FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
X QUARTERLY REPORT PURSUANT to SECTION 13 or 15(d)
of the SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1997
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 April 30, 1997: 13,558,166
shares
TABLE OF CONTENTS
Item Page
PART I - FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 1997 and December 31, 1996 . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Income (Unaudited)
Three months ended March 31, 1997 and 1996 . . . . . . . . . . . 5
Condensed Consolidated Statements
of Cash Flows (Unaudited)
Three months ended March 31, 1997 and 1996 . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial
Statements March 31, 1997 (Unaudited). . . . . . . . . . . . . . 7
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . 9
PART II- OTHER INFORMATION
6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .12
Part I - Financial Information
Item 1
Report of Independent Auditors
The Board of Directors
Life Re Corporation
We have reviewed the accompanying condensed consolidated balance sheet
of Life Re Corporation and subsidiaries as of March 31, 1997, and the
related condensed consolidated statements of income and cash flows for
the three-month periods ended March 31, 1997 and 1996. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, which will be performed for the full year
with the objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Life Re
Corporation and subsidiaries as of December 31, 1996 and the related
consolidated statements of income, shareholders' equity and cash flows
for the year then ended (not presented herein) and in our report dated
February 4, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
May 1, 1997
<PAGE>
Item 1.
Life Re Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1997 1996
(In thousands,
except share data)
ASSETS
Fixed maturities - at fair value
(amortized cost: $1,584,998 and
$1,576,371, respectively) $1,578,210 $1,610,694
Equity securities - at fair value
(cost: $20,841 and $20,841, respectively) 21,845 21,536
Assets held by ceding company under
reinsurance treaty - at fair value
(amortized cost: $106,820 and
$105,519, respectively) 108,286 110,246
Mortgage loans and real estate 6,368 6,957
Short-term investments 12,046 25,589
Policy loans 59,173 58,220
Total investments 1,785,928 1,833,242
Cash 11,721 6,337
Accrued investment income 31,679 31,963
Policy revenues receivable 108,999 120,809
Amounts receivable on reinsurance ceded 262,436 277,625
Deferred policy acquisition costs 233,320 223,972
and value of business acquired
Other assets 24,980 25,372
Total assets $2,459,063 $2,519,320
LIABILITIES
Policy benefits $1,951,140 $1,982,295
Acquisition costs payable 30,824 34,059
Amounts due on reinsurance ceded 27,611 25,526
Other liabilities 51,866 62,329
Loans payable 125,000 125,000
Total liabilities 2,186,441 2,229,209
SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share;
authorized 40,000,000 shares; issued 15,743,435
and 15,700,935 shares, respectively) 16 16
Paid in capital 106,140 105,226
Net unrealized (depreciation) appreciation
of securities (1,624) 24,854
Retained earnings 215,107 206,822
Treasury stock - at cost (2,177,769 and
2,172,769 shares, respectively) (47,017) (46,807)
Total shareholders' equity 272,622 290,111
Total liabilities and shareholders' equity $2,459,063 $2,519,320
The accompanying notes are an integral component of the condensed consolidated
financial statements.
Life Re Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
March 31,
1997 1996
(In thousands,
except per share data)
REVENUES
Policy revenues $ 114,713 $ 100,728
Investment income 34,909 28,961
Realized investment gains 737 13,899
Total revenues 150,359 143,588
BENEFITS AND EXPENSES
Policy benefits 82,190 78,853
Policy acquisition costs 31,916 24,501
Interest credited to policyholder accounts 10,214 7,438
Interest expense 1,988 2,344
Other operating expenses 8,593 6,735
Total benefits and expenses 134,901 119,871
Income before federal income taxes 15,458 23,717
Provision for federal income taxes 5,410 3,561
NET INCOME $ 10,048 $ 20,156
Earnings per share $ 0.71 $ 1.43
Dividends per share $ 0.13 $ 0.10
Weighted average common and common equivalent shares 14,108 14,121
The accompanying notes are an integral component of the condensed consolidated
financial statements.
