<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
QUARTERLY REPORT PURSUANT to SECTION 13 or 15(d)
of the SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT to SECTION 13 or 15(d)
of the SECURITIES EXCHANGE ACT of 1934
Commission file number 1-11340
LIFE RE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 01-0437851
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
969 High Ridge Road
Stamford, Connecticut 06905
(Address of principal executive offices)
(203) 321-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Common stock outstanding ($.001 par value) as of August 13, 1996: 13,547,666
shares<PAGE>
<PAGE> 2
TABLE OF CONTENTS
Item Page
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
June 30, 1996 and December 31, 1995. . . . . . . . . . . . . . .3
Condensed Consolidated Statements
of Income (Unaudited)
Three and six months ended June 30, 1996 and 1995 . . . . . . . 4
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Six months ended June 30, 1996 and 1995. . . . . . . . . . . . .5
Notes to Condensed Consolidated Financial
Statements June 30, 1996 (Unaudited) . . . . . . . . . . . . . .6
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . .. 11
PART II- OTHER INFORMATION
4 Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . .16
5 Other Information . . . . . . . . . . . . . . . . . . . . . . 17
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .18
2<PAGE>
<PAGE> 3
LIFE RE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(In thousands,
except share data)
<S> <C> <C>
ASSETS
Fixed maturities - at fair value
(amortized cost: $1,426,291 and
$1,245,151, respectively) $ 1,425,769 $ 1,316,908
Equity securities - at fair value
(cost: $3,641 and $16,051, respectively) 4,053 16,613
Assets held by ceding company
under reinsurance treaty - at fair
value (amortized cost: $107,894 and
$115,767, respectively) 110,177 125,958
Mortgage loans and real estate 16,360
Short-term investments 54,730 13,285
Policy loans 56,184 31,411
--------- ---------
Total investments 1,667,273 1,504,175
Cash 3,494 5,056
Accrued investment income 28,001 24,957
Policy revenues receivable 102,693 105,361
Amounts receivable on reinsurance ceded 155,329 209,313
Deferred policy acquisition costs,
including valuation adjustments of $627
and $(4,853), respectively 144,335 112,560
Value of business acquired, including
valuation adjustments of $1,082 and
$(1,652), respectively 67,659 53,864
Other assets 11,534 8,811
--------- ---------
Total assets $ 2,180,318 $ 2,024,097
========= =========
LIABILITIES
Future policy benefits $ 1,522,511 $ 1,295,281
Policy claims and benefits payable 203,897 188,788
Commissions and other liabilities 64,291 99,864
Amounts due on reinsurance ceded 16,416 20,851
Loans payable 125,000 140,000
--------- ---------
Total liabilities 1,932,115 1,744,784
<PAGE>
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SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share;
authorized 40,000,000 shares;
issued 15,645,635 and 15,531,310 shares,
respectively) 16 16
Paid in capital 104,123 101,582
Net unrealized appreciation of securities 2,524 49,403
Retained earnings 185,860 158,075
Treasury stock - at cost (2,091,069
and 1,557,969 shares, respectively) (44,320) (29,763)
--------- ---------
Total shareholders' equity 248,203 279,313
--------- ---------
Total liabilities and
shareholders' equity $ 2,180,318 $ 2,024,097
========= =========
See accompanying notes.
3
</TABLE> <PAGE>
<PAGE> 5
Life Re Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(In thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES
Policy revenues $ 104,467 $ 93,977 $ 205,195 $ 186,541
Investment income 28,325 21,964 57,286 43,994
Realized investment gains 811 319 14,710 206
------- ------- ------- -------
Total revenues 133,603 116,260 277,191 230,741
------- ------- ------- -------
BENEFITS AND EXPENSES
Policy claims and benefits 74,468 66,582 153,321 142,308
Commissions and allowances 26,195 23,187 49,332 42,462
Interest credited on annuity
and interest sensitive life
insurance contracts 7,158 3,697 14,596 7,335
Amortization of value of
business acquired 1,321 266 2,685 1,426
Interest expense 2,064 2,716 4,408 5,457
Other operating expenses 6,432 5,096 13,167 10,033
------- ------- ------- -------
Total benefits and expenses 117,638 101,544 237,509 209,021
------- ------- ------- -------
Income before federal
income taxes 15,965 14,716 39,682 21,720
Provision for federal
income taxes 5,588 5,151 9,149 7,602
------- ------- ------- -------
NET INCOME $ 10,377 $ 9,565 $ 30,533 $ 14,118
======= ======= ======= =======
Earnings per share $ 0.74 $ 0.63 $ 2.17 $ 0.92
======= ======= ======= =======
Dividends per share $ 0.10 $ 0.07 $ 0.20 $ 0.14
======= ======= ======= =======
See accompanying notes.
4
</TABLE>
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Life Re Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 30,533 $ 14,118
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accrued investment income (1,768) 136
Change in policy revenues receivable (3,790) 1,903
Change in amounts receivable on reinsurance ceded (1,738) 1,190
Change in future policy benefits and
policy claims and benefits payable 17,782 8,919
Change in amounts due on reinsurance ceded 3,734 (722)
Deferral of policy acquisition costs (12,778) (7,198)
Amortization of policy acquisition costs 5,667 7,682
Net realized gains on investments (14,710) (206)
Depreciation and amortization 2,862 2,016
Provision for deferred federal income taxes 7,610 3,127
Other (6,764) (1,833)
------- -------
Net cash provided by operating activities 26,640 29,132
------- -------
INVESTING ACTIVITIES
Purchases of fixed maturities (242,235) (93,036)
Sales of fixed maturities 122,227 76,348
Maturities of fixed maturities 40,554 15,043
Sales or redemptions of equity securities 26,300
Change in short-term investments and policy loans (17,830) (16,271)
Cash consideration in connection with
acquisitions and reinsurance 87,662
Purchases of furniture and equipment, net (652) (545)
------- -------
Net cash provided (used) by investing activities 16,026 (18,461)
------- -------
<PAGE>
<PAGE> 7
FINANCING ACTIVITIES
Purchases of common stock for treasury (14,146) (11,375)
Proceeds from exercise of common stock options 2,322
Loan principal repayments (15,000)
Dividends on common stock (2,748) (2,125)
Repayment of stock loan 4
Changes in annuity and interest sensitive
life insurance contractholder balances:
Deposits 19,232 14,240
Interest credited 14,596 7,335
Fees and charges deducted (11,048) (8,695)
Withdrawals (37,436) (10,122)
------- -------
Net cash used by financing activities (44,228) (10,738)
------- -------
Decrease in cash (1,562) (67)
Cash, beginning of period 5,056 2,861
------- -------
Cash, end of period $ 3,494 $ 2,794
======= =======
See accompanying notes.
5
</TABLE>
<PAGE>
<PAGE> 8
LIFE RE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Life Re Corporation and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments,
consisting solely of normal recurring accruals considered necessary for a fair
presentation of financial results, have been included. Operating results for
the six month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
Primary earnings per share have been calculated based on the weighted
average common shares outstanding during the periods presented including the
effect of dilutive common stock options. Weighted average common and common
equivalent shares were 14,053,000 and 14,087,000 for the three and six months
ended June 30, 1996, respectively, and 15,164,000 and 15,339,000 for the three
and six months ended June 30, 1995, respectively.
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
All dollar amounts are reported in thousands unless otherwise specified.
2. ACQUISITIONS AND REINSURANCE TRANSACTIONS
On July 31, 1995, in a transaction accounted for as a purchase, the
Company acquired 100% of the common stock of Reassure America Life Insurance
Company ("REALIC"), formerly John Deere Life Insurance Company, from two
wholly owned subsidiaries of Deere & Company for an adjusted purchase price of
$33,335, including direct costs of the acquisition.
The following unaudited pro forma financial information has been prepared
assuming the acquisition of REALIC had occurred at the beginning of 1995 and
reflects certain purchase accounting adjustments, including amortization of
the value of business acquired, net of related income tax effects. The pro
forma results are not necessarily indicative of the results that would have
occurred had the acquisition been consummated as of the assumed date nor are
they necessarily indicative of future operating results.
6
<PAGE>
<PAGE> 9
2. ACQUISITIONS AND REINSURANCE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995
--------
<S> <C>
Revenues $247,568
Net income $ 17,466
Earnings per share $1.13
(/Table)
As of June 30, 1996, REALIC acquired, for a cash purchase price of
approximately $12,000, 100% of the common stock of Modern American Life
Insurance Company ("MAL") from a subsidiary of I.C.H. Corporation in a
transaction accounted for as a purchase. The fair value of assets acquired,
consisting primarily of invested assets, was approximately $131,000, and the
liabilities assumed, principally future policy benefits, aggregated
approximately $119,000.
As of June 30, 1996, REALIC assumed, for cash consideration of
approximately $4,000, a block of insurance in force via the acquisition of a
subsidiary of I.C.H. Corporation which was merged with and into REALIC. The
fair value of assets acquired, consisting primarily of invested assets, was
approximately $45,000, and the liabilities assumed, principally future policy
benefits, aggregated approximately $41,000.
The following unaudited pro forma financial information has been prepared
assuming these two transactions had occurred at the beginning of each of the
periods presented and reflects certain purchase accounting adjustments,
including amortization of the value of business acquired, net of related
income tax effects. The pro forma results are not necessarily indicative of
the results that would have occurred had these transactions been consummated
as of the assumed dates nor are they necessarily indicative of future
operating results. The pro forma results reflect realized investment gains
and other income of the acquired companies of $1,495 and $400 in 1996 and
1995, respectively, as well as a $4,000 litigation settlement charge in 1995.
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
-------- --------
<S> <C> <C>
Revenues $285,806 $236,846
Net income $ 32,601 $ 12,959
Earnings per share $2.31 $.84
</TABLE>
Effective May 31, 1996, REALIC acquired a block of insurance in force under
an assumption reinsurance agreement whereby it assumed liabilities for future
policy benefits totaling approximately $132,000. Assets of $113,000,
principally cash, were transferred to REALIC by the ceding company.
7<PAGE>
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2. ACQUISITIONS AND REINSURANCE TRANSACTIONS (CONTINUED)
Effective July 1, 1996, the Company purchased 20% of the common
stock of Resource Financial Corporation ("RFC"), which was organized for the
purpose of acquiring certain assets and operations from subsidiaries of Aon
Corporation ("Aon"). RFC provides insurance product distribution and
administrative and financial services for the retail automotive industry
throughout the United States. The Company may in the future invest additional
amounts in debt and/or equity instruments of RFC.
Also effective July 1, 1996, the Company entered into reinsurance
agreements with affiliates of Aon, which provide for the Company to reinsure
credit life and credit disability insurance produced through RFC or its
predecessor, a substantial portion of which is retroceded by the Company.
In connection with the foregoing transactions, the Company entered into an
agreement whereby it will pay contingent consideration for a period of five
years to a subsidiary of Aon based on premiums produced through RFC subsequent
to July 1, 1996.
3. NET UNREALIZED APPRECIATION OF SECURITIES
Net unrealized appreciation of securities is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Net unrealized gains on securities $ 2,173 $ 82,510
Deferred income tax expense on
net unrealized gains 761 28,879
----- ------
Net unrealized gains 1,412 53,631
----- ------
Adjustment to deferred policy acquisition
costs and value of business acquired
on interest sensitive
life insurance contracts 1,709 (6,505)
Deferred income tax expense (benefit) on
adjustment 597 (2,277)
----- ------
Net adjustment 1,112 (4,228)
----- ------
Net unrealized appreciation
of securities $ 2,524 $ 49,403
===== ======
</TABLE>
8<PAGE>
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4. REALIZED INVESTMENT GAIN
On March 18, 1996, Life Re Corporation sold its equity investment in
Nacolah Holding Corporation ("Nacolah"), the parent of North American Company
for Life and Health Insurance, in connection with the acquisition of Nacolah
by Sammons Enterprises, Inc. The Company received proceeds of $25,057 and
recorded a realized investment gain of $13,540. The realized gain triggered
the utilization of tax net operating loss carryforwards available to Life Re
Corporation and a corresponding reversal of the previously established
deferred tax valuation allowance, resulting in a tax benefit of $4,739.
5. SHAREHOLDERS' EQUITY AND LOANS PAYABLE
Pursuant to the terms of a stock repurchase program approved by the
Company's Board of Directors, the Company purchased 504,800 shares of its
common stock for an aggregate purchase price of $13,899 during the six months
ended June 30, 1996. Through June 30, 1996, 2.1 million shares out of a total
authorization by the Company's Board of Directors to repurchase 3.0 million
shares have been acquired for a total purchase price of $43,384.
On March 29, 1996, the Company repaid $15,000 of the revolving loan
borrowed under its bank credit agreement.
6. CONTINGENCIES
At December 31, 1991, the Company entered into an 80% coinsurance
agreement with Liberty Life Insurance Company ("Liberty") whereby it assumed
risks on a block of existing universal life insurance business. In addition,
effective January 1, 1992, the Company entered into a related agreement with
Liberty which provides for Liberty to cede to the Company 50% of certain
universal life policies written subsequent to December 31, 1991. Effective
July 1, 1995, the Company increased from 50% to 80% its coinsurance share of
the existing business in force written subsequent to December 31, 1991.
Together, these agreements contributed policy revenues totaling $9,664,
primarily policy fees and charges, for the six months ended June 30, 1996.
In February 1995, Liberty ceased sales of its products through its general
agency distribution system, which is the system that produced the business
coinsured by the Company. Generally the discontinuance of a distribution
system will cause increased lapsation of policies previously produced by that
system. As a result, expectations as to future gross profits may have to be
reduced, resulting in increased amortization of policy acquisition costs.
Actual lapsation to date has increased, but currently not in an amount
sufficiently material to warrant an adjustment of
9<PAGE>
<PAGE> 12
current estimates of anticipated future gross profits or an adjustment of
the amortization of deferred policy acquisition costs. The expected level of
gross profits on this business is being closely monitored and, if appropriate,
amortization of deferred policy acquisition costs will be adjusted. Such
adjustments could have a material adverse effect on results of operations.
In addition, the Company and a ceding company client are in arbitration
concerning the terms of a reinsurance agreement. The Company does not believe
that the outcome will have a material adverse effect on its results of
operations or financial position.
10<PAGE>
<PAGE> 13
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net income totaled $30.5 million for the six months ended June 30, 1996
compared to $14.1 million for the same period last year. Included in these
results were realized investment gains, net of tax, of $14.2 million and $.1
million, respectively. In 1996, the Company realized a gain of $13.5 million
from the sale of its investment in warrants to purchase common stock of
Nacolah Holding Corporation ("Nacolah"), parent of North American Company for
Life and Health Insurance (see Note 4 of "Notes to Condensed Consolidated
Financial Statements"). This gain triggered the utilization of tax net
operating loss carryforwards and a corresponding reversal of a previously
established deferred tax valuation allowance, resulting in a tax benefit of
$4.7 million.
Income before federal income taxes and excluding realized investment gains
was $25.0 million in the current six month period compared to $21.5 million in
last year's comparable period. This increase is due largely to earnings from
Reassure America Life Insurance Company ("REALIC"), which was acquired on July
31, 1995 (see Note 2 of "Notes to Condensed Consolidated Financial
Statements").
Policy Revenues. Policy revenues increased by $18.7 million, or 10%, to
$205.2 million in 1996 from $186.5 million in 1995. Of this increase, $3.6
million was attributable to REALIC. Policy fees and charges, one component of
policy revenues, increased 27% to $11.0 million as a result of the REALIC
acquisition. Ordinary life insurance premiums and group insurance premiums,
which comprise the balance of policy revenues, increased by 8% and 11%,
respectively, to $121.3 million and $72.8 million, respectively. The
increases in ordinary life and group insurance premiums were due primarily to
new reinsurance agreements and increased participation in existing group
agreements, respectively.
Investment Income. Investment income increased by $13.3 million, or 30%, to
$57.3 million in the current six month period from $44.0 million in the six
month period of 1995. This increase was primarily the result of investment
earnings at REALIC. The weighted average portfolio yield rate decreased to
7.94% in 1996 from 8.24% in 1995, principally due to lower yields existing at
the time of the REALIC acquisition and a general decline in interest rates.
Realized Investment Gains. Realized investment gains totaled $14.7 million in
the 1996 period compared to $.2 million in the 1995 period principally due to
the $13.5 million Nacolah gain.
Policy Claims and Benefits. Policy claims and benefits increased by $11.0
million, or 8%, to $153.3 million from $142.3 million last year. Increases in
both the ordinary and group lines were consistent with the related policy
revenue growth.
11
<PAGE>
<PAGE> 14
RESULTS OF OPERATIONS (CONTINUED)
Commissions and Allowances. Commissions and allowances increased by $6.9
million, or 16%, to $49.3 million from $42.5 million. This increase was
largely due to a reduction in premium tax allowances of $1.4 million in the
first quarter of 1995 and higher allowances in the group lines in the current
period. As a percentage of policy revenues, commissions and allowances were
24.0% and 22.8% in the respective periods.
Interest Credited on Annuity and Interest Sensitive Life Insurance Contracts.
Interest credited on annuity and interest sensitive life insurance contracts
increased to $14.6 million from $7.3 million last year due to the acquisition
of REALIC. Partially offsetting the effects of the resultant increase in
contractholder balances was a modest decrease in crediting rates period to
period.
Amortization of Value of Business Acquired. The amortization of value of
business acquired increased to $2.7 million in 1996 from $1.4 million in 1995
due to amortization of $.4 million from REALIC and increased lapsation of
related insurance in force.
Interest Expense. Interest expense on the Company's variable rate bank loans
totaled $4.4 million in the current period compared to $5.5 million in last
year's six month period. A portion of this decrease was due to a loan
repayment of $15.0 million in the first quarter of 1996. The weighted average
interest rate decreased to 6.25% from 7.37% last year.
Other Operating Expenses. Other operating expenses increased by $3.1 million,
or 31%, to $13.2 million from $10.0 million last year. Of this increase, $1.4
million was attributable to REALIC. The remaining increase was due to
acquisition-related employee compensation and higher staffing levels.
Federal Income Taxes. Federal income tax expense in the period totaled $9.1
million and represents an effective federal income tax rate of 23%. The
expense is net of a $4.7 million tax benefit resulting from the reversal of a
deferred tax valuation allowance in connection with the realized investment
gain on the Nacolah transaction.
12
<PAGE>
<PAGE> 15
RESULTS OF OPERATIONS (CONTINUED)
Second Quarter of 1996 Compared to Second Quarter of 1995
Net income increased by $.8 million to $10.4 million from $9.6 million in the
second quarter of 1995. Included in these results were realized investment
gains, after tax, of $.5 million and $.2 million, respectively. Income before
federal income taxes and excluding realized investment gains was $15.2 million
in the current quarter compared to $14.4 million last year. This increase is
attributable largely to REALIC, which contributed $2.2 million of earnings
before taxes and investment gains. Partially offsetting the effect of REALIC
were higher operating expenses.
Policy Revenues. Policy revenues increased by $10.5 million, or 11%, to
$104.5 million from $94.0 million. Of this increase, $1.5 million is
attributable to REALIC. Policy fees and charges increased 25% to $5.7 million
as a result of the REALIC acquisition. Ordinary life insurance premiums and
group insurance premiums increased by 10% and 12%, to $62.2 million and $36.6
million, respectively. The increases in ordinary life and group premiums were
due primarily to new reinsurance agreements and increased participation in
existing group agreements, respectively.
Investment Income. Investment income increased by $6.4 million, or 29%, to
$28.3 million from $22.0 million. This increase was primarily the result of
REALIC, which contributed $6.6 million, partially offset by lower investment
yields. The weighted average portfolio yield rate decreased to 7.77% in the
current period from 8.19% in 1995.
Realized Investment Gains. Realized investment gains totaled $.8 million in
the current quarter compared to $.3 million last year.
Policy Claims and Benefits. Policy claims and benefits increased by $7.9
million, or 12%, to $74.5 million from $66.6 million. The increase in
ordinary reinsurance claims and benefits was consistent with the related
increase in policy revenues and reflected a return in the current quarter to
expected mortality levels. Group claims and benefits showed an improvement
from last year largely due to provisions for losses on commercial aviation
disasters recorded in last year's second quarter.
Commissions and Allowances. Commissions and allowances increased by $3.0
million, or 13%, to $26.2 million from $23.2 million. As a percentage
of policy revenues, these amounts were level period to period.
Interest Credited on Annuity and Interest Sensitive Life Insurance Contracts.
Interest credited on annuity and interest sensitive life insurance contracts
increased to $7.2 million from $3.7 million in the second quarter of 1995
principally due to the addition of REALIC. Interest crediting rates decreased
slightly from period to period.
Amortization of Value of Business Acquired. The amortization of value of
business acquired increased to $1.3 million this quarter from $.3 million last
year due to increased lapsation of related insurance in force.
13<PAGE>
<PAGE> 16
Interest Expense. Interest expense on the Company's variable rate bank loans
totaled $2.1 million in the quarter compared to $2.7 million last year. The
weighted average interest rate decreased to 6.17% from 7.29% in last year's
second quarter. In March 1996, the Company repaid $15.0 million of its bank
debt.
Other Operating Expenses. Other operating expenses increased by $1.3 million
to $6.4 million during the second quarter of 1996. This increase is primarily
attributable to REALIC and acquisition-related compensation costs.
Federal Income Taxes. Federal income tax expense in the current quarter
totaled $5.6 million and represents an effective federal income tax rate of
35.0%, which is the same effective rate as in the second quarter of 1995.
RECENT TRANSACTIONS
During the second quarter of 1996, the Company completed several
transactions in which it assumed in force insurance policies (together the
"Transactions") (see Note 2 of "Notes to Condensed Consolidated Financial
Statements"). The Transactions increased total assets and liabilities by
approximately $290 million. The assets received consisted primarily of cash
and high quality investments and the liabilities assumed consisted primarily
of future policy benefits.
INVESTMENTS
Invested assets increased by $163.1 million to $1,667.3 million at June
30, 1996 from $1,504.2 million at December 31, 1995 primarily as a result of
the Transactions, partially offset by a decrease in unrealized gains on fixed
maturities. Higher interest rates prevailing in the general fixed maturities
market at June 30, 1996 compared to those at December 31, 1995 resulted in a
reduction of $80.3 million in the fair value of the portfolio.
The Company's fixed maturity portfolio (including the fixed maturity
securities which are included in assets held by ceding company under
reinsurance treaty) constituted 92% of invested assets at June 30, 1996, of
which $63.3 million, or 4% of invested assets, consisted of below investment
grade securities. At June 30, 1996, the weighted average quality rating of
the fixed maturities portfolio was "A", and no fixed maturities were in
default.
14<PAGE>
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LIQUIDITY AND CAPITAL RESOURCES
Sources of liquidity are available to the Company in the form of cash and
short-term investments and, if necessary, the sale of invested assets. The
Company can also borrow an additional $35.0 million under its revolving credit
agreement. As of June 30, 1996 and December 31, 1995, the weighted average
interest rate on debt was 6.03% and 6.33%. In addition to debt servicing and
dividend obligations, the Company's financial obligations consist of policy
claim and benefit payments, business acquisition costs, taxes and general
operating expenses. Currently, these obligations are adequately provided for
by operating cash flows.
The ability of the Company to make principal and interest payments as well
as to continue to pay common stock dividends is ultimately dependent on the
statutory earnings and surplus of the insurance subsidiaries. The transfer of
funds from the subsidiaries to Life Re Corporation is subject to applicable
insurance laws and regulations. The Nacolah transaction provided $25.1
million of funds to Life Re Corporation of which $15.0 million was used to pay
down the outstanding debt. The Company also continues to buy shares of its
common stock pursuant to a stock repurchase program approved by the Company's
Board of Directors under which a total 3.0 million shares have been authorized
for purchase. As of June 30, 1996, the Company had repurchased over 2.0
million shares for an aggregate purchase price of $43.4 million including
$13.9 million in the six months ended June 30, 1996.
15<PAGE>
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Part II - Other Information
ITEM 4
Submission of Matters to a Vote of Security Holders
(a) The meeting was held on June 7, 1996 and it was the Annual Meeting
of Stockholders.
(b) The meeting involved the election of directors and the following
directors were each elected to serve a three (3) year term:
Samuel V. Filoromo
Carolyn K. McCandless
Douglas M. Schair
The name of each other director whose term of office as a director
continued after the meeting and, in the case of Chris C. Stroup,
began after the meeting, is as follows:
Jacques E. Dubois Chris C. Stroup
Rodney A. Hawes, Jr. T. Bowring Woodbury, II
K. Fred Skousen
(c) Two (2) matters were voted upon at the meeting: (i) the election
of directors and; (ii) the ratification of the appointment of
independent auditors for the year 1996.
(i) Election of Directors:
Nominee Votes For Votes Withheld
Samuel V. Filoromo 12,200,923 135,025
Carolyn K. McCandless 12,185,823 150,125
Douglas M. Schair 12,186,123 149,825
(ii) Ratification of Auditors:
Votes For Votes Against Abstentions
12,333,353 1,590 1,005
16
<PAGE>
<PAGE> 19
ITEM 5
Other Information
As of June 30, 1996, Life Re Corporation (the "Company"), through its
subsidiary Reassure America Life Insurance Company ("REALIC"), completed its
acquisition of all the outstanding common stock of Modern American Life
Insurance Company ("Modern American") from Bankers Multiple Line Insurance
Company ("Bankers") and caused Modern American to be redomesticated to the
State of Illinois from the State of Missouri. Also as of June 30, 1996,
Western Pioneer Life Insurance Company, previously a subsidiary of Bankers,
was merged with and into REALIC.
Effective as of July 1, 1996, the Company, through its subsidiary Life
Reassurance Corporation of America, entered into reinsurance arrangements with
Combined Insurance Company of America to reinsure credit life and credit
disability insurance policies produced through current and former affiliates
of Aon Corporation ("Aon"). In connection with the foregoing, the Company
entered into a Consulting and Non-Compete Agreement with a subsidiary of Aon.
Effective as of July 1, 1996, the Company purchased approximately twenty
percent of the common stock of Resource Financial Corporation ("RFC"), a newly
organized corporation formed for the purpose of acquiring certain assets and
entities owned by subsidiaries of Aon, including Resource Dealer Group, Inc.,
a former subsidiary of Aon. The remaining stock of RFC is owned by its
management. RFC specializes in providing insurance product distribution,
administrative and financial services, and comprehensive training and
development for the retail automotive industry throughout the United States
and Canada.
These transactions were previously reported in the Life Re Corporation
Form 10-Q for the quarterly period ended March 31, 1996, as filed with the
Securities and Exchange Commission on May 3, 1996. In addition, the Life Re
Corporation Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 17, 1996 included as an Exhibit the Stock Purchase
Agreement, dated as of April 2, 1996, by and between Bankers Multiple Line
Insurance Company and Reassure America Life Insurance Company with respect to
all of the outstanding capital stock of Modern American Life Insurance Company
and Western Pioneer Life Insurance Company.
17<PAGE>
<PAGE> 20
ITEM 6
Exhibits and Reports on Form 8-K
(a) Exhibits
2.01 Stock Purchase Agreement, dated as of April 2, 1996, by and
between Bankers Multiple Line Insurance Company and Reassure
America Life Insurance Company with respect to all of the
outstanding capital stock of Modern American Life Insurance
Company and Western Pioneer Life Insurance Company,
incorporated by reference to Exhibit 2.1 of the Life Re
Corporation Current Report on Form 8-K, Date of Report
April 2, 1996, as filed with the Securities and Exchange
Commission on April 17, 1996.
2.02 Stock Purchase Agreement, dated as of June 30, 1996, between
Combined Insurance Company of America and Resource Financial
Corporation, and, for purposes of Section 5.9 only, Life Re
Corporation.
2.03 Subscription Agreement and Letter of Investment Intent,
dated as of June 30, 1996, between Resource Financial
Corporation and Life Re Corporation.
3.01 Certificate of Incorporation of Life Re Corporation (the
"Company"), dated June 1, 1988, incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on Form
S-1 (File No. 33-50556).
3.02 Amendment to the Certificate of Incorporation of the
Company, dated November 10, 1988, incorporated by reference
to Exhibit 3.5 of the Company's Registration Statement on
Form S-1 (File No. 33-50556).
3.03 Amendment to the Certificate of Incorporation of the
Company, dated December 9, 1988, incorporated by reference
to Exhibit 3.6 of the Company's Registration Statement on
Form S-1 (File No. 33-50556).
3.04 Amendment to the Certificate of Incorporation of the
Company, dated December 27, 1988, incorporated by reference
to Exhibit 3.7 of the Company's Registration Statement on
Form S-1 (File No. 33-50556).
18
<PAGE>
<PAGE> 21
3.05 Amendment to the Certificate of Incorporation of the
Company, dated October 14, 1992, incorporated by reference
to Exhibit 3.07 of the Company's Form 10-K for the fiscal
year ended December 31, 1992, as filed with the Securities
and Exchange Commission on March 31, 1993.
3.06 Amendment to the Certificate of Incorporation of the
Company, dated October 30, 1992, incorporated by reference
to Exhibit 3.08 of the Company's Form 10-K for the fiscal
year ended December 31, 1992, as filed with the Securities
and Exchange Commission on March 31, 1993.
3.07 By-Laws of the Company, dated August 5, 1992, incorporated
by reference to Exhibit 3.09 of the Company's Form 10-K for
the year ended December 31, 1992, as filed with the
Securities and Exchange Commission on March 31, 1993.
4.01 Specimen Common Stock Certificate of the Company,
incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 (File No. 33-50556).
10.01 Assumption Reinsurance Agreement, made as of May 31, 1996,
between United Insurance Company of America and Reassure
America Life Insurance Company.
10.02 Reinsurance and Retrocession Agreement (Disability
Policies), effective as of July 1, 1996, between American
Combined Life Insurance Company and Life Reassurance
Corporation of America.
10.03 Reinsurance and Retrocession Agreement (Life Policies),
effective as of July 1, 1996, between American Combined Life
Insurance Company and Life Reassurance Corporation of
America.
10.04 Administration Agreement, effective as of July 1, 1996, by
and among American Combined Life Insurance Company, Resource
Financial Corporation and Life Reassurance Corporation of
America.
19<PAGE>
<PAGE> 22
10.05 Consulting and Non-Compete Agreement, effective as of July
1, 1996, between Ryan Insurance Group, Inc. and Life
Reassurance Corporation of America.
10.06 Employment Agreement, effective as of June 1, 1996, between
the Company and Samuel V. Filoromo.
10.07 Employment Agreement, effective as of June 1, 1996, between
the Company and Chris C. Stroup.
10.08 Employment Agreement, effective as of June 1, 1996, between
the Company and W. Weldon Wilson.
10.09 Life Re Corporation Supplemental Executive Retirement Plan,
Effective: January 1, 1995.
10.10 Severance Agreement, effective as of June 1, 1996, between
the Company and Tracy L. Rudolph.
27.01 Financial Data Schedule
(b) A Current Report on Form 8-K was filed with the Securities and
Exchange Commission on April 17, 1996 regarding the proposed
acquisition of Modern American Life Insurance Company and Western
Pioneer Life Insurance Company by Reassure America Life Insurance
Company, a subsidiary of the Company. No other reports on Form 8-K
were filed during the three months ended June 30, 1996, however
a Current Report on Form 8-K was filed with the Securities and
Exchange Commission on July 16, 1996 regarding the completion on
June 30, 1996 of the acquisition of Modern American Life Insurance
Company and Western Pioneer Life Insurance Company by Reassure
America Life Insurance Company and to further announce the
previously disclosed transactions with Combined Insurance Company
of America and Resource Financial Corporation.
20<PAGE>
<PAGE> 23
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Life Re Corporation
Dated: August 13, 1996 By:/s/Chris C. Stroup
Chris C. Stroup,
Executive Vice President
and Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Condensed Consolidated Financial Statements of Life Re Corporation
and Subsidiaries at June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 1,425,769
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 4,053
<MORTGAGE> 7,801
<REAL-ESTATE> 8,559
<TOTAL-INVEST> 1,667,273
<CASH> 3,494
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 144,335
<TOTAL-ASSETS> 2,180,318
<POLICY-LOSSES> 1,522,511
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 203,897
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 125,000
0
0
<COMMON> 16
<OTHER-SE> 248,187
<TOTAL-LIABILITY-AND-EQUITY> 2,180,318
205,195
<INVESTMENT-INCOME> 57,286
<INVESTMENT-GAINS> 14,710
<OTHER-INCOME> 0
<BENEFITS> 153,321
<UNDERWRITING-AMORTIZATION> 5,667
<UNDERWRITING-OTHER> 74,113
<INCOME-PRETAX> 39,682
<INCOME-TAX> 9,149
<INCOME-CONTINUING> 30,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,533
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.15
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
STOCK PURCHASE AGREEMENT
between
COMBINED INSURANCE COMPANY OF AMERICA,
and
RESOURCE FINANCIAL CORPORATION
dated as of
June 30, 1996
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I SALE AND PURCHASE OF SHARES.. . . . . . . . . . . . .1
1.1 Formation of Intermediate Holding Company . . . . . . .1
1.2 Sale and Purchase of Shares . . . . . . . . . . . . . .2
1.3 Payment of Purchase Price . . . . . . . . . . . . . . .2
1.4 Delivery of Shares. . . . . . . . . . . . . . . . . . .2
ARTICLE II CLOSING. . . . . . . . . . . . . . . . . . . . . . .2
2.1 Closing; Closing Date . . . . . . . . . . . . . . . . .2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER.. . . .3
3.1 Due Incorporation and Authority . . . . . . . . . . . .3
3.2 Subsidiaries and Other Affiliates . . . . . . . . . . .3
3.3 Outstanding Capital Stock and Title to the Shares . . .3
3.4 Authority to Execute and Perform Agreement:
Enforceability. . . . . . . . . . . . . . . . . . . . .3
3.5 Options or Other Rights . . . . . . . . . . . . . . . .4
3.6 Charter Documents and Corporate Records . . . . . . . .4
3.7 Financial Statements. . . . . . . . . . . . . . . . . .4
3.8. Tax Matters. . . . . . . . . . . . . . . . . . . . . .4
3.9 Compliance with Laws. . . . . . . . . . . . . . . . . .6
3.10 Licenses . . . . . . . . . . . . . . . . . . . . . . .6
3.11 No Breach. . . . . . . . . . . . . . . . . . . . . . .6
3.12 Claims and Proceedings . . . . . . . . . . . . . . . .7
3.13 Contracts. . . . . . . . . . . . . . . . . . . . . . .7
3.14 Real Estate. . . . . . . . . . . . . . . . . . . . . .8
3.15 Reinsurance. . . . . . . . . . . . . . . . . . . . . .8
3.16 Policies of Insurance Written by the Company . . . . .9
3.17 Certain Business Practices . . . . . . . . . . . . . .9
3.18 Title to Properties. . . . . . . . . . . . . . . . . .9
3.19 Employee Benefits. . . . . . . . . . . . . . . . . . .9
3.20 Employees. . . . . . . . . . . . . . . . . . . . . . .9
3.21 Operations of the Company. . . . . . . . . . . . . . 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF RFC. . . . . . . 11
4.1 Due Incorporation and Authority . . . . . . . . . . . 11
4.2 Authority to Execute and Perform Agreement:
Enforceability. . . . . . . . . . . . . . . . . . . . 11
4.3 No Breach . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Claims and Proceedings. . . . . . . . . . . . . . . . 12
4.5 Purchase for Investment . . . . . . . . . . . . . . . 12
4.6 Financing . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . 12
5.1 Conduct of Business . . . . . . . . . . . . . . . . . 12
5.2 Corporate Examinations and Investigations . . . . . . 13
5.3 Publicity . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Indemnification for Broker's Fees . . . . . . . . . . 13
5.5 Tax Matters . . . . . . . . . . . . . . . . . . . . . 14
5.6 Employees and Plans . . . . . . . . . . . . . . . . . 19
5.7 Management Agreements . . . . . . . . . . . . . . . . 19
5.8 Other Transactions. . . . . . . . . . . . . . . . . . 19
5.9 LRCA Financing. . . . . . . . . . . . . . . . . . . . 20
5.10 Financing. . . . . . . . . . . . . . . . . . . . . . 20
5.11 Further Assurances . . . . . . . . . . . . . . . . . 20
5.12 Efforts to Consummate. . . . . . . . . . . . . . . . 21
5.13 Books and Records of the Company . . . . . . . . . . 21
<PAGE>
<PAGE> 3
5.14 Name Change. . . . . . . . . . . . . . . . . . . . . 23
5.15 Negotiations with Others . . . . . . . . . . . . . . 23
ARTICLE VI CONDITION`S PRECEDENT TO THE OBLIGATION OF
THE BUYER TO CLOSE.. . . . . . . . . . . . . . . . . . . . . ..23
6.1 Representations and Covenants . . . . . . . . . . . . 24
6.2 Consents and Approvals. . . . . . . . . . . . . . . . 24
6.3 Litigation. . . . . . . . . . . . . . . . . . . . . . 24
6.4 Other Agreements. . . . . . . . . . . . . . . . . . . 24
6.5 Affiliate Transactions. . . . . . . . . . . . . . . . 24
6.6 Resignations of Directors and Officers. . . . . . . . 25
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF
THE SELLER TO CLOSE. . . . . . . . . . . . . . . . . . . . . . 25
7.1 Representations and Covenants . . . . . . . . . . . . 25
7.2 Consents and Approvals. . . . . . . . . . . . . . . . 25
7.3 Litigation. . . . . . . . . . . . . . . . . . . . . . 26
7.4 Financing . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIII SURVIVAL OF THE REPRESENTATIONS AND
WARRANTIES AFTER CLOSING. . . . . . . . . . . . . . . . . . . .26
8.1 Survival. . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IX GENERAL INDEMNIFICATION. . . . . . . . . . . . . . 26
9.1 Obligation of the Seller to Indemnify . . . . . . . . 26
9.2 Obligation of RFC and the Buyer to Indemnify. . . . . 27
9.3 Notice to Indemnifying Party. . . . . . . . . . . . . 27
9.4 Limitations on Indemnification. . . . . . . . . . . . 28
9.5 Exclusive Remedy. . . . . . . . . . . . . . . . . . . 29
9.6 Purchase Price Adjustment . . . . . . . . . . . . . . 30
ARTICLE X TERMINATION OF AGREEMENT. . . . . . . . . . . . . . 30
10.1 Termination. . . . . . . . . . . . . . . . . . . . . 30
10.2 Survival after Termination . . . . . . . . . . . . . 30
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . 30
11.1 Certain Definitions. . . . . . . . . . . . . . . . . 31
11.2 Notices. . . . . . . . . . . . . . . . . . . . . . . 31
11.3 Entire Agreement . . . . . . . . . . . . . . . . . . 33
11.4 Waivers and Amendments: Non-Contractual Remedies:
Preservation of Remedies . . . . . . . . . . . . . . 33
11.5 Expenses . . . . . . . . . . . . . . . . . . . . . . 33
11.6 Governing Law. . . . . . . . . . . . . . . . . . . . 33
11.7 Binding Effect: No Assignment; No Third Party
Beneficiary. . . . . . . . . . . . . . . . . . . . . 33
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . 34
11.9 Exhibits and Schedules . . . . . . . . . . . . . . . 34
11.10 Headings. . . . . . . . . . . . . . . . . . . . . . 34
11.11 Interpretation. . . . . . . . . . . . . . . . . . . 34
11.12 Severability of Provisions. . . . . . . . . . . . . 34
Schedules
Schedule 3.9 - Tax Returns
Schedule 3.10 - Licenses
Schedule 3.10(b) - Licenses
Schedule 3.11 - Required Consents
Schedule 3.12 - Claims and Proceedings
Schedule 3.13 - Contracts
<PAGE>
<PAGE> 4
Schedule 3.14 - Real Estate
Schedule 3.15 - Reinsurance Contracts
Schedule 3.21 - Operations of the Company
Schedule 4.3 - Buyer's Contracts
Exhibits
Exhibit A - Pro Forma Balance Sheet
Exhibit B - Other Agreements
Exhibit C - Certificate of Designation of Rights, Preferences,
Privileged and Restrictions
Exhibit D - Term Loan Guaranty
Exhibit E - Security Agreement<PAGE>
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of June 30,1996
between Combined Insurance Company of America, an insurance corporation
organized and existing under the laws of the State of Illinois (the "Seller")
and Resource Financial Corporation, a corporation organized and existing under
the laws of the State of Delaware ("RFC").
WHEREAS the Seller is the beneficial and record owner of all of the
issued and outstanding shares of the common stock, $10.00 par value per share
(the "Shares"), of American Combined Life Insurance Company, an Illinois
insurance corporation (the "Company"); and
WHEREAS the Seller wishes to sell, and RFC, through an intermediate
holding company, wishes to purchase, all of the Shares upon the terms and
subject to the conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
and in reliance upon the representations and warranties as set forth herein,
the Parties agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES.
1.1 Formation of Intermediate Holding Company. As soon as practicable
after the date hereof RFC shall form a corporation (the "Buyer") under the
laws of Delaware or other state satisfactory to Seller. All shares of common
stock of Buyer shall be owned, beneficially and of record, by RFC, and the
Certificate of Incorporation and By-laws of Buyer shall be in such form as
Seller shall approve (not to be unreasonably withheld). Except for its common
stock owned by RFC, on the Closing Date (as defined below) the Buyer shall
have no other securities outstanding (except as contemplated by Section 5.9
below) and shall have no liabilities or obligations (except as set forth in
this Agreement).
