<PAGE> 1
FORM 10-Q
U. S. 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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------- to ------------
COMMISSION FILE NUMBER 33-64820
AMERICO LIFE, INC.
(Exact name of registrant as specified in its charter)
MISSOURI
(State of other jurisdiction of incorporation or organization)
43-1627599
(I.R.S. Employer Identification No.)
1055 BROADWAY
KANSAS CITY, MISSOURI 64105
(Address of principal executive offices)
(816) 391-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class and Title of Shares Outstanding
Capital Stock as of May 10, 1996
------------- -----------------
Common Stock, $1.00 Par Value 10,000
<PAGE>
<PAGE> 2
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands - unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(market: $813,221 and $832,417) $ 827,779 $ 808,909
Available for sale, at market
(amortized cost: $579,550 and $657,862) 575,139 673,949
Equity securities, at market
(cost: $33,925 and $27,989) 41,909 36,805
Investment in equity subsidiaries 44,153 49,035
Mortgage loans on real estate, net 215,078 220,418
Investment real estate, net 4,272 4,292
Policy loans 208,768 210,926
Other invested assets 10,303 10,300
------------ ------------
Total investments 1,927,401 2,014,634
Cash and cash equivalents 94,796 58,996
Accrued investment income 23,307 23,889
Amounts receivable from reinsurers 116,951 97,924
Other receivables 11,288 11,442
Deferred policy acquisition costs 63,292 56,568
Present value of future profits acquired 160,511 163,660
Amounts due from affiliates 404 7,041
Other assets 24,639 25,651
------------ ------------
Total assets $ 2,422,589 $ 2,459,805
LIABILITIES AND STOCKHOLDER'S EQUITY
Policyholder account balances $ 1,159,922 $ 1,140,535
Reserves for future policy benefits 680,091 683,899
Unearned policy revenues 28,666 26,875
Policy and contract claims 28,360 22,506
Other policyholder funds 92,800 92,707
Notes payable 133,408 133,451
Amounts payable to reinsurers 34,340 39,761
Deferred income taxes 38,074 43,033
Due to broker 2,033 44,998
Other liabilities 42,573 41,277
----------- ------------
Total liabilities 2,240,267 2,269,042
Stockholder's equity:
Common stock ($1 par value; 30,000 shares
authorized, 10,000 shares issued
and outstanding) 10 10
Additional paid-in capital 3,745 3,745
Net unrealized investment gains 34,146 46,204
Retained earnings 144,421 140,804
------------ ------------
Total stockholder's equity 182,322 190,763
------------ ------------
Commitments and contingencies
Total liabilities and stockholder's equity $ 2,422,589 $ 2,459,805
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
<PAGE> 3
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts - unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
--------- ---------
<S> <C> <C>
INCOME
Premiums and policy revenues $ 41,192 $ 33,637
Net investment income 43,668 34,736
Net realized investment losses (765) (630)
Other income 145 107
--------- ---------
Total income 84,240 67,850
--------- ---------
BENEFITS AND EXPENSES
Policyholder benefits:
Death benefits 23,430 17,539
Interest credited on universal life and
annuity policies 17,961 14,253
Other policyholder benefits 14,245 9,285
Change in reserves for future policy benefits (3,475) (2,384)
Commissions 2,504 1,793
Amortization expense 6,867 6,193
Interest expense 3,034 2,313
Other operating expenses 13,472 11,705
---------- ----------
Total benefits and expenses 78,038 60,697
---------- ----------
Income before provision for income taxes 6,202 7,153
Provision for income taxes 2,085 2,365
---------- ----------
Net income $ 4,117 $ 4,788
========== ==========
Net income per common share $ 411.70 $ 478.80
========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<PAGE> 4
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands - unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,117 $ 4,788
--------- ---------
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization 7,143 6,741
Deferred policy acquisition costs (4,937) (5,045)
Undistributed earnings of equity subsidiaries (1,118) (2,258)
Distribution of earnings from equity subsidiaries 6,000 -
Amortization of unrealized gains (1,835) (2,206)
(Increase) decrease in assets:
Accrued investment income 582 (1,206)
Amounts receivable from reinsurers (19,027) (2,328)
Other receivables 154 85
Amounts due from affiliates 6,637 -
Other assets, net of amortization expense 652 807
Increase (decrease) in liabilities:
Policyholder account balances (1,249) (3,837)
Reserves for future policy benefits and unearned
policy revenues (2,615) (1,821)
Policy and contract claims 5,854 (3,498)
Other policyholder funds 93 (863)
Amounts payable to reinsurers (5,421) (1,027)
Provision for deferred income taxes 1,566 1,695
Amounts due to affiliates - 95
Other liabilities 1,296 476
Net realized losses on investments sold 765 630
Amortization on bonds and mortgage loans (257) (279)
Other changes (679) (317)
--------- ---------
Total adjustments (6,396) (14,156)
--------- ---------
Net cash used by operating activities (2,279) (9,368)
--------- ---------
Cash flows from investing activities
Purchases of fixed maturity investments (87,444) (36,882)
Purchases of other investments (5,973) (2,277)
Mortgage loans originated (73) -
Maturities or redemptions of fixed maturity
investments 9,409 46,070
Sales of fixed maturity investments:
Held to maturity - 5,915
Available for sale 136,358 -
Sales of other investments 446 10
Repayments from mortgage loans 6,048 5,669
Change in due to broker (42,965) 282
Change in policy loans 2,158 1,058
--------- ---------
Net cash provided by investing activities 17,964 19,845
--------- ---------
(continued)
</TABLE>
See notes to consolidated financial statements
<PAGE>
<PAGE> 5
AMERICO LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(In thousands - unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from financing activities
Receipts credited to policyholder account balances $ 45,033 $ 41,058
Return of policyholder account balances (24,397) (36,952)
Dividends paid (500) -
Repayments of notes payable (21) (22)
---------- ----------
Net cash provided by financing activities 20,115 4,084
---------- ----------
Net increase in cash and cash equivalents 35,800 14,561
Cash and cash equivalents at beginning of period 58,996 110,766
---------- ----------
Cash and cash equivalents at end of period $ 94,796 $ 125,327
========= ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<PAGE> 6
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Three Months Ended March 31, 1996 and 1995
(In thousands, except per share amounts - unaudited)
The following notes should be read in conjunction with the notes to
the consolidated financial statements contained in the Americo Life,
Inc. (the Company) December 31, 1995 Form 10-K as filed with the
Securities and Exchange Commission.
1. ACCOUNTING POLICIES
The unaudited consolidated financial statements as of March 31, 1996
and for the three months ended March 31, 1996 and 1995 reflect all
adjustments, consisting of normal recurring adjustments, which are
necessary for a fair statement of financial position and results of
operations on a basis consistent with accounting principles described
fully in Note 1 of the Company's December 31, 1995 consolidated
financial statements. The results of operations for the three months
ended March 31, 1996 and 1995 are not necessarily indicative of the
results experienced for the full year 1995, nor the results to be
expected for the full year 1996.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
On January 1, 1996, the Company implemented Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121).
SFAS No. 121 establishes accounting standards for the impairment of long
lived assets, certain identifiable intangibles, and goodwill related to
the assets to be held and used and for long lived assets and certain
identifiable intangibles to be disposed of. Implementation of this new
accounting standard did not have a material impact on the consolidated
financial statements of the Company.
<PAGE>
<PAGE> 7
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Three Months Ended March 31, 1996 and 1995
(In thousands, except per share amounts - unaudited)
2. STOCKHOLDER'S EQUITY
Following are the components of net unrealized investment gains:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, December 31, March 31,
1996 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Investment securities:
Fixed maturities available
for sale $ (4,411) $ 16,087 $ (20,498)
Fixed maturities reclassified
from available for sale to
held to maturity 57,650 59,485 (1,835)
Equity securities 7,984 8,816 (832)
--------- --------- ---------
61,223 84,388 (23,165)
Effect on other balance sheet
accounts (10,062) (14,749) 4,687
Deferred income taxes (17,015) (23,435) 6,420
---------- ---------- ----------
Net unrealized investment gains $ 34,146 $ 46,204 $ (12,058)
========= ========== ==========
</TABLE>
Changes in unrealized gains of investment securities reflect changes in
market conditions.
In March 1996, the Company paid a $500 dividend to Financial Holding
Corporation.
3. PRO FORMA FINANCIAL INFORMATION
The Company acquired all the outstanding common stock of The Victory Life
Insurance Company on July 10, 1995. The Company also acquired the
insurance business of The Kansas Life Insurance Company through
assumption reinsurance. The results of operations of the acquired
business is included in the Company's consolidated results of operations
from the date of acquisition.
Summarized unaudited pro forma consolidated financial information of the
Company for the three months ended March 31, 1995, assuming the
transactions had occurred on January 1, 1995 is as follows:
Total revenue $ 75,186
Net income 4,825
Net income per common share $ 482.50
<PAGE>
<PAGE> 8
AMERICO LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Three Months Ended March 31, 1996 and 1995
(In thousands, except per share amounts - unaudited)
4. PROPOSED TRANSACTION
In February 1996, the Company entered into an agreement with Fremont
General Corporation to provide administrative services for certain life
insurance and annuity policies (24,000 at March 31, 1996) of Fremont Life
Insurance Company (Fremont Life). Fremont Life will coinsure
substantially all of their insurance business to an unaffiliated company.
Great Southern Life Insurance Company will reinsure certain risks on this
same business from the unaffiliated company on a modified coinsurance
basis. The invested assets related to the reinsured business will be
transferred to and owned by the unaffiliated company. At March 31, 1996,
the reinsured business, consisting primarily of annuities and universal
life policies, had aggregate insurance liabilities of approximately $400
million. The administrative and reinsurance agreements are subject to
any necessary regulatory approvals and are expected to close in the
second quarter of 1996.
<PAGE>
<PAGE> 9
AMERICO LIFE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In 1995, the Company entered into two transactions which affect the
comparability of the Company's results of operations for the three months
ended March 31, 1996 and 1995. In July 1995, the Company acquired all the
outstanding common stock of The Victory Life Insurance Company (Victory
Life). The Company also reinsured all the insurance business of The Kansas
Life Insurance Company (Kansas Life), the former parent of Victory Life. The
insurance business of Victory Life and Kansas Life is collectively referred
to as Victory Life in the following discussion. The results of operations
of this insurance business are included in the Company's results of
operations for the three months ended March 31, 1996.
In October 1995, in connection with administrative and marketing agreements
entered into with The Ohio Casualty Insurance Company and The Ohio Life
Insurance Company (Ohio Life), an unaffiliated company reinsured 100% of the
insurance business of Ohio Life on a coinsurance basis. This unaffiliated
company reinsured certain risks on these same liabilities to Great Southern
Life Insurance Company (Great Southern) on a modified coinsurance basis.
The invested assets related to this reinsured business are owned by the
unaffiliated company. The Company has offset the receivable from the
unaffiliated company against its liabilities under the modified coinsurance
agreement in the Company's consolidated balance sheet. At March 31, 1996,
the insurance business of Ohio Life, consisting primarily of annuities and
universal life policies, had aggregate insurance liabilities of $321.1
million. The effects of this modified coinsurance agreement are included in
the Company's results of operations for the three months ended March 31,
1996. This business is referred to as the Ohio block in the following
discussion.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995.
Income before provision for income taxes for the first three months of 1996
was $6.2 million compared to $7.2 million for the same period in 1995.
Although the above-referenced transactions had a positive effect on income
before income taxes for the three months ended March 31, 1996, overall
income before income taxes decreased from the first three months of 1995 to
the first three months of 1996 primarily due to i) a decrease in premiums
and policy revenues and ii) a decrease in investment income. These items
and significant changes in individual income statement components are
discussed in more detail below.
<PAGE>
<PAGE> 10
PREMIUMS AND POLICY REVENUES
Premiums and policy revenues increased to $41.2 million for the three months
ended March 31, 1996 from $33.6 million for the three months ended March 31,
1995. Victory Life and the Ohio block contributed $9.3 million of premiums
and policy revenues for the three months ended March 31, 1996. Excluding
Victory Life and the Ohio block, premiums and policy revenues decreased $1.7
million. Traditional premiums decreased $0.6 million from the three months
ended March 31, 1995 to the three months ended March 31, 1996. The Company
writes little new traditional business. Traditional premiums will decrease
as the amount of in-force traditional business decreases. Additionally,
policy revenues were $0.8 million lower in the three months ended March 31,
1996 compared to the same period in 1995 due to lower surrender charge
income in 1996.
NET INVESTMENT INCOME
Net investment income increased $9.0 million from $34.7 million for the
three months ended March 31, 1995 to $43.7 million for the three months
ended March 31, 1996. Excluding $10.3 million of net investment income from
Victory Life and the Ohio block, net investment income decreased $1.3
million from 1995 to 1996, primarily from a decrease in income from equity
subsidiaries of $1.1 million.
Excluding the invested assets associated with Victory Life, the Company's
average invested assets balance increased approximately $64 million from the
first quarter of 1995 to the first quarter of 1996. The increase in
investment income resulting from the increase in average invested assets was
offset by a decrease in the effective yield on the Company's invested
assets.
POLICYHOLDER BENEFITS
Policyholder benefits, excluding $13.5 million of policyholder benefits of
Victory Life and the Ohio block, totalled $38.7 million for both the three
months ended March 31, 1995 and 1996. Death benefits, excluding Victory
Life and the Ohio block, were $2.4 million higher for the three months ended
March 31, 1996 compared to the same period in 1995. The $0.8 million
increase in death benefits on traditional policies from 1995 to 1996 was
offset by the related release of traditional policy reserves. The $1.6
million increase in death benefits on universal life-type policies from 1995
to 1996 was offset by lower other policyholder benefits in 1996 compared to
1995.
OTHER OPERATING EXPENSES
Other operating expenses totalled $13.5 million for the three months ended
March 31, 1996 compared to $11.7 million for the same period in 1995. The
increase in other operating expenses from 1995 to 1996 primarily resulted
from expenses associated with servicing the policies of Victory Life and the
Ohio block in 1996.
<PAGE>
<PAGE> 11
INTEREST EXPENSE
Interest expense totalled $3.0 million for the three months March 31, 1996,
compared to $2.3 million for the same period in 1995. Average outstanding
indebtedness was $133.4 million with an average cost of 9.10% for the three
months ended March 31, 1996 compared to an average outstanding balance of
$100.7 million with an average cost of 9.19% for the same period in 1995.
The increase in average outstanding indebtedness from 1995 to 1996 resulted
from $32.8 million of notes payable issued in connection with the
acquisition of Victory Life in July 1995.
FINANCIAL RESOURCES AND LIQUIDITY
The changes occurring in the Company's consolidated balance sheet from
December 31, 1995 to March 31, 1996 primarily reflect the normal operations
of the Company's life insurance subsidiaries.
The quality of the Company's investment in fixed maturity investments at
March 31, 1996 remained consistent with December 31, 1995. Non-investment
grade securities totalled less than 2.0% of the Company's total fixed
maturity investments at March 31, 1996. The Company has not made any
significant changes to its investment philosophy during 1996.
In February 1996, GSSW Limited Partnership ("GSSW"), a 50%-owned subsidiary,
made a cash distribution of $6.0 million to Great Southern.
The Company had net unrealized investment losses of $12.1 million during the
first three months of 1996. The change in net unrealized investment gains
during this period resulted from increasing market interest rates which
decreased the market values of the Company's fixed maturity investment
securities. The components of the change during the three months ended
March 31, 1996 were (in millions):
Gross unrealized investment losses $(23.2)
Effect on insurance assets and liabilities 4.7
Deferred income tax effect 6.4
-------
$(12.1)
=======
PROPOSED TRANSACTION
In February 1996, the Company entered into an administrative agreement with
Fremont General Corporation regarding certain life insurance and annuity
policies of Fremont Life Insurance Company. See Note 4 to the March 31,
1996 consolidated financial statements contained elsewhere in this Form 10-Q
for further discussion.
<PAGE>
<PAGE> 12
PART II. - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Incorporated by
reference from:
2.1(a) (2) Stock Purchase Agreement dated as of March 5, 1995 by
and among Victory Financial Group, Inc., its wholly-owned
subsidiary, The Kansas Life Insurance Company and the
Registrant.
2.1(b) (3) Letter Agreement dated July 10, 1995 among Registrant
and Victory Financial Group, Inc. respecting certain
provisions of the Stock Purchase Agreement.
2.1(c) (3) Pledge and Escrow Agreement dated July 10, 1995 among
the Registrant, Victory Financial Group, Inc. and
NationsBank of Texas, N.A.
2.1(d) (3) Indemnity Agreement Respecting Mortgages (and other
matters) dated July 10, 1995 between Victory
Financial Group, Inc. and Registrant.
2.1(e) (3) Letter Agreement dated as of July 7, 1995 among
Registrant, The Victory Life Insurance Company and
Victory Financial Group, Inc. regarding estimated
federal income tax deposits.
2.2 (3) Reinsurance, Transfer and Assumption Agreement dated
as of July 5, 1995, between Kansas Life Insurance
Company and National Farmers Union Life Insurance
Company.
3.1 (1) Restated Articles of Incorporation, as amended, of
the Registrant.
3.2 (1) Bylaws, as amended, of the Registrant.
10 Master Agreement dated February 26, 1996 among
Fremont Life Insurance Company, Fremont General
Corp., the Registrant and Great Southern Life
Insurance Company, together with the following
exhibits thereto: Description of Reinsured Business,
Services Agreement, Assumption Reinsurance Agreement
(Universal Life), Assumption Reinsurance Agreement
(Annuities), Assignment and Assumption Agreement,
Automatic Coinsurance Universal Life Reinsurance
Agreement, Automatic Coinsurance Annuity Reinsurance
Agreement.
27 Financial Data Schedule
<PAGE>
<PAGE> 13
Item 6. (a) continued
(1) Registrant's Form S-4 (File No. 33-64820) filed June 22,
1993.
(2) Registrant's March 31, 1995 Form 10-Q.
(3) Registrant's Form 8-K dated as of July 10, 1995.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended March 31,
1996.<PAGE>
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICO LIFE, INC.
<TABLE>
<C>
BY: /s/ Gary E. Jenkins
-----------------------------------------
Name: Gary E. Jenkins
Title: Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<S>
Date: May 13, 1996
</TABLE>
MASTER AGREEMENT
This Master Agreement (the "Agreement") is entered into the 26th day of
February, 1996, by and among FREMONT LIFE INSURANCE COMPANY, a
California
corporation ("Fremont Life"), FREMONT GENERAL CORP., a California corporation
("Fremont General"), AMERICO LIFE, INC., a Missouri corporation ("ALI"), and
GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas corporation ("Great
Southern").
Fremont General and Fremont Life are hereinafter referred to collectively as
"Fremont." ALI and Great Southern are hereinafter referred to collectively as
"Americo."
WHEREAS, Great Southern is an indirect wholly owned subsidiary of ALI; and
WHEREAS, Fremont Life is a direct wholly-owned subsidiary of Fremont
General; and
WHEREAS, Great Southern desires to reinsure and assume from Fremont Life,
and Fremont Life desires to cede and transfer to Great Southern, subject to
existing reinsurance, a certain block of universal life and annuity insurance
business described more fully on Exhibit A (the "Reinsured Business") on the
terms and subject to the conditions described herein and in the documents called
for by this Agreement; and
WHEREAS, pending the full consummation of such assumption reinsurance of
the Reinsured Business, ALI desires to provide certain administrative services
regarding the Reinsured Business and Fremont Life desires to enter into certain
coinsurance reinsurance agreements with Employers Reassurance Corporation
("ERC") (with respect to the universal life insurance business included in the
Reinsured Business, the "Fremont Life-ERC Reinsurance Agreement (Universal
Life)", and with respect to the other insurance business included in the
Reinsured Business, the "Fremont Life-ERC Reinsurance Agreement (Annuities);
collectively the "Fremont Life-ERC Reinsurance Agreements") regarding the
Reinsured Business; and Great Southern desires to enter into a certain Modified
Coinsurance Life and Annuity Retrocession Agreement with ERC (the "Retrocession
Agreement"); and
WHEREAS, Fremont has delivered to Americo the "Fremont Schedule" comprised
of all the Fremont Schedules numbered in this Agreement; and
WHEREAS, America has delivered to Fremont the "Americo Schedule" comprised
of all of the Americo Schedules numbered in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements, representations and warranties contained in this Agreement, and for
other consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
<PAGE>
ARTICLE I
CLOSING
1.1. CLOSING. The execution and delivery of the documents necessary to
close the reinsurance of the Reinsured Business, as more particularly described
in Section 1.2 (the "Closing"), shall take place at the offices of Lathrop &
Gage L.C., 2345 Grand Boulevard, Suite 2800, Kansas City, Missouri at 10:00 a.m.
local time, on Thursday, February 29, 1996; provided, if all required regulatory
consents and approvals respecting the transactions contemplated by such
documents have not yet been obtained by such date, then the Closing shall occur
promptly after receipt of such consents and approvals, or at such other time and
place as the parties may agree to in writing (the "Closing Date").
1.2. CLOSING DELIVERIES.
(a) The respective parties shall execute and deliver to the other
parties identified therein the following documents (collectively, the
"Transaction Documents"):
(i) Services Agreement between ALI and Fremont Life, to be
effective as of the Closing, pursuant to which ALI shall manage and
administer the Reinsured Business, which agreement shall be in
substantially the form and substance of the attached Exhibit B;
(ii) Assumption Reinsurance Agreement (Universal Life) between
Great Southern and Fremont Life, to be effective as of the Closing,
pursuant to which Great Southern shall (A) assume, in accordance with the
terms and conditions of such agreement, the universal life insurance
portion of the Reinsured Business upon the receipt of necessary regulatory
approvals, and (B) coinsure, on a 100% coinsurance basis, all such
insurance business not assumed, which agreement shall be in substantially
the form and substance of the attached Exhibit C;
(iii) Assumption Reinsurance Agreement (Annuities), between
Great Southern and Fremont Life, to be effective as of the Closing,
pursuant to which Great Southern shall (A) assume, in accordance with the
terms and conditions of such agreement, all insurance business included in
the Reinsured Business other than universal life insurance business upon
the receipt of necessary regulatory approvals, and (B) coinsure, on a 100%
coinsurance basis, all such business not assumed, which agreement shall be
in substantially the form and substance of the attached Exhibit D;
(iv) Data Processing Agreement between ALI and Fremont Life,
to be effective as of the Closing, pursuant to which Fremont Life shall
perform certain data processing and related functions for ALI, which
agreement shall be in substantially the form and substance of the attached
Exhibit E; and
<PAGE>
(v) Sublease between Fremont Life and ALI, to be effective as
of the Closing, pursuant to which Fremont Life subleases certain office
space in Orange, California, to ALI, free of additional charge beyond the
ceding commissions to be paid under the Fremont Life-ERC Reinsurance
Agreements, through December 31, 1996, which sublease shall be in
substantially the form and substance of the attached Exhibit F.
(b) Fremont shall deliver to Americo the following documents:
(i) Certification by Fremont General's President and
Secretary that the Fremont General officer executing this Agreement and any
other documents contemplated thereby has the authority to enter into and
bind Fremont General without approval by its Board of Directors.
(ii) The resolutions of Fremont Life's Board of Directors and
sole stockholder authorizing the execution and delivery by Fremont Life of
this Agreement, the Transaction Documents to which it is a party, the
Fremont Life-ERC Reinsurance Agreement (Universal Life) and the Fremont
Life-ERC Reinsurance Agreement (Annuities), and the performance by Fremont
Life of its obligations under such agreements, certified by Fremont Life's
secretary as of the Closing that such resolutions have been duly adopted
and have not been rescinded or modified;
(iii) A certificate dated the Closing Date and executed by
Fremont, certifying that all of Fremont's representations and warranties
contained in this Agreement and the Fremont Schedules and the Exhibits
attached to this Agreement are true as of the Closing Date as though each
of those representations and warranties had been made on that date; and
(iv) The legal opinion of Alan W. Faigin, Esq., Fremont's
counsel, dated as of the Closing Date, as to the matters set forth in
Section 8.3 below.
(c) Americo shall deliver to Fremont the following documents:
(i) The resolutions of ALI's Board of Directors authorizing
the execution and delivery by ALI of this Agreement and the Transaction
Documents to which it is a party and the performance by ALI of its
obligations under such agreements, certified by ALI's secretary as of the
Closing that such resolutions have been duly adopted and have not been
rescinded or modified;
(ii) The resolutions of Great Southern's Board of Directors
authorizing the execution and delivery by Great Southern of this Agreement,
the Transaction Documents to which it is a party and the Retrocession
Agreement, and the performance by Great Southern of its obligations under
such agreements, certified by Great Southern's secretary as of the Closing
that such resolutions have been duly adopted and have not been rescinded or
modified;
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(iii) A certificate dated the Closing Date and executed by
Americo, certifying that all of Americo's representations and warranties
contained in this Agreement and the Americo Schedules and the Exhibits
attached to this Agreement are true as of the Closing Date as though each
of those representations and warranties had been made on that date; and
(iv) The legal opinion of Lathrop & Gage L.C., Americo's
counsel, dated as of the Closing Date, as to the matters set forth in
Section 7.3 below.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FREMONT
Fremont General and Fremont Life jointly and severally represent and
warrant to Americo as follows:
2.1. CORPORATE ORGANIZATION AND AUTHORITY. Fremont General is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. Fremont Life is a life insurance corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Each has full corporate power and authority to carry on its
business as it is now being conducted, to own the properties and assets it now
owns relating thereto and to enter into and perform its obligations under this
Agreement and the Transaction Documents (and, with respect to Fremont Life, the
Fremont Life-ERC Reinsurance Agreements).
2.2. AUTHORIZATION. Each has taken all corporate actions required by
law, its Articles of Incorporation, its Bylaws or otherwise to authorize the
execution and delivery by it of this Agreement and the Transaction Documents to
which it is a party (and, with respect to Fremont Life, the Fremont Life-ERC
Reinsurance Agreements), the performance by it of its obligations thereunder,
and the consummation of the transactions contemplated thereby. This Agreement
has been duly executed and delivered by each of Fremont General and Fremont Life
and is the valid and binding obligation of each of them enforceable in
accordance with its terms, and when the Transaction Documents (and, with respect
to Fremont Life, the Fremont Life-ERC Reinsurance Agreements) are duly executed
and delivered by them, each of the Transaction Documents (and, with respect to
Fremont Life, the Fremont Life-ERC Reinsurance Agreements) will be the valid and
binding obligation of each of Fremont General and Fremont Life that is a party
thereto, enforceable in accordance with its terms, subject in each case to the
qualification that the enforceability thereof may be limited by the effect of
bankruptcy and other similar laws of general application relating to or af-
fecting the rights and remedies of creditors, that the remedy of specific
enforcement or of injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought and that the validity,
binding effect and enforceability hereof and thereof may be affected by
insurance laws, regulations or rules. Fremont Life is a wholly owned
subsidiary of Fremont General.
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2.3. QUALIFICATIONS.