Life Re Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1997 1996
(In thousands)
OPERATING ACTIVITIES
Net income $ 10,048 $ 20,156
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accrued investment income 284 (949)
Change in policy revenues receivable 11,810 7,913
Change in policy benefits (24,631) 11,199
Change in reinsurance ceded balances 17,274 (89)
Interest credited to policyholder accounts 10,214 7,438
Fees and charges deducted from policyholder accounts (8,806) (5,378)
Deferral of policy acquisition costs (13,816) (3,950)
Amortization of policy acquisition costs and
value of business acquired 5,668 4,768
Net realized gains on investments (737) (13,899)
Provision for deferred federal income taxes 4,651 2,662
Depreciation and amortization 892 (42)
Other (1,739) (6,933)
Net cash provided by operating activities 11,112 22,896
INVESTING ACTIVITIES
Purchases of fixed maturities (85,176) (90,146)
Sales of fixed maturities 23,776 66,864
Maturities of fixed maturities 52,109 18,844
Sales or redemptions of equity securities 25,796
Change in short-term investments, policy loans and
other investments 13,845 (23,292)
Other, net (1,007) (111)
Net cash provided (used) by investing activities 3,547 (2,045)
FINANCING ACTIVITIES
Purchases of common stock for treasury (210) (2,851)
Proceeds from exercises of common stock options 630 1,705
Loan principal repayments (15,000)
Dividends on common stock (1,763) (1,393)
Deposits to policyholder accounts 13,880 10,304
Withdrawals from policyholder accounts (21,812) (17,498)
Net cash used by financing activities (9,275) (24,733)
Increase (decrease) in cash 5,384 (3,882)
Cash, beginning of period 6,337 5,056
Cash, end of period $ 11,721 $ 1,174
The accompanying notes are an integral component of the condensed consolidated
financial statements.
Life Re Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
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 three month period
ended March 31, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. 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, 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("FAS 128"), effective for years ending after December 15,
1997. FAS 128 will require the calculation and presentation on the
face of the income statement of basic earnings per share and, if
applicable, diluted earnings per share. Basic earnings per share
("EPS") excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. The adoption of FAS 128 is
not expected to have a material effect on reported earnings per
share.
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, except per share
data or unless otherwise specified.
2. Acquisitions
As of June 30, 1996, the Company's subsidiary, Reassure America
Life Insurance Company ("REALIC") acquired, for an adjusted
purchase price of $16,433, 100% of the common stock of two
subsidiaries 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 $169,276, and the liabilities
assumed, principally future policy benefits, aggregated $152,843.
By December 31, 1996, these companies had been merged with and into
REALIC.
The following pro forma financial information has been prepared
assuming REALIC's purchase of these two subsidiaries had
occurred at the beginning of 1996 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 date nor are they necessarily indicative of
future operating results.
Three Months Ended
March 31, 1996
Revenues $ 147,778
Net income $ 20,928
Earnings per share $ 1.48
3. Contingencies
The Company and a ceding company are in arbitration concerning
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.
Life Re Corporation and Subsidiaries
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
With the exception of historical information, the matters contained
in the following analysis are "forward looking statements," within
the meaning of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements may include, but are not limited to, projections of
earnings, revenues, income, or loss, capital expenditures, plans for
future operations and financing needs or plans, as well as
assumptions relating to the foregoing.
Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified.
Future events and actual results, performance and achievements could
differ materially from those set forth in, contemplated by or
underlying the forward looking statements. Such factors include, but
are not limited to, general economic and business conditions which
may impact the need and/or financial ability to obtain reinsurance,
insurance or retrocessional reinsurance; changes in laws and
government regulations applicable to Life Re Corporation and its
subsidiaries (the "Company"); the ability of the Company to
successfully implement its operating strategies; material
fluctuations in interest rate levels; material changes in morbidity
and mortality experience; material changes in the level of operating
expenses; and the success or failure of certain of the Company's
clients in premium writing.
Results of Operations
During 1996, the Company, through Reassure America Life
Insurance Company, completed several transactions, (collectively
"Transactions") through which the Company acquired blocks of
insurance in force. Together these Transactions increased total
assets and liabilities by approximately $400 million.
Net income was $10.0 million for the three months ended March
31, 1997 and $20.2 million for the same period last year. Included
in the 1996 results was a realized gain of $13.5 million from the
sale of a strategic investment. In conjunction therewith, the
Company utilized existing tax net operating loss carryforwards to
offset the taxes otherwise payable in connection with the gain and
reversed an existing deferral tax valuation allowance, resulting in a
tax benefit of $4.8 million. Income before federal income taxes and
excluding realized gains was $14.7 million in 1997, a 50% increase
over the prior year period. The increase is due to lower mortality
in ordinary reinsurance and the contribution to Administrative
Reinsurance(service mark) from the Transactions. These favorable
results were partially offset by higher operating expenses and higher
benefit costs within accident and health and special risk reinsurance
pool participations.
Policy revenues increased by $14.0 million, or 14%, to $114.7 million in
1997 from $100.7 million in last year's first quarter. Ordinary life
reinsurance policy revenues increased by $5.5 million, or 9%, to
$68.0 million mainly due to an increase in first year premiums. A
$4.7 million increase in Administrative Reinsurance(service mark)
policy revenues is attributable to the Transactions. Future revenue
growth from Administrative Reinsurance(service mark) is dependent
upon the completion of similar transactions. Group policy revenues
increased by $3.7 million, or 10%. A decrease in group life premiums
was offset by increased volumes in accident and health and special
risk reinsurance pools. The rate of growth experienced in group
accident and health and special risk policy revenues is not expected
to continue due to management's decision to selectively reduce or
eliminate participation in certain pool arrangements to better
balance the mix of risks reinsured. In addition, effective January
1, 1997, the Company entered into a quota share reinsurance
agreement whereby 50% of most accident and health and special risk
business written in 1997 will be retroceded to a pool of reinsurers.