1.2 Sale and Purchase of Shares. At the closing provided for in Section
2.1 (the "Closing") and upon the terms and subject to the conditions of this
Agreement, the Seller shall sell to the Buyer, and the Buyer shall purchase
from the Seller, all of the Shares. The Buyer shall pay to the Seller an
aggregate purchase price for the Shares and as consideration for execution of
the agreements contemplated herein of $17,300,000 (the "Purchase Price"),
payable as provided in Section 1.3.
1.3 Payment of Purchase Price. Subject to the terms and conditions of
this Agreement, and in reliance upon the representations, warranties and
agreements of the parties hereto, at the Closing, the Buyer shall pay to
Seller the Purchase Price by wire transfer of immediately available funds to
such account of Seller as Seller shall designate to RFC not less than three
Business Days prior to the Closing Date.
1.4 Delivery of Shares. At the Closing, Seller shall deliver to the Buyer
stock certificates representing all of the Shares duly endorsed in blank or
accompanied by duly executed instruments of transfer, or registered in the
name of the Buyer.
ARTICLE II
CLOSING
2.1 Closing; Closing Date. The Closing of the sale and purchase of the
Shares contemplated hereby shall take place at a location to be agreed upon at
<PAGE>
<PAGE> 6
10:00 a.m. local time, on the fifth full Business Day after satisfaction or
waiver of all of the conditions set forth in Sections 6.2, and 7.2 or such
other time or date as RFC and the Seller agree in writing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller represents and warrants to the Buyer and RFC as follows:
3.1 Due Incorporation and Authority. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Illinois. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Illinois and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as currently conducted.
3.2 Subsidiaries and Other Affiliates. The Company does not directly or
indirectly own or have the power to vote shares of any capital stock or other
ownership interests of any corporation or other Person.
3.3 Outstanding Capital Stock and Title to the Shares. The Company is
authorized to issue 250,000 shares of common stock, par value $10.00 per
share, all of which shares are issued and outstanding. All of the Shares are
owned beneficially and of record by the Seller free and clear of any lien,
pledge, mortgage, security interest, claim, lease, charge, option, right of
first or last refusal or offer, easement, servitude, transfer restriction
under any shareholder or similar agreement, encumbrance or any other
restriction or limitation whatsoever, other than restrictions on transfer
under federal and state securities laws and state insurance laws
(collectively, "Liens"). Upon delivery of and payment for the Shares as herein
provided, the Seller will convey to the Buyer good and valid title thereto,
free and clear of any Lien, except for Liens arising through the Buyer or as a
result of the Buyer's actions.
All of the Shares are duly authorized and validly issued, fully paid and
nonassessable.
3.4 Authority to Execute and Perform Agreement: Enforceability. The
Seller has the full legal right and power and all corporate authority and
approvals required to execute and deliver this Agreement and to perform fully
its obligations hereunder. This Agreement has been duly executed and delivered
by the Seller and is a valid and binding obligation of the Seller enforceable
against it in accordance with its terms, except as enforceability may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
(ii) general principles of equity.
3.5 Options or Other Rights. There is no outstanding right, subscription,
warrant, call, unsatisfied preemptive right, option, commitment or other
agreement of any kind to purchase or otherwise to receive from the Company or
the Seller any of the outstanding or authorized but unissued shares of the
capital stock or any other security of the Company.
3.6 Charter Documents and Corporate Records. The Seller has heretofore
delivered to the Buyer true and complete copies of the Certificate of
Incorporation and Bylaws, or comparable instruments, of the Company as in
effect on the date hereof.
3.7 Financial Statements.
(a) Seller has heretofore delivered to the Buyer true and complete copies
of the AnnualStatement of the Company as filed with the Illinois Department of
<PAGE>
<PAGE> 7
Insurance for the year ended December 31, 1995 and the first Quarterly
Statement for 1996 (the "Statutory Statements"). The balance sheet of the
Company and the related statement of income and cash flow included in the
Statutory Statements were prepared in conformity with statutory accounting
practices prescribed or permitted by the Illinois Department of Insurance
("Statutory Accounting Principles") consistently applied, except as otherwise
noted therein, for the period covered thereby and fairly present the statutory
financial position of the Company as at the date thereof and the results of
operations and cash flow of the Company for the period then ended.
(b) At Closing, the pro-forma balance sheet of the Company after giving
effect to the transactions referred to in this Agreement and the assets of the
Company and the fair market value of such assets on that date shall be as set
forth in Exhibit A hereto.
3.8. Tax Matters. (a) The Company has timely filed (or has had filed on
its behalf), or will cause to be timely filed, all Tax Returns required to be
filed on or before the Closing Date.
(b) The Company has timely paid all Taxes owed with respect to the Company. No
penalties or other charges are or will become due with respect to the late
filing of any Tax Return of the Company required to be filed on or before the
Closing Date. The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, or other third party.
(c) Schedule 3.9 sets forth the states in which the Company files Tax Returns,
indicates the Tax Returns in such states that have been audited, and indicates
those Tax Returns in such states that currently are the subject of audit.
Except for the State of Illinois insurance company unitary returns, there are
no waivers or extensions of any applicable statute of limitations, or
agreements to any extension of time, for the assessment or collection of such
taxes with respect to any such tax returns, which waivers, extensions or
agreements currently are in effect. No claim has been made in writing since
January 1, 1990, by an authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction.
(d) The Company has not received a Tax Ruling or entered into a Tax Closing
Agreement with any taxing authority that would have a continuing effect after
the Closing Date. For purposes of the preceding sentence, the term "Tax
Ruling" shall mean written rulings of a taxing authority relating to Taxes,
and the term "Tax Closing Agreement" shall mean a written and legally binding
agreement with a taxing authority relating to Taxes.
(e) To the knowledge of the Seller, no action, suit, proceeding,
investigation, audit, claim or assessment is presently pending or proposed
with regard to any Taxes that relate to the Company for which it would be
liable.
(f) There are no Liens for Taxes (other than for Taxes not yet due and
payable) upon the assets of the Company.
(g) The Seller and the Company have been included in a consolidated return for
Federal income tax purposes filed by Aon Corporation ("Aon"),or its
predecessors, on behalf of itself, the Company, the Seller and other
subsidiaries of Aon since 1987, as common parent corporation of an "affiliated
group" (within the meaning of Section 1504(a) of the Code) of which the Seller
and the Company are "includible corporations" (within the meaning of Section
1504(b) of the Code). Such affiliated group has filed all income Tax Returns
that it was required to file for each taxable period during which the Company
was a member of the group. All such income Tax Returns were correct and
complete in all respects as they relate to the Company. All income Taxes owed
by such affiliated groups have been paid for each taxable period during which
the Company was a member of the group. The Company has no liability for the
Taxes of any Person other than the Company: (a) as a transferee or successor;
or (b) by contract.
<PAGE>
<PAGE> 8
(h) Except as set forth on Schedule 3.9, the Company is not required to make
any adjustment pursuant to Section 481 of the Code by reason of a change in
accounting method or otherwise.
3.9 Compliance with Laws. Except as provided in Schedule 3.9 or in
Schedule 3.10(a), the Company is not in violation, nor has there been a
violation by the Company that has not been corrected, of any applicable Order,
or any applicable Law, of any Governmental Body.
3.10 Licenses. The Company has obtained all licenses, certificates of
authority, permits, authorizations, orders and approvals of, and has made all
registrations or filings with, all Governmental Bodies as required in
connection with the conduct of the business of the Company as currently
conducted,(collectively, the "Licenses"). Schedule 3.10 and Schedule 3.10(b)
list the jurisdictions in which the Company possess licenses, certificates of
authority, approvals or authorizations to conduct an insurance business as an
admitted insurer (an "Insurance Authorizations"). Except as provided in
Section 3.10, all Licenses and Insurance Authorizations are valid and in full
force and effect.
3.11 No Breach. The execution, delivery and performance of this Agreement
by the Seller and the consummation of the transactions contemplated hereby
(the "Contemplated Transactions") will not (i) violate any provision of the
Certificate of Incorporation or By-laws of the Company or the Seller; (ii)
require the Company or the Seller to obtain any consent, approval or action
of, or make any filing with or give any notice to, any Governmental Body,
except as set forth on Schedule 3.11 (the "Required Consents"); (iii) if the
Required Consents are obtained, except as set forth on Schedule 3.11,
violate, result with the passage of time or the giving of notice, or both, in
the breach of any of the terms of, result in a modification of the effect of,
otherwise cause the termination of or constitute a default under, any
contract, agreement, understanding, indenture, note, bond, loan, instrument,
lease, conditional sale contract, mortgage, license, franchise, commitment or
other binding arrangement (collectively, the "Contracts") to which the Company
or the Seller is a party or by or to which either of them or any of their
Properties (including the Shares) may be bound or subject, or result in the
creation of any Lien upon the Properties of the Company or the Seller
(including the Shares) pursuant to the terms of any such Contract, other than
Liens arising under this Agreement; (iv) if the Required Consents are
obtained, violate any Order of any Governmental Body against, or binding upon,
the Company or the Seller or upon any of their Properties (including the
Shares) or upon their respective businesses; or (v) if the Required Consents
are obtained, violate any Law.
3.12 Claims and Proceedings. Except as set forth on Schedule 3.12, there
are no outstanding Orders of any Governmental Body against or involving, or to
the knowledge of the Seller threatened against , the Company nor are there
facts which would form the basis for such Order. Except as provided in
Schedule 3.12, there are no actions, suits, claims or legal, administrative or
arbitral proceedings or investigations (collectively, "Claims") pending
against or involving the Company or any of its Properties or to the knowledge
of Seller threatened nor are there facts that would form the basis for such
Claims.
3.13 Contracts. (a) Schedule 3.13 sets forth all of the following
Contracts to which the Company is a party on the date hereof: (i) partnership
or joint venture agreements; (ii) Contracts containing covenants not to
compete in any line of business or with any Person in any geographical area
(iii) Contracts relating to the borrowing of money; (iv) management Contracts
<PAGE>
<PAGE> 9
and other similar agreements with any Person; (v) Contracts with any other
insurance company, managing general agent, underwriting manager or any other
Person, pursuant to which the Company has delegated underwriting and/or claims
settlement authority; (vi) agency, brokerage or other similar insurance sales
or marketing Contracts which accounted for ten percent (10%) or more of the
aggregate direct written premiums of the Company for the year ended December
31, 1995; (vii) any Contract, other than insurance contracts issued in the
ordinary course of business, with any officer, director of an Affiliate; and
(viii) any other Contracts, other than Contracts entered into in the ordinary
course of the Company's business which are terminable by the Company on notice
of 30 days or less, pursuant to the terms of which there is either a current
or future obligation or right of the Company to make payments in excess of
$25,000 or receive payments in excess of $25,000 (b) There have been delivered
or made available to the Buyer true and complete copies of all of the
Contracts set forth on Schedule 3.13. Neither the Company nor any other party,
is in default under any of such Contracts. No other party to any such Contract
has given written, or to the knowledge of the Company oral, notice of
termination or cancellation of any such Contract or that it intends to
terminate or cancel any such Contract as a result of the transactions
contemplated by this Agreement.
3.14 Real Estate. Schedule 3.14 sets forth, as of the date hereof, a list
of (i) all real property owned by the Company, (ii) all leases or subleases
under which the Company is the lessor or lessee of any real property, (iii)
all options held by the Company or contractual obligations on its part to
purchase or acquire any material interest in real property, and (iv) all
options granted the Company or contractual obligations on its part to sell or
dispose of any material interest in real property. Such leases, subleases,
options and other agreements are in full force and effect, and neither the
Company nor to the knowledge of the Company, any other party, is in default
thereunder.
3.15 Reinsurance. Schedule 3.15 contains a complete and correct list of
all Contracts regarding reinsurance, coinsurance, excess insurance, ceding of
insurance, assumption of insurance or indemnification with respect to
insurance to which the Company is a party (as either a ceding or assuming
party) and in respect of which there are currently policies in force or open
claims. Except as set forth on Schedule 3.15, neither the Company nor any
other party, is in default of any provision of the Reinsurance Agreements. No
reinsurer in writing, or to the knowledge of the Company orally, has asserted
or threatened to assert a claim that the Company has breached any of its
material obligations under any Reinsurance Agreement or that the reinsurer
will not or does not intend to perform any of its material obligations under a
Reinsurance Agreement.
3.16 Policies of Insurance Written by the Company. All policies and
contracts of insurance or reinsurance issued by the Company within the five
(5) years prior to the date hereof are in compliance, and at their respective
dates of issuance were in compliance, in all respects with all applicable Laws
and, to the extent required under applicable Law, are on forms approved by the
appropriate Governmental Bodies in the jurisdictions where issued or have been
filed with and not objected to by such Governmental Bodies within the period
provided for objection. Any premium rates with respect to insurance policies
or contracts currently issued by the Company which are required to be filed
with or approved by any Governmental Body have been so filed or approved in
accordance with applicable Laws, and such premiums charged by the Company
conform thereto.
<PAGE>
<PAGE> 10
3.17 Certain Business Practices. All insurance or reinsurance Claims that
have become payable by the Company, and are not currently in the course of
being settled in good faith by the Company, have been paid, or provided for,
in accordance with the terms of the insurance or reinsurance policy or
contract under which they arose.
3.18 Title to Properties. Except for securities on statutory deposit with
state insurance departments, the Company owns outright and has good and
marketable title to all of its Properties (other than real property),
including, without limitation, all of the assets reflected on the balance
sheet of the Company contained in the Statutory Statements free and clear of
any Lien.
3.19 Employee Benefits. On the date hereof there are no employee benefit
plans subject to section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and the regulations thereunder, under which the Company
has any liability with respect to any current or former employee of the
Company.
3.20 Employees. On the date hereof, the Company does not employ any
employees. All Persons who work at the Company are employees of the Seller, or
an affiliate of the Seller, which provides their services to the Company
pursuant to a management agreement entered into between the Company and the
Seller. Neither the Company nor the Seller is a party to or bound by any
collective bargaining agreement, and there are no labor unions or other
organizations representing, or, to the knowledge of the Seller, purporting to
represent or attempting to represent any such employees.
3.21 Operations of the Company. Except as set forth on Schedule 3.21 or
Schedule 3.15 or as otherwise contemplated in this Agreement, since December
31, 1995 the Company has not:
(i) declared or paid any dividends or declared or made any other
distributions of any kind to its shareholders, or made any direct or indirect
redemption, retirement, purchase or other acquisition of any shares of its
capital stock or other securities or options, warrants or other rights to
acquire capital stock;
(ii) incurred any indebtedness for borrowed money;
(iii) made, or agreed to make, any change in its accounting or reserving
methods or practices or made any change in depreciation or amortization
policies or rates adopted by it;
(iv) changed its investment, underwriting and claims adjustment policies
and practices;
(v) amended its Certificate of Incorporation or By-laws or merged with or
into or consolidated with any other Person, subdivided or in any way
reclassified any shares of its capital stock or changed or agreed to change in
any manner the rights of its outstanding capital stock or the character of its
business;
(vi) except as a result of actions taken at the request of RFC or
otherwise pursuant to the terms of this Agreement, experienced any event,
occurrence, fact, condition, change, development, or effect that, individually
or in the aggregate, has resulted in, or could result in, a Material Adverse
Effect;
(vii) issued or sold any shares of any class of its capital stock, or any
securities convertible into or exchangeable for any such shares; or issued,
sold, granted or entered into any subscriptions, options, warrants, conversion
or other rights agreements to purchase or acquire any such securities;
(viii) mortgaged or pledged any of its real property or other Properties
or assets, tangible or intangible;
<PAGE>
<PAGE> 11
(ix) forgiven or canceled any debts or claims, or waived any rights,
except debts, claims or rights against Persons, other than the Seller and its
Affiliates, forgiven, canceled or waived in the ordinary course of business;
(x) adopted or amended any employment, collective bargaining, bonus,
profit-sharing, compensation, pension, retirement, vacation, severance,
deferred compensation or other plan, agreement, trust, fund or arrangement for
the benefit of any officer, director, employee, agent or consultant;
(xi) other than insurance written in the ordinary course of business,
entered into any Contract, or any other agreement, commitment or transaction,
with or for the direct benefit of the Seller or any Affiliate thereof; or
(xii) taken any action or omitted to take any action that would result in
the occurrence of any of the foregoing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RFC.
RFC represents and warrants to the Seller as follows:
4.1 Due Incorporation and Authority. RFC is, and Buyer will be, a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
4.2 Authority to Execute and Perform Agreement: Enforceability. RFC has
and Buyer will have the full legal right and power and all corporate authority
and approvals required to execute and deliver this Agreement and to perform
fully its obligations hereunder. This Agreement has been duly executed and
delivered by RFC and is a valid and binding obligation of RFC enforceable in
accordance with its terms, except as enforceability may be limited by (I)
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and (ii) general
principles of equity.
4.3 No Breach. The execution, delivery and performance of this Agreement
by RFC and the Buyer and the consummation of the Contemplated Transactions
will not (i) violate any provision of the Certificate of Incorporation or
By-laws of RFC or the Buyer; (ii) require RFC or the Buyer to obtain any
consent, approval or action of, or make any filing with or give any notice to,
any Governmental Body, except as set forth on Schedule 4.3 (the "Buyer's
Consents"); (iii) if the Buyer's Consents are obtained, violate any Order of
any Governmental Body against, or binding upon, RFC or the Buyer or upon any
of its Properties or upon its business; or (iv) if the Buyer's Consents are
obtained, violate any Law; other than, in the case of clauses (iii) and (iv),
where such violation would not have a material adverse effect on the financial
condition, results of operations or business of RFC or the Buyer.
4.4 Claims and Proceedings. There are no outstanding Orders of any
Governmental Body against or involving, or to the knowledge of the Buyer
threatened against, RFC or the Buyer. There are no Claims pending against or
involving RFC or the Buyer which would have a material adverse effect on the
ability of the Buyer to consummate the Contemplated Transactions.
4.5 Purchase for Investment. The Buyer will purchase the Shares for its
own account for investment and not for resale or distribution.
4.6 Financing. RFC will cause Buyer to have at the Closing, sufficient
funds on a statutory basis of an amount not less than required to pay (i) the
anticipated Purchase Price, (ii) anticipated fees and expenses of Buyer
related to the transactions contemplated by this Agreement, and (iii) amounts
necessary to increase total capital and surplus of the Company to $30,000,000
on a statutory basis.
<PAGE>
<PAGE> 12
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. From the date hereof through the Closing Date,
the Seller agrees that it shall cause the Company (i) to conduct its business
only in the ordinary course, (ii) regularly to consult with RFC with respect
to the operations of the Company, and (iii) without the prior written consent
of RFC, except as otherwise specifically contemplated herein, not to undertake
any of the actions specified in Section 3.21.
5.2 Corporate Examinations and Investigations. Prior to the Closing Date,
the Seller agrees that RFC shall be entitled, through its employees and
representatives, to make such investigation of the Properties, businesses and
operations of the Company, and such examination of the books, records and
financial condition of the Company, as it wishes. Any such investigation and
examination shall be conducted at reasonable times and under reasonable
circumstances, and the Seller shall, and shall cause the Company to, cooperate
fully therein. In order that RFC may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation
as it may wish of the affairs of the Company, the Seller shall make available
and shall cause the Company to make available to the representatives of RFC
during such period all such information and copies of such documents
concerning the affairs of the Company as such representatives may reasonably
request, permit the representatives of RFC access to the Properties of the
Company and all parts thereof, and cause its officers, employees, consultants,
agents, accountants and attorneys to cooperate fully with such representatives
in connection with such review and examination. If this Agreement terminates,
RFC shall keep confidential and shall not use in any manner any information or
documents obtained from the Company concerning its Properties, businesses and
operations, unless readily ascertainable.
5.3 Publicity. Except as required by law, regulation or stock exchange
requirements, neither of the parties hereto shall, without the consent of the
other, make any public announcement or issue any press release with respect to
the Contemplated Transactions. Prior to making any such public announcement or
issuing any such press release the parties hereto shall, to the extent
possible, consult with the other party as to the content of such public
announcement or press release.
5.4 Indemnification for Broker's Fees. The Seller represents and warrants
to RFC that, no broker, finder, agent or similar intermediary (a "Broker") has
acted on behalf of the Company or the Seller in connection with this Agreement
or the Contemplated Transactions, and that there are no brokerage commissions,
finders' fees or similar fees or commissions payable in connection therewith
based on any agreement, arrangement or understanding with the Company or the
Seller, or any action taken by the Company or the Seller. The Seller will hold
RFC and the Buyer harmless from any claim or demand for commission or other
compensation by any Broker claiming to have been employed by or on behalf of
the Company or the Seller, and to bear the cost of legal expenses incurred in
defending against any such claim. RFC represents and warrants to the Seller
that no Broker has acted on behalf of RFC or the Buyer in connection with this
Agreement or the Contemplated Transactions, and that there are no brokerage
commissions, finders' fees or similar fees or commissions payable in
connection therewith based on any agreement, arrangement or understanding with
RFC or the Buyer, or any action taken by RFC or the Buyer. RFC agrees to
indemnify and hold the Seller and its Affiliates harmless from any claim
or demand for commission or other compensation by any Broker claiming to have
been employed by or on behalf of RFC or the Buyer, and to bear the cost of
legal expenses incurred in defending against any such claim.
<PAGE> 13
5.5 Tax Matters. (a) Subject to the provisions of Section 5.5(g), Seller
shall prepare and file, or cause to be prepared and filed, the 1995 and 1996
Consolidated Returns required to be filed after the Closing Date and, without
limiting RFC's obligations set forth in Section 5.5(c), shall pay, or cause to
be paid, all Taxes shown as due on such Consolidated Returns. Seller shall
include the income of the Company (including any deferred income triggered
into income by Treasury Regulation section 1.1502-13 and 1.1502-14 and any
excess loss accounts taken into income under Treasury Regulation section
1.1502-19) on the Consolidated Returns for all periods through the Closing
Date and pay any federal income Taxes attributable to such income. Except to
the extent required under the preceding sentence, the portion of all
Consolidated Returns attributable to the Company which are filed after the
date hereof shall be prepared in accordance with the Company's past custom and
practice. RFC shall, or cause the Company to, promptly provide to the Seller
all information that the Seller reasonably requests in order to prepare such
Consolidated Returns
(b) Subject to the provisions of Section 5.5(d), the Seller shall be liable to
the Buyer for, and shall hold the Buyer and the Company harmless from and
against, any and all Taxes due or payable by the Company for any taxable year
or tax period ending on or before the Closing Date. Taxes for which the Seller
shall be liable and shall hold RFC, the Buyer and the Company harmless from
and against under the preceding sentence shall include, without limitation,
Taxes (i) the liability for which arises under Treasury Regulations Section
1.1502-6 and Section 1-1502.78 or comparable provisions of state or local law
as a result of the Company being included in a group filing Consolidated
Returns, (ii) the liability for which arises because the Company ceases on the
Closing Date to be a member of a group filing Consolidated Returns, and (iii)
that are due or payable by RFC, the Buyer or the Company and result from or
arise out of the Contemplated Transactions.
(c) Subject to the provisions of Section 5.5(d), RFC, the Buyer and the
Company shall be liable for, and shall hold the Seller harmless from and
against, any and all Taxes due or payable by the Company with respect to the
Company for any taxable year or tax period beginning on or after
the Closing Date.
(d) Any Taxes for a tax period beginning before the Closing Date and ending
after the Closing Date shall be apportioned between the Seller and the Buyer,
in the case of real and personal property taxes and franchise taxes not based
on gross or net income, on a per diem basis and, in the case of other Taxes,
shall be determined by (i) assuming that the Company's taxable year ends as of
the close of business on the Closing Date; (ii) closing on an actual basis the
Company's books as of the close of business on such date (or if an actual
closing is not feasible, on an equitable pro forma basis that has a comparable
economic result to the result that would have been obtained had an actual
closing occurred, taking into account extraordinary items); and (iii)
preparing a Tax return based on the income, gain, deduction, losses and
credits as so determined under an accurate and appropriate accounting method
and, to the extent permissible, on a basis consistent with the methodology and
elections employed in prior years. Each such portion of such period shall be
deemed to be a tax period subject to the provisions of Sections 5.5(b) and
5.5(c) above.
(e) RFC and Buyer shall cause the Company to file any federal, state, local or
foreign Tax Return (other than any Consolidated Return) required to be filed
after the Closing Date with respect to the business, activities or assets of
the Company (the "Post-Closing Returns") and, without limiting the Seller's
obligations set forth in Section 5.5(b), the Company shall pay or cause its
subsidiaries or Affiliates to pay all Taxes shown as due on any Post-closing
Returns. Any Post-Closing Returns that relate (in whole or in part) to tax
periods beginning before the Closing Date (the "Straddle Returns") shall be
<PAGE> 14
prepared as promptly as possible after the Closing Date, but in no event later
than three weeks prior to the due dates thereof, as such dates may be
extended. Immediately after preparation of the Straddle Returns, RFC shall
provide the Seller with copies of the Straddle Returns. Not less than five
days before the due dates of such returns the Seller shall forward to RFC or
the Company any comments it may have relating to such returns.
(f) Any refunds of Taxes and credits for guaranty fund assessments (to the
extent such credits are retained by the Company) that were paid in respect of
a taxable year or tax period (including a period deemed to be a tax period
under Section 5.5(d)) of the Company ending on or before the Closing Date
shall be for the account of the Seller, and any refund of Taxes that were paid
in respect of a taxable year or tax period (including a period deemed to be a
tax period under Section 5.5(d)) of the Company beginning on or after the
Closing Date shall be for the account of the Buyer. In the event the Company
and the Buyer incur a consolidated net operating loss, capital loss or other
Tax attribute ("Tax Attribute") which would provide a tax benefit in excess of
$50,000 and such attribute was incurred in a year that includes the period
after the Closing Date and RFC or Buyer, for valid business reasons, elects to
carryback the Tax Attributes allocable to the Company to the Consolidated
Return(s), and if the carryback of the Company's allocable Tax Attribute
generates a Tax refund or reduction in Tax liability from the Internal Revenue
Service to Aon, the Seller will pay the Company the amount of such refund. In
any event, the Seller shall cooperate with the Company in supplying the
necessary information to prepare properly such amended Tax returns or refund
claims to obtain such refunds or to document the fact that no such refund is
possible. The Buyer (or RFC) or the Seller, as the case may be, shall pay the
amount of any such refund to the other party within fifteen (15) days after
receipt thereof.
(g) If RFC, the Buyer or the Company becomes aware of any assessment, official
inquiry, examination or proceeding that could reasonably result in an official
determination with respect to any Tax for which the Seller could be liable
pursuant to Section 5.5(b), RFC shall promptly so notify the Seller in
writing. If the Seller becomes aware of any official inquiry, examination or
proceeding that could reasonably result in an official determination with
respect to any Taxes for which RFC or the Company would be liable pursuant to
the provisions of Sections 5.5 (c) or (d), the Seller shall promptly so notify
RFC in writing.
(h) The Seller shall have the right to exercise control over the contest
and/or settlement of any issue raised in any official inquiry, examination or
proceeding with respect to any Consolidated Return for federal income taxes or
any inquiry, examination or proceeding that relates to Taxes for which the
Seller is liable to RFC or Buyer under Section 5.5(b), and the Seller shall
pay any expenses incurred in connection therewith; provided that (i) the
Seller shall keep RFC informed of all material developments with respect to
such inquiry, examination or proceeding if it relates to any Tax for which RFC
or Buyer could be liable under Section 5.5(c) and (ii) the Seller shall not
settle or compromise any such inquiry, examination or proceeding that relates
to any Tax for which RFC or Buyer could be liable under Section 5.5(c) without
the consent of the Buyer, which consent shall not be unreasonably withheld.
RFC and Buyer shall cooperate with the Seller at Seller's expense, as the
Seller may reasonably request, in any such inquiry, examination or proceeding.
(i) Except as provided in Section 5.5(i), RFC shall have the right to exercise
control and RFC, for valid business reasons, elects to carryback the Tax
Attributes allocable to the Company to Aon's Consolidated Return(s), and if
the carryback of the Company's allocable Tax Attribute generates a Tax refund
or reduction in Tax liability from the Internal Revenue Service to Aon, the
Seller will pay the Company the amount of such refund. In any event, the
Seller shall cooperate with the Company in supplying the necessary information
to prepare properly such amended Tax returns or refund claims to obtain such
<PAGE> 15
refunds or to document the fact that no such refund is possible. The Buyer (or
RFC) or the Seller, as the case may be, shall pay the amount of any such
refund to the other party within fifteen (15) days after receipt thereof.
(j) RFC or Buyer acknowledges that Aon may make the election specified in
Treasury Regulation Section 1.1502-20(g) (the "Reattribution Election") to
reattribute to Aon all of the net operating loss carryovers and net capital
loss carryovers attributable to the Company to the fullest extent that the
loss realized by the Seller with respect to the disposition of the Shares is
disallowed pursuant to Treasury Regulation Section 1.1502-20. In accordance
with Treasury Regulation Section 1.1502-20(g)(5), if Aon makes the
reattribution Election then (y) RFC shall cause the Company to join in the
filing of the Reattribution Election and, in connection therewith, to attach a
copy of the Reattribution Election to its federal income tax return in
accordance with the requirements of Treasury Regulation Section
1.1502-20(g)(5)(ii) and (z) neither RFC, the Buyer nor the Company shall take
any position (in filings with respect to Taxes or otherwise) inconsistent with
the Reattribution Election.
(k) With respect to sale of the Shares hereunder, Seller agrees, if so
requested by RFC, to join with RFC in making timely and irrevocable elections
under Section 338(h)(10) of the Code, and, if permissible, similar elections
under any applicable state or local income tax laws. In case of such
agreement, RFC and Seller agree to report the transfer of the Shares under
this Agreement consistent with such elections under Section 338(h)(10) of the
Code or any similar state or local tax provision (the "Elections") and agree
not to take any action that could cause such Elections to be invalid, and
shall take no position contrary thereto unless required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code) or any similar state
or local tax provision. RFC, Buyer, Seller and the Company agree to prepare
and complete any and all forms necessary to effectuate the Elections
(including , without limitation, Internal Revenue Service Form 8023-A and any
similar forms under applicable state and local income tax laws (the "Section
338 Forms")) no later than 10 Business Days prior to the date such Section 338
Form is required to be filed. RFC, Buyer, Seller and the Company shall each
cause the Section 338 Forms to be duly executed by an authorized person for
RFC, Buyer, Seller or the Company, in each case, and shall duly and timely
file the Section 338 Forms in accordance with applicable tax laws and the
terms of this Agreement. Buyer agrees to indemnify Seller on an after-tax
basis for any increase in Taxes of Seller resulting from the Election except
that Seller shall remain solely liable for any and all Taxes relating to the
balance in the Policyholders Surplus Account as of the Closing Date.
As used in this Section, the following terms shall have the following
meanings:
(i) "Code" means the Internal Revenue Code of 1986, as amended, and the
applicable final Treasury Regulations promulgated thereunder, or corresponding
provisions of future laws.
(ii) "Consolidated Returns" means any consolidated federal income tax return
or similar return with respect to any other Tax on behalf of an affiliated
group of corporations of which the Company was or is includible as a member
for any portion of such taxable period of the Company beginning before the
Closing Date.
(iii) "Taxes" (or "Tax" where the context requires) means all federal, state,
county, local, foreign and other taxes (including, without limitation, income,
profits, premium, estimated, excise, sales, use, occupancy, gross receipts,
franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll-related and
property taxes, import duties and other governmental charges and assessments),
whether or not measured in whole or in part by net income, and including
<PAGE> 16
deficiencies, interest, additions to tax or interest and penalties with
respect thereto.
(iv) "Tax Returns" means all returns, declarations, reports, forms, estimates,
information returns and statements required to be filed in respect of any
Taxes to be supplied to a taxing authority in connection with any Taxes.
(v) "Treasury Regulations" means the final Regulations promulgated under the
Internal Revenue Code of 1986, as amended (or corresponding future law), or
corresponding future final regulations.
5.6 Employees and Plans. Neither RFC nor Buyer shall have any obligation
with respect to any severance payments of employees of the Seller or any of
its Affiliates.
5.7 Management Agreements. Effective on or prior to the Closing Date, the
Company shall terminate any management agreements between the Company and Aon
or any of its affiliates.
5.8 Other Transactions. On or prior to the Closing Date, the Company
shall enter into the agreement and shall adopt the resolution listed on
Schedule 5.8, and substantially in the form of Exhibit B hereto.
5.9 LRCA Financing. Prior to the Closing Date, Life Re Corporation or one
of its Affiliates shall enter into a binding commitment, satisfactory to
Seller, on terms and pursuant to documentation satisfactory to the Buyer and
Seller to provide financing for the transactions contemplated hereunder
(including the contribution to the Company provided in Section 5.10) by
lending to Buyer $5,000,000 on a subordinated basis and purchasing $15,000,000
of the Series A Non-Voting Redeemable Preferred Stock (represented by the
Certificate of Designations of Rights, Preferences, Privileges and
Restrictions in the form of Exhibit C hereto) of Buyer.
5.10 Financing. Prior to the Closing Date, Buyer shall enter into the
Term Loan Agreement and RFC and its Subsidiaries will enter into the Term Loan
Guarantee and Security Agreement in substantially the forms attached hereto as
Exhibits D and E, respectively. Prior to the Closing Date, Buyer and each of
its subsidiaries shall (a) not take any action (or omit to take any action)
that would violate the terms of, and (b) shall do all things necessary to
comply with, the terms of the Term Loan Agreement and the Term Loan Guarantee
and Security Agreement as if such documents had been entered into as of the
date hereof. Simultaneously with the Closing Buyer shall make contributions
of cash or marketable securities to the Company in such amount as is necessary
so that the Company's total adjusted capital and surplus shall immediately
after the Closing be no less than $30,000,000 on a statutory basis, calculated
assuming the Company may carry at book value its investments in (i) the stock
of producer-owned reinsurance companies and (ii) notes from dealers or
producer-owned reinsurance companies. For purposes of this Section 5.10, the
Company's total adjusted capital and surplus shall mean the value of the
Company's capital and surplus, plus asset valuation reserve (AVR), plus
interest maintenance reserve (IMR).
5.11 Further Assurances. (a) Each of the parties and Buyer shall execute,
at its expense, such documents and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
Contemplated Transactions and cause all conditions to closing to be fulfilled
as promptly as possible (including, without limitation, the furnishing of all
information as may be required by the Illinois Department of Insurance, any
other state regulatory agency asserting jurisdiction in order that the
requisite approvals for the purchase and sale of the Shares and the
Contemplated Transactions be obtained). In the event that, at any time prior
to the Closing, any Claim shall have been instituted before any Governmental
<PAGE> 17>
Body or by any Governmental Body to restrain, modify or prevent the carrying
out of the Contemplated Transactions or to seek damages or a discovery order
in connection with such transactions, RFC, Buyer and the Seller shall make all
reasonable efforts and take all reasonable steps to cause such termination,
setting aside or dismissal of, such Claim or any injunction, order or decree
resulting therefrom. Each such party and Buyer shall use reasonable efforts to
fulfill or obtain the fulfillment of the conditions to the Closing set forth
in Articles 6 and 7, including any conditions that require the execution and
delivery of additional agreements.
(b) Each party (and Buyer) will use reasonable efforts to implement the
provisions of this Agreement, and for such purpose, at the request of the
other party will, at or after the Closing, without further consideration,
promptly execute and deliver, or cause to be executed and delivered, such
additional documents, instruments, conveyances and assurances and take such
other actions as the other party may reasonably deem necessary or desirable to
implement any provision of this Agreement and to render effective the
consummation of the Contemplated Transactions, including, without limitation,
the transfer to the Buyer of the ownership and intended related benefits of
the business of the Company.
5.12 Efforts to Consummate. Upon the terms and subject to the conditions
herein provided, each of the parties hereto agrees to use commercially
reasonable efforts to take or cause to be taken all action, to do or cause to
be done, and to assist and cooperate with the other parties hereto in doing,
all things reasonably necessary, proper or advisable under applicable Law, to
consummate and make effective, in the most expeditious manner practicable, the
Contemplated Transactions, including, without limitation, promptly after the
date hereof preparing and filing a Form A Statement with the Illinois
Insurance Department and any other Insurance Department order in connection
with such transactions. Each such party shall use reasonable efforts to
fulfill or obtain the fulfillment of the conditions to the Closing set forth
in Articles 6 and 7, including any conditions that require the execution and
delivery of additional agreements.
5.13 Books and Records of the Company. (a) The Seller agrees to deliver
to the Buyer or make available to the Buyer at or as soon as practicable after
the Closing, as requested by the Buyer, all books and records relating to the
business of the Company to the extent such books and records relate solely to
such business (including but not limited to, correspondence, memoranda,
personnel and payroll records and the like) and do not contain any information
pertaining to the Seller or the Seller's Affiliates (other than the Company).
(b) For a period of seven (7) years following the Closing, or for such longer
periods as may be required to satisfy applicable Laws, (i) the Seller shall
retain all books and records relating to the business of the Company that are
integrated or non-separable from the books and records related to any of the
businesses of the Seller other than the business of the Company, and (ii) the
Buyer shall retain all other books and records of the business of the Company,
including, without limitation, all other such books and records of such
business (x) relating to Taxes, including, without limitation, accounting and
tax records and information pertaining to events occurring prior to the
Closing Date, and (y) required to be retained pursuant to obligations imposed
by any Law (such books and records of the business of the Company
collectively, the "Records").
(c) For a period of seven (7) years following the Closing, or for such longer
periods as may be required to satisfy applicable Laws, (i) each party shall
provide to duly authorized representatives of the other party who wish to
review any Records for bona fide business reasons reasonable access, during
regular business hours, to (x) employees of such party who are familiar with
such Records and who can assist such representatives of such other party, at
<PAGE> 18
such other party's own expense, in locating, explaining or otherwise reviewing
such Records, and (y) use of such party's copying facilities, clerical
services and telephone in a reasonable manner at such other party's own
expense and (ii) neither party shall dispose of or destroy any Records without
written permission of the other.
(d) If original documents are required to respond to legal process in
connection with the conduct by either party of any litigation, arbitration,
audit, settlement proceedings or negotiations with third parties with respect
to its conduct of the business of the Company ("Legal Proceedings"), such
party, subject to applicable laws, regulations or agreements, shall be
permitted to remove such Records temporarily from the other party's premises;
provided that such party shall return such original documents to such other
party as promptly as practicable after such time when such original documents
are no longer required in connection with such Legal Proceedings.
(e) If, in connection with Legal Proceedings, RFC, the Buyer or the Seller
shall require the assistance of the other party's employees, such party shall
provide such employees to the requesting party as are reasonably required by
such requesting party. The requesting party shall pay such other party's
out-of-pocket costs incurred in connection with such use of such party's
employees and shall reimburse such party for the number of whole business days
spent by each such employee in providing such services at the rate equal to
the average daily gross pay (excluding the value of employee benefits) of such
employee during each calendar month in which such services are performed.
5.14 Name Change. On the Closing Date, the name of the Company will be
changed in the State of Illinois to Resource Life Insurance Company or other
name that does not include the word "Combined." After the Closing, the Company
will not conduct any business in any jurisdiction in the name of ACLIC. As
soon as practicable after RFC has obtained approval of the new name for the
Company, it shall cause the Company to file forms and rates required to write
Credit Business. In addition, on the Closing Date the home office of the
Company will be changed to a location to be chosen by RFC which is not in a
facility of Seller.
5.15 Negotiations with Others. From the date hereof until the Closing,
the Seller will not, and shall cause the Company not to, directly or
indirectly, without the written consent of RFC, (i) initiate discussions or
engage in negotiations concerning any sale of the Shares or of any merger,
sale of assets or similar transaction involving the Company with, or (ii)
furnish or cause to be furnished any non-public information concerning the
Company to, any Person other than RFC, the Buyer and their agents and
representatives. The Seller agrees to disclose to RFC the existence and
content of any inquiries by or discussions with a third party relating to an
acquisition of the stock or assets of the Company as soon as practicable after
they take place.
ARTICLE VI
CONDITION`S PRECEDENT TO THE OBLIGATION OF THE BUYER TO CLOSE.
The obligation of the Buyer to enter into and complete the Closing is subject,
at the option of the Buyer to the fulfillment on or prior to the Closing Date
of the following conditions, any one or more of which (other than Section 6.2,
insofar as it relates to the Illinois Department of Insurance, and Section
6.3) may be waived by the Buyer in its sole discretion:
6.1 Representations and Covenants. The representations and warranties of
the Seller contained in this Agreement shall be true and correct in all
respects (in the case of any provision of a representation or warranty
containing a materiality qualification) or in all material respects (in the
case of any provision of a representation or warranty without a materiality
<PAGE> 19
qualification) on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date. The Seller shall have performed and
complied in all material respects with all covenants and agreements required
by this Agreement to be performed or complied with by the Seller on or prior
to the Closing Date. The Seller shall have executed and delivered to the Buyer
a certificate, dated the date of the Closing, to the foregoing effect and
stating that all conditions to the Buyer's obligations hereunder have been
satisfied.
6.2 Consents and Approvals. All consents or approvals required for the
consummation of the sale of the Shares and the Contemplated Transactions from
the Illinois Department of Insurance or any other Governmental Body having
jurisdiction over the Company and the consummation of the Contemplated
Transactions shall have been obtained and be in full force and effect.
6.3 Litigation. No Claim shall have been instituted before any
Governmental Body, or instituted or threatened by any Governmental Body, to
restrain, modify or prevent the carrying out of the Contemplated Transactions.
6.4 Other Agreements. The agreements referred to in Section 5.8 shall
have been executed and delivered by the parties thereto.