(a) Fremont Life holds (and held, at the times the policies
constituting the Reinsured Business were written) licenses to write life
insurance and to issue annuities of the nature and in the states and other
jurisdictions in which the conduct of the Reinsured Business requires a
license. Such states and other jurisdictions are listed on Fremont Schedule 2.3,
which Schedule also shows the type of license, name of the issuing authority,
any restrictions and expiration date. Fremont Life is in good standing to con-
duct its insurance business, and is in compliance with all filing and reporting
requirements, in all of such jurisdictions. There are no proceedings pending
or, to the knowledge of Fremont, threatened which could result in termination of
or failure to renew any such licenses, nor is there any fact known to Fremont
that is reasonably anticipated to have such result.
(b) Each of Fremont General and Fremont Life is qualified or
otherwise authorized as a foreign corporation and is in good standing in each
jurisdiction in which the character of the properties owned or held under lease
or license or the nature of the business conducted by it requires such qualifi-
cation or authorization, except where the failure to so qualify or be authorized
would not have a material adverse effect on it or its business or the Reinsured
Business.
2.4. NO VIOLATION. Except for the approvals and filings required as
provided under Section 2.11 and Section 6.1, and except as set forth on Fremont
Schedule 2.4, neither the execution and delivery of this Agreement and the
Transaction Documents (and, with respect to Fremont Life, the Fremont Life-ERC
Reinsurance Agreements), nor the performance by either Fremont General or
Fremont Life of its obligations hereunder or thereunder, nor the consummation
of the transactions contemplated hereby or thereby, will (a) violate any
provision of either corporation's Articles of Incorporation or Bylaws; (b)
violate or be in conflict with or constitute a default under (or with the giving
of notice or passage of time or both would violate or constitute a default
under) any oral or written agreement, instrument, arrangement or understanding
to which either is a party or by which either may be bound or accelerate the
maturity of any reinsurance agreement, debt or other obligation of either of
them; (c) require the consent of any other party, the approval of any court,
arbitration panel, regulatory agency or other governmental authority; or (d)
violate any statute, law, rule, regulation, judgment, decree, order of any
court, regulatory agency or other governmental authority to which either of them
or their properties is subject.
2.5. FINANCIAL STATEMENTS.
(a) Fremont Schedule 2.5(a) includes (i) Fremont General's Form
10-K for December 31, 1994, as filed with the Securities and Exchange
Commission, (ii) Fremont General's Form 10-Q for September 30, 1995, as filed
with the Securities and Exchange Commission, and (iii) the unaudited
consolidated balance sheet of Fremont Life at December 31, 1994, and the
unaudited consolidated balance sheet of Fremont Life at September 30, 1995, and
the related consolidated statements of earnings and retained earnings and
statement of cash flows of Fremont Life for the periods then ended, together
with notes thereto (collectively, the "Fremont GAAP Statements"). The Fremont
GAAP Statements are in accordance with the books and records of Fremont General
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and Fremont Life, have been prepared in accordance with generally accepted ac-
counting principles ("GAAP") applied on a consistent basis throughout the
periods covered by such statements and fairly present the respective financial
positions of Fremont General and Fremont Life at such dates and the results of
its operations for such periods, subject, in the case of interim financial
statements, to year end adjustments and absence of footnotes.
(b) Fremont Schedule 2.5(b) includes (i) the Annual Convention Statements
(including all amendments) of Fremont Life for the years ended December 31,
1993, and December 31, 1994, and its quarterly statement for the period ended
September 30, 1995, and (ii) the Annual Convention Statements (including all
amendments) of Fremont Indemnity Company for the years ended December 31,
1993,
and December 31, 1994, and its quarterly statement for the period ended
September 30, 1995 (collectively, the "Fremont Convention Statements"), in each
case as filed with the insurance commissioners of California and certain other
states in accordance with applicable law. Fremont Schedule 2.5(b) also includes
audited statutory statements of Fremont Life for the years ended December 31,
1993, and December 31, 1994 (collectively, the "Fremont Audited Statutory
Statements"). Such Fremont Convention Statements and Fremont Audited Statutory
Statements (collectively, the "Fremont Statutory Statements") were prepared in
accordance with statutory accounting practices prescribed or permitted by the
California Insurance Department, present fairly the admitted assets,
liabilities, capital and surplus of the applicable Fremont party at the end of
each of the periods then ended and the results of their operations and cash
flows and the changes in their surplus for each of the periods then ended in
conformity with accounting practices prescribed or permitted by the California
Insurance Department, applied on a consistent basis throughout the specified
periods and in the immediately prior comparable periods, except as described in
such Fremont Statutory Statements, except for year end adjustments for interim
financial statements. The Exhibits and Schedules included in the Fremont
Statutory Statements, when considered in relation to the requirements for the
Fremont Statutory Statements to which they relate, present fairly in all
material respects the data purported to be shown thereby.
(c) Fremont has previously delivered to Americo the report of the Milliman
& Robertson, Inc. actuarial firm dated November 1, 1995, regarding the universal
life portion of the Reinsured Business. The financial and other information
delivered by Fremont to Milliman & Robertson upon which such report was based
(including specifically the in-force information and responses to all
information requested by such actuaries) was true and complete and was
consistent with the Fremont Statutory Statements. Fremont has previously
delivered to Americo financial and other information (including specifically in
force information and responses to all information requested by Americo) for use
in valuing the annuity business and all other miscellaneous business included in
the Reinsured Business. Such information was true and complete and was
consistent with the Fremont Statutory Statements.
(d) Except as set forth in Fremont Schedule 2.5(d), the results of
operations of Fremont Life and Fremont General for the fiscal years ended
December 31, 1994, and December 31, 1995, reflect no material adverse change in
the financial condition or the results of operations of either company or in the
Reinsured Business. There are no conditions, matters or events that materially
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and adversely affect, or might reasonably be expected to affect, the business of
Fremont Life or the Reinsured Business.
(e) All other information furnished Americo or its accountants or
actuaries by Fremont or its affiliates in connection with this Agreement or the
other Transaction Documents, the schedules hereto or the certificates delivered
hereunder is accurate in all material respects and free of material omissions.
2.6. ABSENCE OF CERTAIN CHANGES. Except as set forth on Fremont
Schedule
2.6 or as permitted or contemplated by this Agreement, since December 31, 1994,
neither Fremont General nor Fremont Life has:
(a) suffered any change in its financial condition, assets or
reserves that is materially adverse;
(b) suffered any material decrease in the amount of, or any material
change in the nature of, its insurance in force;
(c) incurred (other than in the ordinary course of business) any
liabilities or obligations or increased any policy claims, contingency or other
reserves to an extent that materially and adversely affects it or them;
(d) made any material change in any accounting practice utilized for
the Fremont Statutory Statements, except as may have been required by a change
in the statutory accounting practices prescribed by state regulatory agencies;
or
(e) amended or cancelled, or agreed to amend or cancel, any
reinsurance agreement, treaty or arrangement material to the Reinsured Business.
2.7. LITIGATION. There is no action, proceeding or investigation pending
or threatened against either Fremont party before any court, arbitrator or
administrative or government body, except as set forth in reasonable detail on
Fremont Schedule 2.7, that would (a) materially adversely affect the Reinsured
Business or the business, financial condition or property of either Fremont
party, or (b) prevent the consummation of this Agreement or the transactions
contemplated by this Agreement, or declare the same to be unlawful.
2.8. (a) Regulatory Compliance. Except as shown on Fremont Schedule 2.8,
each of Fremont Life and Fremont General is in compliance with all federal,
state, local and foreign laws and regulations applicable to it, except for
instances of non-compliance that individually or in the aggregate would not have
a material adverse effect on the Reinsured Business.
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(b) Insurance Issued by Fremont Life.
(i) All insurance policy benefits payable under the Reinsured
Business by Fremont Life pursuant to claims that have been filed with it
and payable by any other entity that is a party to or bound by any reinsur
ance, coinsurance or other similar contract with Fremont Life with respect
to any such filed claims have, in all material respects, been paid in
accordance with the terms of the insurance, annuity or other contracts
under which they arose, except for such benefits for which there is a
reasonable basis to contest payment;
(ii) No outstanding insurance or annuity contract issued,
reinsured or underwritten by Fremont Life that is part of the Reinsured
Business entitles the holder thereof or any other person or entity to
receive dividends, distributions or other benefits based on the revenues or
earnings of Fremont Life or any other entity;
(iii) The underwriting standards utilized and ratings applied
with respect to the Reinsured Business by Fremont Life and by any other
entity that is a party to or bound by any reinsurance, coinsurance or other
similar contract with Fremont Life conform in all material respects to
industry accepted practices and to the standards and ratings required
pursuant to the terms of the respective reinsurance, coinsurance or other
similar contracts.
(iv) All amounts to which Fremont Life is entitled with respect
to the Reinsured Business under reinsurance, coinsurance or other similar
contracts (including without limitation amounts based on paid and unpaid
losses) are fully collectible;
(v) Each agent (whether of Fremont or of any organization with
whom Fremont has a marketing or other relationship), at the time such agent
wrote, sold or produced Reinsured Business, was duly licensed as an
insurance agent (for the type of business written, sold or produced by such
agent) in the particular jurisdiction in which such agent wrote, sold or
produced such business, except in isolated instances where the failure to
have such license would not have a material adverse effect on the Reinsured
Business;
(vi) Agents (whether of Fremont or of any organization with
whom Fremont has a marketing or other relationship) have not violated (or
with or without notice or lapse of time or both, would have violated) any
term or provision of any law, regulation or any writ, judgment, decree,
injunction or similar order applicable to the writing, sale or production
of Reinsured Business by Fremont Life, except where such violation would
not have a material adverse effect on the Reinsured Business;
(vii) (A) At the time of issuance or sale, all insurance,
annuity or investment policies, plans or contracts, all financial products,
employee benefit plans, individual retirement accounts or annuities, or any
similar or related policy, contract, plan or product, whether individual,
group or otherwise, issued or sold by Fremont Life as products having tax
attributes under the Internal Revenue Code of 1986, as amended (the
"Code"), favorable
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to the purchaser, policyholder or intended beneficiary thereof were
eligible for tax treatment the same or more favorable to such purchaser,
policyholder or beneficiary as the tax treatment under the Code for which
such contracts then purported to qualify; and (B) the Internal Revenue
Service has not challenged such favorable tax treatment, nor has any
purchaser, policyholder or beneficiary asserted (or threatened to assert)
any claim against Fremont Life alleging that any of such policies,
products, plans or contracts are not, in fact, eligible for such favorable
tax treatment; and
(viii)(A) All insurance policies or contracts, including
annuities, that are included in the Reinsured Business are in compliance
with the Standard Nonforfeiture Law of each of the states or other
jurisdictions in which such policies or contracts were sold and all
applicable Code requirements regarding the definition of an insurance
policy or contract, and are, to the extent required under applicable law,
on forms approved by the insurance regulatory authority of the state or
jurisdiction where issued or, to the extent required by applicable law,
have been filed with and not objected to by such authority within the
period provided for objections; (B) any premium rates with respect to the
Reinsured Business required to be filed with or approved by insurance
regulatory authorities have been so filed or approved and premiums charged
conform thereto in all material respects; and (C) all policy or annuity
dividends under the Reinsured Business payable by Fremont Life have been
paid in accordance with the terms of the policies and annuities under which
they arose.
(c) Agents; Policyholders.
(i) Fremont Life currently enjoys good relations with its
agents and brokers.
(ii) Except as disclosed on Fremont Schedule 2.8(c)(ii), no
policyholder or related group of policyholders accounted for more than five
percent of total premiums paid to Fremont Life on the Reinsured Business
for the year ended December 31, 1995.
(iii) All payments due to agents with respect to the Reinsured
Business will be listed and described in the agent contracts listed on
Fremont Schedule 5.1, copies of which contracts are to be provided to Great
Southern by Fremont prior to the Closing. Fremont Schedule 5.1 is a true
and complete listing of all agents of Fremont Life pertaining to the
Reinsured Business. Each of the contracts listed on Fremont Schedule 5.1
may be terminated, as it pertains to the Reinsured Business, by Great
Southern without penalty or forfeiture upon notice to the other party or
parties thereto within 90 days or less, and none of such contracts has in
effect (or will at Closing) any exclusive right to market any of the
Reinsured Business.
2.9. REINSURANCE AGREEMENTS. Fremont Schedule 2.9 sets forth a list of
all reinsurance agreements and treaties to which Fremont Life is a party that
are related to the Reinsured Business. Fremont has delivered to Americo copies
of said reinsurance agreements and treaties. Except as set forth on Fremont
Schedule 2.9, except for the transactions contemplated by this Agreement and
except for insurance contracts to be issued in the ordinary and usual course of
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business, ordinary and usual reinsurance agreements, ordinary and usual agents'
and general agents' contracts, Fremont Life is not a party to any material
contract to be performed in the future relating to the Reinsured Business.
2.10. RESERVES.
(a) Each of the Statutory Reserves (the "Reserves") for the Rein-
sured Business were as set forth on pages 2 and 3 of the Statutory Statements of
Fremont Life for the year ended December 31, 1994, and the period ended
September 30, 1995. As of such dates, the Reserves:
(i) Were computed in accordance with commonly accepted
actuarial standards consistently applied;
(ii) Were based on actuarial assumptions that produce reserves
at least as great as those called for in the policy forms with respect to
the insurance in force;
(iii) Met the requirements of the insurance laws and regulations
of the States of California and Texas;
(iv) Were computed in accordance with statutory accounting
principles; and
(v) Included provision for all actuarial reserves and related
actuarial statement items which ought to have been established in accordance
with the foregoing and the facts available at the time of computation.
(b) Tax Reserves for the Reinsured Business shown on Fremont
Schedule 2.10(b) were computed in accordance with Section 807 of the Code and
were consistent with the reserves used in calculating Federal Income Tax
liability to be shown on the December 31, 1995 tax returns of members of the
consolidated companies including Fremont Life.
(c) Fremont Schedule 2.10(c) is a description of all claims pending
against Fremont Life, and all claims incurred but not reported, as of December
31, 1995 (with respect to the universal life insurance business) and all claims
pending against Fremont Life, and all claims incurred but not reported, as of
January 1, 1996 (with respect to all other business included in the Reinsured
Business), together with a description of the reserve established for each of
such claims. In each case, such reserve was, and remains, adequate for such
claim.
2.11. CONSENTS. Except for filings required to be made with applicable
regulatory commissions, agencies or authorities as set forth on Fremont
Schedule 2.11, no consent, authorization, order or approval, or filing with any
governmental commission, board or other regulatory body is required to be
obtained or made by either Fremont Life or Fremont General for and in connection
with the execution, delivery and performance by them of this Agreement and the
Transaction Documents (and, with respect to Fremont Life, the Fremont Life-ERC
Reinsurance
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Agreements) or the consummation of the transactions contemplated by this
Agreement and the Transaction Documents (and, with respect to Fremont Life, the
Fremont Life-ERC Reinsurance Agreements).
2.12. DISCLOSURES. None of the statements or information contained in any
representation, warranty or covenant of Fremont General or Fremont Life set
forth in this Agreement or any of the Transaction Documents or the Fremont
Schedules and the Exhibits included therein contains any misstatement of a
material fact or omits any statement necessary to make the statements made not
materially misleading.
2.13. GOOD TITLE. Fremont Life will, on the Closing Date, own all of the
Reinsured Business, free and clear of any liens, encumbrances, claims or charges
whatsoever, except for policy loans, liens, encumbrances, claims or charges
created by, through or under policyholders or other parties to the policies,
annuities or contracts constituting the Reinsured Business, reinsurance
agreements and treaties in force related to the Reinsured Business as of the
such date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AMERICO
ALI and Great Southern jointly and severally represent and warrant to
Fremont as follows:
3.1. CORPORATE ORGANIZATION AND AUTHORITY. ALI is a corporation duly
organized, validly existing, and in good standing under Missouri law. Great
Southern is a corporation duly organized, validly existing, and in good standing
under Texas law. Each of ALI and Great Southern has full corporate power and
authority to carry on its business as it is now being conducted, to own the
properties and assets it now owns relating thereto and to enter into and perform
its obligations under this Agreement, the Transaction Documents and the
Retrocession Agreement.
3.2. AUTHORIZATION. Each of ALI and Great Southern has taken all
corporate actions required by law, its Articles of Incorporation, its Bylaws or
otherwise to authorize the execution and delivery by it of this Agreement and
the Transaction Documents to which it is a party and the Retrocession Agreement,
the performance by it of its obligations thereunder, and the consummation of the
transactions contemplated thereby. This Agreement has been duly executed and
delivered by each of ALI and Great Southern and is the valid and binding obliga-
tion of ALI and Great Southern enforceable in accordance with its terms, and
when the Transaction Documents and the Retrocession Agreement are duly executed
and delivered by them, each of the Transaction Documents and the Retrocession
Agreement will be the valid and binding obligation of each of ALI and Great
Southern that is a party thereto enforceable in accordance with its terms,
subject in each case to the qualification that the enforceability thereof may be
limited by the effect of bankruptcy and other similar laws of general
application relating to or affecting the rights and remedies of creditors, that
the remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought and
that the validity, binding effect and enforceability hereof and thereof may be
affected by insurance laws, regulations or rules. Great Southern is an
indirect, wholly owned subsidiary of ALI.
3.3. QUALIFICATIONS.
(a) Great Southern holds licenses to write life, accident and health
insurance and to issue annuities of the nature and in the states in which the
conduct of the Reinsured Business requires a license, which states are described
on Americo Schedule 3.3, which Schedule also shows the type of license, name of
the issuing authority, any restrictions and expiration date. Great Southern is
in good standing to conduct its insurance business and in compliance with all
filing and reporting requirements in all of such jurisdictions. There are no
proceedings pending or, to the knowledge of Great Southern or ALI, threatened
which could result in termination of or failure to renew any such licenses, nor
is there any fact known to Great Southern or ALI that is reasonably anticipated
to have such result.
(b) Each of ALI and Great Southern is qualified or otherwise
authorized as a foreign corporation and is in good standing in each jurisdiction
in which the character of the properties owned or held under lease or license or
the nature of the business conducted by it or the Reinsured Business to be
conducted by it requires such qualification or authorization, except where the
failure to so qualify or be authorized would not have a material adverse effect
on it or its business or the Reinsured Business.
3.4. NO VIOLATION. Except for the approvals and filings required as
provided under Section 3.7 and Section 6.1, and except as set forth on Americo
Schedule 3.4, neither the execution and delivery of this Agreement and the
Transaction Documents and the Retrocession Agreement, nor the performance by
either ALI and Great Southern of its obligations thereunder, nor the
consummation of the transactions contemplated thereby will (a) violate any
provision of their Articles of Incorporation or Bylaws; (b) violate or be in
conflict with or constitute a default under (or with the giving of notice or
passage of time or both would violate or constitute a default under) any oral or
written agreement, instrument, arrangement or understanding to which either is a
part or by which either may be bound or accelerate the maturity of any debt or
obligation of either of them; (c) require the consent of any other party, the
approval of any court, arbitration panel, regulatory agency or other
governmental authority; or (d) violate any statute, law, rule, regulation,
judgment, decree, order of any court, regulatory agency or other governmental
authority to which either of them or their properties is subject.
3.5. FINANCIAL STATEMENTS. Americo Schedule 3.5 includes the Annual
Convention Statements (including all amendments) of Great Southern for the years
ended December 31, 1993, and December 31, 1994, and its quarterly statement
dated September 30, 1995 (collectively, the "Great Southern Convention State-
ments"), in each case as filed with the insurance commissioners of Texas and
certain other states in accordance with applicable law. Americo Schedule 3.5
also includes the audited statutory statements of Great Southern for the years
ended December 31, 1994 (the "Great Southern Audited Statutory Statements").
Such Great Southern Convention
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Statements and Great Southern Audited Statutory Statements (collectively, the
"Great Southern Statutory Statements") were prepared in accordance with
statutory accounting practices prescribed or permitted by the Texas Insurance
Department, present fairly the admitted assets, liabilities and surplus of Great
Southern at the end of each of the periods then ended and the results of its
operations and the changes in its surplus for each of the periods then ended in
conformity with accounting practices prescribed or permitted by the Texas Insur-
ance Department, applied on a consistent basis throughout the specified periods
and in the immediately prior comparable periods, except as described in such
Great Southern Statutory Statements. The Exhibits and Schedules included in the
Great Southern Statutory Statements, when considered in relation to the
requirements for the Great Southern Statutory Statements to which they relate,
present fairly in all material respects the data purported to be shown thereby.
3.6. LITIGATION. There is no action, proceeding or investigation pending
or, to the knowledge of Americo, threatened against either Americo party before
any court, arbitrator or administrative or government body, except as set forth
in reasonable detail on Americo Schedule 3.6, that would (a) materially
adversely affect the Reinsured Business or the business, financial condition or
property of either Americo party, or (b) prevent the consummation of this
Agreement or the transactions contemplated by this Agreement, or declare the
same to be unlawful.
3.7. CONSENTS. Except for filings required to be made with applicable
regulatory commissions, agencies or authorities as set forth on Americo
Schedule 3.7, no consent, authorization, order or approval, or filing with any
governmental commission, board or other regulatory body is required to be
obtained or made by either Americo party for and in connection with the
execution, delivery and performance of this Agreement, the Transaction Documents
and the Retrocession Agreement by Americo or the consummation of the
transactions contemplated by this Agreement, the Transaction Documents and the
Retrocession Agreement.
3.8. DISCLOSURES. None of the statements or information contained in any
representation, warranty or covenant of ALI or Great Southern set forth in this
Agreement or any of the Transaction Documents or the Retrocession Agreement or
the Americo Schedules and the Exhibits included therein contains any
misstatement of a material fact or omits any statement necessary to make the
statements made not materially misleading.
ARTICLE IV
CONDUCT AND CERTAIN COVENANTS
4.1. CONFIDENTIALITY. Fremont and Americo acknowledge that, in
negotiating and consummating the transaction contemplated by this Agreement,
they and their representatives shall be (and have been) given and shall obtain
(and have obtained) access to confidential and proprietary information
including, without limitation, information concerning their respective financial
condition, operations, employees, markets, agents, marketing strategy and
techniques, computer software and systems and similar information that may
otherwise become available during the term of this Agreement that is not
generally ascertainable from public or published sources (collectively and,
except as to computer software, only if conspicuously marked or otherwise
prefaced as "Confidential," the "Confidential Information").
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Accordingly, each of the parties and their respective Affiliates shall
exercise Reasonable Efforts to retain in strict confidence, and to require their
respective Affiliates, equity owners, officers, employees, consultants and
professional representatives to retain in strict confidence, all Confidential
Information and not to use or disclose to others, or permit the use or
disclosure of, any Confidential Information, except as strictly necessary to
perform their obligations pursuant to this Agreement and except disclosures
that, in the reasoned opinion of counsel for a party, are required by applicable
laws, rules or regulations. For purposes of this Agreement, "Reasonable
Efforts" means the taking of such reasonable steps, including the expenditure of
such time and funds and the commitment of qualified personnel, as are reasonable
and necessary for the causation or prevention of an event or condition and as
would reasonably have been taken in similar circumstances by a prudent business
person of established reputation engaged in a similar business for the
advancement or protection of its own economic interest, in light of the
consequences of failure to cause or to prevent the occurrence of such event or
condition.
Notwithstanding the foregoing, Confidential Information shall not include
(i) information that may be in the public domain now or when it becomes in the
public domain in the future, other than by reason of a breach of this Agreement,
and (ii) information that has come to a party from a lawful source not bound to
maintain the confidentiality of the information, other than from another party
to this Agreement. The provisions of this Section shall not prevent any party
to this Agreement from competing with any other party to this Agreement.
4.2. PUBLIC DISCLOSURE. Except as may otherwise be required by law, any
press release announcing or describing the transactions contemplated by this
Agreement and the Transaction Documents will be made only in the form and manner
approved by the parties hereto, which approval will not be unreasonably
withheld.
4.3. POLICIES IN FORCE. Fremont will deliver to Americo as soon as
reasonably practicable after the Closing Date a complete listing of all policies
in force included in the Reinsured Business. Neither Fremont General, Fremont
Life nor their respective Affiliates shall take any action after the date hereof
intended to knowingly solicit or induce exchanges or replacement of the policies
constituting the Reinsured Business, nor knowingly exchange or replace any of
such policies.
4.4. COMMUNICATIONS.
(a) All communications by Americo or Fremont with any of the
policyholders comprising the Reinsured Business subsequent to the date of this
Agreement, provided it relates to the transactions contemplated by this
Agreement, shall require the approval of the other party in writing prior to
release, which approval will not be unreasonably withheld, except as otherwise
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provided in this Section. Notwithstanding the foregoing, Americo acknowledges
that Fremont Life will communicate with policyholders comprising the Reinsured
Business subsequent to the date of this Agreement without the prior consent of
Americo to process and service the Reinsured Business until, with respect to any
particular policy, the Closing Date; provided, all such communications shall be
in the ordinary course of business and not inconsistent with the terms of this
Agreement. After the Closing Date, Americo may communicate with the
policyholders comprising the Reinsured Business in the ordinary course of
business without the consent of Fremont. After the assumption reinsurance by
Great Southern of any policy included in the Reinsured Business, there shall be
no restriction hereunder on Americo's right to communicate with the
policyholder.
(b) Until the Closing, all communications by either Americo or
Fremont with agents pertaining to the Reinsured Business shall require the ap-
proval of the other party, which approval will not be unreasonably withheld.
Notwithstanding the foregoing, Americo acknowledges that Fremont will
communicate with such agents with respect to the Reinsured Business without the
prior consent of Americo in the ordinary course of administering the Reinsured
Business prior to the Closing Date.
4.5. SUPPLEMENTAL FINANCIAL STATEMENTS.
(a) Promptly after December 31, 1995, Fremont shall deliver to
Americo true and correct copies of the December 31, 1995 convention statements
of Fremont Indemnity Company (a wholly owned subsidiary of Fremont General) and
Fremont Life. Such statements shall thenceforth be considered part of the
"Fremont Convention Statements" and "Fremont Statutory Statements" as defined in
Section 2.5(b). At the time Fremont General files its annual report on Form
10-K for December 31, 1995, with the Securities and Exchange Commission (the
"SEC"), Fremont General shall send such report to Americo. The financial
statements in such report shall be considered part of the "Fremont GAAP
Statements," as defined in Section 2.5(a).
(b) Promptly after December 31, 1995, Great Southern shall deliver
to Fremont true and correct copies of its December 31, 1995 convention
statement. Such statement shall thenceforth be considered part of the "Great
Southern Convention Statements" and "Great Southern Statutory Statements" as
defined in Section 3.5.
ARTICLE V
FREMONT'S AGENTS
5.1. AGENT CONTRACTS. At the Closing, Fremont Life shall assign to Great
Southern all of its rights under the contracts with agents listed in Fremont
Schedule 5.1 hereto (the "Agents") to the extent such rights relate to the
Reinsured Business and the period after the Closing Date, and Great Southern
shall assume and agree to perform in full all of Fremont's obligations under
such contracts relating to the Reinsured Business that are to be performed after
the Closing Date. Such
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assignment and assumption shall be effected in accordance with the Assignment
and Assumption Agreement attached hereto as Exhibit G and made a part hereof,
which shall be executed and delivered by the parties at the Closing. Fremont
shall provide to Great Southern copies of all of such contracts with agents at
least 10 business days prior to the Closing.