Although the effect was nominal in the first quarter, this agreement
will further reduce accident and health and special risk premium
volumes in the future.
Investment income increased by 21% to $34.9 million as a result
of assets received in conjunction with the Transactions partially
offset by a decline in the weighted average portfolio yield rate to
7.6% from 7.7% for the comparable 1996 quarter.
Policy benefits increased by $3.3 million period to period due
to higher volumes of business in force, but, as a percentage of
policy revenues, improved to 71% in 1997 from 78% in 1996. Improved
mortality period to period was partially offset by a deterioration in
group accident and health and special risk loss experience.
Policy acquisition costs as a percentage of policy revenues were
28% for the 1997 quarter compared to 24% for the prior year quarter
largely due to higher commission rates on special risk reinsurance
pool participations.
Interest credited to policyholder accounts increased to $10.2
million in 1997 from $7.4 million in 1996 corresponding to the growth
in interest sensitive business resulting from the Transactions.
Interest expense on loans payable declined by $.4 million as a
result of a $15 million principal repayment in March 1996 and a
decline in the weighted average variable rate to 6.0% from 6.3%.
Other operating expenses increased by $1.9 million to $8.6
million due to higher fees for third party administration which are
based on Administrative Reinsurance(service mark) in force volumes,
which increased due to the Transactions. In addition, higher
staffing levels caused an increase in salaries and employee benefit
expense.
Federal income taxes were provided at the federal statutory rate
of 35% for 1997. The 1996 rate was 15% due to the previously
mentioned tax benefit from the utilization of operating loss
carryforwards.
Financial Condition and Liquidity
Investments
Invested assets totaled $1,785.9 million at March 31, 1997
compared to $1,833.2 million at December 31, 1996 largely due to an
interest rate-related decline in fair value of $44.1 million.
The Company's fixed maturity portfolio (including the fixed
maturity securities which are included in assets held by ceding
company under reinsurance treaty) constituted 94% of invested assets
at March 31, 1997, of which $67.6 million, or 4% of invested assets,
consisted of below investment grade securities. At March 31, 1997,
the weighted average quality rating of the fixed maturities portfolio
was "A", and no fixed maturities were in default.
Liquidity
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 may enter into reverse repurchase
agreements to fund short-term cash needs and can also borrow an
additional $35.0 million under its revolving credit agreement.
Effective May 1, 1997, the credit agreement was amended to reduce the
margin over an index rate that determines the amount of interest paid
by the Company. In addition, the Company may defer the commencement
of principal amortization until January 2001. As of March 31, 1997
and December 31, 1996, the weighted average interest rate on long-term debt
was 6.1% and 6.0%, respectively. In addition to debt
servicing and dividend obligations, the Company's financial
obligations consist of policy benefit and acquisition costs, taxes
and general operating expenses. Management believes that these
obligations will be adequately provided for by policy revenues and
investment income for the next twelve months.
The ability of the Company to make principal and interest
payments under its credit agreement as well as to continue to pay
common stock dividends ultimately is 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 Company 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 March 31,
1997, the Company had repurchased over 2.1 million shares for an
aggregate purchase price of $45.9 million including $.2 million in
the three months ended March 31, 1997.
Part II - Other Information
Item 6
Exhibits and Reports on Form 8-K
(a) Exhibits
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).
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 Severance Agreement, effective as of December 17, 1996,
between the Company and Robert L. Beisenherz.
10.02 First Amendment dated as of April 29, 1997 to the Amended and
Restated Credit Amendment dated as of November 2, 1995 among
Life Re Corporation, as the Borrower, Various Financial
Institutions, as the Lenders, Shawmut Bank Connecticut,
N.A., Bank of America Illinois and The Bank of New York, as
Co-Agents, and Bank of America National Trust and Savings
Association, as Administrative Agent for the Lenders.
23.01 Consent of Ernst & Young LLP.
27.01 Financial Data Schedule.
(b) No Current Reports on Form 8-K were filed with the
Securities and Exchange Commission during the quarter ended
March 31, 1997.
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: May 14, 1997 By: /s/ Chris C. Stroup
Chris C. Stroup,
Executive Vice President
and Chief Financial Officer
SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT (this "Agreement") is made effective as of the
17th day of December, 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
"Life Re") and Robert L. Beisenherz (hereinafter referred to as the
"Executive"), currently President of Reassure America Life Insurance Company,
an Illinois corporation (hereinafter referred to as the "Company").