6.5 Affiliate Transactions. The Seller shall have delivered to the Buyer
evidence reasonably satisfactory to the Buyer that (i) all agreements except
as contemplated in this Agreement between the Company, on the one hand, and
Aon and/or any Affiliate of Aon, on the other hand, shall have terminated
without the requirement of any payment by the Company and (ii) all
indebtednessowed by Aon and/or any Affiliate of Aon to the Company shall have
been paid in full.
6.6 Resignations of Directors and Officers. Such directors and officers
of the Company designated by Buyer shall have resigned or been removed from
office effective as of the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SELLER TO CLOSE.
The obligation of the Seller to enter into and complete the Closing is
subject, at the option of the Seller, to the fulfillment on or prior to the
Closing Date of the following conditions, any one or more of which (other than
Section 7.2, insofar as it relates to the Illinois Department of Insurance,
and Section 7.3) may be waived by the Seller in its sole discretion:
7.1 Representations and Covenants. The representations and warranties of
RFC and/or the Buyer contained in this Agreement shall be true and correct in
all respects (in the case of any provision of a representation or warranty
containing a materiality qualification) or in all material respects (in the
case of any provision of a representation or warranty without a materiality
qualification) on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date. RFC and Buyer shall have performed
and complied in all material respects with all covenants and agreements
required by this Agreement to be performed or complied with by RFC or Buyer on
or prior to the Closing Date. RFC and Buyer shall have executed and delivered
to the Seller a certificate, dated the date of the Closing, to the foregoing
effect and stating that all conditions to the Seller's obligations hereunder
have been satisfied.
7.2 Consents and Approvals. All consents or approvals required for the
consummation of the sale of the Shares and the Contemplated Transactions from
<PAGE>20
the Illinois Department of Insurance or any other Governmental Body having
jurisdiction over the Company and the consummation of the Contemplated
Transactions shall have been obtained and be in full force and effect.
7.3 Litigation. No Claim shall have been instituted before any
Governmental Body, or instituted or threatened by any Governmental Body, to
restrain, modify or prevent the carrying out of the Contemplated Transactions.
7.4 Financing. The LRCA financing referred to in Section 5.9 and the
Seller financing referred to in Section 5.10 shall have been consummated to
the satisfaction of Seller.
ARTICLE VIII
SURVIVAL OF THE REPRESENTATIONS AND WARRANTIES AFTER CLOSING.
8.1 Survival The representations and warranties shall survive the
execution and delivery of this Agreement and the Closing hereunder for a
period of forty-eight (48) months after the Closing Date; provided that the
representations and warranties set forth in Section 3.9 of this Agreement
shall survive until the expiration of the last of the limitation periods
contained in the Code during which an assessment or reassessment can be made
(including any extensions thereof).
ARTICLE IX
GENERAL INDEMNIFICATION
9.1 Obligation of the Seller to Indemnify. Subject to the limitations
contained in Article 8 and Section 9.4, the Seller agrees to indemnify, defend
and hold harmless RFC and Buyer (and its directors, officers, employees,
Affiliates, successors and assigns) from and against all losses, liabilities,
damages, deficiencies, demands, claims, actions, judgments or causes of
action, taxes, assessments, costs or expenses (including, without limitation,
interest, penalties and reasonable attorneys' fees, disbursements and other
charges) (collectively, "Losses") based upon, arising out of or otherwise in
respect of:
(i) any inaccuracy in or any breach of any representation or warranty
made by the Seller in this Agreement, the Exhibits and Schedules hereto or in
any documents executed in connection with the Closing of the Contemplated
Transactions; or
(ii) any breach of any covenant or agreement of the Seller contained in
this Agreement;
or
(iii) any debts, liabilities or obligations of the Company, direct or
indirect, fixed, contingent or otherwise, whether known or unknown and whether
asserted or unasserted that relate to the operation of the Company's business
or facts or circumstances occurring prior to the Closing Date.
9.2 Obligation of RFC and the Buyer to Indemnify. Subject to the
limitations contained in Article 8 and Section 9.4, RFC and the Buyer agree to
indemnify, defend and hold harmless the Seller (and its directors, officers,
employees, Affiliates, successors and assigns) from and against all Losses
based upon, arising out of or otherwise in respect of:
(i) any inaccuracy in or any breach of any representation or warranty
made by RFC or Buyer in this Agreement, the Exhibits and Schedules hereto or
in any documents executed in connection with the Closing of the Contemplated
Transactions; or
(ii) any breach of any covenant or agreement of RFC or the Buyer
contained in this Agreement; or
(iii) the last sentence of Section 5.5(k).
<PAGE> 21
9.3 Notice to Indemnifying Party. If any party hereto (the "Indemnitee")
receives written notice of any third party claim or potential claim or the
commencement of any action or proceeding that could give rise to an obligation
on the part of any other party hereto to provide indemnification (the
"Indemnifying Party) pursuant to Section 9.1 or 9.2, the Indemnitee shall
promptly give the Indemnifying Party notice thereof (the "Indemnification
Notice"); provided that the failure to give the Indemnification Notice
promptly shall not impair the Indemnitee's right to indemnification in respect
of such claim, action or proceeding unless, the lack of prompt notice
adversely affects the ability of the Indemnifying Party to defend against or
diminish the Losses arising out of such claim, action or proceeding. The
Indemnification Notice shall contain factual information (to the extent known
to the Indemnitee) describing the asserted claim in reasonable detail and
shall include copies of any notice or other document received from any third
party in respect of any such asserted claim. The Indemnifying Party may at its
option undertake the defense of a third party claim or suit described in this
Section 9.3 at its own cost and expense and with counsel of its own choosing;
provided that the Indemnifying Party acknowledges in writing (at the time it
elects to assume the defense of such claim or suit, which shall be not later
than thirty (30) days after the date of the Indemnification Notice) its
obligation under this Section 9.3 to indemnify the Indemnitee with respect to
such claim or suit. In the event that the Indemnifying Party fails to assume
the defense of such claim or suit, the Indemnitee shall have the right (upon
notice to the Indemnifying Party), without impairing any of its rights to
indemnification as provided herein, to assume and control the defense of such
claim or suit and to settle such claim or suit subject to the right of the
Indemnifying Party to assume the defense of such claim or suit at any time
prior to settlement, compromise or final determination thereof.
Notwithstanding this Section 9.3 no settlement of any such third party claim
or suit shall be made by the Indemnifying Party without the prior written
consent of the Indemnitee (which shall not be unreasonably withheld or
delayed). No settlement of any such third party claim or suit shall be made by
the Indemnitee if the Indemnifying Party shall have assumed the defense
thereof and shall be in compliance with its obligations with respect thereto
as set forth above in this Section 9.3. If the Indemnifying Party chooses to
defend any claim, the Indemnitee shall make available to the Indemnifying
Party any books, records or other documents within its control that are
necessary or appropriate for such defense.
9.4 Limitations on Indemnification. The indemnification provided for in
Sections 9.1 and 9.2 shall be subject to the following limitations:
(i) The Indemnifying Party shall not be obligated to pay any amounts for
indemnification (other than with respect to Losses relating to Taxes or an
account payable or accrued liability which should have been reflected on the
balance sheet of the Company as of the Closing Date) unless and only to the
extent that the aggregate amounts of Losses for which the Indemnifying Party
is obligated to indemnify exceeds fifty thousand dollars ($50,000) (the
"Basket Amount"), whereupon the Indemnifying Party shall be obligated to pay
in full all such amounts for indemnification above the Basket Amount; provided
that with respect to any provision of a representation or warranty set forth
in this Agreement, which contains a reference to materiality, the breach of
which may give rise to indemnification under Section 9.1 or 9.2, the breach of
such representation or warranty shall be deemed material and, subject to the
Basket Amount;
(ii) the amount of any indemnification required to be paid by the
Indemnifying Party shall be reduced by (A) any amount received by the
Indemnitee with respect thereto under any insurance coverage (net of any
costs, including reasonable legal fees, of such coverage incurred by such
Indemnitee) or from any other party alleged to be responsible therefor, and
<PAGE> 22
(B) the amount of any Tax benefit realized by the Indemnitee relating thereto.
The Indemnitee shall use commercially reasonable efforts to collect any
amounts available under such insurance coverage and from such other party
alleged to have responsibility. If an Indemnitee receives an amount under
insurance coverage or from such other party with respect to any Losses at any
time subsequent to any indemnification provided by the Indemnifying Party
pursuant to this Article 9, then such Indemnitee shall promptly reimburse the
Indemnifying Party, as the case may be, for any payment made or expense
incurred by the Indemnifying Party in connection with providing such
indemnification up to such amount received by the Indemnitee (net of any costs
of such coverage or of obtaining such amount incurred by such Indemnitee).
9.5 Exclusive Remedy. RFC, the Buyer and the Seller agree, to the
fullest extent permitted by law, that neither of them or any of their
directors, officers, employees, Affiliates, controlling persons, agents or
representatives shall have any liability or responsibility whatsoever to the
other or such other's directors, officers, employees, Affiliates, controlling
persons, agents or representatives on any basis (including, without
limitation, in contract or tort, under federal or state securities laws or
otherwise) based upon any information provided or made available, or
statements made, to RFC, the Buyer or the Seller or their respective
directors, officers, employees, Affiliates, controlling persons, agents or
representatives (or any omissions therefrom), including, without limitation,
information provided or statements made in the specific representations and
warranties set forth in this Agreement, except as and only to the extent
expressly set forth herein with respect to such representations and warranties
and rights to indemnification and subject to the limitations and restrictions
contained herein.
9.6 Purchase Price Adjustment. All payments made pursuant to this Article
9 shall be deemed to be adjustments of the Purchase Price.
ARTICLE X
TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated prior to the Closing
as follows:
(i) at the election of the Seller, if RFC or Buyer has committed a
material breach of this Agreement, which breach cannot be or is not cured by
the Closing Date;
(ii) at the election of RFC, if the Seller has committed a material
breach of this Agreement, which breach cannot be or is not cured by the
Closing Date;
(iii) at any time on or prior to the Closing Date, by mutual written
consent of the Seller and RFC; or
(iv) on November 1, 1996, if the Closing has not occurred prior to such
date. If this Agreement so terminates, it shall become null and void and have
no further force or effect, except as provided in Section 10.2.
10.2 Survival after Termination. If this Agreement is terminated in
accordance with Section 10.1 and the Contemplated Transactions are not
consummated, this Agreement shall become void and of no further force and
effect, except for the provisions of Sections 5.3, 5.4 and 11.6; provided that
none of the parties shall have any liability in respect of a termination of
this Agreement, except to the extent that failure to satisfy the conditions of
Article 6 or Article 7, as the case may be, results from the violation of, or
misstatement contained in, the representations, warranties, covenants or
agreements of such party contained in this Agreement or any documents
delivered pursuant to this Agreement.
<PAGE> 23
ARTICLE XI
MISCELLANEOUS.
11.1 Certain Definitions. (a) As used in this Agreement, the following
terms have the following meanings:
(i) "Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with, or the parents,
spouse, lineal descendants or beneficiaries of, such Person. The term
"control" (including the terms "controlling," "controlled by" and "under
common control with" ) means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
(ii) "Business Day" means any day other than a Saturday or Sunday or upon
which banks in New York, New York are authorized or required by law to close
(iii) "Dollars" means U.S. Dollars.
(iv) Governmental Body" means any government or political subdivision thereof,
whether federal, state, local or foreign, or any agency or instrumentality
thereof.
(v) "Law" means any law, statute, code, ordinance, regulation, rule or other
requirement. (vii) "Order" means any order, judgment, injunction, award,
decree or writ.
(vi) "Person" means any individual, corporation, limited liability
corporation, partnership, limited liability partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
(vii) "Property" or "Properties" means real, personal or mixed property,
tangible or intangible.
11.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally or by express
courier or delivery service, 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 or
by express courier or delivery service, telegraphed, telexed or sent by
facsimile transmission or, if mailed, five (5) days after the date of deposit
in the United States mails, as follows:
(i) if to RFC or Buyer, to:
Resource Financial Corporation
1345 River Bend Drive
Dallas, TX 75247
Attn: Keller Smith
Fax: (214) 638-3410
and
Resource Financial Corporation
2550 Golf Road
Rolling Meadows, IL 60005
Attn: Patrick Donahue
with a copy to:
John Kendrick, Jr.
4600 Trammel Crow Center
2001 Ross Road
Dallas, TX. 75201
Fax: (214) 871-3342
<PAGE> 24
(ii) if to Seller, to:
Combined Insurance Company of America
123 North Wacker Drive
Chicago, IL 60606
Attn: President
with a copy to:
Aon Corporation
Law Department
123 North Wacker Drive
Chicago, IL 60606
Attn: Richard E. Barry
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices hereunder.
11.3 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and any collateral agreements executed in connection with the
consummation of the Contemplated Transactions contain the entire agreement
among the parties with respect to the purchase of the Shares and supersede all
prior agreements, written or oral, with respect thereto; provided that any
confidentiality agreements entered into between the parties hereto shall
survive in full force and effect until the consummation of the Closing.
11.4 Waivers and Amendments: Non-Contractual Remedies: Preservation of
Remedies. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by RFC and the Seller or, in the case of a waiver, by the party waiving
compliance.
11.5 Expenses. Regardless of whether any or all of the transactions
contemplated by this Agreement are consummated, the expenses incurred by the
Seller in connection with the authorization, preparation and execution of, and
the performance of its obligations under, this Agreement shall be paid by the
Seller, and the expenses incurred by RFC and the Buyer in connection with the
authorization, preparation and execution of, and the performance of its
obligations under, this Agreement shall be the responsibility of RFC and the
Buyer.
11.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Illinois applicable to agreements
made and to be performed entirely within such State.
11.7 Binding Effect: No Assignment; No Third Party Beneficiary. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors, legal representatives and permitted assigns. This
Agreement is not assignable except by operation of law or with the written
consent of all the parties hereto; provided, however, RFC may assign the
Agreement to Buyer without prior consent. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give any Person
other than the Seller or RFC or Buyer any rights or remedies under or by
reason of this Agreement or any of the Contemplated Transactions.
11.8 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 the parties herein.
<PAGE> 25
11.9 Exhibits and Schedules. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to
Sections, Exhibits and Schedules shall be deemed references to such parts of
this Agreement, unless the context shall otherwise require.
11.10 Headings. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
11.11 Interpretation. The parties acknowledge and agree that: (i) each
party and its counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the rule of construction
to the effect that any ambiguities are resolved against the drafting party
shall not be employed in the interpretation of this Agreement; and (iii) the
terms and provisions of this Agreement shall be construed fairly as to all
parties hereto, regardless of which party was generally responsible for the
preparation of this Agreement.
11.12 Severability of Provisions. If any provision or any portion of any
provision of this Agreement, or the application of any such provision or any
portion thereof to any Person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, and the application of such provision or portion
of such provision as is held invalid or unenforceable to Persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby.
IN WITNESS THEREOF, the parties have executed this Agreement on the first date
above
written.
COMBINED INSURANCE COMPANY OF AMERICA
s/
Ronald D. Markovits
Vice President
RESOURCE FINANCIAL CORPORATION
s/
L. Keller Smith
President
Agreed and Accepted for purposes for Section 5.9 only:
LIFE RE CORPORATION
s/
W. Weldon Wilson
Vice President
<PAGE>
<PAGE> 26
List of Omitted Schedules and Exhibits
to
Stock Purchase Agreement, dated as of June 30, 1996,
between Combined Insurance Company of America
and Resource Financial Corporation
and, for Purposes of Section 5.9 only
Life Re Corporation
Schedules
Schedule 3.9 - Tax Returns
Schedule 3.10 - Licenses
Schedule 3.10(b)- Licenses
Schedule 3.11 - Required Consents
Schedule 3.12 - Claims and Proceedings
Schedule 3.13 - Contracts
Schedule 3.14 - Real Estate
Schedule 3.15 - Reinsurance Contracts
Schedule 3.21 - Operations of the Company
Schedule 4.3 - Buyer's Contracts
Exhibits
Exhibit A - Pro Forma Balance Sheet
Exhibit B - Other Agreements
Exhibit C - Certificate of Designation of Rights,
Preferences, Privileged and Restrictions
Exhibit D - Term Loan Guaranty
Exhibit E - Security Agreement
The registrant hereby agrees to furnish supplementally a copy
of any omitted schedule or exhibit to the Commission upon request
in accordance with Item 601(b)(2) of Regulation S-K.
<PAGE> 1
SUBSCRIPTION AGREEMENT
AND
LETTER OF INVESTMENT INTENT
This Subscription Agreement and Letter of Investment Intent (this
"Agreement") is made and entered into by and between Resource Financial
Corporation, a Delaware corporation (the "Company"), and the undersigned
purchaser (the "Investor") of the Securities (hereinafter defined) as of the
date the Investor's subscription for the Securities is accepted by the
Company.
WHEREAS, this Agreement is being executed in connection with the private
placement of the Securities (the "Offering"); and
WHEREAS, the Investor desires to purchase Securities and the Company
desires to sell Securities to the Investor.
NOW, THEREFORE, in consideration of the premises and the mutual
obligations and covenants set forth herein, the parties hereto agree as
follows:
A. Purchase of Securities.
1. The Investor hereby subscribes for the class and number of shares
of the Company's common stock ("Securities") set forth on the signature page
below at a price of $0.10 per share (such purchase price being referred to
herein as the "Purchase Price").
2. Simultaneously with the delivery of this Agreement to the Company,
the Investor is paying or will cause Life Reinsurance Corporation of America
or one of its affiliates ("Life Re") to pay on its behalf to the Company, in
the form of cash or check (payable to "Resource Financial Corporation"), the
amount listed on the signature page below in full satisfaction of the Purchase
Price.
3. This subscription may be accepted or rejected in whole or in part
by the Company in its sole and absolute discretion at any time on or before
the 30th day following the Company's receipt of this Agreement, regardless of
whether any other subscriptions are tendered to or accepted by the Company.
If this subscription has not been accepted by the Company on or before the
30th day following the Company's receipt of this Agreement, this subscription
shall be deemed rejected and the Purchase Price will be promptly refunded with
interest, if any, actually earned thereon.
4. The Investor understands, acknowledges and agrees that as a
condition precedent to the Company accepting this subscription, the Investor
(and, if married, such Investor's spouse) must execute and deliver to the
Company a Stockholders Agreement in substantially the form delivered to such
Stockholder herewith (the "Stockholders Agreement").
5. The Investor understands and acknowledges that the Purchase Price
is due and payable in full upon his execution of this Agreement in accordance
with Section A.2 hereof.
<PAGE>
<PAGE> 2
6. The Investor understands, acknowledges and agrees that:
a. This subscription is and shall be irrevocable, except that
the Investor shall have no obligation hereunder in the event that this
subscription is for any reason rejected.
b. The Company will not issue fractional Securities.
c. In reliance upon applicable exemptions, the Securities have
not been registered under the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations thereunder or any state securities laws and the
rules and regulations thereunder.
d. No federal or state agency has made any finding or
determination as to the fairness of the Offering for investment or any
recommendation or endorsement of the Securities.
e. Since the Securities have not been registered under the Act
or applicable state securities laws, the economic risk of the investment must
be borne indefinitely by the Investor and the Securities may not be sold,
pledged or hypothecated (other than to Life Re) or otherwise transferred
unless subsequently registered under the Act and applicable state securities
laws or an exemption from such registration is available. Registration under
the Act and applicable state securities laws is unlikely at any time in the
future.
f. No assignment, sale, pledge, hypothecation, transfer,
exchange or other disposition, or offer thereof, of the Securities may be made
if, in the opinion of counsel to the Company, such disposition or offer would
require registration under the Act or would result in the violation of
applicable federal or state securities laws.
B. Representations, Warranties and Agreements of the Investor.
1. The Investor hereby represents, warrants, acknowledges and agrees
that:
a. The Investor is acquiring the Securities for his own account
for investment, and not with a view to distribution, resale, subdivision or
fractionalization thereof and the Investor has no present plans to enter into
any contract, undertaking, agreement or arrangement for the distribution,
resale, subdivision or fractionalization of the Securities. In order to
induce the Company to issue and sell the Securities subscribed for hereby, the
Investor agrees that the Company will have no obligation to recognize the
ownership, beneficial or otherwise, of the Securities by anyone but the
Investor.
b. (i) The Investor can bear the economic risk of losing his
entire investment; (ii) the Purchase Price is neither in excess of ten percent
of his net worth nor in excess of twenty percent of his net worth excluding
his principal residence, furnishings therein and personal automobiles; (iii)
his overall commitment to investments that are not readily marketable is not
disproportionate to his net worth and his investment in the Securities will
not cause such overall commitment to become excessive; (iv) he has adequate
means of providing for his current needs and personal contingencies and has no
need for liquidity in his investment in the Securities; and (v) he has such
knowledge and experience in financial and business matters that he is capable
of evaluating the risks and merits of this investment.
<PAGE>
<PAGE> 3
c. The Investor has carefully read or reviewed, and is familiar
with, the risk factors identified on Exhibit "A" attached hereto. The
Investor recognizes that Exhibit "A" of this Agreement does not contain all
the information that the Investor may need to make an informed investment
decision with respect to the Securities. The Company has made available to
the Investor and/or his attorney and/or his accountant and/or his
representative all agreements, documents, records and books that he or they
have requested relating to an investment in the Company. The Investor and/or
his attorney and/or his accountant and/or his representative all have had an
opportunity to ask questions of and receive answers from the Company, or a
person or persons acting on its behalf, concerning the terms and conditions of
this investment and answers have been provided to all of his or their
questions concerning the Offering and an investment in the Company. The
Investor understands that the books and records of the Company will be
available, upon reasonable notice, for inspection by the Investor during
reasonable business hours at the Company's principal place of business. In
evaluating the suitability of an investment in the Company, the Investor has
not been furnished and has not relied upon any representations or other
information (whether oral or written) other than as set forth in this
Agreement (including Exhibits), or as contained in any documents, information
or answers to questions furnished to him by the Company.
d. The Company was formed in June 1996 and has no operating
history. The Investor recognizes that an investment in the Company involves a
high degree of risk of loss by the Investor of the Investor's entire
investment in the Company and has taken full cognizance of and understands all
of the risks related to the purchase of Securities.
e. The Investor has discussed with his professional legal, tax
and financial advisors, to the extent he deemed appropriate, the suitability
of the investment in the Company for his particular tax and financial
situation. All information that the Investor has provided to the Company
concerning himself and his financial position is correct and complete as of
the date set forth below, and, if there should be any material change in such
information prior to the date such Investor's subscription is either accepted
or rejected by the Company, he will immediately provide such information to
the Company.
f. The address set forth below is the Investor's true and
correct residence or principal place of business and the Investor has no
present intention of becoming a resident of any other state or jurisdiction or
moving its principal place of business.
g. It has been disclosed to the Investor that the following
restrictions and limitations are applicable to the Investor's purchase and
resales, pledges, hypothecations or other transfers of the Securities, and,
therefore, that the Investor must bear the economic risk of investment in the
Securities for an indefinite period of time as described in subparagraph
A.6.e.:
(i) As described in subparagraph A.6.e. above, the
Securities have not been registered and, therefore, they may not be sold,
pledged, hypothecated or otherwise transferred unless they are registered
under the Act and applicable state securities laws or an exemption from such
registration is available.
(ii) A legend will be placed on any certificate evidencing
the Securities in substantially the following form:
<PAGE>
<PAGE> 4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE STATE
SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER, EXCEPT UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR SUCH
TRANSFER AND/OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER EVIDENCE AS MAY BE
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER WILL NOT BE
IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND/OR APPLICABLE
STATE SECURITIES LAWS AND/OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
(iii) Stop transfer instructions have been or will be placed
with respect to the Securities so as to restrict the resale, pledge,
hypothecation or other transfer thereof.
(iv) Stop transfer instructions described in subparagraph
(iii) above will be placed with respect to any new certificate representing
the Securities upon presentment by the Investor of a certificate for transfer.
The foregoing representations and warranties are true and accurate as of
the date hereof and will be true and accurate as of the date the Investor's
subscription for the Securities is accepted by the Company. The Investor
agrees to indemnify the Company for any losses, costs or expenses resulting
from his breach of any such representations and warranties. If in any respect
such representations and warranties will not be true and accurate as of the
date the Investor's subscription for the Securities is accepted by the
Company, the Investor will give written notice of such fact to the Company
specifying which representations and warranties are not true and accurate and
the reasons therefor.
C. Representations, Warranties and Agreements of the Company.
In order to induce the Investor to enter into this Agreement and to
invest in the Securities, the Company hereby represents, warrants and agrees
that:
1. Organization and Standing. The Company is a corporation duly
organized and existing and in good standing under the laws of the State of
Delaware.
2. Authorization. All corporate action on the part of the Company,
its directors and shareholders necessary for the authorization, execution and
delivery by the Company of this Agreement, the consummation of the
transactions contemplated hereby and otherwise for the authorization, issuance
and delivery of the Securities has been taken. This Agreement is a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by general principles of equity
and subject to bankruptcy or other laws relating to or affecting the rights of
creditors generally. The execution, delivery and performance by the Company
of this Agreement and compliance herewith and the issuance and sale of the
Securities will not result in any violation of and will not conflict with, or
result in a breach of any of the terms of, or constitute a default under, any
provision of state or federal law to which the Company is subject, the
Company's Certificate of Incorporation or Bylaws or any mortgage, indenture,
agreement, instrument, judgment, decree, order, rule or regulation, or other
restriction to which the Company is a party or by which it or any of its
assets are bound, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of its assets.
<PAGE>
<PAGE> 5
D. Governing Law.
This Agreement will be governed by and construed in accordance with the
laws of the State of Texas.
E. Successors and Assigns.
Except as otherwise expressly provided herein, the provisions hereof
will inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto, except that the
Investor may not assign any of its rights or obligations hereunder.
F. Entire Agreement; Amendment.
This Agreement constitutes the full and entire understanding and
agreement between the parties with regard to the subject matter hereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated except by a written instrument signed by the Company and the
Investor.
G. Notices, etc.
All notices and other communications required or permitted hereunder
must be in writing and addressed (a) if to the Investor, as indicated on the
signature pages hereto, or at such other address as the Investor will have
furnished to the Company in writing in accordance with this Section G or (b)
if to the Company, c/o Resource Dealer Group, 1345 River Bend Drive, Dallas,
Texas 75247, or at such other address as the Company will have furnished to
the Investor in writing in accordance with this Section G. All such notices
or communications will be deemed given when actually delivered by hand,
messenger, confirmed facsimile, telegram or mailgram or, if mailed, three
business days after deposit, postage prepaid, in the United States mail.
H. Rights; Severability.
Unless otherwise expressly provided herein, each party's rights
hereunder are several rights, not rights jointly held with any of the other
Investors. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under present or future laws effective during the term of
this Agreement, such provision shall be fully severable, this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable
provisions had never comprised a part of this Agreement and the remaining
provisions of this Agreement shall remain in full force and effect and shall
not be affected by the illegal, invalid or unenforceable provisions or by
their severance from this Agreement. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
I. Agent's Fees.
The Investor (i) represents and warrants that he has retained no finder
or broker in connection with the transactions contemplated by this Agreement
and (ii) hereby agrees to indemnify and to hold the Company and the other
Investors harmless from any liability for any commission or compensation in
the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which the Investor is responsible in connection with the transactions
contemplated by this Agreement.
<PAGE>
<PAGE> 6
J. Information Confidential.
The Investor acknowledges that the information received by such Investor
pursuant hereto may be confidential and is for his use only and such Investor
will not reproduce, disclose or disseminate such information to any other
person (other than the Investor's employees or agents having a need to know
the contents of such information, and the Investor's attorneys), except in
connection with the exercise of rights under this Agreement, unless the
Company has made such information available to the public generally or the
Investor is required to disclose such information by a governmental body or is
summoned as a witness or required to give such information pursuant to a valid
subpoena or any other lawful process.
K. Titles and Subtitles.
The titles of the Sections of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.
L. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which will be an original, but all of which together will constitute one
instrument.
IN WITNESS WHEREOF, the Investor has executed this Agreement this Sixth
day of June, 1996.
LIFE RE CORPORATION
(Social Security Number Name, typed or printed, of Investor
or IRS Employer Identification Number)
s/ W. Weldon Wilson
Vice President
Signature of Investor, or of person
signing on behalf of Investor
Number of shares of the
Company's Class A Common
Stock, par value $.01,
subscribed for: $1,000,000.00
Number of shares of the
Company's Class B Common
Stock, par value $.01 (Non-Voting),
subscribed for: $1,000,000.00
Aggregate Purchase Price
($.10 per share):
$200,000.00
Address:
Life Re Corporation
969 High Ridge Road
Stamford, CT 06905
<PAGE> 7
SUBSCRIPTION ACCEPTED AND INVESTMENT AGREEMENT AGREED TO:
RESOURCE FINANCIAL CORPORATION
s/
L. Keller Smith
President
Date: June 6, 1996
<PAGE>
<PAGE> 8
Exhibit A
RISK FACTORS
An investment in the Securities involves a high degree of risk of loss by the
Investor of the Investor's entire investment in the Company. In evaluating
whether to make an investment in the Securities, the Investor should consider
the following risk factors, among others.
No Operating History
The Company was incorporated in June 1996, and has no operating history. The
Company was formed to acquire (the "Acquisition") certain assets of Aon
Corporation and its affiliates ("Aon") relating to the distribution and
marketing of automotive extended warranty products and credit life and
disability insurance products, including the stock of Ryan Dealer Group, Inc.
("RDG"). The definitive documentation relating to the Acquisition continues
to be negotiated. Consequently, no assurances can be given as to which assets
will ultimately be acquired, which liabilities will ultimately be assumed or
any of the other terms of the documentation relating to the Acquisition.
Furthermore, although many of the Company's executive officers and members of
its management team are former employees of Aon and/or its affiliates, they
will not have experience in operating the proposed business of the Company as
an independent entity. The Company will be subject to the uncertainties and
risks associated with a newly established business. Consequently, the
Securities are highly speculative investments that involve a high degree of
risk of loss by the Investor of the Investor's entire investment in the
Company.
Lack of Financial and Operating Flexibility Operating Agreements
In connection with the Acquisition, the Company expects to enter into a series
of long-term operating agreements with Aon. Because these operating
agreements will be entered into in conjunction with the Acquisition, the terms
and conditions of these operating agreements will not be as favorable to the
Company as the Company would otherwise be able to obtain in comparable arm's
length transactions. These operating agreements will contain strict non-
competition provisions in favor of Aon and its affiliates which will preclude
the Company from engaging in any business that is in competition with Aon's
business. There can be no assurances that such non-competition provisions
will not materially affect the growth of the Company. Moreover, Aon will have
extensive discretion and control over the pricing of products being marketed
by the Company and the types of products which the Company can distribute and
market. The operating agreements will also contain minimum performance
criteria, which, if not met, will permit Aon to obtain additional distribution
and marketing channels for its products and permit Aon to terminate the
operating agreements, as well as other provisions permitting Aon to terminate
the agreements. There can be no assurances that the Company will be able to
achieve the minimum performance requirements imposed by the operating
agreements or that Aon will continue to do business with the Company following
expiration or termination of the operating agreements. Moreover, no
assurances can be given that the Company will be able to generate sufficient
revenues to meet its obligations. The termination or non-renewal of any
operating agreement could result in a significant decrease in the Company's
revenues and could have a material adverse effect on the Company. The
foregoing discussion of the proposed operating agreements is not a complete
description of the terms and conditions of such agreements. Each Investor is
encouraged to carefully review and analyze the most recent draft of each
operating agreement, copies of which will be made available to such Investor
upon request.
<PAGE> 9
Lack of Diversification
Most of the Company's revenues are expected to be generated from the marketing
and distribution of products underwritten by Aon. The success of the Company
will depend on the Company's continuing ability to offer competitive products
to consumers. Because the Company will be a party to various operating
agreements with Aon, the Company's ability to offer competitive products may
be hindered. See "Lack of Financial and Operating Flexibility Operating
Agreements." Consequently, the Company will be heavily dependent upon Aon for
supplying and pricing products as well as developing new competitive
products. If Aon was to cease or be unable to supply new or competitive
products, the operations of the Company would be materially adversely
affected.
Extensive Regulation and Licensing
The Company's business is subject to extensive regulation and licensing under
various federal, state and local statutes and regulations, including laws
applicable to insurers, broker-dealers and third party administrators. An
adverse change in or modification of these laws and regulations or the
application thereof could have a material adverse effect on the Company.
Additionally, the Company anticipates acquiring in the Acquisition
subsidiaries of Aon which hold certain third party administrator and insurance
licenses. However, since the definitive documentation relating to the
Acquisition continues to be subject to negotiation, there can be no assurance
that the Company will ultimately acquire all the licenses required to permit
the Company to engage in its business in all jurisdictions necessary for the
Company's operations. The failure to obtain (and maintain) one or more of
such licenses could have a material adverse effect on the Company.
Legal Proceedings
As a result of the consumer-oriented nature of the industry in which the
Company operates and uncertainties with respect to the application of various
laws and regulations in certain circumstances, industry participants are named
from time to time as defendants in litigation involving alleged violations of
federal, state and local consumer laws and regulations. See "Extensive
Regulation and Licensing." A significant judgment against the Company in
connection with any such litigation could have a material adverse effect on
the operations or financial condition of the Company.
The Office of the Attorney General of the State of Washington is currently
investigating the marketing and training practices of RDG. This investigation
has resulted in allegations by such regulatory authority that RDG, through its
training of automotive dealers in marketing extended warranty and credit
insurance products has encouraged automotive dealers to use certain deceptive
sales techniques in violation of the State of Washington Consumer Protection
Act. According to the Office of the Attorney General, such sales techniques
do not provide consumers adequate disclosures of certain charges or items
relating to extended warranty and credit insurance products during the course
of the dealer's negotiations with its customers. Aon and RDG have vigorously
contested these allegations. This action could result in fines and penalties
being imposed upon the Company and/or its subsidiaries as well as adverse
publicity with respect to the Company's business. If these allegations are
not resolved, they may result in legal proceedings being instituted by such
regulatory authority against the Company and/or its subsidiaries.
Furthermore, the Company understands that regulatory authorities in other
states are considering similar actions against RDG or Aon. Consequently,
there can be no assurances that similar actions will not be brought by federal
or state regulatory authorities outside of the State of Washington or that the
Company's and its subsidiaries' marketing and training practices will not be
subject to increased scrutiny or challenge by federal and other state
<PAGE> 10
regulatory authorities. An adverse outcome of the State of Washington claims
or any other similar actions brought against the Company could have a material
adverse effect on the Company. Although Aon has verbally stated that the
definitive documentation relating to the Acquisition will contain indemnities
in favor of the Company and its subsidiaries against the State of Washington
action as well as claims of other regulatory authorities based on the same
facts and activities of RDG, Aon and its other affiliates, there can be no
assurances that such indemnities will be broad enough to ultimately protect
the Company from similar or other claims by state, federal or local regulatory
authorities based on violations of consumer protection laws. Furthermore, if
Aon agrees to indemnify the Company and its subsidiaries against such claims,
there can be no assurances that Aon will timely perform or be able to perform
its indemnity obligations or that such indemnities will otherwise be
enforceable at the time they are asserted. Should Aon fail to indemnify the
Company and its subsidiaries against any such claims, the Company's operations
could be adversely effected.
Competition
The extended warranty and credit life and disability insurance business is
highly competitive. The Company believes there are numerous competitors
providing, or capable of providing, products and services competitive with
those of the Company, including affiliates of manufacturers of motor vehicles.
Historically, substantially all of the extended warranty and credit insurance
products sold by RDG and its affiliates have been generated through dealers
who generally have no legal obligation or commitment to continue their
relationship with RDG. Consequently, there can be no assurances that the
Company will be able to compete successfully in the future or that competition
will not have a material adverse effect on the Company's results of
operations. Furthermore, the development of alternative and more efficient
methods of distributing and/or marketing extended warranty and credit
insurance products by the Company's competitors through technological advances
or otherwise may result in a shift in market demand toward such competitor's
services. There can be no assurances that the Company will be successful in
customizing its services to incorporate new methods of distributing and
marketing extended warranty and credit insurance products on a timely basis.
Changes in Market Conditions
The Company's financial and operating performance is largely dependent on new
and used vehicle sales by automobile dealers and the ability of automobile
purchasers to access available consumer credit. A decline in the sales of new
and used vehicle sales could have a material adverse effect on the Company. A
downturn in general economic conditions or tightened lending criteria on new
and used vehicle financing may lead to a reduction in the demand for new and
used vehicles. There can be no assurances that changes in, among other things,
general economic conditions, interest rates, consumer credit, regulations
and/or demographics will not have a material adverse effect on the industry,
generally, or the Company, specifically.
Capital Requirements
The Company intends to fund its working capital needs primarily through debt
financings and cash flow from its future operations. In connection with the
Acquisition, the Company and its subsidiaries expect to enter into a working
capital agreement with Aon, pursuant to which the Company and/or its operating
subsidiaries could borrow up to $5 million on a revolving loan basis. The
revolving working capital agreement is expected to expire on June 30, 1999.
No assurances can be given that such agreement could be extended if necessary.
To the extent that existing resources and future earnings of the Company are
insufficient to fund the Company's activities, the Company may need to raise
additional funds through debt or equity financing. Accordingly, the Company's
<PAGE> 11
future operations, including its ability to grow, may be affected by the
availability of financing and the terms thereof. No assurances can be given
that additional financing will be available or that, if available, it can be
obtained on terms favorable to the Company. The lack of additional financing,
if needed, would have a material adverse effect on the Company.
Effect of Acquisition - Assumed Liabilities
In connection with the Acquisition, the Company and its subsidiaries expect to
assume specified liabilities of Aon and its affiliates, as well as
substantially all of the liabilities and obligations (whether known or
unknown, fixed or contingent) of Aon and its affiliates arising out of or
incurred in the operation of the marketing, distribution and administration of
its extended warranty and credit accident and health and credit life insurance
business, other than certain specified liabilities and liabilities that would
be reflected on the consolidated balance sheet of Ryan Insurance Group, Inc.
as of the date of the Acquisition. Because of the broad and contingent nature
of the liabilities that will be assumed by the Company, management cannot
predict the effect of the assumption of these liabilities on the Company, but
such liabilities could have a material adverse effect on the Company's
financial condition and operations.
Voting, Control by Class A Stockholders
As set forth in the Company's Certificate of Incorporation, except as required
by the laws of the State of Delaware, the holders of shares of Class B Common
Stock of the Company have no voting rights. Accordingly, the holders of Class
A Common Stock of the Company control the outcome of substantially all matters
submitted to a vote of the stockholders and such holders are in a position to
control the management and policies of the Company, including, but not limited
to, electing or removing the Company's Board of Directors, changing the core
business of the Company, causing the Company to engage in transactions with
affiliated companies, and controlling the Company's dividend policy. The
foregoing summary description of the voting rights of the holders of the
Securities is qualified in its entirety by reference to the Certificate of
Incorporation and the Bylaws of the Company. The Investor is urged to
carefully review the Company's Certificate of Incorporation and Bylaws, copies
of which will be provided to the Investor upon request.
No Anticipated Stockholder Distributions
The Company does not anticipate paying cash dividends on its common stock in
the foreseeable future. The Company currently intends to retain its earnings
to finance growth and development of its business or repay debt or redeem
preferred stock which is expected to be issued in the future. The Company
also anticipates that certain covenants in its agreements with Aon and Life Re
will restrict the payment of dividends by the Company. It is likely that any
future credit arrangements would have similar restrictions.
Lack of Registration; Restrictions on Transfer; Other Restrictions on
Securities
The Securities have not been registered under the Act and/or any state
securities laws. Accordingly, the Securities may not be disposed of unless
registered under the Act and applicable state securities laws unless an
exemption from registration thereunder is available.
As a condition to the purchase of Securities, each Investor will be required
to enter into the Stockholders Agreement. The Stockholders Agreement provides
for certain restrictions on transfer of the Securities, including certain
rights of first refusal in favor of the Company and the other holders of the
Securities in the event an Investor proposes to dispose of his or her
Securities. Pursuant to the Stockholders Agreement, the Company may generally
<PAGE> 12
also require a holder of the Securities who is or becomes an employee of the
Company or any of its subsidiaries to sell his or her Securities to the
Company at a price less than the fair market value of such Securities and
remit to the Company any profits received from prior sales of Securities in
the event that such holder ceases to be an employee of the Company and its
subsidiaries or competes with the business of the Company or any of its
subsidiaries. The foregoing discussion of the Stockholders Agreement is not
a comprehensive description of the terms and conditions of such agreement and
is qualified in its entirety by the terms and conditions of such agreement.
The Investor is urged to carefully read the Stockholders Agreement.
The Securities are a new issue of securities that have no established trading
market, and it is not anticipated that any market will develop. Consequently,
the Investor may not be able to liquidate his investment in the event of an
emergency or for any other reason. Such factors may also limit the price
which the Investor may be able to obtain for his or her Securities.
Non-competition Covenant of Investor
The Stockholders Agreement restricts each Investor's right to engage in
certain business activities that compete with the Company. Consequently, each
Investor is urged to carefully review the Stockholders Agreement.
Forecasts
The Company may have furnished the Investor with financial models for the
Company containing forecasts which are forward looking. The forecasts, if
any, reflect management's judgment, as of the date of such forecast, of
expected future conditions affecting the Company and the course of action
management currently plans to take, and are based on certain assumptions.