ARTICLE VI
PRE-CLOSING OBLIGATIONS
6.1. CONSENTS. Each of the parties hereto shall use its best efforts to
obtain at the earliest practicable date, and, in any event, prior to the Closing
Date, all consents, approvals and other authorizations required to be obtained
by it for the consummation of the transactions contemplated hereby, including,
without limitation, any consents that might be required to be obtained from the
insurance regulatory commissions for the States of California and Texas with
respect to this Agreement and the transactions contemplated hereby. The other
party will provide such information and documents and otherwise cooperate as the
party required to obtain any such consent, approval or authorization may
reasonably request. Without limiting the generality of the foregoing, Great
Southern shall be responsible for obtaining regulatory approval of the
assumption reinsurance contemplated by the agreements described in Sections
1.2(a)(iii and (iv).
6.2. DUE DILIGENCE ACCESS. Fremont General and Fremont Life jointly and
severally agree that from the date of this Agreement until the Closing Fremont
will afford to Americo such access upon reasonable notice and during normal
business hours to all of Fremont Life's books and records relating to the
Reinsured Business as Americo may reasonably request.
6.3. OPERATION OF FREMONT'S BUSINESS. The parties hereto agree that
from
the date hereof to the Closing Date, or until such earlier date as this
Agreement shall become null and void or is terminated in accordance with the
terms hereof, except as provided for in this Agreement or to the extent that
Americo shall otherwise consent, Fremont will operate the Reinsured Business as
presently operated and only in the ordinary course and, consistent with such
operation, will use commercially reasonable efforts to keep available to itself
and Americo the good will of its agents, policyholders, customers and others
with whom business relationships exist.
6.4. INVESTMENT OF ASSETS.
(a) On January 17, 1996, Fremont Life purchased $300,000,000 of par
value of the 5 7/8% U.S. Treasury Bond due November 15, 2005, for a price
exclusive of accrued interest equal to 102.015625% of par, such amount
($306,046,875, the "Purchase Cost") being an estimate of the statutory reserves
and liabilities (calculated as of December 31, 1995) with respect to the
Reinsured Business, less policy loans and the aggregate reinsurance allowance
under the Fremont Life-ERC Reinsurance Agreement (Universal Life) and the
Fremont Life-ERC Reinsurance Agreement (Annuities). Such securities
(collectively, the "Portfolio") shall be segregated for purposes of the
transactions contemplated by this Agreement. Fremont Life shall take no action
affecting the securities held in the Portfolio without the prior written consent
of Great Southern and
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Great Southern shall have the right to direct Fremont Life to reinvest the
securities in the portfolio into other U.S. Government securities or cash.
The reinsurance transactions contemplated by this Agreement shall be consummated
at the Closing covering both the universal life business of Fremont Life to be
reinsured to ERC (the "UL Block") and the annuities and other business of
Fremont Life to be reinsured to ERC (the "Annuities Block").
(b) At the Closing, the UL Reinsurance Allowance (as defined below)
shall be adjusted to offset the change, if any, in the value of the UL Portfolio
(as defined below) from the UL Portfolio Purchase Cost (as defined below). Such
change shall be measured by obtaining from Salomon Brothers a closing mid-market
quotation of the value of the UL Portfolio as of 3:00 p.m. New York time on the
last trading day preceding the Closing Date. If the value of the UL Portfolio
(excluding accrued interest) at the Closing Date exceeds the UL Portfolio
Purchase Cost, then the UL Reinsurance Allowance shall be reduced by the amount
of such change in value. Conversely, if the value of the UL Portfolio
(excluding accrued interest) at the Closing Date is less than the UL Portfolio
Purchase Cost, then the UL Reinsurance Allowance shall be increased by the
amount of such change in value.
For purposes of this Agreement, (i) the "UL Reinsurance Allowance" shall
be $7,500,000 (before adjustment); (ii) the "UL Portfolio" shall be that portion
of the Portfolio that bears the same ratio to the Portfolio as the reserves
attributable to the UL Block (calculated as of December 31, 1995) bear to the
sum of the reserves attributable to the UL Block and the reserves attributable
to the Annuities Block (each calculated as of December 31, 1995); and (iii) the
"UL Portfolio Purchase Cost" shall be that portion of the Purchase Cost that
bears the same ratio to the Purchase Cost as the reserves attributable to the UL
Block (calculated as of December 31, 1995) bear to the sum of the reserves
attributable to the UL Block and the reserves attributable to the Annuities
Block (each calculated as of December 31, 1995).
At the Closing, all or a portion of the securities in the UL Portfolio and
cash, if required, shall be transferred by Fremont Life to ERC, at market value,
in an aggregate amount equal to the statutory reserves and liabilities with
respect to the UL Block, less policy loans related to the UL Block and the UL
Reinsurance Allowance (as adjusted), such transfer occurring in connection with
the reinsurance to be consummated at the Closing under the Fremont Life-ERC
Reinsurance Agreement (Universal Life).
(c) At the Closing, the Annuities Reinsurance Allowance (as defined
below) shall be adjusted to offset the change, if any, in the value of the
Annuities Portfolio (as defined below) from the Annuities Portfolio Purchase
Cost (as defined below). Such change shall be measured by obtaining from
Salomon Brothers a closing mid-market quotation of the value of the UL Portfolio
as of 3:00 p.m. New York time on the last trading day preceding the Closing
Date. If the value of the Annuities Portfolio (excluding accrued interest) at
the Closing Date exceeds the Annuities Portfolio Purchase Cost, then the
Annuities Reinsurance Allowance shall be reduced by the amount of such change in
value. Conversely, if the value of the Annuities Portfolio (excluding accrued
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interest) at the Closing Date is less than the Annuities Portfolio Purchase
Cost, then the Annuities Reinsurance Allowance shall be increased by the amount
of such change in value.
For purposes of this Agreement, (i) the "Annuities Reinsurance Allowance"
shall be $7,500,000 (before adjustment); (ii) the "Annuities Portfolio" shall be
that portion of the Portfolio that bears the same ratio to the Portfolio as the
reserves attributable to the Annuities Block (calculated as of December 31,
1995) bear to the sum of the reserves attributable to the UL Block and the
Annuities Block (each calculated as of December 31, 1995); and (iii) the
"Annuities Portfolio Purchase Cost" is that portion of the Purchase Cost that
bears the same ratio to the Purchase Cost as the reserves attributable to the
Annuities Block (calculated as of December 31, 1995) bear to the total reserves
attributable to both the UL Block and the Annuities Block (each as of December
31, 1995).
Fremont Life shall invest the positive cash flow from new annuity sales
after December 31, 1995, at the direction of Great Southern, in corporate bonds.
At the Closing, such corporate bonds and all or a portion of the securities in
the Annuities Portfolio and cash, if required, shall be transferred by Fremont
Life to ERC (at book value for the corporate bonds and at market value for the
securities in the Annuities Portfolio) in an aggregate amount equal to the
statutory reserves and liabilities with respect to the Annuities Block, less
policy loans related to the Annuities Block and the Annuities Reinsurance
Allowance (as adjusted), such transfer occurring in connection with the
reinsurance to be consummated at the Closing under the Fremont Life-ERC
Reinsurance Agreement (Annuities).
(d) In the event this Agreement is terminated prior to the Closing,
then to the extent the value of the Portfolio at the date of termination is less
than the Purchase Cost, Great Southern shall pay such amount to Fremont Life,
and to the extent the value of the Portfolio at the date of termination is
greater than the Purchase Cost, Fremont Life shall pay such amount to Great
Southern. In the event this Agreement is terminated prior to the Closing, then
to the extent the value of the invested cash flow from new annuity sales at the
date of termination is less than the value of such invested cash flow when
invested, Great Southern shall pay such amount to Fremont Life, and to the
extent the value of the invested cash flow at the date of termination is greater
than the value of such invested cash flow when invested, Fremont Life shall pay
such amount to Great Southern.
ARTICLE VII
CONDITIONS TO FREMONT'S OBLIGATIONS
Each obligation of Fremont Life and of Fremont General under this Agreement
to be performed on the Closing Date shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions:
7.1. REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Americo contained herein shall be true and accurate in all
material respects as of the date when made and as of the Closing Date, except
for changes permitted or contemplated by this Agreement.
7.2. CONSENTS. All consents, approvals, authorizations and clearances
from governmental agencies and third parties, including state insurance
commissioners, required to consummate the transactions contemplated hereby shall
have been obtained; Fremont Life shall be reasonably satisfied that it will
receive credit in its respective statutory financial statements as an asset or
deduction from liability for Americo's portion of the Reinsured Business, and
such approvals and consents shall not contain any term or condition that would
have a material adverse effect on the business, operations, assets or financial
condition of Fremont or otherwise materially impair the value of the
transactions contemplated by this Agreement to then be consummated to Fremont.
7.3. OPINION OF COUNSEL FOR AMERICO. Americo shall have delivered to
Fremont an opinion of Lathrop & Gage L.C., counsel to Americo, dated the Closing
Date, in form and substance reasonably satisfactory to Fremont, to the effect
that:
(a) ALI is a corporation duly organized, validly existing and in
good standing under the laws of Missouri. Great Southern is a corporation duly
organized, validly existing and in good standing under the laws of Texas;
(b) ALI and Great Southern have the corporate power and authority
to enter into this Agreement and the Transaction Documents and the Retrocession
Agreement and to perform their obligations thereunder. Great Southern has the
corporate power and authority and the requisite insurance licenses to carry on
the Reinsured Business.
(c) This Agreement and the Transaction Documents and the
Retrocession Agreement have been duly authorized, executed and delivered by ALI
and Great Southern and approved by the Boards of Directors of ALI and Great
Southern, and (assuming a valid authorization, execution and delivery of this
Agreement and the Transaction Documents by Fremont) are valid, binding and
enforceable obligations of ALI and Great Southern, except as the enforceability
may be limited or otherwise affected by (i) bankruptcy, insolvency, moratorium,
reorganization and similar laws of general application affecting the rights and
remedies of creditors and the obligations of debtors (including applicable
fraudulent conveyance or transfer statutes, Section 548 of the United States
Bankruptcy Code and Chapter 428 of the Revised Statutes of Missouri); (ii)
general principles of equity (regardless of whether considered in a proceeding
in equity or at law); (iii) the availability of the remedy of specific
enforcement or injunctive or other equitable relief is subject to the discretion
of the court before which any proceeding therefor may be brought; (iv)
obligations of good faith, fair dealing and commercially reasonable conduct; (v)
limitations of public policy including, solely by way of example, limitations on
provisions granting to a party the right to obtain reimbursement of its
attorneys' fees and litigation costs from another party, and limitations on the
enforceability of
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indemnifications or contribution provisions; (vi) limitations on the right of a
party to exercise rights and remedies under the Agreement for defaults by a
party if it is determined that the defaults are not material; (vii) limitations
on the right of a party to exercise a right or remedy if it is determined that
such right or remedy constitutes a penalty or results in a forfeiture; (viii)
limitations on prospective waiver of benefits, rights and remedies; and (ix) the
assumption that there exist no agreements, understandings or negotiations among
the parties that would modify the terms of this Agreement or the Transaction
Documents or the Retrocession Agreement or the respective rights or obligations
of the parties thereunder.
(d) All consents, approvals and authorizations from state and
federal governmental agencies, including state insurance commissions, and, to
the extent the need therefor is known to such counsel or is disclosed in Americo
Schedule 3.7, third parties required to be obtained by Americo for the
consummation of the transactions contemplated hereby have been obtained. In
rendering the opinions set forth in this subparagraph (d), Lathrop & Gage L.C.
may assume that to the extent that the such matters are governed by state law,
the applicable law is the law of the State of Texas, and with regard thereto,
may rely upon the opinion of Heath, Davis & McCalla.
7.4. NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other proceeding by any governmental authority or
other person (other than the Fremont parties hereto and their Affiliates) or
legal or administrative proceeding shall have been instituted or threatened that
questions the validity or legality of the transactions contemplated hereby or
that could reasonably be expected materially to damage Fremont if such
transactions are consummated.
7.5. ERC AGREEMENTS. ERC shall have entered into the Fremont Life-ERC
Reinsurance Agreement (Universal Life) and the Fremont Life-ERC Reinsurance
Agreement (Annuities) with Fremont Life substantially in the forms attached
hereto as Exhibits H and I, respectively. Great Southern and ERC shall have
amended the Retrocession Agreement, and ERC shall have amended the Investment
Management Agreement with ALI, each as entered into in connection with Americo's
October 2, 1995 assumption reinsurance transaction with the Ohio Life Insurance
Company. ERC and Commerce Bank of Kansas City, N.A. shall have entered into an
escrow agreement acceptable to Great Southern.
7.6. TRANSACTION DOCUMENTS. Each of ALI and Great Southern shall have
executed and delivered the Transaction Documents to which it is a party.
7.7. OBLIGATIONS. Great Southern and ALI shall have performed all of
their respective covenants and obligations under this Agreement to be performed
on or prior to the Closing Date.
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ARTICLE VIII
CONDITIONS TO AMERICO'S OBLIGATIONS
Each obligation of ALI and Great Southern under this Agreement to be
performed on the Closing Date shall be subject to the satisfaction, on or before
the Closing Date, of each of the following conditions:
8.1. REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Fremont contained herein shall be true and accurate in all
material respects as of the date when made and as of the Closing Date, except
for changes permitted or contemplated by this Agreement.
8.2. CONSENTS. All consents, approvals, authorizations and clearances
from governmental agencies and third parties, including state insurance
commissioners, required to consummate the transactions contemplated hereby shall
have been obtained; and such approvals and consents shall not contain any term
or condition that would have a material adverse effect on the business,
operations, assets or financial condition of Americo or otherwise materially
impair the value of the transactions contemplated by this Agreement to then be
consummated to Americo.
8.3. OPINION OF COUNSEL FOR FREMONT. Fremont shall have delivered to
Americo an opinion of Alan W. Faigin, Esq., counsel to Fremont, dated the
Closing Date, in form and substance reasonably satisfactory to Americo, to the
effect that:
(a) Fremont Life and Fremont General are corporations duly
organized, validly existing and in good standing under the laws of California
and Nevada, respectively;
(b) No express authorization by Fremont General's Board of
Directors is necessary for the Fremont General officer executing this Agreement
and the documents contemplated thereby to enter into and bind Fremont General
thereto.
(c) Fremont General and Fremont Life have the corporate power and
authority and the requisite insurance licenses to carry on the Reinsured
Business as now being conducted and to enter into this Agreement and the
Transaction Documents, the Fremont Life-ERC Reinsurance Agreement (Universal
Life) and the Fremont Life-ERC Reinsurance Agreement (Annuities) and to perform
their obligations thereunder;
(d) This Agreement, the Transaction Documents, the Fremont Life-ERC
Reinsurance Agreement (Universal Life) and the Fremont Life-ERC Reinsurance
Agreement (Annuities) have been duly authorized, executed and delivered by
Fremont General and Fremont Life and approved by the Boards of Directors of
Fremont General and Fremont Life and (assuming a valid authorization, execution
and delivery of this Agreement and the Transaction Documents by Americo) are
valid, binding and enforceable obligations of Fremont General and Fremont Life,
except as the enforceability may be limited or other wise affected by (i)
bankruptcy, insolvency, moratorium,
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reorganization and similar laws of general application affecting the rights and
remedies of creditors and the obligations of debtors (including applicable
fraudulent conveyance or transfer statutes, Section 548 of the United States
Bankruptcy Code and the California Uniform Fraudulent Transfer Act); (ii)
general principles of equity (regardless of whether considered in a proceeding
in equity or at law); (iii) the availability of the remedy of specific
enforcement or injunctive or other equitable relief is subject to the discretion
of the court before which any proceeding therefor may be brought; (iv)
obligations of good faith, fair dealing and commercially reasonable conduct;
(v) limitations of public policy including, solely by way of example,
limitations on provisions granting to a party the right to obtain reimbursement
of its attorneys' fees and litigation costs from another party, and limitations
on the enforceability of indemnifications or contribution provisions; (vi)
limitations on the right of a party to exercise rights and remedies under the
Agreement for defaults by a party if it is determined that the defaults are not
material; (vii) limitations on the right of a party to exercise a right or
remedy if it is determined that such right or remedy constitutes a penalty or
results in a forfeiture; (viii) limitations on prospective waive of benefits,
rights and remedies; and (ix) the assumption that there exist no other
agreements, understandings, or negotiations among the parties that would modify
the terms of this Agreement, the Transaction Documents, the Fremont Life-ERC
Reinsurance Agreement (Universal Life) or the Fremont Life-ERC Reinsurance
Agreement (Annuities) or the respective rights or obligations of the parties
thereunder. The reinsurance and assumption of the Reinsured Business as
contemplated under the Fremont Life-ERC Reinsurance Agreements and the
Assumption Reinsurance Agreements will effect a valid transfer of the rights and
obligations respecting the Reinsured Business from Fremont Life to the
respective reinsurers.
(e) All consents, approvals and authorizations from state and
federal governmental agencies, including state insurance commissioners, and, to
the extent the need therefor is known to such counsel or is disclosed in Fremont
Schedule 2.11, third parties required to be obtained by Fremont for the
consummation of the transaction contemplated hereby have been obtained.
8.4. NO GOVERNMENTAL PROCEEDING OR LITIGATION. No suit, action,
investigation, inquiry or other proceeding by any governmental authority or
other person (other than the Americo parties hereto or their Affiliates) or
legal or administrative proceeding shall have been instituted or threatened that
questions the validity or legality of the transactions contemplated hereby or
that could reasonably be expected materially to damage Americo if such
transactions are consummated.
8.5. ERC AGREEMENTS. Fremont Life and ERC shall have entered into the
Fremont Life-ERC Reinsurance Agreement (Universal Life) substantially in the
form attached hereto as Exhibit H. Fremont Life shall have transferred to ERC
the amount of assets provided for in Article VII of the Fremont Life-ERC
Reinsurance Agreement (Universal Life). ERC shall have entered into the Fremont
Life-ERC Reinsurance Agreement (Annuities) with Fremont Life substantially in
the form attached hereto as Exhibit I. Fremont Life shall have transferred to
ERC the amount of assets provided for in Article VII of the Fremont Life-ERC
Reinsurance Agreement (Annuities). ERC shall have amended the Retrocession
Agreement with Great Southern and ERC shall have amended the Investment
Management Agreement with ALI each as entered into in
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connection with Americo's October 2, 1995 assumption reinsurance transaction
with The Ohio Life Insurance Company. ERC and Commerce Bank of Kansas City,
N.A. shall have entered into an escrow agreement acceptable to Great Southern.
8.6. TRANSACTION DOCUMENTS. Each of Fremont General and Fremont Life
shall have executed and delivered the Transaction Documents to which it is a
party.
8.7. OBLIGATIONS. Fremont General and Fremont Life shall have performed
all of their respective covenants and obligations under this Agreement to be
performed on or prior to the Closing Date.
8.8. ABSENCE OF CHANGES. During the period from December 31, 1995, to
the
Closing Date, there shall not have been any material adverse change in or to the
business or financial condition of either Fremont General or Fremont Life.
ARTICLE IX
FREMONT'S OBLIGATIONS AFTER CLOSING
Following the Closing, Fremont General and Fremont Life, jointly and
severally, shall perform the following obligations (in addition to their
obligations under the Transaction Documents, the Fremont Life-ERC Reinsurance
Agreement (Universal Life) and the Fremont Life-ERC Reinsurance Agreement
(Annuities)):
9.1. INDEMNIFICATION. Fremont General and Fremont Life shall, jointly and
severally, indemnify, defend and hold harmless Americo against and in respect of
any and all claims, demands, threats, losses, costs, expenses, liabilities and
damages, including interest, penalties, attorneys' fees, court costs and amounts
paid in settlement, that ALI or Great Southern shall incur or suffer, that
arise, result from or relate to:
(a) any breach of, or failure by Fremont General or Fremont Life to
perform, any of their representations, warranties or agreements in this
Agreement, the Transaction Documents, the Fremont Life-ERC Reinsurance
Agreement
(Universal Life), the Fremont Life-ERC Reinsurance Agreement (Annuities) or the
Assumption Reinsurance Agreement (Annuities) or in any schedule, certificate,
exhibit or other instrument furnished by either of them under this Agreement;
(b) any claim paid subsequent to December 31, 1995 (with respect to
universal life policies), and January 1, 1996 (with respect to annuities and
other insurance business or otherwise), but incurred prior to December 31, 1995,
or January 1, 1996, whichever is appropriate, for which the reserve established
and disclosed on Schedule 2.10(c) is not adequate; and
(c) (i) the acts or omissions to act by any agent of Fremont, or
(ii) any obligations of Fremont under any contract between Fremont Life or
Fremont General and their respective agents
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or former agents, including obligations arising before the Closing under the
contracts with agents described in Article V.
Americo shall not be entitled to indemnification under subsections (a) or
(c) above unless the amount of damages with respect to such indemnifiable
amounts individually or in the aggregate exceeds $25,000, in which event the
indemnity provided for in Section 9.1 hereof shall be effective with respect to
the entire amount of such damages without regard to the limitation set forth
above in this Section.
Americo shall have the right to offset any and all amounts due ALI or Great
Southern from Fremont pursuant to the foregoing indemnifications and all other
amounts Fremont have agreed to pay under this Agreement against any amount due
to Fremont under the terms of this Agreement and any other Transaction
Documents.
9.2. SPECIFIC PERFORMANCE. Fremont acknowledges that money damages
would
not be a sufficient remedy for any breach of the covenant contained in
Section 4.5 and that Americo shall be entitled to specific performance and
injunctive relief as remedies for any such breach. Such remedies shall not be
deemed to be the exclusive remedies for the breach of such covenant, but shall
be in addition to all other remedies available at law or in equity to Americo.
9.3. CLAIM NOTICE. Americo shall promptly notify Fremont of the existence
of any claim, demand or other matter to which Fremont's indemnification obliga-
tions under this Agreement would apply, and shall give Fremont a reasonable op-
portunity to defend the same at its own expense and with counsel of its own
selection; provided, Americo shall at all times also have the right to fully
participate in the defense at its own expense. If Fremont shall, within a
reasonable time after this notice, fail to defend, Americo shall have the right,
but not the obligation, to undertake the defense of, and to compromise or set-
tle, the claim or other matter on behalf, for the account, and at the risk, of
Fremont.
9.4. 1996 ANNUITY POLICIES. Fremont Life will continue to accept
applications for new annuity business until June 30, 1996, and will reinsure
such business to ERC pursuant to the terms of the Fremont Life-ERC Reinsurance
Agreement (Annuities) and to Great Southern under the terms of the Assumption
Reinsurance Agreement (Annuities); provided, such additional annuity business
shall be on policy forms of Fremont Life existing as of the Closing.
9.5. FURTHER ASSURANCES. Fremont, at any time on or after the Closing
Date, shall execute, acknowledge and deliver any further documents and
instruments, and shall take any other action consistent with the terms of this
Agreement, that may reasonably be requested by Americo.
9.6. POST-CLOSING CEDING COMMISSION ADJUSTMENT.
(a) To secure its obligations under subsection (c) of this Section,
on December 31, 1996, Fremont shall transfer $1,250,000 cash into an escrow
account governed by the terms and conditions of an escrow agreement among
Commerce Bank, ERC and Fremont Life, which
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agreement shall be in the form attached hereto as Exhibit M. For purposes of
subsection (c), the term "Escrowed Funds" shall mean the $1,250,000 deposited
into such escrow account, PLUS any interest accrued thereon and LESS any escrow
agent fees and expenses permitted under the terms of such escrow agreement.
(b) The ceding commission payable by ERC under the Fremont Life-ERC
Reinsurance Agreement (Annuities) shall be adjusted two years after the
effective date of such agreement (January 1, 1996) in the manner provided in
this Section. The amount of the adjustment shall be based on the amount of
account value distributed to holders of annuity contracts included in the
Reinsured Business as partial withdrawals not subject to surrender charges
("Free Partial Withdrawals"). On January 15, 1998, the rate of Free Partial
Withdrawals for the two year period ending on December 31, 1997, and the ceding
commission adjustment referred to above shall be determined by Americo and
communicated to Fremont General. The rate of Free Partial Withdrawals shall be
calculated by dividing the aggregate Free Partial Withdrawals by the weighted
monthly average of the annuity account value outstanding at the beginning of
each month during such two year period. The ceding commission adjustment shall
be calculated as follows:
Free Partial
Withdrawal Rate Ceding Commission Adjustment
Less than 1% $0
1% to 2% $250,000, plus an additional $250,000
for every 1/10 of 1% above 1%
greater than 2% $2,500,000
(c) The post-closing ceding commission adjustment, calculated as
provided in subsection (b) above, shall be paid by Fremont to ERC immediately
after such amount is calculated by Americo. If the ceding commission adjustment
exceeds $1,250,000, then the Escrowed Funds shall be paid to ERC in satisfaction
of $1,250,000 of Fremont's obligation under this subsection (c), and Fremont
shall pay to ERC cash in an amount equal to the difference between the ceding
commission adjustment and $1,250,000. If the ceding commission adjustment is
less than $1,250,000, then that portion of the Escrowed Funds that is equal to
the difference between $1,250,000 and the ceding commission adjustment shall be
paid to Fremont, and any remaining portion of the Escrowed Funds shall be paid
to ERC in full satisfaction of Fremont's obligation under this subsection (c).
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<PAGE>
ARTICLE X
AMERICO'S OBLIGATIONS AFTER CLOSING
Following the Closing, ALI and Great Southern jointly and severally agree
to perform the following obligations (in addition to their obligations under the
Transaction Documents and the Retrocession Agreement):
10.1. INDEMNIFICATION. ALI and Great Southern shall, jointly and severally,
indemnify, defend and hold harmless Fremont against and in respect of any and
all claims, demands, threats, losses, costs, expenses, liabilities and
damages, including interest, penalties, attorneys' fees, court costs and amounts
paid in settlement, that Fremont General or Fremont Life shall incur or suffer,
that arise, result from or relate to:
(a) any breach of, or failure by either ALI or Great Southern
to perform, any of their representations, warranties or agreements in this
Agreement, the Transaction Documents, the Retrocession Agreement or the
Assumption Reinsurance Agreement (Annuities) or in any schedule, cer
tificate, exhibit or other instrument furnished by either of them under
this Agreement; or
(b) any obligation of Great Southern arising after the
Closing under any of the contracts with agents listed on Fremont Schedule
5.1.
Fremont shall not be entitled to indemnification hereunder unless the
amount of damages with respect to such indemnifiable amounts individually or in
the aggregate exceeds $25,000, in which event the indemnity provided for in
Section 10.1 hereof shall be effective with respect to the entire amount of such
damages without regard to the limitation set forth above in this Section.
Fremont shall have the right to offset any and all amounts due Fremont
General or Fremont Life from Americo pursuant to the foregoing indemnifications
and all other amounts Americo have agreed to pay under this Agreement against
any amount due to Americo under the terms of this Agreement or the Transaction
Documents.