W I T N E S S E T H
WHEREAS, Life Re recognizes that the Executive's contribution to the
growth and success of Life Re has been substantial and Life Re desires to
assure itself of the Executive's continued employment; and
WHEREAS, the Company is an indirect subsidiary of Life Re, a publicly
traded corporation listed on the New York Stock Exchange; and
WHEREAS, in this connection, the Executive Committee of the Board of
Directors of Life Re and the Company (the "Executive Committee") 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 Executive Committee 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 Life Re; and
WHEREAS, to take such steps with respect to the Executive and to induce
the Executive to remain in the employ of the Company, Life Re has agreed that
the Executive shall receive certain severance payments as set forth below in
the event of a change in control of Life Re, on the terms and under the
circumstances described below.
NOW, THEREFORE, Life Re 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 Life Re.
3. ELECTION UPON A CHANGE IN CONTROL. Within thirty days after
learning of a Change in Control of Life Re, 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, Life Re will pay or provide the Executive, as severance
pay or liquidated damages or both, 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 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, Life Re, or
any subsidiary of Life Re 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) Life Re will cause the Company to ensure that 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.
(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 and
Life Re, 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, Life Re'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, Life Re,
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 or Life Re 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 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); Life Re 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 of all incentive awards
(including without limitation annual incentive awards, long
term incentive awards, and discretionary bonuses) awarded to
the Executive by the Company or any subsidiary of the
Company during any one of the three (3) calendar years
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) The Executive may opt to continue to participate, with the expense
thereof borne by Life Re, 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.
(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, Life Re 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.
<PAGE>
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) Life Re'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 Life Re may have against the
Executive or others.
(c) If there shall be any dispute between Life Re 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, Life Re 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 Life Re 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 Life Re
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, Life Re
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 Life Re 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 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. Life Re 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, Life Re, or any
subsidiary of Life Re, 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 or Life Re has an investment, as such amounts are incurred. The
Company and Life Re 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 Life Re from indemnifying the Executive to any greater extent than is
required by this paragraph.
10. SUCCESSORS; BINDING AGREEMENT.
(a) Life Re 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 or
Life Re expressly to assume and agree to perform this Agreement in
the same manner and to the same extent that Life Re 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 Life Re 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 Life Re 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 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 Life Re 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 Life Re 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 Life Re 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
Life Re 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 to Life Re 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 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.
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 Life Re fail to perform its obligations under this
Agreement, Life Re 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 Life Re's failure to perform this Agreement or any provision
hereof to be performed by Life Re. Such fees also are due and payable by Life
Re if Life Re 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 Life Re 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 Life Re 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 Life Re or a subsidiary or
employee benefit plan of Life re or subsidiary, becomes the
beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of
Life Re representing more than twenty-five percent of the
combined voting power of Life Re'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
Life Re 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 Life Re's
assets to any entity which is not a subsidiary of Life Re,
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
Life Re 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 Life Re, 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.
(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 Life Re'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 Life Re 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 Life Re or the Company.
22. PRONOUNS. When used herein the masculine pronoun shall include
the feminine and feminine pronouns shall include the masculine.
23. 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, Life Re 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
By:/s/ Rodney A. Hawes, Jr.,
Chairman
ATTEST:
By: /s/ W. Weldon Wilson, Vice President,
General Counsel and Secretary
EXECUTIVE
By: /s/ Robert L. Beisenherz
ADDRESS:
4732 E. Pinewood Circle
Littleton, CO 80121
FIRST AMENDMENT
THIS FIRST AMENDMENT dated as of April 29, 1997 (this "Amendment")
is among LIFE RE CORPORATION (the "Borrower"), various financial
institutions (the "Lenders"), and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative Agent for the Lenders (in such
capacity, the "Administrative Agent").
W I T N E S E T H:
WHEREAS, the Borrower, the Lenders and the Administrative Agent
have entered into a Credit Agreement dated as of November 2, 1995 (the
"Agreement") which provides for the Lenders to make Loans to the Borrower
from time to time (terms defined in the Agreement and not otherwise
defined herein are used herein as defined in the Agreement); and
WHEREAS, the parties hereto desire to amend the Agreement in
certain respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence of)
the First Amendment Effective Date (as defined below), the Agreement shall
be amended in accordance with Sections 1.1 through 1.7 below.