However, no assurances can be given that the future conditions set forth
therein or expected will exist, that the assumptions are accurate, that the
course of action taken by future management will not change, or that the
anticipated results can be achieved in whole or in part. It can be expected
that there will be differences between forecasted and actual results because
events and circumstances do not occur as expected, and these differences may
be material. Among other important factors which may affect the forecasts are
the ultimate terms of the definitive documentation relating to the
Acquisition, general economic conditions that affect automobile sales and thus
opportunities for business, the ability of management to successfully operate
the business as an independent entity, competitive conditions, potential
claims by regulators or others, and the ability of the Company and its
subsidiaries to generate sufficient revenues to pay operating expenses and
substantial contractual liabilities to Aon and Life Re assumed in connection
with the Acquisition.
Dependence on Key Personnel
While the Company has no previous operating history, the Company expects to
rely heavily on its executive officers and members of its management team that
are former employees of Aon and its affiliates. If any of those executive
officers or members of its management team were to leave the Company, it could
have a material adverse effect on the Company.
Statements contained herein concerning the provisions of any documents are not
necessarily complete and, in each instance, reference is made to such
document, and each such statement shall be deemed qualified in its entirety by
such reference. In addition, most documents referenced herein will be
executed in connection with the Acquisition and are subject to continued
negotiation by the Company and the other parties thereto. Consequently, their
terms may vary materially from those described herein or by management or set
forth in the drafts thereof made available to the Investors. The Company will
make current drafts of the foregoing documents and additional information
<PAGE> 13
available to the Investor upon request. The Investor is encouraged to
carefully read, review and analyze such documents as well as any additional
information the Investor believes important in making an investment decision.
The Investor should consult his own legal and financial advisers in
determining whether and to what extent the Securities constitute appropriate
investments for the Investor.
<PAGE> 1
ASSUMPTION REINSURANCE AGREEMENT
between
UNITED INSURANCE COMPANY OF AMERICA
(Chicago, Illinois)
(Hereinafter referred to as the "Company")
and
REASSURE AMERICA LIFE INSURANCE COMPANY
(Jacksonville, Illinois)
(Hereinafter referred to as the "Reinsurer")
<PAGE>
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 - BUSINESS COVERED . . . . . . . . . . . . . . . . . 3
ARTICLE 2 - COINSURANCE. . . . . . . . . . . . . . . . . . . . 3
A. Back-Up Indemnity. . . . . . . . . . . . . . . . . . 3
B. Home Service Business. . . . . . . . . . . . . . . . 3
C. Business in New York/New Hampshire . . . . . . . . . 3
ARTICLE 3 - EFFECTIVE DATE . . . . . . . . . . . . . . . . . . 3
ARTICLE 4 - TRANSFER OF RESERVES/INITIAL CEDING ALLOWANCE. . . 4
A. Transfer Amount. . . . . . . . . . . . . . . . . . . 5
B. Closing. . . . . . . . . . . . . . . . . . . . . . . 5
C. Post-Closing Adjustment. . . . . . . . . . . . . . . 5
D. Interest on Post-Closing Adjustment. . . . . . . . . 5
ARTICLE 5 - ADMINISTRATION . . . . . . . . . . . . . . . . . . 5
A. Company Administration . . . . . . . . . . . . . . . 5
B. Reinsurer Administration . . . . . . . . . . . . . . 6
C. Quarterly Reports. . . . . . . . . . . . . . . . . . 6
D. DAC Tax. . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 6 - REINSTATEMENTS . . . . . . . . . . . . . . . . . . 7
ARTICLE 7 - EXCESS REINSURANCE . . . . . . . . . . . . . . . . 7
ARTICLE 8 - NOTICE OF ASSUMPTION . . . . . . . . . . . . . . . 7
ARTICLE 9 - ACCESS TO RECORDS. . . . . . . . . . . . . . . . . 7
ARTICLE 10 - ARBITRATION . . . . . . . . . . . . . . . . . . . 8
ARTICLE 11 - OFFSETS . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 12 - ERRORS OR OMISSIONS . . . . . . . . . . . . . . . 9
ARTICLE 13 - REGULATORY APPROVAL . . . . . . . . . . . . . . . 9
ARTICLE 14 - INSOLVENCY. . . . . . . . . . . . . . . . . . . . 9
ARTICLE 15 - INDEMNIFICATION . . . . . . . . . . . . . . . . . 9
A. Indemnification By Reinsurer . . . . . . . . . . . . 9
B. Indemnification by Company . . . . . . . . . . . . . 9
C. Notification and Control of Defense. . . . . . . . . 9
ARTICLE 16 - CORPORATE GUARANTEE . . . . . . . . . . . . . . . 10
ARTICLE 17 - RECAPTURE . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 18 - GENERAL PROVISIONS. . . . . . . . . . . . . . . . 10
A. Amendments . . . . . . . . . . . . . . . . . . . . . 10
B. Successors and Assigns . . . . . . . . . . . . . . . 11
C. Governing Law. . . . . . . . . . . . . . . . . . . . 11
D. Entire Agreement . . . . . . . . . . . . . . . . . . 11
E. Headings, etc. . . . . . . . . . . . . . . . . . . . 11
F. Non-waiver . . . . . . . . . . . . . . . . . . . . . 11
G. Severability . . . . . . . . . . . . . . . . . . . . 11
H. Notices. . . . . . . . . . . . . . . . . . . . . . . 11
I. Counterparts . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
<PAGE> 3
ASSUMPTION REINSURANCE AGREEMENT
This Assumption Reinsurance Agreement ("Agreement") is made as of
May 31, 1996, by and among United Insurance Company of America, an Illinois
insurance corporation, with its corporate office at One East Wacker Drive,
Chicago, Illinois 60601 ("Company") and Reassure America Life Insurance
Company, an Illinois insurance corporation, with its corporate office at 300
East State Street, Jacksonville, Illinois 62650 ("Reinsurer"), and for
purposes of Article 16, Life Re Corporation, a Delaware corporation, with its
corporate office at 969 High Ridge Road, Stamford, Connecticut 06905
("Guarantor").
R E C I T A L S
WHEREAS, the Company desires to transfer to the Reinsurer on an
assumption reinsurance basis a certain block of its in force insurance
policies (the "Reinsured Policies," as further defined below); and
WHEREAS, the Reinsurer desires to assume the Reinsured Policies
from the Company on an assumption reinsurance basis; and
WHEREAS, the parties wish to transfer the administration for the
Reinsured Policies to the Reinsurer as soon as possible after the Effective
Date; and
WHEREAS, to induce the Company to enter into this Agreement, the
Guarantor has agreed to unconditionally guarantee the obligations of the
Reinsurer;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
A G R E E M E N T
ARTICLE 1 - BUSINESS COVERED
A. Subject to the terms and conditions set forth herein, as of the
Effective Date, the Company hereby transfers, assigns, and conveys to the
Reinsurer, and the Reinsurer hereby assumes on an assumption reinsurance
basis, the Reinsured Policies.
B. The Reinsurer shall also be responsible for (1) all liability for
premium taxes payable on the premium attributable to the Reinsured Policies
arising after the Effective Date; (2) all liability for assessments, in
connection with the participation by the Company or the Reinsurer, as required
by law, in any guaranty fund or other similar fund, which assessments are
attributable to premium earned after the Effective Date with respect to the
Reinsured Policies; (3) all liability after the Effective Date for returns or
refunds of premium for the Reinsured Policies; and (4) all commissions arising
after the Effective Date with respect to the Reinsured Policies.
C. The term "Reinsured Policies" shall mean all policies, contracts,
certificates, and other obligations, of insurance issued or assumed by the
Company and identified by plan type on Schedule 1.C and the Home Service
Policies identified on Schedule 2.B.(1). It is understood and agreed that the
Reinsurer is bound by all the terms and conditions of the Reinsured Policies
assumed hereunder as if the Reinsured Policies had been issued by the
<PAGE> 4
Reinsurer. All Reinsured Policies with aggregate amounts of insurance per
life, net of other reinsurance, in excess of $250,000, shall be separately
identified on Schedules 1.C and 2.B.(1).
ARTICLE 2 - COINSURANCE
A. Back-Up Indemnity. If, and to the extent that, the assumption
reinsurance of any Reinsured Policy contemplated by this Agreement shall
require the approval or consent of any third party, including without
limitation, any regulatory authority or an insured in accordance with Article
8 (a "Required Approval"), then:
(1) each Reinsured Policy as to which such Required Approval has
not been so obtained shall be reinsured by the Reinsurer pursuant to the terms
hereof on a 100% coinsurance basis and the Company hereby cedes to the
Reinsurer and the Reinsurer hereby accepts and reinsures a 100% quota share
portion of each such Reinsured Policy; and
(2) the Company and the Reinsurer shall each use reasonable best
efforts to obtain any Required Approval, and upon the occurrence of such
Required Approval, such Reinsured Policy shall be immediately and without
further action of either party hereto deemed to be reinsured on an assumption
basis pursuant to the terms of this Agreement.
B. Home Service Business.
(1) Notwithstanding the provisions of Article 1, the Reinsured
Policies identified on Schedule 2.B.(1) ("Home Service Policies") shall be
reinsured by the Reinsurer pursuant to the terms hereof on a 100% coinsurance
basis and the Company hereby cedes to the Reinsurer and the Reinsurer hereby
accepts and reinsures a 100% quota share portion of each such Home Service
Policy.
(2) In addition to the allowance provided in Paragraph 4.A.(5),
the Reinsurer shall pay to the Company commissions for the Home Service
Policies in the amounts set forth in Schedule 2.B.(2) as and when premiums are
remitted to the Reinsurer.
C. Business in New York/New Hampshire. Notwithstanding the
provisions of Article 1, the Reinsured Policies identified on Schedule 1.C
issued to or held by residents of New York or New Hampshire shall be reinsured
by the Reinsurer pursuant to the terms hereof on a 100% coinsurance basis and
the Company hereby cedes to the Reinsurer and the Reinsurer hereby accepts and
reinsures a 100% quota share portion of each such Reinsured Policy. Should
the Reinsurer become licensed in either New York or New Hampshire, all
Reinsured Policies issued to or held by residents of such state shall be
immediately, and without further action of either party hereto except as may
be required by law, deemed to be reinsured on an assumption basis pursuant to
the terms of this Agreement. Immediately following such event, the Reinsurer
shall send out a notice of assumption in accordance with Article 8.
ARTICLE 3 - EFFECTIVE DATE
This Agreement shall become effective at 11:59 p.m., Central
Daylight Time, May 31, 1996 ("Effective Date").
ARTICLE 4 - TRANSFER OF RESERVES/INITIAL CEDING ALLOWANCE
<PAGE> 5
A. Transfer Amount. In consideration for the assumption of the
Reinsured Policies by the Reinsurer, the Company shall transfer to the
Reinsurer on the Closing Date (as hereinafter defined) cash and/or U.S.
Treasuries with a fair market value equal to (1) the reserves, deposit fund
liabilities (i.e. pre-paid premium, death benefits left with the Company,
etc.), and liabilities for dividends and coupons payable in the next calendar
year for the Reinsured Policies as of the Effective Date all as identified in
Schedule 4.A, less (2) due and deferred premiums on the Reinsured Policies as
of the Effective Date, less (3) any policy loans outstanding on the Reinsured
Policies as of the Effective Date, net of any unearned policy loan interest on
those policy loans, less (4) any pre-paid reinsurance premiums for other
reinsurance on the Reinsured Policies, and less (5) an initial ceding
allowance of $5,550,000 (the "Transfer Amount").
B. Closing. Upon the later to occur of (1) May 31, 1996, or (2) the
receipt of necessary regulatory approvals from the states of Illinois and
California (which the parties may jointly agree to waive as a condition to
Closing) (the "Closing Date"), the Company shall prepare an estimate of the
Transfer Amount based on reserve summaries and policy information as of
April 30, 1996 (the "Estimated Transfer Amount"). The Company shall then
remit to the Reinsurer cash or U.S. Treasuries in an amount equal to the
Estimated Transfer Amount. If the Closing Date is later than May 31, 1996,
the Company shall pay interest on the Estimated Transfer Amount calculated at
an annual rate of 6.5% through June 15, 1996, and at an annual rate of 7.25%
thereafter until the Estimated Transfer Amount is paid.
C. Post-Closing Adjustment. On or about July 31, 1996, the Company
shall prepare a final schedule of Reinsured Policies (Schedules 1.C and
2.B.(1)) and a final schedule of reserves and related liabilities (Schedule
4.A), along with a final determination of the Transfer Amount, all calculated
as of the Effective Date (the "Final Transfer Amount"). If the Final Transfer
Amount is greater than the Estimated Transfer Amount, the Company shall then
remit to the Reinsurer cash equal to the difference between the Final Transfer
Amount and the Estimated Transfer Amount, along with interest calculated in
accordance with Paragraph 4.D. If the Final Transfer Amount is less than the
Estimated Transfer Amount, the Reinsurer shall then remit to the Company cash
equal to the difference between the Estimated Transfer Amount and the Final
Transfer Amount, along with interest in accordance with Paragraph 4.D.
D. Interest on Post-Closing Adjustment. If the Closing Date is prior
to June 15, 1996, interest shall be calculated on the difference between the
Estimated Transfer Amount and the Final Transfer Amount at an annual rate of
6.5% from the Closing Date until June 15, 1996, and at an annual rate of 7.25%
from June 15, 1996 until payment is made. If the Closing Date is after June
15, 1996, interest shall be calculated on the difference between the Estimated
Transfer Amount and the Final Transfer Amount at an annual rate of 7.25% from
the Closing Date until payment is made.
ARTICLE 5 - ADMINISTRATION
A. Company Administration. The Company shall administer all aspects
of the Reinsured Policies from the Effective Date through September 30, 1996,
and through November 30, 1996, for the Home Service Policies, in accordance
with its current standards and practices. Within fifteen (15) days after the
end of each month, the Reinsurer shall pay to the Company a fee for the
administrative services rendered in such month equal to $150,000. In the
event that Administration is not assumed by the Reinsurer effective October 1,
1996, (December 1, 1996, for the Home Service Policies), as contemplated in
the following paragraph, the Company shall continue to administer all aspects
of the Reinsured Policies and shall be paid a fee by the Reinsurer of $300,000
per month until such time as the Reinsurer assumes the administration. The
Reinsurer shall not be obligated to pay any additional fee to the Company for
<PAGE> 6
administrative services in October and November for the Home Service Policies.
During this period, the Company agrees to consult with the Reinsurer before
paying any claim with a benefit in excess of $50,000 or before denying any
claim for benefits.
B. Reinsurer Administration. Effective October 1, 1996, (December 1,
1996 for the Home Service Policies), the Reinsurer shall provide full
administrative services for the Reinsured Policies. The administrative
services to be provided by the Reinsurer shall include but not be limited to:
policyholder service; billing and collection of premium; distribution of
required reports to policyholders; issuance of Form 1099s to agents (other
than agents for Home Service Policies); processing and payment of claims,
surrenders, lapses, and maturities; disbursement and collection of policy
loans; administration of settlement options; determination and calculation of
reserves for the Reinsured Policies (with a separate report showing the
reserves attributable to policies not assumed but reinsured in accordance with
Article 2); calculation and payment of agent commissions; administration of
excess reinsurance programs to the extent relating to the Reinsured Policies;
and other services associated with the administration of the Reinsured
Policies.
C. Quarterly Reports. Within thirty (30) days following the end of
each calendar quarter, the Reinsurer shall provide the Company with the
information needed by the Company to prepare its statutory financial
statements. The form of the report and the information to be provided is as
set forth on Schedule 5.C.
D. DAC Tax. The Reinsurer and the Company, by executing this
Agreement, hereby agree to the following pursuant to Section 1.848-2(g)(8) of
the Income Tax Regulation under Section 848 of the Internal Revenue Code of
1986, as amended, effective for tax years ending after the Effective Date:
(1) The term "party" will refer to either the Reinsurer or the
Company as appropriate.
(2) The terms used in this Article are defined by reference to
Regulation 1.848-2. The term "net consideration" will refer to net
consideration as defined in Regulation 1.848-2(f).
(3) Each party shall attach a schedule to its federal income tax
return for tax years ending after the Effective Date, which identifies the
relevant Reinsurance Agreement for which the joint election under the
Regulation has been made.
(4) The party with net positive consideration for such Agreement
for each taxable year shall elect to capitalize specified policy acquisition
expenses with respect to such Agreement without regard to the general
deductions limitation of Section 848(c)(1).
(5) Each party agrees to exchange information pertaining to the
amount of net consideration under such Agreement each year to ensure
consistency.
<PAGE>
<PAGE> 7
ARTICLE 6 - REINSTATEMENTS
The Reinsurer shall be responsible for any reinstatements
associated with the Reinsured Policies, including reinstatements of policies
that lapsed prior to the Effective Date but which would have otherwise been
transferred hereunder. All such reinstatements shall be done in accordance
with the terms of the original policy. Except for the reinstatement of Home
Service Policies, which shall be reinstated with the Company's policy form and
reinsured in accordance with Paragraph 2.B, any such reinstatements shall, to
the extent permitted by law, be made with the Reinsurer's policy form.
ARTICLE 7 - EXCESS REINSURANCE
The Reinsurer will pay all premiums and other charges, if any, for
the existing excess of retention reinsurance for the Reinsured Policies for
all periods on or after the Effective Date. The Company will pay to the
Reinsurer all recoveries for the periods on or after the Effective Date from
existing excess of retention reinsurance for the Reinsured Policies. Any
excess of retention reinsurance arrangements which also provide reinsurance
coverage for business retained by the Company and not ceded hereunder shall
not be amended or revised by the Reinsurer, even with respect to the Reinsured
Policies, without the express written consent of the Company. Schedule 7
provides a list of the excess of retention reinsurance arrangements which
provide coverage for the Reinsured Policies. The Company will not amend or
modify any of the excess of retention reinsurance arrangements listed in
Schedule 7, with respect to the Reinsured Policies, without the express
written consent of the Reinsurer.
ARTICLE 8 - NOTICE OF ASSUMPTION
As soon as practicable after the Effective Date, the Reinsurer
(or, where required by applicable law, rule, or regulation, the Company) will
issue and deliver or cause its agents to deliver to the named insureds under
the Reinsured Policies, other than the Home Service Policies and the Reinsured
Policies covered by Paragraph 2.C, an appropriate notice of assumption
substantially in the form attached hereto. The Reinsurer will take all other
necessary actions to assume the Reinsured Policies. The Company will
cooperate fully with the Reinsurer in implementing such assumption, including,
without limitation, executing any documents reasonably necessary to evidence
the completion of the transactions contemplated by this Agreement. The
Reinsurer shall be responsible for all expenses associated with sending out
the notices of assumption and obtaining policyholder consent.
ARTICLE 9 - ACCESS TO RECORDS
Upon reasonable notice, both the Reinsurer and the Company will be
entitled to reasonable access to the books and records of the other party at
any reasonable time, but only to the extent such materials pertain to the
Reinsured Policies reinsured under this Agreement. Each party will pay its
own expenses associated with any such review of the books and records.
<PAGE>
<PAGE> 8
ARTICLE 10 - ARBITRATION
A. Any dispute or other matter in question between the Company and
the Reinsurer arising out of or relating to the formation, interpretation,
performance, or breach of this Agreement, whether such dispute arises before
or after termination of this Agreement, shall be settled by arbitration if the
parties are unable to resolve the dispute through negotiation. Arbitration
shall be initiated by the delivery of a written notice of demand for
arbitration by one party to the other.
B. Each party shall appoint an individual as arbitrator and the two
so appointed shall then appoint a third arbitrator. If either party refuses
or neglects to appoint an arbitrator within sixty (60) days of receipt of a
written notice of demand for arbitration, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third arbitrator
within sixty (60) days of their appointment, each of the arbitrators shall
nominate three individuals. Each arbitrator shall then decline two of the
nominations presented by the other arbitrator. The third arbitrator shall
then be chosen from the remaining two nominations by drawing lots. The
arbitrators shall be active or former officers of insurance or reinsurance
companies or Lloyd's of London Underwriters; the arbitrators shall not have a
personal or financial interest in the result of the arbitration.
C. The arbitration hearings shall be held in Chicago, Illinois, or
such other place as may be mutually agreed. Each party shall submit its case
to the arbitrators within sixty (60) days of the selection of the third
arbitrator or within such longer period as may be agreed by the arbitrators.
The arbitrators shall not be obliged to follow judicial formalities or the
rules of evidence except to the extent required by the state law of the situs
of the arbitration as herein agreed; they shall make their decisions according
to the practice of the life reinsurance business. The decision rendered by a
majority of the arbitrators shall be final and binding on both parties. Such
decision shall be a condition precedent to any right of legal action arising
out of the arbitrated dispute which either party may have against the other.
Judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
D. Each side shall pay (1) the fee and expenses of its own
arbitrator, (2) one-half of the fee and expenses of the third arbitrator and
(3) one-half of the other expenses that the parties jointly incur directly
related to the arbitration proceeding. Other than as set forth above, each
Party shall bear its own costs in connection with any such arbitration
including, without limitation, (1) all legal, accounting, and other
professional fees and expenses and (2) all other costs and expenses each party
incurs to prepare for such arbitration.
E. Except as provided above, arbitration shall be based, insofar as
applicable, upon the Commercial Arbitration Rules of the American Arbitration
Association.
ARTICLE 11 - OFFSETS
The Company and the Reinsurer may offset any balance, whether on
account of premiums, commissions, losses or claim expenses, due from one party
to the other under this Agreement.
<PAGE>
<PAGE> 9
ARTICLE 12 - ERRORS OR OMISSIONS
Inadvertent delays, errors or omissions made in connection with
this Agreement or any transaction hereunder will not relieve either party from
any liability that would otherwise have attached had such delay, error or
omission not occurred. Regardless, the responsible party will rectify each
such delay, error or omission as promptly as practicable after discovery.
ARTICLE 13 - REGULATORY APPROVAL
The consummation of this Agreement and the transactions
contemplated hereby are contingent upon the receipt of all necessary approvals
of insurance regulatory authorities pursuant to all applicable insurance laws
and upon the receipt of all necessary approvals by any other governmental or
regulatory authority whose approval is required by law.
ARTICLE 14 - INSOLVENCY
In the event of the insolvency of the Company, any amounts due
under the Reinsured Policies reinsured hereunder shall be payable by the
Reinsurer without diminution on account of such insolvency directly to the
insureds or third party claimants as may be required under the Reinsured
Policies.
ARTICLE 15 - INDEMNIFICATION
A. Indemnification By Reinsurer. The Reinsurer will indemnify and
hold harmless the Company from and against monetary damages incurred by the
Company resulting from or relating to the Reinsurer's administration,
reinstatements, claims handling, benefit payments and issuance of supplemental
contracts after September 30, 1996 with respect to the Reinsured Policies.
B. Indemnification by Company. The Company will indemnify and hold
harmless the Reinsurer from and against monetary damages incurred by the
Reinsurer within three (3) years from the Effective Date and resulting from or
relating to (1) the failure of any Reinsured Policy to have complied with
applicable laws and regulations (including federal tax laws) at the time of
its issuance, or (2) the Company's failure to administer the Reinsured
Policies consistent with its past practice from the Effective Date through
September 30, 1996. In addition, the Company will indemnify and hold harmless
the Reinsurer from and against monetary damages incurred by the Reinsurer
within five (5) years from the Effective Date (eight (8) years with respect to
the Home Service Policies) and resulting from or relating to actions by the
Company's employees or agents in the sale, issuance or administration of the
Reinsured Policies which lead to liabilities in excess of the contractual
liabilities associated with the Reinsured Policies.
C. Notification and Control of Defense. Any party entitled to
indemnification under this Agreement shall (1) give prompt notice to the party
from whom indemnification is sought, of any claim with respect to which it
seeks indemnification; (2) permit such indemnifying party to assume and
control defense of such claim with counsel reasonably satisfactory to the
indemnified party; provided, however, that any party entitled to
indemnification hereunder shall have the right to employ separate counsel and
to participate in the defense of such claim, but the fees and expenses of such
separate counsel shall be paid by the person employing separate counsel unless
(a) the indemnifying party has agreed to pay such fees and expenses or (b) the
indemnifying party shall have failed to assume the defense of such claim and
<PAGE> 10
to employ counsel reasonably satisfactory to such party. No indemnifying
party shall be subject to any liability for any settlement made without its
consent except where the indemnifying party has failed to assume the defense
of such claim and to employ counsel reasonably satisfactory to the indemnified
party. An indemnifying party who elects not to assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel at
any one time for all parties indemnified by such indemnifying party with
respect to such claim, which counsel shall be designated in writing by the
indemnified party and shall be reasonably acceptable to the indemnifying
party.
ARTICLE 16 - CORPORATE GUARANTEE
A. For a period of five (5) years from the Effective Date, Life Re
Corporation ("Guarantor") hereby unconditionally guarantees the full and
prompt payment and performance of the Reinsurer's obligations hereunder when
due. Notwithstanding the foregoing sentence, for claims made by the Company
against the Reinsurer in accordance with Article 15, the Guarantor's
unconditional guarantee hereunder shall remain in full force and effect
indefinitely. With respect to the Reinsurer's monetary obligations hereunder,
this is a guarantee of payment and not of collection. With respect to the
Reinsurer's non-monetary obligations hereunder, the Guarantor agrees that it
shall fully perform, or cause the Reinsurer to fully perform, all such
obligations in a timely manner.
B. The Guarantor's liability for payment and performance of the
Reinsurer's obligations shall be absolute and unconditional; the Guarantor
unconditionally and irrevocably waives each and every defense which, under
principles of guarantee or suretyship law, would otherwise operate to impair
or diminish such liability; and nothing whatever except actual full payment
and performance of the Reinsurer's obligations shall operate to discharge the
Guarantor's liability hereunder.
C. The Guarantor hereby unconditionally waives (1) presentment,
notice of dishonor, protest, demand for payment and all notices of any kind;
(2) any claim for contribution against any co-guarantor, until the Reinsurer's
obligations have been paid or performed in full and such payments are not
subject to any right of recovery; and (3) any setoffs or counterclaims against
the Company which would otherwise impair the Company's rights against the
Guarantor hereunder.
ARTICLE 17 - RECAPTURE
The Company shall have no right to recapture the Reinsured
Policies reinsured hereunder.
ARTICLE 18 - GENERAL PROVISIONS
A. Amendments. This Agreement may only be amended by mutual consent
of the parties expressed in a written addendum; and such addendum, when
executed by both parties, shall be deemed to be an integral part of this
Agreement and binding on the parties hereto. Any change or modification to
this Agreement shall be null and void unless made by amendment to the
Agreement and signed by the parties.
<PAGE> 11
B. Successors and Assigns. This Agreement shall inure to the benefit
of and bind the Company and its successors and assigns and the Reinsurer and
its successors and assigns. Neither this Agreement nor any right or
obligation hereunder nor any part hereof may be assigned by any party hereto
without the prior written consent of the other party hereto. Prior to any
such assignment, the consent of all necessary regulatory authorities must be
obtained.
C. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Illinois (without giving effect to
principles of conflicts of laws) applicable to a contract executed and to be
performed in such state.
D. Entire Agreement. This Agreement supersedes all prior discussions
and agreements between, and contains the sole and entire agreement between the
Company and the Reinsurer with respect to the business being reinsured
hereunder and there are no understandings between the parties other than as
expressed herein.
E. Headings, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (1) words of any gender will be deemed to
include each other gender, (2) words using the singular or plural number will
also include the plural or singular number, respectively, (3) the terms
hereof, herein, hereby, and derivative or similar words will refer to this
entire Agreement, and (4) the conjunction "or" will denote any one or more, or
any combination or all, of the specified items or matters involved in the
respective list.
F. Non-waiver. The failure of either party hereto at any time to
enforce any provision of this Agreement shall not be construed as a waiver of
that provision and shall not effect the right of either party thereafter to
enforce each and every provision of this Agreement in accordance with its
terms.
G. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party under this Agreement will not be materially
and adversely affected thereby, (1) such provision will be fully severable,
(2) this Agreement will be construed and enforced as if such illegal, invalid,
or unenforceable provision had never comprised a part hereof, (3) the
remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision
or by its severance herefrom, and (4) in lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement, a legal, valid, and enforceable provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible.
H. Notices. Any notice or communication given pursuant to this
Agreement must be in writing and will be deemed to have been duly given if
mailed (by registered or certified mail, postage prepaid, return receipt
requested), or if transmitted by facsimile, or if delivered by courier, as
follows:
<PAGE>
<PAGE> 12
To the Company:
United Insurance Company of America
One East Wacker Drive
Chicago, Illinois 60601
Attention: Secretary
Telephone: (312) 661-4520
Fax: (312) 661-4941
To the Reinsurer:
Reassure America Life Insurance Company
969 High Ridge Road
Stamford, Connecticut 06905
Attention: General Counsel
Telephone: (203) 321-3000
Fax: (203) 968-0920
All notices and other communications required or permitted under this
Agreement that are addressed as provided in this paragraph will, whether sent
by mail, facsimile, or courier, be deemed given upon the first business day
after actual delivery to the party to whom such notice or other communication
is sent (as evidenced by the return receipt or shipping invoice signed by a
representative of such party or by the facsimile confirmation). Any party
from time to time may change its address for the purpose of notices to that
party by giving a similar notice specifying a new address, but no such notice
will be deemed to have been given until it is actually received by the party
sought to be charged with the contents thereof.
I. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which will be deemed an original, but all
of which will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the date first
set forth above.
ATTEST: UNITED INSURANCE COMPANY OF AMERICA
s/ s/
Thomas H. Maloney David F. Bengston
Secretary Vice President
ATTEST: REASSURE AMERICA LIFE INSURANCE COMPANY
s/ s/
W. Weldon Wilson Robert L. Beisenherz
Secretary President
For purposes of Article 16.
<PAGE>
PAGE> 13
ATTEST: LIFE RE CORPORATION
s/ s/
W. Weldon Wilson, Secretary Jacques E. Dubois, President
and Chief Operating Officer
<PAGE> 1
DISABILITY POLICIES
REINSURANCE AND RETROCESSION AGREEMENT
(After July 1, 1996)
This Retrocession Agreement (hereinafter "Agreement") is made and entered
into on or as of the 30th day of June, 1996 (the "Closing Date") to be
effective as of the 1st day of July, 1996 ("Effective Date") by and among:
(i) American Combined Life Insurance Company, an Illinois insurance
corporation (the "Ceding Company") and,
(ii) Life Reassurance Corporation of America, a Connecticut insurance
corporation (the "Reinsuring Company" or "Life Re");
and recites as follows:
WHEREAS, the Ceding Company may become (pursuant to an Assignment
Agreement (the "Assignment Agreement") between the Reinsuring Company and the
Ceding Company) a party to a retrocession agreement attached hereto as Exhibit
A (the "COMBINED/Life Re Agreement"), pursuant to which the Ceding Company
will then assume from Combined Insurance Company of America ("Combined")
certain liabilities under the policies, certificates, forms and riders
described in the Assignment Agreement and the COMBINED/Life Re Agreement which
were written under policies issued by Union Fidelity Life Insurance Company
("UFLIC"); and
WHEREAS, Ceding Company desires to retrocede to Reinsuring Company
certain of the Ceding Company's Policy Liabilities (as defined in the
reinsurance agreement between UFLIC and Combined) for credit disability
insurance business written on or after the Effective Date upon the terms and
subject to the conditions set forth herein; and
WHEREAS, in the future Ceding Company will begin issuing credit
disability insurance policies and Ceding Company desires to reinsure certain
of the Policy Liabilities of such business with Reinsuring Company; and
WHEREAS, the Reinsuring Company desires to reinsure from the Ceding
Company, on a coinsurance basis, certain of the Policy Liabilities (i) under
the COMBINED/Life Re Agreement for business written by UFLIC on or after the
Effective Date and (ii) for policies written directly by Ceding Company on or
after the Effective Date.
NOW THEREFORE, in consideration of the premises and mutual promises
contained herein, the parties agree as follows:
1. CESSION.
(a) The Ceding Company agrees to cede to Reinsuring Company, and the
Reinsuring Company agrees to assume from Ceding Company, on a coinsurance
basis, the percentage of the Policy Liabilities set forth below for all of the
business (i) to be reinsured by Ceding Company under the Assignment Agreement
and the COMBINED/Life Re Agreement or (ii) to be written by Ceding Company,
that will be reinsured or written on or after the Effective Date. The
Reinsuring Company's coinsurance percentage is:
<PAGE>
<PAGE> 2
(1) 100% of the credit disability insurance Policy Liabilities that
are retroceded by Reinsuring Company, directly or indirectly, to reinsurance
companies that are owned by automobile dealers that originally produced the
credit disability insurance policies (the "Dealer Companies" and the "Dealer
Business").
(2) 100% of the credit disability insurance Policy Liabilities that
are not retroceded by Reinsuring Company, directly or indirectly, to
reinsurance companies that are owned by automobile dealers that originally
produced the credit disability insurance policies (the "Retained Business").
(b) Ceding Company shall not, without the prior written consent of the
Reinsuring Company, amend the Assignment Agreement or the COMBINED/Life Re
Agreement.
2. REINSURANCE PREMIUMS AND RECOVERIES.
(a) The reinsurance premium to be paid by Ceding Company to Reinsuring
Company shall be an amount equal to the Reinsuring Company's coinsurance
percentage of the premium, net of premium refunds, paid or payable by the
policyholders for Policy Liabilities ceded hereunder.
(b) Ceding Company shall deduct from the reinsurance premium (i) a
ceding allowance equal to 8% of the premium, net of refunds, and (ii) claims
paid, agent and other commissions and fees paid or payable, state and local
premium taxes and assessments paid or payable, retrospective rating
adjustments paid and amounts due from agents and other federal, state and
local taxes and other impositions assessed based on the premiums associated
with the premiums paid on the business reinsured under this Agreement.
(c) The Reinsuring Company shall pay to the Ceding Company a quarterly
experience refund determined in accordance with the formula set forth in
Exhibit B attached hereto.
3. CLAIM ADMINISTRATION.
Ceding Company shall investigate and pay, settle or defend all policy
claims, and the decision of the Ceding Company shall be final. The Reinsuring
Company shall reimburse Ceding Company for all payments made by Ceding Company
arising from claims or for other Policy Liabilities, whether under policy or
contract terms and conditions, by way of compromise, or pursuant to a judgment
or other award.
If litigation is threatened or instituted against Ceding Company in
respect to a claim, Ceding Company shall immediately provide Reinsuring
Company with a summary of all pertinent aspects of the litigation and claim
and, if requested by Reinsuring Company, Ceding Company will consult with
Reinsuring Company regarding the defense or response to such litigation or
threat, and the parties will mutually agree to actions taken or settlements
proposed with respect to that litigation.
Reinsuring Company will pay its share of any extracontractual or punitive
damages assessed against Ceding Company for any policy reinsured under this
Agreement if the policies and procedures established by Ceding Company and
Reinsuring Company pertaining to the claims administration and litigation are
substantially complied with by Ceding Company. Reinsuring Company also will
reimburse Ceding Company for Reinsuring Company's share of reasonable legal
fees incurred in defense of extracontractual or punitive damages.
<PAGE> 3
4. REPORTING AND REMITTANCE.
(a) Within 30 days of the end of each calendar month which occurs
during the period from the Effective Date until all liabilities and
obligations reinsured hereunder have expired, Ceding Company shall provide to
Reinsuring Company reinsurance reports substantially in the format of Exhibit
C. Ceding Company will provide to Reinsuring Company similar reports within
45 days of the end of each calendar month with respect to the reinsurance
companies that are owned by automobile dealers and to which Reinsuring Company
directly or indirectly retrocedes Policy Liabilities. The total amount shown
by the reinsurance reports as due to the Reinsuring Company or to the Ceding
Company shall be paid by the other party within 45 days of the end of each
calendar month.
(b) Within 30 days after the end of each calendar quarter, any part of
which occurs during the period from the Effective Date until all liabilities
and obligations under the policies under the Agreement have expired, Ceding
Company shall provide to Reinsuring Company data and other information with
respect to this Agreement and the reinsurance thereof or information Ceding
Company is required to furnish under the Administration Agreement among Ceding
Company, Reinsuring Company and Resource Financial Corporation (the
"Administration Agreement"):
(i) sufficient in substance to account fully for any Reinsuring Company
liabilities and obligations under this Agreement;
(ii) sufficient in form to permit its inclusion in Reinsuring Company's
statutory quarterly and annual statements;
(iii) sufficient in form to permit its inclusion in Reinsuring Company's
quarterly and annual tax returns.
(iv) sufficient for the accounting and reporting of the reinsurance
companies that are owned by automobile dealers.
(c) Each party agrees to provide the other with any information
regarding the Administration Agreement or this Agreement reasonably requested
or required for any filing with any governmental agency.
5. AUDIT.
(a) Each party hereto covenants and agrees that the other party shall
have the right to audit the books and records of the other relating to the
business transacted hereunder upon at least two business days prior written
notice, which audit is to be conducted during regular business hours at the
business location of the audited party or such location as the audited party
shall reasonably designate. Such audit may be conducted by the auditing party
alone or together with its representatives, accountants or actuaries, at the
option of the auditing party. The auditing party shall bear the cost of the
audit.
(b) In the event of any audit under this Section, the party being
audited shall extend its full and complete cooperation to the auditing party.
The audited party shall make reasonable office facilities available to the
auditing party.
6. INSOLVENCY.
In the event of the insolvency of Ceding Company, this reinsurance shall
be payable directly to Ceding Company or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of Ceding
Company under the policies under this Agreement without diminution because of
<PAGE>
<PAGE> 4
the insolvency or because the liquidator, receiver or conservator or statutory
successor of Ceding Company has failed to pay all or a portion of any claim.
It is agreed, however, that the liquidator, receiver, conservator or statutory
successor shall give prompt written notice to Reinsuring Company of the
pendency or submission of a claim against Ceding Company, indicating the
Reinsured Policy to which the claim relates. During the pendency of such
claim, Reinsuring Company may investigate such claim and interpose, at its own
expense, in the proceedings where such claim is to be adjudicated, any defense
or defenses that it may deem available to Ceding Company or its liquidator,
receiver, conservator or statutory successor. The expense thus incurred by
Reinsuring Company shall be charged, subject to approval of the Court, against
Ceding Company as part of the expense of conservation or liquidation to the
extent of a pro rata share of the benefit which may be accrued to Ceding
Company solely as the result of the defense undertaken by Reinsuring Company.
7. NOTICES.
Any notice, demand, report, statement or other communication provided for
or appropriate under this Agreement ("Notice") shall be in writing addressed
to the party for whom it is intended as set forth below:
If to Reinsuring Company:
Life Reassurance Corporation of America
969 High Ridge Road
Stamford, Connecticut 06905
Attention: President
Telecopy: (203) 321-3232
If to Ceding Company:
American Combined Life Insurance Company
2550 Golf Road
Rolling Meadows, Illinois 60008
Attention: President
Telecopy: (847) 427-6580
Any Notice shall be addressed as set forth above to the party for whom it is
intended and shall be deemed delivered (i) when received, if sent by regular
United States mail, electronic facsimile transmission or personal delivery; or
(ii) when sent if sent postage paid: (a) by United States certified mail,
return receipt requested; (b) Federal Express; (c) U.P.S. overnight; or (d)
other nationally recognized express carrier which provides proof of delivery.
Any party may change its address for purposes of receipt of any Notice by
giving ten (10) day's notice of such change to the other parties in the manner
above prescribed.
8. GOVERNING LAW.
This Agreement shall be deemed to have been made under and shall be
governed by the laws and decisions of the State of Illinois and the courts
thereof (without regard to principles of conflict of laws thereof) in all
respects, including matters of construction, validity, and performance.
<PAGE>
<PAGE> 5
9. ASSIGNMENT.
This Agreement shall be binding on all successors and permitted assigns
of the parties hereto. Reinsuring Company may assign all or a portion of its
duties and/or rights under this Agreement; provided, however, that Reinsuring
Company must remain directly obligated to the reinsurance companies that are
owned by automobile dealers to which Reinsuring Company retrocedes business.
10. ENTIRE UNDERSTANDING.
This Agreement constitutes the entire understanding of the parties hereto
with respect to the subject matter hereof. No other oral or written
agreements or contracts relating to the transactions contemplated hereby
currently exist or are contemplated hereunder. No amendment, modification, or
alteration of the terms hereof shall be binding unless the same be in writing
duly executed and delivered on behalf of all parties hereto by their
respective officers thereunto duly authorized.
11. NO THIRD PARTY RIGHTS.
The Reinsuring Company's reinsurance of the Policy Liabilities is
intended for the sole benefit of the parties to this Agreement and shall not
create any right on the part of any policyholder, insured, claimant or
beneficiary against the Reinsuring Company or any legal relation between such
policyholders, insureds, claimants or beneficiaries and Reinsuring Company.
12. INVALIDITY.
The invalidity or unenforceability of any provision or portion hereof
shall not affect the validity or enforceability of the other provisions or
portions hereof.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed
by their duly authorized officers, in a number of counterparts, each of which
may be taken as an original, as of the day and year first above written.
AMERICAN COMBINED LIFE
INSURANCE COMPANY
s/
Ronald D. Markovits
Vice President
LIFE REASSURANCE CORPORATION
OF AMERICA
s/
W. Weldon Wilson
Executive Vice President
<PAGE>
<PAGE> 6
EXHIBIT A
COMBINED/Life Re AGREEMENT
<PAGE>
<PAGE> 7
EXHIBIT B
EXPERIENCE REFUND FORMULA
Credit Disability
Retained Business Experience Refund:
At the end of each quarter, an experience refund shall be calculated with
respect to the Retained Business where all amounts represent inception to date
activity with respect to the business reinsured hereunder:
Experience Refund at the end of Period =
+ Earned Premium using the mean of Pro-rata and Rule of 78s
- Earned Commissions
- Administrative Fee equal to 8% of Earned Premium
- Reinsurer Fee equal to 5% of Earned Premium (with a maximum of 5% of
premium written prior to July 1, 2001)
- Earned Premium Taxes
- Incurred Claims
+ Investment Income, less investment expenses, on segregated assets
supporting reserves
- Reinsuring Company's Expense and Profit Charge Equal to 1.25% of Earned
Premium
If the Experience Refund times the Ceding Company Share of Retained Business
(as defined below) at the end of the quarter is greater than the sum of all
amounts previously paid as Experience Refunds, such excess shall be paid to
Ceding Company, otherwise, no amounts are currently payable.