10.2. FURTHER ASSURANCES. Americo, at any time on or after the Closing
Date, shall execute, acknowledge and deliver any further documents and
instruments, and shall take any other action consistent with the terms of this
Agreement, that may reasonably be requested by Fremont.
10.3. CLAIM NOTICE. Fremont shall promptly notify Americo of the existence
of any claim, demand or other matter to which Americo's indemnification obliga-
tions under this Agreement would apply, and shall give Americo a reasonable op-
portunity to defend the same at its own expense and with counsel of its own
selection; provided, Fremont shall at all times also have the right to fully
participate in the defense at its own expense. If Americo shall, within a
reasonable time after this notice, fail to defend, Fremont shall have the right,
but not the obligation, to undertake the defense
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<PAGE>
of, and to compromise or settle, the claim or other matter on behalf, for the
account, and at the risk, of Americo.
10.4. AGENT DEBIT BALANCES. Americo shall deliver promptly to Fremont Life
any amounts received by Americo after the Closing respecting agent debit
balances, to the extent such agent debit balances existed at the Closing.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and
warranties of the parties contained in this Agreement shall survive the Closing
for a period of two (2) years and shall be of no further force or effect
thereafter.
11.2. BROKERAGE FEES. Fremont shall be responsible for all obligations or
liabilities, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other like payment in connection with this Agreement or the
transactions contemplated hereby, including without limitation the fees of Dean
Witter Reynolds, Inc.
11.3. WAIVER. Each party to this Agreement may, by written notice to the
other party specifically referring to this Agreement and to the provision being
waived, and only by such written notice, (a) waive any inaccuracies in the
representations or warranties of any other party contained in this Agreement or
in any document delivered pursuant to this Agreement and (b) waive compliance
with any of the conditions contained in this Agreement, or any of the agreements
or obligations of any other party. No delay or omission by any party to this
Agreement to exercise any right or power arising upon any noncompliance or
default by any other party with respect to any of the terms of this Agreement
shall cause such delay or omission to be construed as a waiver of any such right
or power. A waiver by any of the parties to this Agreement of the fulfillment
of any of the conditions or agreements to be performed by any other party shall
not be construed to be a waiver of any succeeding breach of such condition or
agreement or of any other condition or agreement contained in this Agreement.
11.4. NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given (i) on the date delivered, if personally or
courier delivered; or (ii) the date received, if sent by facsimile, overnight
express or by first class U.S. mail, postage prepaid, to the following address
(or any other address provided in writing by subsequent notice in accordance
with this Section):
(a) If to Fremont Life or Fremont General, to:
Fremont Life Insurance Company
Attention: Robert C. Pfeil, Jr.
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<PAGE>
790 The City Drive South, Suite 210
Orange, California 92668
FAX: (714) 971-2356
with a copy to:
Fremont General Corp.
Attn: Alan W. Faigin, Esq.
2020 Santa Monica Boulevard
Santa Monica, California 90404
FAX: (310) 315-5593
(b) If to ALI or Great Southern, to:
Americo Life, Inc.
300 W. 11th Street
Kansas City, Missouri 64105
Attn: Gary L. Muller, President
and Chief Executive Officer
FAX: (816) 391-2018
with a copy to:
Thomas M. Higgins, III, Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, Suite 2800
Kansas City, Missouri 64108
FAX: (816) 292-2005
and
Employers Reassurance Corporation
Attn: James D. Maughn
5200 Metcalf
Overland Park, Kansas 66201
FAX: (913) 676-5349
11.5. ENTIRE AGREEMENT. This Agreement, including all Schedules and
Exhibits attached to this Agreement, constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior or contemporaneous oral or written agreements, proposals, letters of
intent and understandings.
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<PAGE>
11.6. BINDING AGREEMENT. This Agreement shall be binding upon and shall
inure to the benefit of the parties to this Agreement and their respective
successors and permitted assigns.
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<PAGE>
11.7. SEVERABILITY. If any provision of this Agreement is found to be
illegal, unenforceable or void by any administrative agency, regulatory body or
court of competent jurisdiction, such finding shall not affect the remaining
provisions of this Agreement and all other provisions of this Agreement shall
remain in full force and effect.
11.8. AMENDMENTS. This Agreement shall not be amended, in whole or in
part, except by an instrument in writing duly executed by the parties to this
Agreement.
11.9. ASSIGNMENT. No portion of this Agreement shall be assignable by any
party to this Agreement, including assignments by operation of law pursuant to
merger or other similar transactions, without the express written consent of the
other party to this Agreement.
11.10. GOVERNING LAW. This Agreement shall be construed and interpreted
under and pursuant to the laws of the State of Missouri, excluding choice of law
provisions.
11.11. HEADINGS. The headings to the sections of this Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
this Agreement or any party to this Agreement, nor in any other way affect this
Agreement or any part of this Agreement.
11.12. SCHEDULES. All schedules referred to in this Agreement or attached
to this Agreement are incorporated in this Agreement by this reference.
11.13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
11.14. ATTORNEYS' FEES. If the services of an attorney are required by any
party to this Agreement to secure the performance of another party or to defend
itself against alleged nonperformance in any court of law or other adjudicative
tribunal, then the prevailing party shall be entitled to recovery of all
reasonable attorneys' fees and related expenses.
11.15. OBLIGATIONS OF AFFILIATES. In each case in which an Affiliate of a
party is obligated, under the terms of this Agreement, to take or refrain from
taking any particular action, such party shall take all necessary actions to
cause such Affiliate to comply with such obligation. For purposes of this
Agreement, the term "Affiliate" of any Person (as defined below) means any
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with the first such
Person. For purposes of this Agreement, the term "Person" means any individual,
corporation, partnership, joint venture, trust or other entity, and the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the
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<PAGE>
direction of the management and policies of a Person, whether through ownership
of voting securities or by contract.
11.16. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is
intended
for the benefit of any persons or other than the parties to this Agreement,
their successors and assigns.
11.17. TERMINATION. Notwithstanding favorable action on this Agreement by
the boards of directors of the parties hereto or the shareholder of Fremont
Life, this Agreement may be terminated:
(a) By the mutual consent and action of Americo and Fremont at any
time;
(b) By Fremont at the Closing if any of the conditions precedent to
its obligations set forth in this Agreement to be performed or satisfied on or
before the Closing shall not have been performed and satisfied or if Fremont
shall not have expressly waived satisfaction thereof;
(c) By Americo at the Closing if any of the conditions precedent to
its obligations set forth in this Agreement to be performed or satisfied on or
before the Closing shall not have been performed and satisfied or if Americo
shall not have expressly waived satisfaction thereof; and
(d) By Americo or Fremont if, for reasons beyond the reasonable
control of the terminating party, the Closing shall not have been consummated on
or before June 30, 1996, unless otherwise agreed to or by the parties hereto in
writing.
In the event of any termination of this Agreement pursuant to this Section,
the terminating party shall give written notice of such termination to the other
party to this Agreement and upon the giving of such notice, such termination
shall automatically become effective. Termination in accordance with this
Section shall not relieve a breaching or defaulting party of liability arising
from any breach or default under this Agreement, and certain terms and
conditions of this Agreement shall continue in effect, as set forth in this
Agreement. Without limiting the generality of the foregoing, termination of
this Agreement shall not affect the effectiveness of any provisions of this
Agreement that, by their terms or implication, survive termination, including,
without limitation, Section 4.3 ("Confidentiality"). Termination of this
Agreement because of the non-occurrence of the Closing shall not affect the
terms and conditions of this Agreement as they pertain to the transactions
consummated at the Closing and any continuing obligations of the parties
hereunder respecting such transactions.
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<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
FREMONT LIFE INSURANCE COMPANY
By _______________________________________
Name __________________________________
Title _________________________________
FREMONT GENERAL CORP.
By _______________________________________
Name __________________________________
Title _________________________________
AMERICO LIFE, INC.
By _______________________________________
Name __________________________________
Title _________________________________
GREAT SOUTHERN LIFE INSURANCE COMPANY
By _______________________________________
Name __________________________________
Title _________________________________
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PAGE
<PAGE>
SERVICES AGREEMENT
This Services Agreement (the "Agreement") is made this ___ day of
__________, 1995, by and among AMERICO LIFE, INC., a Missouri corporation
("ALI"), and FREMONT INSURANCE COMPANY, a ____________ corporation
("Fremont").
WHEREAS, Fremont issues and reinsures individual and group annuity and life
insurance; and
WHEREAS, ALI provides administrative services as described in this
Agreement to insurance companies and has, or can readily obtain, qualified
personnel, equipment and facilities to perform such administrative services for
Fremont; and
WHEREAS, Fremont desires to engage ALI to assist Fremont in certain of its
administrative functions as described in this Agreement, and ALI is willing to
accept such engagement pursuant to the terms and subject to the conditions of
this Agreement;
NOW, THEREFORE, for and in consideration of the foregoing recitals, which
are incorporated into the operative provisions of this Agreement, and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
1. ADMINISTRATIVE SERVICES.
(a) Fremont hereby engages and appoints ALI, and ALI hereby agrees,
to provide to, and perform for, Fremont all of the administrative services
reasonably necessary to process, administer and account for the insurance
business of Fremont described on the attached Schedule A (the "Reinsured Busi-
ness"), including (i) those services described on the attached Schedule B and
(ii) all of the administrative obligations undertaken by Fremont under the
Coinsurance Life and Annuity Reinsurance Agreement with Employers Reassurance
Corporation ("Fremont Life-ERC Reinsurance Agreement" and "ERC", respectively),
including the reporting obligations described in Article VIII thereof and the
claims administration obligations described in Article IX thereof (collectively,
the "Services").
During the period from the date hereof until June 30, 1996, Fremont shall
make available to ALI such employees of Fremont that ALI requests for the
purpose of fulfilling its obligations under this Agreement. ALI shall supervise
any of such employees in the performance of such obligations, and shall
reimburse Fremont for that portion of such employees' payroll costs attributable
to work done for ALI.
(b) Fremont hereby authorizes ALI to open and administer a bank
account on Fremont's behalf for purposes of this Agreement. Fremont shall
forward promptly to ALI for
<PAGE>
deposit into such account all premiums received by Fremont from or for the
account of policyholders. ALI shall deposit into such account all amounts
received by ALI with respect to the Reinsured Business. ALI shall make all
necessary disbursements from such account in connection with the Services.
(c) ALI may from time to time, within its sole discretion, set
crediting rates on interest sensitive business and change the rates for cost of
insurance.
2. SERVICE FEE. As consideration for rendering and providing the
Services, ALI shall be entitled to receive a service fee from Fremont calculated
as provided in the attached Schedule C (the "Service Fee"). The Service Fee
includes any taxes or fees imposed by any state or local authority, which shall
be the sole responsibility of ALI. The Service Fee shall be payable to ALI
monthly within 25 days after receipt of invoice, and shall constitute full com-
pensation to ALI for ALI's performance of the Services. The Service Fee shall
be paid by the disbursement of such amount from the account described in Section
1(b).
3. SUPERVISION BY FREMONT. The performance by ALI of the Services shall
be subject to Fremont's reasonable review and supervision. ALI shall perform
all Services hereunder in full compliance with applicable federal, state and
local laws. Additionally, ALI shall perform all Services hereunder in
accordance with standards prevailing in the third party administrators' industry
with respect to the performance of similar services.
For purposes of its obligations hereunder with respect to monies of Fremont
on deposit with or under the control of ALI pursuant to this Agreement, ALI
shall act in a fiduciary capacity with respect to Fremont. ALI shall promptly
prepare and submit to Fremont such invoices as to services provided and costs
incurred as Fremont may reasonably request. ALI shall allow representatives of
Fremont and ERC to inspect and copy, at all reasonable times, ALI's financial
and other records pertaining to the performance by ALI of the Services.
ALI shall indemnify and hold harmless Fremont from, against and in respect
of any liabilities, losses, damages, expenses or deficiencies resulting from (a)
ALI's performance of the Services, (b) any amount paid or payable by Fremont for
punitive, exemplary or compensatory damages arising out of the conduct of ALI in
the investigation, trial or settlement of any claim or failure to pay or delay
in payment of any benefits under any policy, (c) any statutory penalty imposed
upon Fremont because of any unfair trade practice of ALI or any unfair claim
practice of ALI, (d) any costs and expenses reasonably incurred by Fremont
incident to any actions, suits, proceedings or judgments in respect of the fore-
going, including legal and accounting fees and expenses, and (e) guarantee fund
assessments incurred by Fremont on account of the Reinsured Business arising
from insolvencies occurring after the date hereof; provided, no such assessments
shall be reimbursed by ALI unless Fremont has consistently reported zero net
premiums with respect to the Reinsured Business in its statutory statements and
other filings with state insurance departments. Fremont shall remain
responsible for guarantee fund assessments incurred by Fremont on account of the
Reinsured Business arising from insolvencies occurring before the date hereof.
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<PAGE>
4. THIRD-PARTY AGREEMENTS. Fremont acknowledges that ALI is currently
providing services to other entities similar to the Services being provided
pursuant to this Agreement and may, as a part of its normal business, perform
services and functions similar to the Services for other parties in the future,
and that ALI may utilize the same office space, equipment and personnel to
perform such services and functions for such other parties as it utilizes to
perform the Services for Fremont. Fremont and ALI may contract, at their
expense, with third parties as Fremont or ALI deem to be reasonably necessary
for the efficient performance of their obligations hereunder.
5. RESPONSIBLE OFFICERS. Fremont and ALI shall each designate an officer
who shall be authorized to represent such party in the performance of its
obligations hereunder.
6. TERM AND TERMINATION. This Agreement shall be for a term
commencing
on ____________, 1996, and continuing for so long as any of the Reinsured
Business is coinsured by either ERC or Great Southern Life Insurance Company
("Great Southern"), but terminating as to any of the Reinsured Business when and
as it is assumed by any of ALI's subsidiaries, unless earlier terminated as
provided herein.
(a) This Agreement may be terminated in the following manner:
(i) By the written consent of the parties hereto;
(ii) By ALI in the event of a material breach hereof by
Fremont, if such breach is not cured or eliminated within 90 days
after receipt of written notice thereof to Fremont from ALI; or
(iii) By Fremont (A) in the event of a material breach hereof
by ALI, if such breach is not cured or eliminated within 90 days after
receipt of written notice thereof to ALI from Fremont, or (B) if the
Fremont Life-ERC Reinsurance Agreement or the Assumption Reinsurance
Agreement between Fremont and Great Southern Life Insurance Company
terminate.
Termination in accordance with this Section shall not relieve a
breaching or defaulting party of liability arising from any breach or
default under this Agreement.
7. RELATIONSHIP OF PARTIES. In furnishing the Services to Fremont, ALI
shall be deemed to be acting as an independent contractor. ALI does not
undertake by this Agreement or otherwise to perform any obligation of Fremont,
whether regulatory or contractual or otherwise, except as provided herein. ALI
shall not be deemed to be a joint venturer with, or a partner of, Fremont; nor
shall ALI's employees be deemed to be employees of Fremont or Fremont's
employees be deemed to be employees of ALI.
8. FORCE MAJEURE. ALI and Fremont shall be excused from performance
hereunder (other than for payment of monies that are due and payable) for any
period when either
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<PAGE>
is prevented from performing any services to be provided hereunder, in whole or
in part, as a result of an act of God, fire, war, civil disturbance, court
order, insurance department regulatory order (which, with respect to any party,
did not arise from the violation of any law or regulation by such party or any
of its affiliates), labor dispute or other cause beyond its reasonable control,
and such nonperformance shall not be a ground for termination hereof or
assertion of default hereunder. In the event ALI or Fremont shall be excused
from performance under this provision, ALI and Fremont shall each use their best
efforts to provide, directly or indirectly, alternative and, to the extent
practicable, equivalent fulfillment of their respective obligations hereunder.
9. SEVERABILITY. If any provision of this Agreement is declared or found
to be illegal, unenforceable or void by any administrative agency, regulatory
body or court of competent jurisdiction, such finding shall not affect the
remaining provisions of this Agreement, and all other provisions hereof shall
remain in full force and effect.
10. BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective permitted successors
and assigns.
11. GOVERNING LAW. This Agreement and all rights and obligations of the
parties hereunder shall be construed and interpreted under and pursuant to the
laws of the State of Missouri, excluding choice of law provisions.
12. HEADINGS. The headings to the Sections of this Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
this Agreement or any party hereto, nor in any other way affect this Agreement
or any part hereof.
13. WAIVER. No delay or omission by any party hereto to exercise any
right or power arising upon any noncompliance or default by any other party with
respect to any of the terms of this Agreement shall cause any such right or
power to be construed as a waiver thereof. A waiver by any of the parties
hereto of the fulfillment of any of the covenants, conditions or agreements to
be performed by any other shall not be construed to be a waiver of any
succeeding breach thereof or of any other covenant, condition or agreement
contained herein. No waiver or compromise of any provision or condition hereof
shall be effective unless evidenced by a written instrument duly executed by the
party hereto to be charged with such waiver or compromise.
14. MISCELLANEOUS. This Agreement shall not be altered or amended except
pursuant to an instrument in writing signed by the parties hereto. All
schedules referred to herein and attached hereto are hereby incorporated herein
and made a part of this Agreement by this reference. Any changes regarding the
administration of the Reinsured Business required by ERC under the Fremont
Life-ERC Reinsurance Agreement shall be incorporated into this Agreement.
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<PAGE>
15. COUNTERPARTS. This Agreement may be executed in two or more
counter-
parts, each of which shall be deemed to be an original and all of which together
shall constitute one and the same instrument.
16. CONFIDENTIALITY. ALI and Fremont acknowledge that each party may
obtain access to information that the other party considers proprietary and
confidential. In the event either party provides information to the other that
is considered confidential and proprietary, the disclosing party shall provide
written notification thereof to the other party, and such information shall be
retained in strict confidence and not used or disclosed to others.
17. NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally, by certified or
registered mail, with postage prepaid, or by facsimile, as follows:
(a) If to Fremont, to:
Fremont Life Insurance Company
Attn: ______________________
790 The City Drive South, Suite 210
Orange, California 92668
FAX: (310) 315-5593
with a copy to:
____________________
Attn: _____________
____________________
____________________
FAX: ______________
(b) If to ALI, to:
Americo Life, Inc.
Attn: Gary L. Muller, President and
Chief Executive Officer
300 W. 11th Street
Kansas City, MO 64105
FAX: (816) 391-2018
with a copy to:
Thomas M. Higgins, III, Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, Suite 2800
Kansas City, MO 64108
FAX: (816) 292-2005
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<PAGE>
and
Employers Reassurance Corporation
Attn: Buddy Maughn
5200 Metcalf Avenue
Overland Park, Kansas 66201
FAX: (913) 676-5349
18. ENTIRETY OF AGREEMENT. This Agreement, including all schedules
attached hereto, constitutes the entire agreement between the parties pertaining
to the subject matter hereof, superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letter of intent and
understandings.
19. ASSIGNMENT. Except as provided in this Section, no portion of this
Agreement shall be assignable by any party hereto, including assignments by
operation of law pursuant to merger or other similar transactions, without the
express written agreement of the other party hereto in each instance. ALI may
transfer and assign any or all of its rights and obligations pursuant to this
Agreement (except its obligations relating to investment functions) to a wholly
owned subsidiary of ALI; upon such transfer and assignment, ALI shall be
relieved of all liability hereunder with respect to such transferred and as-
signed obligations.
20. ATTORNEYS' FEES. If the services of an attorney are required by any
party hereto to secure the performance of another party hereto or to defend
itself against alleged non performance in any court of law or other adjudicative
tribunal, then the prevailing party shall be entitled to recovery of all
reasonable attorneys' fees and related expenses.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers duly authorized by all requisite corporate
and other action and approval, on the day and year first above written.
AMERICO LIFE, INC.
By ______________________________
Name _________________________
Title ________________________
FREMONT LIFE INSURANCE COMPANY
By ______________________________
Name _________________________
Title ________________________
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<PAGE>
SCHEDULES
Schedule A Description of Services
Schedule B Reinsured Business
Schedule C Service Fee
-7-
<PAGE>
SCHEDULE A
Description of Services
General Corporate Work
1. Insurance statements/audits.
2. Model office to maintain system.
3. Actuarial work, including statutorily required cash flow testing,
preparation of actuarial memoranda supporting cash flow testing and the
actuarial opinion.
4. State examination.
5. Investment functions (in accordance with the attached investment
guidelines).
6. Provide or cause to be provided mainframe data processing system.
7. Insurance or annuity actuarial analysis or research.
8. Reinsurance administration.
Agency Department
1. Licensing and appointment and cancellation when no longer needed.
2. Initial computer set-up -- including commission codes and hierarchy.
3. Maintain physical agent file.
4. System maintenance (e.g., assignments, advance vs. as-earned,
hierarchy changes).
5. Termination of agent, including debit balance processing.
6. Commission processing.
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<PAGE>
7. Mail commission checks and maintain commission files.
8. Research agent questions.
9. Assist Fremont in the calculation of branch manager and field
representative bonuses with respect to the Reinsured Business.
10. Process commission corrections.
11. Handle all commission questions from field.
New Business
1. Process annuity and life applications and check for accuracy.
2. Input clean applications into carriers' computer systems.
3. Maintain permanent policy files.
4. Send letters of acceptance for 1035 exchanges.
5. Monitor the status of IRC Section 9024 rollovers and issue additional
letters of acceptance as required.
6. Physical issue and delivery of policy.
7. Process all incoming calls regarding status of annuity and life
applications.
8. Perform underwriting functions.
Premium Billings and Accounting
1. Generate periodic billings to policyholders, including nonforfeiture
options.
2. Process premiums received.
3. Deposit premium payments under controls established by the carrier.
4. Handle the calculation and administration of periodic reinsurance
settlements.
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<PAGE>
Policyowner Service
1. Process and update policy records for change of ownership,
beneficiary, address, conversions, contractual changes, etc.
2. Process applications for loans and verify compliance with IRC.
3. Process partial withdrawals and hardship withdrawals in compliance
with IRC.
4. Issue checks for loans and withdrawals.
5. Process loan repayments.
6. Process "not takens" and surrenders.
7. Provide quotes on payouts and annuitizations.
8. Process annuitizations.
9. Handle inquiries from agents on all POS matters.
10. Handle inquiries from policyholders.
11. Perform all tax reporting, including pension/annuity administration,
for all Reinsured Business in compliance with IRC.
12. Claims/Annuitization.
13. Claim adjudication
14. Generate and mail annual statements to policyholders in accordance
with current and future regulations.
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SCHEDULE B
Reinsured Business
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<PAGE>
SCHEDULE C
Service Fee
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PAGE
<PAGE>
ASSUMPTION REINSURANCE AGREEMENT
This Assumption Reinsurance Agreement (the "Agreement") is made to be
effective as of ____________, 1996 (the "Effective Date"), by and between
FREMONT LIFE INSURANCE COMPANY, a California stock life insurance company
("Ceding Company"), and GREAT SOUTHERN LIFE INSURANCE COMPANY, a
Texas stock
life insurance company ("Reinsurer").
WHEREAS, as of the Effective Date, Ceding Company has ceded on a 100%
coinsurance basis a certain block of its life and annuity insurance business to
Employers Reassurance Corporation ("ERC") pursuant to a Coinsurance Life and
Annuity Reinsurance Agreement (the "Fremont Life-ERC Reinsurance Agreement");
and [DESCRIBE HOW A PORTION OF THE BUSINESS WILL BE CEDED AT A
SEPARATE
CLOSING]
WHEREAS, also as of the Effective Date, ERC has ceded on a 100% coinsurance
basis the aforesaid block of business to Reinsurer pursuant to a Modified
Coinsurance Life and Annuity Retrocession Agreement (the "Retrocession
Agreement"); and
WHEREAS, on the Assumption Date (as that term is defined herein), Ceding
Company desires to transfer all of the aforesaid block of business and such
other of its insurance business, which is more fully described on the attached
Exhibit A, which is incorporated herein by this reference (the "Reinsured
Business"), to Reinsurer on an assumption reinsurance basis; and
WHEREAS, Reinsurer desires to assume all of the rights and obligations
related to the Reinsured Business on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
ASSUMPTION
1.1. On each Assumption Date, Ceding Company shall cede all of its
right, title and interest in and to the Reinsured Business to Reinsurer and
Reinsurer shall assume all (100%) of Ceding Company's obligations and
liabilities under the Reinsured Business then being assumed, subject to the
terms and conditions set forth herein.
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ARTICLE II
TRANSFER OF RESERVES
2.1. On each Assumption Date, and in consideration of the assumption by
Reinsurer of that portion of the Reinsured Business then being assumed (the
"Assumed Business"), Ceding Company shall transfer, assign and deliver to
Reinsurer all of Ceding Company's right, title and interest in assets that
consist of (i) the policy loans, policy liens and due and deferred premiums with
respect to the Assumed Business (collectively, the "Policyholder Assets") and
(ii) an amount of cash or securities equal to the sum of (A) the statutory
reserves and liabilities net of reinsurance ceded as of that Assumption Date
required to be established in the manner prescribed for the preparation of
Ceding Company's annual statements in [Exhibits 8, 9, 10 and 11] thereof, plus
(B) any other liabilities net of reinsurance ceded as of that Assumption Date
with respect to the Assumed Business required to be reflected on [Page 3]
thereof, less (C) Policyholder Assets (the net amount resulting from the
foregoing calculation being the "Net Amount").
ARTICLE III
ASSUMPTION DATE
3.1. Ceding Company desires that Reinsurer shall assume at least 75%
(seventy-five percent) of the Reinsured Business on a reserves dollars basis
from Ceding Company on the Assumption Date. The term "Assumption Date" as
used
herein shall mean ____________, 199_; provided, (a) if Reinsurer is unable to
assume at least 75% of the Reinsured Business on a reserves dollars basis on
such date, then, at the option of Ceding Company, the Assumption Date shall be
postponed until ____________, 199_; and (b) Ceding Company and Reinsurer may,
by
mutual agreement, advance the Assumption Date to a date earlier than
____________, 199_, or, if Section 3.1(a) becomes effective, earlier than
____________, 199_.
3.2. If any portion of the Reinsured Business has not been assumed by
Reinsurer as of ____________, 199_ (the "Nonassumed Business"), then (a) all of
such Nonassumed Business shall be subject to Article VII herein and
(b) Reinsurer shall continue to use its best efforts to effect an assumption
thereof as quickly as possible. If, from time to time and at any time after the
first Assumption Date hereunder, Reinsurer becomes capable of assuming all or
any portion of the Nonassumed Business, then Reinsurer shall effect the
assumption at the earliest possible date by giving Ceding Company at least 30
days prior written notice thereof, and each such date also shall constitute an
"Assumption Date" for purposes of this Agreement.
3.3. If any necessary approval has not been received by Reinsurer of
this Agreement or of a Certificate of Assumption (as that term is defined
herein) as of any Assumption Date, then notwithstanding any other provision of
this Agreement, the Assumption Date as to Reinsured Business subject to such
approval shall be the first day of the month following receipt of such approval.
