Coinsured Contracts, to the extent not
paid directly by Lincoln when due pursuant to the terms of
the Administrative Services Agreement;
(y) to pay UNUM the expense allowance described in
Section 5.01 hereof, to the extent not paid directly to UNUM
by Lincoln when due; and
(z) to pay any other amounts due UNUM under this
Agreement, to the extent not paid directly to UNUM by
Lincoln when due.
(ii) in the event that the Standard & Poor's Corporation Claims-
Paying Ability rating of Lincoln becomes less than A or the Moody's
Investors Service, Inc. Financial Strength rating of Lincoln becomes
less than A2, in addition to the purposes set forth above, to fund
accounts specifically established by UNUM to cover loss exposures of
UNUM in an amount equal to the Required Amount.
In the event that UNUM withdraws assets from the Trust Account in excess of
actual amounts required to meet Lincoln's obligations to UNUM, UNUM will return
such excess to the Trust Account, plus interest in an amount equal to the actual
earnings on the assets withdrawn from the Trust Account during the period that
the amounts were withdrawn.
(e) Lincoln and UNUM agree that the assets of the Trust Account may
be withdrawn by Lincoln in accordance with the procedures set forth in the Trust
Agreement, provided that either:
(i) Lincoln shall, at the time of any such withdrawal and
transfer, replace the withdrawn assets with other assets of a type
permitted in Section 11.02 (b) above, having a market value at least
equal to the market value of the assets so withdrawn, in order to
maintain in the Trust Account assets having a market value at least
equal to the Required Amount, or
-11-
<PAGE>
(ii) after such withdrawal and transfer, the market value of the
assets remaining in the Trust Account is not less than the Required
Amount;
provided, however, that Lincoln may make withdrawals pursuant to subsection
- -------- -------
(e)(ii) of this Section 11.02(e) only once in any month and only after the
receipt of the General Account Reserves Statement showing General Account
Reserves and contract loans under the Non-Novated Contracts, each as of the end
of the previous month.
(f) UNUM hereby agrees to execute each Lincoln Certificate presented
to it for execution, as contemplated by Section 2.09(b) of the Trust Agreement,
which is executed by a duly authorized officer of Lincoln and accompanied by
evidence reasonably satisfactory to UNUM that the withdrawal requested therein
is permitted under Section 11.02(e). UNUM hereby also agrees to execute a
Termination Certificate presented to it for execution which is executed by a
duly authorized officer of Lincoln and accompanied by evidence reasonably
satisfactory to UNUM of the validity of the statements set forth therein.
ARTICLE XII
INSOLVENCY
----------
Lincoln hereby agrees that, as to all reinsurance made, ceded, renewed
or otherwise becoming effective hereunder, the reinsurance shall be payable by
Lincoln on the basis of the liability of UNUM under the Coinsured Contract or
Contracts reinsured on an indemnity basis, without diminution because of the
insolvency, liquidation or rehabilitation of UNUM or the appointment of a
conservator, receiver, liquidator or statutory successor of UNUM, directly to
UNUM or to its conservator, receiver, liquidator or other statutory successor.
It is agreed that any conservator, receiver, liquidator or statutory successor
of UNUM shall give prompt written notice to Lincoln of the pendency or
submission of a claim under any such Coinsured Contract or Contracts. During
the pendency of such claim, Lincoln may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any
defense available to UNUM or its conservator, receiver, liquidator or statutory
successor. The expense thus incurred by Lincoln is chargeable against UNUM as a
part of the expense of insolvency, liquidation or rehabilitation to the extent
of a proportionate share of the benefit which accrues to UNUM solely as a result
of the defense undertaken by Lincoln.
ARTICLE XIII
OFFSETS
-------
Any debts or credits between UNUM and Lincoln arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
-12-
<PAGE>
ARTICLE XIV
RIGHTS WITH RESPECT TO COINSURED LIABILITIES
--------------------------------------------
Lincoln's coinsurance of 100% of the Coinsured Liabilities is intended
for the sole benefit of the parties to this Agreement and shall not create any
right on the part of any other party, including, without limit, any
Contractholder, insured, claimant or beneficiary, against Lincoln or any legal
relation between any Contractholders, insureds, claimants or beneficiaries and
Lincoln.
ARTICLE XV
ERRORS AND OMISSIONS
--------------------
Inadvertent delays, errors or omissions made by either Lincoln or UNUM
in connection with this Agreement or any transaction hereunder shall not relieve
the other party from any liability which would have attached to such party had
such delay, error or omission not occurred, provided that the party causing such
error or omission rectifies the same as soon as possible after discovery
thereof. If, as a result of any such delay, error or omission, there is a delay
in the transfer of funds to be transferred pursuant hereto, the party
responsible for such delay, error or omission shall pay, to the party to whom
such funds are to be transferred, interest on the amount of funds to be
transferred from the date of such delay, error or omission to and including the
date of such transfer of funds at a rate equal to the average rate of earnings
on assets held in the Trust Account during such period.
ARTICLE XVI
DUTY OF COOPERATION
-------------------
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
This duty to cooperate shall include obtaining the governmental and regulatory
consents and approvals and taking the other steps necessary for the assumption
of the Coinsured Contracts, as described in Article III.
ARTICLE XVII
ARBITRATION
-----------
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent the
unique aspects of the transaction
-13-
<PAGE>
render such customs and usages inapplicable. The parties hereto shall act in all
things with the highest good faith. Any dispute or difference with respect to
the operation or interpretation of this Agreement on which an amicable
understanding cannot be reached shall be submitted to arbitration, which shall
be mandatory and binding; provided, however, that this Article shall not apply
in the event Lincoln shall become subject to a delinquency proceeding as defined
in Section 27-9-1-2 of the Indiana Insurance Law. The arbitrators shall be free
to reach their decision from the standpoint of equity and customary practices of
the insurance and reinsurance industry rather than from that of strict legal
principles.
The arbitration shall be held in Portland, Maine, and the arbitration
panel shall consist of three arbitrators who must be active or retired executive
officers of life insurance companies other than the parties to this Agreement,
their affiliates or subsidiaries. UNUM shall appoint one arbitrator and Lincoln
the second. Such arbitrators shall then select the third arbitrator before
arbitration commences. Should one of the parties decline to appoint an
arbitrator or should the two arbitrators be unable to agree upon the choice of a
third, such appointment shall be left to the President of the American Academy
of Actuaries.
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide. Judgment on any award granted by the arbitrators may
be entered in a Federal court of competent jurisdiction located in Portland,
Maine.
ARTICLE XVIII
TERMINATION
-----------
Unless extended by written consent of each of the parties hereto, this
Agreement shall terminate automatically with respect to the issuance of new
group annuity contracts 18 months after the date hereof and as to each Coinsured
Contract on the effective date of novation of such Coinsured Contract pursuant
to Article III hereof.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
------------------------
Section 19.01. Notices. Any notice required or permitted hereunder
-------
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
-14-
<PAGE>
(1) If to Lincoln to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to UNUM to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P
125 West 55th Street
New York, New York 10019
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 19.02. Amendment. This Agreement may not be modified,
---------
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 19.03. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
-15-
<PAGE>
Section 19.04. No Third Party Beneficiaries. Nothing in this
----------------------------
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 19.05. Assignment. This Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto.
Section 19.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MAINE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
IN WITNESS WHEREOF, UNUM and Lincoln have executed this Agreement as
of the date first above written.
UNUM LIFE INSURANCE COMPANY
OF AMERICA
By: /s/ Kevin J. Tierney
----------------------
Name: Kevin J. Tierney
Title: Senior Vice President
and General Counsel
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: /s/ Kelly D. Clevenger
------------------------
Name: Kelly D. Clevenger
Title: Vice President
-16-
<PAGE>
================================================================================
INDEMNITY REINSURANCE AGREEMENT
by and between
UNUM LIFE INSURANCE COMPANY OF AMERICA
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of October 1, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................... 1
ARTICLE II BUSINESS REINSURED............................................. 5
ARTICLE III NOVATED CONTRACTS.............................................. 5
ARTICLE IV TERMINATION AND RECAPTURE.................................. 6
Section 4.01. Termination................................................ 6
Section 4.02. Recapture.................................................. 6
ARTICLE V TERRITORY...................................................... 8
ARTICLE VI ADMINISTRATION; CHANGES; CREDITING RATES....................... 8
Section 6.01. Administration............................................. 8
Section 6.02. Contract Changes or Reserve Assumption Changes............. 8
Section 6.03. Crediting Rates............................................ 9
ARTICLE VII TRANSFER OF ASSETS; CONTRACT LOANS............................. 9
Section 7.01. Asset Transfer............................................. 9
Section 7.02. Contract Loans.............................................. 9
ARTICLE VIII PREMIUMS; RECOVERIES........................................... 10
ARTICLE IX ACCOUNTING..................................................... 10
ARTICLE X TRUST ACCOUNT.................................................. 10
Section 10.01. General Account Reserves.................................. 10
Section 10.02. Trust Fund................................................ 10
ARTICLE XI INSOLVENCY..................................................... 13
ARTICLE XII OFFSETS........................................................ 13
ARTICLE XIII RIGHTS WITH RESPECT TO GENERAL ACCOUNT
LIABILITIES.................................................... 13
ARTICLE XIV ERRORS AND OMISSIONS........................................... 14
ARTICLE XV DUTY OF COOPERATION............................................ 14
ARTICLE XVI ARBITRATION.................................................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XVII MISCELLANEOUS PROVISIONS....................................... 15
Section 17.01. Notices................................................... 15
Section 17.02. Amendment................................................. 16
Section 17.03. Counterparts.............................................. 16
Section 17.04. No Third Party Beneficiaries.............................. 16
Section 17.05. Assignment................................................ 16
Section 17.06. Governing Law............................................. 16
</TABLE>
SCHEDULES
Schedule 1.01 Insurance Contracts
Schedule 1.02 Seller Separate Account
Schedule 3.01 Notices and Consents
Schedule 10.02 Authorized Investments
-ii-
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
-------------------------------
THIS INDEMNITY REINSURANCE AGREEMENT (this "Agreement"), dated as of
October 1, 1996, is made by and between UNUM Life Insurance Company of America,
a Maine domiciled stock life insurance company ("Seller"), and The Lincoln
National Life Insurance Company, an Indiana domiciled stock life insurance
company ("Purchaser").
WHEREAS, Seller has agreed to cede and transfer to Purchaser the
Insurance Contracts (as defined below) and Purchaser has agreed to reinsure the
rights, obligations and liabilities of Seller under the Insurance Contracts; and
WHEREAS, Seller and Purchaser are, concurrently with the execution of
this Agreement, entering into an Assumption Reinsurance Agreement (the
"Assumption Reinsurance Agreement") whereby Purchaser agrees to assume the
Insurance Contracts on an assumption reinsurance basis; and
WHEREAS, Seller and Purchaser are entering into this Agreement whereby
Purchaser will reinsure the general account obligations of Seller under the
Insurance Contracts on the terms and conditions set forth herein pending
assumption of the Insurance Contracts by Purchaser on a novation basis pursuant
to the Assumption Reinsurance Agreement; and
WHEREAS, Seller desires that Purchaser perform all administrative
functions on behalf of Seller after the date hereof with respect to the
Insurance Contracts and the Seller Separate Account (as defined below), and
Purchaser has agreed to provide such services pursuant to the terms of the
Administrative Services Agreement (as defined below);
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"Acquisition Agreement" means the Second Amended and Restated Asset
---------------------
Transfer and Acquisition Agreement entered into by and between Purchaser and
Seller dated as of January 24, 1996, to which LLANY (as defined herein) has been
added as a party.
"Administrative Services Agreement" means the Administrative Services
---------------------------------
Agreement entered into by and between Purchaser and Seller dated as of the date
hereof.
<PAGE>
"Affiliate" means, with respect to any Person, at the time in
---------
question, any other Person controlling, controlled by or under common control
with such Person.
"Agreement" means this Indemnity Reinsurance Agreement.
---------
"Annual Rate" means the value of r in the expression (l + r)/n/365/ -
-----------
1, where "n" is equal to the number of days for which interest is to be computed
and the result of the expression is the interest factor for computing the
applicable interest amounts.
"Assumption Reinsurance Agreement" shall have the meaning set forth in
--------------------------------
the second recital hereof.
"Baseline Balance Sheet" shall have the meaning set forth in the
----------------------
Acquisition Agreement.
"Business Day" means any day other than a Saturday, Sunday, a day on
------------
which banking institutions in any of the States of Maine, New York or Indiana
are permitted or obligated by law to be closed or a day on which the New York
Stock Exchange is closed for trading.
"Calculated Asset Value" shall have the meaning set forth in Section
----------------------
10.02 hereof.
"Cash Amount" means an amount equal to the result of 2.1824%
-----------
multiplied by the Customer Asset Value calculated as of a particular date.
"Cash Equivalents" means, as of any particular date, money market
----------------
funds, marketable obligations issued or guaranteed by the United States
Government, certificates of deposit, bankers' acceptances and other similar
liquid investments, in each case , with a maturity date of not more than 90 days
from the date on which any such instrument is transferred pursuant to the terms
of this Agreement, the market value of which on the date of transfer will be
counted as equivalent to cash for purposes of satisfying the aggregate amount of
cash and Cash Equivalents required to be transferred as described in Article IV
and/or Article VII hereof.
"Coinsurance and Assumption Agreement" means the Coinsurance and
------------------------------------
Assumption Agreement entered into by and between Seller and Purchaser dated as
of the date hereof.
"Contractholders" shall have the meaning set forth in Article III
---------------
hereof.
"Customer Asset Value" means, at any time, an amount equal to the
--------------------
aggregate reserves with respect to the Non-Novated Contracts in effect at such
time that would be shown on a balance sheet of Seller as at such time prepared
in accordance with GAAP applied in the same manner as applied in the preparation
of the Baseline Balance Sheet.
-2-
<PAGE>
"Effective Date" shall have the meaning set forth in Article II
--------------
hereof.
"Extra Contractual Obligations" means all liabilities for
-----------------------------
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Seller or any
of its Affiliates prior to the date hereof, whether intentional or otherwise, or
from any reckless conduct or bad faith by Seller or any of its Affiliates, in
connection with the handling of any claim under any of the Insurance Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Insurance Contracts (provided that no liability with respect to which
Purchaser or LLANY shall be entitled to indemnification under Section
10.01(a)(ii) of the Acquisition Agreement shall be deemed to be an Extra
Contractual Obligation).
"Final Recapture Statement" shall have the meaning set forth in
-------------------------
Section 4.02 hereof.
"General Account Liabilities" means all general account liabilities
---------------------------
and obligations arising under the Insurance Contracts, including, without
limitation: (i) all liability for premium taxes arising on account of premiums
paid or annuities purchased on or after the Effective Date, (ii) all amounts
payable on or after the Effective Date for returns or refunds of premiums under
the Insurance Contracts, (iii) all liability for commission payments and other
fees or compensation payable with respect to the Insurance Contracts to or for
the benefit of brokers and service providers, to the extent that such amounts
are or become payable on or after the Effective Date and (iv) all guaranty fund
assessments and similar charges imposed with respect to the Insurance Contracts
based on premiums paid on or after the Effective Date; excluding (i) the Seller
Separate Account Liabilities, (ii) any Extra Contractual Obligations and (iii)
any general account liabilities which relate to (A) amounts transferred from the
Seller Separate Account to the general account of Seller pending distribution to
holders of the Insurance Contracts, (B) amounts held in the general account of
Seller pending transfer to the Seller Separate Account and (C) guaranteed death
benefits under the Seller Separate Account in excess of account values.
"General Account Reserves" means the general account statutory
------------------------
reserves of Seller (without regard to this Agreement) with respect to the Non-
Novated Contracts determined pursuant to Maine SAP, as such reserves would have
been included in lines 1, 10.2 or 10.3 of the Liabilities, Surplus and Other
Funds page of the NAIC Annual Statement Blank (1994 format), including (for the
avoidance of doubt) any general account statutory reserve adjustments in
relation to Seller Separate Account Liabilities.
"General Account Reserves Statement" shall have the meaning set forth
----------------------------------
in Section 10.01 hereof.
"Insurance Contracts" means all group annuity contracts issued by
-------------------
Seller that are listed on Schedule 1.01 hereto and in effect on the Effective
Date and all certificates and participation agreements in effect as of the
Effective Date issued in accordance with the
-3-
<PAGE>
terms of such group annuity contracts (including all supplements, endorsements,
riders and ancillary agreements in connection therewith).
"LLANY" means Lincoln Life & Annuity Company of New York, an Affiliate
-----
of Purchaser.
"Maine SAP" means the statutory accounting principles and practices
---------
prescribed or permitted by the Bureau of Insurance of the State of Maine.
"NAIC" means the National Association of Insurance Commissioners.
----
"90-Day Treasury Rate" means the annual yield rate, on the date to
--------------------
which 90-Day Treasury Rate relates, of actively traded U.S. Treasury securities
having a remaining duration to maturity of three months, as such rate is
published under "Treasury Constant Maturities" in Federal Reserve Statistical
Release H.15(519).
"Non-Novated Contracts" means Insurance Contracts that are not Novated
---------------------
Contracts.
"Novated Contract" shall have the meaning set forth in Article III
----------------
hereof.