Dealer Business Experience Refund:
At the end of each quarter, an experience refund shall be calculated with
respect to the Dealer Business where all amounts represent inception to date
activity with respect to the business reinsured hereunder:
Dealer Business Experience Refund at the end of Period =
+ Earned premium
- Earned premium ceded to Dealer Companies
+ Reinsurance Fees on premium ceded Dealer Companies
- Administrative Fee equal to 8% of Premium ceded to Dealer Companies
- Special Fee equal to 5% (6.5% for business written under the Columbia
cession) of
Premium ceded to Dealer Companies (with a maximum of 5% (6.5% for
Columbia) of premium written prior to July 1, 2001)
- Earned commissions
+ Commissions on premium ceded to Dealer Companies
- Earned premium tax
+ Premium tax on premium ceded to Dealer Companies
- Incurred claims
+ Incurred claims on business ceded to Dealer Companies
+ Investment Income less investment expenses on segregated assets
supporting reserves
- Reinsuring Company's Expense and Profit Charge Equal to 1.25% of Earned
Premium
- All losses as a result of a default or dispute with Dealer Companies
<PAGE>
PAGE> 8
If the Experience Refund times the Ceding Company Share of Dealer Business (as
defined below) at the end of the quarter is greater than the sum of all
amounts previously paid as Dealer Business Experience Refunds, such excess
shall be paid to Ceding Company, otherwise, no amounts are currently payable.
For purposes of this Exhibit, the following terms are defined:
Ceding Company Share of Retained Business: 75.00%
Ceding Company Share of Dealer Business: 10.00%<PAGE>
<PAGE> 9
EXHIBIT C
REINSURANCE CESSION STATEMENT FORMAT
<PAGE> 1
LIFE POLICIES
REINSURANCE AND RETROCESSION AGREEMENT
(After July 1, 1996)
This Retrocession Agreement (hereinafter "Agreement") is made and entered
into on or as of the 30th day of June, 1996 (the "Closing Date") to be
effective as of the 1st day of July, 1996 ("Effective Date") by and among:
(i) American Combined Life Insurance Company, an Illinois insurance
corporation (the "Ceding Company") and,
(ii) Life Reassurance Corporation of America, a Connecticut insurance
corporation (the "Reinsuring Company" or "Life Re");
and recites as follows:
WHEREAS, the Ceding Company may become (pursuant to an Assignment
Agreement (the "Assignment Agreement") between the Reinsuring Company and the
Ceding Company) a party a retrocession agreement attached hereto as Exhibit A
(the "COMBINED/Life Re Agreement"), pursuant to which the Ceding Company will
then assume from Combined Insurance Company of America ("Combined") certain
liabilities under the policies, certificates, forms and riders described in
the Assignment Agreement and the COMBINED/Life Re Agreement which were written
under policies issued by Union Fidelity Life Insurance Company ("UFLIC"); and
WHEREAS, Ceding Company desires to retrocede to Reinsuring Company
certain of the Ceding Company's Policy Liabilities (as defined in the
reinsurance agreement between UFLIC and Combined) for credit life insurance
business written on or after the Effective Date upon the terms and subject to
the conditions set forth herein; and
WHEREAS, in the future Ceding Company will begin issuing credit life
insurance policies and Ceding Company desires to reinsure certain of the
Policy Liabilities of such business with Reinsuring Company; and
WHEREAS, the Reinsuring Company desires to reinsure from the Ceding
Company, on a coinsurance basis, certain of the Policy Liabilities (i) under
the COMBINED/Life Re Agreement for business written by UFLIC on or after the
Effective Date and (ii) for policies written directly by Ceding Company on or
after the Effective Date.
NOW THEREFORE, in consideration of the premises and mutual promises
contained herein, the parties agree as follows:
1. CESSION.
(a) The Ceding Company hereby agrees to cede to Reinsuring Company, and
the Reinsuring Company hereby agrees to assume from Ceding Company, on a
coinsurance basis, the percentage of the Policy Liabilities set forth below
for all of the business (i) to be reinsured by Ceding Company under the
Assignment Agreement and the COMBINED/Life Re Agreement or (ii) to be written
by Ceding Company, that will be reinsured or written on or after the Effective
Date. The Reinsuring Company's coinsurance percentage is:
(1) 100% of the credit life insurance Policy Liabilities that are
retroceded by Reinsuring Company, directly or indirectly, to reinsurance
companies that are owned by automobile dealers that originally produced the
credit life insurance policies (the "Dealer Companies" and the "Dealer
Business").
<PAGE> 2
(2) 90% of the credit life insurance Policy Liabilities that are
not retroceded by Reinsuring Company, directly or indirectly, to reinsurance
companies that are owned by automobile dealers that originally produced the
credit life insurance policies (the "Retained Business").
(b) Ceding Company shall not, without the prior written consent of the
Reinsuring Company, amend the Assignment Agreement or the COMBINED/Life Re
Agreement.
2. REINSURANCE PREMIUMS AND RECOVERIES.
(a) The reinsurance premium to be paid by Ceding Company to Reinsuring
Company shall be an amount equal to the Reinsuring Company's coinsurance
percentage of the premium, net of premium refunds, paid or payable by the
policyholders for Policy Liabilities ceded hereunder.
(b) Ceding Company shall deduct from the reinsurance premium (i) a
ceding allowance equal to 8% of the premium, net of refunds, and (ii) claims
paid, agent and other commissions and fees paid or payable, state and local
premium taxes and assessments paid or payable, retrospective rating
adjustments paid and amounts due from agents and other federal, state and
local taxes and other impositions assessed based on the premiums associated
with the premiums paid on the business reinsured under this Agreement.
(c) The Reinsuring Company shall pay to the Ceding Company a quarterly
experience refund determined in accordance with the formula set forth in
Exhibit B attached hereto.
3. CLAIM ADMINISTRATION.
Ceding Company shall investigate and pay, settle or defend all policy
claims, and the decision of the Ceding Company shall be final. The Reinsuring
Company shall reimburse Ceding Company for all payments made by Ceding Company
arising from claims or for other Policy Liabilities, whether under policy or
contract terms and conditions, by way of compromise, or pursuant to a judgment
or other award.
If litigation is threatened or instituted against Ceding Company in
respect to a claim, Ceding Company shall immediately provide Reinsuring
Company with a summary of all pertinent aspects of the litigation and claim
and, if requested by Reinsuring Company, Ceding Company will consult with
Reinsuring Company regarding the defense or response to such litigation or
threat, and the parties will mutually agree to actions taken or settlements
proposed with respect to that litigation.
Reinsuring Company will pay its share of any extracontractual or punitive
damages assessed against Ceding Company for any policy reinsured under this
Agreement if the policies and procedures established by Ceding Company and
Reinsuring Company pertaining to the claims administration and litigation are
substantially complied with by Ceding Company. Reinsuring Company also will
reimburse Ceding Company for Reinsuring Company's share of reasonable legal
fees incurred in defense of extracontractual or punitive damages.
4. REPORTING AND REMITTANCE.
(a) Within 30 days of the end of each calendar month which occurs
during the period from the Effective Date until all liabilities and
obligations reinsured hereunder have expired, Ceding Company shall provide to
Reinsuring Company reinsurance reports substantially in the format of Exhibit
C. Ceding Company will provide to Reinsuring Company similar reports within
<PAGE> 3
45 days of the end of each calendar month with respect to the reinsurance
companies that are owned by automobile dealers and to which Reinsuring Company
directly or indirectly retrocedes Policy Liabilities. The total amount shown
by the reinsurance reports as due to the Reinsuring Company or to the Ceding
Company shall be paid by the other party within 45 days of the end of each
calendar month.
(b) Within 30 days after the end of each calendar quarter, any part of
which occurs during the period from the Effective Date until all liabilities
and obligations under the policies under the Agreement have expired, Ceding
Company shall provide to Reinsuring Company data and other information with
respect to this Agreement and the reinsurance thereof or information Ceding
Company is required to furnish under the Administration Agreement among Ceding
Company, Reinsuring Company and Resource Financial Corporation (the
"Administration Agreement"):
(i) sufficient in substance to account fully for any Reinsuring Company
liabilities and obligations under this Agreement;
(ii) sufficient in form to permit its inclusion in Reinsuring Company's
statutory quarterly and annual statements;
(iii) sufficient in form to permit its inclusion in Reinsuring Company's
quarterly and annual tax returns.
(iv) sufficient for the accounting and reporting of the reinsurance
companies that are owned by automobile dealers.
(c) Each party agrees to provide the other with any information
regarding the Administration Agreement or this Agreement reasonably requested
or required for any filing with any governmental agency.
5. AUDIT.
(a) Each party hereto covenants and agrees that the other party shall
have the right to audit the books and records of the other relating to the
business transacted hereunder upon at least two business days prior written
notice, which audit is to be conducted during regular business hours at the
business location of the audited party or such location as the audited party
shall reasonably designate. Such audit may be conducted by the auditing party
alone or together with its representatives, accountants or actuaries, at the
option of the auditing party. The auditing party shall bear the cost of the
audit.
(b) In the event of any audit under this Section, the party being
audited shall extend its full and complete cooperation to the auditing party.
The audited party shall make reasonable office facilities available to the
auditing party.
6. INSOLVENCY.
In the event of the insolvency of Ceding Company, this reinsurance shall
be payable directly to Ceding Company or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of Ceding
Company under the policies under this Agreement without diminution because of
the insolvency or because the liquidator, receiver or conservator or statutory
successor of Ceding Company has failed to pay all or a portion of any claim.
It is agreed, however, that the liquidator, receiver, conservator or statutory
successor shall give prompt written notice to Reinsuring Company of the
pendency or submission of a claim against Ceding Company, indicating the
Reinsured Policy to which the claim relates. During the pendency of such
claim, Reinsuring Company may investigate such claim and interpose, at its own
expense, in the proceedings where such claim is to be adjudicated, any defense
or defenses that it may deem available to Ceding Company or its liquidator,
receiver, conservator or statutory successor. The expense thus incurred by
<PAGE> 4
Reinsuring Company shall be charged, subject to approval of the Court, against
Ceding Company as part of the expense of conservation or liquidation to the
extent of a pro rata share of the benefit which may be accrued to Ceding
Company solely as the result of the defense undertaken by Reinsuring Company.
7. NOTICES.
Any notice, demand, report, statement or other communication provided for
or appropriate under this Agreement ("Notice") shall be in writing addressed
to the party for whom it is intended as set forth below:
If to Reinsuring Company:
Life Reassurance Corporation of America
969 High Ridge Road
Stamford, Connecticut 06905
Attention: President
Telecopy: (203) 321-3232
If to Ceding Company:
American Combined Life Insurance Company
2550 Golf Road
Rolling Meadows, Illinois 60008
Attention: President
Telecopy: (847) 427-6580
Any Notice shall be addressed as set forth above to the party for whom it is
intended and shall be deemed delivered (i) when received, if sent by regular
United States mail, electronic facsimile transmission or personal delivery; or
(ii) when sent if sent postage paid: (a) by United States certified mail,
return receipt requested; (b) Federal Express; (c) U.P.S. overnight; or (d)
other nationally recognized express carrier which provides proof of delivery.
Any party may change its address for purposes of receipt of any Notice by
giving ten (10) day's notice of such change to the other parties in the manner
above prescribed.
8. GOVERNING LAW.
This Agreement shall be deemed to have been made under and shall be
governed by the laws and decisions of the State of Illinois and the courts
thereof (without regard to principles of conflict of laws thereof) in all
respects, including matters of construction, validity, and performance.
9. ASSIGNMENT.
This Agreement shall be binding on all successors and permitted assigns
of the parties hereto. Reinsuring Company may assign all or a portion of its
duties and/or rights under this Agreement; provided, however, that Reinsuring
Company must remain directly obligated to the reinsurance companies that are
owned by automobile dealers to which Reinsuring Company retrocedes business.
10. ENTIRE UNDERSTANDING.
This Agreement constitutes the entire understanding of the parties hereto
with respect to the subject matter hereof. No other oral or written
agreements or contracts relating to the transactions contemplated hereby
currently exist or are contemplated hereunder. No amendment, modification, or
alteration of the terms hereof shall be binding unless the same be in writing
<PAGE> 5
duly executed and delivered on behalf of all parties hereto by their
respective officers thereunto duly authorized.
11. NO THIRD PARTY RIGHTS.
The Reinsuring Company's reinsurance of the Policy Liabilities is
intended for the sole benefit of the parties to this Agreement and shall not
create any right on the part of any policyholder, insured, claimant or
beneficiary against the Reinsuring Company or any legal relation between such
policyholders, insureds, claimants or beneficiaries and Reinsuring Company.
12. INVALIDITY.
The invalidity or unenforceability of any provision or portion hereof
shall not affect the validity or enforceability of the other provisions or
portions hereof.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed
by their duly authorized officers, in a number of counterparts, each of which
may be taken as an original, as of the day and year first above written.
AMERICAN COMBINED LIFE
INSURANCE COMPANY
s/
Ronald D. Markovits
Vice President
LIFE REASSURANCE CORPORATION
OF AMERICA
s/
W. Weldon Wilson
Executive Vice President
<PAGE>
<PAGE> 6
EXHIBIT A
COMBINED/Life Re AGREEMENT
<PAGE>
<PAGE> 7
EXHIBIT B
EXPERIENCE REFUND FORMULA
Credit Life
Retained Business Experience Refund:
At the end of each quarter, an experience refund shall be calculated with
respect to the Retained Business where all amounts represent inception to date
activity with respect to the business reinsured hereunder:
Experience Refund at the end of Period =
+ Earned Premium using the Rule of 78s
- Earned Commissions
- Administrative Fee equal to 8% of Earned Premium
- Reinsurer Fee equal to 5% of Earned Premium (with a maximum of 5% of
premium written prior to July 1, 2001)
- Earned Premium Taxes
- Incurred Claims
+ Investment Income less investment expenses on segregated assets
supporting reserves
- Reinsuring Company's Expense and Profit Charge Equal to 0.75% of
Earned Premium
If the Experience Refund times the Ceding Company Share of Retained Business
(as defined below) at the end of the quarter is greater than the sum of all
amounts previously paid as Experience Refunds, such excess shall be paid to
Ceding Company, otherwise, no amounts are currently payable.
Dealer Business Experience Refund:
At the end of each quarter, an experience refund shall be calculated with
respect to the Dealer Business where all amounts represent inception to date
activity with respect to the business reinsured hereunder:
Dealer Business Experience Refund at the end of Period =
+ Reinsurance Fees on premiums ceded to Dealer Companies
+ Written premium
- Written premium ceded to Dealer Companies
- Administrative Fee equal to 8% of Premium ceded to Dealer Companies
- Special Fee equal to 5% (6.5% for business written under the Columbia
cession) of Premium ceded to Dealer Companies (with a maximum of 5%
(6.5% for Columbia) of premium written prior to July 1, 2001)
- Earned commissions
+ Commissions on premium ceded to Dealer Companies
- Earned premium tax
+ Premium tax on premium ceded to Dealer Companies
- Incurred claims
+ Incurred claims on business ceded to Dealer Companies
+ Investment Income less investment expenses on segregated assets
supporting reserves
- Reinsuring Company's Expense and Profit Charge Equal to 0.75% of Earned
Premium
- All losses as a result of a default or dispute with Dealer Companies
If the Experience Refund times the Ceding Company Share of Dealer Business (as
defined below) at the end of the quarter is greater than the sum of all
amounts previously paid as Dealer Business Experience Refunds, such excess
shall be paid to Ceding Company, otherwise, no amounts are currently payable.
For purposes of this Exhibit, the following terms are defined:
Ceding Company Share of Retained Business: 72.22%
Ceding Company Share of Dealer Business: 10.00%<PAGE>
<PAGE> 8
EXHIBIT C
REINSURANCE CESSION STATEMENT FORMAT
<PAGE> 1
ADMINISTRATION AGREEMENT
(LRCA)
This Administration Agreement ("Agreement") made and entered into on or
as of the first day of July, 1996 ("Effective Date") by and among AMERICAN
COMBINED LIFE INSURANCE COMPANY, an Illinois insurance corporation ("ACLIC"),
RESOURCE FINANCIAL CORPORATION, a Delaware corporation ("RFC"), and LIFE
REASSURANCE CORPORATION OF AMERICA, a Connecticut insurance corporation
("LRCA").
WHEREAS, RFC and its subsidiaries (the "RFC Group") provides marketing
and other services with in connection with credit life and disability
insurance to a variety of automobile dealers throughout the United States (the
"RFC Dealers"); and
WHEREAS, the parties intend that Union Fidelity Life Insurance Company
("UFLIC") will continue to serve as the issuing insurance company for the
credit life insurance policies (the "Life Policies") and the credit disability
policies (the "Disability Policies") sold by the RFC Dealers until (i) ACLIC
is a subsidiary of RFC and (ii) ACLIC has full regulatory authority to issue
the Life Policies and Disability Policies (collectively, the Life Policies and
the Disability Policies are referred to as the "Policies"); and
WHEREAS, ACLIC will serve as a reinsurer for the Policies issued by
UFLIC; and
WHEREAS, RFC has entered into an agreement to purchase all of the
outstanding stock of ACLIC and the parties intend that ACLIC will obtain
regulatory authority to issue the Policies as expeditiously as possible; and
WHEREAS, as of July 1, 1996, LRCA entered into two reinsurance agreements
with ACLIC pursuant to which LRCA reinsures certain risks associated with
credit life insurance policies (the "Life Reinsurance Agreement") and credit
disability insurance policies (the "Disability Reinsurance Agreement") written
by either ACLIC or UFLIC on or after July 1, 1996 (the "Effective Date")
(collectively, the Life Reinsurance Agreement and the Disability Reinsurance
Agreement are referred to as the "Reinsurance Agreements"); and
WHEREAS, as a condition to LRCA's entering into the Reinsurance
Agreements on the terms set forth therein, ACLIC and RFC agreed to perform
significant services related to the marketing, sale, distribution,
administration, claims management and retrocession from ACLIC to LRCA of the
credit life and disability policies written by either UFLIC or ACLIC; and
WHEREAS, certain RFC Dealers own or participate in the ownership of
producer owned reinsurance companies that are domiciled both in the United
States and in other jurisdictions ("PRCs"); and
WHEREAS, certain of the Policies ceded or retroceded by ACLIC to LRCA
will in turn be ceded by LRCA to PRCs; and
WHEREAS, the parties to this Agreement intend that ACLIC, RFC, and RFC's
affiliates continue to provide all of the functions, in a manner consistent
with current practice, related to the marketing of Policies to the RFC Dealers
and other automobile dealers that may wish to become RFC Dealers ("Prospective
Dealers"); the training and licensing of personnel for the sale of the
Policies; the sale, issuance and administration of the Policies; the
reinsurance of the Policies under the Reinsurance Agreements; the retrocession
of certain Policies to the PRCs, the management of the relationships with and
<PAGE> 2
operations of the PRCs; and other services related to the RFC Dealers, the
Policies, and the PRCs.
NOW, THEREFORE, ACLIC, RFC and LRCA, in consideration of the premises and
of the mutual agreements and covenants herein contained, agree as follows:
1. RFC Group Appointed. LRCA hereby appoints the RFC Group to provide
services, in accordance with this Agreement, with respect to the RFC Dealers,
Prospective Dealers, the Policies, the Reinsurance Agreements, the PRCs, and
the retrocessional arrangements with the PRCs.
2. Services. ACLIC, RFC, and LRCA agree that the RFC Group will provide all
of the services related to the marketing of Policies to the RFC Dealers and
Prospective Dealers; the training and licensing of personnel for the sale of
the Policies; the design, approval, and printing of Policy forms; the sale,
issuance and administration of the Policies; the reinsurance of the Policies
under the Reinsurance Agreements; the required legal and actuarial services;
the retrocession of certain Policies to the PRCs, the management of the
relationships with and operations of the PRCs; and other services related to
the RFC Dealers, the Policies, and the PRCs. Without limiting the generality
of the preceding sentence, the services to be provided by the RFC Group
include without limitation the following:
(a) Development and implementation of marketing relationships with
Prospective Dealers to become RFC Dealers.
(b) Development of materials to assist the RFC Dealers with the sale of
the Policies, including the training and licensing of personnel of the RFC
Dealers necessary for selling the Policies.
(c) Advising and assisting RFC Dealers with the formation of, and/or
participation in, PRCs.
(d) Development of Policies for sale, including appropriate pricing and
underwriting guidelines, and obtaining all necessary regulatory approvals for
the sale of the Policies.
(e) Issuance of the Policies and certificates related to the Policies;
the collection of premiums, payments of claims, cancellations, and
terminations; evaluation and administration of claims.
(f) Accounting, preparation and distribution of monthly reports for
transaction under the Reinsurance Agreements and retrocession to PRCs.
(g) Claims settlement and management for the PRCs, preparation of
financial statements for the PRCs, and filing of regulatory materials on
behalf of the PRCs (upon request of the PRCs).
3. Compensation. The RFC Group will perform services in consideration for
(a) a quarterly fee of $75,000 payable by LRCA within forty-five (45) days
after the beginning of each quarter, and (b) LRCA entering into the
Reinsurance Agreements.
4. LRCA Services.
(a) LRCA will provide for the management of ACLIC's assets supporting
the reserves for the Policies and ACLIC's capital and surplus. ACLIC will
reimburse LRCA for LRCA's actual cost of managing the assets.
(b) LRCA agrees to provide assistance in ACLIC's relationship with A.M.
Best & Company and other rating agencies. LRCA will use its best efforts
to assist ACLIC in maintaining an "A" rating from A.M. Best & Company through
actions such as assisting in the preparation of presentations, appearing with
<PAGE> 3
ACLIC at meetings with A.M. Best & Company, and consulting with ACLIC on steps
that could be taken to strengthen its ratings.
5. Exclusivity. For a period of ten (10) years from the Effective Date, the
RFC Group shall provide these services solely for LRCA with respect to credit
life and disability insurance; however, RFC shall continue to provide
reinsurance administration services to the PRCs for all policies sold during
the ten (10) year period after the Effective Date until the expiry of such
Policies. If the RFC Group begins producing or marketing Life Policies or
Disability Policies for any insurance company other than UFLIC or ACLIC, RFC
will ensure that such Life Policies or Disability Policies are reinsured to
LRCA on the same terms as provided in the Reinsurance Agreements.
6. Qualifications and Licenses. The RFC Group represents that it will
maintain in force for the term of this Agreement any licenses, approvals, or
registrations necessary to transact business and to perform the services that
are the subject of this Agreement, including insurance company licenses, third
party administrator's licenses, and approvals of Policies in all states where
such licenses are required or in which the absence of such licenses would not
have a material adverse impact.
7. Books and Records. The RFC Group agrees to maintain adequate books and
records concerning the services provided hereunder in accordance with
applicable law and prudent standards of insurance record keeping. Any such
books or records shall be maintained for the period required by ACLIC or LRCA,
but in no event less than five years from the date of their creation. Either
LRCA, ACLIC, RFC and the auditors and other representatives for LRCA and the
PRCs shall have the right, at its expense, to inspect such records and perform
an audit of the RFC Group during normal business hours while this Agreement is
in force and for one year thereafter. Any state insurance regulatory official
shall also have such right. A copy of this Agreement shall be maintained by
both parties during the term of this Agreement and for a period of five years
thereafter.
8. Errors and Omissions Insurance. At all times while this Agreement is in
force, the RFC Group shall maintain, at its own expense, errors and omissions
insurance covering itself and its officers, employees and agents, issued by an
insurance carrier acceptable to LRCA. Such insurance shall be written on an
occurrence basis in an amount not less than $1,000,000 per occurrence and
$3,000,000 annual aggregate. A copy of such policy shall be furnished to
ACLIC.
9. Fidelity Bond. The RFC Group shall maintain a fidelity bond in a surety
acceptable to LRCA, protecting LRCA against acts of theft or dishonesty by the
RFC Group, its officers, employees or agents, until such time as all
obligations of the RFC Group hereunder are fully discharged. The amount of
the bond shall be in an amount not less than $1,000,000 unless a higher amount
is required by any state law in which case the amount shall be the minimum so
required.
10. Effective Date. This Agreement shall be effective as of the Effective
Date. This Agreement shall continue in force for a period ending one year
after the last Policy reinsured by LRCA under either of the Reinsurance
Agreements shall have terminated.
11. Termination. Notwithstanding Section 9 above, LRCA may terminate this
Agreement immediately upon notice to RFC and ACLIC of the occurrence of any
one or more of the following:
(a) dissolution of RFC;
(b) revocation, suspension or termination of any license required by
this Agreement which is not cured within 60 days of receipt by RFC of notice
thereof by LRCA;
<PAGE> 4
(c) misappropriation of funds or property of LRCA by the RFC Group,
failure of the RFC Group to remit funds due LRCA as required hereunder; or
commission by the RFC Group of any fraud against LRCA;
(d) material breach by the RFC Group of any material provision of the
Agreement which is not cured within 30 days after receipt by the RFC Group of
notice thereof by LRCA;
(e) termination of all the Policies for any reason.
Notwithstanding Section 9 above, ACLIC or RFC may terminate this Agreement
immediately upon notice to LRCA of the occurrence of any one or more of the
following:
(a) material breach by LRCA of any material provision of the Agreement
which is not cured within 30 days after receipt by LRCA of notice thereof by
RFC or ACLIC;
(b) termination of all of the Policies for any reason.
(c) misappropriation of funds or property of the RFC Group by LRCA;
failure of LRCA to remit funds due the RFC Group as required hereunder; or
commission by ACLIC of any fraud against the RFC Group;
Termination shall be without prejudice to any right or cause of action
arising or occurring prior to the termination date. Termination shall not
affect any provision of this Agreement which, by it terms, would survive such
termination.
12. RFC Group Indemnification. RFC and ACLIC agree to indemnify, defend and
hold harmless LRCA, its directors, officers and employees from and against any
liability, claim, demand, suit, judgment, fine or penalty, loss, damage or
expense, including, reasonable attorney's fees and extracontractual damages
("Losses") resulting from any negligence, error or omission of the RFC Group,
its directors, officers, employees or agents in the performance of its duties
hereunder or resulting from the breach by the RFC Group of any provision of
this Agreement.
13. LRCA Indemnification. LRCA agrees to indemnify, defend and hold harmless
the RFC Group, its directors, officers and employees from and against Losses
resulting from any negligence, error or omission of LRCA, its directors,
officers, employees, or agents in the performance of its duties hereunder,
resulting from the breach by LRCA of any provision of this Agreement.
14. Assignment. This Agreement shall be binding on the parties and their
respective heirs, executors, successors and assigns. Neither party may assign
its rights or obligations hereunder without the prior written consent of the
other party.
15. Relationship of the Parties. This Agreement is not a contract of
employment and nothing herein contained shall be construed to create the
relationship of employer and employee between LRCA and the RFC Group or any of
its officers, employees or agents. Nothing in this Agreement shall be deemed
to create a joint venture, partnership or association between the parties.
16. Entire Agreement. This Agreement and any documents incorporated by
reference herein constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes any prior written or oral
understandings. No changes in this Agreement shall be binding unless signed
by an officer of the party sought to be charged.
17. No Waiver. The failure of either party to require strict compliance with
any provision of this Agreement shall not constitute a waiver of that party's
right thereafter to require strict compliance upon notice to the noncomplying
party. Failure of either party to exercise any right or remedy contained in
<PAGE> 5
this Agreement shall be without prejudice to the exercise by that party of
that or any other right or remedy under this Agreement.
18. Governing Law. The validity of this Agreement, and the rights and
obligations of the parties hereunder, shall be governed by the laws of the
State of Illinois.
19. Notices. Whenever this Agreement requires the giving of notice, such
notice shall be in writing and mailed to the other party either by first class
mail, or by certified mail, return receipt requested. Notice shall be
effective upon receipt thereof. Notice by first class mail be deemed received
five days after mailing thereof. Notice shall be sent:
For LRCA to: Life Reassurance Corporation of America
969 High Ridge Road
Stamford, Connecticut 06905
Attention: President
For ACLIC to: American Combined Life Insurance Company
2550 Golf Road, 6th Floor
Rolling Meadows, Illinois 60008
Attention: President
For RFC to: Resource Financial Corporation
1345 River Bend Drive
Dallas, Texas 75247
Attention: President
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
written above.
AMERICAN COMBINED LIFE
INSURANCE COMPANY
s/
Ronald D. Markovits
Vice President
RESOURCE FINANCIAL
CORPORATION
s/
L. Keller Smith
President
LIFE REASSURANCE CORPORATION
OF AMERICA
s/
W. Weldon Wilson
Executive Vice President
<PAGE> 1
CONSULTING AND NON-COMPETE AGREEMENT
This Consulting and Non-compete Agreement (hereinafter "Agreement") is
made and entered into on this 30th day of June, 1996 to be effective as of the
first day of July, 1996 ("Effective Date")by and between:
(i) Ryan Insurance Group, Inc, a Delaware corporation ("RIG"); and
(ii) Life Reassurance Corporation of America, a Connecticut insurance
corporation ("LRCA"); and recites as follows:
WHEREAS, on or about the Effective Date, RIG will sell all of the issued
and outstanding shares of the capital stock of Resource Dealer Group, Inc., an
Illinois corporation ("RDG"), and certain other assets to Resource Financial
Corporation, a Delaware corporation ("RFC"), and
WHEREAS, RFC, together with its affiliates ("Resource"), on or after the
Effective Date, will produce credit life and credit accident and health
insurance sold in automobile dealerships with which Resource has, or may have
in the future, a credit insurance production or service relationship ("Selling
Dealers") in the United States, excluding the State of New York (the
"Territory")("Credit Business"); and
WHEREAS, LRCA will agree to reinsure some or all of the Credit Business
under arrangements with Resource; and
WHEREAS, some of the Credit Business is or will be reinsured to Columbia
Interstate Life Insurance Company, an Arizona corporation, and Columbia Life
and Casualty Company, Ltd., a Bermuda company (the "Columbia Business");
WHEREAS, in connection with the sale of assets to RFC and the reinsurance
of Credit Business to LRCA, RIG has agreed to perform various transition and
consulting services for LRCA; and
WHEREAS, LRCA desires that RIG perform such transition and consulting
services and agree to such non-competition covenants with respect to the
Credit Business and has agreed to compensate RIG therefor by payment of a fee;
NOW THEREFORE, in consideration of the premises and of the mutual promises
contained herein, the parties hereto agree as follows:
1. BUSINESS TRANSITION AND CONSULTING SERVICES. During the period from
the Effective Date through June 30, 2006, RIG agrees to assist LRCA by
consulting with it, as reasonably requested from time to time, as follows:
a. With respect to methods of retaining Selling Dealers as clients
of Resource under the various business terms in effect as of the Effective
Date.
b. By referring all new business inquiries from prospective
Selling Dealers to LRCA or Resource.
c. With respect to other aspects of the Credit Business,
including:
(i) Standard compensation levels for reinsured and
non-reinsured business.
(ii) Standards for use in reviewing Selling Dealers and
prospective Selling Dealers.
(iii)Practices utilized in evaluating whether prospective
Selling Dealers comply with underwriting standards.
(iv) Practices utilized in reviewing underwriting results of
reinsurance companies affiliated with the Selling Dealers, of the individual
Selling Dealers participating in such reinsurance companies and of Selling
Dealers not affiliated with reinsurance companies.
(v) Reports to be prepared on a regular basis.
(vi) Methods to be utilized in determining the basis for
negotiations if the owner of reinsurance companies affiliated with one or more
Selling Dealers or prospective Selling Dealers desire to sell such company to
<PAGE>
<PAGE> 2
Resource or LRCA or to have Resource or LRCA recapture or reinsure the
business reinsured into the reinsurance company.
d. Provide such other duties as may be mutually agreed upon by the
parties.
e. LRCA and RFC agree that such services will be requested only on
a basis which does not interfere with any other business activity of RIG, and
that RIG's unavailability to provide any requested services shall not be a
default hereunder by RIG unless RIG's failure to respond to reasonable
requests shall be repeated and willful and continues after 90 days' written
notice.
2. NON-COMPETITION.
(a) RIG and its affiliates covenant and agree that for a period of ten
(10) years from and after the Effective Date, RIG and its affiliates will not,
without the prior written consent of LRCA, directly or indirectly, own,
manage, operate, join, control, or participate in or be connected with any
business, individual, partnership, firm or corporation, which is at the time
engaged as a substantial business activity in the marketing of credit
insurance products to or for automobile dealerships in the Territory.
(b) RIG and its affiliates further agree that for a period of ten (10)
years following the Effective Date, they will not knowingly solicit, attempt
to obtain, accept from or aid or assist any other party in a material manner
in the solicitation of such insurance business in the Territory.
(c) RIG shall not be deemed to be in breach of the restrictions in (a) or
(b) above unless it shall have failed to cure an alleged violation thereof
within 90 days after written notice from LRCA.
(d) In the event that the provisions of Section 5(n) of the Asset
Purchase Agreement among RIG, Aon Direct Group, Inc. and RFC shall terminate
as a result of Net Collected Premiums being less than $225,000,000 in any of
the calendar years specified therein, the non-competition agreement of RIG and
its affiliates set forth in this Agreement shall terminate simultaneously, and
thereafter RIG or any of its affiliates may at any time and in any manner,
directly or indirectly, market credit insurance products to, or generate and
service Credit Business from, automobile dealerships anywhere in the Territory
and/or invest in, provide assistance to, or retain others engaged in
marketing, generating or servicing Credit Business. The termination of this
covenant shall not limit or affect LRCA's obligation to pay compensation as
provided under Section 3 and any credit insurance business generated by RIG,
its affiliates or any other person engaged in marketing or servicing credit
business with insurance coverage inception dates of June 30, 2006 and prior
shall be reinsured to LRCA under reinsurance terms substantially in effect
between Combined Insurance Company of America ("CICA") or American Combined
Life Insurance Company ("ACLIC") and LRCA .
(e) Notwithstanding the non-competition restrictions on RIG set forth
above, RIG or its affiliates may (i) own an aggregate of not more than 10% of
the outstanding stock of any class of any corporation engaged in the Credit
Business if such stock is listed on a national securities exchange provided
that RIG or its affiliates do not have the power to control or direct the
management or affairs of such corporation, (ii) own or invest in or manage or
assist any business which is engaged in providing administrative or investment
services outside the Territory to reinsurance companies which reinsure
business attributable to RFC or engaged as a broker or agent under applicable
securities laws in connection with the issuance or sale of any securities of a
reinsurance company engaged in the Credit Business and/or (iii) acquire any
business which is engaged in the Credit Business, provided that the Credit
Business does not account for a substantial part of such acquired business and
the marketing and sale of new credit insurance products to automobile dealers
ceases within 90 days of such acquisition.
<PAGE> 3
(f) To the extent that any part of this provision may be invalid, illegal
or unenforceable for any reason, it is intended that such part shall be
enforceable to the extent that a court of competent jurisdiction shall
determine that such part if more limited in scope would have been enforceable
and such part shall be deemed to have been so written and the remaining parts
shall as written be effective and enforceable in all events.
(g) Nothing in this Section shall apply to the marketing of credit
insurance business written prior to the Effective Date.
3. COMPENSATION. With respect to all Credit Business produced by RFC
or its affiliates, successors or assigns and/or pursuant to Section 2(d) above
with an insurance coverage inception date of July 1, 1996 through June 30,
2001 (including Credit Business produced in the circumstances contemplated by
Section 2(d) above), LRCA shall pay RIG a fee of 5% of the Net Collected
Premium during the period of July 1, 1996 through June 30, 2001.The fee shall
be payable monthly on the 10th day of the month following collection.
Notwithstanding the foregoing, the fee (determined on the basis set forth
above) for Columbia Business shall be 6.5%. "Net Collected Premiums" shall
mean the gross premiums collected on Credit Business less premium refunds on
cancellations.
4. ACCOUNTING. LRCA shall provide to RIG with each such monthly
payment a detailed accounting and summary statement sufficient to enable RIG
to readily verify that the amount of such monthly payment is correct.
5. AUDIT. Each party hereto covenants and agrees that the other party
shall have the right to audit the books and records of the other relating to
the business transacted hereunder upon at least two business days prior
written notice, which audit is to be conducted during regular business hours
at the business location of the audited party or at such other location as the
audited party may reasonably designate. Such audit may be conducted by the
auditing party alone or together with its representatives, accountants or
actuaries, at the option of the auditing party. The auditing party shall bear
the cost of the audit. In the event of any audit under this Section, the
party being audited shall extend its full and complete cooperation to the
auditing party. The audited party shall make reasonable office facilities
available to the auditing party.
7. NOTICES. Any notice, demand, report, statement or other
communication provided for or appropriate under this Agreement ("Notice")
shall be in writing addressed to the party for whom it is intended as set
forth below:
If to LRCA:
Life Reassurance Corporation of America
969 High Ridge Road
Stamford, Connecticut 06905
Attn: President
Telecopy: (203) 321-3232
If to RIG:
Ryan Insurance Group, Inc.
123 North Wacker Drive
Chicago, Illinois 60606
Attn: President
Telecopy: (312) 781-8827
With a copy to:
Aon Corporation
Law Department
123 North Wacker Drive
Chicago, Illinois 60606
Attn: Richard E. Barry
Telecopy: (312) 701-3888
<PAGE> 4
Any notice shall be addressed as set forth above to the party for whom it is
intended and shall be deemed delivered (i) when received, if sent by regular
United States mail, electronic facsimile transmission or personal delivery; or
(ii) when sent if sent postage paid: (a) by United States certified mail,
return receipt requested; (b) Federal Express; (c) U.P.S. overnight; or (d)
other nationally recognized express carrier which provides proof of delivery.
Any party may change its address for purposes of receipt of any Notice by
giving ten (10) days' notice of such change to the other parties in the manner
above prescribed.
8. GOVERNING LAW. This Agreement shall be deemed to have been made
under and shall be governed by the laws and decisions of the State of Illinois
and the courts thereof (without regard to principles of conflict of laws
thereof) in all respects, including matters of construction, validity, and
performance.
9. ASSIGNMENT. This Agreement shall be binding on all successors and
permitted assigns of the parties hereof. Neither party hereto shall assign
any of its duties or rights under this Agreement without the prior written
consent of the other party.
10. ENTIRE UNDERSTANDING. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
No other oral or written agreements or contracts relating to the transactions
contemplated hereby currently exist or are contemplated hereunder. No
amendment, modification, or alteration of the terms hereof shall be binding
unless the same be in writing duly executed and delivered on behalf of all
parties hereto by their respective officers thereunto duly authorized.
11. INVALIDITY. The invalidity or unenforceability of any provision or
portion hereof shall not affect the validity or enforceability of the other
provisions or portions hereof.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
<PAGE>
<PAGE> 5
IN WITNESS WHEREOF the parties have caused this Agreement to be executed
by their duly authorized officers, in a number of counterparts, each of which
may be taken as an original, as of the day and year first above written.
RYAN INSURANCE GROUP, INC.
s/
Richard E. Barry
Attorney-in-fact
LIFE REASSURANCE CORPORATION OF AMERICA
W. Weldon Wilson
Executive Vice President
<PAGE> 1
EMPLOYMENT AGREEMENT
BETWEEN
LIFE RE CORPORATION
AND
SAMUEL V. FILOROMO
<PAGE>
<PAGE> 2
This EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of the 1st
day of June, 1996 (the "Effective Date") by and between Life Re Corporation, a
Delaware corporation having its principal executive offices at 969 High Ridge
Road, Stamford, Connecticut (hereinafter referred to as the "Company") and
Samuel V. Filoromo (referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Company wishes to assure itself of the continued services of
the Executive, and the Executive is willing to continue in the employ of the
Company, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Definitions. Unless defined elsewhere in this Agreement, terms that
are capitalized will have the meanings set forth or incorporated by reference
in paragraph 21 below.
2. Employment. The Company agrees to continue to employ the Executive,
and the Executive agrees to continue to be employed by the Company, during the
term set forth in paragraph 3 below and on the other terms and conditions of
this Agreement.
3. Term. The term of this Agreement will commence on the Effective
Date and, subject to paragraph 10(b) below, will terminate on the second
anniversary of the Effective Date. At least one year prior to the end of the
term of this Agreement, the Company will provide the Executive with written
notice of whether or not the Company will negotiate the renewal of this
Agreement with the Executive.
4. Position, Duties and Responsibilities.
(a) During the term of this Agreement, the Executive will serve as, and
be elected to and hold the offices and title of, Vice President - Operations.
Executive's duties shall be the duties and responsibilities normally
associated with such title. In such capacities, he will report to the Office
of the Chairman of the Company.
(b) Executive agrees to serve as a director of the Company, if elected;
provided, however, this Section 4(b) will expire upon a Change in Control.
(c) During the term of this Agreement, the Executive will serve as, and
be elected to and hold the offices and title of, Executive Vice President -
Operations of Life Reassurance Corporation of America. Executive's duties
shall be the duties and responsibilities normally associated with the chief
administrative officer. In such capacities, he will report to the Chief
Executive Officer of Life Reassurance Corporation of America.
(d) Executive agrees to serve as a director of the subsidiaries of the
Company, if elected; provided, however, this Section 4(b) will expire upon a
Change in Control.