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<PAGE>
3.4. If the consent of any policyholder is required by applicable law
or regulation for the assumption of any portion of the Reinsured Business and
such consent has not been received as of the intended Assumption Date for such
portion, then, notwithstanding any other provision of this Agreement, the
Assumption Date as to each such policy, contract or rider included in such
portion shall be the first day of the month next following the receipt of such
consent, whether by active consent or implied consent as allowed pursuant to
applicable law or regulation.
ARTICLE IV
TRANSFER OF POLICY LIABILITIES
4.1 As of each Assumption Date hereunder (if more than one) and as to
that portion of the Reinsured Business being assumed by Reinsurer on that
Assumption Date, Reinsurer shall become the successor to Ceding Company and
Reinsurer shall assume full and complete liability for:
(a) the payment of all claims for benefits incurred on or after the
relevant Assumption Date;
(b) the payment of all claims for benefits incurred prior to the relevant
Assumption Date, but not yet paid (reported or not); and
(c) all other liabilities, claims and expenses of any kind or type
whatsoever arising on or after the relevant Assumption Date, including but not
limited to claims for damages or losses, including but not limited to punitive
or extra contractual damages, incurred in connection with the administration of
the Assumed Business or in adjusting, denying, resisting or defending any claims
on and after the relevant Assumption Date.
4.2. Upon assumption of a policy or contract included in the Assumed
Business, Reinsurer will be the primary insurer of the risks covered thereby,
completely replacing Ceding Company. It is the intention of the parties to
effect a complete novation from Ceding Company to Reinsurer in respect of every
policy and contract included in the Assumed Business as of such Assumption Date,
so that Ceding Company shall have no further obligations with respect to such
Assumed Business.
4.3. Premiums due or paid with respect to the Assumed Business on and
after the relevant Assumption Date, and any loan repayments (and interest
payments thereon) made on the Assumed Business on and after the relevant
Assumption Date, shall be the sole property of Reinsurer. From and after each
Assumption Date, all policyholders under the Assumed Business shall pay all
premiums and make any loan repayments (and interest payments thereon) on their
policies directly to Reinsurer. All moneys, checks, drafts, orders or other
instruments received by Ceding Company after an Assumption Date for premiums
related to Assumed Business shall be transferred and delivered to Reinsurer, and
any such instruments when so delivered shall bear all indorsements required to
effect such transfer and delivery. Reinsurer shall pay all premium taxes as may
be required by law on premiums related to Assumed Business received on or after
each Assumption Date.
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<PAGE>
4.4. Reinsurer shall be authorized to make any defense at law or in
equity to any action or claim instituted or made under the Assumed Business to
any action or claim instituted or made under the Assumed Business that might or
could have been made by Ceding Company had this Agreement not been executed.
All of the provisions, conditions, limitations and exclusions contained in the
policies and contracts comprising the Assumed Business shall remain in effect
notwithstanding the assumption of such policies and contracts by Reinsurer
hereunder.
ARTICLE V
EFFECT ON EXISTING REINSURANCE
5.1. The attached Schedule B, which is incorporated herein by this
reference, contains a list of all reinsurance agreements in effect as of the
Effective Date between Ceding Company and any assuming or ceding reinsurer (the
"Reinsurance Agreements"). It is the intention of the parties that Reinsurer
shall be substituted for and succeed to all of the rights and liabilities of
Ceding Company under the Reinsurance Agreements as of each Assumption Date
with
respect to that portion of the Reinsured Business then being assumed. Reinsurer
shall be wholly and solely responsible for effecting its substitution under each
Reinsurance Agreement and the continuation of each Reinsurance Agreement after
each Assumption Date. The collectibility of reinsurance under the Reinsurance
Agreements shall be at the sole risk and for the account of Reinsurer at and
after the Effective Date.
5.2. As of each Assumption Date, Reinsurer shall be substituted for and
shall succeed to all of the rights and liabilities of Ceding Company under the
Fremont Life-ERC Reinsurance Agreement with respect to that portion of the
Reinsured Business then being assumed. Reinsurer shall be wholly and solely
responsible for effecting each such substitution under the Fremont Life-ERC
Reinsurance Agreement and for the continuation of the Fremont Life-ERC
Reinsurance Agreement after each Assumption Date. The collectibility of
reinsurance under the Fremont Life-ERC Reinsurance Agreement shall be at the
sole risk and for the account of Reinsurer at and after the Effective Date.
ARTICLE VI
ASSUMPTION CERTIFICATES
6.1. As soon as possible after each Assumption Date and subject to
applicable regulatory approval, if any, and at the sole cost and expense of
Reinsurer, Reinsurer shall issue to each policyholder of the Assumed Business an
assumption certificate in the form set forth in the attached Schedule C, which
is incorporated herein by this reference (the "Assumption Certificate").
Notwithstanding the foregoing, (a) if the consent of the policyholders to the
assumption is required by applicable law or regulation, a notice of transfer
shall be first sent in the form set out in the attached Schedule D, which is
incorporated herein by this reference (the "Notice of Transfer"), and the
required consent obtained, and (b) the form of Assumption Certificate or Notice
of Transfer may be amended if such amendment is required to obtain required
regulatory approval or is otherwise
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<PAGE>
appropriate under the circumstances. Reinsurer and Ceding Company shall
cooperate with one another in securing such required regulatory approval and
amending the Assumption Certificate or Notice of Transfer, whichever the case
may be.
6.2. From time to time after any one or more Assumption Dates, without
further consideration, Reinsurer shall execute and deliver such other
instruments of assumption, conveyance, assignment, transfer and delivery, and
take such other action as Ceding Company reasonably requests, to more
effectively accomplish the assumption of the Reinsured Business contemplated
herein. Such instruments shall not impose upon Reinsurer any obligation,
liability or risk not contemplated by this Agreement.
ARTICLE VII
COINSURANCE
7.1. Effective ____________, 199_ (the "Coinsurance Date"), Ceding
Company shall cede and Reinsurer shall reinsure all Nonassumed Business on a
100% coinsurance basis modified by the terms of this Agreement. The Nonassumed
Business shall remain subject to Section 3.2 hereof, and after an Assumption
Date, the reinsurance as to the relevant portion of the Nonassumed Business
shall be on an assumption basis as provided for herein, the coinsurance provided
for herein shall automatically terminate and the assumed portion of the
Nonassumed Business shall be deemed to be Assumed Business for all purposes
under this Agreement.
7.2. As of the Coinsurance Date, Reinsurer shall be responsible for all
(100%) of the obligations and liabilities under the Nonassumed Business, as if
such Nonassumed Business had been assumed by Reinsurer hereunder.
7.3. Reinsurer shall be entitled to receive the net cash flow with
respect to the Nonassumed Business from and after the Coinsurance Date. For the
purposes of this Agreement, the term "net cash flow" shall mean the sum of the
following, net of amounts due to or from reinsurers, (a) collected premiums, net
of premium refunds, less (b) commissions paid, less (c) benefits paid, less
(d) administration expenses, (including but not limited to premium taxes, agent
licensing fees and guaranty fund assessments) plus or minus, respectively,
(e) any decrease or increase in policy loans.
7.4. The coinsurance pursuant to Article VII shall continue in
perpetuity as to that part of the Nonassumed Business that has not been assumed
pursuant to the terms of this Agreement, until such time as it is assumed or the
underlying policies or contracts lapse or otherwise terminate.
7.5. The parties shall provide a quarterly accounting and cash
settlement to each other of the coinsurance transactions hereof, in such form
and containing such information as either party may reasonably request, but such
quarterly accounting and cash settlement shall terminate with respect to any
portion of the Nonassumed Business that is eventually assumed hereunder.
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<PAGE>
7.6. From and after the Coinsurance Date:
(a) Reinsurer shall maintain reserves with respect to the Reinsured
Business in accordance with all requirements of law and commonly accepted
actuarial principles applied in a manner consistent with their application
immediately prior to the transfer of the Reinsured Business pursuant to this
Agreement or, in the event of changes in such principles or applicable law
having the effect of requiring greater reserves, in accordance with such
changes;
(b) Reinsurer shall conduct the Reinsured Business in accordance with
generally accepted business practices for the reinsurance industry, all
applicable law and the requirements of the reinsured policies;
(c) Reinsurer shall maintain statutory capital and surplus (consisting
of cash and securities valued as determined in accordance with principles and
practices required by the ____________ Department of Insurance) of not less than
the amount necessary to comply with the law of the State of ____________ for an
insurance company writing the lines of business being written by Reinsurer;
(d) Reinsurer shall provide for legal advice to be made available to
its claims personnel in connection with administration of claims on the
Reinsured Business;
(e) Reinsurer shall have the authority to take any and all action with
respect to, and shall assume the sole risk and liability for, any matter
relating to risk management and policy administration, to the extent such
authority may be granted by Ceding Company pursuant to applicable law, including
but not limited to policy changes, reinstatement standards, premium rate
changes, policy renewals, issuance of conversion policies, agents' commissions
and administrative methods and procedures;
(f) To the extent the policies constituting the Reinsured Business
require Ceding Company to make loans to policyholders, Reinsurer shall make, out
of its own funds, loans for such amounts, at the interest rates and for the
terms as such policies require;
(g) Reinsurer shall bear all expenses arising after the Coinsurance
Date including premium taxes and reasonable audit expenses incurred in
connection with the administration of the Reinsured Business;
(h) Reinsurer shall have authority and discretion with respect to all
matters relating to claim settlement and litigation concerning the Reinsured
Business, including, but not limited to, the selection of counsel; and
(i) Reinsurer shall bear all expenses incurred in connection with
settling claims and litigating claims relating to the Reinsured Business,
including, but not limited to, the cost of routine investigations, legal fees
and interest charges.
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ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. At the Effective Date, the Coinsurance Date and each Assumption
Date hereunder, Reinsurer represents and warrants to Ceding Company as follows:
(a) Reinsurer is a corporation duly organized, validly existing, and in
good standing under Texas law. Reinsurer has full corporate power and authority
to carry on its business as it is now being conducted, to own the properties and
assets it now owns relating thereto and to enter into and perform its
obligations under this Agreement.
(b) Reinsurer has taken all corporate actions required by law, its
Articles of Incorporation, its Bylaws or otherwise to authorize the execution
and delivery by it of this Agreement, the performance by it of its obligations
hereunder, and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Reinsurer and is the valid and
binding obligation of Reinsurer enforceable in accordance with its terms,
subject to the qualification that the enforceability hereof may be limited by
the effect of bankruptcy and other similar laws of general application relating
to or affecting the rights and remedies of creditors, that the remedy of
specific enforcement or of injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought and that the validity,
binding effect and enforceability hereof may be affected by insurance laws,
regulations and rules.
(c) (i) Reinsurer holds licenses to write life insurance and
to issue annuities of the nature and in the states in which the conduct of
its business or the Reinsured Business requires a license, which states are
described on the attached Schedule E, which is incorporated herein by this
reference; such Schedule also shows the type of license, name of the
issuing authority, any restrictions and expiration date. Reinsurer is in
good standing to conduct its insurance business and in compliance with all
filing and reporting requirements in all of such jurisdictions. There are
no proceedings pending or, to the knowledge of Reinsurer, threatened that
could result in termination of or failure to renew any such licenses, nor
is there any fact known to Reinsurer that is reasonably anticipated to have
such result.
(ii) Reinsurer is qualified or otherwise authorized as a
foreign corporation and is in good standing in each jurisdiction in which
the character of the properties owned or held under lease or license or the
nature of the business conducted by it or the Reinsured Business requires
such qualification or authorization, except where the failure to so qualify
or be authorized would not have a material adverse effect on it or its
business or the Reinsured Business.
(d) Neither the execution and delivery of this Agreement, nor the
performance by Reinsurer of its obligations hereunder, nor the consummation of
the transactions contemplated hereby will (i) violate any provision of its
Articles of Incorporation or Bylaws; (ii) violate or be in conflict with or
constitute a default under or (with the giving of notice or passage of time or
both would violate or
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<PAGE>
constitute a default under) any oral or written agreement, instrument,
arrangement or understanding to which it is a party or by which it may be bound
or accelerate the maturity of any debt or obligation of Reinsurer; (iii) require
the consent of any other party, the approval of any court, regulatory agency or
other governmental authority; (v) violate any statute, law, rule, regulation,
judgment, decree, order of any court, arbitration panel, regulatory agency or
other governmental authority to which Reinsurer is subject.
(e) Reinsurer is in compliance with federal, state, local and foreign
laws and regulations applicable to it, except for instances of noncompliance
that individually or in the aggregate would not have a material adverse effect
on the Reinsured Business or the business, assets, liabilities, reinsurance
arrangements, prospects, operations, condition (financial or otherwise) or
results of operations of Reinsurer.
(f) There is no action, proceeding or investigation pending or, to the
knowledge of Ceding Company, threatened against Reinsurer before any court,
arbitrator or administrative or government body that would (i) materially
adversely affect the Reinsured Business or the business, financial condition or
property of Reinsurer or (ii) prevent the consummation of this Agreement or the
transactions contemplated hereby or declare the same to be unlawful.
(g) Except as set forth on Schedule 8.1(g), no consent, authorization
order or approval, or filing with any governmental commission, board or other
regulatory body is required to be obtained or made by Reinsurer for and in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated by this Agreement.
(h) The attached Schedule G, which is incorporated herein by this
reference, sets forth a list of all reinsurance agreements and treaties to which
Reinsurer is a party that are related to the Reinsured Business. Reinsurer has
made available to Ceding Company for review copies of said reinsurance
agreements and treaties. Except as set forth on Schedule G, this Agreement, the
Fremont Life-ERC Reinsurance Agreement, the Retrocession Agreement, insurance
contracts to be issued in the ordinary and usual course of business, ordinary
and usual reinsurance agreements and ordinary and usual agents' and general
agents' contracts, Reinsurer is not a party to any material contract to be
performed in the future relating to the Reinsured Business.
(i) None of the statements or information contained in any
representation, warranty or covenant of Reinsurer set forth in this Agreement
contains any misstatement of a material fact or omits any statement necessary to
make the statements made not materially misleading.
8.2. At the Effective Date, the Coinsurance Date and each Assumption Date
hereunder, Ceding Company represents and warrants to Reinsurer as follows:
(a) Ceding Company is a corporation duly organized, validly existing
and in good standing under ____________ law. Ceding Company has full corporate
power and authority to carry on its
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business as it is now being conducted, to own the properties and assets it now
owns relating thereto and to enter into and perform its obligations under this
Agreement.
(b) Ceding Company has taken all corporate actions required by law, its
Articles of Incorporation or its Regulations to authorize the execution and
delivery by it of this Agreement, the performance by it of its obligations
hereunder, and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Ceding Company and is the
valid and binding obligation of Ceding Company enforceable in accordance with
its terms, subject to the qualification that the enforceability hereof may be
limited by the effect of bankruptcy and other similar laws of general
application relating to or affecting the rights and remedies of creditors, that
the remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought and
that the validity, binding effect and enforceability hereof may be affected by
insurance laws, regulations and rules.
(c) (i) Ceding Company holds licenses to write life insurance
and to issue annuities of the nature and in the states in which the conduct
of the Reinsurance Business requires a license, which states are described
on the attached Schedule H, which is incorporated herein by this reference;
such Schedule also shows the type of license, name of the issuing
authority, any restrictions and expiration date. Ceding Company is in good
standing to conduct its insurance business and in compliance with all
filing and reporting requirements in all of such jurisdictions. There are
no proceedings pending or, to the knowledge of Ceding Company, threatened
that could result in termination of or failure to renew any such licenses,
nor is there any fact known to Ceding Company that is reasonably
anticipated to have such result.
(ii) Ceding Company is qualified or otherwise authorized as a
foreign corporation and is in good standing in each jurisdiction in which
the character of the properties owned or held under lease or license or the
nature of the business conducted by it requires such qualification or
authorization, except where the failure to so qualify or be authorized
would not have a material adverse effect on it or its business.
(d) Neither the execution and delivery of this Agreement, nor the
performance by Ceding Company of its obligations hereunder, nor the consummation
of the transactions contemplated hereby will (i) violate any provision of its
Articles of Incorporation or Bylaws; (ii) violate or be in conflict with or
constitute a default under or (with the giving of notice or passage of time or
both would violate or constitute a default under) any oral or written agreement,
instrument, arrangement or understanding to which it is a party or by which it
may be bound or accelerate the maturity of any debt or obligation of Ceding
Company; (iii) require the consent of any other party, the approval of any
court, regulatory agency or other governmental authority; (v) violate any
statute, law, rule, regulation, judgment, decree, order of any court,
arbitration panel, regulatory agency or other governmental authority to which
Ceding Company is subject.
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(e) Ceding Company is in compliance with federal, state, local and
foreign laws and regulations applicable to it, except for instances of
noncompliance that individually or in the aggregate would not have a material
adverse effect on the Reinsured Business.
(f) Since the Effective Date, and except for these changes in the
operations of Ceding Company contemplated by the Master Agreement of even date
herewith among Reinsurer, Ceding Company and others, and the Transaction
Documents (as that term is defined in the Master Agreement), Ceding Company has
not:
(i) suffered any change in its financial condition, assets or
reserves that is materially adverse;
(ii) suffered any material decrease in the amount of, or any
material change in the nature of, its insurance in force;
(iii) incurred (other than in the ordinary course of business) any
liabilities or obligations or increased any policy claims, contingency or
other reserves to an extent that materially and adversely affects it;
(iv) made any material change in any accounting practice utilized
for Ceding Company Statutory Statements (as that term is defined herein),
except as may have been required by a change in the statutory accounting
practices prescribed by state regulatory agencies; or
(v) amended or canceled, or agreed to amend or cancel, any
reinsurance agreement, treaty or arrangement material to the Reinsured
Business.
(g) The attached Schedule I, which is incorporated herein by this
reference, includes the Annual Convention Statements (including all amendments)
of Ceding Insurer for the years ended [December 31, 1993, and December 31,
1994,] and its quarterly statements dated [March 31, 1995], in each case as
filed with the insurance commissioners of ____________ and certain other states
in accordance with applicable law. All such annual and quarterly statements are
hereinafter referred to as the "Ceding Company Convention Statements." Schedule
I also includes statutory statements of Ceding Insurer for the years ended
[December 31, 1993, and December 31, 1994]. All such audited statutory
statements are hereinafter referred to as the "Ceding Company Audited Statutory
Statements." Such Ceding Company Convention Statements and Ceding Company
Audited Statutory Statements (collectively, the "Ceding Company Statutory
Statements") were prepared in accordance with statutory accounting practices
prescribed or permitted by the ____________ Insurance Department, present fairly
the admitted assets, liabilities and surplus of Ceding Company at the end of
each of the periods then ended and the results of its operations and the changes
in its surplus for each of the periods then ended in conformity with accounting
practices prescribed or permitted by the ____________ Insurance Department,
applied on a consistent basis throughout the specified periods and in the
immediately prior comparable periods, except as described in such Ceding
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Company Statutory Statements and except for year end adjustments for interim
financial statements. The Schedules and schedules included in Ceding Company
Statutory Statements, when considered in relation to the requirements for Ceding
Company Statutory Statements to which they relate, present fairly in all
material respects the data purported to be shown thereby.
(h) There is no action, proceeding or investigation pending or, to the
knowledge of Ceding Company, threatened against Ceding Company before any
court,
arbitrator or administrative or government body that would (i) materially
adversely affect the Reinsured Business or the business, financial condition or
property of Ceding Company or (ii) prevent the consummation of this Agreement or
the transactions contemplated hereby or declare the same to be unlawful.
(i) No consent, authorization order or approval, or filing with any
governmental commission, board or other regulatory body is required to be
obtained or made by Ceding Company for and in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated by this Agreement.
(j) None of the statements or information contained in any
representation, warranty or covenant of Ceding Company set forth in this
Agreement contains any misstatement of a material fact or omits any statement
necessary to make the statements made not materially misleading.
ARTICLE IX
CLOSING
9.1. At the Coinsurance Date and each Assumption Date, there shall be a
closing (the "Closing") of the transactions to occur on each of such dates. The
Closing shall take place at the offices of Reinsurer, 300 W. 11th Street, Kansas
City, Missouri 64105, at 10:00 a.m. local time on the Coinsurance Date or
Assumption Date, whichever the case may be, or at such other place and time as
the parties may agree in writing.
9.2. At each Closing, Reinsurer shall deliver to Ceding Company the
following documents:
(a) The resolutions of Reinsurer's Board of Directors authorizing the
execution and delivery by Reinsurer of this Agreement and the performance by
Reinsurer of its obligations under this Agreement, certified by Reinsurer's
secretary as to the continued effectiveness of such resolutions as of each
Closing;
(b) A certificate dated as of the Closing and executed by Reinsurer
certifying that all of Reinsurer's representations and warranties contained in
this Agreement are true and accurate as of each Closing as though each of those
representations and warranties had been made on that date;
(c) The legal opinion of Reinsurer's counsel, in form and substance
reasonably satisfactory to Ceding Company, to the effect that:
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(i) Reinsurer is a corporation duly organized, validly existing
and good standing under the laws of Texas;
(ii) Reinsurer has the corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and Reinsurer has
the corporate power and authority and the requisite insurance licenses or
authority to consummate the transactions contemplated at each Closing;
(iii) This Agreement has been duly authorized, executed and delivered
by Reinsurer and approved by the Board of Directors of Reinsurer, and is
the valid and binding obligation of Reinsurer except as the same may be
limited or otherwise affected by (A) bankruptcy, insolvency, moratorium,
reorganization and similar laws of general application affecting the rights
and remedies of creditors and the obligations of debtors (including
applicable fraudulent conveyance or transfer statutes, Section 548 of the
United States Bankruptcy Code and ____________; (B) general principles of
equity (regardless of whether considered in a proceeding in equity or at
law); (C) the availability of the remedy of specific enforcement or
injunctive or other equitable relief is subject to the discretion of the
court before which any proceeding therefore may be brought; (D) obligations
of good faith, fair dealing and commercially reasonable conduct; (E)
limitations of public policy including, solely by way of example,
limitations on provisions granting to a party the right to obtain
reimbursement of its attorneys' fees and litigation costs from another
party, and limitations on the enforceability of indemnification or
contribution provisions; (F) limitations on the right of a party to
exercise rights and remedies under the Agreement for defaults by a party if
it is determined that the defaults are not material; (G) limitations on the
right of a party to exercise a right or remedy if it is determined that
such right or remedy constitutes a penalty or results in a forfeiture; (H)
limitations on prospective waiver of benefits, rights and remedies; and (I)
the assumption that there exist no agreements, understandings or
negotiations among the parties that would modify the terms of this
Agreement or the respective rights or obligations of the parties
thereunder; and
(iv) All consents, approvals and authorizations from state and
federal governmental agencies, including state insurance commissions, and
third parties, required to be obtained by Reinsurer for the consummation of
the transactions contemplated at each Closing have been obtained. In
rendering the opinions set forth in this subparagraph, Reinsurer's counsel
may, to the extent that such matters are governed by the law of the State
of Texas, rely upon the opinion of Texas counsel reasonably acceptable to
Ceding Company.
9.3. At each Closing, Ceding Company shall deliver to Reinsurer the
following documents:
(a) The resolutions of Ceding Company's Board of Directors authorizing
the execution and delivery by Ceding Company of this Agreement and the
performance by Ceding Company of its obligations under this Agreement, certified
by Ceding Company's secretary as to the continued effectiveness of such
resolutions as of each Closing;
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(b) A certificate dated as of the Closing and executed by Ceding
Company certifying that all of Ceding Company's representations and warranties
contained in this Agreement are true and accurate as of each Closing as though
each of those representations and warranties had been made on that date;
(c) The legal opinion of Ceding Company's counsel, in form and
substance reasonably satisfactory to Reinsurer, to the effect that:
(i) Ceding Company is a corporation validly existing and good
standing under the laws of ____________;
(ii) Ceding Company has the corporate power and authority to enter
into this Agreement and to perform its obligations hereunder and Ceding
Company has the corporate power and authority to consummate the
transactions contemplated at each Closing;
(iii) This Agreement has been duly authorized, executed and
delivered by Ceding Company and approved by the Board of Directors and
shareholder of Ceding Company, and is the valid and binding obligation of
Ceding Company except as the same may be limited or otherwise affected by
(A) bankruptcy, insolvency, moratorium, reorganization and similar laws of
general application affecting the rights and remedies of creditors and the
obligations of debtors (including applicable fraudulent conveyance or
transfer statutes, Section 548 of the United States Bankruptcy Code and
____________; (B) general principles of equity (regardless of whether
considered in a proceeding in equity or at law); (C) the availability of
the remedy of specific enforcement or injunctive or other equitable relief
is subject to the discretion of the court before which any proceeding
therefore may be brought; (D) obligations of good faith, fair dealing and
commercially reasonable conduct; (E) limitations of public policy
including, solely by way of example, limitations on provisions granting to
a party the right to obtain reimbursement of its attorneys' fees and
litigation costs from another party, and limitations on the enforceability
of indemnification or contribution provisions; (F) limitations on the right
of a party to exercise rights and remedies under the Agreement for defaults
by a party if it is determined that the defaults are not material; (G)
limitations on the right of a party to exercise a right or remedy if it is
determined that such right or remedy constitutes a penalty or results in a
forfeiture; (H) limitations on prospective waiver of benefits, rights and
remedies; and (I) the assumption that there exist no agreements,
understandings or negotiations among the parties that would modify the
terms of this Agreement or the respective rights or obligations of the
parties thereunder; and
(iv) All consents, approvals and authorizations from state and
federal governmental agencies, including the ____________ Department of
Insurance, and, to the knowledge of such counsel, third parties required to
be obtained by Ceding Company for the consummation of the transactions
contemplated at each Closing have been obtained.
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ARTICLE X
INSOLVENCY
10.1. Reinsurer's obligations under this Agreement shall be without
diminution and in no way be affected or diminished because of Ceding Company's
insolvency. In the event of such an insolvency and the appointment of a
conservator, liquidator or statutory successor of Ceding Company, the
reinsurance payable by Reinsurer pursuant to this Agreement shall be payable
directly to such conservator, liquidator or statutory successor immediately upon
demand on the basis of claims allowed against Ceding Company by any court of
competent jurisdiction or by any conservator, liquidator or statutory successor
of Ceding Company having authority to allow such claims, without diminution
because of such insolvency or because such conservator, liquidator or statutory
successor has failed to pay all or a portion of any claims. The conservator,
liquidator or statutory successor shall give Reinsurer written notice of the
pendency of any claims against Ceding Company with respect to the Reinsured
Business within a reasonable time after the claim is filed in an insolvency
proceeding. Reinsurer shall have the right, but at its own expense, to
investigate the claim and interpose in the name of Ceding Company, its
conservator, liquidator or statutory successor in the proceeding where the claim
is to be adjudicated, any defense or defenses that Reinsurer may deem to be
available to Ceding Company or its conservator, liquidator or statutory
successor. The expense thus incurred by Reinsurer shall be payable, subject to
court approval, out of Ceding Company's estate as part of the expense of
conservation or liquidation to the extent of a proportionate share of the
benefit that may accrue to Ceding Company in conservation or liquidation solely
as a result of the defense undertaken by Reinsurer. Any debts or credits,
matured or unmatured, liquidated or unliquidated, regardless of when they arose
or where incurred, in favor of or against either Ceding Company or Reinsurer
with respect to this Agreement are deemed to be mutual debts or creditors, as
the case may be, and shall be set off, and only the balance shall be allowed or
paid.
ARTICLE XI
RECORDS AND ACCOUNTING; COMMUNICATION TO
POLICYHOLDERS;
ANNUAL FINANCIAL STATEMENTS
11.1. Prior to an Assumption Date, Ceding Company's files, books and
records related to the Reinsured Business shall remain the sole property of
Ceding Company, and Reinsurer shall have the right at any reasonable time and
upon reasonable prior notice to take possession of and/or to inspect or to send
a representative to inspect such records, as in each case it may reasonably
request, to enable it to perform its responsibilities under this Agreement. As
soon as practicable after each Assumption Date hereunder, Ceding Company shall
transfer, convey, assign and deliver title and possession to Reinsurer of all
files, books and records related to the Reinsured Business then being assumed,
and thereafter Ceding Company shall have the right at any reasonable time and
upon reasonable prior notice to inspect or send a representative to inspect such
records for any reasonable purpose. Without limiting the generality of the
foregoing, the parties recognize that from time to time hereunder, each party
will need access to certain books and records in the custody of the other party
for, without limitation, financial reporting and tax return preparation purposes
and that, upon the
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reasonable request of a party, each party shall give to the requesting party and
its actuaries, agents, attorneys and accountants as promptly as reasonably
possible reasonable access to such books and records as the requesting party may
require for the stated purposes (including the right to make copies).
11.2. Ceding Company shall deliver to Reinsurer as promptly as
practicable after the Effective Date a complete listing of all policies in force
relating to the Reinsured Business as of the Effective Date.
11.3. After the Effective Date, Reinsurer can communicate with the
policyholders comprising the Reinsured Business in the ordinary course of
business without the consent of Ceding Company.
11.4. Reinsurer agrees that, from the Effective Date until each
Assumption Date, Reinsurer will afford to Ceding Company such access upon
reasonable notice and during normal business hours to all of the books and
records of Reinsurer relating to the Reinsured Business as Ceding Company may
reasonably request.
11.5. (a) Until all Reinsured Business has been assumed by Reinsurer
hereunder, Reinsurer shall, as soon as they are available, but in any event not
later than 90 days after the end of such accounting year, provide Ceding Company
with Reinsurer's annual convention statements for the accounting year most
recently ended. In addition not later than 100 days after the end of each
accounting year Reinsurer will provide Ceding Company its audited financial
statements for the accounting year most recently ended, or in the event
Reinsurer does not have audited separate company financial statements, the
financial statements of Reinsurer for the accounting year most recently ended
certified by the chief financial officer of Reinsurer, that the financial
information contained in the foregoing annual convention statements and audited
financial statements fairly presents the assets, liabilities, financial
condition and results of operations of Reinsurer as of the dates thereof and for
the periods covered thereby in conformity with statutory accounting practices as
prescribed by state insurance regulatory authorities, except as stated therein
or in the notes thereto.
(b) Upon delivery to Ceding Company, such financial statements shall
constitute Statutory Statements for all purposes of this Agreement, including
but not limited to Section 8.1(g).
ARTICLE XII
CONSENTS
12.01. Prior to each Assumption Date hereunder, Reinsurer shall use its
best efforts to obtain at the earliest practicable date all consents, approvals
and other authorizations required to be obtained by it for the consummation of
the transactions contemplated hereby including, without limitation, any consents
or approvals that might be required to be obtained from insurance regulatory
authorities with respect to this Agreement and the transactions contemplated
hereby, except that Ceding
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Company shall be responsible for obtaining any approvals from the ____________
Department of Insurance with respect to its obligations under this Agreement.
Ceding Company shall provide such information and documents and otherwise
cooperate as Reinsurer may reasonably request in obtaining such consents,
approvals or other authorizations.
ARTICLE XIII
TERMINATION AND ABANDONMENT
13.1. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned prior to the Coinsurance Date or
the first Assumption Date, whichever shall occur first, (a) by mutual written
consent of Reinsurer and Ceding Company; (b) by delivery of written notice from
either party to the other party if such other party fails to perform its
obligations at any Closing as contemplated by Article IX hereunder; or (c) by
Ceding Company by delivery of written notice to Reinsurer if Ceding Company
reasonably believes that Reinsurer shall be unable to assume at least 75% of the
Reinsured Business on a reserves dollars basis on or before ____________, 199_.
13.2. After the Coinsurance Date or the first Assumption Date,
whichever shall occur first:
(a) This Agreement may not be terminated with respect to any Assumed
Business, it being the intention of the parties to effect a complete novation
from Ceding Company to Reinsurer in respect of every policy and contract
included in the Assumed Business as of the relevant Assumption Date.
(b) This Agreement may be terminated and the transactions contemplated
by this Agreement may be abandoned as to any Nonassumed Business prior to any
subsequent Assumption Date (a) by mutual written consent of Reinsurer and Ceding
Company or (b) by delivery of written notice from either party to the other
party if such other party fails to perform its obligations at any Closing as
contemplated by Article IX hereunder. In the event of such termination, the
coinsurance of such Nonassumed Business shall terminate and such Nonassumed
Business shall be recaptured by Ceding Company. On the effective date of
termination, Reinsurer shall transfer, convey, assign and deliver to Ceding
Company assets satisfactory to Ceding Company in an amount equal to the Net
Amount, as such Net Amount would be calculated with respect to the recaptured
Nonassumed Business under Section 2.1(a) hereof. Reinsurer shall be obligated
to make such transfer regardless of whether assets then held under the Custodial
Account are sufficient to satisfy these transfer obligations.
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ARTICLE XIV
ARBITRATION
14.1. (a) In the event of any difference arising hereafter between
the contracting parties with reference to any transaction under this Agreement,
the same shall be referred to three arbitrators who must be executive officers
of life insurance or life reinsurance companies other than the two parties to
this Agreement or their affiliates, each of the parties to appoint one of the
arbitrators and such two arbitrators to select the third. If either party
refuses or neglects to appoint an arbitrator within 30 days after receipt of the
written request for arbitration, the initiating party may appoint a second
arbitrator.
(b) If the two arbitrators fail to agree on the selection of a third
arbitrator within 30 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision shall be made
by drawing lots.
(c) The arbitrators shall consider this Agreement not merely as a legal
document but also as a gentlemen's agreement. They shall decide by a majority
vote of the arbitrators. There shall be no appeal from their written decision,
except as permitted by applicable law.
(d) Each party shall bear the expense of its own arbitration, including
its arbitrator and outside attorney fees, and shall jointly and equally bear
with the other party the expense of the third arbitrator. Any remaining costs
of the arbitration proceedings shall be apportioned by the three arbitrators.
(e) The arbitration proceedings shall be conducted in accordance with
the rules of the American Arbitration Association except that the parties shall
be entitled to take discovery as provided under Federal Rules of Civil Procedure
Nos. 28 through 36 during a period of 60 days after the final arbitrator is
appointed and the arbitrators shall have the power to issue subpoenas, compel
discovery, award sanctions, and grant injunctive relief. The arbitrators shall
be entitled to retain a lawyer to advise them as to legal matters, but such
lawyer shall have none of the relationships to either of the parties that are
proscribed above for arbitrators. The arbitration hearings shall commence no
sooner than 90 days after the date the final arbitrator is appointed and not
later than 120 days after such date. The arbitration hearing shall be conducted
during normal working hours on business days without interruption or adjournment
of more than two days at any one time or six days in the aggregate. The
arbitrators shall deliver to the parties their decision in writing within 10
days after the conclusion of the arbitration hearing.
(f) Any arbitration instituted pursuant to this section shall be held
in ____________, or such other place that is mutually agreeable to the parties,
with the precise location being as agreed upon by the parties or, absent such
agreement, at a location designated by the American Arbitration Association
resident manager in ____________.
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(g) Notwithstanding any other provision of this Section, nothing
contained in this Agreement shall require arbitration of any issue for which
injunctive relief is properly sought by either party to this Agreement.
(h) Notwithstanding any other provision of this Article XIV, if
Reinsurer seeks, consents to, or acquiesces in the appointment of or otherwise
becomes subject to any trustee, receiver, liquidator or conservator (including
any state insurance regulatory agency acting in such a capacity), Ceding Company
shall not be obligated to resolve any claim, dispute or cause of action under
this Agreement by arbitration and may elect to bring any action with respect to
such claim, dispute or cause of action in any court of competent jurisdiction.
ARTICLE XV
INDEMNIFICATION
15.1. Reinsurer shall indemnify, defend, save and hold Ceding Company
harmless from and against any and all damage, liability, loss, expense,
assessment, judgment or deficiency of any nature whatsoever (including, without
limitation, reasonable attorneys' fees, costs of investigation and other costs
and expenses incident to any suit, action or proceeding) (together, "Losses")
incurred or sustained by Ceding Company that arise out of or result from any
breach of any agreement to be performed by Reinsurer under this Agreement
(regardless of when such agreements are to be performed). Additionally,
Reinsurer shall indemnify, defend, save and hold Ceding Company harmless from
and against any Losses that Ceding Company may incur with respect to the
Reinsured Business after the Coinsurance Date or the first Assumption Date,
whichever shall occur first, including, without limitation, Losses arising in
the ordinary course of business in the Reinsured Business under any contractual
or other obligation ceded to or accepted by Reinsurer pursuant to this Agreement
or arising out of Reinsurer's conduct with regard to the Reinsured Business,
including punitive damages as a result of such conduct.
15.2. Ceding Company shall indemnify, defend, save and hold Reinsurer
harmless from and against any and all Losses incurred or sustained by Reinsurer
that arise out of or result from any breach of any agreement to be performed by
Ceding Company under this Agreement (regardless of when such agreements are to
be performed).
15.3. Promptly after service of notice of any claim or of process by
any third person in any matter in respect of which indemnity may be sought from
the other party pursuant to this Agreement, the party so served shall notify the
indemnifying party of the receipt thereof. The indemnifying party shall have
the right to participate in or assume, each at its own expense, the defense of
any such claim or process or settlement thereof. After notice from the
indemnifying party of its election to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party for any legal
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or other expense in connection with such defense. Such defense shall be
conducted expeditiously (but with due regard for obtaining the most favorable
outcome reasonably likely under the circumstances, taking into account costs and
expenditures) and the indemnified party shall be advised promptly of all
developments.
Notwithstanding the foregoing, with respect to any matter that is the
subject of any such claim and as to which the indemnified party fails to give
the other party such notice as aforesaid, and such failure adversely affects the
ability of the indemnifying party to defend such claim or materially increases
the amount of indemnification that the indemnifying party is obligated to pay
under this Agreement, the amount of indemnification that the indemnified party
shall be entitled to receive shall be reduced to an amount that the indemnified
party would have been entitled to receive had such notice been timely given. No
settlement of any such claim as to which the indemnifying party has not elected
to assume the defense thereof shall be made without the prior written consent of
the indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1. Each of Ceding Company and Reinsurer represents and warrants to
the other that it has not incurred or agreed to pay any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other like payment in connection with this Agreement or the transactions
contemplated hereby. Each party agrees to indemnify and hold the other harmless
against and in respect of its representations and warranties set forth in this
Section.
16.2. Reinsurer and Ceding Company, by mutual consent, may amend,
modify or supplement this Agreement only by an instrument in writing signed on
behalf of each of the parties hereto.
16.3. Each party to this Agreement may, by written notice to the other
party specifically referring to this Agreement and to the provision being
waived, and only by such written notice, (a) waive any inaccuracies in the
representations or warranties of any other party contained in this Agreement or
in any document delivered pursuant to this Agreement and (b) waive compliance
with any of the covenants or any of the obligations of any other party. The
waiver by any party hereto to a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
16.4. All notices, requests, demands and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been
given if delivered by hand or mailed, certified or registered mail with postage
prepaid:
(a) If to Ceding Company, to:
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Fremont Life Insurance Company
Attn: ____________________
790 The City Drive South, Suite 210
Orange, California 92668
FAX: (310) 315-5593
with a copy to:
____________________
Attn: _______________
____________________
____________________
FAX: ______________
(b) If to Reinsurer, to:
Great Southern Life Insurance Company
Attn: Mr. Gary L. Muller
300 West 11th Street
Kansas City, Missouri 64105
FAX: (816) 391-2018
with a copy to:
Thomas M. Higgins, III, Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard
Kansas City, MO 64108
FAX: (816) 292-2005
or to such other person or address as either party shall furnish the other party
in writing.
16.5. Whether or not the transfer is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
16.6. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The obligations of Reinsurer hereunder may not be
assigned without the prior written consent of Ceding Company.
16.7. This Agreement and the legal relations between the parties hereto
shall be governed by and construed in accordance with the substantive laws
(excluding provisions relating to choice of law) of the State of Missouri.
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16.8. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.9. This Agreement, including the Schedules attached hereto, embodies
the entire agreement and understanding of the parties hereto in respect of the
subject matter hereof. There are no restrictions, promises, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
16.10. Nothing in this Agreement is intended for the benefit of any
persons other than the parties hereto, their successors and assigns and, if the
transactions contemplated under this Agreement are consummated, the holders and
beneficiaries under the policies which constitute the Reinsured Business.
16.11. Should Ceding Company fail to cede reinsurance that otherwise
would have been ceded in accordance with the provisions of this Agreement, or
should either Ceding Company or Reinsurer fail to comply with any of the other
terms of this Agreement, and if this is shown to be unintentional and the result
of a misunderstanding, oversight, or clerical error on the part of either, then
this Agreement shall not be deemed abrogated thereby, but both parties shall be
restored to the position they would have occupied had no such oversight,
misunderstanding, or clerical error occurred.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION THAT
MAY BE ENFORCED
BY THE PARTIES.
CEDING COMPANY: FREMONT LIFE INSURANCE COMPANY
By_______________________________
Name__________________________
Title________________________
REINSURER: GREAT SOUTHERN LIFE INSURANCE
COMPANY
By_______________________________
Name__________________________
Title________________________
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SCHEDULE A
REINSURED BUSINESS
22
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SCHEDULE B
THE REINSURANCE AGREEMENTS
23
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SCHEDULE C
THE ASSUMPTION CERTIFICATE
24
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SCHEDULE D
NOTICE OF TRANSFER
25
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SCHEDULE E
LICENSING OF REINSURER
26
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SCHEDULE F
REINSURER'S FINANCIAL STATEMENTS
27
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SCHEDULE G
REINSURER'S REINSURANCE AGREEMENTS
28
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SCHEDULE H
LICENSING OF CEDING COMPANY
29
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SCHEDULE I
CEDING COMPANY'S FINANCIAL STATEMENTS
30
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<PAGE>
ASSUMPTION REINSURANCE AGREEMENT
(ANNUITIES)
This Assumption Reinsurance Agreement (the "Agreement") is made this ____
day of February, 1996 (the "Effective Date"), by and between FREMONT LIFE
INSURANCE COMPANY, a California stock life insurance company ("Ceding
Company"),
and GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas stock life insurance
company
("Reinsurer").
WHEREAS, Ceding Company has ceded on a 100% coinsurance basis a certain
block of its annuity and other insurance business to Employers Reassurance
Corporation ("ERC") pursuant to an Automatic Coinsurance Annuity Reinsurance
Agreement (the "Fremont Life-ERC Reinsurance Agreement (Annuities)"); and
WHEREAS, ERC has ceded on a 100% coinsurance basis the aforesaid block of
business to Reinsurer pursuant to a Modified Coinsurance Life and Annuity
Retrocession Agreement (the "Retrocession Agreement"); and
WHEREAS, on the Assumption Date (as that term is defined herein), Ceding
Company desires to transfer all of the aforesaid block of business and such
other of its insurance business, which is more fully described on the attached
Schedule A, which is incorporated herein by this reference (the "Reinsured
Business"), to Reinsurer (a) on a coinsurance basis effective as of the
Effective Date and (b) on an assumption reinsurance basis effective as of the
Assumption Date (as such term is defined herein); and
WHEREAS, Reinsurer desires to assume all of the rights and obligations
related to the Reinsured Business on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
COINSURANCE
1.1. As of the Effective Date, Ceding Company shall cede and Reinsurer
shall reinsure all of the Reinsured Business on a 100% coinsurance basis
modified by the terms of this Agreement. All Nonassumed Business shall remain
subject to Section 5.2 hereof, and after an Assumption Date, the reinsurance as
to the relevant portion of the Nonassumed Business shall be on an assumption
basis as provided for herein, the coinsurance provided for herein shall
automatically terminate and the assumed portion of the Nonassumed Business shall
be deemed to be Assumed Business for all purposes under this Agreement.
<PAGE>
1.2. As of the Effective Date, Reinsurer shall be responsible for all
(100%) of the obligations and liabilities under the Reinsured Business.
1.3. Reinsurer shall be entitled to receive the net cash flow with respect
to the Reinsured Business from and after the Effective Date. For the purposes
of this Agreement, the term "net cash flow" shall mean the sum of the following,
net of amounts due to or from reinsurers, (a) collected premiums, net of premium
refunds, less (b) commissions paid, less (c) benefits paid, less
(d) administration expenses, (including but not limited to premium taxes, agent
licensing fees and guaranty fund assessments) plus or minus, respectively,
(e) any decrease or increase in policy loans.
1.4. The coinsurance pursuant to Article I shall continue in perpetuity as
to that part of the Reinsured Business that has not been assumed pursuant to the
terms of this Agreement, until such time as it is assumed or the underlying
policies or contracts lapse or otherwise terminate.
1.5. The parties shall provide a quarterly accounting and cash settlement
to each other of the coinsurance transactions hereof, in such form and
containing such information as either party may reasonably request, but such
quarterly accounting and cash settlement shall terminate with respect to any
portion of the Reinsured Business that is eventually assumed hereunder.
1.6. From and after the Effective Date:
(a) Reinsurer shall maintain reserves with respect to the Reinsured
Business in accordance with all requirements of law and commonly accepted
actuarial principles applied in a manner consistent with their application
immediately prior to the transfer of the Reinsured Business pursuant to this
Agreement or, in the event of changes in such principles or applicable law
having the effect of requiring greater reserves, in accordance with such
changes;
(b) Reinsurer shall conduct the Reinsured Business in accordance
with generally accepted business practices for the reinsurance industry, all
applicable law and the requirements of the reinsured policies;
(c) Reinsurer shall maintain statutory capital and surplus
(consisting of cash and securities valued as determined in accordance with
principles and practices required by the Texas Department of Insurance) of not
less than the amount necessary to comply with the law of the State of Texas for
an insurance company writing the lines of business being written by Reinsurer;
(d) Reinsurer shall have the authority to take any and all action
with respect to, and shall assume the sole risk and liability for, any matter
relating to risk management and policy administration, to the extent such
authority may be granted by Ceding Company pursuant to applicable law, including
but not limited to policy changes, reinstatement standards, premium rate
changes, policy renewals, issuance of conversion policies, agents' commissions
and administrative methods and procedures;
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(e) Reinsurer shall bear all expenses arising after the Effective
Date including premium taxes and reasonable audit expenses incurred in
connection with the administration of the Reinsured Business;
(f) Reinsurer shall have authority and discretion with respect to
all matters relating to claim settlement and litigation concerning the Reinsured
Business, including, but not limited to, the selection of counsel; and
(g) Reinsurer shall bear all expenses incurred in connection with
settling claims and litigating claims relating to the Reinsured Business,
including, but not limited to, the cost of routine investigations, legal fees
and interest charges.
1.7. (a) Reinsurer shall indemnify, defend and hold harmless Ceding
Company against and in respect of any and all claims, demands, threats, losses,
costs, expenses, liabilities and damages, including interest, penalties,
attorneys' fees, court costs and amounts paid in settlement, that Ceding Company
shall incur or suffer, that arise, result from or relate to any failure by ERC
to perform its duties under the Fremont Life-ERC Reinsurance Agreement
(Annuities), subject to the following:
(i) Ceding Company shall assign to Reinsurer all of Ceding
Company's rights against ERC under the Fremont Life-ERC Reinsurance Agreement
(Annuities) with respect to such failure to perform by ERC. Ceding Company
shall fully cooperate with Reinsurer in any action by Reinsurer against ERC
regarding such failure to perform by ERC, and any action may be brought by
Reinsurer in Ceding Company's name.
(ii) If it is finally determined in any proceeding regarding
such failure to perform by ERC that ERC's failure to perform was justified in
whole or in part because of Ceding Company's breach of the Fremont Life-ERC
Reinsurance Agreement (Annuities), then Reinsurer's indemnification obligation
shall terminate and Ceding Company shall reimburse for any amounts Reinsurer
expended indemnifying Ceding Company with respect to ERC's failure to perform.
(b) Ceding Company shall promptly notify Reinsurer of the existence
of any claim, demand or other matter to which Reinsurer's indemnification obli-
gations under this Agreement would apply, and shall give Reinsurer a reasonable
opportunity to defend the same at its own expense and with counsel of its own
selection; provided, Ceding Company shall at all times also have the right to
fully participate in the defense at its own expense. If Reinsurer shall, within
a reasonable time after this notice, fail to defend, Ceding Company shall have
the right, but not the obligation, to undertake the defense of, and to com-
promise or settle, the claim or other matter on behalf, for the account, and at
the risk, of Reinsurer.
(c) This Section 1.7 shall terminate as of the Assumption Date;
provided, that it shall survive as to any matters as to which Ceding Company has
provided notice to Reinsurer prior to the Assumption Date.
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ARTICLE II
TRANSFER OF RESERVES
2.1. On the Effective Date, and in consideration of the coinsurance by
Reinsurer of the Reinsured Business, Ceding Company shall transfer, assign and
deliver to Reinsurer all of Ceding Company's right, title and interest in assets
that consist of (i) the policy loans, policy liens and due and deferred premiums
with respect to the Reinsured Business (collectively, the "Policyholder Assets")
and (ii) an amount of cash or securities equal to the sum of (A) the statutory
reserves and liabilities net of reinsurance ceded as of the Effective Date
required to be established in the manner prescribed for the preparation of
Ceding Company's annual statements in Exhibits 8, 9, 10 and 11 thereof, plus
(B) any other liabilities net of reinsurance ceded as of the Effective Date with
respect to the Reinsured Business required to be reflected on Page 3 thereof,
less (C) Policyholder Assets (the net amount resulting from the foregoing
calculation being the "Net Amount").
ARTICLE III
TRANSFER OF POLICY LIABILITIES
3.1. As of the Effective Date, Reinsurer shall become the successor to
Ceding Company and Reinsurer shall assume full and complete liability for:
(a) the payment of all claims for benefits incurred on or after the
Effective Date in connection with the Reinsured Business;
(b) the payment of all claims for benefits incurred prior to the
Effective Date in connection with the Reinsured Business, but not yet paid
(reported or not); and
(c) all other liabilities, claims and expenses of any kind or type
whatsoever arising on or after the Effective Date, including but not limited to
claims for damages or losses, including but not limited to punitive or extra
contractual damages, incurred in connection with the administration of the
Reinsured Business or in adjusting, denying, resisting or defending any claims
on and after the Effective Date.
3.2. Upon assumption of a policy or contract included in the Reinsured
Business, Reinsurer will be the primary insurer of the risks covered thereby,
completely replacing Ceding Company (such assumed policies and contracts being
referred to herein as the "Assumed Business"). It is the intention of the
parties to effect a complete novation from Ceding Company to Reinsurer in
respect of every policy and contract included in the Assumed Business as of the
Assumption Date, so that Ceding Company shall have no further obligations with
respect to such Assumed Business.
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3.3. Premiums due or paid with respect to the Reinsured Business on and
after the Effective Date, and any loan repayments (and interest payments
thereon) made on the Reinsured Business on and after the Effective Date, shall
be the sole property of Reinsurer. From and after the Effective Date, all
policyholders under the Reinsured Business shall pay all premiums and make any
loan repayments (and interest payments thereon) on their policies directly to
Reinsurer. All moneys, checks, drafts, orders or other instruments received by
Ceding Company after the Effective Date for premiums related to the Reinsured
Business shall be transferred and delivered to Reinsurer, and any such
instruments when so delivered shall bear all indorsements required to effect
such transfer and delivery. Reinsurer shall pay all premium taxes as may be
required by law on premiums related to the Reinsured Business received on or
after the Effective Date.
3.4. Reinsurer shall be authorized to make any defense at law or in
equity to any action or claim instituted or made under the Reinsured Business to
any action or claim instituted or made under the Reinsured Business that might
or could have been made by Ceding Company had this Agreement not been
executed.
All of the provisions, conditions, limitations and exclusions contained in the
policies and contracts comprising the Reinsured Business shall remain in effect
notwithstanding the assumption of such policies and contracts by Reinsurer
hereunder.
ARTICLE IV
ASSUMPTION
4.1. On the Assumption Date, Ceding Company shall cede all of its right,
title and interest in and to the Reinsured Business to Reinsurer and Reinsurer
shall assume all (100%) of Ceding Company's obligations and liabilities under
the Reinsured Business, subject to the terms and conditions set forth herein.
4.2 All liabilities assumed by Reinsurer with respect to the Reinsured
Business are subject in all respects to the same terms, conditions,
interpretations, waivers, modifications, alterations and cancellations as the
policies issued with respect to the Reinsured Business. Reinsurer accepts and
assumes such liabilities subject to all defenses, set-offs and counterclaims to
which Ceding Company would be entitled with respect to the Reinsured Business.
On the assumption date, Reinsurer shall be the successor to Ceding Company
under the policies issued with respect to the Reinsured Business. Such policies
shall be the direct obligations of Reinsurer, and the Ceding Company shall have
no liabilities therefor. Reinsurer shall substitute itself in the place of
Ceding Company as if named in the place of Ceding Company. The Insureds (as
defined below) shall thereafter disregard Ceding Company as a party to such
policies. For the purposes of this Agreement, "Insured" or "Insureds" shall
mean any person or entity entitled to claim or receive benefits under any policy
issued with respect to the Reinsured Business. After the
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assumption date, the Insureds shall have (i) the right to file claims arising
under the Reinsured Business directly with Reinsurer and (ii) a direct right of
action against the Reinsurer and the Reinsurer hereby consents to be subject to
direct action taken by any Insured with respect to claims after the Assumption
Date. The rights of any Insured shall be limited and consist of those rights
set forth in the policies issued with respect to the Reinsured Business and
Insureds shall not have the right to receive a greater amount under such policy
than such Insured would have had in the absence of this Agreement.
ARTICLE V
ASSUMPTION DATE
5.1. The term "Assumption Date" as used herein shall mean that date on
which Reinsurer has obtained approval to assume all or part of the Reinsured
Business, which date shall not be later than December 31, 1996.
5.2. If any portion of the Reinsured Business has not been assumed by
Reinsurer as of the Assumption Date (all Reinsured Business hereunder being
referred to as the "Nonassumed Business" until such business has been assumed),
then (a) such portion of the Reinsured Business shall remain subject to
Article I hereof and (b) Reinsurer shall continue to use its best efforts to
effect an assumption thereof as quickly as possible. If, from time to time and
at any time after the Assumption Date, Reinsurer becomes capable of assuming all
or any portion of the Nonassumed Business, then Reinsurer shall effect the
assumption at the earliest possible date by giving Ceding Company written notice
thereof, and each such date also shall constitute an "Assumption Date" for
purposes of this Agreement.
ARTICLE VI
ASSUMPTION CERTIFICATES
6.1. As soon as possible after each Assumption Date and subject to
applicable regulatory approval, if any, and at the sole cost and expense of
Reinsurer, Reinsurer shall issue to each policyholder of the Assumed Business an
assumption certificate in the form set forth in the attached Schedule B, which
is incorporated herein by this reference (the "Assumption Certificate").
Notwithstanding the foregoing, (a) if the consent of the policyholders to the
assumption is required by applicable law or regulation, a notice of transfer
shall be first sent in the form set out in the attached Schedule C, which is
incorporated herein by this reference (the "Notice of Transfer"), and the
required consent obtained, and (b) the form of Assumption Certificate or Notice
of Transfer may be amended if such amendment is required to obtain required
regulatory approval or is otherwise appropriate under the circumstances.
Reinsurer and Ceding Company shall cooperate with one
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another in securing such required regulatory approval and amending the
Assumption Certificate or Notice of Transfer, whichever the case may be.
6.2. From time to time after any one or more Assumption Dates, without
further consideration, Reinsurer shall execute and deliver such other
instruments of assumption, conveyance, assignment, transfer and delivery, and
take such other action as Ceding Company reasonably requests, to more
effectively accomplish the assumption of the Reinsured Business contemplated
herein. Such instruments shall not impose upon Reinsurer any obligation,
liability or risk not contemplated by this Agreement.
ARTICLE VII
EFFECT ON EXISTING REINSURANCE
7.1. The attached Schedule D, which is incorporated herein by this
reference, contains a list of all reinsurance agreements in effect as of the
Effective Date between Ceding Company and any assuming or ceding reinsurer (the
"Reinsurance Agreements"). It is the intention of the parties that Reinsurer
shall be substituted for and succeed to all of the rights and liabilities of
Ceding Company under the Reinsurance Agreements as of the Assumption Date.
Reinsurer shall be wholly and solely responsible for effecting its substitution
under each Reinsurance Agreement and the continuation of each Reinsurance
Agreement after the Assumption Date. The collectibility of reinsurance under
the Reinsurance Agreements shall be at the sole risk and for the account of
Reinsurer at and after the Assumption Date.
7.2. As of the Assumption Date, Reinsurer shall be substituted for and
shall succeed to all of the rights and liabilities of Ceding Company under the
Fremont Life-ERC Reinsurance Agreement (Annuities) with respect to the Reinsured
Business. Reinsurer shall be wholly and solely responsible for effecting such
substitution under the Fremont Life-ERC Reinsurance Agreement (Annuities) and
for the continuation of the Fremont Life-ERC Reinsurance Agreement (Annuities)
after the Assumption Date. The collectibility of reinsurance under the Fremont
Life-ERC Reinsurance Agreement (Annuities) shall be at the sole risk and for the
account of Reinsurer at and after the Assumption Date.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. At the Effective Date, Reinsurer represents and warrants to Ceding
Company as set forth in Article III of that certain Master Agreement dated as of
February 26, 1996, among Americo Life, Inc., Reinsurer, Fremont General Corp.
and Ceding Company (as amended or modified, the
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"Master Agreement"), to extent the representations and warranties set forth in
such Article III pertain to Reinsurer. Such representations and warranties,
together with the schedules attached to the Master Agreement that pertain
thereto, are hereby incorporated herein by this reference.
8.2. At the Effective Date, Ceding Company represents and warrants to
Reinsurer as set forth in Article II of the Master Agreement, to the extent the
representations and warranties set forth in such Article II pertain to Ceding
Company or the Reinsured Business. Such representations and warranties,
together with the schedules attached to the Master Agreement that pertain
thereto, are hereby incorporated herein by this reference.
ARTICLE IX
INSOLVENCY
9.1. Reinsurer's obligations under this Agreement shall be without
diminution and in no way be affected or diminished because of Ceding Company's
insolvency. In the event of such an insolvency and the appointment of a
conservator, liquidator or statutory successor of Ceding Company, the
reinsurance payable by Reinsurer pursuant to this Agreement shall be payable
directly to such conservator, liquidator or statutory successor immediately upon
demand on the basis of claims allowed against Ceding Company by any court of
competent jurisdiction or by any conservator, liquidator or statutory successor
of Ceding Company having authority to allow such claims, without diminution
because of such insolvency or because such conservator, liquidator or statutory
successor has failed to pay all or a portion of any claims. The conservator,
liquidator or statutory successor shall give Reinsurer written notice of the
pendency of any claims against Ceding Company with respect to the Reinsured
Business within a reasonable time after the claim is filed in an insolvency
proceeding. Reinsurer shall have the right, but at its own expense, to
investigate the claim and interpose in the name of Ceding Company, its
conservator, liquidator or statutory successor in the proceeding where the claim
is to be adjudicated, any defense or defenses that Reinsurer may deem to be
available to Ceding Company or its conservator, liquidator or statutory
successor. The expense thus incurred by Reinsurer shall be payable, subject to
court approval, out of Ceding Company's estate as part of the expense of
conservation or liquidation to the extent of a proportionate share of the
benefit that may accrue to Ceding Company in conservation or liquidation solely
as a result of the defense undertaken by Reinsurer. Any debts or credits,
matured or unmatured, liquidated or unliquidated, regardless of when they arose
or where incurred, in favor of or against either Ceding Company or Reinsurer
with respect to this Agreement are deemed to be
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mutual debts or creditors, as the case may be, and shall be set off, and only
the balance shall be allowed or paid.
ARTICLE X
RECORDS AND ACCOUNTING; COMMUNICATION TO
POLICYHOLDERS;
ANNUAL FINANCIAL STATEMENTS
10.1. As soon as practicable after the Effective Date, Ceding Company
shall transfer, convey, assign and deliver title and possession to Reinsurer of
all files, books and records related to the Reinsured Business. The parties
recognize that from time to time hereunder, each party will need access to
certain books and records in the custody of the other party for, without
limitation, financial reporting and tax return preparation purposes and that,
upon the reasonable request of a party, each party shall give to the requesting
party and its actuaries, agents, attorneys and accountants as promptly as
reasonably possible reasonable access to such books and records as the
requesting party may require for the stated purposes (including the right to
make copies).
10.2. Ceding Company shall deliver to Reinsurer as promptly as practicable
after the Effective Date a complete listing of all policies in force relating to
the Reinsured Business as of the Effective Date.
10.3. After the Effective Date, Reinsurer can communicate with the
policyholders comprising the Reinsured Business in the ordinary course of
business without the consent of Ceding Company.
10.4. Reinsurer agrees that, from the Effective Date until each Assumption
Date, Reinsurer will afford to Ceding Company such access upon reasonable notice
and during normal business hours to all of the books and records of Reinsurer
relating to the Nonassumed Business as Ceding Company may reasonably request.
10.5. (a) Until all Reinsured Business has been assumed by Reinsurer
hereunder, Reinsurer shall, as soon as they are available, but in any event not
later than 90 days after the end of such accounting year, provide Ceding Company
with Reinsurer's annual convention statements for the accounting year most
recently ended. In addition not later than 100 days after the end of each
accounting year Reinsurer will provide Ceding Company its audited financial
statements for the accounting year most recently ended, or in the event
Reinsurer does not have audited separate company financial statements, the
financial statements of Reinsurer for the accounting year most recently ended
certified by the chief financial officer of Reinsurer, that the financial
information contained in the foregoing annual convention statements and audited
financial statements fairly presents the assets, liabilities, financial
condition and results of operations of Reinsurer as of the dates thereof and for
the periods covered thereby in conformity with statutory accounting practices
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as prescribed by Texas insurance regulatory authorities, except as stated
therein or in the notes thereto.
(b) Upon delivery to Ceding Company, such financial statements shall
constitute Statutory Statements for all purposes of this Agreement, including
but not limited to Section 8.1.
ARTICLE XI
CONSENTS
11.01. Prior to each Assumption Date hereunder, Reinsurer shall use its
best efforts to obtain at the earliest practicable date all consents, approvals
and other authorizations required to be obtained by it for the consummation of
the transactions contemplated hereby including, without limitation, any consents
or approvals that might be required to be obtained from insurance regulatory
authorities with respect to this Agreement and the transactions contemplated
hereby, except that Ceding Company shall be responsible for obtaining any
approvals from the California Department of Insurance with respect to its
obligations under this Agreement. Ceding Company shall provide such information
and documents and otherwise cooperate as Reinsurer may reasonably request in
obtaining such consents, approvals or other authorizations.
ARTICLE XII
TERMINATION AND ABANDONMENT
12.1. This Agreement may be terminated and the transactions contemplated by
this Agreement may be abandoned prior to the first Assumption Date by mutual
written consent of Reinsurer and Ceding Company.
12.2. After the first Assumption Date:
(a) This Agreement may not be terminated with respect to any Assumed
Business, it being the intention of the parties to effect a complete novation
from Ceding Company to Reinsurer in respect of every policy and contract
included in the Assumed Business as of the relevant Assumption Date.
(b) This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned as to any Nonassumed Business
prior to any subsequent Assumption Date by mutual written consent of Reinsurer
and Ceding Company. In the event of such termination, the coinsurance of such
Nonassumed Business shall terminate and such Nonassumed Business shall be
recaptured by Ceding Company. On the effective date of termination, Reinsurer
shall transfer, convey, assign and deliver to Ceding Company assets satisfactory
to Ceding Company in an amount
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equal to the Net Amount, as such Net Amount would be calculated with respect to
the recaptured Nonassumed Business under Section 2.1(a) hereof.
ARTICLE XIII
ARBITRATION
13.1. (a) In the event of any difference arising hereafter between the
contracting parties with reference to any transaction under this Agreement, the
same shall be referred to three arbitrators who must be executive officers of
life insurance or life reinsurance companies other than the two parties to this
Agreement or their affiliates, each of the parties to appoint one of the
arbitrators and such two arbitrators to select the third. If either party
refuses or neglects to appoint an arbitrator within 30 days after receipt of the
written request for arbitration, the initiating party may appoint a second
arbitrator.
(b) If the two arbitrators fail to agree on the selection of a third
arbitrator within 30 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision shall be made
by drawing lots.
(c) The arbitrators shall consider this Agreement not merely as a
legal document but also as a gentlemen's agreement. They shall decide by a
majority vote of the arbitrators. There shall be no appeal from their written
decision, except as permitted by applicable law.
(d) Each party shall bear the expense of its own arbitration,
including its arbitrator and outside attorney fees, and shall jointly and
equally bear with the other party the expense of the third arbitrator. Any
remaining costs of the arbitration proceedings shall be apportioned by the three
arbitrators.
(e) The arbitration proceedings shall be conducted in accordance
with the rules of the American Arbitration Association except that the parties
shall be entitled to take discovery as provided under Federal Rules of Civil
Procedure Nos. 28 through 36 during a period of 60 days after the final
arbitrator is appointed and the arbitrators shall have the power to issue
subpoenas, compel discovery, award sanctions, and grant injunctive relief. The
arbitrators shall be entitled to retain a lawyer to advise them as to legal
matters, but such lawyer shall have none of the relationships to either of the
parties that are proscribed above for arbitrators. The arbitration hearings
shall commence no sooner than 90 days after the date the final arbitrator is
appointed and not later than 120 days after such date. The arbitration hearing
shall be conducted during normal working hours on business days without
interruption or adjournment of more than two days at any one time or six days in
the aggregate. The arbitrators shall deliver to the parties their decision in
writing within 10 days after the conclusion of the arbitration hearing.
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(f) Any arbitration instituted pursuant to this section shall be
held in Kansas City, Missouri, or such other place that is mutually agreeable to
the parties, with the precise location being as agreed upon by the parties or,
absent such agreement, at a location designated by the American Arbitration
Association resident manager in Kansas City, Missouri.
(g) Notwithstanding any other provision of this Section, nothing
contained in this Agreement shall require arbitration of any issue for which
injunctive relief is properly sought by either party to this Agreement.
(h) Notwithstanding any other provision of this Article XIII, if
Reinsurer seeks, consents to, or acquiesces in the appointment of or otherwise
becomes subject to any trustee, receiver, liquidator or conservator (including
any state insurance regulatory agency acting in such a capacity), Ceding Company
shall not be obligated to resolve any claim, dispute or cause of action under
this Agreement by arbitration and may elect to bring any action with respect to
such claim, dispute or cause of action in any court of competent jurisdiction.
ARTICLE XIV
INDEMNIFICATION
14.1. Reinsurer shall indemnify, defend, save and hold Ceding Company
harmless from and against any and all damage, liability, loss, expense,
assessment, judgment or deficiency of any nature whatsoever (including, without
limitation, reasonable attorneys' fees, costs of investigation and other costs
and expenses incident to any suit, action or proceeding) (together, "Losses")
incurred or sustained by Ceding Company that arise out of or result from any
breach of any agreement to be performed by Reinsurer under this Agreement
(regardless of when such agreements are to be performed). Additionally,
Reinsurer shall indemnify, defend, save and hold Ceding Company harmless from
and against any Losses that Ceding Company may incur with respect to the
Reinsured Business after the Effective Date, including, without limitation,
Losses arising in the ordinary course of business in the Reinsured Business
under any contractual or other obligation ceded to or accepted by Reinsurer
pursuant to this Agreement or arising out of Reinsurer's conduct with regard to
the Reinsured Business, including punitive damages as a result of such conduct.
14.2. Ceding Company shall indemnify, defend, save and hold Reinsurer
harmless from and against any and all Losses incurred or sustained by Reinsurer
that arise out of or result from any breach of any agreement to be performed by
Ceding Company under this Agreement (regardless of when such agreements are to
be performed).
14.3. Promptly after service of notice of any claim or of process by any
third person in any matter in respect of which indemnity may be sought from the
other party pursuant to this Agreement, the party so served shall notify the
indemnifying party of the receipt thereof. The indemnifying party shall have
the right to participate in or assume, each at its own expense, the defense of
any such claim or process or settlement thereof. After notice from the
indemnifying party of its election to assume the defense thereof, the
indemnifying party shall not be liable to the indemnified party for any legal or
other expense in connection with such defense. Such defense shall be conducted
expeditiously (but with due regard for obtaining the most favorable outcome
reasonably likely under the circumstances, taking into account costs and
expenditures) and the indemnified party shall be advised promptly of all
developments.
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Notwithstanding the foregoing, with respect to any matter that is the
subject of any such claim and as to which the indemnified party fails to give
the other party such notice as aforesaid, and such failure adversely affects the
ability of the indemnifying party to defend such claim or materially increases
the amount of indemnification that the indemnifying party is obligated to pay
under this Agreement, the amount of indemnification that the indemnified party
shall be entitled to receive shall be reduced to an amount that the indemnified
party would have been entitled to receive had such notice been timely given. No
settlement of any such claim as to which the indemnifying party has not elected
to assume the defense thereof shall be made without the prior written consent of
the indemnifying party, which consent shall not be unreasonably withheld or
delayed.
ARTICLE XV
MISCELLANEOUS PROVISIONS
15.1. Reinsurer and Ceding Company, by mutual consent, may amend, modify
or supplement this Agreement only by an instrument in writing signed on behalf
of each of the parties hereto.
15.2. Each party to this Agreement may, by written notice to the other
party specifically referring to this Agreement and to the provision being
waived, and only by such written notice, (a) waive any inaccuracies in the
representations or warranties of any other party contained in this Agreement or
in any document delivered pursuant to this Agreement and (b) waive compliance
with any of the covenants or any of the obligations of any other party. The
waiver by any party hereto to a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
15.3. All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been given
if delivered by hand or mailed, certified or registered mail with postage
prepaid:
(a) If to Ceding Company, to:
Fremont Life Insurance Company
Attn: Robert C. Pfeil, Jr.
790 The City Drive South, Suite 210
Orange, California 92668
FAX: (310) 315-5593
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with a copy to:
Fremont General Corp.
Attn: Alan W. Faigin, Esq.
2020 Santa Monica Boulevard
Santa Monica, California 90404
FAX: (310) 315-5593
(b) If to Reinsurer, to:
Great Southern Life Insurance Company
Attn: Mr. Gary L. Muller
300 West 11th Street
Kansas City, Missouri 64105
FAX: (816) 391-2018
with a copy to:
Thomas M. Higgins, III, Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard
Kansas City, MO 64108
FAX: (816) 292-2005
or to such other person or address as either party shall furnish the other party
in writing.
15.5. Whether or not the transfer is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
15.6. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The obligations of Reinsurer hereunder may not be
assigned without the prior written consent of Ceding Company.
15.7. This Agreement and the legal relations between the parties hereto
shall be governed by and construed in accordance with the substantive laws
(excluding provisions relating to choice of law) of the State of Missouri.
15.8. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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15.9. This Agreement, including the Schedules and Exhibits attached
hereto, embodies the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof. There are no restrictions, promises,
warranties, covenants or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
15.10. Nothing in this Agreement is intended for the benefit of any persons
other than the parties hereto, their successors and assigns and, if the
transactions contemplated under this Agreement are consummated, the holders and
beneficiaries under the policies which constitute the Reinsured Business.
15.11. Should Ceding Company fail to cede reinsurance that otherwise would
have been ceded in accordance with the provisions of this Agreement, or should
either Ceding Company or Reinsurer fail to comply with any of the other terms of
this Agreement, and if this is shown to be unintentional and the result of a
misunderstanding, oversight, or clerical error on the part of either, then this
Agreement shall not be deemed abrogated thereby, but both parties shall be
restored to the position they would have occupied had no such oversight,
misunderstanding, or clerical error occurred.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION THAT
MAY BE ENFORCED
BY THE PARTIES.
CEDING COMPANY: FREMONT LIFE INSURANCE COMPANY
By ____________________________________
Name _______________________________
Title ______________________________
REINSURER: GREAT SOUTHERN LIFE INSURANCE
COMPANY
By ____________________________________
Name _______________________________
Title ______________________________
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SCHEDULE A
REINSURED BUSINESS
The Reinsured Business includes all liabilities associated with all annuity
policies issued or assumed by Fremont Life in force on January 1, 1996 (with
respect to annuities and other insurance policies), or issued by Fremont Life to
become effective on or after such dates, respectively, including all riders and
contracts of reinsurance; provided, the Reinsured Business shall not include
Fremont Life's block of mortgage term insurance business commonly referred to as
Financial Services or AMPAC.
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SCHEDULE B
THE ASSUMPTION CERTIFICATE
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SCHEDULE C
NOTICE OF TRANSFER
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SCHEDULE D
THE REINSURANCE AGREEMENTS
Rob Pfeil is preparing
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ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (the "Agreement") is dated this
___ day of February, 1996, by and between FREMONT LIFE INSURANCE
COMPANY, a
California corporation ("Assignor"), and GREAT SOUTHERN LIFE INSURANCE
COMPANY,
a Texas corporation ("Assignee").
WHEREAS, Assignor and Assignee are parties to a Master Agreement (herein as
amended, supplemented or otherwise modified, the "Master Agreement") dated as of
February 26, 1996, among Assignor, Assignee, Americo Life, Inc. (Assignee's
ultimate parent) and Fremont General Corp. (Assignor's parent), pursuant to
which Assignor agreed to cede certain insurance business to Assignee; and
WHEREAS, pursuant to Section 5.1 of the Master Agreement, Assignor agreed
to assign to Assignee, and Assignee has agreed to assume from Assignor, certain
of Assignor's rights and obligations under the contracts with insurance agents
listed on the attached Schedule A (the "Agent Contracts"); and
WHEREAS, accordingly, Assignor desires to assign, and Assignee desires to
assume, certain of Assignor's rights and obligations under the Agent Contracts,
on the terms stated herein;
NOW, THEREFORE, in accordance with the terms of the Master Agreement and
in
consideration of the mutual agreements contained herein and in the Master
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Assignor and Assignee hereby agree as follows:
1. ASSIGNMENT OF AGENT CONTRACTS. Assignor hereby assigns, transfers
and
conveys to Assignee all of Assignor's rights and interest in, to and under the
Agent Contracts effective from and after the date hereof to the extent such
rights relate to the Reinsured Business (as defined in the Master Agreement) and
the period after the date hereof.
2. ASSUMPTION OF LIABILITIES. Assignee hereby assumes and agrees to
pay
or perform when due all obligations of Assignor under the Agent Contracts to the
extent such obligations relate to the Reinsured Business and the period after
the date hereof.
3. MISCELLANEOUS. Each party to this Agreement shall execute and deliver
such instruments, documents and other written information and take such other
actions as the other party may reasonably require to carry out the intent of
this Agreement. This Agreement and all the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective suc-
cessors and assigns. This Agreement shall be governed by and construed in
accordance with Missouri law, excluding choice of law provisions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Assignment and Assumption Agreement as of
the date first above written.
FREMONT LIFE INSURANCE COMPANY
By ___________________________________
Name ______________________________
Title _____________________________
GREAT SOUTHERN LIFE INSURANCE COMPANY
By ___________________________________
Name ______________________________
Title _____________________________
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SCHEDULE A
Agent Contracts
Securplan Plus Agency Marketing Agreement dated January 1, 1993 and Addendum
thereto dated April 19, 1994 between Fremont Life (then known as Commercial
Bankers Life Insurance Company) and Brokers International, Ltd.
Agency Marketing Agreement and Addendum thereto each dated July 1, 1994
between
Fremont Life and Alliance for Mature Americans Insurance Services.
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<PAGE>
AUTOMATIC COINSURANCE ANNUITY REINSURANCE AGREEMENT
Employers Reassurance Corporation
of
Overland Park, Kansas
(hereinafter called the Corporation)
agrees with the Reinsured named in the Schedule made a part hereof, in
consideration of the mutual covenants hereinafter contained, as follows:
ARTICLE I
APPLICATION OF AGREEMENT. This agreement applies to loss under the
insurance
policies described in Item 5 of the Schedule (hereinafter called policies or
policy) paid by the Reinsured on or after the effective date of this agreement.
This agreement does not apply with respect to the mortgage term insurance
contracts classified by the Reinsured as Financial Institution (AMPAC) Business.
ARTICLE II
ENTIRE AGREEMENT. This agreement shall constitute the entire agreement
between
the parties with respect to the business being reinsured hereunder. There are
no other understandings between the parties other than as expressed in this
agreement. Any change or modification to this agreement shall be null and void
unless made by amendment to this agreement and signed by both parties.
ARTICLE III
REINSURANCE AND MISCELLANEOUS OBLIGATIONS. The Corporation will
indemnify the
Reinsured against the percentage specified in Schedule Item 6 of loss to which
this agreement applies.
The Corporation is also obligated to the Reinsured for 100% of the following two
items; (1) experience refund payments made by the Reinsured under the policies;
(2) premium and other deposit fund payments made by the Reinsured to the
insureds under the policies. For purposes of this paragraph, the word
"insureds" includes policy owners and policy beneficiaries. The two preceding
items are hereinafter referred to as miscellaneous obligation payments.
ARTICLE IV
RECAPTURE. The Reinsured does not have any rights to recapture the policies.
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ARTICLE V
PRODUCER COMMISSION. The Corporation is obligated to the Reinsured for the
commissions paid by the Reinsured to its producers of the policies.
ARTICLE VI
DEFINITIONS. The word "policies" means the insurance forms described in the
Schedule and includes conditional receipts pertaining thereto and conversions,
reinstatements and exchanges thereof.
The word "loss" shall mean only such amounts as are actually paid by the
Reinsured for benefits afforded under the policies, in settlement of claims for
benefits under the policies, or in satisfaction of judgments for benefits under
the policies; provided that, in the event of the insolvency of the Reinsured,
"loss" shall mean the amount of policy benefits which the Reinsured has incurred
or is liable for, and payment by the Corporation shall be made to the
liquidator, receiver or other statutory successor of the Reinsured in accordance
with the provisions of the Insolvency Clause attached to and made a part of this
agreement. The word "loss" shall include life insurance proceeds payable by
reason of death which remain unpaid because of the nature of the settlement
option selected. The word "loss" includes cash values paid by the Reinsured
because of policy surrenders. The word "loss" shall not include:
(1) claim expenses;
(2) salaries paid to employees of the Reinsured;
(3) any amount paid by the Reinsured for punitive, exemplary or compensatory
damages arising out of the conduct of the Reinsured in the
investigation, trial or settlement of any claim or failure to pay or
delay in payment of any benefits under any policy; provide that, this
subparagraph (3) shall not apply if the Corporation has, in advance of
any such conduct by the Reinsured, counseled with the Reinsured and
concurred in the Reinsured's course of conduct;
(4) any statutory penalty imposed upon the Reinsured on account of any
unfair trade practice or any unfair claim practice;
(5) amounts collected under other reinsurance.
The term "claim expenses" shall mean statutory interest payable on insurance
proceeds, court costs, interest upon judgments, and allocated investigation,
adjustment and legal expenses, but the term "claim expenses" shall not include
salaries paid to employees of the Reinsured.
Annuity claims shall be deemed to be "incurred" on the policy maturity date.
The word "exchange" means that an insurance contract reinsured hereunder is
traded for another plan of equal or smaller face amount, without requirement
for full evidence of insurability.
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The term "other reinsurance" means those contracts entered into by the Reinsured
with insurance companies other than the Corporation which reinsure the policies.
"Miscellaneous reserves and liabilities" means the sum of the following:
(a) due or accrued agent commissions;
(b) premiums due or accrued on other reinsurance;
(c) premium suspense;
(d) liability for premium and other deposit funds.
"Miscellaneous assets" means the sum of the following:
(a) gross due accident and health premiums;
(b) amounts recoverable under other reinsurance.
The term "UL Treaty" means the Coinsurance Universal Life Reinsurance Agreement
of December 31, 1995 between the Corporation and the Reinsured.
The term "Portfolio" means the $300,000,000 par value 5 7/8% U.S. Treasury Bond
due November 15, 2005 purchased by the Reinsured with respect to this agreement
and the UL Treaty on January 17, 1996.
The term "Annuity policy reserves" means the Reinsured s statutory reserves
applicable to this agreement.
The term "Annuity Portfolio Segment" means the portion of the Portfolio
determined by dividing the Annuity policy reserves by the sum of the UL Treaty
policy reserves and the Annuity policy reserves, all three as of the effective
date of this agreement.
The term "First Annuity Adjustment" means A + B, where:
A = the change in the value of the Annuity Portfolio Segment from 3:00
p.m. January 17, 1995 to 3:00 p.m. on the day preceding the transfer
date, both New York time, based on a quotation from Solomon Brothers.
An increase in said value will decrease the ceding commission. A
decrease in said value will increase the ceding commission; and
B = the investment income earned from the effective date to the transfer
date at the annual rate of 6.0% on: (1) the initial consideration
minus the First Annuity Adjustment; and on (2) the cash flow from the
policies.
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The cash flow from the policies shall be determined in a manner consistent with
Article XII.
The term "Second Annuity Adjustment" means the amount of the Free Partial
Withdrawals made during calendar years 1996 and 1997, to be calculated during
the month of January, 1998, as follows:
Rate of Free Partial Withdrawals Amount of Second Annuity Adjustment
Less than 1% $0
1% to 2% $250,000 plus $250,000 per each
1/10 of 1% above 1%
More than 2% $2,500,000*
* One-half of this amount shall be deposited by the Reinsured to the
Escrow Account as deposit towards its obligation to the Corporation
for the Second Annuity Adjustment. This deposit will be returned to
the extent not due in accordance with the preceding calculation.
The term "Free Partial Withdrawals" means the annuity account values distributed
to annuity contract holders as partial withdrawals which are not subject to
surrender charges.
The term "Escrow Account" means the funds pertaining to this agreement and the
UL Treaty received and held by the Commerce Bank of Kansas City, N.A.
("Commerce
Bank") pursuant to its Escrow Agreement (Fremont Business) with the Corporation
and Great Southern Life Insurance Company (the Corporation's reinsurer for the
policies, herein called the Retrocessionaire).
ARTICLE VII
INITIAL CONSIDERATION. On the transfer date of this agreement, the Reinsured
shall deposit to Commerce Bank that portion or all of the securities in the
Annuity Portfolio Segment, and cash if required, equal to the initial
consideration indicated in Item 7 of the Schedule, minus the ceding commission
indicated in the Schedule, plus or minus the First Annuity Adjustment.
ARTICLE VIII
REINSURANCE PREMIUM. The Reinsured shall pay to the Corporation a
reinsurance
premium equal to the insurance premium collected by the Reinsured on and after
the effective date of this agreement pertaining to the policies, minus the
reinsurance premium paid to other carriers. Such reinsurance premium is subject
to the expense commission indicated in Item 9 of the Schedule. The Corporation
shall also be obligated to the Reinsured for the expense allowance indicated in
Item 10 of the Schedule.
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ARTICLE IX
POLICY LOANS. The Corporation shall be obligated to the Reinsured for the
policy loan increases, minus the amount of uncapitalized policy loan interest
(the net result of which is hereinafter referred to as policy loan increase).
The Reinsured shall be obligated to the Corporation for the policy loan
decreases, plus the amount of uncapitalized policy loan interest (the net result
of which is hereinafter referred to as policy loan decrease).
ARTICLE X
INVESTMENTS. The Escrow Account assets shall be invested in accordance with
the investment guidelines contained in Exhibit A, attached to and made a part of
this agreement.
ARTICLE XI
INTEREST. Interest rates credited by the Reinsured on the policies shall be
determined in accordance with the procedures contained in Exhibit B, attached to
and made a part of this agreement.
ARTICLE XII
REPORTING, ACCOUNTING AND SETTLEMENTS. Section A. Weekly Tentative.
Prior to
the close of business on each Friday, the Reinsured or its administrator shall
furnish to the Corporation a report (in a form satisfactory to the Corporation)
showing the following information:
(a) Amounts owed Corporation:
(1) Reinsurance premium applicable to insurance premium collected
during week;
(2) Policy loan decrease during week;
(3) Increase during week in miscellaneous liabilities;
(4) Decrease during week in miscellaneous assets;
(b) Amounts owed Reinsured:
(1) loss paid under the policies during the week;
(2) expense commission for the week;
(3) policy loan increase during week;
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<PAGE>
(4) producer commission for the week;
(5) expense allowance for the week;
(6) Decrease during week in miscellaneous liabilities;
(7) Increase during week in miscellaneous assets;
(c) Balance due Corporation or Reinsured.
Any balance due the Corporation shall be deposited to the Escrow Account on the
Friday involved. Any balance due the Reinsured shall be paid by the Corporation
on the following Monday.
The Reinsured and the Corporation each agree to pay interest to the other on
amounts not paid within the time periods required within this section,
calculated using the one-month LIBOR rate.
Section B. Quarterly Actual. Within 25 days after the end of each calendar
quarter, the Reinsured or its administrator shall furnish to the Corporation a
report (in a form satisfactory to the Corporation) showing the following
information:
(a) Amounts owed Corporation:
(1) Reinsurance premium applicable to insurance premium collected
during quarter;
(2) Policy loan decrease during quarter;
(3) Increase during quarter in miscellaneous liabilities;
(4) Decrease during quarter in miscellaneous assets;
(5) As respects only the quarter commencing on January 1, 1998, the
amount by which the Second Annuity Adjustment exceeds the
deposit made with respect thereto;
(b) Amounts owed Reinsured:
(1) loss paid under the policies during quarter;
(2) expense commission for the quarter;
(3) policy loan increase during quarter;
(4) producer commission for the quarter;
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<PAGE>
(5) expense allowance for the quarter;
(6) Decrease during quarter in miscellaneous liabilities;
(7) Increase during quarter in miscellaneous assets;
(8) As respects only the quarter commencing on January 1, 1998, the
amount by which the deposit made with respect to the Second
Annuity Adjustment exceeds the Second Annuity Adjustment;
(c) Balance due Corporation or Reinsured.
Any balance due the Corporation shall be deposited to the Escrow Account within
30 days after the quarter involved. Any balance due the Reinsured shall be paid
by the Corporation within 30 days after the end of the quarter involved.
The Reinsured and the Corporation each agree to pay interest to the other on
amounts not paid within the time periods required within this section,
calculated using the one-month LIBOR rate.
The Reinsured's report for the third calendar quarter of each calendar year
shall include:
(1) a summary listing showing all policies in force;
(2) the detailed information required with respect to the policies by the
Exhibit of Life Insurance in the Corporation's Annual Statement;
(3) the aggregate reserve information required with respect to the policies
by the Corporation's actuarial opinion and by the other exhibits of the
Corporation's Annual Statement.
ARTICLE XIII
CLAIMS. The Reinsured agrees that it will cause to be investigated and paid,
settled or defended all claims arising under the policies. Except as respects
damages to which this agreement may apply by virtue of subparagraph (3) of the
definition of loss, the claim decisions of the Reinsured (or of its
administrator) shall be binding upon the Corporation.
The Corporation shall have the right, at its own expense, to participate jointly
with the Reinsured (or its administrator) in the investigation, adjustment or
defense of any claim.
The Corporation has no obligation to indemnify the Reinsured for any claim
expenses paid by the Reinsured with respect to the policies.
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<PAGE>
ARTICLE XIV
ADMINISTRATION OF INSURANCE. The Corporation shall have no responsibility
or
authority to administer the insurance provided by the policies. The Corporation
has the right to review and approve or require changes to the administration
agreement to be entered into by the Reinsured with respect to the policies.
ARTICLE XV
INSPECTION OF RECORDS. The Corporation may inspect the records of the
Reinsured pertaining to the policies at any time during the normal business
hours of the Reinsured.
ARTICLE XVI
OFFSET. The Reinsured or the Corporation may offset any balance due from one
party to the other under this agreement or the UL Treaty.
ARTICLE XVII
INSOLVENCY CLAUSE. The attached Insolvency Clause is hereby made a part of
this agreement.
ARTICLE XVIII
ASSIGNMENTS AND CHANGES OF INTEREST. No assignment or change of the
Reinsured's interest hereunder, whether voluntary or involuntary and whether by
merger or reinsurance of its entire business with another company or otherwise,
shall be binding upon the Corporation, provided that, this article does not
apply to:
(a) The Corporation's assignment of its interest and liabilities as the
reinsurer to the Retrocessionaire, but only with respect to those
policies on which the Retrocessionaire is not named as the direct
insurer;
(b) The Reinsured's assignment of its rights and duties as the ceding
company to the Retrocessionaire, but only with respect to those policies
on which the Retrocessionaire is named as the direct insurer.
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<PAGE>
ARTICLE XIX
TERMINATION. This agreement shall remain in force until terminated by mutual
consent or by either party giving to the other party not less than 90 days
advance notice, by registered mail or express delivery service, stating the
termination date.
This agreement does not apply with respect to policies issued by the Reinsurer
to become effective on or after the termination date of this agreement.
If the Corporation does not permit recapture, the reinsurance afforded by this
agreement applicable to each policy issued by the Reinsured to become effective
prior to the termination date of this agreement shall continue to apply thereto
until the policy naturally expires.
IN WITNESS WHEREOF, the parties hereto have signed this agreement on the
Schedule Page.
9
<PAGE>
INSOLVENCY CLAUSE
The ceding insurer and the reinsurer agree that, in the event of the
insolvency of the ceding insurer, as to all reinsurance made, ceded, renewed or
otherwise becoming effective after the effective date of this agreement, the
reinsurance shall be payable by the reinsurer on the basis of the amount of
liability of the ceding insurer under the contract or contracts reinsured,
without diminution because of the insolvency of the ceding insurer; furthermore,
that such amount shall be paid directly to the ceding insurer or its liquidator,
receiver or other statutory successor.
It is understood and agreed, however, that the obligations of the ceding
company as set forth in the reinsurance contract, including, among others, the
duty to investigate, settle and defend all claims arising under policies with
respect to which reinsurance is afforded by this agreement, shall remain
unimpaired and unaffected by the insolvency of the ceding insurer and shall be
assumed by the liquidator, receiver or statutory successor of the ceding insurer
in the liquidation or receivership proceeding and that such liquidator, receiver
or statutory successor shall give written notice to the reinsurer of the
pendency of a claim against the ceding insurer on the policy reinsured within a
reasonable time after such claim is filed in the insolvency proceeding and that
during the pendency of such claim in the reinsurer may investigate such claim
and interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem available to the ceding
insurer, its liquidator, receiver or statutory successor. The expense thus
incurred by the reinsurer shall be chargeable, subject to the court approval,
against the insolvent ceding insurer as part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as the result of the defense undertaken or asserted by the
reinsurer.
Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose a defense to such claim, the expense shall be
apportioned in accordance with the terms of this reinsurance agreement as though
such expense had been incurred by the ceding insurer.
Nothing hereinabove set forth in this insolvency clause shall in anywise
change the relationship or status of the parties hereto, to wit, that of ceding
insurer and reinsurer, nor enlarge the obligations of either party to each
other, except as specifically hereinabove provided, to wit, to pay the statutory
successor on the basis of the amount of liability of the ceding insurer under
the contract or contracts reinsured, rather than on the basis of the actual
amount of loss (dividends) paid by the liquidator, receiver or statutory
successor to allowed claimants, nor shall anything in this insolvency clause in
any matter create any obligations or establish any rights against the reinsurer
in favor of any third parties or any persons not parties to this reinsurance
contract.
10
PAGE
<PAGE>
L96-0317
AUTOMATIC COINSURANCE UNIVERSAL LIFE
REINSURANCE AGREEMENT
December 31, 1995
FREMONT LIFE INSURANCE COMPANY
Orange, California
<PAGE>
L96-0317
AUTOMATIC COINSURANCE UNIVERSAL LIFE REINSURANCE
AGREEMENT
Schedule
1. Reinsured: Fremont Life Insurance Company
2. Address: Orange, California
3. Effective date: December 31, 1995
4. Transfer date: February 29, 1996
5. Policies:
(a) Universal Life Insurance Policies issued by the Reinsured to become
effective prior to and on or after the effective date of this agreement.
(b) Riders written with or added later to the insurance contracts described in
Item 5(a) of this Schedule.
6. Reinsurance: 100%
7. Initial consideration (all values as of effective date of this agreement):
Schedule Page 1
<PAGE>
L96-0317
(a) The Reinsured's policy reserves from Annual Statement Exhibits 8, 9
and 10; plus
(b) the claim liabilities pertaining to the policies; plus
(c) the advance premiums applicable to the policies; minus
(d) the net due and deferred premiums applicable to the policies; plus
(e) the miscellaneous reserves and liabilities applicable to the
policies; and less
(f) the policy loans; and less
(g) the miscellaneous assets applicable to the policies;
(h) all of the preceding of which together produce an initial
consideration of $___________.
Schedule Page 2
<PAGE>
L96-0317
8. Ceding commission: $7,500,000 plus or minus the UL Adjustment.
9. Expense commission: As respects each calendar quarter commencing after the
transfer date, .0625% of the assets comprising the UL
Portfolio Segment of the Escrow Account.
10. Expense allowance: As respects each calendar quarter in commencing after
the transfer date, $15.75 per policy in force at
beginning of the quarter.
The agreement of which this Schedule is a part is hereby executed in duplicate
by the parties hereto.
FREMONT LIFE INSURANCE COMPANY EMPLOYERS REASSURANCE
CORPORATION
By: _________________________________ By:
___________________________________
Title: ______________________________ Title:
________________________________
Date: _______________________________ Date:
_________________________________
By: _________________________________ By:
___________________________________
Title:_______________________________ Title:
________________________________
Date:________________________________ Date:
_________________________________
Schedule Page 3
<PAGE>
L96-0317
AUTOMATIC COINSURANCE UNIVERSAL LIFE REINSURANCE
AGREEMENT
Employers Reassurance Corporation
of
Overland Park, Kansas
(hereinafter called the Corporation)
agrees with the Reinsured named in the Schedule made a part hereof, in
consideration of the mutual covenants hereinafter contained, as follows:
ARTICLE I
APPLICATION OF AGREEMENT. This agreement applies to loss under the
insurance
policies and riders described in Item 5 of the Schedule (hereinafter called
policies or policy) paid by the Reinsured on or after the effective date of
this agreement.
ARTICLE II
ENTIRE AGREEMENT. This agreement shall constitute the entire agreement
between
the parties with respect to the business being reinsured hereunder. There are
no other understandings between the parties other than as expressed in this
agreement. Any change or modification to this agreement shall be null and void
unless made by amendment to this agreement and signed by both parties.
ARTICLE III
REINSURANCE. The Corporation will indemnify the Reinsured against the
percentage
specified in Schedule Item 6 of loss to which this agreement applies.
ARTICLE IV
RECAPTURE. The Reinsured does not have any rights to recapture the policies.
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L96-0317
ARTICLE V
PRODUCER COMMISSION. The Corporation is obligated to the Reinsured for the
commissions paid by the Reinsured to its producers of the policies.
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<PAGE>
L96-0317
ARTICLE VI
DEFINITIONS. The word "policies" means the insurance forms described in the
Schedule and includes conditional receipts pertaining thereto and conversions,
reinstatements and exchanges thereof.
The word "loss" shall mean only such amounts as are actually paid by the
Reinsured for benefits afforded under the policies, in settlement of claims for
benefits under the policies, or in satisfaction of judgments for benefits under
the policies; provided that, in the event of the insolvency of the Reinsured,
"loss" shall mean the amount of policy benefits which the Reinsured has incurred
or is liable for, and payment by the Corporation shall be made to the
liquidator, receiver or other statutory successor of the Reinsured in accordance
with the provisions of the Insolvency Clause attached to and made a part of this
agreement. The word "loss" shall include life insurance proceeds payable by
reason of death which remain unpaid because of the nature of the settlement
option selected. The word "loss" includes cash values paid by the Reinsured
because of policy surrenders. The word "loss" shall not include:
(1) claim expenses;
(2) salaries paid to employees of the Reinsured;
(3) any amount paid by the Reinsured for punitive, exemplary or compensatory
damages arising out of the conduct of the Reinsured in the investigation,
trial or settlement of any claim or failure to pay or delay in payment of
any benefits under any policy; provided that, this subparagraph (3) shall
not apply if the Corporation has, in advance of any such conduct by the
Reinsured, counseled with the Reinsured and concurred in the Reinsured's
course of conduct;
(4) any statutory penalty imposed upon the Reinsured on account of any unfair
trade practice or any unfair claim practice;
(5) amounts collected under other reinsurance.
The term "claim expenses" shall mean statutory interest payable on insurance
proceeds, court costs, interest upon judgments, and allocated investigation,
adjustment and legal expenses, but the term "claim expenses" shall not include
salaries paid to employees of the Reinsured.
Claims shall be deemed to be "incurred" on the date when:
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L96-0317
(a) the death occurs as respects life coverage;
(b) the disability commences, as respects waiver of premium coverage;
(c) the accident takes place, as respects accidental death coverage.
The word "exchange" means that an insurance contract reinsured hereunder is
traded for another plan of equal or smaller face amount, without requirement for
full evidence of insurability.
The term "other reinsurance" means those contracts entered into by the Reinsured
with insurance companies other than the Corporation which reinsure the policies.
"Miscellaneous reserves and liabilities" means the sum of the following:
(a) due or accrued agent commissions;
(b) premiums due or accrued on other reinsurance;
(d) premium suspense.
"Miscellaneous assets" means the amounts recoverable under other reinsurance.
The term "Annuity Treaty" means the Coinsurance Annuity Reinsurance Agreement of
January 1, 1996 between the Corporation and the Reinsured.
The term "Portfolio" means the $300,000,000 par value 5 7/8% U.S. Treasury Bonds
due November 15, 2005 purchased by the Reinsured with respect to this agreement
and the Annuity Treaty on January 17, 1996.
The term "UL Portfolio Segment" means the portion of the Portfolio determined by
dividing the UL policy reserves by the sum of the UL policy reserves and the
Annuity Treaty policy reserves, all three as of the effective date of this
agreement.
The term "UL Adjustment" means A + B where:
A = the change in the value of the UL Portfolio Segment from 3:00 p.m.
January 17, 1995 to 3:00 p.m. on the day preceding the transfer date,
both New York time, based on a quotation from Solomon Brothers. An
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L96-0317
increase in said value will decrease the ceding commission. A decrease
in said value will increase the ceding commission; and
B = the investment income earned from the effective date to the transfer
date at the annual rate of 6.0% on: (1) the initial consideration
minus the adjusted ceding commission; and on (2) the cash flow from the
policies.
The cash flow from the policies shall be determined in a manner consistent with
Article XII.
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L96-0317
The term "Escrow Account" means the funds pertaining to this agreement and the
Annuity Treaty received and held by the Commerce Bank of Kansas City, N.A.
("Commerce Bank") pursuant to its Escrow Agreement (Fremont Business) with the
Corporation and Great Southern Life Insurance Company (the Corporation's
reinsurer for the policies, herein called the Retrocessionaire).
ARTICLE VII
INITIAL CONSIDERATION. On the transfer date of this agreement, the Reinsured
shall deposit to Commerce Bank that portion or all of the securities in the UL
Portfolio Segment, and cash if required, equal to the initial consideration
indicated in Item 7 of the Schedule, minus the adjusted ceding commission
indicated in Item 8 of the Schedule.
ARTICLE VIII
REINSURANCE PREMIUM. The Reinsured shall pay to the Corporation a
reinsurance
premium equal to the insurance premium collected by the Reinsured on and after
the effective date of this agreement pertaining to the policies, minus the
reinsurance premium paid to other carriers. Such reinsurance premium is subject
to the expense commission indicated in Item 9 of the Schedule. The Corporation
shall also be obligated to the Reinsured for the expense allowance specified in
Item 10 of the Schedule.
ARTICLE IX
POLICY LOANS. The Corporation shall be obligated to the Reinsured for the
policy loan increases, minus the amount of uncapitalized policy loan interest
(the net result of which is hereinafter referred to as policy loan increase).
The Reinsured shall be obligated to the Corporation for the policy loan
decreases, plus the amount of uncapitalized policy loan interest (the net result
of which is hereinafter referred to as policy loan decrease).
ARTICLE X
INVESTMENTS. The Escrow Account assets shall be invested in accordance with
the
investment guidelines contained in Exhibit A, attached to and made a part of
this agreement.
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L96-0317
ARTICLE XI
INTEREST. Interest rates credited by the Reinsured on the policies shall be
determined in accordance with the procedures contained in Exhibit B, attached
to and made a part of this agreement.
ARTICLE XII
REPORTING, ACCOUNTING AND SETTLEMENTS. Section A. Weekly Tentative.
Prior to
the close of business on each Friday, the Reinsured or its administrator shall
furnish to the Corporation a report (in a form satisfactory to the Corporation)
showing the following information:
(a) Amounts owed Corporation:
(1) Reinsurance premium applicable to insurance premium collected during
week;
(2) Policy loan decrease during week;
(3) Increase during week in miscellaneous liabilities;
(4) Decrease during week in miscellaneous assets;
(b) Amounts owed Reinsured:
(1) loss paid under the policies during the week;
(2) expense commission;
(3) policy loan increase during week;
(4) producer commission for the week;
(5) expense allowance for the week;
(6) Decrease during week in miscellaneous liabilities;
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<PAGE>
L96-0317
(7) Increase during week in miscellaneous assets;
(c) Balance due Corporation or Reinsured.
Any balance due the Corporation shall be deposited to the Escrow Account on the
Friday involved. Any balance due the Reinsured shall be paid by the Corporation
on the following Monday.
The Reinsured and the Corporation each agree to pay interest to the other on
amounts not paid within the time periods required within this section,
calculated using the one month LIBOR rate.
Section B. Quarterly Actual. Within 25 days after the end of each calendar
quarter, the Reinsured or its administrator shall furnish to the Corporation a
report (in a form satisfactory to the Corporation) showing the following
information:
(a) Amounts owed Corporation:
(1) Reinsurance premium applicable to insurance premium collected during
quarter;
(2) Policy loan decrease during quarter;
(3) Increase during quarter in miscellaneous liabilities;
(4) Decrease during quarter in miscellaneous assets;
(b) Amounts owed Reinsured:
(1) loss paid under the policies during the quarter;
(2) expense commission;
(3) policy loan increase during quarter;
(4) producer commission for the quarter;
(5) expense allowance for the quarter;
(6) Decrease during quarter in miscellaneous liabilities;
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<PAGE>
L96-0317
(7) Increase during quarter in miscellaneous assets;
(c) Balance due Corporation or Reinsured.
Any balance due the Corporation shall be deposited to the Escrow Account within
30 days after the end of the calendar quarter involved. Any balance due the
Reinsured shall be paid by the Corporation within 30 days after the end of the
calendar quarter involved.
The Reinsured and the Corporation each agree to pay interest to the other on
amounts not paid within the time periods required within this section,
calculated using the one month LIBOR rate.
The Reinsured's report for the third calendar quarter of each calendar year
shall include:
(1) a summary listing showing all policies in force;
(2) the detailed information required with respect to the policies by the
Exhibit of Life Insurance in the Corporation's Annual Statement;
(3) the aggregate reserve information required with respect to the policies by
the Corporation's actuarial opinion and by the other exhibits of the
Corporation's Annual Statement.
ARTICLE XIII
CLAIMS. The Reinsured agrees that it will cause to be investigated and paid,
settled or defended all claims arising under the policies. Except as respects
damages to which this agreement may apply by virtue of subparagraph (3) of the
definition of loss, the claim decisions of the Reinsured (or of its
administrator) shall be binding upon the Corporation.
The Corporation shall have the right, at its own expense, to participate jointly
with the Reinsured (or its administrator)in the investigation, adjustment or
defense of any claim.
The Corporation has no obligation to indemnify the Reinsured for any claim
expenses paid by the Reinsured with respect to the policies.
ARTICLE XIV
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<PAGE>
L96-0317
ADMINISTRATION OF INSURANCE. The Corporation shall have no responsibility or
authority to administer the insurance provided by the policies. The Corporation
has the right to review and approve or require changes to the administration
agreement to be entered into by the Reinsured with respect to the policies.
ARTICLE XV
INSPECTION OF RECORDS. The Corporation may inspect the records of the
Reinsured
pertaining to the policies at any time during the normal business hours of the
Reinsured.
ARTICLE XVI
OFFSET. The Reinsured or the Corporation may offset any balance due from one
party to the other under this agreement or the Annuity Treaty.
ARTICLE XVII
INSOLVENCY CLAUSE. The attached Insolvency Clause is hereby made a part of
this
agreement.
ARTICLE XVIII
ASSIGNMENTS AND CHANGES OF INTEREST. No assignment or change of the
Reinsured's
interest hereunder, whether voluntary or involuntary and whether by merger or
reinsurance of its entire business with another company or otherwise, shall be
binding upon the Corporation, provided that, this article does not apply to:
(a) The Corporation's assignment of its interests and liabilities as the
reinsurer to the Retrocessionaire, but only with respect to those policies
on which the Retrocessionaire is not named as the direct insurer;
(b) The Reinsured's assignment of its rights and duties as the ceding company
to the Retrocessionaire, but only with respect to those policies on which
the Retrocessionaire is named as the direct insurer.
-10-
<PAGE>
L96-0317
ARTICLE XIX
TERMINATION. This agreement shall remain in force until terminated by mutual
consent or by either party giving to the other party not less than 90 days
advance notice, by registered mail or express delivery service, stating the
termination date.
This agreement does not apply with respect to policies issued by the Reinsured
to become effective on or after the termination date of this agreement.
If the Corporation does not permit recapture, the reinsurance afforded by this
agreement applicable to each policy issued by the Reinsured to become effective
prior to the termination date of this agreement shall continue to apply thereto
until the policy naturally expires.
IN WITNESS WHEREOF, the parties hereto have signed this agreement on the
Schedule Page.
-11-
<PAGE> EXHIBIT A
Reinsured Business
The Reinsured Business includes all liabilities associated with all life
insurance and annuity policies issued or assumed by Fremont Life in force on
December 31, 1995 (with respect to universal life policies), and on January 1,
1996 (with respect to annuities and other insurance policies), or issued by
Fremont Life to become effective on or after such dates, respectively, including
all riders and contracts of reinsurance; provided, the Reinsured Business shall
not include Fremont Life's block of mortgage term insurance business commonly
referred to as Financial Services or AMPAC.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICO
LIFE, INC.'S MARCH 31, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> $575,139
<DEBT-CARRYING-VALUE> $827,779
<DEBT-MARKET-VALUE> $813,221
<EQUITIES> $41,909
<MORTGAGE> $215,078
<REAL-ESTATE> $4,272
<TOTAL-INVEST> $1,927,401
<CASH> $94,796
<RECOVER-REINSURE> $116,951
<DEFERRED-ACQUISITION> $63,292
<TOTAL-ASSETS> $2,422,589
<POLICY-LOSSES> $1,840,013
<UNEARNED-PREMIUMS> $28,666
<POLICY-OTHER> $28,360
<POLICY-HOLDER-FUNDS> $92,800
<NOTES-PAYABLE> $133,408
$0
$0
<COMMON> $10
<OTHER-SE> $182,312
<TOTAL-LIABILITY-AND-EQUITY> $2,422,589
$41,192
<INVESTMENT-INCOME> $43,668
<INVESTMENT-GAINS> $(765)
<OTHER-INCOME> $145
<BENEFITS> $52,161
<UNDERWRITING-AMORTIZATION> $1,743
<UNDERWRITING-OTHER> $21,100
<INCOME-PRETAX> $6,202
<INCOME-TAX> $2,085
<INCOME-CONTINUING> $4,117
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $4,117
<EPS-PRIMARY> $411.70
<EPS-DILUTED> $411.70
<RESERVE-OPEN> $0
<PROVISION-CURRENT> $0
<PROVISION-PRIOR> $0
<PAYMENTS-CURRENT> $0
<PAYMENTS-PRIOR> $0
<RESERVE-CLOSE> $0
<CUMULATIVE-DEFICIENCY> $0
</TABLE>