"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"Post-Closing Indemnity Reinsurance Agreement" means the Post-Closing
--------------------------------------------
Indemnity Reinsurance Agreement entered into by and between Purchaser and Seller
dated as of the date hereof.
"Preliminary Recapture Statement" shall have the meaning set forth in
-------------------------------
Section 4.02 hereof.
"Proposed Recapture Statement" shall have the meaning set forth in
----------------------------
Section 4.02 hereof.
"Purchaser" shall have the meaning set forth in the introductory
---------
paragraph hereof.
"Purchaser Certificate" means a certificate substantially in the form
---------------------
of Exhibit B-1 to the Trust Agreement.
"Recapture Date" shall have the meaning set forth in Section 4.02
--------------
hereof.
"Required Amount" shall have the meaning set forth in Section 10.02
---------------
hereof.
-4-
<PAGE>
"Seller" shall have the meaning set forth in the introductory
------
paragraph hereof.
"Seller Separate Account" means the separate account of Seller
-----------------------
described on Schedule 1.02 hereto.
"Seller Separate Account Liabilities" means those insurance
-----------------------------------
liabilities that are reflected in the Seller Separate Account and that relate to
the Insurance Contracts.
"Termination Certificate" means a certificate substantially in the
-----------------------
form of Exhibit C to the Trust Agreement.
"Third Party Accountant" shall have the meaning set forth in Section
----------------------
4.02 hereof.
"Trust Account" shall have the meaning set forth in Section 10.02
-------------
hereof.
"Trust Agreement" means the Trust Agreement entered into by and among
---------------
Purchaser, Seller and Trustee dated as of the date hereof.
"Trustee" means the trustee named in the Trust Agreement and any
-------
successor trustee appointed as such pursuant to the terms of the Trust
Agreement.
ARTICLE II
BUSINESS REINSURED
------------------
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, effective as of 12:01 a.m., Eastern Time, on October 1, 1996 (the
"Effective Date"), Seller hereby cedes to Purchaser and Purchaser hereby accepts
and indemnity reinsures, on a coinsurance basis, 100% of the General Account
Liabilities.
ARTICLE III
NOVATED CONTRACTS
-----------------
Pursuant to and in accordance with the terms of the Assumption
Reinsurance Agreement, Purchaser will prepare and mail Notices (as defined in
the Assumption Reinsurance Agreement) and certificates of assumption to the
holders of the Insurance Contracts (the "Contractholders") in order to attempt
to effectuate novations of the Insurance Contracts (each Insurance Contract
which is so novated being referred to herein as a "Novated Contract"). To the
extent Purchaser is unable for any reason to assume by novation any Insurance
Contracts, or if any attempted novation is subsequently finally
-5-
<PAGE>
determined in a judicial proceeding or by regulatory action or otherwise agreed
by Purchaser and Seller to be ineffective or reversed for any reason, such
Insurance Contracts shall not be regarded as Novated Contracts and Purchaser
shall continue to reinsure the General Account Liabilities associated with such
Insurance Contracts, on an indemnity basis, in accordance with the terms and
conditions of this Agreement. The parties generally intend to mail Notices and
to seek consents as described on Schedule 3.01 hereto.
ARTICLE IV
TERMINATION AND RECAPTURE
-------------------------
Section 4.01. Termination. The reinsurance provided under this
-----------
Agreement shall terminate as to each Insurance Contract on the earlier of the
effective date of the novation of such Insurance Contract pursuant to the
Assumption Reinsurance Agreement or the date as of which such Insurance
Contract, if a Non-Novated Contract, is recaptured as provided below in this
Article IV.
Section 4.02. Recapture. (a) In the event that (i) the Standard &
---------
Poor's Corporation Claims-Paying Ability rating of Purchaser becomes less than A
or the Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A2, or (ii) Purchaser files an RBC report with the
Commissioner of Insurance of the State of Indiana which indicates that its Total
Adjusted Capital is less than 160 percent of its Company Action Level RBC (as
such capitalized terms are defined in the NAIC Life Risk-Based Capital Report
Including Overview and Instructions for Companies, dated as of December 31,
1994), Seller shall have the right, on 10 days' written notice to Purchaser, to
recapture the Non-Novated Contracts, effective as of the first day of the month
following the month in which the notice period ends (the "Recapture Date"). In
the event that the Non-Novated Contracts are recaptured pursuant to this Article
IV, a net accounting and settlement with respect to the General Account
Liabilities relating to Non-Novated Contracts shall be undertaken by the parties
hereto pursuant to the provisions set forth below in this Section 4.02.
(b) On the Recapture Date, Purchaser will deliver to Seller a
statement of the General Account Reserves, the amount of any contract loans
under the Non-Novated Contracts and the amount of the Cash Amount, each as of
the end of the second month preceding the month in which the Recapture Date
falls (the "Preliminary Recapture Statement"), together with a certification of
the chief financial officer of Purchaser that (i) the Preliminary Recapture
Statement was prepared in accordance with Maine SAP, and (ii) the General
Account Reserves set forth therein (A) were determined in accordance with
generally accepted actuarial standards consistently applied, (B) were fairly
stated in accordance with sound actuarial principles, (C) were based on
actuarial assumptions that were appropriate for Seller's obligations under the
related Insurance Contracts, and (D) met the requirements of Maine SAP.
-6-
<PAGE>
(c) On the Recapture Date, Purchaser shall transfer to Seller cash
and Cash Equivalents in an amount equal to the General Account Reserves less (i)
the amount of any contract loans under the Non-Novated Contracts and (ii) the
Cash Amount, each as determined by Purchaser and set forth on the Preliminary
Recapture Statement. Cash shall be transferred by Purchaser to Seller by wire
transfer of immediately available funds in U.S. Dollars. Cash Equivalents shall
be transferred by such instruments of transfer as are reasonably acceptable to
Seller. In addition, as specified in Section 7.02 hereof, Seller shall, from
and after the Recapture Date, be entitled to receive and retain all contract
loan repayments under the Non-Novated Contracts. Recapture shall be deemed to
occur upon the receipt by Seller of such cash and Cash Equivalents, free of all
liens or other encumbrances.
(d) Purchaser shall, on or before the date that is 30 days after the
Recapture Date, prepare a statement of the General Account Reserves, the amount
of any contract loans under the Non-Novated Contracts and the Cash Amount, each
as of the close of business on the last day of the month preceding the month in
which the Recapture Date falls (the "Proposed Recapture Statement"), together
with a certification of the chief financial officer of Purchaser to the same
effect with respect to the Proposed Recapture Statement as of the date thereof
as the certification provided by such officer with respect to the Preliminary
Recapture Statement as of the date thereof pursuant to Section 4.02(b).
Promptly after its preparation, Purchaser shall deliver copies of the Proposed
Recapture Statement to Seller. Seller shall have the right to review the
Proposed Recapture Statement and comment thereon for a period of 45 days after
receipt thereof. Purchaser agrees that Seller and its accountants may have
access to the accounting records of Purchaser relating to its preparation of the
Proposed Recapture Statement for the purpose of conducting its review. Any
changes in the Proposed Recapture Statement that are agreed to by Purchaser and
Seller within 45 days of the aforementioned delivery of such statement by
Purchaser shall be incorporated into a final recapture statement as of the close
of business on the last day of the month preceding the month in which the
Recapture Date falls (the "Final Recapture Statement"). In the event that
Purchaser and Seller are unable to agree on the manner in which any item or
items should be treated in the preparation of the Final Recapture Statement
within such 45-day period, separate written reports of such item or items shall
be made in concise form and shall be referred to KPMG Peat Marwick (the "Third
Party Accountant"). The Third Party Accountant shall determine within 14 days
the manner in which such item or items shall be treated on the Final Recapture
Statement; provided, however, that the dollar amount of each item in dispute
-------- -------
shall be determined between the range of dollar amounts proposed by Seller and
Purchaser, respectively. The determinations by the Third Party Accountant as to
the items in dispute shall be in writing and shall be binding and conclusive on
the parties and shall be so reflected in the Final Recapture Statement. The
fees, costs and expenses of retaining the Third Party Accountant shall be
allocated by the Third Party Accountant between the parties, in accordance with
the Third Party Accountant's judgment as to the relative merits of the parties'
proposals in respect of the disputed items. Such determination shall be binding
and conclusive on the parties. Following the resolution of all disputed items,
Purchaser shall prepare the Final Recapture Statement and shall deliver copies
of such statement to Seller.
-7-
<PAGE>
(e) In the event the aggregate amount of cash and Cash Equivalents
reflected on the Preliminary Recapture Statement and transferred to the Seller
on the Recapture Date is less than an amount equal to the General Account
Reserves less (i) the amount of any contract loans under the Non-Novated
Contract and (ii) the Cash Amount, each as reflected on the Final Recapture
Statement, Purchaser shall transfer to Seller additional cash or Cash
Equivalents equal to the amount of such difference, together with interest
thereon from and including the Recapture Date to but not including the date of
such transfer computed at an Annual Rate equal to the 90-Day Treasury Rate in
effect as of the Recapture Date. In the event the aggregate amount of cash and
Cash Equivalents reflected on the Preliminary Recapture Statement and
transferred to Seller on the Recapture Date is more than an amount equal to the
General Account Reserves less (i) the amount of any contract loans under the
Non-Novated Contract and (ii) the Cash Amount, each as reflected on the Final
Recapture Statement, Seller shall transfer to Purchaser cash or Cash Equivalents
in the amount of such difference, together with interest thereon computed at an
Annual Rate as specified above from and including the Recapture Date to but not
including the date of such transfer.
ARTICLE V
TERRITORY
---------
This Agreement shall apply to Insurance Contracts covering lives and
risks wherever resident or situated.
ARTICLE VI
ADMINISTRATION; CHANGES; CREDITING RATES
----------------------------------------
Section 6.01. Administration. Pursuant to the Administrative
--------------
Services Agreement, Seller has appointed Purchaser to perform all administrative
services with respect to the Non-Novated Contracts and the Seller Separate
Account and Purchaser has agreed to perform such services on behalf of Seller,
including, but not limited to, the collection of premiums and other amounts due
from Contractholders, the direct payment of all General Account Liabilities, the
direct disbursement of all contract loans and the administration of claims. In
the event of the termination of the Administrative Services Agreement pursuant
to Section 8.02(a) thereof, Seller will re-assume all administrative services
with respect to the Non-Novated Contracts and the Seller Separate Account and
Purchaser will pay to Seller a monthly expense allowance in accordance with the
terms of the Administrative Services Agreement in respect of the Non-Novated
Contracts that have not been recaptured pursuant to Article IV hereof.
Section 6.02. Contract Changes or Reserve Assumption Changes.
----------------------------------------------
Seller, on its own initiative, shall not change (a) the terms and conditions of
any Insurance Contracts or (b) the assumptions and methods used by Seller to
establish the General Account Reserves.
-8-
<PAGE>
Purchaser shall share proportionately, on a 100% coinsurance basis, in any
contract changes or changes in the assumptions and methods used to establish the
General Account Reserves that are required by any regulatory authority having
jurisdiction over Seller in the ordinary course of such authority's exercise of
its powers or otherwise required by law, provided that prior to effectuating any
such change Seller shall promptly notify Purchaser of such proposed change and
afford Purchaser the opportunity, to the extent practical under applicable law,
to object to such change under applicable administrative procedures (both formal
and informal).
Section 6.03. Crediting Rates. Seller shall set crediting rates with
---------------
respect to the Non-Novated Contracts from and after the Effective Date as
directed by Purchaser after consultation with Seller.
ARTICLE VII
TRANSFER OF ASSETS; CONTRACT LOANS
----------------------------------
Section 7.01. Asset Transfer. As consideration for the indemnity
--------------
reinsurance of the General Account Liabilities by Purchaser hereunder and in
accordance with the terms of the Acquisition Agreement and the Trust Agreement,
Seller hereby agrees to transfer to the Trust Account cash, Cash Equivalents and
other assets in an amount equal to (a) the General Account Reserves as of the
close of business on the last day of the month preceding the month in which the
Effective Date falls less (b) the amount of any contract loans under the
Insurance Contracts as of such date.
Section 7.02. Contract Loans. (a) As further consideration for the
--------------
indemnity reinsurance of the General Account Liabilities hereunder, Purchaser
shall, subject to the provisions of this Section 7.02, be entitled to all
contract loan repayments (including both principal and interest) under the Non-
Novated Contracts, payable in accordance with Article VIII hereof. However, as
security for the payment of Purchaser's obligations hereunder, Seller shall be
entitled to withhold actual ownership of such contract loans.
(b) Seller shall have the right to retain contract loan repayments
under the Non-Novated Contracts, and to direct Purchaser to pay to Seller all
such contract loan repayment amounts collected by Purchaser pursuant to the
Administrative Services Agreement, upon the occurrence of any of the events
specified in Section 10.02 hereof that would entitle Seller to withdraw amounts
from the Trust Account, subject to the limitations specified therein on the use
of funds withdrawn from the Trust Account.
(c) In addition, Seller shall, from and after the Recapture Date,
have the right to retain all contract loan repayments under the Non-Novated
Contracts, and to direct Purchaser to pay to Seller all such contract loan
repayment amounts collected by Purchaser pursuant to the Administrative Services
Agreement.
-9-
<PAGE>
ARTICLE VIII
PREMIUMS; RECOVERIES
--------------------
Subject to the provisions of Section 7.02 hereof, as further
consideration for the indemnity reinsurance of the General Account Liabilities,
Purchaser shall, pursuant to the Administrative Services Agreement, collect and
retain all premiums, contract loan repayments and other amounts payable on and
after the Effective Date with respect to the general account portion of the Non-
Novated Contracts. Seller shall promptly pay to Purchaser any such amounts
actually received by Seller.
ARTICLE IX
ACCOUNTING
----------
Pursuant to and in accordance with the terms of the Administrative
Services Agreement, Purchaser will provide to Seller accounting and settlement
reports as to the Insurance Contracts.
ARTICLE X
TRUST ACCOUNT
-------------
Section 10.01. General Account Reserves. Seller agrees that it will
------------------------
establish General Account Reserves as of the last day of each month during the
term of this Agreement and will forward to Purchaser a statement showing such
General Account Reserves and the aggregate amount of contract loans under the
Non-Novated Contracts (the "General Account Reserves Statement") within five
Business Days after receipt from Purchaser of the monthly accounting statement
for such month pursuant to the terms of the Administrative Services Agreement.
Section 10.02. Trust Fund. (a) Purchaser has entered into the Trust
----------
Agreement and has established a trust account (the "Trust Account") thereunder
for the benefit of Seller with respect to the General Account Reserves.
Purchaser agrees that, subsequent to Seller's transfer of cash, Cash Equivalents
and other assets to the Trust Account as described in Article VII above,
Purchaser will thereafter maintain in the Trust Account (in addition to any
assets required to be maintained in the Trust Account under the Coinsurance and
Assumption Agreement or the Post-Closing Indemnity Reinsurance Agreement) assets
having a market value not less than an amount equal to the General Account
Reserves less the aggregate amount of contract loans under the Non-Novated
Contracts (the "Required Amount"), to be held in trust by Trustee for the
benefit of Seller as security for the payment of Purchaser's obligations to
Seller under this Agreement. Following the receipt of each General Account
Reserves Statement, Purchaser shall, to the
-10-
<PAGE>
extent that the market value of the assets held in the Trust Account on the last
day of the month just ended (the "Calculated Asset Value") is less than the
Required Amount so calculated, within five Business Days of its receipt of such
General Account Reserves Statement, transfer to the Trust Account assets with a
market value on the date of transfer at least equal to the difference between
the Required Amount and the Calculated Asset Value.
(b) Purchaser agrees that the assets so deposited shall be valued
according to their current fair market value and shall consist only of
investments of the type specified on Schedule 10.02 hereto and that the
investment and reinvestment thereof shall be consistent with Purchaser's
investment strategy in connection with its general account.
(c) Purchaser and Seller, prior to depositing assets with Trustee,
shall execute all assignments, endorsements in blank, or transfer legal title to
Trustee of all shares, obligations or any other assets requiring assignments, in
order that Trustee may whenever necessary negotiate any such assets without
consent or signature from Purchaser, Seller or any other Person.
(d) Purchaser and Seller agree that the assets in the Trust Account
may be withdrawn by Seller in accordance with the procedures set forth in the
Trust Agreement, provided such assets are applied and utilized by Seller (or any
--------
successor of Seller by operation of law, including, without limitation, any
liquidator, rehabilitator, receiver or conservator of Seller) solely on the
basis of the liability of Seller under the Non-Novated Contracts, without
diminution because of the insolvency of Seller or the Purchaser, under the
following circumstances and for the following purposes:
(i) in the event the Non-Novated Contracts are recaptured
pursuant to Article IV, to pay Seller the recapture amounts determined in
accordance with Article IV, to the extent such recapture amounts are not
paid directly to Seller by Purchaser; and
(ii) in the event that (A) the Standard & Poor's Corporation
Claims-Paying Ability rating of Purchaser becomes less than A+ or the
Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A1 or (B) Purchaser becomes the subject of a delinquency
proceeding within the meaning of Section 27-9-1-2 of the Indiana Insurance
Law, in each case:
(x) to reimburse Seller for Purchaser's share of
surrenders, contract loans and benefits paid by Seller
pursuant to the provisions of the Insurance Contracts, to
the extent not paid directly by Purchaser when due pursuant
to the terms of the Administrative Services Agreement;
-11-
<PAGE>
(y) to pay Seller the expense allowance described in
Section 6.01 hereof, to the extent not paid directly to
Seller by Purchaser when due; and
(z) to pay any other amounts due Seller under this
Agreement to the extent not paid directly to Seller by
Purchaser when due; and
(iii) in the event that the Standard & Poor's Corporation
Claims-Paying Ability rating of Purchaser becomes less than A or the
Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A2, in addition to the purposes set forth above, to fund
accounts specifically established by Seller to cover loss exposures of
Seller in an amount equal to the Required Amount.