(e) During the term of this Agreement, the Executive will devote such
time to the affairs of the Company as is necessary to perform his duties and
responsibilities under this Agreement. Nothing in this Agreement will preclude
the Executive from devoting reasonable time to any other endeavors, provided
any such endeavors do not interfere with his duties.
5. Place of Performance. In connection with his employment by the
Company, the Executive will not be required by the Company to be absent from
Executive's home office on travel status or otherwise more than sixty business
days each year nor more than fourteen consecutive days.
<PAGE> 3
6. Compensation. During the term of this Agreement, the Company will
pay the Executive and the Executive agrees to accept a base salary in the
amount of not less than $241,500.00 per year, plus bonuses at such times and
in such amounts as determined by the Compensation Committee of the Board of
Directors, with increases in such amounts made in accordance with the
Company's regular administrative practices of salary increases applicable to
executives with comparable titles or responsibilities at comparable companies
from time to time during the term of this Agreement (the annual base salary as
increased from time to time during the term of this Agreement will hereinafter
be referred to as the "Base Salary"); provided, however, that:
(a) The Executive's Base Salary will be reviewed at least once each
year by the Compensation Committee of the Board of Directors. In addition,
the Executive will be considered for a bonus at least once each year.
(b) The Base Salary will be paid in installments no less frequent than
semi-monthly.
(c) Any increase in Base Salary or other compensation will not limit or
reduce any other obligation of the Company hereunder and, once established at
an increased specified rate, the Executive's Base Salary hereunder will not
thereafter be reduced.
(d) During the term of this Agreement, the Executive will be a full
participant in the Company's 401(k) Plan, the Supplemental Executive
Retirement Plan, and in any and all other plans in which similarly-situated
employees of the Company or its subsidiaries participate, which programs are
in effect on the date hereof or that may hereafter be adopted.
(e) During the term of this Agreement, the Executive will be entitled
to perquisites, including, without limitation, an office, secretarial and
clerical staff, and fringe benefits (including, without limitation, free
parking), in each case at least equal to, and on the same terms and conditions
as, those attached to his office on the Effective Date, as well as to
reimbursement of all reasonable expenses and disbursements incurred by him in
the course of his duties.
(f) Subject to the provisions of paragraph 6(g) below, the Executive,
his dependents and beneficiaries will be entitled to all employee benefits and
service credit for such benefits during the term of this Agreement to which
similarly-situated employees of the Company or its subsidiaries, their
dependents and beneficiaries are entitled as the result of such employment
during the term of this Agreement under the terms of employee benefit plans
and practices of the Company and its subsidiaries, including, without
limitation, the Qualified Plan, the 401(k) Plan, the Company's life insurance
plans, its disability benefit plans, its vacation and holiday pay plans, its
medical, dental and welfare plans, and other present or successor employee
benefit plans and practices of the Company and its subsidiaries for which
similarly-situated employees of the Company or its subsidiaries are eligible,
and to all payments and other benefits under any such employee benefit plan or
practice subsequent to the term of this Agreement as a result of participation
in such plan or practice during the term of this Agreement.
(g) Any provision of paragraph 6(f) above to the contrary
notwithstanding, following a Change in Control, for the remaining term of the
Agreement the Executive, his dependents and beneficiaries will be entitled to
employee benefits and service credit for benefits under the employee benefit
plans and practices referred to in paragraph 6(f) above at least equal to
those provided on the Effective Date, as the same may have been improved from
time to time during the term of this Agreement. If and to the extent that
such employee benefits and service credits are not payable or provided under
such employee benefit plans or practices by reason of any amendment or
<PAGE> 4
termination thereof or otherwise, the Company itself will pay or provide
therefor. To the extent any form of remuneration required under this
Agreement is impermissible under the terms of any applicable plan or illegal
under existing law, then the Company will provide an equivalent benefit
directly to the Executive in another permissible manner.
(h) If any payments or distributions to the Executive by the Company or
any of its subsidiaries under this Agreement ("Payments") are subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Payments and all
income taxes and Excise Tax upon such Company payment shall be equal to the
aggregate amount of the Payments. The determination of whether any Payments
are subject to the Excise Tax shall be based on the opinion of either an
accounting firm or tax counsel selected by the Company and reasonably
acceptable to the Executive, the fees and expenses of such advisor being paid
by the Company. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal, state and local income
taxes at the highest marginal rate of income taxation applicable to any
individual residing in the jurisdiction in which the Executive resides in the
calendar year in which the Gross-Up Payment is to be made.
In the event that the Excise Tax is subsequently determined by the
Company and its advisor referred to in the first subparagraph of the paragraph
6(h) to be less than the amount taken into account under this paragraph 6(h)
at the time of termination of the Executive's employment with the Company, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is so finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax and/or a federal,
state or local income tax deduction) plus interest on the amount of such
repayment at the rate provided in section 1274 (b)(2)(B) of the Code.
In the event that the Excise Tax is determined by the Company and its
advisor referred to in the first subparagraph of the paragraph 6(h) to exceed
the amount taken into account under this paragraph 6(h) at the time of the
termination of the Executive's employment with the Company (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) at the time
that the amount of such excess is so finally determined.
The Executive and the Company shall each reasonably cooperate with the
other in connection with any administrative or judicial proceedings concerning
the existence or amount of liability for Excise Tax with respect to the
Payments.
7. Confidentiality; Noncompetition; Nonsolicitation.
(a) The Executive agrees, subject to the Company's fulfilling its
obligations during the term of this Agreement and to the payment by it of all
amounts and benefits to which the Executive is entitled hereunder, that
without the written consent of the Board of Directors he will not:
(i) during the term of this Agreement or thereafter disclose or
communicate to any person, firm or corporation any information not generally
available to the public concerning any confidential information or trade
secrets of the Company, except as may be reasonably necessary or appropriate
<PAGE> 5
in connection with the performance by the Executive of his duties hereunder,
and except for such disclosure as may be required or protected by law, court
order or contract and except for such disclosure as the Executive believes in
good faith would subject the Company, a subsidiary of the Company, the
Executive, or another officer, director or employee of the Company or a
subsidiary of the Company to civil or criminal liability or prosecution if not
made; or
(ii) during the term of this Agreement and for the one year period
thereafter, (A) engage anywhere within a fifty mile radius of the areas in
which the Company or its subsidiaries have an office at the time of
termination of his employment, directly or indirectly, alone or as a
principal, agent, partner, officer, director, employee or consultant of any
organization that is primarily in the business of reinsuring life insurance
risks and is in direct competition with the Company or its subsidiaries (the
"Designated Industry"); (B) divert to any competitor of the Company or its
subsidiaries in the Designated Industry any customer of the Company or its
subsidiaries; or (C) solicit or encourage any officer or employee of the
Company or its subsidiaries to leave his or her employment with the Company
for employment with any competitor of the Company or its subsidiaries in the
Designated Industry.
(b) The Executive agrees that upon the actual or threatened breach or
violation by him of the commitments and obligations contained in paragraph
7(a) above, the Company will be entitled to seek both preliminary and
permanent injunctive relief, in any action or proceeding brought in an
appropriate court having jurisdiction over the Executive, to restrain him from
committing any violation of said commitments and obligations.
(c) The Executive also agrees that upon leaving the Company's employ he
will not take with him, without the prior written consent of an officer
authorized to act in the matter by the Board of Directors, any record or other
document or property of the Company, its subsidiaries and affiliates, or any
copy or reproduction thereof, mechanical or otherwise, which is of a
confidential nature relating to the Company, its subsidiaries and affiliates,
or, without limitation, relating to its or their methods of distribution,
client relationships or marketing strategies, or which was obtained by him or
entrusted to him during the course of his employment with the Company.
8. Termination of Employment.
(a) The term of this Agreement will terminate upon the death of the
Executive.
(b) The Company may terminate the Executive's employment during the
term of this Agreement for Cause as provided in subparagraph (i) below or in
the event of Disability as provided in subparagraph (ii) below.
(i) This Agreement will be considered terminated for "Cause" only:
(A) upon the willful failure of the Executive to comply with
material insurance laws or regulations that has or is likely to result in
substantial economic damage to the Company and that has not been cured to the
reasonable satisfaction of the Board within thirty days; or
(B) upon the proved fraud or dishonesty of the Executive that has or
is likely to result in substantial economic damage to the Company;
and in the case of each of clauses (A) and (B) above, the applicable
conditions set forth in paragraph 8(e) below are satisfied.
(ii) The term "Disability" as used in this Agreement means an injury or
physical or mental illness which prevents the Executive from substantially
performing his duties hereunder for six consecutive months within any twelve
consecutive month period. Either the Compensation Committee of the Board or
the Board may, upon consultation with a physician, determine whether the
Executive has a Disability. The term of this Agreement will end as of the
<PAGE> 6
close of business on the last day of such six month period but without
prejudice to any payments owed to the Executive in respect of disability under
any plan or practice of the Company.
(c) The Executive may terminate his employment with the Company during
the term of this Agreement for Good Reason. For the purposes of this
Agreement, "Good Reason" will mean (i) any breach by the Company of the terms
of this Agreement, including, but not limited to, a material reduction of the
Executive's duties, title, position, or compensation or (ii) the failure of
the Company prior to one year before the expiration of this Agreement to offer
the Executive at least a one year extension of this Agreement at his then
current salary and employee benefits. An election by the Executive to
terminate his employment with the Company under the provisions of this
paragraph 8(c) will not be deemed a voluntary termination of employment by the
Executive for the purpose of this Agreement or any plan or practice of the
Company.
(d) Notwithstanding anything to the contrary set forth herein, subject
to the By-Laws of the Company, the Board will have the right by majority vote
of the entire membership of the Board to terminate the Executive's employment
with the Company for any reason other than Cause at any time, subject to the
consequences of such termination as set forth in paragraph 9 below.
(e) Any termination by the Company pursuant to paragraph 8(b) or
paragraph 8(d) above or by the Executive pursuant to paragraph 8(c) above will
be communicated by written Notice ofTermination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" will mean a notice
which indicates the specific termination provision in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment with
the Company under the provisions so indicated.
(f) "Date of Termination" will mean (i) if the Executive's employment
is terminated by his death, the date of his death, (ii) f the Executive's
employment is terminated because of a Disability, thirty days after Notice of
Termination is given (provided that the Executive will not have returned to
the performance of his duties on a full-time basis during such thirty-day
period), (iii) if the termination is pursuant to subparagraph 8(b)(i)(A) or
8(b)(i)(B) above, upon Notice of Termination, and (iv) if the Executive's
employment is terminated for any other reason, the date thirty-one days from
the date on which a Notice of Termination was given (provided that the
Executive has not cured the material breach to the reasonable satisfaction of
the Board during the thirty-day cure period, if applicable).
9. Compensation on Termination. The parties recognize and agree that,
if the Company terminates the Executive's employment during the term of this
Agreement for Disability or any reason other than for Cause, or if the
Executive terminates his employment during the term of this Agreement for Good
Reason pursuant to paragraph 8(c) above, the actual damages to the
Executive would be difficult if not impossible to ascertain and agree that the
Executive's sole remedy will be a right to receive amounts determined and paid
in accordance with the provisions of this paragraph 9. If Executive is
terminated for Cause, he will not receive any further compensation other than
accrued but unpaid Base Salary and unused accrued vacation time. In the event
of the Executive's termination for Good Reason, the amount of any payment
provided for in this paragraph 9 will be mitigated by the amount of
compensation received by the Executive from Executive's employment in a
position similar to the position held at the Company at the Effective Date;
provided, however, that Executive will not be required to seek such
employment.
<PAGE> 7
(a) If the Company terminates the Executive's employment with the
Company during the term of this Agreement for Disability or any reason other
than for Cause or subsequent to a Change in Control, or if the Executive
terminates his employment with the Company during the term of this Agreement
for Good Reason pursuant to paragraph 8(c) above, the Company will pay or
provide the Executive, as severance pay or liquidated damages or both:
(i) Base Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given, together with any other
amounts payable to the Executive under paragraph 6 above for periods prior to
the Date of Termination;
(ii) a lump sum payment, on the tenth day after the Date of
Termination, equal to the sum of (A) the Base Salary at the rate in effect as
of the Date of Termination from the Date of Termination through date for the
termination of this Agreement provided in paragraph 3 above, and (B) for each
year until the date for the termination of this Agreement provided in
paragraph 3 above, the highest aggregate incentive award awarded to the
Executive by the Company or any subsidiary of the Company with respect to the
Executive's bonus during any year during any one of the two bonus periods
immediately preceding the Date of Termination;
(iii) employee benefits and service credit for employee benefits and
employee benefit accruals which the Executive would have received under
paragraph 6(f) above if the Executive's employment had continued under this
Agreement until the later of (i) one year from the Date of Termination or (ii)
the date for the termination of this Agreement provided in paragraph 3 above;
(iv) all options held by the Executive become immediately vested and
the Executive has the right to exercise the options at any time from the Date
of Termination until the later of (i) one year from the Date of Termination or
(ii) the date for the termination of this Agreement provided in paragraph
3 above; and
(v) any amounts payable under paragraph 20 below.
(b) If the Executive's employment terminates under any circumstance
that does not entitle the Executive to payments under paragraph 9(a) above
(including a termination for Cause or by reason of the death or retirement of
the Executive), the Executive will not be entitled to receive any compensation
under paragraph 6 accruing after the date of such termination (other than
pursuant to paragraph 6(h) above if termination is for Good Reason or not for
Cause) or any payment under paragraph 9(a) above (other than subparagraph
9(a)(i) or subparagraph 9(a)(v) in the case of retirement); provided, however,
that in the event of the death of the Executive, the Company will pay health
insurance benefits for all dependents carried under the Company's Executive's
health plan with respect to the Executive as of the date of the Executive's
death for one year, which dependents may continue such benefits thereafter in
accordance with existing law and the Company's policies.
(c) Nothing above in this paragraph 9 will deprive the Executive of any
rights, payments, benefits or service credit for benefits after termination of
employment which were earned pursuant to any provision of this Agreement or
any plan or practice of the Company including, without limitation, any
pension and welfare benefits payable pursuant to paragraph 6(f) and any legal
fees and expenses payable pursuant to paragraph 20 below.
10. Change in Control. Within thirty days after learning of a Change
in Control of the Company, the Executive, in his sole discretion, may elect to
either (i) terminate his employment with the Company or (ii) continue his
employment with the Company. If the Executive does not inform the Company of
his decision to terminate his employment therewith within thirty days of
learning of a Change in Control, the Executive will be deemed to have
elected to continue his employment with the Company.
<PAGE> 8
(a) If the Executive elects to terminate his employment with the
Company following a Change in Control, his Date of Termination will be the
date the Company receives notice of his election. Within ten days of
receiving notice of the Executive's election, the Company will pay or provide
the Executive, as severance pay or liquidated damages or both:
(i) Base Salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, together with any other amounts
payable to the Executive under paragraph 6 above for periods prior to the Date
of Termination;
(ii) a lump sum payment equal to two hundred percent of the sum of
(A) the Base Salary at the rate in effect as of the Date of Termination, and
(B) the highest aggregate incentive award awarded to the Executive by the
Company or any subsidiary of the Company during any year during any one of the
three bonus periods immediately preceding the Date of Termination; and
(iii) any amounts payable under paragraph 20 below.
(b) Notwithstanding paragraph 2 above, if the Executive elects to
continue his employment with the Company following a Change in Control, the
terms of this Agreement will continue in effect until two years from the date
of the Change in Control.
11. Default by Company. Any provision of this Agreement to the
contrary notwithstanding, if, following termination of employment, the Company
defaults on its obligation to pay any amount payable to the Executive or his
beneficiary under paragraph 6, 9 or 10 when due and fails to remedy such
default within thirty days after having received written notice from the
Executive or his beneficiary, then the Company will thereupon pay to the
Executive or beneficiary, as the case may be, in full discharge of its
obligations to the Executive or beneficiary under this Agreement, (a) a lump
sum amount actuarially equivalent (using the assumptions used at such time
under the Qualified Plan in calculating the amount of lump sum payments) to
the future payments otherwise payable under this Agreement to the Executive
and his beneficiary, and (b) an amount equal to any and all past due payments
owing to the Executive and his beneficiary under this Agreement.
12. Indemnification. The Company will indemnify the Executive to the
full extent permitted by the General Corporation Law of the State of Delaware,
as amended from time to time, for all amounts (including without limitation
judgments, fines, settlement payments, expenses and attorney's fees) connected
with any action, suit, investigation or proceeding arising out of or relating
to the performance by the Executive of services for, or the acting by the
Executive as a director, officer or employee of, the Company, or any
subsidiary of the Company, or any affiliate or any other person or enterprise
at the Company's request, including but not limited to those entities in which
the Company has an investment, as such amounts are incurred. The Company will
maintain a Directors' and Officers' Liability Insurance Policy and will use
its best efforts to maintain the coverage in effect thereunder on the
Effective Date, or one providing substantially similar protection to the
Executive, in full force and effect, which Policy will provide minimum
liability coverage in the amount carried on the Effective Date. Nothing in
this paragraph 12 or elsewhere in this Agreement is intended to prevent the
Company from indemnifying the Executive to any greater extent than is required
by this paragraph.
13. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place;
provided, however, that no such agreement will release the corporation that is
<PAGE> 9
the original party to this Agreement without the Executive's express written
consent. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession will be a breach of this Agreement and
will entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if his employment
were terminated by the Executive for Good Reason or by the Company (other than
for Cause pursuant to paragraph 8(b)), except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective will be deemed the Date of Termination.
(b) If the Executive should die while any amounts are due and payable
to him hereunder, all such amounts, unless otherwise provided herein, will be
paid in accordance with the terms of this Agreement to the Executive's
devisees, legatee or other designee or, if there be no such designee, to the
Executive's estate.
(c) Except as to withholding of any tax under the laws of the United
States or any state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder will be
subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by his legal representatives without
the Company's prior written consent, nor will there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in
this paragraph 13(c) will preclude the Executive from designating a
beneficiary to receive any benefit payable on his death, or the legal
representatives of the Executive from assigning any rights hereunder to the
person or persons entitled thereto under his will or, in case of intestacy, to
the person or persons entitled thereto under the laws of intestacy applicable
to the Executive's estate.
14. Parties. This Agreement will be binding upon and will inure to the
benefit of the Company and the Executive, his heirs, beneficiaries, executors
and other legal representatives.
15. General.
(a) This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof and supersede any and all other
agreements between the parties with respect to the subject matter hereof.
(b) Any modification of this Agreement will not be binding unless in
writing and signed by both an officer or director of the Company duly
authorized to do so and the Executive.
16. Enforceability; Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of the Executive or the Company
under this Agreement would not be materially and adversely affected thereby,
(a) such provision will be fully severable; (b) this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom; and
(d) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms as such illegal, invalid or unenforceable
provision as may be possible.
17. Notices. All notices which may be necessary or proper for either
the Company or the Executive to give to the other under this Agreement will be
in writing and will be delivered by hand or sent by registered or certified
<PAGE> 10
mail, return receipt requested, to the address set forth under the Executive's
name on the last page hereof, in the case of the Executive, and will be sent
in the manner described above to its principal executive offices at 969 High
Ridge Road, Stamford, Connecticut 06905, Attention: General Counsel, or
delivered by hand to its General Counsel, in the case of the Company, and will
be deemed given when sent, provided that any Notice of Termination or other
notice given pursuant to paragraph 8 above will be deemed given only when
received. Either party may by like notice to the other party change the
address at which he or it is to receive notices hereunder.
18. Arbitration. Any controversy or claim arising out of, or related
to, this Agreement, or the breach hereof, that is not subject to cure using
the remedies provided in paragraph 7(b) above will be settled by binding
arbitration in Stamford, Connecticut, in accordance with the rules then
pertaining of the American Arbitration Association, and its decision will be
binding and final, and judgment upon the award rendered may be entered in any
court having jurisdiction thereof, except that, with respect to any arbitrable
controversy or claim, the Executive may have the matter settled by judicial
determination in lieu of arbitration by bringing a court action, if he is the
plaintiff or, if he is not the plaintiff, demanding such judicial
determination within the time to answer any complaint in any arbitration
action that may be commenced.
19. Governing Law. This Agreement will be governed by, and be
enforceable in accordance with, the laws of the State of Delaware without
giving effect to the principles of conflicts of laws thereof.
20. Legal Fees and Expenses. To induce the Executive to execute this
Agreement and to provide the Executive with reasonable assurance that the
purposes of this Agreement will not be frustrated by the cost of its
enforcement should the Company fail to perform its obligations under this
Agreement, the Company will pay and be solely responsible for all reasonable
attorneys' fees and expenses and court costs when incurred by the Executive
and/or his beneficiaries, heirs, executors or other legal representatives as a
result of the Company's failure to perform this Agreement or any provision
hereof to be performed by the Company. Such fees will be due and payable by
the Company regardless of the outcome.
21. Definitions. The following terms, when capitalized in this
Agreement, will have the meanings set forth or incorporated by reference in
this paragraph 21.
(a) "Base Salary" will have the meaning set forth in paragraph 6 above.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
(c) "Cause" will have the meaning set forth in subparagraph 8(b)(i)
above.
(d) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act, whether or not the
Company is subject to the Exchange Act at such time; provided, however, that
without limiting the generality of the foregoing, such a Change in
Control will in any event be deemed to occur if and when:
(i) any person (as such term is used in paragraphs 13(d) and 14(d)(2) of
the Exchange Act, hereinafter in this paragraph 21(e), a "Person"), other than
the Company or a subsidiary or employee benefit plan of the Company or
subsidiary, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than twenty-five percent of the combined voting power of the
<PAGE> 11
Company's then outstanding securities;
(ii) stockholders approve a merger, consolidation or other business
combination (a "Business Combination") other than a Business Combination in
which holders of common stock of the Company immediately prior to the Business
Combination have substantially the same proportionate ownership of Common
Stock of the surviving corporation immediately after the Business Combination
as immediately before;
(iii) stockholders approve either (A) an agreement for the sale or
disposition of all or substantially all of the Company's assets to any entity
which is not a subsidiary of the Company, or (B) a plan of complete
liquidation;
(iv) the persons who were members of the Board of Directors immediately
before a tender offer by any Person other than the Company or a subsidiary, or
before a merger, consolidation, or contested election, or before any
combination of such transactions, cease to constitute a majority of the Board
of Directors as a result of such transaction or transactions.
(e) "Common Stock" means common stock of the Company, par value $0.001
per share.
(f) "Company" means Life Re Corporation, a Delaware corporation, and
any successors to its business and/or assets which executes and delivers an
agreement provided for in paragraph 13(a) above or which otherwise becomes
bound by all the terms and conditions of this Agreement by operation of law.
(g) "Date of Termination" will have the meaning set forth in paragraph
8(f) above.
(h) "Designated Industry" will have the meaning set forth in
subparagraph 7(A)(ii) above.
(i) "Disability" will have the meaning set forth in subparagraph
8(b)(ii) above.
(j) "Effective Date" means the date first set forth above, which shall
begin the term of this Agreement.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(l) "Good Reason" will have the meaning set forth in paragraph 8(c)
above.
(m) "Notice of Termination" will have the meaning set forth in paragraph
8(e) above.
(o) "Qualified Plan" means the Employee's Retirement Plan for Life
Reassurance Corporation of America as in effect on the Effective Date.
22. Survival of Terms. The provisions of paragraphs 6, 7, 9, 10, 11,
12, 13, 16, 17, 18, 19, and 20 will survive the termination or expiration of
this Agreement.
<PAGE>
<PAGE> 12
WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its authorized representatives, and the Executive has hereunto set his hand as
of the date first above written.
LIFE RE CORPORATION
s/
Rodney A. Hawes, Jr.
Chairman of the Board
and Chief Executive Officer
ATTEST:
s/
Jacques E. Dubois
President and Chief Operating
Officer
EXECUTIVE
s/
Samuel V. Filoromo
ADDRESS:
<PAGE> 1
EMPLOYMENT AGREEMENT
BETWEEN
LIFE RE CORPORATION
AND
CHRIS C. STROUP
<PAGE>
<PAGE> 2
This EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of the 1st
day of June, 1996 (the "Effective Date") by and between Life Re Corporation, a
Delaware corporation having its principal executive offices at 969 High Ridge
Road, Stamford, Connecticut (hereinafter referred to as the "Company") and
Chris C. Stroup (referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Company wishes to assure itself of the continued services of
the Executive, and the Executive is willing to continue in the employ of the
Company, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Definitions. Unless defined elsewhere in this Agreement, terms
that are capitalized will have the meanings set forth or incorporated by
reference in paragraph 21 below.
2. Employment. The Company agrees to continue to employ the
Executive, and the Executive agrees to continue to be employed by the Company,
during the term set forth in paragraph 3 below and on the other terms and
conditions of this Agreement.
3. Term. The term of this Agreement will commence on the Effective
Date and, subject to paragraph 10(b) below, will terminate on the third
anniversary of the Effective Date. At least one year prior to the end of the
term of this Agreement, the Company will provide the Executive with written
notice of whether or not the Company will negotiate the renewal of this
Agreement with the Executive.
4. Position, Duties and Responsibilities.
(a) During the term of this Agreement, the Executive will serve as, and
be elected to and hold the offices and title of, Executive Vice President and
Chief Financial Officer. Executive's duties shall be the duties and
responsibilities normally associated with such title. In such capacities, he
will report to the Office of the Chairman of the Company.
(b) Executive agrees to serve as a director of the Company, if elected;
provided, however, this Section 4(b) will expire upon a Change in Control.
(c) During the term of this Agreement, the Executive will devote such
time to the affairs of the Company as is necessary to perform his duties and
responsibilities under this Agreement. Nothing in this Agreement will preclude
the Executive from devoting reasonable time to any other endeavors, provided
any
such endeavors do not interfere with his duties.
5. Place of Performance. In connection with his employment by the
Company, the Executive will not be required by the Company to be absent from
Executive's home office on travel status or otherwise more than a reasonable
time each year as necessary or appropriate for the performance of his duties
hereunder.
6. Compensation. During the term of this Agreement, the Company will
pay the Executive and the Executive agrees to accept a base salary in the
amount of not less than $350,000.00 per year, plus bonuses at such times and
in such amounts as determined by the Compensation Committee of the Board of
Directors, with increases in such amounts made in accordance with the
Company's regular administrative practices of salary increases applicable to
executives with comparable titles or responsibilities at comparable companies
from time to time during the term of this Agreement (the annual base salary as
<PAGE> 3
increased from time to time during the term of this Agreement will hereinafter
be referred to as the "Base Salary"); provided, however, that:
(a) The Executive's Base Salary will be reviewed at least once each year
by the Compensation Committee of the Board of Directors. In addition, the
Executive will be considered for a bonus at least once each year under the
Company's Annual Incentive Plan.
(b) The Base Salary will be paid in installments no less frequent than
semi-monthly.
(c) Any increase in Base Salary or other compensation will not limit or
reduce any other obligation of the Company hereunder and, once established at
an increased specified rate, the Executive's Base Salary hereunder will not
thereafter be reduced.
(d) During the term of this Agreement, the Executive will be a full
participant in the Company's 401(k) Plan, the Annual Incentive Plan, the
Supplemental Executive Retirement Plan, and in any and all other plans in
which similarly-situated employees of the Company or its subsidiaries
participate, which programs are in effect on the date hereof or that may
hereafter be adopted.
(e) During the term of this Agreement, the Executive will be entitled to
perquisites, including, without limitation, an office, secretarial and
clerical staff, and fringe benefits (including, without limitation, free
parking), in each case at least equal to, and on the same terms and conditions
as, those attached to his office on the Effective Date, as well as to
reimbursement of all reasonable expenses and disbursements incurred by him in
the course of his duties.
(f) Subject to the provisions of paragraph 6(g) below, the Executive,
his dependents and beneficiaries will be entitled to all employee benefits and
service credit for such benefits during the term of this Agreement to which
similarly-situated employees of the Company or its subsidiaries, their
dependents and beneficiaries are entitled as the result of such employment
during the term of this Agreement under the terms of employee benefit plans
and practices of the Company and its subsidiaries, including, without
limitation, the Qualified Plan, the 401(k) Plan, the Company's life insurance
plans, its disability benefit plans, its vacation and holiday pay plans, its
medical, dental and welfare plans, and other present or successor employee
benefit plans and practices of the Company and its subsidiaries for which
similarly-situated employees of the Company or its subsidiaries are eligible,
and to all payments and other benefits under any such employee benefit plan or
practice subsequent to the term of this Agreement as a result of participation
in such plan or practice during the term of this Agreement.
(g) Any provision of paragraph 6(f) above to the contrary
notwithstanding, following a Change in Control, for the remaining term of the
Agreement the Executive, his dependents and beneficiaries will be entitled to
employee benefits and service credit for benefits under the employee benefit
plans and practices referred to in paragraph 6(f) above at least equal to
those provided on the Effective Date, as the same may have been improved from
time to time during the term of this Agreement. If and to the extent that
such employee benefits and service credits are not payable or provided under
such employee benefit plans or practices by reason of any amendment or
termination thereof or otherwise, the Company itself will pay or provide
therefor. To the extent any form of remuneration required under this
Agreement is impermissible under the terms of any applicable plan or illegal
under existing law, then the Company will provide an equivalent benefit
directly to the Executive in another permissible manner.
<PAGE> 4
(h) If any payments or distributions to the Executive by the Company or
any of its subsidiaries under this Agreement ("Payments") are subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Payments and all
income taxes and Excise Tax upon such Company payment shall be equal to the
aggregate amount of the Payments. The determination of whether any Payments
are subject to the Excise Tax shall be based on the opinion of either an
accounting firm or tax counsel selected by the Company and reasonably
acceptable to the Executive, the fees and expenses of such advisor being paid
by the Company. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal, state and local income
taxes at the highest marginal rate of income taxation applicable to any
individual residing in the jurisdiction in which the Executive resides in the
calendar year in which the Gross-Up Payment is to be made.
In the event that the Excise Tax is subsequently determined by the
Company and its advisor referred to in the first subparagraph of the paragraph
6(h) to be less than the amount taken into account under this paragraph 6(h)
at the time of termination of the Executive's employment with the Company, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is so finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax and/or a federal,
state or local income tax deduction) plus interest on the amount of such
repayment at the rate provided in section 1274 (b)(2)(B) of the Code.
In the event that the Excise Tax is determined by the Company and its
advisor referred to in the first subparagraph of the paragraph 6(h) to exceed
the amount taken into account under this paragraph 6(h) at the time of the
termination of the Executive's employment with the Company (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) at the time
that the amount of such excess is so finally determined.
The Executive and the Company shall each reasonably cooperate with the
other in connection with any administrative or judicial proceedings concerning
the existence or amount of liability for Excise Tax with respect to the
Payments.
(i) The Executive will be eligible to receive performance-based
bonuses, payable at the same time as bonuses are paid under the Company's
Long-Term Incentive Plan ("LTIP"). The bonuses to be paid to the Executive,
if any, will be based on the achievement of certain performance goals
established under the LTIP. Upon the occurrence of a "Triggering Event" (as
defined in the LTIP) the Executive will be eligible and receive a bonus in
an amount equal to the sum of:
(ii) 0.22% of the amount involved in connection with a transaction which
meets the criteria set forth in "Performance Goal A" (as defined in the LTIP);
(iii) 0.22% of the amount involved in connection with the acquisition of
a block of insurance in force which meets the criteria set forth in
"Performance Goal B" (as defined in the LTIP); and
(iv) 0.55% of the amount involved in connection with the recognition of
capital gains by the Company upon the sale of an investment which meets the
criteria set forth in "Performance Goal C" (as defined in the LTIP). No bonus
will be payable to the Executive upon the completion of (i)the acquisition of
Modern American Life Insurance Company and Western Pioneer Life Insurance
Company or (ii) the completion of the reinsurance arrangement with United
Insurance Company of America.
<PAGE> 5
(j) For purposes of the Supplemental Executive Retirement Plan (the
"SERP"), for the first five years of his employment by the Company, the
Executive will be granted two years of service credit under the SERP for each
actual year of full time employment.
7. Confidentiality; Noncompetition; Nonsolicitation.
(a) The Executive agrees, subject to the Company's fulfilling its
obligations during the term of this Agreement and to the payment by it of all
amounts and benefits to which the Executive is entitled hereunder, that
without the written consent of the Board of Directors he will not:
(i) during the term of this Agreement or thereafter disclose or
communicate to any person, firm or corporation any information not generally
available to the public concerning any confidential information or trade
secrets of the Company, except as may be reasonably necessary or appropriate
in connection with the performance by the Executive of his duties hereunder,
and except for such disclosure as may be required or protected by law, court
order or contract and except for such disclosure as the Executive believes in
good faith would subject the Company, a subsidiary of the Company, the
Executive, or another officer, director or employee of the Company or a
subsidiary of the Company to civil or criminal liability or prosecution if not
made; or
(ii) during the term of this Agreement and for the one year period
thereafter, (A) engage anywhere within a fifty mile radius of the areas in
which the Company or its subsidiaries have an office at the time of
termination of his employment, directly or indirectly, alone or as a
principal, agent, partner, officer, director, employee or consultant of any
organization that is primarily in the business of reinsuring life insurance
risks and is in direct competition with the Company or its subsidiaries (the
"Designated Industry"); (B) divert to any competitor of the Company or its
subsidiaries in the Designated Industry any customer of the Company or its
subsidiaries; or (C) solicit or encourage any officer or employee of the
Company or its subsidiaries to leave his or her employment with the Company
for employment with any competitor of the Company or its subsidiaries in the
Designated Industry.
(b) The Executive agrees that upon the actual or threatened breach or
violation by him of the commitments and obligations contained in paragraph
7(a) above, the Company will be entitled to seek both preliminary and
permanent injunctive relief, in any action or proceeding brought in an
appropriate court having jurisdiction over the Executive, to restrain him from
committing any violation of said commitments and obligations.
(c) The Executive also agrees that upon leaving the Company's employ he
will not take with him, without the prior written consent of an officer
authorized to act in the matter by the Board of Directors, any record or other
document or property of the Company, its subsidiaries and affiliates, or any
copy or reproduction thereof, mechanical or otherwise, which is of a
confidential nature relating to the Company, its subsidiaries and affiliates,
or, without limitation, relating to its or their methods of distribution,
client relationships or marketing strategies, or which was obtained by him or
entrusted to him during the course of his employment with the Company.
8. Termination of Employment.
(a) The term of this Agreement will terminate upon the death of the
Executive.
(b) The Company may terminate the Executive's employment during the
term of this Agreement for Cause as provided in subparagraph (i) below or in
the event of Disability as provided in subparagraph (ii) below.
<PAGE> 6
(I) This Agreement will be considered terminated for
"Cause" only:
(A) upon the willful failure of the Executive to comply with
material insurance laws or regulations that has or is likely to result in
substantial economic damage to the Company and that has not been cured to the
reasonable satisfaction of the Board within thirty days; or
(B) upon the proved fraud or dishonesty of the Executive that has
or is likely to result in substantial economic damage to the Company; and in
the case of each of clauses (A) and (B) above, the applicable conditions set
forth in paragraph 8(e) below are satisfied.
(ii) The term "Disability" as used in this Agreement means an injury
or physical or mental illness which prevents the Executive from substantially
performing his duties hereunder for six consecutive months within any twelve
consecutive month period. Either the Compensation Committee of the Board or
the Board may, upon consultation with a physician, determine whether the
Executive has a Disability. The term of this Agreement will end as of the
close of business on the last day of such six month period but without
prejudice to any payments owed to the Executive in respect of disability under
any plan or practice of the Company.
(c) The Executive may terminate his employment with the Company during
the term of this Agreement for Good Reason. For the purposes of this
Agreement, "Good Reason" will mean (i) any breach by the Company of the terms
of this Agreement, including, but not limited to, a material reduction of the
Executive's duties, title, position, or compensation or (ii) the failure of
the Company prior to one year before the expiration of this Agreement to offer
the Executive at least a one year extension of this Agreement at his then
current salary and employee benefits. An election by the Executive to
terminate his employment with the Company under the provisions of this
paragraph 8(c) will not be deemed a voluntary termination of employment by the
Executive for the purpose of this Agreement or any plan or practice of the
Company.
(d) Notwithstanding anything to the contrary set forth herein, subject
to the By-Laws of the Company, the Board will have the right by majority vote
of the entire membership of the Board to terminate the Executive's employment
with the Company for any reason other than Cause at any time, subject to the
consequences of such termination as set forth in paragraph 9 below.
(e) Any termination by the Company pursuant to paragraph 8(b) or
paragraph 8(d) above or by the Executive pursuant to paragraph 8(c) above will
be communicated by written Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" will mean a notice
which indicates the specific termination provision in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment with
the Company under the provisions so indicated.
(f) "Date of Termination" will mean (i) if the Executive's employment
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated because of a Disability, thirty days after Notice of
Termination is given (provided that the Executive will not have returned to
the performance of his duties on a full-time basis during such thirty-day
period), (iii) if the termination is pursuant to subparagraph 8(b)(i)(A) or
8(b)(i)(B) above, upon Notice of Termination, and (iv) if the Executive's
employment is terminated for any other reason, the date thirty-one days from
the date on a Notice of Termination was given (provided that the Executive has
not cured the material breach to the reasonable satisfaction of the Board
during the thirty-day cure period, if applicable).
<PAGE> 7
9. Compensation on Termination. The parties recognize and agree that,
if the Company terminates the Executive's employment during the term of this
Agreement for Disability or any reason other than for Cause, or if the
Executive terminates his employment during the term of this Agreement for Good
Reason pursuant to paragraph 8(c) above, the actual damages to the Executive
would be difficult if not impossible to ascertain and agree that the
Executive's sole remedy will be a right to receive amounts determined and paid
in accordance with the provisions of this paragraph 9. If Executive is
terminated for Cause, he will not receive any further compensation other than
accrued but unpaid Base Salary and unused accrued vacation time. In the event
of the Executive's termination for Good Reason, the amount of any payment
provided for in this paragraph 9 will be mitigated by the amount of
compensation received by the Executive from Executive's employment in a
position similar to the position held at the Company at the Effective Date;
provided, however, that Executive will not be required to seek such
employment.
(a) If the Company terminates the Executive's employment with the
Company during the term of this Agreement for Disability or any reason other
than for Cause or subsequent to a Change in Control, or if the Executive
terminates his employment with the Company during the term of this Agreement
for Good Reason pursuant to paragraph 8(c) above, the Company will pay or
provide the Executive, as severance pay or liquidated damages or both:
(i) Base Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given, together with any other
amounts payable to the Executive under paragraph 6 above for periods prior to
the Date of Termination;
(ii) a lump sum payment, on the tenth day after the Date of
Termination, equal to the sum of (A) the Base Salary at the rate in effect as
of the Date of Termination from the Date of Termination through date for the
termination of this Agreement provided in paragraph 3 above, and (B) for each
year until the date for the termination of this Agreement provided in
paragraph 3 above, the highest aggregate incentive award awarded to the
Executive by the Company or any subsidiary of the Company with respect to the
Executive's bonus during any year during any one of the two bonus periods
immediately preceding the Date of Termination;
(iii) employee benefits and service credit for employee benefits and
employee benefit accruals which the Executive would have received under
paragraph 6(f) above if the Executive's employment had continued under this
Agreement until the later of (i) one year from the Date of Termination or (ii)
the date for the termination of this Agreement provided in paragraph 3 above;
(iv) all options held by the Executive become immediately vested and
the Executive has the right to exercise the options at any time from the Date
of Termination until the later of (i) one year from the Date of Termination or
(ii) the date for the termination of this Agreement provided in paragraph 3
above; and
(v) any amounts payable under paragraph 20 below.
(b) If the Executive's employment terminates under any circumstance
that does not entitle the Executive to payments under paragraph 9(a) above
(including a termination for Cause or by reason of the death or retirement of
the Executive), the Executive will not be entitled to receive any compensation
under paragraph 6 accruing after the date of such termination (other than
pursuant to paragraph 6(h) above if termination is for Good Reason or not for
Cause) or any payment under paragraph 9(a) above (other than subparagraph
9(a)(i) or subparagraph 9(a)(v) in the case of retirement); provided, however,
that in the event of the death of the Executive, the Company will pay health
insurance benefits for all dependents carried under the Company's Executive's
<PAGE> 8
health plan with respect to the Executive as of the date of the Executive's
death for one year, which dependents may continue such benefits thereafter in
accordance with existing law and the Company's policies.
(c) Nothing above in this paragraph 9 will deprive the Executive of any
rights, payments, benefits or service credit for benefits after termination of
employment which were earned pursuant to any provision of this Agreement or
any plan or practice of the Company including, without limitation, any pension
and welfare benefits payable pursuant to paragraph 6(f) and any legal fees and
expenses payable pursuant to paragraph 20 below.
10. Change in Control. Within thirty days after learning of a Change in
Control of the Company, the Executive, in his sole discretion, may elect to
either (i) terminate his employment with the Company or (ii) continue his
employment with the Company. If the Executive does not inform the Company of
his decision to terminate his employment therewith within thirty days of
learning of a Change in Control, the Executive will be deemed to have
elected to continue his employment with the Company.
(a) If the Executive elects to terminate his employment with the
Company following a Change in Control, his Date of Termination will be the
date the Company receives notice of his election. Within ten days of
receiving notice of the Executive's election, the Company will pay or provide
the Executive, as severance pay or liquidated damages or both, the greater of
(A) the amount the Executive would be paid under paragraph 9 if he
were terminated by the Company or (B) the sum of:
(i) base Salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, together with any other amounts
payable to the Executive under paragraph 6 above for periods prior to the Date
of Termination;
(ii) a lump sum payment equal to two hundred percent of the sum of (A)
the Base Salary at the rate in effect as of the Date of Termination, and (B)
the highest aggregate incentive award awarded to the Executive by the Company
or any subsidiary of the Company during any year during any one of the three
bonus periods immediately preceding the Date of Termination; and
(iii) any amounts payable under paragraph 20 below.