1.1 Amendment of Certain Definitions. Section 1.1 of the
Agreement is amended by deleting the existing definitions of "Applicable
Margin", "EBT", "Non-Investment Grade", "Statutory Surplus", and "Total
Capital" in their entirety and substituting the following therefor,
respectively (it being understood that the existing definition of
"Applicable Margin" shall be applicable for all times prior to the First
Amendment Effective Date):
Applicable Margin at any time means (a) commencing on the
date of the effectiveness of the First Amendment to this Agreement
and until changed pursuant to clause (b), 0.3%, and (b) on and
after any date specified below on which the Applicable Margin is to
be adjusted, the rate per annum for the relevant time period set
forth below opposite the applicable Indebtedness to Capitalization
Ratio:
Indebtedness to
Capitalization Ratio Applicable Margin
Less than 25% 0.250%
25% or more but less than
or equal to 35% 0.300%
Greater than 35% 0.375%.
The Applicable Margin shall be adjusted 50 days (or, in the
case of the last Fiscal Quarter of any Fiscal Year, 95 days) after
the end of each Fiscal Quarter based on the Indebtedness to
Capitalization Ratio as of the last day of such Fiscal Quarter; it
being understood that (a) if the Borrower fails to deliver the
financial statements required by Section 8.1.1(a) by the 50th (or,
if applicable, the 95th) day after any Fiscal Quarter, the
Applicable Margin shall be 0.375% until such financial statements
are delivered; and (b) any adjustment in the Applicable Margin
shall result in an immediate change in the interest rate for all
outstanding Eurodollar Loans. Notwithstanding the foregoing, no
decrease in the Applicable Margin shall be effected on any date on
which an Event of Default exists (but shall be delayed until the
first date on which no Event of Default exists).
EBT means for any period the sum for such period of (i) the
consolidated Statutory EBT of the Insurance Subsidiaries (using
consolidating principles in accordance with GAAP, wherein
intercompany balances and transactions are eliminated) plus (ii)
any interest expense incurred by TexasRe plus (iii) any Investment
Income of the Borrower.
Non-Investment Grade means any debt instrument or preferred
stock other than a debt instrument or preferred stock which (a) is
rated Baa3 or better (or P-2 or better in the case of commercial
paper) by Moody's Investors Service, Inc. or (b) is rated BBB- or
better (or A-2 or better in the case of commercial paper) by
Standard & Poor's Ratings Group or (c) is not rated by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group but (i)
is rated "2" or better by the NAIC or (ii) if not rated by the
NAIC, is rated the equivalent of NAIC "2" or better by the Borrower
in good faith using generally accepted analytic practices of the
financial industry.
Statutory Surplus means, as of any date, with respect to any
Insurance Subsidiary, the sum of (x) the amount reported on page 3,
line 37, column 1 of its Annual Statement plus (y) the sum of AVR
plus IMR of such Insurance Subsidiary plus (z) the sum of AVR plus
IMR of every direct and indirect Insurance Subsidiary of such
Insurance Subsidiary; or an amount determined in a consistent
manner for any date other than one as of which an Annual Statement
is prepared, plus, in the case of TexasRe, the amount of surplus
classified as a liability in connection with an agreement with the
Texas Department of Insurance concurrent with an amendment to
TexasRe's surplus debentures which are reflected on page 3 in the
details to line 25 of its Annual Statement.
Total Capital shall mean the sum of (a) the Statutory Surplus
of Life Reassurance, plus (b) the Statutory Surplus of TexasRe
(excluding the Statutory Carrying Value of Life Reassurance) to the
extent such amount exceeds the minimum capital and surplus
requirements of its Department, plus (c) any cash, cash equivalents
and Invested Assets (excluding surplus debentures of TexasRe on the
books of the Borrower and the GAAP book value of TexasRe) of the
Borrower only.
1.2 Amendment to Section 2.8. The first clause of the first
sentence of Section 2.8 of the Agreement is amended to read as follows:
"On or before each of September 1, 1996, September 1, 1997 and September
1, 1998,".
1.3 Definition of "Facility Fee Rate". The second and third
paragraphs of Section 3.4.1 of the Agreement are amended in their
entirety to read as follows (it being understood that the existing
paragraphs shall be applicable for all times prior to the First Amendment
Effective Date):
For purposes of this Section 3.4.1, "Facility Fee Rate" means
the rate per annum set forth in the schedule below opposite the
applicable Indebtedness to Capitalization Ratio:
Indebtedness to Facility
Capitalization Ratio Fee Rate
Less than 25% 0.125%
25% or more but less than
or equal to 35% 0.150%
Greater than 35% 0.175%.
The Facility Fee Rate shall be 0.15% commencing on the date
of the effectiveness of the First Amendment to this Agreement and
thereafter shall be adjusted 50 days or, in the case of the last
Fiscal Quarter of any Fiscal Year, 95 days after the end of each
Fiscal Quarter based on the Indebtedness to Capitalization Ratio as
of the last day of such Fiscal Quarter; it being understood that
(a) if the Borrower fails to deliver the financial statements
required by Section 8.1.1(a) by the 50th (or, if applicable, the
95th) day after any Fiscal Quarter, the Facility Fee Rate shall be
0.175% until such statements are delivered; and (b) no decrease in
the Facility Fee Rate shall be effected on any date on which an
Event of Default exists (but shall be delayed until the first date
on which no Event of Default exists). Any change in the Facility
Fee Rate shall be immediately effective for computation of the
facility fee.