In the event that Seller withdraws assets from the Trust Account in excess of
actual amounts required to meet Purchaser's obligations to Seller, Seller will
return such excess to the Trust Account, plus interest in an amount equal to the
actual earnings on the assets withdrawn from the Trust Account during the period
that the amounts were withdrawn.
(e) Purchaser and Seller agree that the assets of the Trust Account
may be withdrawn by Purchaser in accordance with the procedures set forth in the
Trust Agreement, provided that either:
(i) Purchaser shall, at the time of any such withdrawal and
transfer, replace the withdrawn assets with other assets of a type
permitted in Section 10.02 (b) above, having a market value at least equal
to the market value of the assets so withdrawn, in order to maintain in the
Trust Account assets having a market value at least equal to the Required
Amount, or
(ii) after such withdrawal and transfer, the market value of the
assets remaining in the Trust Account is not less than the Required Amount;
provided, however, that Purchaser may make withdrawals pursuant to subsection
- -------- -------
(e)(ii) of this Section 10.02(e) only once in any month and only after the
receipt of the General Account Reserves Statement showing General Account
Reserves and contract loans under the Non-Novated Contracts, each as of the end
of the previous month.
(f) Seller hereby agrees to execute each Purchaser Certificate
presented to it for execution, as contemplated by Section 2.09(b) of the Trust
Agreement, which is executed by a duly authorized officer of Purchaser and
accompanied by evidence reasonably satisfactory to Seller that the withdrawal
requested therein is permitted under Section 10.02(e). Seller hereby also
agrees to execute a Termination Certificate presented to it for
-12-
<PAGE>
execution which is executed by a duly authorized officer of Purchaser and
accompanied by evidence reasonably satisfactory to Seller of the validity of the
statements set forth therein.
ARTICLE XI
INSOLVENCY
----------
Purchaser hereby agrees that, as to all reinsurance made, ceded,
renewed or otherwise becoming effective hereunder, the reinsurance shall be
payable by Purchaser on the basis of the liability of Seller under the Insurance
Contract or Contracts reinsured on an indemnity basis, without diminution
because of the insolvency, liquidation or rehabilitation of Seller or the
appointment of a conservator, receiver, liquidator or statutory successor of
Seller, directly to Seller or to its conservator, liquidator, receiver or other
statutory successor. It is agreed that any conservator, receiver, liquidator or
statutory successor of Seller shall give prompt written notice to Purchaser of
the pendency or submission of a claim under any such Insurance Contract or
Contracts. During the pendency of such claim, Purchaser may investigate such
claim and interpose, at its own expense, in the proceeding where such claim is
to be adjudicated, any defense available to Seller or its conservator, receiver,
liquidator or statutory successor. The expense thus incurred by Purchaser is
chargeable against Seller as a part of the expense of insolvency, liquidation or
rehabilitation to the extent of a proportionate share of the benefit which
accrues to Seller solely as a result of the defense undertaken by Purchaser.
ARTICLE XII
OFFSETS
-------
Any debts or credits between Seller and Purchaser arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
ARTICLE XII
RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES
--------------------------------------------------
Purchaser's reinsurance of the General Account Liabilities is intended
for the sole benefit of the parties to this Agreement and shall not create any
right on the part of any other party, including, without limit, any
Contractholder, insured, claimant or beneficiary, against Purchaser or any legal
relation between any Contractholders, insureds, claimants or beneficiaries and
Purchaser.
-13-
<PAGE>
ARTICLE XIV
ERRORS AND OMISSIONS
--------------------
Inadvertent delays, errors or omissions made by either Seller or
Purchaser in connection with this Agreement or any transaction hereunder shall
not relieve the other party from any liability which would have attached to such
party had such delay, error or omission not occurred, provided that the party
causing such delay, error or omission rectifies the same as soon as possible
after its discovery thereof. If, as a result of any such delay, error or
omission, there is a delay in the transfer of funds to be transferred pursuant
hereto, the party responsible for such delay, error or omission shall pay, to
the party to whom such funds are to be transferred, interest on the amount of
funds to be transferred from the date of such delay, error or omission to and
including the date of such transfer of funds at a rate equal to the average rate
of earnings on assets held in the Trust Account during such period.
ARTICLE XV
DUTY OF COOPERATION
-------------------
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
The duty of cooperation shall apply, but not be limited, to regulatory and
litigation matters.
ARTICLE XVI
ARBITRATION
-----------
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent
that the unique aspects of the transaction render such customs and usages
inapplicable. The parties hereto shall act in all things with the highest good
faith. Any dispute or difference with respect to the operation or
interpretation of this Agreement on which an amicable understanding cannot be
reached shall be submitted to arbitration, which shall be mandatory and binding,
provided, however, that this Article XVI shall not apply in the event Purchaser
shall become subject to a delinquency proceeding as defined in Section 27-9-1-2
of the Indiana Insurance Law. The arbitrators shall be free to reach their
decision from the standpoint of equity and customary practices of the insurance
and reinsurance industry rather than from that of strict legal principles.
The arbitration shall be held in Portland, Maine and shall consist of
three arbitrators who must be active or retired executive officers of life
insurance companies other than the parties to this Agreement, their Affiliates
or subsidiaries. Seller shall appoint one arbitrator and Purchaser the second.
Such arbitrators shall then select the third arbitrator
-14-
<PAGE>
before arbitration commences. Should one of the parties decline to appoint an
arbitrator or should the two arbitrators be unable to agree upon the choice of a
third, such appointment shall be left to the President of the American Academy
of Actuaries.
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide. Judgment on any award granted by the arbitrators may
be entered in a Federal court of competent jurisdiction located in Portland,
Maine.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
------------------------
Section 17.01. Notices. Any notice required or permitted hereunder
-------
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(1) If to Purchaser to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(2) If to Seller to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
-15-
<PAGE>
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 17.02. Amendment. This Agreement may not be modified,
---------
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 17.03. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all, of
the parties hereto.
Section 17.04. No Third Party Beneficiaries. Nothing in this
----------------------------
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 17.05. Assignment. This Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto.
Section 17.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MAINE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
-16-
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement
as of the date first above written.
UNUM LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ Kevin J. Tierney
----------------------
Name: Kevin J. Tierney
Title: Senior Vice President and
General Counsel
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: /s/ Kelly D. Clevenger
------------------------
Name: Kelly D. Clevenger
Title: Vice President
-17-
<PAGE>
================================================================================
INDEMNITY REINSURANCE AGREEMENT
by and between
UNUM LIFE INSURANCE COMPANY OF AMERICA
and
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
Dated as of October 1, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................... 1
ARTICLE II BUSINESS REINSURED............................................. 5
ARTICLE III NOVATED CONTRACTS.............................................. 6
ARTICLE IV TERMINATION AND RECAPTURE...................................... 6
Section 4.01. Termination................................................ 6
Section 4.02. Recapture.................................................. 6
ARTICLE V TERRITORY...................................................... 9
ARTICLE VI CHANGES; CREDITING RATES....................................... 9
Section 6.01. Contract Changes or Reserve Assumption Changes............. 9
Section 6.02. Crediting Rates............................................ 9
ARTICLE VII TRANSFER OF ASSETS; CONTRACT
LOANS.......................................................... 9
Section 7.01. Asset Transfer............................................. 9
Section 7.02. Contract Loans............................................. 10
ARTICLE VIII PREMIUMS; RECOVERIES........................................... 10
ARTICLE IX CUSTODIAN ACCOUNT.............................................. 10
Section 9.01. General Account Reserves................................... 10
Section 9.02. Custodian Account.......................................... 11
ARTICLE X INSOLVENCY..................................................... 13
ARTICLE XI OFFSETS........................................................ 13
ARTICLE XII RIGHTS WITH RESPECT TO GENERAL
ACCOUNT LIABILITIES............................................ 13
ARTICLE XIII ERRORS AND OMISSIONS........................................... 14
ARTICLE XIV DUTY OF COOPERATION............................................ 14
ARTICLE XV ARBITRATION.................................................... 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XVI MISCELLANEOUS PROVISIONS....................................... 15
Section 16.01. Notices................................................... 15
Section 16.02. Amendment................................................. 16
Section 16.03. Counterparts.............................................. 16
Section 16.04. No Third Party Beneficiaries.............................. 16
Section 16.05. Assignment................................................ 16
Section 16.06. Governing Law............................................. 17
Section 16.07. Entire Agreement.......................................... 17
</TABLE>
SCHEDULES
Schedule 1.01 Insurance Contracts
Schedule 1.02 Seller Separate Account
Schedule 10.02 Authorized Investments
EXHIBITS
Exhibit A Substitution Certificate
Exhibit B Withdrawal Certificate
-ii-
<PAGE>
INDEMNITY REINSURANCE AGREEMENT
-------------------------------
THIS INDEMNITY REINSURANCE AGREEMENT (this "Agreement"), dated as of
October 1, 1996, is made by and between UNUM Life Insurance Company of America,
a Maine domiciled stock life insurance company ("Seller"), and Lincoln Life &
Annuity Company of New York, a New York domiciled stock life insurance company
("LLANY").
WHEREAS, Seller has agreed to cede and transfer to LLANY the Insurance
Contracts (as defined below) and LLANY has agreed to reinsure the rights,
obligations and liabilities of Seller under the Insurance Contracts; and
WHEREAS, Seller and LLANY are, concurrently with the execution of this
Agreement, entering into an Assumption Reinsurance Agreement (the "Assumption
Reinsurance Agreement") whereby LLANY agrees to assume the Insurance Contracts
on an assumption reinsurance basis; and
WHEREAS, Seller and LLANY are entering into this Agreement whereby
LLANY will reinsure the general account obligations of Seller under the
Insurance Contracts on the terms and conditions set forth herein pending
assumption of the Insurance Contracts by LLANY on a novation basis pursuant to
the Assumption Reinsurance Agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the respective meanings set forth below
throughout the Agreement:
"Acquisition Agreement" means the Second Amended and Restated Asset
---------------------
Transfer and Acquisition Agreement entered into by and between Purchaser (as
defined below) and Seller, dated as of January 24, 1996, to which LLANY has been
added as a party.
"Affiliate" means, with respect to any Person, at the time in
---------
question, any other Person controlling, controlled by or under common control
with such Person.
"Agreement" means this Indemnity Reinsurance Agreement.
---------
<PAGE>
"Annual Rate" means the value of r in the expression (1 + r)/n/365/ -
-----------
1, where "n" is equal to the number of days for which interest is to be computed
and the result of the expression is the interest factor for computing the
applicable interest amounts.
"Assumption Reinsurance Agreement" shall have the meaning set forth in
--------------------------------
the second recital hereof.
"Baseline Balance Sheet" shall have the meaning set forth in the
----------------------
Acquisition Agreement.
"Business Day" means any day other than a Saturday, Sunday, a day on
------------
which banking institutions in any of the States of Maine, New York or Indiana
are permitted or obligated by law to be closed or a day on which the New York
Stock Exchange is closed for trading.
"Cash Amount" means an amount equal to the result of 2.1824%
-----------
multiplied by the Customer Asset Value calculated as of a particular date.
"Cash Equivalents" means, as of any particular date, money market
----------------
funds, marketable obligations issued or guaranteed by the United States
Government, certificates of deposit, bankers' acceptances and other similar
liquid investments, in each case, with a maturity date of not more than 90 days
from the date on which any such instrument is transferred pursuant to the terms
of this Agreement, the market value of which on the date of transfer will be
counted as equivalent to cash for purposes of satisfying the aggregate amount of
cash and Cash Equivalents required to be transferred as described in Article IV
and/or Article VII hereof.
"Certificateholders" means the certificateholders under the group
------------------
annuity contracts included within the Insurance Contracts.
"Contractholders" shall have the meaning set forth in Article III
---------------
hereof.
"Custodian" means Bankers Trust Company and any successor appointed as
---------
such pursuant to the terms of the Custodian Agreement.
"Custodian Account" shall have the meaning set forth in Section 9.02
-----------------
hereof.
"Custodian Agreement" means the custodian agreement entered into by
-------------------
and among Seller, LLANY and the Custodian dated as of the date hereof.
"Custodian Asset Value" shall have the meaning set forth in Section
---------------------
9.02 hereof.
-2-
<PAGE>
"Customer Asset Value" means, at any time, an amount equal to the
--------------------
aggregate reserves with respect to the Non-Novated Contracts in effect at such
time that would be shown on a balance sheet of Seller as at such time prepared
in accordance with GAAP applied in the same manner as applied in the preparation
of the Baseline Balance Sheet.
"Effective Date" shall have the meaning set forth in Article II
--------------
hereof.
"Extra Contractual Obligations" means all liabilities for
-----------------------------
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Seller or any
of its Affiliates prior to the date hereof, whether intentional or otherwise, or
from any reckless conduct or bad faith by Seller or any of its Affiliates, in
connection with the handling of any claim under any of the Insurance Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Insurance Contracts (provided that no liability with respect to which
Purchaser or LLANY shall be entitled to indemnification under Section
10.01(a)(ii) of the Acquisition Agreement shall be deemed to be an Extra
Contractual Obligation).
"Final Recapture Statement" shall have the meaning set forth in
-------------------------
Section 4.02 hereof.
"General Account Liabilities" means all general account liabilities
---------------------------
and obligations arising under the Insurance Contracts, including, without
limitation: (i) all liability for premium taxes arising on account of premiums
paid or annuities purchased on or after the Effective Date, (ii) all amounts
payable on or after the Effective Date for returns or refunds of premiums under
the Insurance Contracts, (iii) all liability for commission payments and other
fees or compensation payable with respect to the Insurance Contracts to or for
the benefit of brokers and service providers, to the extent that such amounts
are or become payable on or after the Effective Date and (iv) all guaranty fund
assessments and similar charges imposed with respect to the Insurance Contracts
based on premiums paid on or after the Effective Date; excluding (i) the Seller
Separate Account Liabilities, (ii) any Extra Contractual Obligations and (iii)
any general account liabilities which relate to (A) amounts transferred from the
Seller Separate Account to the general account of Seller pending distribution to
holders of the Insurance Contracts, (B) amounts held in the general account of
Seller pending transfer to the Seller Separate Account and (C) guaranteed death
benefits under the Seller Separate Account in excess of account values.
"General Account Reserves" means the general account statutory
------------------------
reserves of Seller (without regard to this Agreement) with respect to the Non-
Novated Contracts determined pursuant to New York SAP, as such reserves would
have been included in lines 1, 10.2 or 10.3 of the Liabilities, Surplus and
Other Funds page of the NAIC Annual Statement Blank (1994 format), including
(for the avoidance of doubt) any general account statutory reserve adjustments
in relation to Seller Separate Account Liabilities.
-3-
<PAGE>
"General Account Reserves Statement" shall have the meaning set forth
----------------------------------
in Section 9.01 hereof.
"Insurance Contracts" means all group annuity contracts issued by
-------------------
Seller that are listed on Schedule 1.01 hereto and in effect on the Effective
Date and all certificates and participation agreements in effect as of the
Effective Date issued in accordance with the terms of such group annuity
contracts (including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"LLANY" shall have the meaning set forth in the introductory paragraph
-----
hereof.
"NAIC" means the National Association of Insurance Commissioners.
----
"New York SAP" means the statutory accounting principles and practices
------------
prescribed or permitted by the Insurance Department of the State of New York.
"90-Day Treasury Rate" means the annual yield rate, on the date to
--------------------
which 90-Day Treasury Rate relates, of actively traded U.S. Treasury securities
having a remaining duration to maturity of three months, as such rate is
published under "Treasury Constant Maturities" in Federal Reserve Statistical
Release H.15(519).
"Non-Novated Contracts" means Insurance Contracts that are not Novated
---------------------
Contracts.
"Novated Contract" shall have the meaning set forth in Article III
----------------
hereof.
"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"Preliminary Recapture Statement" shall have the meaning set forth in
-------------------------------
Section 4.02 hereof.
"Proposed Recapture Statement" shall have the meaning set forth in
----------------------------
Section 4.02 hereof.
"Purchaser" means The Lincoln National Life Insurance Company, an
---------
Affiliate of LLANY.
"Recapture Date" shall have the meaning set forth in Section 4.02
--------------
hereof.
"Required Amount" shall have the meaning set forth in Section 9.02
---------------
hereof.
-4-
<PAGE>
"Seller" shall have the meaning set forth in the introductory
------
paragraph hereof.
"Seller Custodian" means the custodian named in the Seller Custodian
----------------
Agreement (as defined below) and any successor custodian appointed as such
pursuant to the terms of the Seller Custodian Agreement.
"Seller Custodian Account" means the custodian account established
------------------------
under the Seller Custodian Agreement.
"Seller Custodian Agreement" means the custodian agreement entered
--------------------------
into between Seller (as the successor to UNUM Life Insurance Company) and The
Bank of New York, approved by the Superintendent on the 24th day of December,
1991.
"Seller Separate Account" means the separate account of Seller
-----------------------
described on Schedule 1.02 hereto.
"Seller Separate Account Liabilities" means those insurance
-----------------------------------
liabilities that are reflected in the Seller Separate Account and that relate to
the Insurance Contracts.
"Substitution Certificate" means a substitution certificate in
------------------------
substantially the form of Exhibit A hereto.
"Superintendent" means the Superintendent of Insurance of the State of
--------------
New York.
"Third Party Accountant" shall have the meaning set forth in Section
----------------------
4.02 hereof.
"Transfer Request" means a transfer request substantially in the form
----------------
of Exhibit C to the Custodian Agreement.
"Withdrawal Certificate" means a withdrawal certificate in
----------------------
substantially the form of Exhibit B hereto.
ARTICLE II
BUSINESS REINSURED
------------------
Upon the terms and subject to the conditions and other provisions of
this Agreement and any required governmental and regulatory consents and
approvals, effective as of 12:01 a.m., Eastern Time, on October 1, 1996 (the
"Effective Date"), Seller hereby
-5-
<PAGE>
cedes to LLANY and LLANY hereby accepts and indemnity reinsures, on a
coinsurance basis, 100% of the General Account Liabilities.
ARTICLE III
NOVATED CONTRACTS
-----------------
Pursuant to and in accordance with the terms of the Assumption
Reinsurance Agreement, LLANY will prepare and mail Notices (as defined in the
Assumption Reinsurance Agreement) and certificates of assumption to the holders
of the Insurance Contracts (the "Contractholders") in order to attempt to
effectuate novations of the Insurance Contracts (each Insurance Contract which
is so novated being referred to herein as a "Novated Contract"). To the extent
LLANY does not assume by novation any Insurance Contracts, whether due to
rejection of assumption by Contractholders, the existence of Certificateholders
who are not residents of New York, or otherwise, or if any attempted novation is
subsequently finally determined in a judicial proceeding or by regulatory action
or otherwise agreed by LLANY and Seller to be ineffective or reversed for any
reason, such Insurance Contracts shall not be regarded as Novated Contracts and
LLANY shall continue to reinsure the General Account Liabilities associated with
such Insurance Contracts, on an indemnity basis, in accordance with the terms
and conditions of this Agreement.
ARTICLE IV
TERMINATION AND RECAPTURE
-------------------------
Section 4.01. Termination. The reinsurance provided under this
-----------
Agreement shall terminate as to each Insurance Contract on the earlier of the
effective date of the novation of such Insurance Contract pursuant to the
Assumption Reinsurance Agreement or the date as of which such Insurance
Contract, if a Non-Novated Contract, is recaptured as provided below in this
Article IV.
Section 4.02. Recapture. (a) In the event that (i) the Standard &
---------
Poor's Corporation Claims-Paying Ability rating of Purchaser becomes less than A
or the Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A2, or (ii) Purchaser files an RBC report with the
Commissioner of Insurance of the State of Indiana which indicates that its Total
Adjusted Capital is less than 160 percent of its Company Action Level RBC (as
such capitalized terms are defined in the NAIC Life Risk-Based Capital Report
Including Overview and Instructions for Companies, dated as of December 31,
1994), Seller shall have the right, on 10 days' written notice to LLANY, to
recapture the Non-Novated Contracts, effective as of the first day of the month
following the month in which the notice period ends (the "Recapture Date"). In
the event that the Non-Novated Contracts
-6-
<PAGE>
are recaptured pursuant to this Article IV, a net accounting and settlement with
respect to the General Account Liabilities relating to Non-Novated Contracts
shall be undertaken by the parties hereto pursuant to the provisions set forth
below in this Section 4.02.
(b) On the Recapture Date, LLANY will deliver to Seller a statement
of the General Account Reserves, the amount of any contract loans under the Non-
Novated Contracts and the amount of the Cash Amount, each as of the end of the
second month preceding the month in which the Recapture Date falls (the
"Preliminary Recapture Statement"), together with a certification of the chief
financial officer of LLANY that (i) the Preliminary Recapture Statement was
prepared in accordance with New York SAP, and (ii) the General Account Reserves
set forth therein (A) were determined in accordance with generally accepted
actuarial standards consistently applied, (B) were fairly stated in accordance
with sound actuarial principles, (C) were based on actuarial assumptions that
were appropriate for Seller's obligations under the related Insurance Contracts,
and (D) met the requirements of New York SAP.
(c) On the Recapture Date, LLANY shall, with the written approval by
or in the name of the Superintendent, direct the Custodian to transfer to the
Seller Custodian Account cash and Cash Equivalents from the Custodian Account in
an amount equal to 100% of the General Account Reserves less (i) the amount of
any contract loans under the Non-Novated Contracts and (ii) the Cash Amount,
each as determined by LLANY and set forth on the Preliminary Recapture
Statement. In the event that the amount held in the Custodian Account is less
than the amount to be transferred to the Seller Custodian Account as specified
in the preceding sentence, LLANY shall transfer an amount equal to the amount of
such difference to the Seller Custodian Account. Cash shall be transferred to
the Seller Custodian Account by wire transfer of immediately available funds in
U.S. Dollars. Cash Equivalents shall be transferred by such instruments of
transfer as are reasonably acceptable to Seller and the Seller Custodian. In
addition, as specified in Section 7.02 hereof, Seller shall, from and after the
Recapture Date, be entitled to receive and retain all contract loan repayments
under the Non-Novated Contracts. Recapture shall be deemed to occur upon the
receipt by the Seller Custodian Account of such cash and Cash Equivalents, free
of all liens or other encumbrances.
(d) LLANY shall, on or before the date that is 30 days after the
Recapture Date, prepare a statement of the General Account Reserves, the amount
of any contract loans under the Non-Novated Contracts and the Cash Amount, each
as of the close of business on the last day of the month preceding the month in
which the Recapture Date falls (the "Proposed Recapture Statement"), together
with a certification of the chief financial officer of LLANY to the same effect
with respect to the Proposed Recapture Statement as of the date thereof as the
certification provided by such officer with respect to the Preliminary Recapture
Statement as of the date thereof pursuant to Section 4.02(b). Promptly after
its preparation, LLANY shall deliver copies of the Proposed Recapture Statement
to Seller. Seller shall have the right to review the Proposed Recapture
Statement and comment thereon
-7-
<PAGE>
for a period of 45 days after receipt thereof. LLANY agrees that Seller and its
accountants may have access to the accounting records of LLANY relating to its
preparation of the Proposed Recapture Statement for the purpose of conducting
its review. Any changes in the Proposed Recapture Statement that are agreed to
by LLANY and Seller within 45 days of the aforementioned delivery of such
statement by LLANY shall be incorporated into a final recapture statement as of
the close of business on the last day of the month preceding the month in which
the Recapture Date falls (the "Final Recapture Statement"). In the event that
LLANY and Seller are unable to agree on the manner in which any item or items
should be treated in the preparation of the Final Recapture Statement within
such 45-day period, separate written reports of such item or items shall be made
in concise form and shall be referred to KPMG Peat Marwick (the "Third Party
Accountant"). The Third Party Accountant shall determine within 14 days the
manner in which such item or items shall be treated on the Final Recapture
Statement; provided, however, that the dollar amount of each item in dispute
-------- -------
shall be determined between the range of dollar amounts proposed by Seller and
LLANY, respectively. The determinations by the Third Party Accountant as to the
items in dispute shall be in writing and shall be binding and conclusive on the
parties and shall be so reflected in the Final Recapture Statement. The fees,
costs and expenses of retaining the Third Party Accountant shall be allocated by
the Third Party Accountant between the parties, in accordance with the Third
Party Accountant's judgment as to the relative merits of the parties' proposals
in respect of the disputed items. Such determination shall be binding and
conclusive on the parties. Following the resolution of all disputed items, LLANY
shall prepare the Final Recapture Statement and shall deliver copies of such
statement to Seller.
(e) In the event the aggregate amount of cash and Cash Equivalents
reflected on the Preliminary Recapture Statement and transferred to the Seller
Custodian Account on the Recapture Date is less than an amount equal to 100% of
the General Account Reserves less (i) the amount of any contract loans under the
Non-Novated Contracts and (ii) the Cash Amount, each as reflected on the Final
Recapture Statement, LLANY shall, with the written approval by or in the name of
the Superintendent, direct the Custodian to transfer to the Seller Custodian
Account additional cash or Cash Equivalents from the Custodian Account, equal to
the amount of such difference, together with interest thereon from and including
the Recapture Date to but not including the date of such transfer computed at an
Annual Rate equal to the 90-Day Treasury Rate in effect as of the Recapture
Date. In the event that the amount held in the Custodian Account is less than
the amount to be transferred to the Seller Custodian Account as specified in the
preceding sentence, LLANY shall transfer to the Seller Custodian Account an
amount equal to the amount of such difference, together with interest thereon
from and including the Recapture Date to but not including the date of such
transfer computed at an Annual Rate equal to the 90-Day Treasury Rate in effect
as of the Recapture Date. In the event the aggregate amount of cash and Cash
Equivalents reflected on the Preliminary Recapture Statement and transferred to
the Seller Custodian Account on the Recapture Date is more than an amount equal
to 100% of the General Account Reserves less (i) the amount of any contract
loans under the Non-Novated Contracts and (ii) the Cash Amount, each as
reflected on the Final Recapture
-8-
<PAGE>
Statement, Seller shall, with the written approval by or in the name of the
Superintendent, direct the Seller Custodian to transfer to the Custodian Account
cash or Cash Equivalents from the Seller Custodian Account in the amount of such
difference, together with interest thereon computed at an Annual Rate as
specified above from and including the Recapture Date to but not including the
date of such transfer.
ARTICLE V
TERRITORY
---------
This Agreement shall apply to Insurance Contracts covering lives and
risks wherever resident or situated.
ARTICLE VI
CHANGES; CREDITING RATES
------------------------
Section 6.01. Contract Changes or Reserve Assumption Changes.
----------------------------------------------
Seller, on its own initiative, shall not change (a) the terms and conditions of
any Insurance Contracts or (b) the assumptions and methods used by Seller to
establish the General Account Reserves. LLANY shall share proportionately, on a
100% coinsurance basis, in any contract changes or changes in the assumptions
and methods used to establish the General Account Reserves that are required by
any regulatory authority having jurisdiction over Seller or that are otherwise
required by law, provided that prior to effectuating any such change Seller
shall promptly notify LLANY of such proposed change.
Section 6.02. Crediting Rates. Seller shall set crediting rates with
---------------
respect to the Non-Novated Contracts from and after the Effective Date, taking
into account the recommendations of LLANY with respect thereto.
ARTICLE VII
TRANSFER OF ASSETS; CONTRACT LOANS
----------------------------------
Section 7.01. Asset Transfer. As consideration for the indemnity
--------------
reinsurance of the General Account Liabilities by LLANY hereunder and in
accordance with the terms of the Acquisition Agreement, Seller shall transfer to
the Custodian Account cash, Cash Equivalents and other assets in an amount equal
to (a) 100% of the amount of the General Account Reserves as of the close of
business on the last day of the month preceding the
-9-
<PAGE>
month in which the Effective Date falls less (b) the amount of any contract
loans under the Insurance Contracts as of such date.
Section 7.02. Contract Loans. (a) As further consideration for the
--------------
indemnity reinsurance of the General Account Liabilities hereunder, LLANY shall,
subject to the provisions of this Section 7.02, be entitled to all contract loan
repayments (including both principal and interest) under the Non-Novated
Contracts, payable in accordance with Article VIII hereof. However, as security
for the payment of LLANY's obligations hereunder, Seller shall be entitled to
withhold actual ownership of such contract loans.
(b) Seller shall have the right to retain or otherwise receive
contract loan repayments under the Non-Novated Contracts, and LLANY shall have
an obligation to pay to Seller all such contract loan repayment amounts
collected by LLANY, upon the occurrence of any of the events specified in
Section 9.02 hereof that would entitle Seller to request the approval of the
Superintendent for a transfer of amounts from the Custodian Account to the
Seller Custodian Account, subject to the limitations specified therein on the
use of funds withdrawn from the Custodian Account.
(c) In addition, Seller shall, from and after the Recapture Date,
have the right to retain or otherwise receive all contract loan repayments under
the Non-Novated Contracts.
ARTICLE VII
PREMIUMS; RECOVERIES
--------------------
Subject to the provisions of Section 7.02 hereof, as further
consideration for the indemnity reinsurance of the General Account Liabilities,
LLANY shall be entitled to all premiums, contract loan repayments and other
amounts payable on and after the Effective Date with respect to the general
account portion of the Non-Novated Contracts. Seller shall promptly pay to
LLANY any such amounts actually received by Seller.
ARTICLE IX
CUSTODIAN ACCOUNT
-----------------
Section 9.01. General Account Reserves. Seller agrees that it will
------------------------
establish General Account Reserves as of the last day of each month during the
term of this Agreement and will forward to LLANY and the Superintendent a
statement showing such General Account Reserves and the aggregate amount of
contract loans under the Non-
-10-
<PAGE>
Novated Contracts (the "General Account Reserves Statement") within ten Business
Days after the end of each calendar month during the term of this Agreement.
Section 9.02. Custodian Account. (a) LLANY has entered into the
-----------------
Custodian Agreement and has established a Custodian Account (the "Custodian
Account") thereunder for the benefit of the policyholders of Seller resident in
New York. LLANY agrees that, subsequent to the transfer of assets to the
Custodian Account as described in Article VII above, LLANY will thereafter
maintain in the Custodian Account assets having a market value not less than an
amount equal to 100% of the amount of the General Account Reserves, less the
aggregate amount of contract loans under the Non-Novated Contracts (the
"Required Amount"), to be held by the Custodian. Following the receipt of each
General Account Reserves Statement, LLANY shall, to the extent that the market
value of the assets held in the Custodian Account on the last day of the month
just ended (the "Custodian Asset Value") is less than the Required Amount so
calculated, within five Business Days of its receipt of such General Account
Reserves Statement, transfer to the Custodian Account assets with a market value
on the date of transfer at least equal to the difference between the Required
Amount and the Custodian Asset Value.
(b) The assets placed in the Custodian Account will consist only of
cash (U.S. legal tender), certificates of deposit (issued by U.S. banks and
payable in U.S. legal tender), and investments of the types specified in
subsection (a)(1) and subsection (a)(2) (excluding preferred shares) of Section
1405 of the New York Insurance Law, that are of investment grade, provided that
such investments are issued by an institution that is not the parent, a
subsidiary or an affiliate of LLANY or Seller. Assets in the Custodian Account
will be valued at market value.
(c) LLANY and Seller agree that the assets in the Custodian Account
shall be transferred from the Custodian Account to the Seller Custodian Account
in accordance with the procedures set forth in the Custodian Agreement under the
following circumstances and for the following purposes:
(i) in the event the Non-Novated Contracts are recaptured pursuant
to Article IV, to transfer to the Seller Custodian Account the recapture
amounts determined in accordance with Article IV;
(ii) in the event that (A) the Standard & Poor's Corporation
Claims-Paying Ability rating of Purchaser becomes less than A+ or the
Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A1 or (B) Purchaser becomes the subject of a delinquency
proceeding within the meaning of Section 27-9-1-2 of the Indiana Insurance
Law, in each case to reimburse Seller for LLANY's share of surrenders,
contract loans and benefits paid by Seller pursuant to the provisions of
the
-11-
<PAGE>
Insurance Contracts, to the extent not paid directly by LLANY when due;
or
(iii) in the event that the Standard & Poor's Corporation
Claims-Paying Ability rating of Purchaser becomes less than A or the
Moody's Investors Service, Inc. Financial Strength rating of Purchaser
becomes less than A2, in addition to the purposes set forth above, to
transfer to the Seller Custodian Account assets in an amount equal to the
Required Amount;
provided that any such transfer, or any other withdrawal of amounts from the
- --------
Custodian Account by the Superintendent, shall reduce the obligations of LLANY
under this Agreement in an amount equal to the market value of the assets so
transferred. LLANY hereby agrees to execute and deliver to the Custodian each
Transfer Request presented to it by Seller that is accompanied by evidence
reasonably satisfactory to LLANY that the amount requested to be transferred in
such Transfer Request has been properly determined.
(d) LLANY and Seller agree that assets may be withdrawn by LLANY from
the Custodian Account in accordance with the procedures set forth in the
Custodian Agreement, and, with respect to clause (i) below, only after or
simultaneously with delivery to Seller of a Substitution Certificate signed by a
duly authorized officer of LLANY and, with respect to clause (ii) below, only
after or simultaneously with delivery to Seller of a Withdrawal Certificate
signed by a duly authorized officer of LLANY, provided that either:
(i) LLANY shall, prior to any such withdrawal, replace the withdrawn
assets with other assets of a type permitted in Section 9.02(b) above,
having a market value at least equal to the market value of the assets so
withdrawn, in order to maintain in the Custodian Account assets having a
market value at least equal to the Required Amount, or
(ii) after such withdrawal, the market value of the assets remaining
in the Custodian Account is not less than the Required Amount;
provided, however, that LLANY may make withdrawals pursuant to subsection
- -------- -------
(d)(ii) of this Section 9.02(d) only once in any month, only after the receipt
of the General Account Reserves Statement showing General Account Reserves and
contract loans under the Non-Novated Contracts, each as of the end of the
previous month, and only with the written approval of the Superintendent.
-12-
<PAGE>
ARTICLE X
INSOLVENCY
----------
LLANY hereby agrees that, as to all reinsurance made, ceded, renewed
or otherwise becoming effective hereunder, the reinsurance shall be payable by
LLANY on the basis of the liability of Seller under the Insurance Contract or
Contracts reinsured on an indemnity basis, without diminution because of the
insolvency, liquidation or rehabilitation of Seller or the appointment of a
conservator, receiver, liquidator or statutory successor of Seller, directly to
Seller or to its conservator, liquidator, receiver or other statutory successor.
It is agreed that any conservator, receiver, liquidator or statutory successor
of Seller shall give prompt written notice to LLANY of the pendency or
submission of a claim under any such Insurance Contract or Contracts. During
the pendency of such claim, LLANY may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated, any
defense available to Seller or its conservator, receiver, liquidator or
statutory successor. The expense thus incurred by LLANY is chargeable against
Seller as a part of the expense of insolvency, liquidation or rehabilitation to
the extent of a proportionate share of the benefit which accrues to Seller
solely as a result of the defense undertaken by LLANY.
ARTICLE XI
OFFSETS
-------
Any debts or credits between Seller and LLANY arising under this
Agreement are deemed mutual debts or credits, as the case may be, and shall be
netted or set off, as the case may be, and only the balance shall be allowed or
paid hereunder.
ARTICLE XII
RIGHTS WITH RESPECT TO GENERAL ACCOUNT LIABILITIES
--------------------------------------------------
LLANY's reinsurance of the General Account Liabilities is intended for
the sole benefit of the parties to this Agreement and shall not create any right
on the part of any other party, including, without limit, any Contractholder,
insured, claimant or beneficiary, against LLANY or any legal relation between
any Contractholders, insureds, claimants or beneficiaries and LLANY.
-13-
<PAGE>
ARTICLE XII
ERRORS AND OMISSIONS
--------------------
Inadvertent delays, errors or omissions made by either Seller or LLANY
in connection with this Agreement or any transaction hereunder shall not relieve
the other party from any liability which would have attached to such party had
such delay, error or omission not occurred, provided that the party causing such
delay, error or omission rectifies the same as soon as possible after its
discovery thereof. If, as a result of any such delay, error or omission, there
is a delay in the transfer of funds to be transferred pursuant hereto, the party
responsible for such delay, error or omission shall pay, to the party to whom
such funds are to be transferred, interest on the amount of funds to be
transferred from the date of such delay, error or omission to and including the
date of such transfer of funds at a rate equal to the average rate of earnings
on assets held in the Custodian Account during such period.
ARTICLE XIV
DUTY OF COOPERATION
-------------------
Each party hereto shall cooperate fully with the other in all
reasonable respects in order to accomplish the objectives of this Agreement.
The duty of cooperation shall apply, but not be limited, to regulatory and
litigation matters.
ARTICLE XV
ARBITRATION
-----------
It is the intention of the parties hereto that customs and usages of
the business of indemnity reinsurance and assumption reinsurance shall be given
full effect in the interpretation of this Agreement other than to the extent
that the unique aspects of the transaction render such customs and usages
inapplicable. The parties hereto shall act in all things with the highest good
faith. Any dispute or difference with respect to the operation or
interpretation of this Agreement on which an amicable understanding cannot be
reached shall be submitted to arbitration, which shall be mandatory and binding.
The arbitrators shall be free to reach their decision from the standpoint of
equity and customary practices of the insurance and reinsurance industry rather
than from that of strict legal principles.
The arbitration shall be held in Portland, Maine and shall consist of
three arbitrators who must be active or retired executive officers of life
insurance companies other than the parties to this Agreement, their Affiliates
or subsidiaries. Seller shall appoint one arbitrator and LLANY the second.
Such arbitrators shall then select the third arbitrator
-14-
<PAGE>
before arbitration commences. Should one of the parties decline to appoint an
arbitrator or should the two arbitrators be unable to agree upon the choice of a
third, such appointment shall be left to the President of the American Academy
of Actuaries.
Decisions of the arbitrators shall be by majority vote. The cost of
arbitration, including the fees of the arbitrators, shall be borne as the
arbitrators shall decide. Judgment on any award granted by the arbitrators may
be entered in a Federal court of competent jurisdiction located in Portland,
Maine.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
------------------------
Section 16.01. Notices. Any notice required or permitted hereunder
-------
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(1) If to LLANY to:
Lincoln Life & Annuity Company of New York
120 Madison Street, 17th Floor
Syracuse, New York 13202
Attention: Phil Holstein
Telecopier No.: (315) 469-4636
With concurrent copies to:
The Lincoln National Life Insurance Company
1300 Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
-15-
<PAGE>
(2) If to Seller to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Agreement to
the other party, designate another address or person for receipt of notices
hereunder.
Section 16.02. Amendment. This Agreement may not be modified,
---------
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 16.03. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all, of
the parties hereto.
Section 16.04. No Third Party Beneficiaries. Nothing in this
----------------------------
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 16.05. Assignment. This Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto.
Section 16.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MAINE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
-16
<PAGE>
Section 16.07. Entire Agreement. This Agreement, together with the
----------------
Acquisition Agreement and the other Ancillary Agreements (as defined in the
Acquisition Agreement), constitutes the entire agreement between the parties
relating to the indemnity reinsurance of the Insurance Contracts, and there are
no other agreements between the parties hereto, either existing or contemplated,
written or oral, relating thereto.
IN WITNESS WHEREOF, Seller and LLANY have executed this Agreement as
of the date first above written.
UNUM LIFE INSURANCE COMPANY
OF AMERICA
By: /s/ Kevin J. Tierney
----------------------
Name: Kevin J. Tierney
Title: Senior Vice President
and General Counsel
LINCOLN LIFE & ANNUITY COMPANY
OF NEW YORK
By: /s/ Philip L. Holstein
------------------------
Name: Philip L. Holstein
Title: President
-17-
<PAGE>
================================================================================
ADMINISTRATIVE SERVICES AGREEMENT
by and between
UNUM LIFE INSURANCE COMPANY OF AMERICA
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of October 1, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I DEFINITIONS..................................................... 2
ARTICLE II APPOINTMENT; STANDARDS; NOTIFICATION OF
CONTRACTHOLDERS; GUARANTEE...................................... 5
Section 2.01. Appointment and Acceptance of Appointment................. 5
Section 2.02. Standards................................................. 5
Section 2.03. Notification of Contractholders........................... 5
Section 2.04. Service Standards for Novated Contracts; Access to Records
Relating to Novated Contracts............................. 6
Section 2.05. Guarantee................................................. 6
ARTICLE III COLLECTIONS; DISBURSEMENTS...................................... 6
Section 3.01. Collection Services....................................... 6
Section 3.02. Processing of Disbursements............................... 7
Section 3.03. Payment of Disbursements.................................. 7
Section 3.04. Denied Disbursements...................................... 7
ARTICLE IV BOOKS AND RECORDS; REPORTS...................................... 8
Section 4.01. Maintenance of Books and Records.......................... 8
Section 4.02. Exchange Act Undertaking.................................. 8
Section 4.03. Transaction Report........................................ 9
Section 4.04. Novation Data............................................. 9
Section 4.05. Novation Report........................................... 9
Section 4.06. Final Balance Sheet....................................... 9
ARTICLE V INABILITY TO PERFORM SERVICES; ERRORS........................... 9
Section 5.01. Inability to Perform Services............................. 9
Section 5.02. Errors.................................................... 9
ARTICLE VI REGULATORY MATTERS; REPRESENTATIONS............................. 10
Section 6.01. Corporate Power of Purchaser.............................. 10
Section 6.02. Responsibilities of Purchaser............................. 10
Section 6.03. Representation of Seller.................................. 10
ARTICLE VII INDEMNIFICATION................................................. 10
Section 7.01. Indemnification........................................... 10
Section 7.02. Notice of Asserted Liability.............................. 11
Section 7.03. Right to Contest Claims of Third Parties.................. 11
Section 7.04. Indemnification Payments.................................. 12
ARTICLE VIII DURATION; TERMINATION........................................... 12
Section 8.01. Duration.................................................. 12
Section 8.02. Termination............................................... 13
Section 8.03. Monthly Expense Allowance................................. 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IX ARBITRATION..................................................... 14
Section 9.01. Agreement to Arbitrate.................................... 14
Section 9.02. Location.................................................. 14
Section 9.03. Appointment of Arbitrators................................ 14
Section 9.04. Decision.................................................. 14
Section 9.05. Costs of Arbitration...................................... 14
Section 9.06. Survival of Article....................................... 14
Section 9.07. Enforcement............................................... 14
ARTICLE X INSURANCE....................................................... 14
Section 10.01. Liability Insurance....................................... 14
Section 10.02. Fidelity Bond............................................. 15
ARTICLE XI MISCELLANEOUS................................................... 15
Section 11.01. Headings, Schedules and Exhibits.......................... 15
Section 11.02. Notices................................................... 15
Section 11.03. Amendments................................................ 16
Section 11.04. Execution in Counterpart.................................. 16
Section 11.05. Limited Authority......................................... 16
Section 11.06. Assignment................................................ 16
Section 11.07. No Third Party Beneficiaries.............................. 16
Section 11.08. Subcontracting............................................ 17
Section 11.09. Change in Status.......................................... 17
Section 11.10. Survival.................................................. 17
Section 11.11. Further Assurances........................................ 17
Section 11.12. Governing Law............................................. 17
</TABLE>
SCHEDULES
SCHEDULE 1.01 INSURANCE CONTRACTS
SCHEDULE 1.02 SELLER SEPARATE ACCOUNT
SCHEDULE 1.03 ADMINISTRATIVE SERVICES
SCHEDULE 1.04 TIMING STANDARDS
EXHIBITS
EXHIBIT A SERVICES AGREEMENT
-ii-
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
THIS ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement"), dated as of
October 1, 1996, is made by and between UNUM Life Insurance Company of America,
a Maine domiciled stock life insurance company ("Seller"), and The Lincoln
National Life Insurance Company, an Indiana domiciled stock life insurance
company ("Purchaser").
WHEREAS, pursuant to an indemnity reinsurance agreement between Seller
and Purchaser that is being executed concurrently with this Agreement (the
"Indemnity Reinsurance Agreement"), Purchaser has agreed to indemnify Seller for
100% of the general account insurance liabilities under the Insurance Contracts
(as defined below) in effect as of the date hereof (such general account
insurance liabilities are referred to herein as the "General Account
Liabilities") until such time (if ever) that each such Insurance Contract shall
be transferred to Purchaser through assumption reinsurance and become a novated
contract pursuant to the Assumption Reinsurance Agreement (as defined below);
and
WHEREAS, pursuant to an assumption reinsurance agreement between
Seller and Purchaser that is being executed concurrently with this Agreement
(the "Assumption Reinsurance Agreement"), Purchaser has agreed to assume by
novation the General Account Liabilities and the separate account liabilities
under each Insurance Contract in effect as of the date hereof (the "Separate
Account Liabilities"); and
WHEREAS, pursuant to a coinsurance and assumption agreement that is
being executed concurrently with this Agreement (the "Coinsurance and Assumption
Agreement") and a post-closing indemnity reinsurance agreement that is being
executed concurrently with this Agreement (the "Post-Closing Indemnity
Reinsurance Agreement"), Seller has agreed to issue additional Insurance
Contracts to be initially indemnity reinsured by Purchaser and subsequently
assumed by Purchaser by novation; and
WHEREAS, Seller wishes to appoint Purchaser to provide all
administrative services with respect to the Insurance Contracts and the Seller
Separate Account (as defined below) pending the assumption by Purchaser of such
liabilities pursuant to the Assumption Reinsurance Agreement or the Coinsurance
and Assumption Agreement, as applicable, and Purchaser desires to provide such
administrative services in consideration for Seller entering into the Asset
Transfer and Acquisition Agreement (as defined below); and
WHEREAS, pursuant to an intercompany service agreement between
Purchaser and LLANY (as defined herein), Purchaser has agreed to perform certain
of the obligations of LLANY under (i) an administrative services agreement
between Seller and LLANY that is being executed concurrently with this Agreement
and (ii) an administrative services agreement between LLANY and First UNUM Life
Insurance Company that is being executed concurrently with this Agreement (the
agreements described in clauses (i) and (ii) being referred to herein
collectively as the "LLANY Agreements");
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
-----------
The following terms shall have the respective meaning set forth below
throughout the Agreement:
"Administrative Services" shall have the meaning set forth in Section
-----------------------
2.01 hereof.
"Asserted Liability" shall have the meaning set forth in Section 7.03
------------------
hereof.
"Asset Transfer and Acquisition Agreement" means the Second Amended
----------------------------------------
and Restated Asset Transfer and Acquisition Agreement entered into by and
between Seller and Purchaser dated as of January 24, 1996, to which LLANY has
been added as a party.
"Assumption Reinsurance Agreement" shall have the meaning set forth in
--------------------------------
the second recital hereof.
"Business" means the issuance and administration of the Insurance
--------
Contracts and the other business activities of Seller related thereto.
"Business Day" means any day on which the unit value of the Seller
------------
Separate Account is required to be calculated.
"Coinsurance and Assumption Agreement" shall have the meaning set
------------------------------------
forth in the third recital hereof.
"Commission" means the Securities and Exchange Commission.
----------
"Effective Date" means the Effective Date as defined in the Indemnity
--------------
Reinsurance Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"First UNUM Asset Transfer and Acquisition Agreement" means the
---------------------------------------------------
Amended and Restated Asset Transfer and Acquisition Agreement entered into by
and between First UNUM Life Insurance Company and Purchaser dated as of March
20, 1996, to which LLANY has been added as a party.
-2-
<PAGE>
"General Account Liabilities" shall have the meaning set forth in the
---------------------------
first recital hereof.
"Indemnified Party" shall have the meaning set forth in Section 7.02
-----------------
hereof.
"Indemnifying Party" shall have the meaning set forth in Section 7.02
------------------
hereof.
"Indemnity Reinsurance Agreement" shall have the meaning set forth in
-------------------------------
the first recital hereof.
"Insurance Contracts" means all group annuity contracts issued by
-------------------
Seller that are listed on Schedule 1.01 hereto and all additional group annuity
contracts issued by Seller after the date hereof that are reinsured by Purchaser
pursuant to the terms of the Coinsurance and Assumption Agreement or the Post-
Closing Indemnity Reinsurance Agreement (as defined below) and all certificates
and participation agreements issued in accordance with the terms of such group
annuity contracts (including all supplements, endorsements, riders and ancillary
agreements in connection therewith).
"Intermediary" means an individual or entity designated by a
------------
contractholder as its broker of record or as the individual or entity that will
act on such contractholder's behalf, in some or all respects, in connection with
such contractholder's Insurance Contract.
"License Agreements" shall have the meaning set forth in the Asset
------------------
Transfer and Acquisition Agreement.
"LLANY" means Lincoln Life & Annuity Company of New York, an affiliate
-----
of Purchaser.
"LLANY Agreements" shall have the meaning set forth in the fifth
----------------
recital hereof.
"Monthly Rate" shall have the meaning set forth in Section 8.03
------------
hereof.
"NAIC" means the National Association of Insurance Commissioners.
----
"NASD" means the National Association of Securities Dealers, Inc.
----
"Non-Novated Contracts" means the Insurance Contracts that are not
---------------------
Novated Contracts.
"Novated Contracts" means the Insurance Contracts assumed by Purchaser
-----------------
under the Assumption Reinsurance Agreement, the Coinsurance and Assumption
Agreement or the Post-Closing Assumption Reinsurance Agreement (as defined
below), as applicable.
-3-
<PAGE>
"Person" means any individual, corporation, partnership, firm, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"Post-Closing Assumption Reinsurance Agreement" means the Post-Closing
---------------------------------------------
Assumption Reinsurance Agreement entered into by and between Purchaser and
Seller dated as of the date hereof.
"Post-Closing Indemnity Reinsurance Agreement" shall have the meaning
--------------------------------------------
set forth in the third recital hereof.
"Purchaser" shall have the meaning set forth in the introductory
---------
paragraph hereof.
"Purchaser Losses" shall have the meaning set forth in Section 7.01
----------------
hereof.
"Reserves" means the general account statutory reserves with respect
--------
to the Insurance Contracts (without regard to the Indemnity Reinsurance
Agreement) reported by Seller on its NAIC Convention Blanks (annual and
quarterly) filed with the Insurance Department of the State of Maine.
"Seller" shall have the meaning set forth in the introductory
------
paragraph hereof.
"Seller Losses" shall have the meaning set forth in Section 7.01
-------------
hereof.
"Seller Separate Account" means the separate account of Seller
-----------------------
described on Schedule 1.02 hereto.
"Separate Account Liabilities" shall have the meaning set forth in the
----------------------------
second recital hereof.
"Service Provider" means an individual or entity, other than an
----------------
Intermediary, that provides services to holders of Insurance Contracts or
certificateholders thereunder.
"Third Party Claimant" shall have the meaning set forth in Section
--------------------
7.03 hereof.
"Transition Services Agreement" shall have the meaning set forth in
-----------------------------
the Asset Transfer and Acquisition Agreement.
-4-
<PAGE>
ARTICLE II
APPOINTMENT; STANDARDS;
NOTIFICATION OF CONTRACTHOLDERS; GUARANTEE
------------------------------------------
Section 2.01. Appointment and Acceptance of Appointment. Seller
-----------------------------------------
hereby appoints Purchaser to provide, with respect to the Insurance Contracts
and the Seller Separate Account, the administrative services specified herein
and in Schedule 1.03 hereto and any other administrative services specified in
or necessary to administer the provisions of the Insurance Contracts
(collectively, the "Administrative Services") for the period specified in
Section 8.01 of this Agreement, and Purchaser hereby accepts such appointment.
Section 2.02. Standards. Purchaser acknowledges that the performance
---------
of the Administrative Services in an accurate and timely manner is of paramount
importance to Seller. Purchaser agrees to perform the Administrative Services
with the skill, diligence and expertise commonly expected from experienced and
qualified personnel performing such duties and in accordance with (i) the timing
standards set forth on Schedule 1.04 hereto, (ii) industry standards in effect
as of the Effective Date, to the extent not superseded by the timing standards
set forth on Schedule 1.04 hereto, and (iii) all relevant federal, state and
local laws, rules and regulations (as reasonably interpreted by Seller during
the first 12 months after the Effective Date, and as interpreted by Purchaser
thereafter).
Notwithstanding the foregoing obligations, in recognition of the fact
that Purchaser is taking over the administrative procedures used prior to the
Effective Date by Seller, Purchaser shall not be obligated by this Agreement or
any schedule hereto to perform during the first 12 months after the Effective
Date the services required by this Agreement in a manner different from the
manner in which such services are being provided by Seller immediately prior to
the Effective Date; provided, however, that after the Effective Date Purchaser
-------- -------
shall make any changes required by changes in law (or the interpretation
thereof) subsequent to the Effective Date and any changes required by changes in
industry standards; and provided, further, that Purchaser shall administer the
-------- -------
Non-Novated Contracts utilizing standards of service that are no lower than
those utilized by Purchaser in the administration of the Novated Contracts. In
addition, Purchaser shall not be required to fulfill the timing standards set
forth on Schedule 1.04 hereto to the extent that, from time to time, Seller is
in breach of its obligations under the License Agreements or the Transition
Services Agreement, if Purchaser has notified Seller within three Business Days
of such breach.
Section 2.03. Notification of Contractholders. Purchaser agrees to
-------------------------------
send to (i) contractholders of the Insurance Contracts, (ii) Intermediaries, and
(iii) Service Providers, a written notice prepared by Seller and reasonably
acceptable to Purchaser to the effect that Purchaser has been appointed by
Seller to provide Administrative Services. Purchaser shall send such notice
promptly after receipt thereof, but in no event more than 10 Business Days
thereafter, by first class U.S. mail.
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<PAGE>
Section 2.04. Service Standards for Novated Contracts; Access to
--------------------------------------------------
Records Relating to Novated Contracts. (a) Purchaser hereby agrees that it
- -------------------------------------
will provide the same level and quality of service with respect to the Novated
Contracts as it provides hereunder with respect to the Insurance Contracts prior
to their assumption by novation.
(b) Purchaser agrees that Seller will be entitled to conduct
examinations of Purchaser's books, records and operations pertaining to the
Novated Contracts if such examination is reasonably necessary in connection with
fulfilling any of Seller's legal obligations, at reasonable times and upon
reasonable notice, for so long as any Novated Contracts shall be in effect.
This Section 2.04 shall survive the termination of this Agreement.
Section 2.05. Guarantee. Purchaser hereby guarantees the full and
---------
timely performance of each and every obligation of LLANY under each of the LLANY
Agreements including, without limitation, the indemnification obligations of
LLANY under such agreements in the event that LLANY fails to perform or satisfy
any of such obligations when and as required to be performed or satisfied. In
such event, Purchaser shall promptly perform or satisfy or cause to be performed
or satisfied such obligations in place of LLANY. Purchaser shall pay, reimburse
and indemnify Seller for any and all damages, costs, expenses, losses and other
liabilities that Seller may sustain that result from the failure of Purchaser to
perform or satisfy any of such obligations.
ARTICLE III
COLLECTIONS; DISBURSEMENTS
--------------------------
Section 3.01. Collection Services. Purchaser agrees to perform the
-------------------
following services with respect to amounts due from contractholders under the
Insurance Contracts:
(a) Collect deposits and other remittances from contractholders
(including payments of principal or interest on contract loans) and from any
collection facility, including Intermediaries and other persons or institutions
that receive remittances with respect to the Insurance Contracts, and process
the remittances in a manner reasonably acceptable to Seller taking into account,
among other factors, that the remittances may include monies with respect to
both Novated Contracts and Non-Novated Contracts.
(b) Maintain records pertaining to the collection and processing of
deposits or other remittances in the format utilized by Seller on the Effective
Date or as otherwise agreed by the parties.
(c) Promptly invest in the Seller Separate Account deposits collected
which relate to the separate account portions of Insurance Contracts (including
transfers from fixed options under the Insurance Contracts), and forward funds
and required information to the underlying investment management companies in
accordance with any applicable agreements.
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<PAGE>
Section 3.02. Processing of Disbursements. Purchaser agrees to
---------------------------
perform the following services with respect to disbursements made in respect of
the Insurance Contracts for payment of death benefits, annuity benefits,
withdrawals, surrenders, transfers, policy loans, returns of deposits, and any
other disbursement.
(a) Receive and process requests for disbursements.
(b) Evaluate requests for disbursements and either pay any such
request for disbursement, in accordance with Section 3.03 hereof, or propose to
deny any such request for disbursement in full or in part, in accordance with
Section 3.04 hereof, (i) within five Business Days after receipt of all
documentation required to process any such disbursement, with respect to any
request for a disbursement relating to the general account portion of an
Insurance Contract, and (ii) within the time period specified in the applicable
contract, with respect to any request for a disbursement relating to the
separate account portion of an Insurance Contract, or, in the case of either
clause (i) and clause (ii) above, within any shorter time provided by applicable
statute, rule or regulation. In the event that Purchaser is unable to make a
determination as to whether any such request for disbursement should be paid or
denied within the specified period, it shall notify Seller immediately in
writing and shall state in such notice the reasons for such delay.
Section 3.03. Payment of Disbursements. Purchaser agrees to pay all
------------------------
disbursements from its own funds under the Non-Novated Contracts in the name of
Seller. Purchaser's disbursements payment authority under this Agreement will
terminate immediately upon written notice from Seller, in which case Purchaser's
obligations as to payment of disbursements shall be limited to notifying Seller
of amounts payable and the identities of the relevant payees.
Section 3.04. Denied Disbursements. (a) Purchaser agrees to
--------------------
promptly notify Seller if it proposes to deny any disbursement request. The
notice required under this Section 3.04 will contain the basis for Purchaser's
decision to deny such disbursement request. Purchaser may not deny a
disbursement request if Seller objects to such denial in writing within 10
Business Days of Seller's receipt of the notice required under this Section 3.04
(or within such shorter period as may be required to permit the relevant
disbursement to be made within the time period required by any applicable law or
regulation). In the event that Purchaser notifies Seller of a proposed denial
on the Business Day that the disbursement would be required to be made and
Seller objects to such proposed denial, then the disbursement shall be made as
soon as practicable thereafter, and Seller acknowledges that such disbursement
may be made later than the date otherwise required by this Agreement.
(b) Purchaser agrees to immediately notify Seller of any litigation
that has been instituted or threatened, or of any complaint which any person has
filed or has threatened to file with any state insurance department or other
regulatory agency, with respect to any denied disbursement request or any
disbursement request-handling procedure in connection with an Insurance
Contract, regardless of whether the disbursement request was paid or denied, or
with respect to any other matter relating to an Insurance Contract.
-7-
<PAGE>
Such notice shall contain a report summarizing the nature of the litigation or
complaint, the alleged actions or omissions giving rise to the litigation or
complaint and copies of any files that Seller may require to respond to the
litigation or complaint.
(c) Purchaser shall pay the expenses of any litigation or regulatory
proceeding with respect to the Insurance Contracts (subject to any
indemnification rights of Purchaser under this Agreement or any other agreement
between Purchaser and Seller).
ARTICLE IV
BOOKS AND RECORDS; REPORTS
--------------------------
Section 4.01. Maintenance of Books and Records. (a) For the
--------------------------------
duration of this Agreement, Purchaser shall maintain, at a location to be agreed
upon by Purchaser and Seller, books and records of all transactions pertaining
to the Insurance Contracts, including, but not limited to, any disbursement
requests submitted in respect of the Insurance Contracts and any documents
relating thereto, any communications relating to any Insurance Contract, any
communication with any regulatory authority, complaint logs and all data used by
Purchaser in the performance of services required under this Agreement. These
books and records shall be maintained (i) in accordance with any and all
applicable statutes, rules and regulations and (ii) in a format no less
accessible than the format in which such books and records are maintained on the
date hereof. All such books and records pertaining to an Insurance Contract
shall be the property of Seller until such Insurance Contract is novated
pursuant to the Assumption Reinsurance Agreement or the Coinsurance and
Assumption Agreement, as applicable, and shall be made available to Seller, its
auditors or other designees, and regulatory agencies, during normal business
hours and at any other time on reasonable notice, for review, inspection,
examination and reproduction. Upon termination of this Agreement, all books and
records pertaining to Insurance Contracts which have not been novated shall be
delivered promptly to Seller or such other person or entity as Seller shall
designate in writing.
(b) Purchaser shall back up all of its computer files used in the
performance of services under this Agreement on a daily basis and shall maintain
back-up files in an off-site location.
(c) Purchaser shall maintain facilities and procedures reasonably
acceptable to Seller for safekeeping all records used in the performance of
services under this Agreement.
Section 4.02. Exchange Act Undertaking. Purchaser or its affiliated
------------------------
broker-dealer shall file with the Commission the undertaking required by Rule
17a-4(i) under the Exchange Act with respect to any records that either
Purchaser or such affiliated broker-dealer maintains that are required to be
maintained under the provisions of the Exchange Act by UNUM Sales Corporation or
by any other broker-dealers that are authorized to sell the Insurance Contracts.
-8-
<PAGE>
Section 4.03. Transaction Report. Within five Business Days of the
------------------
end of each calendar month during the term of this Agreement, Purchaser shall
provide Seller with a summary report and accounting of all transactions,
including receipts, payments, policy loans, surrenders and other matters, that
have occurred during that month, in a form acceptable to Seller. Purchaser
shall provide a final accounting to Seller within five Business Days following
the end of the month during which the termination of this Agreement occurs.
Section 4.04. Novation Data. Within five Business Days after the end
-------------
of each week during the term of this Agreement, Purchaser shall provide to
Seller data, in electronic format compatible with Seller's systems, indicating
all Insurance Contracts assumed by novation by Purchaser during the prior week.
Section 4.05. Novation Report. Within five Business Days after the
---------------
end of each month during the term of this Agreement, Purchaser shall provide to
Seller a report, in a form reasonably acceptable to Seller, showing all
contractholders of the Insurance Contracts and certificateholders under the
Insurance Contracts and their current novation status.
Section 4.06. Final Balance Sheet. Purchaser shall assist Seller, as
-------------------
reasonably requested by Seller, in the preparation of the Proposed Balance Sheet
and the Final Balance Sheet, as such terms are defined in the Asset Transfer and
Acquisition Agreement and the First UNUM Asset Transfer and Acquisition
Agreement.
ARTICLE V
INABILITY TO PERFORM SERVICES; ERRORS
-------------------------------------
Section 5.01. Inability to Perform Services. Purchaser shall notify
-----------------------------
Seller of any interruption in Purchaser's performance of any of the services
required under this Agreement for a period of more than one day. In the event
that Purchaser shall be unable to perform services as required by this Agreement
for any reason for a period that can reasonably be expected to exceed one day,
Purchaser shall cooperate with Seller in obtaining an alternative means of
providing such services. Purchaser will be responsible for all costs incurred
in either restoring services or obtaining an alternative source of services.
Section 5.02. Errors. Purchaser shall, at its own expense,
------
immediately correct any errors in Administrative Services (including, without
limitation, failure to comply with any of the timing standards specified in
Schedule 1.04 hereto) caused by it upon receiving notice thereof from Seller or
otherwise. This obligation includes, without limitation, reimbursement to the
Seller Separate Account and the management investment companies underlying that
account for any dilution or other adverse effect due to transactions made
effective as of an earlier date, commonly referred to as "breakage."
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<PAGE>
ARTICLE VI
REGULATORY MATTERS; REPRESENTATIONS
-----------------------------------
Section 6.01. Corporate Power of Purchaser. Purchaser represents and
----------------------------
warrants that it has the corporate power to perform the services required under
this Agreement.
Section 6.02. Responsibilities of Purchaser. Purchaser, on behalf of
-----------------------------
Seller, shall be responsible for all state insurance department filings
(including, but not limited to, filings of riders and amendments) and for any
and all licensing requirements (other than Seller's licenses) with respect to or
in connection with the Non-Novated Contracts.
Section 6.03. Representation of Seller. Seller represents and
------------------------
warrants that, immediately prior to the Effective Date, Seller is providing the
services required by this Agreement and the Schedules hereto, except those
services which arise as a result of the consummation and implementation of the
Asset Transfer and Acquisition Agreement.
ARTICLE VII
INDEMNIFICATION
---------------
Section 7.01. Indemnification. (a) Purchaser agrees to indemnify
---------------
and hold harmless Seller and any of its directors, officers, employees, agents
or affiliates from any and all losses, costs, claims, demands, compensatory,
extracontractual and/or punitive damages, fines and penalties (collectively,
"Seller Losses") arising out of or caused by: (i) fraud, theft or embezzlement
by officers, employees or agents of Purchaser during the term of this Agreement;
(ii) the failure, either intentional or unintentional, of Purchaser to properly
perform the services required by this Agreement, including, without limitation,
the failure to properly process, evaluate and pay disbursement requests in
accordance with the terms of this Agreement; (iii) any other act of negligence
or willful misconduct committed by officers, agents or employees of Purchaser
during the term of this Agreement; (iv) the breach of any representation or
warranty of Purchaser; (v) any failure of Purchaser to comply with applicable
laws, rules and regulations during the term of this Agreement other than, during
the first 12 months after the Effective Date, Seller Losses arising out of or
caused by actions or inactions of Purchaser consistent with the manner in which
such services are being provided by Seller immediately prior to the Effective
Date, except if changes are required pursuant to Section 2.02 hereof; or (vi)
the failure of any Person described in clause (ii) of Section 11.08 to properly
perform the services that Purchaser is to provide hereunder.
(b) Seller agrees to indemnify and hold harmless Purchaser and any of
its directors, officers, employees, agents or affiliates from any and all
losses, costs, claims, demands, compensatory, extracontractual and/or punitive
damages, fines and penalties
-10-
<PAGE>
(collectively, "Purchaser Losses") arising out of or caused by: (i) fraud, theft
or embezzlement by officers, employees or agents of Seller during the term of
this Agreement; (ii) any other act of negligence or willful misconduct committed
by officers, agents or employees of Seller during the term of this Agreement;
(iii) any breach of any representation or warranty of Seller; or (iv) any
failure of Seller to comply with applicable laws, rules and regulations during
the term of this Agreement, other than any failure caused by the action or
inaction of Purchaser not in compliance with the terms of this Agreement.
Section 7.02. Notice of Asserted Liability. In the event that either
----------------------------
party hereto asserts a claim for indemnification hereunder, such party seeking
indemnification (the "Indemnified Party") shall give written notice to the other
party (the "Indemnifying Party") specifying the facts constituting the basis
for, and the amount (if known) of, the claim asserted.
Section 7.03. Right to Contest Claims of Third Parties. (a) If an
----------------------------------------
Indemnified Party asserts a claim for indemnification hereunder because of a
claim or demand made, or an action, proceeding or investigation instituted, by
any Person not a party to this Agreement (a "Third Party Claimant") that may
result in a Purchaser Loss with respect to which Purchaser is entitled to
indemnification pursuant to Section 7.01(a) hereof or a Seller Loss with respect
to which Seller is entitled to indemnification pursuant to Section 7.01(b)
hereof (an "Asserted Liability"), the Indemnified Party shall give the
Indemnifying Party reasonably prompt notice thereof, but in no event shall such
notice be given later than 30 Business Days after such Asserted Liability is
actually known to the Indemnified Party. Failure to deliver notice with respect
to an Asserted Liability in a timely manner shall not be deemed a waiver of the
Indemnified Party's right to indemnification for Losses in connection with such
Asserted Liability but the amount of reimbursement to which the Indemnified
Party is entitled shall be reduced by the amount, if any, by which the
Indemnified Party's losses would have been less had such notice been timely
delivered.
(b) The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party, to investigate, contest, defend or settle the Asserted
Liability; provided, that the Indemnified Party may, at its option and at its
own expense, participate in the investigation, contesting, defense or settlement
of any such Asserted Liability through representatives and counsel of its own
choosing. The failure of the Indemnifying Party to respond in writing to proper
notice of an Asserted Liability within 20 days after receipt thereof shall be
deemed an election not to defend the same. Unless and until the Indemnifying
Party elects to defend the Asserted Liability, the Indemnified Party shall have
the right, at its option and at the Indemnifying Party's expense, to do so in
such manner as it deems appropriate, including, but not limited to, settling
such Asserted Liability (after giving notice of the settlement to the
Indemnifying Party) on such terms as the Indemnified Party deems appropriate.
(c) Except as provided in the immediately preceding sentence, the
Indemnified Party shall not settle or compromise any Asserted Liability for
which it seeks indemnification
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<PAGE>
hereunder without the prior written consent of the Indemnifying Party (which
shall not be unreasonably withheld) during the twenty (20) day period specified
above.
(d) The Indemnifying Party shall be entitled to participate in (but
not to control) the defense of any Asserted Liability which it has elected, or
is deemed to have elected, not to defend, with its own counsel and at its own
expense. If the Indemnifying Party seeks to question (i) the manner in which
the Indemnified Party defended an Asserted Liability with respect to which the
Indemnifying Party elected, or is deemed to have elected, not to defend or (ii)
the amount or nature of any settlement entered into by the Indemnified Party in
connection with such Asserted Liability, the Indemnifying Party shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such Asserted Liability in a reasonably prudent manner.
(e) Except as provided in the first sentence of paragraph (b) of this
Section 7.03, the Indemnifying Party shall bear all costs of defending any
Asserted Liability and shall indemnify and hold the Indemnified Party harmless
against and from all costs, fees and expenses incurred in connection therewith.
(f) Purchaser and Seller shall make mutually available to each other
all relevant information in their possession relating to any Asserted Liability
and shall cooperate with each other in the defense thereof.
Section 7.04. Indemnification Payments. Subject to a party's right
------------------------
to defend pursuant to Section 7.03 hereof, an Indemnifying Party hereunder shall
make an indemnification payment with respect to a Loss promptly after notice of
such Loss to the Indemnifying Party. All such payments shall be made by wire
transfer of immediately available funds to such account or accounts as the
Indemnified Party shall designate to the Indemnifying Party in writing.
ARTICLE VIII
DURATION; TERMINATION
---------------------
Section 8.01. Duration. This Agreement shall commence on the date of
--------
its execution and continue until such time as all of the liabilities under the
Insurance Contracts have been novated to Purchaser pursuant to the Assumption
Reinsurance Agreement or the Coinsurance and Assumption Agreement, as
applicable, unless earlier terminated pursuant to Section 8.02 below, and,
except with respect to Section 2.04 hereof, shall terminate as to each Insurance
Contract on the effective date of the novation of such Insurance Contract
pursuant to the Assumption Reinsurance Agreement or the Coinsurance and
Assumption Agreement, as applicable. Upon any termination of this Agreement
pursuant to Section 8.02, the services performed by Purchaser shall be assumed
by Seller or Seller's designee. Purchaser shall cooperate fully in the transfer
of services and the books and records maintained by Purchaser pursuant to
Section 4.01 hereof to Seller or Seller's designee, so
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<PAGE>
that Seller or its designee will be able to perform the services required under
this Agreement without interruption following termination of this Agreement.
Section 8.02. Termination. (a) This Agreement is subject to
-----------
immediate termination at the option of Seller, upon written notice to Purchaser,
on the occurrence of any of the following events:
(i) A voluntary or involuntary proceeding is commenced in any
state by or against Purchaser for the purpose of conserving, rehabilitating or
liquidating Purchaser, or Purchaser shall lose its authority to perform services
hereunder;
(ii) There is a material breach by Purchaser of any term or
condition of this Agreement, or there occurs a material act of dishonesty by any
of Purchaser's officers, employees or agents in the performance of services
hereunder, that is not cured by Purchaser within 30 days of receipt of written
notice from Seller of such breach or act;
(iii) Purchaser or its successor is dissolved or merged or there
occurs a change in control of Purchaser or its successor requiring the
permission of the Indiana Insurance Department, other than a change of control
which is preceded by a permitted assignment of this Agreement pursuant to the
terms of Section 11.06 hereof;
(iv) Any liability policy or bond required pursuant to Article X
of this Agreement is canceled, terminated or substantially revised; or
(v) Purchaser is unable to perform the services required under
Articles III, IV and V of this Agreement for a period of 30 days for any reason.
(b) This Agreement may be terminated at any time upon the mutual
written consent of the parties hereto, which writing shall state the effective
date of termination.
Section 8.03. Monthly Expense Allowance. Purchaser agrees that, in
-------------------------
the event this Agreement is terminated, it shall pay to Seller a monthly expense
allowance in an amount equal to the Monthly Rate multiplied by the mean level of
(i) Reserves with respect to the Non-Novated Contracts and (ii) Separate Account
Liabilities for each month, as reimbursement for the costs which Seller will
incur in administering the Insurance Contracts following such termination.
During the first 12 months after the Effective Date, the Monthly Rate (if
applicable) will be 2.5 basis points and, commencing 12 months after the
Effective Date, the Monthly Rate will be 5.0 basis points.
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<PAGE>
ARTICLE IX
ARBITRATION
-----------
Section 9.01. Agreement to Arbitrate. The parties hereto shall act
----------------------
in all things with the highest good faith. In the event of any disputes or
differences arising hereafter between the parties hereto with reference to any
transaction under or relating in any way to this Agreement as to which agreement
between the parties hereto cannot be reached, the same shall be submitted to
arbitration, which shall be mandatory and binding; provided, however, that this
Article IX shall not apply in the event Purchaser shall become subject to a
delinquency proceeding as defined in Section 29-9-1-2 of the Indiana Insurance
Law. The arbitrators shall be free to reach their decision from the standpoint
of equity and customary practices of the insurance and reinsurance industry
rather than from that of strict legal principles.
Section 9.02. Location. The arbitration shall be held in Portland,
--------
Maine.
Section 9.03. Appointment of Arbitrators. The arbitration panel
--------------------------
shall consist of three arbitrators who must be officers of life insurance
companies other than the parties to this Agreement or their respective
affiliates or subsidiaries. Seller shall appoint one arbitrator and Purchaser
the second. Such arbitrators shall then select the third arbitrator before
arbitration commences. Should one of the parties decline to appoint an
arbitrator, or should the two arbitrators be unable to agree upon the choice of
a third, such appointment shall be left to the President of the American Academy
of Actuaries.
Section 9.04. Decision. Decisions of the arbitrators shall be by
--------
majority vote.
Section 9.05. Costs of Arbitration. The costs of arbitration,
--------------------
including the fees of the arbitrators, shall be borne as the arbitrators shall
decide.
Section 9.06. Survival of Article. This Article IX shall survive
-------------------
the termination of this Agreement.
Section 9.07. Enforcement. Judgment upon any award granted by the
-----------
arbitrators may be entered in a Federal court of competent jurisdiction located
in Portland, Maine.
ARTICLE X
INSURANCE
---------
Section 10.01. Liability Insurance. Purchaser shall maintain errors
-------------------
and omissions liability coverages in commercially prudent amounts, to cover any
loss arising as a
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<PAGE>
result of any real or alleged negligence, errors or omissions on the part of
Purchaser's officers, agents or employees in any aspect of the performance of
services under this Agreement.
Section 10.02. Fidelity Bond. Purchaser shall maintain fidelity bond
-------------
coverage in commercially prudent amounts to cover any loss due to the misdeeds
of Purchaser's officers, employees or agents.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.01. Headings, Schedules and Exhibits. Headings used
--------------------------------
herein are not a part of this Agreement and shall not affect the terms hereof.
The attached Schedules and Exhibits are a part of this Agreement.
Section 11.02. Notices. Any notice required or permitted hereunder
-------
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(a) If to Purchaser to:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
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<PAGE>
(b) If to Seller to:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Agreement to
the other parties, designate another address or person for receipt of notices
hereunder.
Section 11.03. Amendments. This Agreement cannot be modified,
----------
changed, discharged or terminated, except by an instrument in writing signed by
an authorized officer of each of the parties hereto.
Section 11.04. Execution in Counterpart. This Agreement may be
------------------------
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument. Each counterpart may consist
of a number of copies hereof each signed by less than all, but together signed
by all of the parties hereto.
Section 11.05. Limited Authority. Seller and Purchaser are not
-----------------
partners or joint venturers, and no employee or agent of either party shall be
considered an employee or agent of the other. Purchaser's authority shall be
limited to that which is expressly stated in this Agreement.
Section 11.06. Assignment. This Agreement shall be binding upon and
----------
inure to the benefit of the parties hereto and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any
right hereunder, may be assigned by either party (in whole or in part) without
the prior written consent of the other party hereto, which consent shall not be
unreasonably withheld.
Section 11.07. No Third Party Beneficiaries. Except as otherwise
----------------------------
specifically provided for herein, nothing in this Agreement is intended or shall
be construed to give any person, other than the parties hereto, their successors
and permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
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<PAGE>
Section 11.08. Subcontracting. Purchaser may not subcontract for the
--------------
performance of any services that Purchaser is to provide hereunder, except as
permitted in writing by Seller, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing sentence, Purchaser shall be permitted
to subcontract for the performance of any of such services with (i) any Person
that is performing such services as a subcontractor for Seller as of the date
hereof, without obtaining the consent of Seller so long as Purchaser notifies
Seller of such subcontract on or prior to the effective date thereof or (ii) any
Person that is performing such services as a subcontractor for Purchaser with
respect to all or substantially all of Purchaser's insurance business that is
similar to the insurance business to be administered hereunder.
Section 11.09. Change in Status. Purchaser shall notify Seller
----------------
immediately of any "change of control" filing, the adoption of any plan to
liquidate, merge or dissolve Purchaser, or of any proceeding or lawsuit which
effects Purchaser's ability to perform this Agreement, including, but not
limited to, insolvency or rehabilitation proceedings.
Section 11.10. Survival. The provisions of Section 2.04 hereof and
--------
Article IX hereof shall survive the termination of this Agreement.
Section 11.11. Further Assurances. Each of the parties hereto shall
------------------
execute such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions of this Agreement. Without
limiting the generality of the foregoing, Seller shall (a) execute all documents
necessary to grant Purchaser the disbursement payment authority contemplated by
Section 3.03 of this Agreement, (b) make any Seller regulatory filings or
broker appointments that Purchaser is required to make on behalf of Seller
hereunder and (c) grant any licenses to Purchaser with respect to any logos,
trademarks, service marks or copyrights necessary for Purchaser to comply with
the terms of this Agreement.
SECTION 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MAINE, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
UNUM LIFE INSURANCE COMPANY
OF AMERICA
By: /s/ Kevin J. Tierney
----------------------
Name: Kevin J. Tierney
Title: Senior Vice President and
General Counsel
THE LINCOLN NATIONAL LIFE
INSURANCE COMPANY
By: /s/ Kelly D. Clevenger
------------------------
Name: Kelly D. Clevenger
Title: Vice President
-18-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 30 to the Registration Statement on
Form N-4 (File No. 33-47786) of our report dated April 7, 1997, on our audits of
the statement of assets and liabilities as of December 31, 1996, and the related
statements of operations and changes in net assets for each of the two years in
the period then ended of the VA-I Separate Account of UNUM Life Insurance
Company of America and our report dated February 5, 1997, except for Note 5 for
which the date is March 1, 1997, on our audits of the financial statements as of
and for the years ended December 31, 1996 and 1995, of UNUM Life Insurance
Company of America. We also consent to the reference to our Firm under the
caption "Independent Accountants" in the Statement of Additional Information.
Portland, Maine /s/ Coopers & Lybrand L.L.P.
April 29, 1997
<PAGE>
<TABLE>
<CAPTION>
Non-NY -VAI
One
Quarter
Small Cap Index Growth II Balanced Growth I Asst. Mgr. Equity Soc. Resp. Interntl
Income
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Value \1,021.97 \1,078.99 \908.26 \1,033.99 \1,017.55 \1,057.55 \1,063.19 \1,033.03 \1,043.60
Fee \0.38 \0.39 \0.36 \0.38 \0.38 \0.39 \0.39 \0.38 \0.38
Surr Charge \51.08 \53.93 \45.40 \51.68 \50.86 \52.86 \53.14 \51.63 \52.16
Final Value \970.51 \1,024.67 \862.51 \981.92 \966.31 \1,004.31 \1,009.66 \981.02 \991.06
Annual Return -2.949% 2.467% -13.749% -1.808% -3.369% 0.431% 0.966% -1.898% -0.894%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Previous Quarter's
Return
Final Value Quarter One = 1,000 * (31-Dec-96 Unit Value/30-Sep-96 Unit Value)
- - Annual Fee - Surrendrer Charge
Annual Return = Final Value Quarter One/1,000 - 1
<TABLE>
<CAPTION>
Date Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
09/30/96 14.957500 21.043200 16.199400 15.679900 22.819400 16.327100 14.851400 13.767400 11.762700
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100 22.705400 14.713300 16.212800 23.219800 17.266800 15.789800 14.222200 12.275600
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year To
Date
Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Fund Value \1,151.82 \1,210.54 \944.13 \1,108.29 \1,133.18 \1,132.17 \1,129.00 \1,112.61 \1,133.14
Fee \0.40 \0.41 \0.36 \0.39 \0.40 \0.40 \0.40 \0.40 \0.40
Surr Charge \57.57 \60.51 \47.19 \55.39 \56.64 \56.59 \56.43 \55.61 \56.64
Final Value \1,093.84 \1,149.61 \896.58 \1,052.50 \1,076.14 \1,075.19 \1,072.18 \1,056.61 \1,076.10
Annual Return 9.384% 14.961% -10.342% 5.250% 7.614% 7.519% 7.218% 5.661% 7.610%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Calculation of Year to Date Return
Final Value Year to Date= 1,000 * (31-Dec-96 Unit Value/31-Dec-95 Unit value)
- - Annual Fee - Surrender Charge
Annual Return = Final Value Year to Date/1,000
- 1
<TABLE>
<CAPTION>
Date Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
12/31/95 13.271300 18.756500 15.584000 14.628600 20.490900 15.251000 13.985600 12.782700 10.833300
- ----------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100 22.705400 14.713300 16.212800 23.219800 17.266800 15.789800 14.222200 12.275600
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Separate Account C - Standardized 1 Year Returns
One Year Returns Period Ending 12/31/96
<TABLE>
<CAPTION>
Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Fund Value \1,151.82 \1,210.54 \944.13 \1,108.29 \1,133.18 \1,132.17 \1,129.00 \1,112.61 \1,133.14
Fee \0.40 \0.41 \0.36 \0.39 \0.40 \0.40 \0.40 \0.40 \0.40
Surr Charge \57.57 \60.51 \47.19 \55.39 \56.64 \56.59 \56.43 \55.61 \56.64
Final Value \1,093.84 \1,149.61 \896.58 \1,052.50 \1,076.14 \1,075.19 \1,072.18 \1,056.61 \1,076.10
Annual Return 9.384% 14.961% -10.342% 5.250% 7.614% 7.519% 7.218% 5.661% 7.610%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Calculation of Annual
Return
Final Value = 1,000 * (31-Dec-96 Unit Value/31-Dec-95 Unit value)
- - Annual Fee - Surrender Charge
Annual Return = Final Value/1,000 - 1
<TABLE>
<CAPTION>
Date Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/95 13.271300 18.756500 15.584000 14.628600 20.490900 15.251000 13.985600 12.782700 10.833300
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100 22.705400 14.713300 16.212800 23.219800 17.266800 15.789800 14.222200 12.275600
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THREE YEAR RETURNS:
<TABLE>
<CAPTION>
Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year \1,064.61 \996.75 \976.47 \994.05 \987.84 \927.85 \1,057.85 \956.08
Fee \0.48 \0.46 \0.46 \0.46 \0.46 \0.44 \0.47 \0.45
Final Value \1,064.14 \996.29 \976.02 \993.59 \987.38 \927.41 \1,057.37 \955.63
Two Year \1,360.31 \1,346.39 \1,264.22 \1,189.18 \1,320.58 \1,071.68 \1,411.33 \1,225.33
Fee \0.50 \0.49 \0.47 \0.45 \0.48 \0.42 \0.51 \0.45
Final Value \1,359.81 \1,345.90 \1,263.76 \1,188.73 \1,320.10 \1,071.26 \1,410.82 \1,224.88
Three Year \1,566.25 \1,629.26 \1,193.15 \1,317.46 \1,495.90 \1,212.86 \1,592.82 \1,362.81
Fee \0.55 \0.56 \0.46 \0.47 \0.53 \0.43 \0.56 \0.48
Surr Charge \78.29 \81.44 \59.63 \65.85 \74.77 \60.62 \79.61 \68.12
Final Value \1,487.42 \1,547.27 \1,133.05 \1,251.14 \1,420.61 \1,151.81 \1,512.65 \1,294.21
Annual Return 14.150% 15.662% 4.252% 7.755% 12.415% 4.824% 14.792% 8.977% NA
=================================================================================================================================
</TABLE>
Calculation of Three Year Return
Final Value Year One = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Three - Surrender Charge
Annual Return = (Final Value Year Five/1000) *
(1/3) - 1
<TABLE>
<CAPTION>
Date Small Cap Index Growth II Balanced Growth I Asst. Equity Soc.
Mgr. Income Resp.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/93 9.751704 13.924500 12.321200 12.295700 15.509400 14.224100 9.905037 10.427126 0.000000
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/94 10.381800 13.879200 12.031300 12.222500 15.320800 13.197900 10.478000 9.969200 9.862200
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/95 13.271300 18.756500 15.584000 14.628600 20.490900 15.251000 13.985600 12.782700 10.833300
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100 22.705400 14.713300 16.212800 23.219800 17.266800 15.789800 14.222200 12.275600
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Separate Account L - Standardized 5 Year Returns
FIVE YEAR RETURNS PERIOD ENDING 12/31/96:
<TABLE>
<CAPTION>
Small Cap Index Growth II Balanced Growth I Asst. Equity Soc.
Mgr. Income Resp.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year \1,693.69 \1,056.11 \974.77 \928.26 \1,080.04 \1,105.35 \1,154.81 \1,063.18
Fee \0.77 \0.58 \0.56 \0.55 \0.59 \0.60 \0.61 \0.59
Final Value \1,692.92 \1,055.53 \974.21 \927.71 \1,079.45 \1,104.75 \1,154.19 \1,062.59
Two Year \2,812.75 \1,140.19 \1,061.79 \986.90 \1,273.08 \1,321.25 \1,348.96 \1,133.82
Fee \1.15 \0.56 \0.52 \0.49 \0.60 \0.62 \0.64 \0.56
Final Value \2,811.59 \1,139.63 \1,061.27 \986.41 \1,272.48 \1,320.63 \1,348.32 \1,133.26
Three Year \2,993.26 \1,135.92 \1,036.30 \980.54 \1,257.00 \1,225.35 \1,426.31 \1,083.49
Fee \1.34 \0.53 \0.48 \0.45 \0.58 \0.59 \0.64 \0.51
Final Value \2,991.92 \1,135.39 \1,035.81 \980.09 \1,256.42 \1,224.76 \1,425.67 \1,082.98
Four Year \3,824.64 \1,534.38 \1,341.68 \1,173.03 \1,680.41 \1,415.29 \1,902.92 \1,388.62
Fee \1.42 \0.56 \0.49 \0.45 \0.61 \0.55 \0.69 \0.51
Final Value \3,823.23 \1,533.83 \1,341.18 \1,172.58 \1,679.80 \1,414.74 \1,902.23 \1,388.10
Five Year \4,403.65 \1,856.75 \1,266.25 \1,299.56 \1,903.51 \1,601.74 \2,147.63 \1,544.42
Fee \1.54 \0.64 \0.49 \0.46 \0.67 \0.56 \0.76 \0.55
Surr Charge \220.11 \92.81 \63.29 \64.95 \95.14 \80.06 \107.34 \77.19
Final Value \4,182.01 \1,763.31 \1,202.47 \1,234.14 \1,807.69 \1,521.11 \2,039.53 \1,466.68
Annual Return 33.130% 12.012% 3.756% 4.297% 12.571% 8.751% 15.320% 7.961%
===========================================================================================================================
</TABLE>
Calculation of Five Year Return
Final Value Year One = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Five - Surrender Charge
Annual Return = (Final Value Year Five/1000) *
(1/5) - 1
<TABLE>
<CAPTION>
Date Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/91 3.465400 12.205700 11.597500 12.451500 12.175900 10.759800 7.338842 9.191348 0.000000
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/92 5.869315 12.890600 11.304900 11.558200 13.150500 11.893300 8.474945 9.772041 0.000000
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/93 9.751704 13.924500 12.321200 12.295700 15.509400 14.224100 9.905037 10.427126 0.000000
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/94 10.381800 13.879200 12.031300 12.222500 15.320800 13.197900 10.478000 9.969200 9.862200
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/95 13.271300 18.756500 15.584000 14.628600 20.490900 15.251000 13.985600 12.782700 10.833300
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100 22.705400 14.713300 16.212800 23.219800 17.266800 15.789800 14.222200 12.275600
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Separate Account L - Standardized 10
Year
10 Year Returns for Period Ending
12/31/1996:
<TABLE>
<CAPTION>
Growth I Equity Soc.
Income Resp.
- ---------------------------------------------------------------
<S> <C> <C> <C>
Year One \1,024.20 \976.81 \1,055.29
Fee \0.97 \0.95 \0.98
Final Value \1,023.23 \975.86 \1,054.30
Year Two \1,168.48 \1,183.12 \1,162.86
Fee \0.95 \0.93 \0.96
Final Value \1,167.53 \1,182.18 \1,161.90
Year Three \1,517.09 \1,370.62 \1,385.81
Fee \1.04 \0.99 \0.99
Final Value \1,516.04 \1,369.63 \1,384.82
Year Four \1,322.00 \1,146.22 \1,425.38
Fee \0.99 \0.88 \0.98
Final Value \1,321.01 \1,145.34 \1,424.40
Year Five \1,899.19 \1,487.36 \1,636.95
Fee \1.02 \0.83 \0.97
Final Value \1,898.17 \1,486.52 \1,635.99
Year Six \2,050.11 \1,716.65 \1,739.34
Fee \1.12 \0.91 \0.96
Final Value \2,048.99 \1,715.74 \1,738.38
Year Seven \2,416.53 \2,005.26 \1,854.92
Fee \1.14 \0.95 \0.92
Final Value \2,415.38 \2,004.30 \1,854.00
Year Eight \2,386.01 \2,120.24 \1,772.58
Fee \1.11 \0.95 \0.84
Final Value \2,384.90 \2,119.29 \1,771.74
Year Nine \3,189.70 \2,828.74 \2,271.76
Fee \1.16 \1.03 \0.84
Final Value \3,188.55 \2,827.72 \2,270.92
Year Ten \3,613.18 \3,192.50 \2,526.65
Fee \1.27 \1.13 \0.90
Period \10.00 \10.00 \10.00
Surr Charge \0.00 \0.00 \0.00
Final Value \3,611.91 \3,191.37 \2,525.76
Annual Return 13.703% 12.305% 9.708%
===============================================================
</TABLE>
Calculation of Ten Year Return
Final Value Year One = 1,000 * (31-Dec-87 Unit Value/ 31-Dec-86 Unit Value)
- - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-88 Unit Value/ 31-Dec-87 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-89 Unit Value/ 31-Dec-88 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-90 Unit Value/ 31-Dec-89 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Eight
Final Value Year Nine = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Nine
Final Value Year Ten = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Ten - Surrender Charge
Annual Return = (Final Value for Year Ten/1,000) *
(1/Ten) - 1
<TABLE>
<CAPTION>
Date Growth I Equity Soc.
Income Resp.
- ---------------------------------------------------------------
<S> <C> <C> <C>
12/31/86 6.390635 4.918136 5.597187
- ---------------------------------------------------------------
12/31/87 6.545312 4.804088 5.906645
- ---------------------------------------------------------------
12/31/88 7.474411 5.824373 6.514813
- ---------------------------------------------------------------
12/31/89 9.712202 6.752771 7.770294
- ---------------------------------------------------------------
12/31/90 8.469114 5.651296 7.997875
- ---------------------------------------------------------------
12/31/91 12.175900 7.338842 9.191348
- ---------------------------------------------------------------
12/31/92 13.150500 8.474945 9.772041
- ---------------------------------------------------------------
12/31/93 15.509400 9.905037 10.427126
- ---------------------------------------------------------------
12/31/94 15.320800 10.478000 9.969200
- ---------------------------------------------------------------
12/31/95 20.490900 13.985600 12.782700
- ---------------------------------------------------------------
12/31/96 23.219800 15.789800 14.222200
- ---------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Lifetime
Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Eleven Years Prior \1,000.25 \999.25 \964.34
Fee \1.06 \1.06 \1.04
Final Value \999.19 \998.19 \963.29
Ten Years Prior \1,070.57 \1,023.37 \975.04 \1,016.55
Fee \0.99 \0.97 \0.95 \0.95
Final Value \1,069.58 \1,022.40 \974.10 \1,015.60
Nine Years Prior \1,032.34 \1,167.53 \1,180.97 \1,120.17
Fee \0.91 \0.95 \0.93 \0.92
Final Value \1,031.43 \1,166.58 \1,180.04 \1,119.25
Eight Years Prior \1,013.97 \1,312.61 \1,515.85 \1,004.31 \1,368.14 \1,334.94
Fee \0.78 \0.91 \1.04 \0.78 \0.99 \0.95
Final Value \1,013.18 \1,311.70 \1,514.81 \1,003.53 \1,367.15 \1,333.99
Seven Years Prior \1,016.89 \965.63 \1,279.34 \1,320.93 \1,058.04 \1,144.15 \1,373.06
Fee \0.71 \0.69 \0.91 \0.99 \0.72 \0.88 \0.95
Final Value \1,016.18 \964.94 \1,278.43 \1,319.93 \1,057.32 \1,143.27 \1,372.11
Six Years Prior \2,607.69 \1,240.38 \1,789.82 \1,245.15 \1,897.64 \1,274.93 \1,484.66 \1,576.86
Fee \1.14 \0.70 \0.97 \0.71 \1.02 \0.74 \0.83 \0.93
Final Value \2,606.54 \1,239.68 \1,788.85 \1,244.44 \1,896.63 \1,274.19 \1,483.83 \1,575.93
Five Years Prior \4,414.68 \1,309.24 \1,743.72 \1,155.16 \2,048.44 \1,408.43 \1,713.54 \1,675.50
Fee \2.00 \0.72 \1.00 \0.68 \1.12 \0.76 \0.91 \0.92
Final Value \4,412.68 \1,308.52 \1,742.72 \1,154.48 \2,047.32 \1,407.66 \1,712.63 \1,674.57
Four Years Prior \7,331.55 \1,413.47 \1,899.39 \1,228.14 \2,414.56 \1,683.53 \2,001.63 \1,786.83
Fee \3.01 \0.70 \0.93 \0.61 \1.14 \0.79 \0.95 \0.89
Final Value \7,328.54 \1,412.77 \1,898.45 \1,227.53 \2,413.42 \1,682.74 \2,000.68 \1,785.94
Three Years Prior \7,802.07 \1,408.17 \1,853.79 \1,220.23 \2,384.07 \1,561.34 \2,116.41 \1,707.51 \1,008.82
Fee \3.49 \0.65 \0.87 \0.56 \1.11 \0.75 \0.95 \0.81 \0.46
Final Value \7,798.58 \1,407.52 \1,852.92 \1,219.66 \2,382.96 \1,560.59 \2,115.46 \1,706.70 \1,008.36
Two Years Prior \9,969.10 \1,902.14 \2,400.06 \1,459.76 \3,187.11 \1,803.36 \2,823.62 \2,188.37 \1,107.65
Fee \3.69 \0.69 \0.88 \0.56 \1.16 \0.70 \1.03 \0.81 \0.44
Final Value \9,965.41 \1,901.45 \2,399.18 \1,459.20 \3,185.95 \1,802.66 \2,822.60 \2,187.56 \1,107.21
One Year Prior \11,478.32 \2,301.78 \2,265.13 \1,617.23 \3,610.24 \2,040.93 \3,186.72 \2,433.91 \1,254.62
Fee \4.02 \0.79 \0.87 \0.58 \1.27 \0.72 \1.13 \0.87 \0.44
Period \6.34 \7.25 \9.12 \5.67 \10.24 \7.32 \10.24 \10.34 \2.76
Surr Charge \458.97 \69.03 \22.64 \80.83 \0.00 \61.21 \0.00 \0.00 \62.71
Final Value \11,015.33 \2,231.96 \2,241.62 \1,535.82 \3,608.97 \1,979.00 \3,185.60 \2,433.04 \1,191.47
Annual Return 46.002% 11.707% 9.254% 7.855% 13.359% 9.769% 11.985% 8.982% 6.562%
=================================================================================================================================
</TABLE>
Separate Account L - Standardized Lifetime Returns
Small Cap Fund
Final Value Year One = 1,000 * (31-Dec-90 Unit Value/ 31-Aug-90 Unit Value)
- - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Seven - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
Index
Final Value Year One = 1,000 * (31-Dec-89 Unit Value/ 2-Oct-89 Unit Value)
- Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-90 Unit Value/ 31-Dec-89 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Eight - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
Growth II
Final Value Year One = 1,000 * (31-Dec-87 Unit Value/ 20-Nov-87 Unit Value)
- - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-88 Unit Value/ 31-Dec-87 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-89 Unit Value/ 31-Dec-88 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-90 Unit Value/ 31-Dec-89 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Eight
Final Value Year Nine = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Nine
Final Value Year Ten = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Ten - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
Balanced
Final Value Year One = 1,000 * (31-Dec-91 Unit Value/ 1-May-91 Unit Value)
- Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Six - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
Growth I
Final Value Year One = 1,000 * (31-Dec-86 Unit Value/ 9-Oct-86 Unit Value)
- Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-87 Unit Value/ 31-Dec-86 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-88 Unit Value/ 31-Dec-87 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-89 Unit Value/ 31-Dec-88 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-90 Unit Value/ 31-Dec-89 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Eight
Final Value Year Nine = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Nine
Final Value Year Ten = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Ten
Final Value Year Eleven = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Eleven - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
Asset Manager
Final Value Year One = 1,000 * (31-Dec-89 Unit Value/ 6-Sep-89 Unit Value)
- Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-90 Unit Value/ 31-Dec-89 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Eight - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
<PAGE>
Equity Income
Final Value Year One = 1,000 * (31-Dec-86 Unit Value/ 9-Oct-86 Unit Value)
- Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-87 Unit Value/ 31-Dec-86 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-88 Unit Value/ 31-Dec-87 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-89 Unit Value/ 31-Dec-88 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-90 Unit Value/ 31-Dec-89 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Eight
Final Value Year Nine = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Nine
Final Value Year Ten = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Ten
Final Value Year Eleven = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Eleven - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
Socially Responsible
Final Value Year One = 1,000 * (31-Dec-86 Unit Value/ 2-Sep-86 Unit Value)
- Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-87 Unit Value/ 31-Dec-86 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-88 Unit Value/ 31-Dec-87 Unit Value)
- - Annual Fee Year Three
Final Value Year Four = 1,000 * (31-Dec-89 Unit Value/ 31-Dec-88 Unit Value)
- - Annual Fee Year Four
Final Value Year Five = 1,000 * (31-Dec-90 Unit Value/ 31-Dec-89 Unit Value)
- - Annual Fee Year Five
Final Value Year Six = 1,000 * (31-Dec-91 Unit Value/ 31-Dec-90 Unit Value)
- - Annual Fee Year Six
Final Value Year Seven = 1,000 * (31-Dec-92 Unit Value/ 31-Dec-91 Unit Value)
- - Annual Fee Year Seven
Final Value Year Eight = 1,000 * (31-Dec-93 Unit Value/ 31-Dec-92 Unit Value)
- - Annual Fee Year Eight
Final Value Year Nine = 1,000 * (31-Dec-94 Unit Value/ 31-Dec-93 Unit Value)
- - Annual Fee Year Nine
Final Value Year Ten = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Ten
Final Value Year Eleven = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Eleven - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
International
Final Value Year One = 1,000 * (31-Dec-94 Unit Value/ 31-Mar-94 Unit Value)
- - Annual Fee Year One
Final Value Year Two = 1,000 * (31-Dec-95 Unit Value/ 31-Dec-94 Unit Value)
- - Annual Fee Year Two
Final Value Year Three = 1,000 * (31-Dec-96 Unit Value/ 31-Dec-95 Unit Value)
- - Annual Fee Year Three - Surrender Charge
Annual Return = (Final Value for Last Year/1,000)
(1/Period) - 1
<TABLE>
<CAPTION>
Date Small Cap Index Growth II Balanced Growth I Asst. Equity Soc. Interntl
Mgr. Income Resp.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception Date 08/31/90 10/02/89 11/20/87 05/01/91 10/09/86 09/06/89 10/09/86 09/02/86 03/31/94
- ---------------------------------------------------------------------------------------------------------------------------------
Inception Date
Unit Value 1.327993 8.066183 5.562404 8.030360 5.247336 7.832084 4.921813 5.804181 9.775967
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/86 6.390635 4.918136 5.597187
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/87 6.906269 6.545312 4.804088 5.906645
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/88 6.665810 7.474411 5.824373 6.514813
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/89 9.962900 8.482949 9.712202 8.463502 6.752771 7.770294
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/90 1.350421 9.495300 8.273703 8.469114 8.923285 5.651296 7.997875
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/91 3.465400 12.205700 11.597500 12.451500 12.175900 10.759800 7.338842 9.191348
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/92 5.869315 12.890600 11.304900 11.558200 13.150500 11.893300 8.474945 9.772041
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/93 9.751704 13.924500 12.321200 12.295700 15.509400 14.224100 9.905037 10.427126
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/94 10.381800 13.879200 12.031300 12.222500 15.320800 13.197900 10.478000 9.969200 9.862200
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/95 13.271300 18.756500 15.584000 14.628600 20.490900 15.251000 13.985600 12.782700 10.833300
- ---------------------------------------------------------------------------------------------------------------------------------
12/31/96 15.286100 22.705400 14.713300 16.212800 23.219800 17.266800 15.789800 14.222200 12.275600
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