(b) Notwithstanding paragraph 2 above, if the Executive elects to
continue his employment with the Company following a Change in Control, the
terms of this Agreement will continue in effect until the later of (i) three
years from the Effective Date of this Agreement or (ii) two years from the
date of the Change in Control.
11. Default by Company. Any provision of this Agreement to the
contrary notwithstanding, if, following termination of employment, the Company
defaults on its obligation to pay any amount payable to the Executive or his
beneficiary under paragraph 6, 9, or 10 when due and fails to remedy such
default within thirty days after having received written notice from the
Executive or his beneficiary, then the Company will thereupon pay to the
Executive or beneficiary, as the case may be, in full discharge of its
obligations to the Executive or beneficiary under this Agreement, (a) a lump
sum amount actuarially equivalent (using the assumptions used at such time
under the Qualified Plan in calculating the amount of lump sum payments) to
the future payments otherwise payable under this Agreement to the Executive
and his beneficiary, and (b) an amount equal to any and all past due payments
owing to the Executive and his beneficiary under this Agreement.
12. Indemnification. The Company will indemnify the Executive to the
full extent permitted by the General Corporation Law of the State of Delaware,
<PAGE>9
as amended from time to time, for all amounts (including without limitation
judgments, fines, settlement payments, expenses and attorney's fees) connected
with any action, suit, investigation or proceeding arising out of or relating
to the performance by the Executive of services for, or the acting by the
Executive as a director, officer or employee of, the Company, or any
subsidiary of the Company, or any affiliate or any other person or enterprise
at the Company's request, including but not limited to those entities in which
the Company has an investment, as such amounts are incurred. The Company will
maintain a Directors' and Officers' Liability Insurance Policy and will use
its best efforts to maintain the coverage in effect thereunder on the
Effective Date, or one providing substantially similar protection to the
Executive, in full force and effect, which Policy will provide minimum
liability coverage in the amount carried on the Effective Date. Nothing in
this paragraph 12 or elsewhere in this Agreement is intended to prevent the
Company from indemnifying the Executive to any greater extent than is required
by this paragraph.
13. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place;
provided, however, that no such agreement will release the corporation that is
the original party to this Agreement without the Executive's express written
consent. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession will be a breach of this Agreement and
will entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if his employment
were terminated by the Executive for Good Reason or by the Company (other than
for Cause pursuant to paragraph 8(b)), except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective will be deemed the Date of Termination.
(b) If the Executive should die while any amounts are due and payable
to him hereunder, all such amounts, unless otherwise provided herein, will be
paid in accordance with the terms of this Agreement to the Executive's
devisees, legatee or other designee or, if there be no such designee, to the
Executive's estate.
(c) Except as to withholding of any tax under the laws of the United
States or any state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder will be
subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by his legal representatives without
the Company's prior written consent, nor will there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in
this paragraph 13(c) will preclude the Executive from designating a
beneficiary to receive any benefit payable on his death, or the legal
representatives of the Executive from assigning any rights hereunder to the
person or persons entitled thereto under his will or, in case of intestacy, to
the person or persons entitled thereto under the laws of intestacy applicable
to the Executive's estate.
14. Parties. This Agreement will be binding upon and will inure to the
benefit of the Company and the Executive, his heirs, beneficiaries, executors
and other legal representatives.
<PAGE> 10
15. General.
(a) This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof and supersede any and all other
agreements between the parties with respect to the subject matter hereof.
(b) Any modification of this Agreement will not be binding unless in
writing and signed by both an officer or director of the Company duly
authorized to do so and the Executive.
16. Enforceability; Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of the Executive or the Company
under this Agreement would not be materially and adversely affected thereby,
(a) such provision will be fully severable; (b) this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom; and
(d) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms as such illegal, invalid or unenforceable
provision as may be possible.
17. Notices. All notices which may be necessary or proper for either
the Company or the Executive to give to the other under this Agreement will be
in writing and will be delivered by hand or sent by registered or certified
mail, return receipt requested, to the address set forth under the Executive's
name on the last page hereof, in the case of the Executive, and will be
sent in the manner described above to its principal executive offices at 969
High Ridge Road, Stamford, Connecticut 06905, Attention: General Counsel, or
delivered by hand to its General Counsel, in the case of the Company, and will
be deemed given when sent, provided that any Notice of Termination or other
notice given pursuant to paragraph 8 above will be deemed given only when
received. Either party may by like notice to the other party change the
address at which he or it is to receive notices hereunder.
18. Arbitration. Any controversy or claim arising out of, or related
to, this Agreement, or the breach hereof, that is not subject to cure using
the remedies provided in paragraph 7(b) above will be settled by binding
arbitration in Stamford, Connecticut, in accordance with the rules then
pertaining of the American Arbitration Association, and its decision will be
binding and final, and judgment upon the award rendered may be entered in any
court having jurisdiction thereof, except that, with respect to any arbitrable
controversy or claim, the Executive may have the matter settled by judicial
determination in lieu of arbitration by bringing a court action, if he is the
plaintiff or, if he is not the plaintiff, demanding such judicial
determination within the time to answer any complaint in any arbitration
action that may be commenced.
19. Governing Law. This Agreement will be governed by, and be
enforceable in accordance with, the laws of the State of Delaware without
giving effect to the principles of conflicts of laws thereof.
20. Legal Fees and Expenses. To induce the Executive to execute this
Agreement and to provide the Executive with reasonable assurance that the
purposes of this Agreement will not be frustrated by the cost of its
enforcement should the Company fail to perform its obligations under this
Agreement, the Company will pay and be solely responsible for all reasonable
attorneys' fees and expenses and court costs when incurred by the Executive
and/or his beneficiaries, heirs, executors or other legal representatives as a
result of the Company's failure to perform this Agreement or any provision
hereof to be performed by the Company. Such fees will be due and payable by
the Company regardless of the outcome.
<PAGE> 11
21. Definitions. The following terms, when capitalized in this
Agreement, will have the meanings set forth or incorporated by reference in
this paragraph 21.
(a) "Base Salary" will have the meaning set forth in paragraph 6 above.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
(c) "Cause" will have the meaning set forth in subparagraph 8(b)(i)
above.
(d) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act, whether or not the
Company is subject to the Exchange Act at such time; provided, however, that
without limiting the generality of the foregoing, such a Change in Control
will in any event be deemed to occur if and when:
(i) any person (as such term is used in paragraphs 13(d) and 14(d)(2)
of the Exchange Act, hereinafter in this paragraph 21(e), a "Person"), other
than the Company or a subsidiary or employee benefit plan of the Company or
subsidiary, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than twenty-five percent of the combined voting power of the
Company's then outstanding securities;
(ii) stockholders approve a merger, consolidation or other business
combination (a "Business Combination") other than a Business Combination in
which holders of common stock of the Company immediately prior to the Business
Combination have substantially the same proportionate ownership of Common
Stock of the surviving corporation immediately after the Business
Combination as immediately before;
(iii) stockholders approve either (A) an agreement for the sale or
disposition of all or substantially all of the Company's assets to any entity
which is not a subsidiary of the Company, or (B) a plan of complete
liquidation;
(iv) the persons who were members of the Board of Directors immediately
before a tender offer by any Person other than the Company or a subsidiary, or
before a merger, consolidation, or contested election, or before any
combination of such transactions, cease to constitute a majority of the Board
of Directors as a result of such transaction or transactions.
(e) "Common Stock" means common stock of the Company, par value $0.001
per share.
(f) "Company" means Life Re Corporation, a Delaware corporation, and
any successors to its business and/or assets which executes and delivers an
agreement provided for in paragraph 13(a) above or which otherwise becomes
bound by all the terms and conditions of this Agreement by operation of law.
(g) "Date of Termination" will have the meaning set forth in paragraph
8(f) above.
(h) "Designated Industry" will have the meaning set forth in
subparagraph 7(A)(ii) above.
(i) "Disability" will have the meaning set forth in subparagraph
8(b)(ii) above.
(j) "Effective Date" means the date first set forth above, which shall
begin the term of this Agreement.
<PAGE> 12
(k) "Exchange Act" means the Securities Exchange Act of1934, as amended
from time to time.
(l) "Good Reason" will have the meaning set forth in paragraph 8(c)
above.
(m) "LTIP" will have the meaning set forth in paragraph 6(i) above.
(n) "Notice of Termination" will have the meaning set forth in
paragraph 8(e) above.
(o) "Qualified Plan" means the Employee's Retirement Plan for Life
Reassurance Corporation of America as in effect on the Effective Date.
(p) "SERP" will have the meaning set forth in paragraph 6(j) above.
22. Survival of Terms. The provisions of paragraphs 6, 7, 9, 10, 11,
12, 13, 16, 17, 18, 19, and 20 will survive the termination or expiration of
this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its authorized representatives, and the Executive has hereunto set his hand as
of the date first above written.
LIFE RE CORPORATION
s/
Rodney A. Hawes, Jr.
Chairman of the Board
and Chief Executive Officer
ATTEST:
s/
Jacques E. Dubois
President and Chief Operating
Officer
EXECUTIVE
s/
Chris C. Stroup
ADDRESS:
<PAGE> 1
EMPLOYMENT AGREEMENT
BETWEEN
LIFE RE CORPORATION
AND
W. WELDON WILSON
<PAGE>
<PAGE> 2
This EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of the 1st
day of June, 1996 (the "Effective Date") by and between Life Re Corporation, a
Delaware corporation having its principal executive offices at 969 High Ridge
Road, Stamford, Connecticut (hereinafter referred to as the "Company") and W.
Weldon Wilson (referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Company wishes to assure itself of the continued services of
the Executive, and the Executive is willing to continue in the employ of the
Company, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Definitions. Unless defined elsewhere in this Agreement, terms that
are capitalized will have the meanings set forth or incorporated by reference
in paragraph 21 below.
2. Employment. The Company agrees to continue to employ the Executive,
and the Executive agrees to continue to be employed by the Company, during the
term set forth in paragraph 3 below and on the other terms and conditions of
this Agreement.
3. Term. The term of this Agreement will commence on the Effective
Date and, subject to paragraph 10(b) below, will terminate on the third
anniversary of the Effective Date. At least one year prior to the end of the
term of this Agreement, the Company will provide the Executive with written
notice of whether or not the Company will negotiate the renewal of this
Agreement with the Executive.
4. Position, Duties and Responsibilities.
(a) During the term of this Agreement, the Executive will serve as, and
be elected to and hold the offices and title of, Vice President, General
Counsel, and Secretary. Executive's duties shall be the duties and
responsibilities normally associated with such title. In such capacities, he
will report to the Office of the Chairman of the Company.
(b) During the term of this Agreement, the Executive will devote such
time to the affairs of the Company as is necessary to perform his duties and
responsibilities under this Agreement. Nothing in this Agreement will preclude
the Executive from devoting reasonable time to any other endeavors, provided
any such endeavors do not interfere with his duties.
5. Place of Performance. In connection with his employment by the
Company, the Executive will not be required by the Company to be absent from
Executive's home office on travel status or otherwise more than a reasonable
time each year as necessary or appropriate for the performance of his duties
hereunder.
6. Compensation. During the term of this Agreement, the Company will
pay the Executive and the Executive agrees to accept a base salary in the
amount of not less than $300,000.00 per year, plus bonuses at such times and
in such amounts as determined by the Compensation Committee of the Board of
Directors, with increases in such amounts made in accordance with the
Company's regular administrative practices of salary increases applicable to
executives with comparable titles or responsibilities at comparable companies
from time to time during the term of this Agreement (the annual base salary as
increased from time to time during the term of this Agreement will hereinafter
be referred to as the "Base Salary"); provided, however, that:
<PAGE> 3
(a) The Executive's Base Salary will be reviewed at least once each year
by the Compensation Committee of the Board of Directors. In addition, the
Executive will be considered for a bonus at least once each year under the
Company's Annual Incentive Plan.
(b) The Base Salary will be paid in installments no less frequent than
semi-monthly.
(c) Any increase in Base Salary or other compensation will not limit or
reduce any other obligation of the Company hereunder and, once established at
an increased specified rate, the Executive's Base Salary hereunder will not
thereafter be reduced.
(d) During the term of this Agreement, the Executive will be a full
participant in the Company's 401(k) Plan, the Annual Incentive Plan, the
Supplemental Executive Retirement Plan, and in any and all other plans in
which similarly-situated employees of the Company or its subsidiaries
participate, which programs are in effect on the date hereof or that may
hereafter be adopted.
(e) During the term of this Agreement, the Executive will be entitled to
perquisites, including, without limitation, an office, secretarial and
clerical staff, and fringe benefits (including, without limitation, free
parking), in each case at least equal to, and on the same terms and conditions
as, those attached to his office on the Effective Date, as well as to
reimbursement of all reasonable expenses and disbursements incurred by him in
the course of his duties.
(f) Subject to the provisions of paragraph 6(g) below, the Executive,
his dependents and beneficiaries will be entitled to all employee benefits and
service credit for such benefits during the term of this Agreement to which
similarly-situated employees of the Company or its subsidiaries, their
dependents and beneficiaries are entitled as the result of such employment
during the term of this Agreement under the terms of employee benefit plans
and practices of the Company and its subsidiaries, including, without
limitation, the Qualified Plan, the 401(k) Plan, the Company's life insurance
plans, its disability benefit plans, its vacation and holiday pay plans, its
medical, dental and welfare plans, and other present or successor employee
benefit plans and practices of the Company and its subsidiaries for which
similarly-situated employees of the Company or its subsidiaries are eligible,
and to all payments and other benefits under any such employee benefit plan or
practice subsequent to the term of this Agreement as a result of participation
in such plan or practice during the term of this Agreement.
(g) Any provision of paragraph 6(f) above to the contrary
notwithstanding, following a Change in Control, for the remaining term of the
Agreement the Executive, his dependents and beneficiaries will be entitled to
employee benefits and service credit for benefits under the employee benefit
plans and practices referred to in paragraph 6(f) above at least equal to
those provided on the Effective Date, as the same may have been improved from
time to time during the term of this Agreement. If and to the extent that
such employee benefits and service credits are not payable or provided under
such employee benefit plans or practices by reason of any amendment or
termination thereof or otherwise, the Company itself will pay or provide
therefor. To the extent any form of remuneration required under this
Agreement is impermissible under the terms of any applicable plan or illegal
under existing law, then the Company will provide an equivalent benefit
directly to the Executive in another permissible manner.
<PAGE> 4
(h) If any payments or distributions to the Executive by the Company or
any of its subsidiaries under this Agreement ("Payments") are subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Payments and all
income taxes and Excise Tax upon such Company payment shall be equal to the
aggregate amount of the Payments. The determination of whether any Payments
are subject to the Excise Tax shall be based on the opinion of either an
accounting firm or tax counsel selected by the Company and reasonably
acceptable to the Executive, the fees and expenses of such advisor being paid
by the Company. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal, state and local income
taxes at the highest marginal rate of income taxation applicable to any
individual residing in the jurisdiction in which the Executive resides in the
calendar year in which the Gross-Up Payment is to be made.
In the event that the Excise Tax is subsequently determined by the
Company and its advisor referred to in the first subparagraph of the paragraph
6(h) to be less than the amount taken into account under this paragraph 6(h)
at the time of termination of the Executive's employment with the Company, the
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is so finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income tax
imposed on the Gross-Up Payment being repaid by the Executive to the extent
that such repayment results in a reduction in Excise Tax and/or a federal,
state or local income tax deduction) plus interest on the amount of such
repayment at the rate provided in section 1274 (b)(2)(B) of the Code.
In the event that the Excise Tax is determined by the Company and its
advisor referred to in the first subparagraph of the paragraph 6(h) to exceed
the amount taken into account under this paragraph 6(h) at the time of the
termination of the Executive's employment with the Company (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest, penalties or
additions payable by the Executive with respect to such excess) at the time
that the amount of such excess is so finally determined.
The Executive and the Company shall each reasonably cooperate with the
other in connection with any administrative or judicial proceedings concerning
the existence or amount of liability for Excise Tax with respect to the
Payments.
(I) The Executive will be eligible to receive performance-based bonuses,
payable at the same time as bonuses are paid under the Company's Long-Term
Incentive Plan ("LTIP"). The bonuses to be paid to the Executive, if any,
will be based on the achievement of certain performance goals established
under the LTIP. Upon the occurrence of a "Triggering Event" (as defined in
the LTIP) the Executive will be eligible and receive a bonus in an amount
equal to the sum of:
(ii) 0.22% of the amount involved in connection with a transaction which
meets the criteria set forth in "Performance Goal A" (as defined in the LTIP);
(iii) 0.22% of the amount involved in connection with the acquisition of
a block of insurance in force which meets the criteria set forth in
"Performance Goal B" (as defined in the LTIP); and
(iii) 0.55% of the amount involved in connection with the recognition of
capital gains by the Company upon the sale of an investment which meets the
criteria set forth in "Performance Goal C" (as defined in the LTIP).
<PAGE> 5
7. Confidentiality; Noncompetition; Nonsolicitation.
(a) The Executive agrees, subject to the Company's fulfilling its
obligations during the term of this Agreement and to the payment by it of all
amounts and benefits to which the Executive is entitled hereunder, that
without the written consent of the Board of Directors he will not:
(I) during the term of this Agreement or thereafter disclose or
communicate to any person, firm or corporation any information not generally
available to the public concerning any confidential information or trade
secrets of the Company, except as may be reasonably necessary or appropriate
in connection with the performance by the Executive of his duties hereunder,
and except for such disclosure as may be required or protected by law, court
order or contract and except for such disclosure as the Executive believes in
good faith would subject the Company, a subsidiary of the Company, the
Executive, or another officer, director or employee of the Company or a
subsidiary of the Company to civil or criminal liability or prosecution if not
made; or
(ii) during the term of this Agreement and for the one year period
thereafter, (A) engage anywhere within a fifty mile radius of the areas in
which the Company or its subsidiaries have an office at the time of
termination of his employment, directly or indirectly, alone or as a
principal, agent, partner, officer, director, employee or consultant of any
organization that is primarily in the business of reinsuring life insurance
risks and is in direct competition with the Company or its subsidiaries
(the "Designated Industry"); (B) divert to any competitor of the Company or
its subsidiaries in the Designated Industry any customer of the Company or its
subsidiaries; or (C) solicit or encourage any officer or employee of the
Company or its subsidiaries to leave his or her employment with the Company
for employment with any competitor of the Company or its subsidiaries
in the Designated Industry.
(b) The Executive agrees that upon the actual or threatened breach or
violation by him of the commitments and obligations contained in paragraph
7(a) above, the Company will be entitled to seek both preliminary and
permanent injunctive relief, in any action or proceeding brought in an
appropriate court having jurisdiction over the Executive, to restrain him from
committing any violation of said commitments and obligations.
(c) The Executive also agrees that upon leaving the Company's employ he
will not take with him, without the prior written consent of an officer
authorized to act in the matter by the Board of Directors, any record or other
document or property of the Company, its subsidiaries and affiliates, or any
copy or reproduction thereof, mechanical or otherwise, which is of a
confidential nature relating to the Company, its subsidiaries and affiliates,
or, without limitation, relating to its or their methods of distribution,
client relationships or marketing strategies, or which was obtained by him or
entrusted to him during the course of his employment with the Company.
8. Termination of Employment.
(a) The term of this Agreement will terminate upon the death of the
Executive.
(b) The Company may terminate the Executive's employment during the term
of this Agreement for Cause as provided in subparagraph (I) below or in the
event of Disability as provided in subparagraph (ii) below.
(I) This Agreement will be considered terminated for "Cause" only:
(A) upon the willful failure of the Executive to comply with
material insurance laws or regulations that has or is likely to result in
substantial economic damage to the Company and that has not been cured to the
reasonable satisfaction of the Board within thirty days; or
<PAGE> 6
(B) upon the proved fraud or dishonesty of the Executive that has or
is likely to result in substantial economic damage to the Company;
and in the case of each of clauses (A) and (B) above, the applicable
conditions set forth in paragraph 8(e) below are satisfied.
(ii) The term "Disability" as used in this Agreement means an injury
or physical or mental illness which prevents the Executive from substantially
performing his duties hereunder for six consecutive months within any twelve
consecutive month period. Either the Compensation Committee of the Board or
the Board may, upon consultation with a physician, determine whether the
Executive has a Disability. The term of this Agreement will end as of the
close of business on the last day of such six month period but without
prejudice to any payments owed to the Executive in respect of disability under
any plan or practice of the Company.
(c) The Executive may terminate his employment with the Company during
the term of this Agreement for Good Reason. For the purposes of this
Agreement, "Good Reason" will mean (I) any breach by the Company of the terms
of this Agreement, including, but not limited to, a material reduction of the
Executive's duties, title, position, or compensation or (ii) the failure of
the Company prior to one year before the expiration of this Agreement to offer
the Executive at least a one year extension of this Agreement at his then
current salary and employee benefits. An election by the Executive to
terminate his employment with the Company under the provisions of this
paragraph 8(c) will not be deemed a voluntary termination of employment by the
Executive for the purpose of this Agreement or any plan or practice of the
Company.
(d) Notwithstanding anything to the contrary set forth herein, subject
to the By-Laws of the Company, the Board will have the right by majority vote
of the entire membership of the Board to terminate the Executive's employment
with the Company for any reason other than Cause at any time, subject to the
consequences of such termination as set forth in paragraph 9 below.
(e) Any termination by the Company pursuant to paragraph 8(b) or
paragraph 8(d) above or by the Executive pursuant to paragraph 8(c) above will
be communicated by written Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" will mean a notice
which indicates the specific termination provision in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment with
the Company under the provisions so indicated.
(f) "Date of Termination" will mean (I) if the Executive's employment is
terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated because of a Disability, thirty days after Notice of
Termination is given (provided that the Executive will not have returned to
the performance of his duties on a full-time basis during such thirty-day
period), (iii) if the termination is pursuant to subparagraph 8(b)(I)(A) or
8(b)(I)(B) above, upon Notice of Termination, and (iv) if the Executive's
employment is terminated for any other reason, the date thirty-one days from
the date on which a Notice of Termination was given (provided that the
Executive has not cured the material breach to the reasonable satisfaction of
the Board during the thirty-day cure period, if applicable).
9. Compensation on Termination. The parties recognize and agree that,
if the Company terminates the Executive's employment during the term of this
Agreement for Disability or any reason other than for Cause, or if the
Executive terminates his employment during the term of this Agreement for Good
Reason pursuant to paragraph 8(c) above, the actual damages to the Executive
would be difficult if not impossible to ascertain and agree that the
<PAGE> 7
Executive's sole remedy will be a right to receive amounts determined and paid
in accordance with the provisions of this paragraph 9. If Executive is
terminated for Cause, he will not receive any further compensation other than
accrued but unpaid Base Salary and unused accrued vacation time. In the event
of the Executive's termination for Good Reason, the amount of any payment
provided for in this paragraph 9 will be mitigated by the amount of
compensation received by the Executive from Executive's employment in a
position similar to the position held at the Company at the Effective Date;
provided, however, that Executive will not be required to seek such
employment.
(a) If the Company terminates the Executive's employment with the
Company during the term of this Agreement for Disability or any reason other
than for Cause or subsequent to a Change in Control, or if the Executive
terminates his employment with the Company during the term of this Agreement
for Good Reason pursuant to paragraph 8(c) above, the Company will pay or
provide the Executive, as severance pay or liquidated damages or both:
(I) Base Salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, together with any other amounts
payable to the Executive under paragraph 6 above for periods prior to the Date
of Termination;
(ii) a lump sum payment, on the tenth day after the Date of
Termination, equal to the sum of (A) the Base Salary at the rate in effect as
of the Date of Termination from the Date of Termination through date for the
termination of this Agreement provided in paragraph 3 above, and (B) for each
year until the date for the termination of this Agreement provided in
paragraph 3 above, the highest aggregate incentive award awarded to the
Executive by the Company or any subsidiary of the Company with respect to the
Executive's bonus during any year during any one of the two bonus periods
immediately preceding the Date of Termination;
(iii) employee benefits and service credit for employee benefits and
employee benefit accruals which the Executive would have received under
paragraph 6(f) above if the Executive's employment had continued under this
Agreement until the later of (I) one year from the Date of Termination or (ii)
the date for the termination of this Agreement provided in paragraph 3 above;
(iv) all options held by the Executive become immediately vested and
the Executive has the right to exercise the options at any time from the Date
of Termination until the later of (I) one year from the Date of Termination or
(ii) the date for the termination of this Agreement provided in paragraph 3
above; and
(v) any amounts payable under paragraph 20 below.
(b) If the Executive's employment terminates under any circumstance that
does not entitle the Executive to payments under paragraph 9(a) above
(including a termination for Cause or by reason of the death or retirement of
the Executive), the Executive will not be entitled to receive any compensation
under paragraph 6 accruing after the date of such termination (other than
pursuant to paragraph 6(h) above if termination is for Good Reason or not for
Cause) or any payment under paragraph 9(a) above (other than subparagraph
9(a)(I) or subparagraph 9(a)(v) in the case of retirement); provided, however,
that in the event of the death of the Executive, the Company will pay health
insurance benefits for all dependents carried under the Company's Executive's
health plan with respect to the Executive as of the date of the Executive's
death for one year, which dependents may continue such benefits thereafter in
accordance with existing law and the Company's policies.
<PAGE> 8
(c) Nothing above in this paragraph 9 will deprive the Executive of any
rights, payments, benefits or service credit for benefits after termination of
employment which were earned pursuant to any provision of this Agreement or
any plan or practice of the Company including, without limitation, any pension
and welfare benefits payable pursuant to paragraph 6(f) and any legal fees and
expenses payable pursuant to paragraph 20 below.
10. Change in Control. Within thirty days after learning of a Change in
Control of the Company, the Executive, in his sole discretion, may elect to
either (I) terminate his employment with the Company or (ii) continue his
employment with the Company. If the Executive does not inform the Company of
his decision to terminate his employment therewith within thirty days of
learning of a Change in Control, the Executive will be deemed to have
elected to continue his employment with the Company.
(a) If the Executive elects to terminate his employment with the Company
following a Change in Control, his Date of Termination will be the date the
Company receives notice of his election. Within ten days of receiving notice
of the Executive's election, the Company will pay or provide the Executive, as
severance pay or liquidated damages or both, the greater of (A) the amount the
Executive would be paid under paragraph 9 if he were terminated by the Company
or (B) the sum of:
(I) Base Salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, together with any other amounts
payable to the Executive under paragraph 6 above for periods prior to the Date
of Termination;
(ii) a lump sum payment equal to two hundred percent of the sum of (A)
the Base Salary at the rate in effect as of the Date of Termination, and (B)
the highest aggregate incentive award awarded to the Executive by the Company
or any subsidiary of the Company during any year during any one of the three
bonus periods immediately preceding the Date of Termination; and
(iii) any amounts payable under paragraph 20 below.
(b) Notwithstanding paragraph 2 above, if the Executive elects to
continue his employment with the Company following a Change in Control, the
terms of this Agreement will continue in effect until the later of (I) three
years from the Effective Date of this Agreement or (ii) two years from the
date of the Change in Control.
11. Default by Company. Any provision of this Agreement to the contrary
notwithstanding, if, following termination of employment, the Company defaults
on its obligation to pay any amount payable to the Executive or his
beneficiary under paragraph 6, 9, or 10 when due and fails to remedy such
default within thirty days after having received written notice from the
Executive or his beneficiary, then the Company will thereupon pay to the
Executive or beneficiary, as the case may be, in full discharge of its
obligations to the Executive or beneficiary under this Agreement, (a) a lump
sum amount actuarially equivalent (using the assumptions used at such time
under the Qualified Plan in calculating the amount of lump sum payments) to
the future payments otherwise payable under this Agreement to the Executive
and his beneficiary, and (b) an amount equal to any and all past due payments
owing to the Executive and his beneficiary under this Agreement.
12. Indemnification. The Company will indemnify the Executive to the
full extent permitted by the General Corporation Law of the State of Delaware,
as amended from time to time, for all amounts (including without limitation
judgments, fines, settlement payments, expenses and attorney's fees) connected
with any action, suit, investigation or proceeding arising out of or relating
to the performance by the Executive of services for, or the acting by the
Executive as a director, officer or employee of, the Company, or any
<PAGE> 9
subsidiary of the Company, or any affiliate or any other person or enterprise
at the Company's request, including but not limited to those entities in which
the Company has an investment, as such amounts are incurred. The Company will
maintain a Directors' and Officers' Liability Insurance Policy and will use
its best efforts to maintain the coverage in effect thereunder on the
Effective Date, or one providing substantially similar protection to the
Executive, in full force and effect, which Policy will provide minimum
liability coverage in the amount carried on the Effective Date. Nothing in
this paragraph 12 or elsewhere in this Agreement is intended to prevent the
Company from indemnifying the Executive to any greater extent than is required
by this paragraph.
13. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place;
provided, however, that no such agreement will release the corporation that is
the original party to this Agreement without the Executive's express written
consent. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession will be a breach of this Agreement and
will entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if his employment
were terminated by the Executive for Good Reason or by the Company (other than
for Cause pursuant to paragraph 8(b)), except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective will be deemed the Date of Termination.
(b) If the Executive should die while any amounts are due and payable to
him hereunder, all such amounts, unless otherwise provided herein, will be
paid in accordance with the terms of this Agreement to the Executive's
devisees, legatee or other designee or, if there be no such designee, to the
Executive's estate.
(c) Except as to withholding of any tax under the laws of the United
States or any state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder will be
subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by his legal representatives without
the Company's prior written consent, nor will there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in
this paragraph 13(c) will preclude the Executive from designating a
beneficiary to receive any benefit payable on his death, or the legal
representatives of the Executive from assigning any rights hereunder to the
person or persons entitled thereto under his will or, in case of intestacy, to
the person or persons entitled thereto under the laws of intestacy applicable
to the Executive's estate.
14. Parties. This Agreement will be binding upon and will inure to the
benefit of the Company and the Executive, his heirs, beneficiaries, executors
and other legal representatives.
15. General.
<PAGE>
<PAGE> 10
(a) This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and supersede any and all other
agreements between the parties with respect to the subject matter hereof.
(b) Any modification of this Agreement will not be binding unless in
writing and signed by both an officer or director of the Company duly
authorized to do so and the Executive.
16. Enforceability; Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of the Executive or the Company
under this Agreement would not be materially and adversely affected thereby,
(a) such provision will be fully severable; (b) this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom; and
(d) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms as such illegal, invalid or unenforceable
provision as may be possible.
17. Notices. All notices which may be necessary or proper for either
the Company or the Executive to give to the other under this Agreement will be
in writing and will be delivered by hand or sent by registered or certified
mail, return receipt requested, to the address set forth under the Executive's
name on the last page hereof, in the case of the Executive, and will be sent
in the manner described above to its principal executive offices at 969 High
Ridge Road, Stamford, Connecticut 06905, Attention: General Counsel, or
delivered by hand to its General Counsel, in the case of the Company, and will
be deemed given when sent, provided that any Notice of Termination or other
notice given pursuant to paragraph 8 above will be deemed given only when
received. Either party may by like notice to the other party change the
address at which he or it is to receive notices hereunder.
18. Arbitration. Any controversy or claim arising out of, or related
to, this Agreement, or the breach hereof, that is not subject to cure using
the remedies provided in paragraph 7(b) above will be settled by binding
arbitration in Stamford, Connecticut, in accordance with the rules then
pertaining of the American Arbitration Association, and its decision will be
binding and final, and judgment upon the award rendered may be entered in any
court having jurisdiction thereof, except that, with respect to any arbitrable
controversy or claim, the Executive may have the matter settled by judicial
determination in lieu of arbitration by bringing a court action, if he is the
plaintiff or, if he is not the plaintiff, demanding such judicial
determination within the time to answer any complaint in any arbitration
action that may be commenced.
19. Governing Law. This Agreement will be governed by, and be
enforceable in accordance with, the laws of the State of Delaware without
giving effect to the principles of conflicts of laws thereof.
20. Legal Fees and Expenses. To induce the Executive to execute this
Agreement and to provide the Executive with reasonable assurance that the
purposes of this Agreement will not be frustrated by the cost of its
enforcement should the Company fail to perform its obligations under this
Agreement, the Company will pay and be solely responsible for all reasonable
attorneys' fees and expenses and court costs when incurred by the Executive
and/or his beneficiaries, heirs, executors or other legal representatives as a
result of the Company's failure to perform this Agreement or any provision
hereof to be performed by the Company. Such fees will be due and payable by
the Company regardless of the outcome.
<PAGE> 11
21. Definitions. The following terms, when capitalized in this
Agreement, will have the meanings set forth or incorporated by reference in
this paragraph 21.
(a) "Base Salary" will have the meaning set forth in paragraph 6 above.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
(c) "Cause" will have the meaning set forth in subparagraph 8(b)(I)
above.
(d) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act, whether or not the
Company is subject to the Exchange Act at such time; provided, however, that
without limiting the generality of the foregoing, such a Change in Control
will in any event be deemed to occur if and when:
(I) any person (as such term is used in paragraphs 13(d) and 14(d)(2) of
the Exchange Act, hereinafter in this paragraph 21(e), a "Person"), other than
the Company or a subsidiary or employee benefit plan of the Company or
subsidiary, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than twenty-five percent of the combined voting power of the
Company's then outstanding securities;
(ii) stockholders approve a merger, consolidation or other business
combination (a "Business Combination") other than a Business Combination in
which holders of common stock of the Company immediately prior to the Business
Combination have substantially the same proportionate ownership of Common
Stock of the surviving corporation immediately after the Business Combination
as immediately before;
(iii) stockholders approve either (A) an agreement for the sale or
disposition of all or substantially all of the Company's assets to any entity
which is not a subsidiary of the Company, or (B) a plan of complete
liquidation;
(iv) the persons who were members of the Board of Directors immediately
before a tender offer by any Person other than the Company or a subsidiary, or
before a merger, consolidation, or contested election, or before any
combination of such transactions, cease to constitute a majority of the Board
of Directors as a result of such transaction or transactions.
(e) "Common Stock" means common stock of the Company, par value $0.001
per share.
(f) "Company" means Life Re Corporation, a Delaware corporation, and any
successors to its business and/or assets which executes and delivers an
agreement provided for in paragraph 13(a) above or which otherwise becomes
bound by all the terms and conditions of this Agreement by operation of law.
(g) "Date of Termination" will have the meaning set forth in paragraph
8(f) above.
(h) "Designated Industry" will have the meaning set forth in
subparagraph 7(A)(ii) above.
(I) "Disability" will have the meaning set forth in subparagraph
8(b)(ii) above.
(j) "Effective Date" means the date first set forth above, which shall
begin the term of this Agreement.<PAGE>
<PAGE> 12
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(l) "Good Reason" will have the meaning set forth in paragraph 8(c)
above.
(m) "LTIP" will have the meaning set forth in paragraph 6(I) above.
(n) "Notice of Termination" will have the meaning set forth in paragraph
8(e) above.
(o) "Qualified Plan" means the Employee's Retirement Plan for Life
Reassurance Corporation of America as in effect on the Effective Date.
22. Survival of Terms. The provisions of paragraphs 6, 7, 9, 10, 11,
12, 13, 16, 17, 18, 19, and 20 will survive the termination or expiration of
this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its authorized representatives, and the Executive has hereunto set his hand as
of the date first above written.
LIFE RE CORPORATION
s/
Rodney A. Hawes, Jr.
Chairman of the Board
and Chief Executive Officer
ATTEST:
s/
Jacques E. Dubois
President and Chief Operating
Officer
EXECUTIVE
s/
W. Weldon Wilson
ADDRESS:
<PAGE> 1
LIFE RE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, Life Reassurance Corporation of America, a subsidiary of Life Re
Corporation (the "Company") has heretofore established a qualified defined
benefit pension plan for its employees; and
WHEREAS, the Company recognizes the unique qualifications of its key employees
and the valuable services that they have provided to or for the Company; and
WHEREAS, the Company recognizes that the pension benefits available under the
Life Reassurance Corporation of America qualified defined benefit pension plan
do not provide a competitive retirement benefit to its key employees; and
WHEREAS, the Company desires to provide additional retirement benefits to its
key employees based upon a competitive formula and upon compensation earned by
its key employees in excess of the compensation limit imposed on qualified
retirement plans by Section 401(a)(17) of the Internal Revenue Code and
without regard to the limitation on benefits or contributions under Section
415 of the Internal Revenue Code; and
WHEREAS, the Company has determined that the implementation of an unfunded
plan to provide supplemental retirement benefits will best serve its interest
in retaining key employees, and best serve the interest of its key employees
in providing funds for their retirement;
NOW, THEREFORE, the Company hereby establishes the Life Re Corporation
Supplemental Executive Retirement Plan (together with such other affiliated
entities that adopt this Plan) as hereinafter provided:
ARTICLE I
GENERAL
1.1 Effective Date. The provisions of the Plan shall be effective as of
January 1, 1995. The rights, if any, of any person whose status as an employee
of the Company and its subsidiaries and affiliates, if any, has terminated,
shall be determined pursuant to the Plan as in effect on the date of such
termination, unless a subsequently adopted provision of the Plan is made
specifically applicable to such person.
1.2 Purpose. The purpose of the Plan is to provide additional retirement
income to a Participant based upon a competitive formula and upon his
compensation from the Company in excess of the amount of compensation that may
be taken into account by a qualified retirement plan described in Section
401(a) of the Code and without regard to the limitation on benefits or
contributions under Section 415 of the Code.
1.3 Intent. The Plan is intended to be (and shall be construed and
administered as) an "employee pension benefit plan" under the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA") which is
unfunded and maintained by the Company solely to provide retirement income to
a select group of management or highly compensated employees as such group is
described under Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA as
interpreted by the U.S. Department of Labor. The Plan is not intended to be a
plan described in Section 401(a) of the Code, or Section 3(2)(A) of ERISA. The
<PAGE> 2
obligation of the Company to make payments under this Plan constitutes nothing
more than an unsecured promise to make such payments and any property of the
Company that may be set aside for the payment of benefits under the Plan shall
in the event of the Company's bankruptcy or insolvency, remain subject to the
claims of the Company's general creditors until such benefits are distributed
in accordance with the Plan.
ARTICLE II
DEFINITIONS AND USAGE
2.1 Definitions. Wherever used in the Plan, the following words and phrases
shall have the meaning set forth below unless the context plainly requires a
different meaning:
- "Actual Accrued Benefit" means, as of any Valuation Date, the
Participant's accrued benefit under the Basic Plan.
- "Actuarial Equivalent" means equality in value of the aggregate
sums expected to be received under different forms of payment under the Plan,
or equality in value of the same form of payment if payments begin at a
different date, or both, determined in each case by assuming the same interest
rate and mortality assumptions specified in the Basic Plan.
- "Administrator" means the person or persons described in Article
VI.
- "Average Monthly Compensation" means the Participant's "Average
Monthly Compensation" as defined in the Basic Plan, without the compensation
limit imposed by Section 401(a)(17) of the Internal Revenue Code.
- "Basic Plan" means, with respect to an individual who is a
Participant in this Plan, the tax-qualified defined benefit pension plan or
plans listed in Appendix I which cover such individual.
- "Benefit Commencement Date" means the first day of the month
coincident with or next following the latest of (a) a Participant's separation
from service, (b) a Participant's 62nd birthday or (c) the completion of 5
years of service by a Participant.
- "Board" means the Board of Directors or other governing body of
the Company.
- "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act, whether or not the
Company is subject to the Exchange Act at such time; provided, that without
limiting the generality of the foregoing, such a Change in Control will in any
event be deemed to occur if and when:
(i) any person (as such terms is used in paragraphs 13(d) and
14(d)(2) of the Exchange Act, hereinafter in this definition, "Person"), other
than the Company or a subsidiary or employee benefit plan of the Company or
subsidiary, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than twenty-five percent of the combined voting power of the
Company's then outstanding securities;
(ii) stockholders approve a merger, consolidation or other
business combination (a "Business Combination") other than a Business
Combination in which holders of common stock of the Company immediately prior
<PAGE> 3
to the Business Combination have substantially the same proportionate
ownership of Common Stock of the surviving corporation immediately after the
Business Combination as immediately before;
(iii)stockholders approve either (A) an agreement for the sale or
disposition of all or substantially all of the Company's assets to any entity
which is not a subsidiary of the Company, or (B) a plan of complete
liquidation;
(iv) the persons who were members of the Board immediately before
a tender offer by any Person other than the Company or a subsidiary, or before
a merger, consolidation, or contested election, or before any combination of
such transactions, cease to constitute a majority of the Board as a result of
such transaction or transactions.
- "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
- "Committee" means the Benefits Committee of the Board.
- "Company" means Life Re Corporation, any "Affiliated Employer" as
that term is defined in the Basic Plan, and any successor thereto.
- "Compensation" means compensation as defined under the Basic Plan
for purposes of determining a Participant's Actual Accrued Benefit, determined
without regard to the Compensation Limitation.
- "Compensation Limitation" means, with respect to a Compensation
Year, the limitation on compensation determined under Section 401(a)(17) of
the Code and in accordance with Treasury regulations promulgated thereunder.
- "Compensation Year" means the plan year under the Basic Plan.
