Liquidation Plan
Exhibit 3.3-A
Coinsurance Agreement
The Coinsurance Agreement is attached hereto and incorporated
herein by reference.
COINSURANCE AGREEMENT
This Coinsurance Agreement ("Agreement") is made and entered
into by The Statesman National Life Insurance Company ("Statesman" or
the "Company") and American Capitol Insurance Company ("American
Capitol" or the "Reinsurer"), on this 17th day of November, 1998.
Recitals
A. Statesman is a Texas domiciled stock life insurance company.
B. As of the Effective Date of this Agreement, Statesman has in
effect "Policies" as hereinafter defined.
C. American Capitol is a Texas domiciled stock life insurance
company.
D. In accordance with the terms and conditions as set forth in this
Agreement, Statesman desires that American Capitol reinsure the
future liabilities arising under the Policies and American
Capitol desires to reinsure such future liabilities arising
under the Policies as more specifically set forth in this
Agreement, and that Statesman (or, at American Capitol's option,
American Capitol) perform the administrative services in respect
to the Policies as herein provided.
Terms and Conditions
In consideration of the mutual benefits to be received by the
parties hereto and the mutual covenants, agreements, representations
and warranties contained herein, the parties agree that the recitals
set forth above and elsewhere in this Agreement are correct in all
material respects, and further agree to the following terms and
conditions:
Article I
Definitions
Section 1.1. The following terms used in this Agreement with
initial capitalization shall have the meanings set forth below unless
the rules of grammar or form would require otherwise:
(a) "Actuarial Appraisal" means the actuarial appraisal prepared by
▇▇▇▇ ▇▇▇▇▇▇ of the Polices in force in the Company as of April
30, 1998, prepared as of May 19, 1998.
(b) "Arbitration Agreement" means that certain Arbitration Agreement
contemplated by the Stock Purchase Agreement.
(c) "Assumption Reinsurance Event" means the mailing of assumption
certificates following the election by the Reinsurer to convert
the Policies to Assumption Reinsurance.
(d) "Closing" has the meaning set forth in Section 13.1.
(e) "Ceding Fee" has the meaning set forth in Section 4.2.
(f) "Closing Date" has the meaning set forth in Section 13.1.
(g) "Closing Net Transfer Amount" has the meaning set forth in
Section 4.1.
(h) "Commission Allowance" has the meaning set forth in Section 3.3.
(i) "Defense" or "Defenses" means any (i) known or unknown, actual
or contingent, rights, defenses, offsets, counterclaims, and
cross-actions, and (ii) any and all rights, limitations, terms,
conditions, and provisions provided for in this Agreement
relative to the Policies.
(j) "Documents and Records" means all of the files, books and
records, in paper and/or electronic data format, required for,
and customarily used by, the Company in maintaining, recording
and reporting the information and transactions pertaining to the
Policies such that the Policies can be reasonably and accurately
administered and serviced.
(k) "Effective Date" means the effective date of this Agreement,
that is, October 31, 1998.
(l) "Intercompany Service Agreement" means that certain document
related to and contemplated by the Stock Purchase Agreement
which the Company and the Reinsurer are to execute and deliver
in the event the stock purchase contemplated by the Stock
Purchase Agreement closes.
(m) "Policies" or "Policy" shall have the following meanings.
"Policies" shall mean all of the Company's "pre-standard"
Medicare Supplement insurance policies in force as of October
31, 1998, which shall be set forth in the list of such policies
provided to the Reinsurer pursuant to Section 13.2 (a) below,
and which individually shall be referred to as "Policy."
(n) "Policy Assets" has the meaning set forth in Section 10.5.
(0) "Policy Obligations" means benefits under and by virtue of the
terms of the Policies that arise and become payable on account
of a claim or other event covered by the terms of the Policies
occurring after the Effective Date, and as further defined in
Article II.
(p) "Right of Recapture" and related definitions have the respective
meanings set forth in Section 4.4.
(q) "Stock Purchase Agreement" means that certain agreement between
the owners of the stock of the Company and the Reinsurer's
wholly owned subsidiary, Texas Imperial Life Insurance Company,
in respect to which a "Form A" application for approval of the
stock purchase transaction is currently pending before the TDI.
(r) "Reserves" and "Claims Reserves" have the meaning set forth in
Section 10.5.