1.4 Amendment to Section 8.1.10. Clause (ii) of Section 8.1.10
of the Credit Agreement is amended in its entirety to read as follows:
(ii) The Borrower and its Subsidiaries shall not invest, in
the aggregate at any one time, more than an amount equal to the
lesser of (A) fifteen percent (15%) of the consolidated Invested
Assets of the Borrower and its Subsidiaries (using consolidating
principles in accordance with GAAP, wherein intercompany balances
are eliminated) or (B) 100% of the Statutory Surplus of Life
Reassurance, in the following types of investments valued at GAAP
carrying value, collectively, at any time:
(a) Non-Investment Grade securities;
(b) common stock and other equity securities (other
than (x) investments in Subsidiaries and (y)
preferred stock); and
(c) Investments in interests in real property,
including, without limitation, fee title, mortgage
loans and short and long-term leases (other than
mortgage backed securities that are otherwise in
compliance with this Section 8.1.10).
1.5 Amendments to Section 8.2.13. Clause (i) of Section 8.2.13
is amended by replacing the words "stockholder's equity" with the word
"Equity"; and clause (ii) of Section 8.2.13 is amended in its entirety to
read as follows:
(ii) the Borrower may make additional Restricted Payments if (a)
immediately before and after giving effect thereto no Event of
Default or Unmatured Event of Default exists, (b) Life Reassurance
has an A.M. Best rating of A or better and (c) immediately before
and after giving effect thereto Total Capital (including, without
duplication, the full amount of the surplus notes) is greater than
the consolidated Indebtedness of the Borrower and its Subsidiaries.
1.6 Amendment of Form of Compliance Certificate. Exhibit E to
the Agreement is deleted in its entirety and replaced by the Exhibit E
attached hereto.
1.7 Amendment to Schedule 2.1. Schedule 2.1 to the Agreement is
deleted in its entirety and replaced by the Schedule 2.1 attached hereto.
SECTION 2 WARRANTIES. To induce the Lenders to enter into this
Amendment, the Borrower warrants that:
2.1 Authorization. The Borrower is duly authorized to execute
and deliver this Amendment and to perform its obligations under the
Agreement, as amended hereby (the "Amended Agreement").
2.2 No Conflicts. The execution and delivery of this Amendment,
and the performance by the Borrower of its obligations under the Amended
Agreement, do not and will not conflict with any provision of law or of
the charter or by-laws of the Borrower or of any agreement binding upon
the Borrower.
2.3 Validity and Binding Effect. The Amended Agreement is a
legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
SECTION 3 CONDITIONS PRECEDENT TO EFFECTIVENESS. The amendments
set forth in Section 1 hereof shall become effective, as of the day and
year first above written, on such date (herein called the "First
Amendment Effective Date") when each of the following conditions
precedent have been satisfied.
3.1 First Amendment. The Administrative Agent shall have received
counterparts of this Amendment executed by the Borrower and all Lenders.
3.2 No Default. No Event of Default or Unmatured Event of Default
shall have occurred and be continuing.
SECTION 4 DELETION OF LENDER; CHANGE IN PERCENTAGES.
(a) Concurrently with the effectiveness of this Amendment pursuant to
Section 3, Bank One Texas, N.A. ("Bank One") shall cease to be a "Lender"
under and for all purposes of the Agreement and shall no longer have any
rights or obligations thereunder, except for (i) rights to receive
payment of indemnities, reimbursements and other similar amounts from the
Borrower (including, without limitation, rights under Section 4.5 of the
Agreement) and (ii) obligations to indemnify, reimburse or make payment
to the Administrative Agent with respect to circumstances or events on or
prior to the date of such effectiveness. In furtherance of the
foregoing, on the First Amendment Effective Date the Borrower will pay to
the Administrative Agent for the account of Bank One all principal,
interest, fees and other amounts then owed to Bank One under the
Agreement. Bank One agrees that it will promptly return to the Borrower
the Note issued to Bank One under the Agreement, marked to show that such
Note has been cancelled.