- "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
- "Social Security Retirement Benefit" with respect to any
Participant means, as of a determination date, the primary insurance amount
payable under Section 215 of the Social Security Act as of a Participant's age
62 or Benefit Commencement Date, if later. As of any date prior to age 62, the
Social Security Retirement Benefit is the primary insurance amount (determined
as of the close of the Plan Year) payable to the Participant upon attainment
of age 62, assuming the Participant's annual compensation from the Company
that is treated as wages for purposes of the Social Security Act remains the
same from the Plan Year until the Participant's attainment of age 62. With
respect to service by the Participant for the Company
before the determination date, the actual compensation paid to the
Participant by the Company during all periods of service of the Participant
for the Company covered by the Social Security Act shall be used in
determining a Participant's projected primary insurance amount. With respect
to years before the Participant's commencement of service for the Company, in
determining the Participant's Social Security Retirement Benefit, it will be
assumed that the Participant received compensation for such service in an
amount computed by using a six percent salary scale projected backwards from
the Participant's date of commencement of service with the Company to the
Participant's twenty-first birthday. However, if the Participant provides the
Company with satisfactory evidence of the Participant's actual past
compensation for such prior years treated as wages under the Social Security
Act at the time the compensation was earned, the Plan must use such actual
past compensation.
<PAGE> 4
If distribution of a Participant's Supplemental Benefit begins
before the Participant's attainment of Social Security retirement age (as
defined by the Social Security Act) the Social Security Retirement Benefit
will be reduced by 1/15th for each of the first five (5) years and 1/30th for
each of the next five (5) years by which the starting date of such benefit
precedes the Social Security retirement age of the Participant.
- "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
- "Participant" means an eligible employee of the Company who is
participating in the Plan in accordance with Section 3.1.
- "Plan" means the Life Re Corporation Supplemental Executive
Retirement Plan.
- "Plan Year" means the initial period commencing with the Plan's
effective date and each subsequent 12-month period ending on December 31.
- "Separation from Service" means a Participant's termination of
employment with the Company for any reason.
- "Supplemental Benefit" means the monthly retirement benefit
calculated in accordance with Section 4.1.
- "Valuation Date" means the date each year that assets of the Basic
Plan are valued and such other dates as determined from time to time by the
Administrator.
- "Vested Supplemental Benefit" means that portion of a
Participant's Supplemental Benefit that is vested, if any, determined by
applying the vesting provision of Section 3.3.
- "Year of Service" means a "Year of Service" as that term is
defined under the Basic Plan.
2.2 Usage. Except where otherwise indicated by the context, any masculine
terminology used herein shall also include the feminine and vice versa, and
the definition of any term herein in the singular shall also include the
plural and vice versa.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. The Committee shall designate from time to time those
employees of the Company who shall participate in the Plan; provided, however,
that such employees are members of a select group of management or highly
compensated employees as such group is described under Sections 201(2),
301(a)(3), and 401(a)(1) of ERISA as interpreted by the Department of Labor.
3.2 Participation. An employee of the Company shall commence participation
in the Plan as of the first day of the Plan Year designated by the Committee.
The participation of any Participant may be suspended or terminated by the
Committee at any time, but no such suspension or termination shall operate to
reduce the Participant's Supplemental Benefit determined as of the Valuation
Date that precedes or coincides with the date of such suspension or
termination without such Participant's consent. An employee shall cease to be
a Participant when he terminates employment with the Company, either (i) with
no Vested Supplemental Benefit, or (ii) when his Vested Supplemental Benefit
is fully distributed to him or on his behalf.
<PAGE>
<PAGE> 5
3.3 Vesting. A Participant shall become fully vested when he has accumulated
five Years of Service.
ARTICLE IV
RETIREMENT BENEFIT
4.1 Amount. The amount of a Participant's monthly Supplemental Benefit shall
be equal to 2.5 percent of such Participant's Average Monthly Compensation
multiplied by the Participant's total number of Years of Service (up to a
maximum of 30 years) and reduced by:
(i) 3.33 percent of such Participant's Social Security Retirement
Benefit multiplied by the Participant's total number of Years of Service (up
to a maximum of 30 years); and
(ii) the Actuarial Equivalent of the monthly Actual Accrued Benefit
provided to or in respect of the Participant under the Basic Plan, determined
as a single life annuity commencing as of the Participant's Benefit
Commencement Date.
4.2 Entitlement to Benefits. Upon a Participant's Separation from Service,
the Participant shall be entitled to receive his Vested Supplemental Benefit
payable by the Company at such time as provided in Section 4.3 in the form
provided in Section 4.4. Notwithstanding the foregoing, or anything to the
contrary contained in this Plan, if a Participant's Separation from Service is
the result of termination "for cause," no benefits shall be payable to the
Participant from the Plan and his Vested Supplemental Benefit shall be zero. A
Participant shall be deemed to have been terminated "for cause" if his
employment is terminated as a result of the Participant's fraud,
misappropriation or embezzlement of Company funds or property, or material and
intentional breach by the Participant of the duties associated with his
employment. The Committee shall determine whether a Participant's Separation
from Service is "for cause."
4.3 Time of Payment. A Participant shall begin to receive his Vested
Supplemental Benefit on the Benefit Commencement Date. Notwithstanding the
preceding sentence, subject to absolute discretion of the Committee, a
Participant may request that the payment of his Vested Supplemental Benefit
commence on a date other than the Benefit Commencement Date. Such request must
be made at least one calendar year prior to the Participant's Benefit
Commencement Date and only one such request may be made by a Participant. Any
such payment shall be the Actuarial Equivalent of the amount otherwise payable
as of the Participant's Benefit Commencement Date.
4.4 Normal Form of Payment. The normal form of payment of the Participant's
Vested Supplemental Benefit shall be a single life annuity.
4.5 Optional Forms of Payment. In lieu of receiving his Vested Supplemental
Benefit as provided in Section 4.4, a Participant may make an irrevocable
written election at any time after he becomes a Participant, but prior to his
Benefit Commencement Date, to receive his Vested Supplemental Benefit in one
of the optional forms of payment set forth below:
(a) as a joint and 50% survivor annuity;
(b) as a joint and 75% survivor annuity;
(c) as a joint and 100% survivor annuity;
(d) as payable over a period certain, not to extend beyond the
Participant's life expectancy; or
(e) in any other optional form of benefit, other than a lump-sum
distribution in cash, which is now or hereafter made available under the Basic
Plan.
<PAGE> 6
Notwithstanding the foregoing, a Participant may request to receive his
Vested Supplemental Benefit as one lump-sum payment in cash. Such request must
be made at least one calendar year prior to the Participant's Benefit
Commencement Date, only one such request may be made by a Participant, and
such request shall be subject to the absolute discretion of the Committee.
The amount of the Supplemental Benefit payable under any optional form shall
be the Actuarial Equivalent of the benefit otherwise payable from the Plan to
the Participant as of the Benefit Commencement Date.
ARTICLE V
DEATH BENEFITS
5.1 Pre-retirement Death Benefit. If a Participant dies before his Benefit
Commencement Date, the Actuarial Equivalent of the Participant's Supplemental
Benefit without regard to the vesting provision of Section 3.3 shall be paid
to the Participant's beneficiary or beneficiaries as a single lump sum amount
within sixty (60) days following the date on which the Administrator is
notified of the Participant's death.
5.2 Designation of Beneficiary. Unless a Participant files a designation of
beneficiary form with the Administrator pursuant to this Section 5.2, any
designation of a beneficiary under the Basic Plan shall also be effective
under this Plan. A Participant may, by written instrument delivered to the
Administrator during the Participant's lifetime, designate one or more primary
and contingent beneficiaries to receive the Supplemental Benefit which may be
payable hereunder following the Participant's death, and may designate the
proportions in which such beneficiaries are to receive such payments. A
Participant may change such designations from time to time, and the last
written designation filed with the Administrator prior to the Participant's
death shall control. If a Participant fails to specifically designate a
beneficiary or, if no designated beneficiary survives the Participant, payment
shall be made by the Administrator in the following order of priority:
(a) to the Participant's surviving spouse; or if none,
(b) to the Participant's children, per stirpes; or if none,
(c) to the Participant's estate.
ARTICLE VI
ADMINISTRATION
6.1 General. The Administrator shall be the Committee, or such other person
or persons as designated by the Board. Except as otherwise specifically
provided in the Plan, the Administrator shall be responsible for the
administration of the Plan. The Administrator shall be the "named fiduciary"
within the meaning of Section 402(c)(2) of ERISA.
6.2 Administrative Rules. The Administrator may adopt such rules of
procedure as it deems desirable for the conduct of its affairs, except to the
extent that such rules conflict with the provisions of the Plan.
6.3 Duties. The Administrator shall have the following rights, powers and
duties:
(a) The decision of the Administrator shall be final, binding and
conclusive upon any person affected by such decision, subject to the claims
procedure hereinafter set forth.
<PAGE> 7
(b) The Administrator shall have the duty and authority to interpret
and construe the provisions of the Plan, to decide any question which may
arise regarding the rights of employees, Participants and beneficiaries, and
the amounts of their respective interests, to adopt such rules and to exercise
such powers as the Administrator may deem necessary for the administration of
the Plan, and to exercise any other rights, powers or privileges granted to
the Administrator by the terms of the Plan.
(c) The Administrator shall maintain full and complete records of its
decisions. Its records shall contain all relevant data pertaining to the
Participant and his rights and duties under the Plan. The Administrator shall
have the duty to maintain records of each Participant's Supplemental Benefit.
(d) The Administrator shall cause the principal provisions of
the Plan to be communicated to the Participants, and a copy of the Plan and
other documents shall be available at the principal office of the Company for
inspection by the Participants at reasonable times determined by the
Administrator.
(e) The Administrator shall periodically report to the Committee with
respect to the status of the Plan.
(f) The Administrator may employ such independent professional
advisors, including without limitation independent legal counsel and counsel
regularly employed by the Company, consultants and agents as the Administrator
may deem appropriate for the administration of the Plan and may rely upon any
opinion received from any such counsel or consultant and any computations
received from any such consultant or agent. All expenses incurred by the
Administrator in interpreting and administering the Plan, including without
limitation meeting fees and expenses and professional fees, shall be paid by
the Company.
6.4 Fees. No fee or compensation shall be paid to any person for services as
the Administrator.
ARTICLE VII
CLAIMS PROCEDURE
7.1 General. Any claim for benefits under the Plan shall be filed with the
Administrator by the Participant or Beneficiary ("claimant") on the form
prescribed for such purpose by the Administrator.
7.2 Denials. If a claim for benefits under the Plan is wholly or partially
denied, notice of the decision shall be furnished to the claimant by the
Administrator within a reasonable period of time after receipt of the claim by
the Administrator.
7.3 Notice. Any claimant who is denied a claim for benefits shall be
furnished written notice setting forth:
(a) the specific reason or reasons for the denial;
(b) specific reference to the pertinent provision of the Plan upon
which the denial is based;
(c) a description of any additional material or information necessary
for the claimant to perfect the claim; and
(d) an explanation of the claim review procedure under the Plan.
<PAGE> 8
7.4 Appeals Procedure. In order that a claimant may appeal a denial of a
claim, the claimant or the claimant's duly authorized representative may:
(a) request a review by written application to the Administrator, or
its designate, no later than sixty (60) days after receipt by the claimant of
written notification of denial of a claim;
(b) review pertinent documents; and
(c) submit issues and comments in writing.
7.5 Review. A decision on review of a denied claim shall be made not later
than sixty (60) days after receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered within a reasonable period of time, but not later
than one hundred and twenty (120) days after receipt of a request for review.
The decision on review shall be in writing and shall include the specific
reason(s) for the decision and the specific reference(s) to the pertinent
provisions of the Plan on which the decision is based.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment. The Company reserves the right to amend the Plan in any
manner that it deems advisable by a resolution of the Board. No amendment
shall, without the Participant's consent, reduce the amount of the
Participant's accrued Supplemental Benefit at the time the amendment becomes
effective or the right of the Participant to receive his accrued Vested
Supplemental Benefit.
8.2 Termination. The Company reserves the right to terminate the Plan at any
time. No termination shall, without the consent of the Participant, reduce the
amount of the Participant's accrued Supplemental Benefit prior to the
termination or the right of the Participant to receive his accrued Vested
Supplemental Benefit.
8.3 No Assignment. The Participant shall not have the power to pledge,
transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in
advance any interest in amounts payable hereunder or any of the payments
provided for herein, nor shall any interest in amounts payable hereunder or in
any payments be subject to seizure for payments of any debts, judgments,
alimony or separate maintenance, or be reached or transferred by operation of
law in the event of bankruptcy, insolvency or otherwise.
8.4 Incapacity. If any person to whom a benefit is payable under the Plan is
a minor child or if the Administrator determines that any person to whom such
benefit is payable is incompetent by reason of physical or mental disability,
the Administrator may cause the payments becoming due to such person to be
made to another for his benefit. Payments made pursuant to this Section shall,
as to such payment, operate as a complete discharge of the Plan, the Company,
the Committee and the Administrator.
8.5 Successors and Assigns. The provisions of the Plan are binding upon and
inure to the benefit of the Company, its respective successors and assigns,
and the Participant, his beneficiaries, heirs, legal representatives and
assigns.
8.6 Governing Law. The Plan shall be subject to and construed in accordance
with the laws of the State of Connecticut to the extent not pre-empted by the
provisions of ERISA.
<PAGE> 9
8.7 No Guarantee of Employment. Nothing contained in the Plan shall be
construed as a contract of employment or deemed to give any Participant the
right to be retained in the employ of the Company or any equity or other
interest in the assets, business or affairs of the Company.
8.8 Severability. The provisions of the Plan are severable. If any provision
of the Plan is deemed legally or factually invalid or unenforceable to any
extent or in any application, then the remainder of the provision and the
Plan, except to such extent or in such application, shall not be affected, and
each and every provision of the Plan shall be valid and enforceable to the
fullest extent and in the broadest application permitted by law.
8.9 Notification of Addresses. Each Participant and each beneficiary shall
file with the Administrator, from time to time, in writing, the post office
address of the Participant, the post office address of each beneficiary, and
each change of post office address. Any communication, statement or notice
addressed to the last post office address filed with the Administrator (or if
no such address was filed with the Administrator, then to the last post office
address of the Participant or beneficiary as shown on the Company's records)
shall be binding on the Participant and each beneficiary for all purposes of
the Plan and neither the Administrator nor the Company shall be obliged to
search for or ascertain the whereabouts of any Participant or beneficiary.
8.10 Bonding. The Administrator and all agents and advisors employed by it
shall not be required to be bonded, except as otherwise required by ERISA.
ARTICLE IX
CHANGE IN CONTROL
9.1 Establishment of Trust. Immediately upon the occurrence of a Change in
Control, a trust shall be established under the Life Re Corporation
Supplemental Executive Retirement Plan (referred to as the "Rabbi Trust") by
the execution of a trust agreement with a trustee. The Rabbi Trust is intended
to be maintained as a "grantor trust" under Section 677 of the Code. The
assets of the Rabbi Trust will be held, invested and disposed of by the
trustee, in accordance with the terms of the Rabbi Trust, for the exclusive
purpose of providing Plan benefits for Participants under the Plan.
Notwithstanding any provision of the Plan or the Rabbi Trust to the contrary,
the assets of the Rabbi Trust shall at all times be subject to the claims of
the Company's general creditors in the event of the Company's insolvency or
bankruptcy.
9.2 Contributions and Expense. Concurrent with the establishment of the
Rabbi Trust, the Company shall contribute to the Rabbi Trust the amount
necessary to fully fund the Actuarial Equivalent of all Participants'
Supplemental Benefits, whether or not vested in accordance with Section 3.3.
For purposes of calculating the Actuarial Equivalent of the Supplemental
Benefit of a Participant who is currently employed by the Company, the
Supplemental Benefit shall be determined by crediting five additional Years of
Service to the actual Years of Service rendered by each such Participant as of
the date of the Change in Control (herein called the "Recalculated
Supplemental Benefit"). Notwithstanding anything herein to the contrary, the
Benefit Commencement Date of this Recalculated Supplemental Benefit shall be
the date concurrent with the Change in Control. Upon the occurrence of a
Change in Control all Participants shall be fully vested in their Recalculated
Supplemental Benefit. For purposes of this Section 9.2, a Participant who is
no longer employed by the Company, whether or not in current pay status, will
be treated as having a Benefit Commencement Date. Notwithstanding anything to
the contrary contained in this Plan, upon a Change in Control, a Participant
shall be entitled to elect to receive his Supplemental Benefit, or, in the
case of an Participant who is currently employed by the Company, his
Recalculated Supplemental Benefit, in any of the optional forms of payment
<PAGE> 10
provided in Section 4.5. The election of payment as one lump-sum in cash shall
not be subject to the discretion of the Committee.
9.3 Trustee Duties. The powers, duties and responsibilities of the trustee
shall be as set forth in the Rabbi Trust agreement and nothing contained in
the Plan, either expressly or by implication, shall impose any additional
powers, duties or responsibilities upon the trustee.
9.4 Reversion to the Company. The Company shall have no beneficial interest
in the Rabbi Trust and no part of the Rabbi Trust shall ever revert or be
repaid to the Company prior to the payment of all Plan benefits to
Participants and their beneficiaries, except as otherwise reasonably
determined by the Committee not to be necessary to pay benefits to
Participants.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer effective as of January 1, 1995.
ATTEST/WITNESS: LIFE RE CORPORATION
s/ s/
Tracy L. Rudolph Rodney A. Hawes, Jr.
Associate Secretary Chairman of the Board
<PAGE> 11
LIFE RE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE: JANUARY 1, 1995
All Rights Reserved
Copyright 1995
Ernst & Young
<PAGE>
<PAGE> 12
LIFE RE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Table of Contents
Page
ARTICLE I - GENERAL
Section 1.1 Effective Date . . . . . . . . . . . .1
Section 1.2 Purpose. . . . . . . . . . . . . . . .1
Section 1.3 Intent . . . . . . . . . . . . . . . .1
ARTICLE II - DEFINITIONS AND USAGE
Section 2.1 Definitions. . . . . . . . . . . . . 2
Section 2.2 Usage. . . . . . . . . . . . . . . . 4
ARTICLE III - ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility. . . . . . . . . . . . . .4
Section 3.2 Participation . . . . . . . . . . . . . 4
Section 3.3 Vesting. . . . . . . . . . . . . . . . 5
ARTICLE IV - RETIREMENT BENEFITS
Section 4.1 Amount . . . . . . . . . . . . . . . . 5
Section 4.2 Entitlement to Benefits. . . . . . . . 5
Section 4.3 Time of Payment. . . . . . . . . . . . 5
Section 4.4 Normal Form of Payment . . . . . . . . 5
Section 4.5 Optional Forms of Payment. . . . . . .5
ARTICLE V - DEATH BENEFITS
Section 5.1 Pre-retirement Death Benefit . . . . .6
Section 5.2 Designation of Beneficiary . . . . . .6
ARTICLE VI - ADMINISTRATION
Section 6.1 General. . . . . . . . . . . . . . . . 6
Section 6.2 Administrative Rules . . . . . . . . . 6
Section 6.3 Duties . . . . . . . . . . . . . . . . 6
Section 6.4 Fees . . . . . . . . . . . . . . . . . 7
ARTICLE VII - CLAIMS PROCEDURE
Section 7.1 General. . . . . . . . . . . . . . . . 7
Section 7.2 Denials. . . . . . . . . . . . . . . . 7
Section 7.3 Notice . . . . . . . . . . . . . . . . 7
Section 7.4 Appeals Procedure. . . . . . . . . . .8
Section 7.5 Review . . . . . . . . . . . . . . . .8
<PAGE>
<PAGE> 13 Page
ARTICLE VIII - MISCELLANEOUS PROVISIONS
Section 8.1 Amendment. . . . . . . . . . . . . . . 8
Section 8.2 Termination. . . . . . . . . . . . . . 8
Section 8.3 No Assignment. . . . . . . . . . . . . 8
Section 8.4 Incapacity . . . . . . . . . . . . . . 8
Section 8.5 Successors and Assigns . . . . . . . . 8
Section 8.6 Governing Law. . . . . . . . . . . . . 8
Section 8.7 No Guarantee of Employment . . . . . .9
Section 8.8 Severability . . . . . . . . . . . . .9
Section 8.9 Notification of Addresses. . . . . . .9
Section 8.10 Bonding. . . . . . . . . . . . . . . . 9
ARTICLE IX - CHANGE IN CONTROL
Section 9.1 Establishment of Trust . . . . . . . . 9
Section 9.2 Contributions and Expenses . . . . . .9
Section 9.3 Trustee Duties . . . . . . . . . . . .10
Section 9.4 Reversion to the Grantor . . . . . . .10
<PAGE>
<PAGE> 14
Appendix I
to the
Life Re Corporation
Supplemental Executive Retirement Plan
Employees' Retirement Plan of Life Reassurance
Corporation of America and its Affiliates
<PAGE>1
SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT (this "Agreement") is made effective as of the
1st day of June, 1996 (the "Effective Date") by and between Life Re
Corporation, a Delaware corporation having its principal executive offices at
969 High Ridge Road, Stamford, Connecticut (hereinafter referred to as the
"Company") and Tracy L. Rudolph, currently Executive Vice President - Office
of Life Marketing and Associate General Counsel of Life Reassurance
Corporation of America, a subsidiary of the Company, and Vice President -
Investor Relations and Associate General Counsel of the Company (hereinafter
referred to as the "Executive").
W I T N E S S E T H
WHEREAS, the Company recognizes that the Executive's contribution to the
growth and success of the Company has been substantial and the Company desires
to assure itself of the Executive's continued employment; and
WHEREAS, in this connection, the Board of Directors of the Company (the
"Board of Directors") recognizes that, as is the case with many publicly held
corporations and their subsidiaries, the possibility of a Change in Control of
the Company may exist and that such possibility and the uncertainty which it
may raise among management may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board of Directors has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of the Executive to his assigned duties without distractions
arising from the possibility of a Change in Control of the Company; and
WHEREAS, to take such steps with respect to the Executive and to induce
the Executive to remain in the employ of the Company, the Company has agreed
that the Executive shall receive certain severance payments as set forth below
in the event of a change in control of the Company, on the terms and under the
circumstances described below.
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Definitions. Unless defined elsewhere in this Agreement, terms
that are capitalized will have the meanings set forth or incorporated by
reference in paragraph 18 below.
2. Operation of Agreement. This Agreement shall be effective
immediately upon its execution by the parties; provided, however,
notwithstanding anything in this Agreement to the contrary, this Agreement
shall become operative upon a "Change in Control" of the Company.
3. Election Upon a Change in Control. Within thirty days after
learning of a Change in Control of the Company, the Executive, in his sole
discretion, may elect to either (i) terminate his employment with the Company
or (ii) continue his employment with the Company. If the Executive does not
inform the Company of his decision to terminate his employment therewith
within thirty days of learning of a Change in Control, the Executive will be
deemed to have elected to continue his employment with the Company.
(a) If the Executive elects to terminate his employment with the Company
following a Change in Control, his Date of Termination will be the date the
Company receives written notice of his election. Within ten days of receiving
notice of the Executive's election, the Company will pay or provide the
Executive, as severance pay or liquidated damages or both, the sum of:
<PAGE> 2
(i)Base Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given, together with any other
amounts payable to the Executive for periods prior to the Date of Termination;
(ii)a lump sum payment equal to two hundred percent of the sum of
(A) the Base Salary at the rate in effect as of the Date of Termination, and
(B) the highest aggregate incentive award awarded to the Executive by the
Company or any subsidiary of the Company during any year during any one of the
three bonus periods immediately preceding the Date of Termination; and
(iii) any amounts payable under paragraph 17, below.
(b)If the Executive elects to continue his employment with the Company
following a Change in Control, the terms of this Agreement will continue in
effect until two years from the date of the Change in Control.
4. Conditions after Change in Control. If the Executive elects to
continue his employment with the Company after a Change in Control:
(a)the Executive will not be required by the Company to be absent from
Executive's home office on travel status or otherwise more than a reasonable
time each year as necessary or appropriate for the performance of his duties
hereunder.
(b)in no event will an increase in the Base Salary that becomes
effective after a Change in Control occurs be less than the average annual
percentage increase in Base Salary that was awarded to the Executive in the
two year period immediately preceding the date on which such Change in Control
occurred (such calculation commencing with the salary in effect on the date of
this Agreement);
(i)in no event will the percentage of the Executive's Applicable
Base Salary (as hereafter defined) that is awarded to the Executive as an
annual cash bonus for any fiscal year of the Company in which a Change in
Control occurs, or for any subsequent fiscal year, amount to less than the
average annual percentage of Applicable Base Salary that was awarded to the
Executive as an annual cash bonus for the two most recent fiscal years for
which annual cash bonus award determinations were made before the fiscal year
in which the Change in Control occurred. For purposes of this clause (i), the
Applicable Base Salary with respect to any annual cash bonus is the base
salary that was actually paid to the Executive during the fiscal year for
which such annual cash bonus is awarded; and
(ii)in no event will the Executive be granted stock options after
a Change in Control less often than annually nor on terms and conditions
(including performance goals) less favorable to the Executive than those which
were granted to the Executive during the term of this Agreement prior to such
Change in Control (or, if shorter, during the two years preceding the Change
in Control), nor no fewer than the following number of shares:
(A)the average annual number of shares that were optioned to
the Executive during the term of this Agreement prior to such Change in
Control; or
(B)if more than the number described in (A) above, the
number of shares whose Fair Market Value on the date they are optioned or
awarded to the Executive equals the average annual Fair Market Value
(determined on the respective grant or award dates) of the shares that were
optioned to the Executive during the term of this Agreement prior to such
Change in Control.
<PAGE>
<PAGE> 3
(c)the Executive, his dependents and beneficiaries will be entitled to
all benefits and service credit for benefits during the term of this Agreement
to which other senior officers of the Company, their dependents and
beneficiaries are entitled as the result of the employment of such officers
during the term of this Agreement under the terms of employee plans and
practices of the Company and its subsidiaries, including, without limitation,
the Qualified Plan, 401(k) Plan, any non-qualified deferred compensation plans
and related "rabbi" trusts, the Company's life insurance plans, its disability
benefit plans, its vacation and holiday pay plans, its medical, dental and
welfare plans and other present or successor plans and practices of the
Company and its subsidiaries for which similarly-situated officers, their
dependents and beneficiaries are eligible, and to all payments and other
benefits under any such plan or practice subsequent to the term of this
Agreement as a result of participation in such plan or practice during the
term of this Agreement, in each case at least equal to those provided on the
Effective Date, as the same may have been improved from time to time. If and
to the extent that such benefits and service credits are not payable or
provided under such plans or practices by reason of any amendment or
termination thereof or otherwise, the Company itself will pay or provide
therefor. To the extent any form of remuneration required under this
Agreement is impermissible under the terms of any applicable plan or illegal
under existing law, then the Company will provide an equivalent benefit
directly to the Executive in another permissible manner.
5. Termination of Employment. If the Executive elects to continue
his employment with the Company, pursuant to paragraph 3 above, after a Change
in Control, the provisions of this paragraph 5 shall apply to the termination
of the Executive's employment with the Company during the twenty-four (24)
month period years after the date of a Change in Control (the "Post Change
Period").
(a)Termination by the Company or by the Executive of the Executive's
employment with the Company on account of "Retirement" shall mean termination
on or after the Executive's "normal retirement date," as defined in the
Qualified Plan as of the date hereof, or in accordance with any retirement
arrangement established with the Executive's consent with respect to the
Executive.
(b) The term of this Agreement will terminate upon the death of the
Executive.
(c)The Company may terminate the Executive's employment during the term
of this Agreement for "Cause" only:
(i)upon the willful failure of the Executive to comply with
material insurance laws or regulations that has or is likely to result in
substantial economic damage to the Company and that has not been cured to the
reasonable satisfaction of the Board within thirty days; or
(ii)upon the proved fraud or dishonesty of the Executive that has
or is likely to result in substantial economic damage to the Company;
and in the case of each of clauses (i) and (ii) above, the applicable
conditions set forth in paragraph 5(e) below are satisfied.
(d)The Executive may terminate his employment with the Company during
the term of this Agreement for Good Reason. For the purposes of this
Agreement, "Good Reason" will mean any breach by the Company of the terms of
this Agreement, including, but not limited to, any material reduction in
Executive's duties, title, position, or compensation after a Change in
Control. An election by the Executive to terminate his employment under the
<PAGE> 4
provisions of this paragraph 5(d) will not be deemed a voluntary termination
of employment by the Executive for the purpose of this Agreement or any plan
or practice of the Company.
(e)Any termination by the Company pursuant to subparagraph 5(c) above or
by the Executive pursuant to subparagraph 5(d) above will be communicated by
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" will mean a notice which indicates the
specific termination provision in this Agreement relied upon and sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provisions so indicated.
(f)"Date of Termination" will mean (i) if the Executive's employment is
terminated by his death, the date of his death, (ii) if the termination is
pursuant to 5(c)(i) or 5(c)(ii), upon Notice of Termination, and (iii) if the
Executive's employment is terminated for any other reason, the date thirty-one
days from the date on which a Notice of Termination was given (provided that
the Executive has not cured the material breach to the reasonable satisfaction
of the Board during the thirty-day cure period, if applicable).
6. Severance Payment on Termination of Employment.
(a)If, within the Post Change Period, the Executive's employment with
the Company shall be terminated: (i) by the Company (other than for
Retirement, as defined in paragraph 5(a); or (ii) by Executive for Good
Reason, as defined in paragraph 5(d); the Company shall pay to Executive a
severance payment (the "Total Severance Amount") determined in accordance with
this paragraph 6.
(b)The Total Severance Amount shall be an amount equal to:
(i)two (2) times the sum of an amount equal to the Executive's (A)
annual base salary (calculated as of the time of termination of employment;
provided, however, that such amount has not been reduced since the Change in
Control) paid by the Company and (B) the highest aggregate incentive award
awarded to the Executive by the Company or any subsidiary of the Company with
respect to the Executive's bonus during any year during any one of the three
(3) bonus periods immediately preceding the Date of Termination; and
(ii)benefits and service credit for benefits and benefit accruals
which Executive would have received if his employment had continued through
the entire Post Change Period; and
(iii)any amounts payable under paragraph 17 below; and
(iv)all options held by Executive become immediately vested and
Executive has the right to exercise all options at any time until the later of
(i) one year from the Date of Termination or (ii) the completion of the Post
Change Period, in each case notwithstanding any provisions of the Executive's
Option Agreements to the contrary.
Executives who retire during the term of this Agreement will participate in
the provision listed in the above subsections (b)(iii) and (b)(iv).
(c)Executive may opt to continue to participate, with the expense
thereof borne by the Company, at levels not less than the greater of those
existing on (i) the day before the Change in Control or (ii) the Termination
Date, at Executive's election, in the Company's life, disability, accident and
health plans for a period of two (2) years from the Termination Date by giving
written notice to the Company of such election within thirty (30) days of the
Termination Date.
<PAGE> 5
(d)Nothing in this Agreement will deprive the Executive of any rights,
payments, benefits or service credit for benefits after termination of
employment which were earned pursuant to any provision of this Agreement or
any plan or practice of the Company including, without limitation, any pension
and welfare benefits payable and any legal fees and expenses payable.
(e)Except with respect to payments provided for under paragraph 6(b)
above, the payment of the amounts provided for herein shall not affect the
obligations of the Company or its successors under any plan, other agreement
or arrangement pursuant to which Executive is entitled to any retirement,
pension, stock or insurance benefits or payments or welfare contributions
applicable to retired management employees of the Company, generally.
(f)Notwithstanding any other provision of this Agreement, in the event
that the Executive becomes entitled to payments under this Agreement and if
any of the Total Payments ("Total Payments" being the total amount payable to
the Executive pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company or any of its subsidiaries) are
subject to the excise tax imposed under section 4999 ("Excise Tax") of the
Internal Revenue Code of 1986, as amended, the Company shall pay to the
Executive an additional amount (the "Gross-up Payment") such that the net
amount retained by the Executive after deduction of any Excise Tax on the
Total Payments and any federal, state, or local income tax and any Excise Tax
upon Gross-up Payment, shall be equal to the amount of the Total Payments.
7. Mitigation; Disputes.
(a)The Executive shall not be required to mitigate the amount of any
payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer after the Termination Date, or otherwise.
(b)The Company's obligation to make the payments provided for under this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others.
(c)If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether or not such termination was for Cause, or (ii) in the event
of any termination of employment by the Executive, whether or not Good Reason
existed, then, unless and until there is a final, nonappealable judgment by a
court of competent jurisdiction declaring that such termination was for Cause
or that the determination by the Executive of the existence of Good Reason was
not made in good faith, the Company shall pay all amounts and provide all
benefits to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay
or provide hereunder as though such termination were by the Company without
Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph 7(c) except upon receipt of an undertaking by or on behalf of the
Executive to repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
8. Default by Company. Any provision of this Agreement to the
contrary notwithstanding, if, following termination of employment, the Company
defaults on its obligation to pay any amount payable to the Executive or his
beneficiary under this Agreement when due and fails to remedy such default
within thirty days after having received written notice from the Executive or
his beneficiary, then the Company will thereupon pay to the Executive or
beneficiary, as the case may be, in full discharge of its obligations to the
Executive or beneficiary under this Agreement, (a) a lump sum amount
<PAGE> 6
actuarially equivalent (using the assumptions used under the Qualified Plan in
calculating the amount of lump sum payments) to the future payments otherwise
payable under this Agreement to the Executive and his beneficiary, and (b) an
amount equal to any and all past due payments owing to the Executive and his
beneficiary under this Agreement.
9. Indemnification. The Company will indemnify the Executive to the
full extent permitted by the General Corporation Law of the State of Delaware,
as amended from time to time, for all amounts (including without limitation
judgments, fines, settlement payments, expenses and attorney's fees) connected
with any action, suit, investigation or proceeding arising out of or relating
to the performance by the Executive of services for, or the acting by the
Executive as a director, officer or employee of, the Company, or any
subsidiary of the Company, or any affiliate or any other person or enterprise
at the Company's request, including but not limited to those entities in which
the Company has an investment, as such amounts are incurred. The Company will
maintain a Directors' and Officers' Liability Insurance Policy and will use
its best efforts to maintain the coverage presently in effect, or one
providing substantially similar protection to the Executive, in full force and
effect, which Policy will provide minimum liability coverage in the amount
carried on the date of this Agreement. Nothing in this paragraph 8 or
elsewhere in this Agreement is intended to prevent the Company from
indemnifying the Executive to any greater extent than is required by this
paragraph.
10. Successors; Binding Agreement.
(a)The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place;
provided that no such agreement will release the corporation that is the
original party to this Agreement without the Executive's express written
consent. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession will be a breach of this Agreement and
will entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if his employment
were terminated by the Executive for Good Reason or by the Company (other than
for Cause pursuant to paragraph 5(c)), except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective will be deemed the Date of Termination.
(b)If the Executive should die while any amounts are due and payable to
him hereunder, all such amounts, unless otherwise provided herein, will be
paid in accordance with the terms of this Agreement to the Executive's
devisees, legatee or other designee or, if there be no such designee, to the
Executive's estate.
(c)Except as to withholding of any tax under the laws of the United
States or any state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder will be
subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by legal representatives without the
Company's prior written consent, nor will there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, that nothing in this
paragraph 9(c) will preclude the Executive from designating a beneficiary to
receive any benefit payable on his death, or the legal representatives of the
Executive from assigning any rights hereunder to the person or persons
<PAGE> 7
entitled thereto under his will or, in case of intestacy, to the person or
persons entitled thereto under the laws of intestacy applicable to his estate.
11. Parties. This Agreement will be binding upon and will inure to
the benefit of the Company and the Executive, his heirs, beneficiaries,
executors or other legal representatives.
12. General.
(a)This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and supersede any and all other
agreements between the parties with respect to the subject matter hereof.
(b)Any modification of this Agreement will not be binding unless in
writing and signed by both an officer or director of the Company duly
authorized to do so and the Executive.
13. Enforceability; Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of the Executive or the Company
under this Agreement would not be materially and adversely affected thereby,
(a) such provision will be fully severable; (b) this Agreement will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof; (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom; and
(d) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms as such illegal, invalid or unenforceable
provision as may be possible.
14. Notices. All notices which may be necessary or proper for either
the Company or the Executive to give to the other will be in writing and will
be delivered by hand or sent by registered or certified mail, return receipt
requested, to the address set forth under the Executive's name on the last
page hereof, in the case of the Executive, and will be sent in the manner
described above to its principal executive offices at 969 High Ridge Road,
Stamford, Connecticut 06905, Attention: General Counsel, or delivered by hand
to its General Counsel, in the case of the Company, and will be deemed given
when sent, provided that any Notice of Termination or other notice given
pursuant to paragraph 5 above will be deemed given only when received. Either
party may by like notice to the other party change the address at which he or
it is to receive notices hereunder.
15. Arbitration. Any controversy or claim arising out of, or related
to, this Agreement, or the breach thereof, that is not subject to cure using
the remedies provided hereunder will be settled by binding arbitration in
Stamford, Connecticut, in accordance with the rules then pertaining of the
American Arbitration Association, and its decision will be binding and final,
and judgment upon the award rendered may be entered in any court having
jurisdiction thereof, except that, with respect to any arbitrable controversy
or claim, the Executive may have the matter settled by judicial determination
in lieu of arbitration by bringing a court action, if he is the plaintiff or,
if he is not the plaintiff, demanding such judicial determination within the
time to answer any complaint in any arbitration action that may be commenced.
16. Governing Law. This Agreement will be governed by, and be
enforceable in accordance with, the laws of the State of Delaware without
giving effect to the principles of conflicts of laws thereof.
<PAGE> 8
17. Legal Fees and Expenses. To induce the Executive to execute this
Agreement and to provide the Executive with reasonable assurance that the
purposes of this Agreement will not be frustrated by the cost of its
enforcement should the Company fail to perform its obligations under this
Agreement, the Company will pay and be solely responsible for all reasonable
attorney's fees and expenses and court costs when incurred by the Executive
and all his beneficiaries, heirs, executors or other legal representatives as
a result of the Company's failure to perform this Agreement or any provision
hereof to be performed by the Company. Such fees also are due and payable by
the Company if the Company loses in any action against the Executive.
18. Definitions. The following terms, when capitalized in this
Agreement, will have the meanings set forth or incorporated by reference in
this paragraph 18.
(a) "Applicable Base Salary" will have the meaning set forth in
subparagraph 4(b)(i).
(b) "Base Salary" will have the meaning set forth in paragraph 4
above.
(c)"Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Exchange Act, whether or not the
Company is subject to the Exchange Act at such time; provided, however that
without limiting the generality of the foregoing, such a Change in Control
will in any event be deemed to occur if and when:
(i)any person (as such term is used in paragraphs 13(d) and 14(d)(2) of
the Exchange Act, hereinafter in this paragraph 18, "Person"), other than the
Company or a subsidiary or employee benefit plan of the Company or subsidiary,
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more
than twenty-five percent of the combined voting power of the Company's then
outstanding securities;
(ii)stockholders approve a merger, consolidation or other business
combination (a "Business Combination") other than a Business Combination in
which holders of common stock of the Company immediately prior to the Business
Combination have substantially the same proportionate ownership of Common
Stock of the surviving corporation immediately after the Business Combination
as immediately before;
(iii)stockholders approve either (A) an agreement for the sale or
disposition of all or substantially all of the Company's assets to any entity
which is not a subsidiary of the Company, or (B) a plan of complete
liquidation;
(iv)the persons who were members of the Board of Directors immediately
before a tender offer by any Person other than the Company or a subsidiary, or
before a merger, consolidation, or contested election, or before any
combination of such transactions, cease to constitute a majority of the Board
of Directors as a result of such transaction or transactions.
(d)"Common Stock" means common stock of the Company, par value $0.001
per share.
(e)"Company" means Life Re Corporation, a Delaware corporation, and any
successors to its business and/or assets which executes and delivers an
agreement provided for in paragraph 10 or which otherwise becomes bound by all
the terms and conditions of this Agreement by operation of law.
<PAGE> 9
(f)"Date of Termination" will have the meaning set forth in subparagraph
5(f) above.
(g)"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(h)"Fair Market Value" means Fair Market Value as defined in the 1992
Life Re Corporation Stock Option Plan,
(i)"Good Reason" will have the meaning set forth in paragraph 5(c)
above.
(j)"Normal Retirement Date" means Normal Retirement Date as that term is
defined in the Qualified Plan.
(k)"Notice of Termination" will have the meaning set forth in paragraph
5(e) above.
(l)"Qualified Plan" means the Employee's Retirement Plan for Life
Reassurance Corporation of America as in effect on the Effective Date.
19. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
20. Non-Waiver. The Executive's or the Company's failure to
immediately insist upon strict compliance with any provision of this
Agreement, including, without limitation, the right of the Executive to
terminate his employment with the Company for Good Reason, shall not be deemed
to be a waiver of such provision or right or any other provision or right
under this Agreement.
21. No Employment Rights Created. Nothing herein is intended or shall
be interpreted to give the Executive the right to be employed, reemployed or
continue to be employed by the Company.
22. Pronouns. When used herein the masculine pronoun shall include
the feminine and feminine pronouns shall include the masculine.
<PAGE>
<PAGE> 10
22. Term. The term of this Agreement will commence on the Effective
Date and unless there has been a Change in Control prior to such date, this
Agreement will terminate on the third anniversary of the Effective Date.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its authorized representatives, and the Executive has hereunto set his hand
as of the date first above written.
LIFE RE CORPORATION
s/
Rodney A. Hawes, Jr.
ATTEST:
s/
W. Weldon Wilson, Vice President,
General Counsel and Secretary
EXECUTIVE
s/
Tracy L. Rudolph
ADDRESS:
