Exhibit 2
100% COINSURANCE AGREEMENT
BETWEEN
PROTECTIVE LIFE INSURANCE COMPANY
AND
STANDARD INSURANCE COMPANY
THIS AGREEMENT is made and entered into as of the 6th day of November, 2000
(herein "Contract Date") between Standard Insurance Company, an Oregon life and
health insurer (herein "Ceding Company"), and Protective Life Insurance Company,
a Tennessee legal reserve life and health insurer (herein "Reinsurer").
RECITALS
A. Ceding Company has heretofore written or previously assumed and now
has on its books certain universal life and traditional life insurance policies
and assumed reinsurance.
B. Ceding Company and Reinsurer wish to enter into this transaction
pursuant to which Reinsurer will 100% coinsure the Policy Liabilities (as
hereinafter defined) under such life insurance policies and assumed reinsurance.
AGREEMENT
NOW, THEREFORE, IN CONSIDERATION of the mutual and foregoing recitals and
the mutual covenants and undertakings herein contained, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties do
freely and voluntarily agree as follows:
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ARTICLE 1
Definitions
-----------
Section 1.01. As used herein, the following terms shall have the following
meanings:
"Additional Closed Block Assets" shall mean cash in an amount equal to the
excess of the statutory Closed Block Policies Liabilities over the statutory
book value of the Closed Block Assets.
"Additional Assets Account" shall mean the account established under the
Trust Agreement into which the Additional Closed Block Assets and the Non-Closed
Block Assets will be deposited.
"Affiliate" means a Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with the
Person specified. For purposes of this definition, the term "control" (including
the terms "controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to (i) vote 50% or more of the
voting securities of such Person or (ii) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Agreed Reserves" shall mean (i) an amount equal to the Non-Closed Block
Policies Net Liabilities, plus (ii) an amount equal to the Closed Block Policies
Net Liabilities, minus (iii) an amount equal to the statutory book value of the
assets in the Closed Block Assets Account.
"Annual Statement" shall mean the Annual Statement of Ceding Company in the
State of Oregon for the year ended December 31, 2000.
"Assumed Agreements" shall mean the Reinsurance Agreements described on
Schedule 8.03 and the Related Agreements.
"Assumed Agreement Liabilities" shall mean the contractual obligations
under the written terms of the Assumed Agreements.
"Business Transfer Date" shall mean the date on which the Reinsurer
assumes responsibility for Policyholder Service under Service Agreement No. 2.
"Ceding Commission" shall have the meaning ascribed to that term in Section
5.04.
"Ceding Company" shall mean Standard Insurance Company, an Oregon life and
health insurer, and its permitted successors and assigns, including any
liquidator, receiver, rehabilitation or other statutory successor.
"Closed Block" means the closed block established by the Ceding Company in
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connection with its conversion from a mutual insurer to a stock insurer.
"Closed Block Assets" shall mean the assets funding the Closed Block
Policies, which assets are described on Exhibit D.
"Closed Block Assets Account" shall mean the account established under the
Trust Agreement into which the Closed Block Assets will be deposited.
"Closed Block Memorandum" shall mean the Closed Block Memorandum dated
December 14, 1998 adopted by the Ceding Company in connection with its
conversion from a mutual insurer to a stock insurer, a copy of which is attached
hereto as Exhibit A.
"Closed Block Policies" shall mean the individual life insurance policies
allocated pursuant to the Closed Block Memorandum to the Closed Block. "Closed
Block Policies" as used in this Agreement is intended to refer to all such
insurance policies which are in-force as of the Effective Date, as well as any
riders providing for other supplemental benefits, and specifically includes (i)
all lapsed policies subject to reinstatement and (ii) any supplemental benefits
arising out of the Closed Block Policies.
"Closed Block Policies Net Liabilities" shall mean the Policy Liabilities
and reserves relating to the Closed Block Policies, net of reinsurance ceded to
a third-party reinsurer, and also net of other policy-related assets, such as
due and deferred premiums, policy loans and collateral loans.
"Closing" shall occur on January 31, 2001, at the offices of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., in Houston, Texas, at 10:00 a.m., or such other place
and time as the parties may mutually agree, provided that all conditions set
forth in Article 13 concerning the parties' respective obligations to consummate
the transactions provided for herein have been satisfied, or at such other
place, date and time as shall be agreed upon in writing by the parties hereto.
The date on which the Closing occurs is referred to herein as the "Closing
Date".
"Coinsured Policies" shall mean the Closed Block Policies and Non-Closed
Block Policies.
"Commissions" shall mean commissions owed to agents under the Related
Agreements and any other related expenses agreed to by Reinsurer and Ceding
Company.
"Contract Date" shall mean the date specified in the first paragraph of
this Agreement.
"Effective Date" shall mean December 31, 2000.
"Final Effective Date Accounting" shall have the meaning ascribed to that
term in Section 5.01(b).
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"Governmental Entity" means any agency, administrative division or
department (or administrative subdivision), commission, regulatory authority,
taxing or administrative authority, court or other judicial body, legislature,
audit group or procuring office of the government of the United States or any
state, city, municipality, county or town thereof, or of any foreign
jurisdiction, including the employees or agents of any thereof.
"Investment Policy Statement" shall mean the Investment Policy Statement
for the Closed Block dated November 30, 1998.
"Law" or "Laws" means any statute, law, ordinance, regulation, rule, code,
order, permit, determination of a Governmental Entity, rule of common law or
other requirement, whether federal, state, local or foreign.
"Monthly Accountings" shall have the meaning ascribed to that term in
Section 5.02.
"Net Closed Block Cash Flow" shall mean an amount equal to (i) (A)
premiums, loan repayments and other amounts payable in respect of the Closed
Block Policies and (B) reinsurance recoverables collected under the Reinsurance
Agreements with respect to amounts paid under the Closed Block Policies, less
(ii) (A) Policy Liabilities paid by Reinsurer that relate to the Closed Block
Policies, (B) amounts due Reinsurer for Policyholder Service as provided for
under the Closed Block Memorandum and (C) premiums paid under the Reinsurance
Agreements for reinsurance of Ceding Company's liabilities under the Closed
Block Policies.
"Neutral Auditors" shall have the meaning ascribed in Section 5.01(b).
"Non-Closed Block Assets" shall mean cash in an amount equal to statutory
reserves under the Non-Closed Block Policies.
"Non-Closed Block Policies" shall mean the individual life insurance
policies of the Ceding Company that are not allocated to the Closed Block,
including policies reinsured by Ceding Company pursuant to indemnity reinsurance
agreements. Non-Closed Block Policies as used in this Agreement is intended to
refer to all such policies which are in-force as of the Effective Date, as well
as any riders providing for other supplemental benefits, and specifically
includes (i) all lapsed policies subject to reinstatement and (ii) any
supplemental benefits arising out of the Non-Closed Block Policies. Non-Closed
Block Policies as used in this Agreement will also include policies which have
policy dates after the Effective Date and prior to the Business Transfer Date.
"Non-Closed Block Policies Net Liabilities" shall mean the Policy
Liabilities and reserves relating to the Non-Closed Block Policies, net of
reinsurance ceded to a third-party reinsurer, and also net of other policy-
related assets, such as due and deferred premiums, policy loans and collateral
loans.
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"Nonguaranteed Provisions" shall have the meaning ascribed to that term in
Section 4.02.
"Oregon SAP" shall mean insurance accounting principles prescribed or
permitted by the Director of Banking, Commerce and Insurance of the State of
Oregon.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, a government or any
department or agency thereof or any other entity.
"Policy Liabilities" shall mean all liabilities and obligations arising
under or in connection with the Coinsured Policies, including, without
limitation: (i) all obligations of the Ceding Company represented by the policy
reserves transferred to Reinsurer pursuant to Section 5.05, (ii) all liability
for premium taxes arising on account of premiums paid on or after the Effective
Date, (iii) all amounts payable for returns or refunds of premiums under the
Coinsured Policies, (iv) all liability for Commission payments and other fees or
compensation payable with respect to the Coinsured Policies to or for the
benefit of intermediaries, brokers and service providers on or after the
Effective Date, (v) all dividends declared by the Ceding Company on the
Coinsured Policies in accordance with the terms of this Agreement, and (vi) all
guaranty fund assessments and similar charges imposed with respect to the
Coinsured Policies based on premiums paid on or after the Effective Date;
provided, however, that Policy Liabilities shall not include any liability or
obligation with respect to any litigation, arbitration or other recognized
"alternative dispute resolution" proceeding pending or threatened as of the
Effective Date with respect to any of the Coinsured Policies or any matter
arising out of the bad faith or willful misconduct of the Ceding Company.
"Policyholder Service" shall mean the performance of tasks, duties,
responsibilities and actions as may be required by Ceding Company as set forth
in Article 6 hereof or Reinsurer as set forth in Article 7 hereof.
"Preliminary Effective Date Accounting" shall have the meaning ascribed to
that term in Section 5.01(a).
"Reinsurance Agreements" shall mean those contracts listed in Schedule
8.03 attached hereto and made a part hereof, pursuant to which Ceding Company
has ceded liabilities to third parties with respect to the Coinsured Policies.
"Reinsurer" shall mean Protective Life Insurance Company, a Tennessee legal
reserve life and health insurer, and its successors and permitted assigns,
including any liquidator, receiver, rehabilitation or other statutory successor.
"Related Agreements" shall mean those contracts pursuant to which
Ceding Company
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has agreed to pay Commissions relating to the Coinsured Policies.
"Report" shall mean the "Actuarial Appraisal of the Individual Life
Insurance Business (ILIO) of Standard Insurance Company as of 12/31/99,"
prepared by Milliman & Robertson, Inc. dated June 28, 2000.
"Review Period" shall have the meaning ascribed to that term in Section
5.01(b).
"Service Agreement No. 1" shall mean the service agreement covering the
period between the Effective Date and the Business Transfer Date as described in
Article 6.
"Service Agreement No. 2" shall mean the service agreement covering the
period after the Business Transfer Date as described in Article 7.
"Supporting Data" shall have the meaning ascribed to that term in Section
5.01(a).
"this Agreement" shall mean this 100% Coinsurance Agreement and all
exhibits and schedules hereto, and all amendments entered into in accordance
with Section 17.03.
"Trust" and "Trust Agreement" shall mean the Trust Agreement to be entered
into among Ceding Company, Reinsurer and The Bank of New York, as trustee, in
substantially the form attached hereto as Exhibit F.
"Trust Accounts" shall mean the Closed Block Assets Account and the
Additional Assets Account to be established under the Trust Agreement
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ARTICLE 2
Purpose of Agreement
--------------------
Section 2.01. Purpose of Agreement. The purpose of this Agreement is
(a) to provide for the one hundred percent (100%) coinsurance or, to the extent
permitted by Section 4.02, assumption by Reinsurer of (i) the Policy Liabilities
and (ii) the contractual liabilities of Ceding Company under the Assumed
Agreements, (b) to provide for full servicing of the Coinsured Policies by
Reinsurer after the Business Transfer Date, all in consideration of the
representations, warranties and undertakings contained in this Agreement, (c)
the transfer of ownership by Ceding Company to Reinsurer of the assets as
provided in Section 5.05, (d) the assignment to Reinsurer by Ceding Company of
all of Ceding Company's rights under the Coinsured Policies, and (e) the
assignment to Reinsurer by Ceding Company of all of Ceding Company's rights
under the Reinsurance Agreements. Between the Effective Date and the Business
Transfer Date, Ceding Company shall continue to provide service on the Coinsured
Policies as provided in Article 6. The coinsurance and service responsibilities
are subject to the terms and conditions set forth herein. It is the express
intent of the parties hereto that Reinsurer shall not accept any liabilities of
Ceding Company other than Policy Liabilities and the Assumed Agreements
Liabilities.
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ARTICLE 3
Coverages to be Coinsured; Liabilities Assumed
----------------------------------------------
Section 3.01. Cession. Ceding Company agrees to cede and assign and does
cede and assign effective on the Closing Date to Reinsurer on a coinsurance
basis, as of 11:59 p.m. Pacific Time on the Effective Date, (a) all of the
Policy Liabilities, and its rights and interest in the Coinsured Policies and
the Related Agreements to the end that then and thereafter, as between the
parties to this Agreement, Ceding Company shall have no liability for Policy
Liabilities or the written contractual obligations under the Related Agreements;
and (b) all of Ceding Company's rights and interest in all Reinsurance
Agreements to the end that then and thereafter, as between the parties to this
Agreement, Ceding Company shall have no liability on account of the Coinsured
Policies with respect to the written contractual obligations under the
Reinsurance Agreements. The cession of the Coinsured Policies to Reinsurer
hereunder is not intended to alter the reinsurance of a portion of the risk
under any Coinsured Policies with any third-party reinsurer, which reinsurance
shall continue in accordance with its terms.
Section 3.02. Coinsurance. As between the parties to this Agreement,
Reinsurer agrees to accept and it does accept as of the Effective Date, cession
or retrocession, as the case may be, of the Coinsured Policies and agrees to
perform effective as of the Closing Date (a) all Policy Liabilities and (b) the
Assumed Agreements Liabilities in each case that are to be performed after the
Closing Date. Reinsurer does not agree to and shall not assume any other
liabilities of any kind or description.
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ARTICLE 4
Coinsurance Provisions
----------------------
Section 4.01. Policy Changes. Ceding Company agrees that it shall not
make any changes after the Effective Date in the provisions and conditions of a
Coinsured Policy except with Reinsurer's prior written consent or to the extent
that any change to the terms of any Coinsured Policy is required under any
applicable Law. Both parties agree to cooperate in the making or implementation
of such changes.
Section 4.02. Nonguaranteed Provisions.
(a) Closed Block Policies - General. After the Contract Date and until
the Closing Date, nonguaranteed policy provisions of the Closed Block Policies
(collectively, "Nonguaranteed Provisions"), including without limitation
dividends, mortality charges, expense charges, indeterminate premium rates and
interest rates, shall continue as in effect until the Closing, unless the
parties otherwise mutually agree. After the Closing Date, subject to the
requirements of the Closed Block Memorandum, Reinsurer may implement, in the
name of Ceding Company, changes to such Nonguaranteed Provisions. All changes to
any Nonguaranteed Provisions with respect to the Closed Block Policies shall
comply in all respects with the written terms of the Coinsured Policies, the
Closed Block Memorandum, applicable Law and Actuarial Standards of Practice
promulgated by the Actuarial Standards Board governing redetermination of
nonguaranteed charges. The board of directors of Ceding Company, upon request by
Reinsurer, shall adopt such corporate approvals of any changes to such
Nonguaranteed Provisions as Reinsurer shall deem reasonably necessary.
(b) Non-Closed Block Policies. After the Contract Date and until the
Closing Date, Nonguaranteed Provisions of the Non-Closed Block Policies,
including without limitation dividends, mortality charges, expense charges,
indeterminate premium rates and interest rates, shall continue as in effect
until the Closing, unless the parties otherwise mutually agree. After the
Closing Date, Reinsurer may implement, in the name of Ceding Company, changes to
such Nonguaranteed Provisions. All changes to any Nonguaranteed Provisions of
the Non-Closed Block Policies shall comply in all respects with the written
terms of the Coinsured Policies, applicable Law and Actuarial Standards of
Practice promulgated by the Actuarial Standards Board governing redetermination
of nonguaranteed charges. The board of directors of Ceding Company, upon request
by Reinsurer, shall adopt such corporate approvals of any changes to such
Nonguaranteed Provisions as Reinsurer shall deem reasonably necessary.
Section 4.03. Downgrade. If Ceding Company's A.M. Best's rating drops
below "A-", Ceding Company agrees that Reinsurer shall have the right, upon
written notice to Ceding Company, at its option and at its expense, to assume on
a novation basis the Coinsured Policies, subject to receipt by Ceding Company
and Reinsurer of any required regulatory approvals, amendments to the plan of
demutualization of Ceding Company, a vote of policyholders and other approvals
as may be necessary pursuant to the Closed Block.
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Section 4.04. Conversions. Reinsurer agrees that it will issue and
service individual conversion policies on behalf of Ceding Company with regard
to Coinsured Policies upon exercise by the owner of the contractual right to
convert. Ceding Company agrees to have all required policy forms filed and
approved in all applicable states in order that conversion requests and changes
to existing insurance coverage may be processed pursuant to such contractual
rights.
Section 4.05. Reinstatements. A lapsed, surrendered or terminated policy
that would have been a Coinsured Policy had it been in force on the Effective
Date that later reinstates pursuant to policy provisions, will be reinsured
hereunder automatically. Premiums and interest on such reinstated and reinsured
policies shall be payable to Reinsurer for the period on and after the Effective
Date to the extent that Ceding Company received from the policyholders premiums
and interest on such policies.
Section 4.06. Trust Accounts and Trust Agreement.
(a) On the Closing Date, Reinsurer and Ceding Company will enter into the
Trust Agreement. Reinsurer will establish thereunder two trust accounts (the
"Trust Accounts") to be identified as the "Closed Block Assets Account" and the
"Additional Assets Account".
(b) Reinsurer agrees to transfer to the Closed Block Assets Account the
assets of Ceding Company allocated to the Closed Block and transferred by Ceding
Company to Reinsurer pursuant to the terms of this Agreement. In addition,
Reinsurer agrees to transfer to the Closed Block Assets Account on a monthly
basis, not later than the 15th day of the following month, an amount equal to
the Net Closed Block Cash Flow for each month during the period that Reinsurer
is required to maintain the Closed Block Assets Account.
(c) Reinsurer agrees to transfer to, and maintain in, the Additional
Assets Account assets having a statutory book value not less than an amount
equal to the Agreed Reserves. Assets in the Additional Assets Account shall be
held in trust by Trustee in accordance with the terms of this Agreement and the
Trust Agreement until such time as the Agreed Reserves are less than $25,000,000
and Ceding Company has received any required approval of the Director of
Banking, Commerce and Insurance of the State of Oregon.
(d) Assets deposited in the Trust Accounts shall be valued according to
their current statutory book value and shall consist only of investments of the
type specified in the Trust Agreement.
(e) Assets in the Closed Block Assets Account may be withdrawn by
Reinsurer on a quarterly basis in accordance with the procedures set forth in
the Trust Agreement in order to (i) reimburse Reinsurer for Policy Liabilities
paid by Reinsurer that relate to the Closed Block Policies, (ii) pay to the
Reinsurer the amounts due Reinsurer under the Closed Block Memorandum and (iii)
to reimburse Reinsurer for premiums paid under the Reinsurance Agreements for
reinsurance of Ceding Company's liabilities under the Closed Block Policies, in
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each instance to the extent not deducted from the cash flow under such Closed
Block Policies in determining Net Closed Block Cash Flow.
(f) Assets in the Additional Assets Account may be withdrawn by Reinsurer
in accordance with the procedures set forth in the Trust Agreement, provided
that either:
(i) Reinsurer shall, at the time of any such withdrawal and transfer,
replace the withdrawn assets with other assets that constitute an
authorized investment of the Additional Assets Account, having a statutory
book value at least equal to the statutory book value of the assets so
withdrawn, in order to maintain in the Additional Assets Account assets
having a statutory book value at least equal to the Agreed Reserves, or
(ii) after such withdrawal and transfer, the statutory book value of
the assets remaining in the Additional Assets Account is not less than the
Agreed Reserves.
(g) Assets in the Trust Accounts may be withdrawn by Ceding Company in
accordance with the procedures set forth in the Trust Agreement, provided that
such assets are applied and utilized by Ceding Company, without diminution
because of the insolvency of Ceding Company or the Reinsurer, to reimburse
Ceding Company for Reinsurer's share of Policy Liabilities paid by Ceding
Company, to the extent not paid directly by Reinsurer when due pursuant to the
terms of Service Agreement No. 2. In the event that Ceding Company withdraws
assets from the Trust Accounts in excess of actual amounts permitted to be
withdrawn pursuant to the preceding sentence, Ceding Company will return such
excess to the Trust Account or Accounts from which it was withdrawn, plus
interest on such excess at the 90-Day Treasury Rate in effect on the date of
such withdrawal. Without limiting the foregoing, no withdrawal from the Trust
Accounts shall be made by Ceding Company unless Reinsurer shall have (a) filed a
voluntary petition or commenced a voluntary case seeking liquidation, winding-
up, reorganization, dissolution, arrangement, readjustment of debts or any other
relief under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect or if such a petition shall
have been filed against Reinsurer and not controverted in a timely and
appropriate manner, (b) applied for or consented to the appointment of or taking
possession by a custodian, trustee, receiver or similar official for or of
itself or all or a substantial part of its properties or assets, (c) failed
generally, or admitted in writing its inability, to pay its debts generally as
they become due, (d) made a general assignment for the benefit of creditors or
(f) taken formal corporate action to authorize or approve any of the foregoing.
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ARTICLE 5
Accounting, Payments, and Procedures
------------------------------------
Section 5.01. Effective Date Accounting.
(a) On or before the Closing Date, Ceding Company shall have prepared and
delivered to Reinsurer, as of the Effective Date, an accounting (the
"Preliminary Effective Date Accounting") of all liabilities (except those
related to death claims incurred prior to the Effective Date on the Non-Closed
Block Policies, which shall remain liabilities of Ceding Company) and related
assets customarily arising under statutory accounting principles with respect to
the Coinsured Policies, substantially in the form set forth in Exhibit B. Such
accounting shall be reviewed and certified by a Fellow of the Society of
Actuaries familiar with the business of Ceding Company. It is anticipated that
all liabilities and assets arising from or relating to the Coinsured Policies
shall be reflected in the Preliminary Effective Date Accounting and omission of
an item from Exhibit B which properly relates to the Coinsured Policies shall
not be cause for omission of such item from the Preliminary Effective Date
Accounting. Exhibit B will be prepared in accordance with Oregon SAP applied on
a basis consistent with the Annual Statement and reflected in the Reports, will
present fairly the items reflected therein in accordance with sound actuarial
principles as of the date of such Preliminary Effective Date Accounting, and
will be in an amount not less favorable to Reinsurer than the amount included in
Ceding Company's Annual Statement. Ceding Company agrees to supply Reinsurer a
copy of all computer runs, work papers and supporting data (collectively, the
"Supporting Data") used in preparing the Preliminary Effective Date Accounting.
(b) Within 45 days after the Closing Date, Ceding Company shall prepare
and deliver to Reinsurer the "Proposed Final Effective Date Accounting" in the
format outlined as Exhibit B, prepared in accordance with the procedures
utilized by the Ceding Company for purposes of preparing the Preliminary
Effective Date Accounting, which shall represent the Ceding Company's proposal
for the Final Effective Date Accounting. Ceding Company agrees to supply
Reinsurer with the Supporting Data used in preparing the Proposed Final
Effective Date Accounting. Reinsurer shall have 30 days after the receipt of the
Proposed Final Effective Date Accounting (the "Review Period") to review the
Proposed Final Effective Date Accounting and Supporting Data and to suggest
changes therein. If at the end of the Review Period, Ceding Company and
Reinsurer are able to agree in writing on the manner in which all items in the
Proposed Final Effective Date Accounting should be treated, then the resulting
accounting shall be binding on both parties and shall be referred to as the
"Final Effective Date Accounting." If at the end of the Review Period Ceding
Company and Reinsurer are unable to agree on the Final Effective Date
Accounting, then all items remaining in dispute shall be submitted to Milliman &
Robertson, Inc. (the "Neutral Auditors"). The Neutral Auditors shall act as
experts and not as arbitrators to determine the resolution of those issues (and
only those issues) still in dispute. The Neutral Auditors' determination shall
be made within 30 days after the end of the Review Period,
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shall be set forth in a written statement delivered to Ceding Company and
Reinsurer and shall be final, binding and conclusive, subject to any breach in
the warranties set forth herein, and the Proposed Effective Date Accounting,
adjusted to give effect to such determination and any other agreement of the
parties, shall in that case be referred to as the Final Effective Date
Accounting. Fees and expenses of the Neutral Auditors shall be borne equally by
both parties.
(c) Within 5 business days after the Final Effective Date Accounting has
been agreed to: (i) if the Cash Transfer Amount Before Interest (as defined on
Exhibit B) exceeds the Cash Transfer Amount Before Interest on the Preliminary
Effective Date Accounting, Ceding Company shall pay to Reinsurer cash in an
amount equal to such excess; (ii) if the Cash Transfer Amount Before Interest is
less than the Cash Transfer Amount Before Interest on the Preliminary Effective
Date Accounting, Reinsurer shall pay to Ceding Company cash in an amount equal
to such deficiency. Cash transferred pursuant to clause (i) or (ii) of this
Section shall be by wire transfer to the bank account designated by Reinsurer or
Ceding Company, as appropriate.
(d) Any amount due pursuant to Section 5.01(c) shall include interest
thereon from the Effective Date through the payment date, calculated based on
the rates specified on Exhibit B.
(e) Ceding Company warrants that all of the entries, information, tables
and narratives contained in any and all such Accountings will be reviewed and
certified by a Fellow of the Society of Actuaries familiar with the business of
Ceding Company and that all such Accountings will be prepared in good faith and
will be true and correct in all material respects and will be prepared in
accordance with Oregon SAP applied on a basis consistent with the Annual
Statement and reflected in the Reports, and will present fairly the items
reflected therein in accordance with sound actuarial principles as of the date
of such Accountings.
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Section 5.02. Monthly Accountings. A Monthly Accounting substantially in
the form set forth in Exhibit C (the "Monthly Accountings") for any full month
or partial month between the Effective Date and the Business Transfer Date shall
be due 10 business days after the end of each month. If the Closing Date does
not occur within 31 days after the Effective Date, any Monthly Accountings for
months prior to the Closing Date will not be due until after the Closing Date.
Each Monthly Accounting shall be reviewed and certified by a Fellow of the
Society of Actuaries familiar with the business of Ceding Company will be
prepared in accordance with Oregon SAP applied on a basis consistent with the
Annual Statement and reflected in the Reports, will present fairly the items
reflected therein in accordance with sound actuarial principles as of the date
of such Monthly Accounting. Ceding Company agrees to supply Reinsurer a copy of
all Supporting Data used in preparing the Monthly Accountings. If any Monthly
Accounting reflects a balance due Reinsurer, it shall be paid in cash by Ceding
Company with the Monthly Accounting. If any Monthly Accounting reflects a
balance due Ceding Company, Reinsurer shall pay such balance to Ceding Company
within 10 business days of receiving such Monthly Accounting.
Section 5.03. Adjustments Regarding Monthly Accountings.
(a) In the event that subsequent data or calculations require revision of
any of the Monthly Accountings, the required revision and appropriate payments
(together with interest thereon at the daily rate of .0174%) thereunder shall be
made within 10 business days after the parties hereto mutually agree as to the
appropriate revision.
(b) In the event that Reinsurer notifies Ceding Company of any objections
and/or discrepancies with respect to the Monthly Accountings, both parties agree
to work and cooperate in good faith to resolve said objections or discrepancies.
In the event the parties are unable to reach an amicable resolution or
understanding with respect to any such discrepancies or objections, the parties
agree that such dispute will be submitted to the Neutral Auditors for
resolution.
Section 5.04. Ceding Commission. Reinsurer shall provide Ceding Company
with a Ceding Commission of $90 million, plus interest at a rate of .0174% per
day times the number of days from the Effective Date to the Closing Date,
payable by wire transfer at the Closing (the "Ceding Commission"), subject to
adjustment as set forth in Section 5.06.
Section 5.05. Transfer of Assets by Ceding Company. At the Closing,
Ceding Company shall deliver to Reinsurer the Preliminary Effective Date
Accounting and any Monthly Accountings. In addition, at the Closing, Ceding
Company shall transfer to the trustee under the Trust Agreement, for the benefit
of the Reinsurer, (a) the Closed Block Assets and (b) the Cash Transfer Amount
Before Interest, as set forth on Exhibit B.
Section 5.06. Ceding Commission Adjustment. The amount of the Ceding
Commission provided for in Section 5.04 was computed based on the Coinsured
Policies as of
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December 31, 1999. The parties agree that the Ceding Commission will be adjusted
in accordance with Exhibit E (the "Ceding Commission Adjustment") to reflect the
Coinsured Policies as of the Effective Date. If the Closing occurs prior to the
availability of the "updated projection" (as defined in Exhibit E), as soon as
practicable after the Effective Date, the parties shall obtain from Milliman and
Robertson the updated projection. In the event the Ceding Commission Adjustment
is a reduction in the Ceding Commission, Ceding Company shall pay to Reinsurer
within 10 days of the computation of the Ceding Commission Adjustment the amount
of the Ceding Commission Adjustment, plus interest thereon at the rate of .0174%
from the Effective Date. In the event the Ceding Commission Adjustment is an
increase in the Ceding Commission, Reinsurer shall pay to Ceding Company within
10 days of the computation of the Ceding Commission Adjustment the amount of the
Ceding Commission Adjustment, plus interest thereon at the rate of .0174% from
the Effective Date.
Section 5.07. DAC Tax Calculations. Ceding Company and Reinsurer agree to
the following pursuant to Treasury Regulation (S)1.848:
(a) The term "party" will refer to either Ceding Company or Reinsurer
as appropriate.
(b) The terms used in this Section are defined by reference to
Treasury Regulation (S)1.848-2 in effect on the Effective Date.
(c) For each taxable year beginning after December 31, 2000, the
party with net positive consideration for this Agreement for a particular
taxable year will capitalize specified policy acquisition expenses with
respect to this Agreement without regard to the general deductions
limitation of Section 848(c)(1) of the Code.
(d) Both parties agree to exchange information pertaining to the
amount of net consideration under this Agreement each year to ensure
consistency or as otherwise required by the IRS.
(e) The exchange of information will follow the following procedure:
By May 15 of each year, Reinsurer will submit a schedule to
Ceding Company of its calculation of the net consideration for the
preceding calendar year. This schedule of calculations will be accompanied
by a statement signed by an officer of Reinsurer stating the amount of net
consideration Reinsurer will report in its tax return for the preceding
calendar year. To ensure consistency, Ceding Company will utilize this
information in determining its net consideration for its preceding tax
year. Ceding Company shall advise Reinsurer if it disagrees with the
calculations provided and the parties agree to act in good faith to resolve
such differences amicably.
15
(f) Both parties agree to attach a schedule to their 2001 Federal
Income Tax Return as required by Treasury Regulation (S)1.848-2(g)(8).
(g) Both parties warrant that they are U.S. taxpayers as defined by
Treasury Regulation (S)1.848-2(h)(2)(ii).
(h) In regards to the Coinsured Policies, Reinsurer shall calculate
and pay to the Ceding Company annually
[(a)-(b)]X[1 + i(.73)]
(the "DAC Tax Reimbursement")
where
"a" is equal to 4.33% of the net consideration (as that term is defined in
Treasury Regulation 1.848-2(f), and adjusted herein provided) which arises under
this Agreement and is attributable to specified insurance contracts that is
included in the net premiums of Ceding Company, which shall be expressed as a
positive amount, or the Reinsurer, which shall be expressed as a negative
amount, and reduces net premiums of the other party for purposes of Section 848
of the Internal Revenue Code; and
Note: 4.33% = (35%) (7.7%) / (100%- 35% - 2.7%) where 35% is the highest
corporate federal income tax rate specified in Section 11 of the Code (the "Tax
Rate"), 7.7% is the applicable percentage under Section 848 of the Code for
determining specified policy acquisition expenses, and 2.7% is (35%) (7.7%).
This factor subject to change in the event there is future change in the Tax
Rate or such applicable percentage or the definition of net consideration.
"b" is equal to 1.0433 multiplied by the sum of the following:
5% of the amount in (a) for the current calendar year
10% of the amount in (a) for each of the 9 preceding calendar years
5% of the amount in (a) for the 10th preceding calendar year,
For Closed Block Policies, this calculation shall relate to calendar years 1999
and after. For Non-Closed Block Policies, this calculation shall relate to
calendar years 2001 and after.
In the event of a future change in the Tax Rate, these amounts would be
adjusted.
"i" is equal to the 5-year U.S. Treasury Bill rates at the end of the year for
which the reimbursement related, expressed as a decimal (e.g. 4% shall be
expressed as .04).
For purposes of this Section, net consideration shall be determined without
regard to the initial
16
transfer of assets from the Ceding Company to Reinsurer under this Agreement and
the amount of premiums or other consideration collected from policyholders and
transferred to Reinsurer under this Agreement, or deemed so transferred for
purposes of determining net consideration under this Agreement, and any DAC Tax
Reimbursement.
In the event [(a)-(b)]X[1 + i(.73)] is negative, a payment of the absolute value
of such amount will be made by Ceding Company to Reinsurer. Such payments would
continue to be made after termination of this Agreement unless the parties agree
to an alternative settlement at the time of termination.
It is understood and agreed that this adjustment approach will be modified to
yield the same economic effect in the event that Section 848 of the Internal
Revenue Code is amended in the future or in the event that regulations issued
pursuant to Section 848 of the Code are amended or amendments thereto.
The payment required to be made under this Section shall be payable by no later
than ten (10) working days after May 15, the date by which information
concerning DAC tax must be provided under this Section of this Agreement.
An example of the calculation of DAC Tax Reimbursement is set forth on Exhibit
G.
Section 5.08. Policyholder Dividend Guarantee. On or before December 31
of each year (beginning in 2000), Ceding Company's board of directors will
guarantee policyholder dividends in an amount determined by Reinsurer to be the
estimated policyholder dividend payments through September 15 of the following
year related to the Coinsured Policies. In no event will the guarantee exceed
the amount that has been accrued on the statutory books of the Ceding Company
related to the Coinsured Policies.
ARTICLE 6
Service Agreement No. 1
-----------------------
Section 6.01. Administration and Servicing. Between the Effective Date
and the Business Transfer Date, Ceding Company agrees to provide all necessary
Policyholder Service with respect to the Coinsured Policies and promptly to
supply to Reinsurer copies of accounting and other records pertaining to such
service when requested by Reinsurer or required under the terms of this
Agreement. Such Policyholder Service shall include but not be limited to the
following:
(a) Billing and collection of premiums;
(b) Payment of claims;
(c) Handling of Policyholder Service matters under the Coinsured
Policies;
(d) Preparation of quarterly and annual financial statement data,
where applicable, for inclusion in Reinsurer's financial
statements;
17
(e) Provision of Monthly Accountings pursuant to Section 5.02;
(f) Payment of any agent commissions and service fees due and
payable;
(g) Underwriting and issuing any Coinsured Policies
(h) Payment of dividends;
(i) Payment of guaranty fund assessments; and
(j) Payment of any other Policy Liabilities.
In addition, Ceding Company shall provide to Reinsurer (i) monthly accounting
data relating to transactions carried out by it in connection with the Coinsured
Policies; (ii) if the Closing occurs prior to January 1, 2001, all summaries and
work papers required by Reinsurer to be used in preparing Reinsurer's 2000
statutory and GAAP financial statements; (iii) if the Closing occurs prior to
January 1, 2001, cash-flow testing summaries and a memorandum comparable to
Ceding Company's 1999 cash-flow testing summaries and memorandum suitable for
Reinsurer to rely upon in preparing its year-end 2000 Actuarial Opinion and
Memorandum; and (iv) servicing and administration of the Reinsurance Agreements
through the Closing Date, including determination of the statutory reserves
applicable thereto.
In consideration of Ceding Company's performance of such services,
Reinsurer will provide to Ceding Company expense allowances as follows:
Monthly Fee, Based on the Average Number
Type of Policy of Policies in Force During the Month
-------------- ----------------------------------------
Universal Life $3.00/policy
Traditional Life $2.08/policy
The expense allowance shall be prorated for any partial months.
In consideration of Ceding Company's underwriting and issue services,
Reinsurer will compensate Ceding Company as follows:
Fee for Policies Paid for During the Period: $100 per policy and $1.00 per
$1,000 of face amount of
policy
Upon receipt of a complaint from or on behalf of any policyholder, Ceding
Company shall promptly forward a copy of any such complaint to Reinsurer and a
copy of the proposed response by Ceding Company. Reinsurer shall promptly
direct Ceding Company with respect to the proposed response and any
modifications thereto that Reinsurer desires.
Between the Effective Date and the Business Transfer Date, Reinsurer shall
be provided with and be given the opportunity to review all proposed claim
denials.
18
On the Business Transfer Date, Ceding Company shall provide to Reinsurer a
schedule in the form provided pursuant to Section 15.07 listing the Non-Closed
Block Policies that have been issued since the Effective Date and prior to the
Business Transfer Date.
ARTICLE 7
Service Agreement No. 2
-----------------------
Section 7.01. Administration and Servicing. After the Business Transfer
Date, Reinsurer or its designee agrees to provide, at its own expense, all
necessary Policyholder Services with respect to the Coinsured Policies. Such
Policyholder Service shall include but not be limited to the following:
(a) Billing and collection of premiums;
(b) Payment of claims;
(c) Handling of Policyholder Service matters under the Coinsured
Policies;
(d) Preparation of all Form 1099's and compliance with all
withholding and tax reporting requirements;
(e) Except as set forth in Section 6.01 hereof, administration of the
Assumed Agreements and payment of reinsurance premiums under the
Reinsurance Agreements;
(f) Payment of agent commissions and service fees due and payable,
and compliance with all withholding and tax reporting
requirements;
(g) Payment of dividends;
(h) Payment of guaranty fund assessments; and
(i) Payment of any other Policy Liabilities.
Reinsurer shall provide Policyholder Services in a manner that is
consistent with the terms of the applicable Coinsured Policies, the Closed Block
Memorandum, applicable Law and the practices of Reinsurer with respect to its
own business; provided that such service standards shall not be lower than then
current industry service standards. In providing such Policyholder Service,
Reinsurer may reasonably rely on the accuracy of the books and records of Ceding
Company prior to the Closing Date; provided, however, that if Reinsurer receives
information that would make reliance on such books and records unreasonable,
Reinsurer shall consult with Ceding Company.
19
The Reinsurer shall be responsible for maintaining proper records and for
handling the collection of premiums, payment of benefits, processing of policy
loans and other Policyholder Service. The Reinsurer will also be responsible for
computing reserves and other data necessary for the Ceding Company to file
statutory, generally accepted accounting principles, and tax financial
statements and shall provide to Ceding Company those materials required to meet
the filing obligations specific to the Closed Block.
Section 7.02. Provision of Information.
(a) Within 5 business days after the end of each calendar month, Reinsurer
shall provide Ceding Company with a summary report and accounting of all
transactions for the Coinsured Policies that have occurred during that month.
(b) Within 10 business days of the end of each quarter, Reinsurer shall
provide Ceding Company with all accounting and actuarial information related to
the Coinsured Policies which is necessary to timely meet statutory, tax or GAAP
accounting requirements, including, but not limited to, preparation of quarterly
and annual financial statement data. The only exception to the above may be
data required for preparation of state pages; said information will be provided
within 20 business days of the end of each calendar year.
(c) Reinsurer shall provide a final accounting to Ceding Company within 20
business days following the end of the month during which the termination of
this Agreement occurs.
Section 7.03. Claims-Payment Instructions. - Reinsurer will perform the
post-Business Transfer Date claims administration and processing of the
Coinsured Policies. Such administration shall include but not be limited to the
following:
(a) Provide claimants with appropriate forms and explanatory guidance
(b) Review all claims to determine eligibility for, extent, and nature of
benefits
With respect to payment of claims under the Coinsured Policies, Reinsurer shall
be entitled to rely on the express, written contractual terms of the Coinsured
Policies. Reinsurer shall promptly notify Ceding Company of any claim it is
disputing. If Ceding Company instructs Reinsurer to pay a claim that Reinsurer
disputes under the written contractual terms of the Coinsured Policy, Ceding
Company shall pay Reinsurer the amount of the claim and Reinsurer shall pay the
claim; thereafter, Ceding Company may submit to arbitration (as provided for in
Article 12 hereof) the issue as to whether the claim was properly payable, and
the parties shall make appropriate adjustments upon receipt of the arbitration
results.
In any case when Reinsurer is notified by Ceding Company or otherwise
becomes aware that any contractually payable claim giving rise to benefits under
any Non-Closed Block Policy was incurred prior to the Effective Date, Ceding
Company shall pay such claim and Reinsurer shall promptly pay to Ceding Company
the sum of the amounts of (i) the reserves originally
20
transferred to Reinsurer with respect to such Non-Closed Block Policy and (ii)
any premiums with respect to such Non-Closed Block Policy received by Reinsurer
and attributable to any period subsequent to the Effective Date.
Section 7.04. Complaint-Handling Procedure. The parties will cooperate
with each other in providing information necessary to respond to any complaints
concerning the Coinsured Policies. After the Business Transfer Date, Reinsurer
shall answer all complaints received by it concerning the Coinsured Policies.
All complaints concerning the Coinsured Policies received by Ceding Company
after the Business Transfer Date shall be promptly forwarded to a contact person
designated by Reinsurer for reply. Upon answering such complaints, Reinsurer
will furnish Ceding Company with a copy of the complaint file. Ceding Company
shall be solely responsible for maintaining any complaint files, complaint
registers or other reports of any kind, which are required to be maintained
under applicable state laws. Reinsurer shall also maintain complaint files and
registers and shall provide Ceding Company with copies of complaint registers
concerning Coinsured Policies quarterly or upon request by Ceding Company.
Ceding Company shall also be responsible for preparing and submitting any other
complaint filings as required by applicable Law.
Section 7.05. Notification of Policyholders. Reinsurer agrees to send to
the policyholders and the intermediaries, brokers and service providers a
written notice prepared by Reinsurer and reasonably acceptable to Ceding Company
to the effect that Reinsurer has been appointed by Ceding Company to provide
Policyholder Services. Reinsurer shall send such notice by first class U. S.
mail at a time reasonably acceptable to Ceding Company and Reinsurer.
Section 7.06. Subcontractors. Reinsurer, at its sole discretion, may
contract with third parties, including affiliates of Reinsurer, as
subcontractors to perform all or part of the Policyholder Services required
during the term of this Agreement, provided that no such subcontracting shall
relieve Reinsurer of any of its obligations under this Agreement.
Section 7.07. Group Conversions. In order to meet Ceding Company's need
to issue individual policies upon exercise of the contractual right to convert
contained within its group policies, if requested to do so by Ceding Company,
Reinsurer will issue such policies ("Individual Group Conversion Policies")
after the Business Transfer Date, on Ceding Company's behalf, using a Ceding
Company policy form in effect at such time which has been filed with and
approved by the applicable state insurance department. If Ceding Company
requests that Reinsurer provide such service, the Individual Group Conversion
Policies shall be issued pursuant to an agreement regarding the provision of
administrative services to be entered into by Ceding Company and Reinsurer,
which agreement shall be satisfactory to each of them. Any group policy that is
converted between the Effective Date and the Business Transfer Date would be
included under such agreement for administrative services. Individual Group
Conversion Policies and any other policies included under such agreement will
not be Coinsured Policies.
21
ARTICLE 8
Representations and Warranties of Ceding Company
------------------------------------------------
Ceding Company represents and warrants that:
Section 8.01. Authority. Ceding Company is a corporation duly organized
as a stock life and health insurance company, validly existing under the laws of
the State of Oregon and is duly authorized to conduct business in all other
states where the Coinsured Policies were issued and/or delivered. Ceding Company
has the full corporate power and authority to carry out and perform its
undertakings and obligations under this Agreement and the Trust Agreement. The
execution and delivery by Ceding Company of this Agreement and the Trust
Agreement and the consummation by Ceding Company of the transactions provided
for hereunder and thereunder have been duly authorized by all proper and
requisite proceedings and will not conflict with, constitute a default under or
breach any provision of the Certificate of Incorporation or Bylaws of Ceding
Company, or any material provision of any other instrument to which Ceding
Company is a party or by which it is bound, or any Law applicable to Ceding
Company or any order, writ, injunction or decree of any Governmental Entity
directed against Ceding Company. This Agreement has been, and as of the Closing
Date the Trust Agreement will be, duly and validly executed and delivered by
Ceding Company. Assuming due authorization, execution and delivery by the other
parties hereto and thereto, this Agreement is, and as of the Closing Date the
Trust Agreement will be, legal, valid and binding obligations of Ceding Company
enforceable against it in accordance with their respective terms. Ceding Company
shall at all times maintain in force all such legal and regulatory
authorizations as may be necessary or appropriate for the performance of its
obligations under this Agreement and the Trust Agreement.
Section 8.02. Compliance with Law.
(a) The Coinsured Policies are, and the sale, marketing and administration
thereof have been conducted, in compliance in all material respects with all
Laws applicable to the Coinsured Policies.
(b) The tax treatment under the Code of all Coinsured Policies is and at
all times has been the same or more favorable to the purchaser, policyholder or
intended beneficiaries thereof as the tax treatment under the Code for which the
Coinsured Policies were purported to qualify or were treated as qualifying, and
Ceding Company has complied in all material respects with all requirements of
the Code with respect to the Coinsured Policies, including without limitation
withholding and reporting requirements. For purposes of this Section 8.02, the
provisions of the Code relating to the tax treatment of the Coinsured Policies
shall include, but not be limited to, Sections 72, 79, 101, 401, 403, 408, 818,
7702, and 7702A.
Section 8.03. Assumed Agreements. Ceding Company has heretofore provided
to
22
Reinsurer a true and correct copy of each of the Assumed Agreements. Ceding
Company has duly and punctually performed all material terms, conditions,
covenants and warranties of the Assumed Agreements. To the best of Ceding
Company's knowledge, the other parties to such Assumed Agreements are not in
default under any of the material terms thereof. Ceding Company has not waived
any defenses, claims or actions which would have been available to Ceding
Company with respect thereto. Ceding Company knows of no other agreements
concerning commissions payable on the Coinsured Policies. Schedule 8.03 sets
forth a complete and accurate listing and description of all Reinsurance
Agreements.
Section 8.04. Coinsured Policies. Each of the Coinsured Policies has been
validly issued and is in full force and effect. Ceding Company has made
available to Reinsurer true and correct copies of specimen policies, with
specimen data pages for each of the policy forms included in the Coinsured
Policies. No Coinsured Policy contains any provision (including without
limitation any endorsement, application or schedule page) that restricts the
amount of premiums, costs of insurance or mortality charges or expense charges
that can be collected or charged under the policy, or that sets forth required
interest crediting rates, dividend rates, cash values, policy values or
surrender values, unless in each case such provision is specifically taken into
account in the calculation of Ceding Company's reserves for that Coinsured
Policy. There are no restrictions or limitations with respect to the
Nonguaranteed Provisions other than the guarantees contained in the policy forms
heretofore provided to Reinsurer, and all policy provisions are accurately
reflected in the statutory reserve calculation for the Coinsured Policies.
Section 8.05. Books and Records. The books and records relating to the
coinsured Policies are true, complete and correct in all material respects, have
been maintained in accordance with sound business practices and accurately
present and reflect in all material aspects all of the transactions and actions
regarding the Coinsured Policies. Ceding Company has provided or made available
to Reinsurer on or prior to the date hereof copies of all written policies,
procedures and guidelines relating to the Coinsured Policies, including all
underwriting policies, procedures and guidelines, other than those written
policies, procedures and guidelines which are not material to the conduct or
operation of the Coinsured Policies. Ceding Company has not waived any defenses,
claims or actions which would have been available to Ceding Company with respect
to the Coinsured Policies.
Section 8.06. Nonguaranteed Provisions. Ceding Company has complied and
is in compliance in all material respects with all Nonguaranteed Provisions
concerning the Coinsured Policies and all supporting documents relating to
changes in any such Nonguaranteed Provisions have been provided to Reinsurer.
Section 8.07. Litigation. Other than routine claims for Policy
Liabilities, except as set forth in Schedule 8.07, to the knowledge of Ceding
Company, there are no claims, actions, suits, proceedings or investigations
pending, or threatened against, the Ceding Company involving any of the
Coinsured Policies, the Assumed Agreements or any of the rights or assets to be
transferred hereunder or the transactions provided for in this Agreement, and
Ceding Company
23
does not have any knowledge of any specific dispute or controversy or pattern of
alleged improper conduct relating to any of the Coinsured Policies or the
Assumed Agreements that reasonably may be expected to give rise to any claim,
action, suit, proceeding or investigation involving or against the Ceding
Company.
Section 8.08. Reserves. Ceding Company represents and warrants that (a)
it has established and maintained as a liability on its statutory statements not
less than the statutory reserves and claims reserves required by Oregon SAP and
(b) it has made no commitments to any Governmental Entities to hold policy
reserves which exceed those required by applicable statute or regulation.
Section 8.09. Ratings. Ceding Company has no reason to believe as of the
date hereof that any of its financial ratings will be adversely affected by the
consummation of the transactions contemplated by this Agreement.
Section 8.10. Ceding Company Financial Statements.
(a) Ceding Company has previously delivered to Reinsurer true, complete
and correct copies of the audited balance sheet of Ceding Company for the years
ended December 31, 1998 and 1999, together with the related audited statements
of income for the years then ended (collectively, the "Ceding Company GAAP
Statements"). Except as set forth therein or in the notes thereto, the Ceding
Company GAAP Statements present fairly, in all material respects, the financial
position, results of operations and cash flows of Ceding Company at the
respective dates and for the respective periods covered thereby in accordance
with generally accepted accounting principles, applied on a consistent basis
throughout the periods indicated, except as otherwise specifically noted
therein.
(b) Ceding Company has previously delivered to Reinsurer true, complete
and correct copies of the annual statements of Ceding Company as filed with the
Insurance Department of the State of Oregon for the years ended December 31,
1998 and 1999, together with all exhibits and schedules thereto (collectively,
the "Ceding Company SAP Statements"). The Ceding Company SAP Statements present
fairly, in all material respects, the statutory financial condition of Ceding
Company at the respective dates thereof, and the statutory results of operations
for the periods then ended in accordance with SAP, applied on a consistent basis
throughout the periods indicated and consistent with each other, except as
otherwise specifically noted therein.
Section 8.11. Absence of Certain Changes. Since December 31, 1999, there
has not been any change, event, occurrence, circumstance, fact or other matter
that has had or is likely to have a material adverse effect on Ceding Company.
Section 8.12. Resources. Ceding Company has sufficient expertise, trained
personnel, resources, systems, controls and procedures (financial, legal,
accounting, administrative or otherwise) as may be necessary or appropriate to
discharge its obligations from the Effective
24
Date to the Business Transfer Date under the terms of this Agreement and the
Trust Agreement.
ARTICLE 9
Representations and Warranties of Reinsurer
-------------------------------------------
Reinsurer represents and warrants that:
Section 9.01. Authority. Reinsurer is a corporation duly organized as a
capital stock legal reserve life and health insurance company, validly existing
under the laws of the State of Tennessee and is duly authorized to transact its
business in all other states, except New York. Reinsurer has the full corporate
power and authority to carry out and perform its undertakings and obligations
under this Agreement and the Trust Agreement. The execution and delivery by
Reinsurer of this Agreement and the Trust Agreement and the consummation by
Reinsurer of the transactions provided for hereunder and thereunder have been
duly authorized by all proper and requisite proceedings and will not conflict
with, constitute a default under or breach any provision of the Articles of
Incorporation or Bylaws of Reinsurer, or any material provision of any other
instrument to which Reinsurer is a party or by which it is bound, or any Law
applicable to Reinsurer or any order, writ, injunction or decree of any
Governmental Entity directed against Reinsurer. This Agreement has been, and as
of the Closing Date the Trust Agreement will be, duly and validly executed and
delivered by Reinsurer. Assuming due authorization, execution and delivery by
the other parties hereto and thereto, this Agreement is, and as of the Closing
Date the Trust Agreement will be, legal, valid and binding obligations of
Reinsurer, enforceable against Reinsurer in accordance with their respective
terms. Reinsurer shall at all times maintain in force all such legal and
regulatory authorizations as may be necessary or appropriate for the performance
of its obligations under this Agreement and the Trust Agreement.
Section 9.02. Consents. No consent, approval or authorization of or
declaration or filing with, or notice to any Governmental Entity is required to
be obtained or made by or with respect to Reinsurer in connection with the
execution and delivery of this Agreement by Reinsurer or the consummation by
Reinsurer of the transactions contemplated hereby except for required regulatory
approvals and such other consents, approvals, authorizations, declarations,
filings or notices the failure to obtain or make which, in the aggregate would
not have a material adverse effect on Reinsurer.
Section 9.03. Compliance With Laws. Reinsurer is in compliance with
all applicable statutes, laws, ordinances, rules, regulations and orders of any
Governmental Entity, except for such noncompliance which individually or in the
aggregate would not have a material adverse effect on Reinsurer.
Section 9.04. Brokers. No broker, investment banker, financial
advisor or other person, the fees and expenses of which will be paid by
Reinsurer, is entitled to any broker's, finder's,
25
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Reinsurer.
Section 9.05. Ratings. Reinsurer has no reason to believe as of the date
hereof that any of its financial ratings will be adversely affected by the
consummation of the transactions contemplated by this Agreement.
Section 9.06. Reinsurer Financial Statements.
(a) Reinsurer has previously delivered to Ceding Company true, complete
and correct copies of the audited balance sheet of Reinsurer for the years ended
December 31, 1998 and 1999, together with the related audited statements of
income for the years then ended (collectively, the "Reinsurer GAAP Statements").
Except as set forth therein or in the notes thereto, the Reinsurer GAAP
Statements present fairly, in all material respects, the financial position,
results of operations and cash flows of Reinsurer at the respective dates and
for the respective periods covered thereby in accordance with generally accepted
accounting principles, applied on a consistent basis throughout the periods
indicated, except as otherwise specifically noted therein.
(b) Reinsurer has previously delivered to Ceding Company true, complete
and correct copies of the annual statements of Reinsurer as filed with the
Insurance Department of the State of Tennessee for the years ended December 31,
1998 and 1999, together with all exhibits and schedules thereto (collectively,
the "Reinsurer SAP Statements"). The Reinsurer SAP Statements present fairly, in
all material respects, the statutory financial condition of Reinsurer at the
respective dates thereof, and the statutory results of operations for the
periods then ended in accordance with applicable statutory accounting
principles, applied on a consistent basis throughout the periods indicated and
consistent with each other, except as otherwise specifically noted therein.
Section 9.07. Absence of Certain Changes. Since December 31, 1999, there
has not been any change, event, occurrence, circumstance, fact or other matter
that has had or is likely to have a material adverse effect on Reinsurer.
Section 9.08. Risk-Based Capital. The Total Adjusted Capital (as defined
in the NAIC Risk-Based Capital For Insurers Model Act) of Reinsurer exceeds 200%
of its Company Action Level (as defined in the NAIC Risk-Based Capital For
Insurers Model Act).
Section 9.09. Resources. Reinsurer has sufficient expertise, trained
personnel, resources, systems, controls and procedures (financial, legal,
accounting, administrative or otherwise) as may be necessary or appropriate to
discharge its obligations after the Business Transfer Date under the terms of
this Agreement and the Trust Agreement.
Section 9.10. Reserves. After the Closing Date, Reinsurer shall establish
and maintain
26
as a liability on its statutory statements not less than the statutory reserves
and claims reserves as required by applicable Law and in accordance with
Actuarial Standards of Practice as promulgated by the Actuarial Standards Board.
ARTICLE 10
Records, Fees, and Premium Ownership
------------------------------------
Section 10.01. Records. On the Business Transfer Date, Ceding Company
shall deliver to Reinsurer all policy records, files, charts, books, ledgers and
other documents or copies thereof relating to the servicing of the Coinsured
Policies, except such original records, files, charts, books, ledgers and other
documents required by Ceding Company to complete its activities relating to the
Coinsured Policies or pending litigation and such records as Reinsurer shall
advise Ceding Company not to destroy. Upon such completion, such records shall
then be delivered to Reinsurer. Included in the foregoing, without limitation,
shall be all records relating to development, marketing, reserving or approval
of the Coinsured Policies. Prior to the Business Transfer Date, all records,
books, files, ledgers, accounts and materials of any kind relating to the
Coinsured Policies shall be open to examination by Reinsurer at reasonable times
during Ceding Company's normal business hours. After the Business Transfer Date,
all records, books, files, ledgers, accounts and materials of any kind relating
to the Coinsured Policies shall be open to examination by Ceding Company at
reasonable times during Reinsurer's normal business hours.
Section 10.02. Fees. Except as specifically stated to the contrary in
this Agreement, each party shall be responsible for its own fees and expenses in
connection with the transactions provided for in this Agreement, including
without limitation attorneys', accountants', actuaries' and other similar fees.
Section 10.03. Ownership of Premiums. All monies, checks, drafts, money
orders, postal notes and other instruments received after the Business Transfer
Date by Ceding Company for premiums on the Coinsured Policies shall be held in
trust by Ceding Company for the benefit of Reinsurer and shall be forthwith
transferred and delivered to Reinsurer, and any such instruments when so
delivered shall bear all endorsements required to effect the transfer of same to
Reinsurer. Reinsurer shall be authorized to endorse for payment to Reinsurer any
such checks, drafts, money orders and other instruments pertaining to the
Coinsured Policies that are payable to, or to the order of, Ceding Company and
received by Reinsurer under this Agreement. As between Reinsurer and Ceding
Company, Reinsurer shall be deemed owner of all such payments.
Section 10.04. Authorizations. After the Effective Date and upon
Reinsurer's reasonable request, Ceding Company shall provide specific
authorizations for Reinsurer's employees to sign letters and acknowledge policy
modifications on behalf of Ceding Company concerning such matters which include,
but are not limited to, policy administration and claim matters. Notwithstanding
the failure of Ceding Company to grant specific authorizations,
27
Reinsurer shall be authorized hereunder to perform such acts with respect to the
Coinsured Policies and the Reinsurance Agreements reasonably necessary for the
performance of this Agreement. Ceding Company hereby authorizes Reinsurer to
endorse for deposit payments related to the Coinsured Policies into a bank
account or accounts controlled by Reinsurer.
Section 10.05. Bank Accounts. On or prior to the Business Transfer Date,
and with the specific approval in each case of Ceding Company, Reinsurer shall
be authorized by Ceding Company to open, transfer and/or maintain Bank Accounts
in Ceding Company's name for the limited purpose of processing payments relating
to the Coinsured Policies. Ceding Company agrees to do whatever is reasonable
necessary in order to give Reinsurer the authority to control such Bank
Accounts, to be funded entirely with funds of Reinsurer or funds due with
respect to the Coinsured Policies, and with respect to which Ceding Company
shall have no overdraft, transaction or maintenance fee, or other liability.
Section 10.06. Security Agreement. The parties hereto agree that as
security for all the Secured Obligations (as hereinafter defined), Ceding
Company does hereby grant, bargain, sell, convey, assign and otherwise pledge to
Reinsurer, all of Ceding Company's right, title and interest, if any (legal,
equitable or otherwise), to all premiums and fees due under the Coinsured
Policies after the Closing Date and any lockbox or account set up for the
receipt of said premiums and fees after the Closing Date (collectively, for
purposes of this Section 10.05, the "Collateral"). As used in this Section
10.05, "Secured Obligations" shall mean the obligations of Ceding Company
pursuant to this Article 10 and any other obligations of Ceding Company under
this Agreement. Upon the failure of Ceding Company to fully perform its
obligations and undertakings hereunder, Reinsurer shall have, in addition to all
other rights under this Agreement or under applicable Law, the following rights:
the right to exercise all rights and remedies granted a secured party under the
Uniform Commercial Code, as said code has been enacted in the State of Alabama
(the "UCC"), as though all the Collateral constituted property subject to a
security interest under Article 9 thereof; the right to set off; the right to
intercept and retain monies and property in the lockbox and otherwise; the right
to reasonable attorneys' fees incurred in connection with the enforcement of
this Agreement or in connection with disposition of the Collateral; and the
right to dispose of the Collateral, subject to commercial reasonableness. This
provision is being included in this Agreement to ensure that Reinsurer's rights
to the Collateral are protected if an insolvency or other court determines that,
notwithstanding Section 10.03 and the intent of this Agreement, Ceding Company
retained ownership of or any rights in the Collateral, and it is the intent of
the parties that this section be interpreted as such. Nothing contained herein
shall be construed to support the conclusion that Ceding Company will retain any
ownership of or any rights in the Collateral after the Closing.
Section 10.07. Financing Statements. Ceding Company shall execute and
deliver any and all financing statements reasonably requested by Reinsurer to
perfect Reinsurer's title under Article 9 of the Uniform Commercial Code to any
and all premiums or other amounts due Reinsurer and any other assets transferred
to Reinsurer pursuant to this Article 10.
28
ARTICLE 11
Indemnification and Survival
----------------------------
Section 11.01. Indemnification of Reinsurer. Ceding Company hereby agrees
to indemnify, defend, save and hold harmless Reinsurer, its successors and
permitted assigns, against and in respect of any and all liabilities, losses
(including refunded or foregone premiums), claims, obligations, damages, costs
and expenses, including, but not limited to, reasonable attorneys' fees
(collectively, the "Liabilities") resulting from or arising out of:
(a) the business of Ceding Company, other than the obligations
expressly transferred to and assumed by Reinsurer under this Agreement;
(b) any misrepresentation or breach of any agreement, covenant or
warranty made by Ceding Company in this Agreement or any third party
allegations that, if true, would mean the Ceding Company has breached any
such representation, agreement, covenant, or warranty (notwithstanding any
actual or constructive knowledge by Reinsurer of such matter,
misrepresentation or breach); and
(c) any litigation, arbitration or other recognized "alternative
dispute resolution" proceeding pending or threatened as of the Effective
Date with respect to any of the Coinsured Policies or any matter arising
out of the bad faith or willful misconduct of Ceding Company.
For purposes of subsection (b) above, each representation, warranty,
agreement and covenant in the Agreement shall be construed without any reference
to materiality or any knowledge limitation, it being the intent of the parties
that for purposes of indemnification no materiality limitation shall be
applicable and representations and warranties shall be considered as made
without limitation to Ceding Company's knowledge.
Ceding Company shall not be required to make any payments pursuant to
Section 11.01(b), unless and until the aggregate amount of all claims pursuant
to Section 11.01(b) shall exceed $250,000 (the "Threshold Amount"), after which
Ceding Company shall be responsible for the entire amount of such claims going
back to the first dollar, without regard to the Threshold Amount.
Notwithstanding anything contained herein to the contrary, the Threshold Amount
shall not be applicable to (i) claims for breach of the representations and
warranties contained in Sections 5.01, 5.02 and 8.01 and (ii) claims for
indemnification attributable to any active, willful or reckless fraudulent
misrepresentation, bad faith or willful misconduct by Ceding Company. Except as
set forth above, the Threshold Amount shall not be applicable to indemnification
for the failure to fulfill any covenant or agreement contained herein or in any
agreement or other document delivered pursuant to the terms hereof.
29
Section 11.02. Indemnification of Ceding Company. Reinsurer shall and
hereby agrees to indemnify, defend, save and hold harmless Ceding Company, its
successors and permitted assigns, against and in respect of any and all
liabilities, losses, claims, obligations, damages, costs and expenses,
including, but not limited to reasonable attorneys' fees, resulting from or
arising out of:
(a) the obligations expressly transferred to and assumed by Reinsurer
under this Agreement (provided, however, that no indemnification is
provided for any matter to the extent that it arises out of any allegation
or matter that, if true, constitutes a breach of Ceding Company's
representations and warranties hereunder);
(b) misrepresentation or breach of any covenant, agreement or
warranty made by Reinsurer in this Agreement or any third party allegations
that, if true, would mean Reinsurer has breached any such representations,
covenants, agreements or warranties (notwithstanding any actual or
constructive knowledge by Ceding Company of such matter, misrepresentation
or breach); and
(c) any litigation, arbitration or other recognized "alternative
dispute resolution" proceeding arising after the Effective Date with
respect to any of the Coinsured Policies or any matter arising out of the
bad faith or willful misconduct of Reinsurer.
For purposes of subsection (b) above, each representation, warranty,
agreement and covenant in the Agreement shall be construed without any reference
to materiality or any knowledge limitation, it being the intent of the parties
that for purposes of indemnification no materiality limitation shall be
applicable and representations and warranties shall be considered as made
without limitation to Reinsurer's knowledge.
Section 11.03. Defense Against Asserted Claims.
(a) Third Party Claims. If any claim or assertion of liability is made or
asserted against a party indemnified pursuant to this Agreement ("Indemnified
Party") based on any liability or absence of right which, if established, would
entitle the Indemnified Party to indemnification by an indemnifying party
pursuant to this Agreement ("Indemnifying Party"), the Indemnified Party shall
with reasonable promptness give to the Indemnifying Party notice of the claim or
assertion of liability and request the Indemnifying Party to defend the same.
Failure to notify the Indemnifying Party shall not relieve the Indemnifying
Party of any liability that the Indemnifying Party might have to the Indemnified
Party except to the extent such failure materially prejudices the Indemnifying
Party's position. The Indemnifying Party shall have the right to defend against
such liability or assertion, in which event the Indemnifying Party shall give
written notice to the Indemnified Party of acceptance of the defense of such
claim and the
30
identity of counsel selected by the Indemnifying Party with respect to such
matters. The Indemnified Party shall be entitled to participate with the
Indemnifying Party in such defense and also shall be entitled at its option to
employ separate counsel for such defense at the expense of the Indemnified
Party. However, control of the defense, and the decision whether to defend or
settle, shall remain with the Indemnifying Party. In the event the Indemnifying
Party does not accept the defense of the matter as provided above or in the
event the Indemnifying Party or its counsel fails to use reasonable care in
maintaining such defense, the Indemnified Party shall have the full right to
employ counsel for such defense and to defend or settle such matter, all at the
expense of the Indemnifying Party. Reinsurer and Ceding Company will cooperate
with each other in the defense of any such action and the relevant records of
each shall be available to the other with respect to such defense.
(b) Other Claims. A claim for indemnification for any matter not involving
a third party claim may be asserted by notice to the party from whom
indemnification is sought.
ARTICLE 12
Arbitration
-----------
Section 12.01. Arbitration Clause. The parties acknowledge and agree that
the transactions contemplated herein, as well as the issuance of and payment of
claims relating to the Coinsured Policies that are the subject of this
Agreement, substantially affect and impact interstate commerce. Therefore, all
disputes or differences between Ceding Company and Reinsurer arising under or
which are related to this Agreement upon which an amicable understanding cannot
be reached within thirty (30) days shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
except as hereinafter provided, and judgment upon the award entered by the
arbitrators may be entered in any state or federal court having jurisdiction
thereof. The Court of Arbitrators provided for herein shall construe this
Agreement in light of the prevailing custom and practices for reinsurance in the
insurance industry. The Court of Arbitrators shall consist of three neutral
arbitrators who must be active or retired officers of insurance companies, other
than Ceding Company or Reinsurer or any of their affiliates, familiar with the
reinsurance business. The Court of Arbitrators shall be held in Houston, Texas;
however, the parties agree that this Court of Arbitrators, if implemented under
this Agreement, may be held at an alternative site selected by the Arbitrators.
The parties agree to arbitrate within thirty (30) days following the transmittal
of written demand of either party to arbitrate any dispute arbitrable under this
Agreement. Each of the parties shall appoint an arbitrator within thirty (30)
days following notice of written demand to arbitrate, notifying the other party
of the name and address of such arbitrator. If either party shall fail to
appoint an Arbitrator as herein provided, or should the two arbitrators so named
fail to select the third arbitrator within thirty (30) days of their
appointment, then, in either event, the President of the American Arbitration
Association or its successor shall appoint such second and/or third arbitrator.
The three arbitrators so selected shall constitute the Court of Arbitrators. A
decision of a majority of the Court of Arbitrators shall be final and binding
and there shall be
31
no appeal therefrom. The Court of Arbitrators shall not be bound by legal rules
of procedure and may receive evidence in such a way as to do justice between the
parties. The Court of Arbitrators shall promptly enter an award which shall do
justice between the parties and the award shall be supported by a written
opinion. Except to the extent that the Court of Arbitrators decides otherwise,
based on the equities of the situation, the fees of the third arbitrator and the
direct costs of the arbitration shall be shared equally by the parties; all
other costs of the respective parties, including without limitation the fees of
the party's selected arbitrator and fees and expenses of the respective party's
attorneys, shall be paid by the respective party, except to the extent that the
Court of Arbitrators otherwise directs based on the equities of the situation.
Nothing contained herein shall alter the rights or remedies of Reinsurer under
Section 10.05 hereof. The parties agree that any arbitration matters will be
kept confidential, except to the extent disclosure thereon is require by law.
ARTICLE 13
Conditions to Obligations of Parties
------------------------------------
Section 13.01. Conditions to Obligations of Reinsurer. The obligations of
Reinsurer to consummate the transactions provided for in by this Agreement are
subject to the fulfillment at or prior to the Closing of each of the following
conditions (any or all of which hereof, may be waived in whole or in part by
Reinsurer):
(a) Representations and Warranties. The representations and
warranties made by Ceding Company in this Agreement shall be true in all
material respects, when made and at and as of the Closing as though such
representations and warranties were made at and as of the Closing.
(b) No Material Change. No material adverse change in Ceding Company
shall have occurred.
(c) Performance. Ceding Company shall have performed and complied in
all material respects, with all agreements, obligations, covenants and
conditions required by this Agreement to be so performed or complied with
by Ceding Company at or prior to the Closing.
(d) Deliveries by Ceding Company. Ceding Company shall deliver or
cause to be delivered to Reinsurer the following documents:
(i) a certificate of cession and assignment under which Ceding
Company cedes its interests described in 3.01 pursuant to the terms
hereof and agrees to be bound by the terms hereof;
(ii) an opinion of the General Counsel of Ceding Company
reasonably satisfactory to Reinsurer; and
32
(iii) such other instruments as may be necessary or advisable to
vest in Reinsurer all of Ceding Company's right, title and interest in
and to the properties, rights, or assets to be transferred hereunder
or to effect the purposes hereof.
(e) Other Governmental Approvals. All consents, approvals or waivers
from Governmental Entities, including without limitation all insurance
regulatory agencies, necessary to permit Reinsurer to consummate the
transactions provided for herein shall have been obtained. In addition,
the Department of Banking, Commerce and Insurance of the State of Oregon,
after disclosure of the interpretation by the parties of the Closed Block
Memorandum that certain references to "Standard" shall refer to Reinsurer,
shall have taken a position of no objection or otherwise approved such
transaction.
Section 13.02. Conditions to Obligations of Ceding Company. The
obligations of Ceding Company to consummate the transactions provided for in by
this Agreement are subject to the fulfillment at or prior to the Closing of each
of the following conditions (any or all of which may be waived in whole or in
part by Ceding Company):
(a) Representations and Warranties. The representations and
warranties made by Reinsurer in this Agreement shall be true in all
material respects, when made and at and as of the Closing as though such
representations and warranties were made at and as of the Closing.
(b) No Material Change. No material adverse change in Reinsurer
shall have occurred.
(c) Performance. Ceding Company shall have performed and complied in
all material respects, with all agreements, obligations, covenants and
conditions required by this Agreement to be so performed or complied with
by Ceding Company at or prior to the Closing.
(d) Deliveries by Reinsurer. Reinsurer shall deliver or cause to be
delivered to Ceding Company the following documents:
(i) a certificate of acceptance of cessation under which
Reinsurer accepts cession pursuant to the terms hereof and agrees to
be bound by the terms hereof;
(ii) an opinion of the General Counsel of Reinsurer, reasonably
satisfactory to Ceding Company; and
33
(iii) such other instruments as may be necessary or advisable to
evidence the acceptance and assumption by Reinsurer on a coinsurance
basis of the duties and obligations under the contracts and agreements
to be assigned to Reinsurer hereunder or to effect the purposes
hereof.
(e) Other Governmental Approvals. All consents, approvals or waivers
from Governmental Entities, including without limitation all insurance
regulatory agencies, necessary to permit Ceding Company to consummate the
transactions provided for herein shall have been obtained.
ARTICLE 14
Other Actions After the Closing Date
------------------------------------
Section 14.01. Licensing. If reasonably requested by Reinsurer, Ceding
Company agrees to take such actions as are required on its part in order to
maintain agents' licensing and/or transfer such to Reinsurer (if appropriate) in
regards to agents who are servicing the Coinsured Policies, and the out-of-
pocket costs therefore shall be reimbursed by Reinsurer to Ceding Company. Upon
Reinsurer's request, and indemnification for out-of-pocket costs, Ceding Company
agrees to take all appropriate action reasonably requested by Reinsurer with
regard to any of Ceding Company's currently licensed agents who replace or
otherwise cause the lapse of Coinsured Policies and Reinsurer shall reimburse
Ceding Company for reasonable out-of-pocket costs in connection with any such
action. Ceding Company will take appropriate disciplinary action against any
such agent who, in disregard of Ceding Company's instructions, fails to refrain
from activities intended to cause the lapse of Coinsured Policies.
Section 14.02. Net Worth. Ceding Company agrees that if it proposes to
transfer any of its assets to any of its Affiliates to the extent that such
transfer has a material adverse effect on Ceding Company or the Coinsured
Policies or if such transfer results in a downgrade referenced in Section 4.02
above, it will (a) give prior notification to Reinsurer of the transfer and (b)
obtain the written agreement of the Affiliate(s) that (i) such Affiliate(s)
assumes, guarantees and becomes jointly liable with respect to the
indemnification obligations of Ceding Company pursuant to this Agreement and
(ii) will either maintain a place of business in the United States or consent to
service of process in the United States; provided, however, that Reinsurer
agrees not to look to such Affiliate(s) for performance of any obligations of
Ceding Company unless the statutory capital and surplus of Ceding Company is
less than $250 million. Promptly following any transfer of assets, Ceding
Company shall notify Reinsurer of the name, principal business address and
either the business address or the name and address of the agent of such
Affiliate for service of process in the United States.
Section 14.03. Continuation of Business. Ceding Company covenants and
agrees that
34
it (a) will not, except as directed by Reinsurer, take any action with respect
to any of the Coinsured Policies that is reasonably likely to result in a
reduced persistency of the Coinsured Policies, and (b) Ceding Company will
deliver to Reinsurer any and all correspondence, premiums, records or other
documents, or copies thereof, coming into the possession of Ceding Company after
the Business Transfer Date and pertaining to the Coinsured Policies, without
charge to Reinsurer.
ARTICLE 15
Covenants of the Parties
------------------------
Section 15.01. Access to Information. Between the Contract Date and the
Business Transfer Date, Ceding Company shall (a) give Reinsurer and its
authorized representatives reasonable access to all books, records, offices and
other facilities and properties of the Ceding Company concerning the Coinsured
Policies; (b) permit Reinsurer to make such inspections thereof as Reinsurer may
reasonably request; and (c) cause Ceding Company's officers to furnish Reinsurer
with such financial and operating data and other information with respect to the
Coinsured Policies as Reinsurer may from time to time reasonably request;
provided, however, that any such investigation shall be conducted during normal
business hours and in such a manner as not to interfere unreasonably with the
operation of the business of the Companies.
Section 15.02. Best Efforts. Subject to the terms and conditions of this
Agreement, Reinsurer and Ceding Company will use their respective commercially
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
Laws to consummate the transactions provided for in this Agreement.
Section 15.03. Consents. Reinsurer and Ceding Company shall cooperate,
and use their respective commercially reasonable best efforts, to make all
filings and provide all notifications and obtain all consents, approvals and
orders of Governmental Entities and other third parties necessary to consummate
this Agreement and the transactions provided for herein.
Section 15.04. Public Announcements. Reinsurer and Ceding Company will
consult with each other before issuing any report, statement or press release or
otherwise making any public statement with respect to this Agreement and the
transactions provided for herein, and neither of them shall issue any such
report, statement or press release or make any such public statement prior to
such consultation and obtaining the written approval of the other party, except
as in the reasonable judgment of the party may be required by Law, in which
case, to the extent reasonably practicable, such party shall advise and confer
with the other party before issuing any such report, statement or press release.
This Section shall not apply with regard to information disclosed as required by
insurance regulatory authorities or to rating agencies, although it is the
intent of the parties that any such disclosures shall be made known as between
them. After the transaction becomes publicly known through the issuance of a
press release, the parties shall be
35
free to discuss the transaction with shareholder analysts and others.
Section 15.05. Covenant to Satisfy Conditions. Ceding Company shall use
its commercially reasonable best efforts to ensure that the conditions set forth
in Article 13 hereof are satisfied, insofar as such matters are within the
control of Ceding Company, and Reinsurer shall use its commercially reasonable
best efforts to ensure that the conditions set forth in Article 13 hereof are
satisfied, insofar as such matters are within the control of the Reinsurer.
Section 15.06. No Solicitation. Prior to the Closing Date, Ceding Company
shall not, and shall not authorize or permit any officer, director or employee
of Ceding Company or any Affiliate of Ceding Company, or authorize any
investment banker, attorney, accountant or other representative retained by
Ceding Company or any Affiliate of Ceding Company, to directly or indirectly,
without the written consent of Reinsurer, solicit or encourage, or furnish
information with respect to the Coinsured Policies to, nor conduct any
discussions with, any Person other than Reinsurer in connection with any
proposal for the coinsurance, reinsurance or sale of the Coinsured Policies.
Section 15.07. Closed Block Policies and Non-Closed Block Policies. On or
before the Closing Date, Ceding Company shall provide to Reinsurer complete and
correct lists as of the Effective Date (the "Coinsured Policy Lists") of the
Closed Block Policies and the Non-Closed Block Policies, containing information
regarding such Policies, including, but not limited to, policy number, insured's
issue age, plan code and reserves for the business described in the Report. All
the information contained in the Coinsured Policy Lists shall be true and
correct.
Section 15.08. Substitution of Assets. On or before the Effective Date,
Ceding Company shall use its best efforts to substitute cash or other mortgage
loans of equal value in place of certain of the Closed Block Assets constituting
participating loans or cross-collateralized loans.
ARTICLE 16
Termination
-----------
Section 16.01. Termination. This Agreement may be terminated prior to
Closing and the transactions provided for herein may be abandoned:
(a) by mutual agreement of Reinsurer and Ceding Company at any time;
(b) by written notice by Ceding Company to Reinsurer if (i) there
has been a misrepresentation in this Agreement by Reinsurer or a breach by
Reinsurer of any of the representations, warranties, agreements or
covenants of Reinsurer set forth herein and such misrepresentation or
breach would have a material adverse effect on Ceding Company or the
Coinsured Policies and is not subject to cure prior to Closing, or a
failure
36
of any other condition not subject to cure prior to the Closing Date to
which the obligations of Ceding Company are subject or (ii) the Closing
shall not have occurred on or prior to June 30, 2001;
(c) by written notice by Reinsurer to Ceding Company if (i) there
has been a misrepresentation in this Agreement by Ceding Company or a
breach by Ceding Company of any of the representations, warranties,
agreements or covenants of Ceding Company set forth herein and such
misrepresentation or breach would have a material adverse effect on
Reinsurer or the Coinsured Policies and is not subject to cure prior to
Closing, or a failure of any other condition not subject to cure prior to
the Closing Date to which the obligations of Reinsurer are subject or (ii)
the Closing shall not have occurred on or prior to June 30, 2001;
(d) by Ceding Company, upon written notice to Reinsurer, if there
shall have occurred any material adverse effect to the financial condition
of Reinsurer taken as a whole and such material adverse effect shall not
have been remedied within 15 days after receipt by Reinsurer of notice in
writing from Ceding Company specifying the nature of such material adverse
effect and requesting that it be remedied;
(e) by Reinsurer, upon written notice to Ceding Company, if there
shall have occurred any material adverse effect to the Coinsured Policies
and such material adverse effect shall not have been remedied within 15
days after receipt by Ceding Company of notice in writing from Reinsurer
specifying the nature of such material adverse effect and requesting that
it be remedied; or
(f) subject to Section 15.03, by Reinsurer or Ceding Company, at any
time after a Governmental Entity having jurisdiction over Reinsurer or
Ceding Company has notified such party that it will not provide regulatory
approval necessary for said party to consummate the transactions provided
for in this Agreement.
In the case of termination under (b)(i) or (c)(i) above, termination shall be
without prejudice to the parties rights under applicable Law for breach of
contract.
37
ARTICLE 17
General Provisions
------------------
Section 17.01. Survival of Representations and Warranties. The
representations and warranties of the Ceding Company and of the Reinsurer shall
survive for one year after the Closing Date and notice of any claim by Ceding
Company or Reinsurer with respect to any breach of representations and
warranties for which indemnification is sought under this Agreement must be
provided to the other party within such one-year period.
Section 17.02. Successors; Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of both
Ceding Company and Reinsurer; provided, that none of the rights and obligations
under this Agreement may be assigned by either Ceding Company or Reinsurer, nor
may the policies reinsured under this Agreement be sold, reinsured under an
agreement of assumption, reinsurance, or transferred in any other fashion
without the written consent of both Ceding Company and Reinsurer. Consent will
not be unreasonably withheld, provided the assignment, sale, assumption,
reinsurance or transfer does not have a material effect on the risks transferred
hereunder or the economic results to the party requested to consent. This
provision shall not prohibit Reinsurer from retro ceding the insurance policies
on an indemnity basis. No assignment, reinsurance, sale, assumption or transfer
shall relieve such party of any of its obligations hereunder.
Section 17.03. Prior Agreements. All prior or contemporaneous agreements
and representations between the parties relating to the subject matter hereof
are superseded by this Agreement which, together with any exhibits or schedules
attached hereto, constitutes the entire agreement between the parties. No
waiver, amendment or modification hereof shall be of any force or effect unless
in writing and signed by the parties. The agreements, covenants, representations
and warranties contained herein shall survive the Closing.
Section 17.04. Governing Law. Any disputes under this Agreement that are
subject to arbitration pursuant to Article 12 hereof are governed by the Federal
Arbitration Act, 9 U.S.C. Section 1 et seq., and, to the extent not in conflict
with the Federal Arbitration Act, by the Commercial Arbitration Rules of the
American Arbitration Association. To the extent that under Section 10.06 of this
Agreement or otherwise, Reinsurer is entitled to a security interest pursuant to
Article 9 of the Uniform Commercial Code, and for all matters other than
arbitration, Oregon law shall govern.
Section 17.05. Rights. Nothing herein, either expressed or implied, is
intended or shall be construed to confer upon or give any person, firm or
corporation, other than Reinsurer and Ceding Company, any rights or remedies
under or by reason of this Agreement.
Section 17.06. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
38
Section 17.07. Duration. This Agreement shall remain in force until the
last Coinsured Policy ceases to be in force, unless earlier terminated pursuant
to Section 16.01 of this Agreement. Notwithstanding anything to the contrary
contained herein, the provisions set forth herein in Articles 8, 9, 10, 11 and
12 shall survive the termination of this Agreement.
Section 17.08. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given hereunder shall be deemed to be
duly given when and if delivered or deposited in the U.S. Mail for delivery by
pre-paid first-class registered or certified mail or provided to a nationally
recognized overnight delivery service:
(a) Reinsurer: Jim E. Massengale
Executive Vice President
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone No.: (205) 868-3800
Fax No.: (205) 868-3554
With Copy To: Deborah J. Long
Senior Vice President and General Counsel
Protective Life Corporation
2801 Highway 280 South
Birmingham, Alabama 35223
Telephone No.: (205) 868-3885
Fax No.: (205) 868-3597
(b) Ceding Company: Standard Insurance Company
1100 S.W. Sixth Avenue
Portland, Oregon 97204-1093
Attention: Eric E. Parsons,
Senior Vice President and Chief Financial
Officer
Telephone No.: (503) 321-8616
Fax No.: (503) 321-7935
With Copies To: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1000 Louisiana Street
Suite 1400
Houston, Texas 77002
Attention: B. Shelby Baetz
Telephone No.: (713) 287-2024
Fax No.: (713) 287-2100
39
And to Standard Insurance Company
1100 S.W. Sixth Avenue
Portland, Oregon 97204-1093
Attention: Dwight L. Cramer,
Vice President, General Counsel and Corporate
Secretary
Telephone No.: (503) 321-6738
Fax No.: (503) 321-7935
Or such other address as shall be furnished in writing by the parties to the
other.
Section 17.09. Cooperation. With regard to any matters not expressly
stated herein, the parties to this Agreement agree to furnish such information,
to execute such additional documents, and to cooperate with each other as may be
necessary to carry out the purposes of this Agreement, in accordance with
industry practice for transactions of this kind. If prior to Closing either
party becomes aware that any litigation or any administrative proceeding has
been or is about to be initiated with respect to the Coinsured Policies or any
other matter reasonably related thereto, it shall inform the other party as soon
as possible. The parties agree to cooperate in furnishing to each other any
files or other information or assistance, including the assistance of witnesses,
potential witnesses and other persons who have or may have relevant knowledge or
information, needed by the other to respond to or settle the litigation or
proceeding; provided, that the provisions of Article 11 shall remain in full
force and effect with respect to such litigation or proceeding.
Section 17.10. Insolvency. In the event of the insolvency of Ceding
Company, this Agreement shall continue in effect and all reinsurance made,
ceded, renewed or otherwise becoming effective under this Agreement shall
continue to be payable by Reinsurer under the terms of the contracts reinsured,
on behalf of Ceding Company, its liquidator, receiver or statutory successor,
without diminution because of such insolvency.
Section 17.11. Waiver. No modification or waiver of any provision of
this Agreement shall be effective unless set forth in writing. A waiver shall
constitute a waiver only with respect to the particular circumstance for which
it is given and not a waiver of any future circumstance.
Section 17.12. Clerical Errors. If either the Ceding Company or the
Reinsurer shall fail to perform an obligation under this Agreement, and such
failure shall be the result of an error on the part of the Ceding Company or the
Reinsurer, such error shall be corrected by restoring both the Ceding Company
and the Reinsurer to the positions they would have occupied had no such error
occurred; an "error" is a clerical mistake made inadvertently and excludes
errors of judgment and all other forms of error.
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IN WITNESS WHEREOF, Ceding Company and Reinsurer have caused this
instrument to be executed by their duly authorized officers as of the day and
year first hereinabove written.
Ceding Company: STANDARD INSURANCE COMPANY
Attest:
/s/ Dwight L. Cramer By: /s/ Eric E. Parsons
- ----------------------------- ------------------------------
Title: Senior Vice President and
Chief Financial Officer
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Reinsurer: PROTECTIVE LIFE INSURANCE COMPANY
Attest:
/s/ Wayne Hall By: /s/ Jim E. Massengale
- ----------------------------- ------------------------------
Title: Executive Vice President
---------------------------
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