(b) Concurrently with the effectiveness of this Amendment and the
deletion of Bank One as a Lender, the Percentages will be reallocated
among the Lenders so that each Lender will have a Percentage as set forth
on Schedule 2.1 hereto. In furtherance of the foregoing, on the First
Amendment Effective Date, each Lender which will have an increased
Percentage after giving effect hereto will make additional Loans to the
Borrower (which Loans shall have remaining Interest Periods and interest
rates corresponding to the currently outstanding Eurodollar Loans) in an
amount so that, after giving effect to such additional Loans, each Lender
will have a pro rata share (according to its Percentage) of all
Borrowings. The Borrower agrees that it will indemnify each Lender upon
demand for any loss or expense such Lender may sustain or incur as a
result of the making by such Lender of each additional Eurodollar Loan
pursuant to the foregoing sentence (based upon the difference, if any,
between the funding cost for such Lender for the remaining portion of the
applicable Interest Period and the funding cost such Lender would have
incurred for such portion of such Interest Period had such Lender funded
such Loan on the first day of such Interest Period); provided that the
Borrower shall only be obligated to pay the net loss or expense incurred
by such Lender after taking into account the corresponding benefit to
such Lender (if any) as a result of all additional Loans made pursuant to
the foregoing sentence (but no Lender shall be obligated to reimburse the
Borrower for any net benefit to such Lender resulting from such
additional Loans).
SECTION 5 GENERAL.
5.1 Expenses. The Borrower agrees to reimburse the Administrative
Agent upon demand for all reasonable expenses, including reasonable fees
of attorneys and paralegals for the Administrative Agent, incurred by the
Administrative Agent in connection with the preparation, negotiation and
execution of this Amendment and any document required to be furnished
herewith.
5.2 Governing Law. This Amendment shall be governed by the laws
of the State of New York applicable to contracts made and to be performed
entirely within such State.
5.3 Confirmation of the Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects. After the First Amendment Effective Date,
all references in the Agreement and the other Loan Documents to "Credit
Agreement," "Agreement" or similar terms shall refer to the Amended
Agreement.
5.4 Execution in Counterparts. This Amendment may be executed by
the parties hereto in several counterparts, each of which shall be deemed
to be an original and all of which shall constitute together but one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized as
of the date first written above.
LIFE RE CORPORATION
By: /s/ Chris C. Stroup
Title: Executive Vice President &
Chief Financial Officer
By: /s/W. Weldon Wilson
Title: Vice President and Secretary
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By: /s/Michael P. Ernst
Title: Vice President
BANK OF AMERICA ILLINOIS
By: /s/Michael P. Ernst
Title: Vice President
FLEET NATIONAL BANK
By: /s/Robert E. Meditz
Title: Assistant Vice President
THE BANK OF NEW YORK
By: /s/Melanie L. Shorofsky
Title: Vice President
MELLON BANK, N.A.
By: /s/ W. S. Sanford
Title: Senior Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /s/ Eric Oppenheimer
Title: Vice President
BANK OF MONTREAL
By: /s/ Charles W. Reed
Title: Director
Solely for purposes of Section 4 above:
BANK ONE TEXAS, N.A.
By:/s/ Jim V. Miller
Title: Vice President
SCHEDULE 2.1
COMMITMENTS
Commitment
Lender Amount Percentage
Bank of America Illinois $30,000,000 18.75000%
Fleet National Bank $25,000,000 15.62500%
The Bank of New York $23,750,000 14.84375%
Mellon Bank N.A. $28,750,000 17.96875%
The Bank of Tokyo
Trust Company $28,750,000 17.96875%
Bank of Montreal $23,750,000 14.84375%
Totals $160,000,000 100%
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
Date: ___________, ____
TO: Bank of America National Trust and Savings
Association, as Administrative Agent, and the
Lenders under the Credit Agreement referred
to below
Re: Life Re Corporation
Please refer to that certain Amended and Restated Credit Agreement (as
heretofore amended, modified, supplemented, restated, refunded or renewed and
as currently in effect, herein called the "Agreement"), dated as of November
2, 1995, among Life Re Corporation (the "Borrower"), the Lenders and Co-Agents
referred to therein, and Bank of America National Trust and Savings
Association, as Administrative Agent.
Terms defined in the Agreement shall have the same meanings when used
herein.
In accordance with Section 8.1.1(e) of the Agreement, the Borrower
hereby certifies that the statements and calculations set forth below are
true and correct as of __________________, 19__ (the "Calculation Date"):
I. Section 8.1.10(ii) - Investments.
A. Consolidated Invested Assets of the Borrower
and its Subsidiaries $__________
B. 15% of Item A $__________
C. 100% of Statutory Surplus of Life Reassurance $__________
D. Maximum aggregate amount of investments
permitted pursuant to Section 8.1.10(ii)
(the lesser of Item B or Item C)
E. Restricted Investments
1. Non-Investment Grade Securities $__________
2. Common stock and other equity
securities (other than (x) investments
in Subsidiaries and (y) preferred stock) $__________
3. Investments in interests in real
property (excluding those described in
the parenthetical clause in
Section 8.1.10(ii)(c)) $__________
4. Sum of Items E.1 through E.3 $__________
[Item E.4 is not permitted to exceed Item D]
II. Section 8.1.10(iii) - Investments.
A. Admitted assets of Life Reassurance as of
the Calculation Date $__________
B. 4% of Item A $__________
C. Life Reassurance capital and surplus as of
the Calculation Date $__________
D. 20% of Item C
E. The lesser of Item B or Item D $__________
F. The value, as of the Calculation Date, of
the investments of the Borrower and its
Subsidiaries in one securities issuer which
exceed the amount of Item E __________
(excluding U.S. Government Securities, (name of issuer)
Canadian Government Securities and investments
of the Borrower and/or its Subsidiaries in $__________
the Borrower or any other Subsidiary) (value of investment)
[Item F is not permitted to exceed Item E]
III. Section 8.2.1 - EBT to Future Fixed Charges.
A. EBT for the calendar year ended on the
Calculation Date $__________
B. Future Fixed Charges of Borrower and its
Subsidiaries for the next calendar year: $__________
1. Future Interest Charges $__________
2. Mandatory principal payments with
respect to Consolidated Debt $__________
3. Sum of B.1 and B.2 $__________
C. Item A divided by Item B.3 $__________
[Item C is not permitted to be less than 1.25]
IV. Section 8.2.2 - EBT to Future Interest Charges.
A. EBT for the four Fiscal Quarters ended on
the Calculation Date $__________
B. Future Interest Charges of Borrower and
its Subsidiaries for the next four
Fiscal Quarters: $__________
1. Outstanding principal amount of Debt
at the Date of Calculation $__________
2. Annualized interest rate applicable
to Debt $__________
3. Item B.1 multiplied by Item B.2 $__________
4. Interest corresponding to mandatory
principal reductions scheduled for the
next four Fiscal Quarters $__________
5. Item B.3 less Item B.4 $__________
C. Item A divided by Item B.5)
D. EBT to Future Interest Charges for prior
Fiscal Quarter. __________
[Item C is not permitted to be less than 2.0
for any two consecutive Fiscal Quarters]
V. Section 8.2.3 Minimum Statutory Surplus
A. Total Adjusted Capital of Life Reassurance
as of the Calculation Date $__________
B. Company Action Level (as such term is
defined by NAIC risk-based capital level) $__________
[Item A is not permitted to be less than
150% of Item B]
VI. Section 8.2.4 Indebtedness to Capitalization
A. Consolidated Indebtedness of the Borrower and
its Subsidiaries as of the Calculation Date $__________
B. Consolidated Equity of the Borrower and its
Subsidiaries as of the Calculation Date $__________
C. Item A plus Item B $__________
D. Item A divided by Item C $__________
[Item D is not permitted to be greater
than 45%] $__________
VII. Section 8.2.13 - Restricted Payments.
A. Permitted Restricted Payments
1. Borrower's Equity as of the last day
of the Fiscal Year immediately preceding
the Calculation Date. $__________
2. 3% of Item A.1 $__________
3. Cumulative amount of Restricted Payments
during the applicable Fiscal Year as of
the Calculation Date $__________
B. A.M. Best rating of Life Reassurance as of
the Calculation Date __________
C. Total Capital
1. Statutory Surplus of Life Reassurance $__________
2. Statutory surplus of TexasRe (excluding
the Statutory Carrying Value of Life
Reassurance) to the extent such amount
exceeds minimum capital and surplus
requirements of its Department $__________
3. Any cash, cash equivalents and Invested
Assets (excluding surplus debentures of
TexasRe on books of Borrower and GAAP
book value of TexasRe) $__________
4. Sum of Items C.1 through C.3 $__________
D. Consolidated Indebtedness of Borrower and its
Subsidiaries as of the Calculation Date. $__________
[Item A.3 is not permitted to exceed Item A.2
unless (a) no Event of Default or Unmatured
Event of Default exists, (b) Item B is "A"
or better and (c) Item C.4 is greater than Item D]
VIII. Section 8.14 Capital Expenditures.
A. Cumulative amount of Capital Expenditures
during applicable Fiscal Year as of the
Calculation Date $__________
[Item A is not permitted to exceed $10,000,000]
Acknowledgment Letter
The Board of Directors
Life Re Corporation
We are aware of the incorporation by reference in the Registration
Statements (Form S-8s: Numbers 33-54138, 33-80251, and 33-80737)
pertaining to The Life Re Corporation Stock Investment Plan, The Life Re
Corporation Stock Option Plan and The Life Re Corporation 1993 Non-
Employee Directors Stock Option Plan, respectively, of our report dated
May 1, 1997 relating to the unaudited condensed consolidated interim
financial statements of Life Re Corporation that are included in its
Form 10-Q for the quarter ended March 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are
not a part of these registration statements prepared or certified by
accountants within the meaning of Section 7 or 11 of the Securities Act
of 1933.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
May 1, 1997
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114,713
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