(s) "TDI" means the Texas Department of Insurance.
Article II
Reinsurance of Policy Obligations
Section 2.1. Ceding. Subject to the terms and conditions of
this Agreement, the Company hereby cedes to the Reinsurer and the
Reinsurer hereby reinsures one hundred percent (100%) of the Policy
Obligations. Except for the Policy Obligations, the Company shall
continue to have all liabilities, including any liabilities relating
to any agreements or commitments issued in connection with the
Policies which are not recognized or reserved for on the books of the
Company, or arising out of the marketing, servicing or other
relationships between the Company and any person, agent or entity,
the Company shall indemnify the Reinsurer and hold the Reinsurer
harmless from all liabilities and costs incurred by the Reinsurer in
respect to claims, disputes, or litigation involving any such
liabilities not specifically reinsured by the Reinsurer hereunder, as
more fully set forth in Article XIV below.
Section 2.2. Standard of Performance; Liability. As set forth
below, the Company shall continue to provide administrative services
relating to the Policies. The Company, and not the Reinsurer, shall
be liable for any claims or Policy benefits that arise or become
payable by virtue of any claim or other event occurring on or before
the Effective Date. The Company, and not the Reinsurer, shall be
liable for any actions, inactions, errors, or omissions made by the
Company and/or any of its respective employees, agents, and
representatives in the solicitation, sale, servicing, renewal, or
processing of any claim under the Policies or in communications with
insureds, beneficiaries, or any other third party with respect to the
Policies or on account of any event or fact occurring on, before, or
after the Effective Date. The Company shall handle and pay the
claims in its ordinary course of business that were incurred on or
before the Effective Date but reported to the Reinsurer or the
Company after the Effective Date, such payments to be made out of and
to the extent of the Claim Reserves transferred to the Reinsurer
pursuant to Section 10.5 below.
Section 2.3. Duration of Risk. Except as otherwise provided
herein, this Agreement shall be unlimited in duration.
Section 2.4. Reinsurer's Liability. The Reinsurer's liability
in respect to the Policy Obligations will begin simultaneously with
the Company's liability, but not prior to the day after the Effective
Date of this Agreement. The Reinsurer's liability in respect to the
Policy Obligations will terminate simultaneously with the Company's
liability, except as otherwise provided herein.
Article III
ADMINISTRATION
Section 3.1. Administration. The Company shall perform the
policy administration and data processing services in respect to the
Policies as follows:
(a) The Company shall maintain at its principal administrative
office for the duration of this Agreement adequate books and
records of all transactions between the Company, the Reinsurer,
and the insureds, and other parties to whom the Company's
business relates and the regulatory agencies to whom the Company
reports.
(b) The Company shall use due care and diligence in performing the
work and services to be performed hereunder and agrees that it
will correct any errors which are caused by the Company, its
authorized agents, employees, programs, or data processing
equipment, and it shall be liable to the Reinsurer for any
damages or expenses incurred by the Reinsurer as a consequence
of such errors. The administrative services shall be performed
in keeping with the standards and practices that are customary
in the industry in respect to the administration of insurance
policies like or similar to the Policies, and in compliance with
applicable laws and regulations, and in compliance with the
Company's responsibilities set forth in this Agreement.
(c) From and after the Effective Date, the Reinsurer, on behalf of
the Company, shall, or shall cause its duly appointed actuary or
representative to, file with and obtain approval from all
applicable regulatory authorities for rate increases with
respect to the Policies reinsured under this Agreement in
amounts determined solely by the Reinsurer up to amounts
permitted by applicable law based upon all relevant factors,
including without limitation, the loss experience for the
Policies. The Company irrevocably appoints the Reinsurer as its
agent to prepare, execute on its behalf, file and prosecute such
application, and agrees to cause its officers to sign any
documents required or appropriate to be signed by such officers
in connection therewith. The Company agrees to deliver to the
Reinsurer within thirty (30) days after the end of each calendar
quarter a written report showing the loss experience on the
Policies reinsured under this Agreement for the preceding
quarter, and to promptly provide to the Reinsurer any other
information reasonably requested by the Reinsurer relating to
the Policies reinsured under this Agreement. It is acknowledged
and agreed that the making of timely rate increase filings under
this Agreement is a material inducement to the Reinsurer
agreeing to enter into this Agreement and that absent the
commitment by the Company to provide the aforesaid information
to the Reinsurer on a timely basis, the Reinsurer would not have
entered into this Agreement. The Company hereby agrees to
indemnify and hold harmless the Reinsurer from and against any
and all costs, damages, expenses and liabilities suffered or
incurred by the Reinsurer resulting from the Company's material
breach of this Article III.
(d) The Reinsurer, its employees or authorized representatives may
audit, inspect and examine, during regular business hours, at
the home office of the Company, provided that three working days
advance written notice has been given, any and all books,
records, statements, correspondence, reports, or other documents
that relate to the Policies. The Company agrees to provide a
reasonable work space for such audit, inspection or examination
and to cooperate fully and to faithfully disclose the existence
of and produce any and all materials reasonably requested by
such auditors, investigators, or examiners. The expense of such
audit shall be borne solely by the Reinsurer, and the Company
shall be entitled to reimbursement for expenses reasonably
incurred by such audit. The Reinsurer agrees to conduct such
audit in a courteous, prompt, professional and reasonable
manner, and to provide prompt written disclosure to the Company
of any discrepancy or variance (when compared to any previously
reported information) discovered by the Reinsurer.
(e) The Company shall perform the subject services for the fee of 2%
of monthly earned premiums plus 7% of monthly claims paid, which
shall be paid monthly to the Company as part of the Monthly Cash
Settlement.
(f) The Company's obligation to provide administrative services
relating to the Policies may not be terminated by either party
so long as the Policies are subject to this Agreement, except in
the event of the closing of the stock purchase as contemplated
by the Stock Purchase Agreement as stated below, and except for
the Reinsurer's right to take over the administration of the
Policies as herein provided.
(g) The parties recognize that if the stock purchase contemplated by
the Stock Purchase Agreement closes, the administration of the
Policies shall be taken over and assumed by the Reinsurer and
performed as provided in that certain "Intercompany Services
Agreement" entered into by the parties in conjunction with the
Stock Purchase Agreement. Therefore, the Company's obligation
to provide administrative services relating to the Policies will
be superseded by the Intercompany Services Agreement in such
event, but otherwise the Company's administration of the
Policies shall continue in effect as herein provided.
(h) In the event the aforesaid stock purchase does not close, the
Reinsurer shall have the right, in its sole discretion, to take
over and assume the administrative services in respect to the
Policies. In such event, the Company agrees that it will
assign, convey, transfer and deliver to the Reinsurer on the
date designated by the Reinsurer all of the "Documents and
Records" relating to the Policies. In such event, the
administration of the Policies shall be governed by the
applicable provisions of the Intercompany Services Agreement.
Such right shall not be exercisable during the Recapture Period.
To exercise such right, the Reinsurer shall give written notice
to the Company not less than thirty days in advance of the
effective date of the transfer of administration, and shall
designate in such notice the effective date of such transfer,
which shall be the end of a calendar month.
Section 3.2. Premiums. The Reinsurer shall be entitled to all
premiums collected on the Policies after the Effective Date,
including any premiums paid in advance to the Company, which shall be
delivered by the Company to the Reinsurer at Closing. The Company,
in its capacity as administrator of the Policies, shall receive and
administer premiums and other payments with respect to the Polices
received by the Company, shall pay all Policy Obligations, and shall
account for any and all such collected premiums and payments as of
the end of each calendar month.
Section 3.3. Commission Allowance. The Reinsurer shall pay the
Company a commission allowance equal to the lesser of (a) the actual
commission liability that the Company has from time to time or (b)
the commissions due to agents as set forth on the Actuarial
Appraisal. Except for the Commission Allowance payable to the
Company as aforesaid, the Reinsurer shall not be liable for any
liabilities, losses, or expenses arising from claims of agents,
brokers or other parties for commissions, service fees, or producer
compensation, and the Company shall indemnify and hold the Reinsurer
harmless from any liabilities, losses, or expenses from claims of
agents, brokers or other parties for such commissions, service fees,
or producer compensation, and for any other claims of a similar or
related nature, as more fully set forth in Article XIV below.
Section 3.4. Premium Taxes and Premium Assessments. The
Reinsurer shall reimburse the Company for any and all assessments and
premium taxes paid by the Company based upon and measured by the
amount of premium income attributable to the Policies in respect to
such premiums due after the Effective Date that become payable on
account of such Policies by any state, county, parish, or municipal
authority.
Section 3.5. Income Tax. The Company and the Reinsurer shall
each be separately and solely liable for its respective Federal
Income Tax liabilities, other taxes or fees imposed by any
governmental authority, including any "DAC" taxable income that may
be incurred as a result of the reinsurance of the Policies by the
Reinsurer.
The Company and the Reinsurer hereby agree to the following pursuant
to Section 1.848-2(g)(8) of the Income Tax Regulation issued December
1992, under Section 848 of the Internal Revenue Code of 1986, as
amended. This election shall be effective for the taxable year ended
December 31, 1998, and for all subsequent taxable years for which
this Agreement remains in effect unless such election is terminated
by mutual written agreement of the parties hereto with the consent,
if required, of the Commissioner of the Internal Revenue Service.
As used in this Section 3.5, the term "party" will refer to either
the Company or the Reinsurer as appropriate.
The terms used in this Section 3.5 are defined by reference to
Treasury Regulation Section 1.848-2 in effect as of December 29,
1992. The term "net consideration" will refer to either net
consideration as defined in Treasury Regulation Section 1.848-2(f) or
"gross premium and other consideration" as defined in Treasury
Regulation Section 1.848-2(b) as appropriate.
Both parties agree to identify this Agreement as one for which the
joint election under Treasury Regulation Section 1.848-2(g)(8) has
been made in a schedule attached to their respective federal income
tax returns for the taxable period ended December 31, 1998.
The party with the positive net consideration for this Agreement for
each 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).
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 Internal Revenue Service.
The Company will submit a schedule to the Reinsurer by May 1st of
each year of its calculations of the net consideration for the
preceding calendar year. This schedule of calculations will be
accompanied by a statement signed by an officer of the Company
stating that the Company will report such net consideration in its
tax return for the preceding calendar year.
The Reinsurer may contest such calculation by providing an
alternative calculation to the Company in writing within forty-five
(45) days of the Reinsurer's receipt of the Company's calculation.
If the Reinsurer does not so notify the Company, the Reinsurer will
report the net consideration as determined by the Company in the
Reinsurer's tax return for the previous year.
If the Reinsurer disputes the Company's calculation of the net
consideration, the parties will act in good faith to reach an
agreement as to the correct amount within forty-five (45) days of the
date the Reinsurer submits its alternative calculation. If the
Company and the Reinsurer reach agreement on an amount of net
consideration, each party shall report such amount in their
respective tax returns for the previous calendar year. If the
parties fail to reach agreement on an amount of net consideration,
the dispute shall be resolved by arbitration as provided herein.
Section 3.6. Payment of Benefits. The Reinsurer shall be
liable for any and all claims and other Policy benefits falling
within the scope of the Policy Obligations that become due and
payable after the Effective Date. Except as otherwise provided in
this Agreement, the Company, as administrator, shall service and pay,
on behalf of the Reinsurer, all such claims and other Policy benefits
falling within the scope of the Policy Obligations directly to the
policyholders or other authorized assignees of such benefits in the
ordinary course of business in accordance with the terms and
conditions of such Policies, other applicable documentation (if any)
and applicable law. In the event of any claim that falls outside of
the scope of the Policy Obligations, or exceeds the benefits provided
by such Policies, and/or if such claim is attributable to the Company
in any way, the Reinsurer's liability in respect to such claim shall
be limited to the amount payable that falls within the scope of the
Policy Obligations. In the event of a claim that is questionable
regarding whether it is covered by the terms and conditions of the
subject Policy, the Company shall not pay such claim without seeking
instructions from the Reinsurer, and shall make a written request to
the Reinsurer for written instructions regarding the Reinsurer's
decision regarding the amount, if any, to pay in respect to such
claim. The Reinsurer shall promptly respond to such request and
shall be solely liable for the consequences of paying less than the
full amount claimed, if such lesser payment is directed by the
Reinsurer.
Section 3.7. Payment of Policy Claims. Except as provided in
Section 3.6, the Company shall pay claims or other benefits on the
Policies reinsured hereunder without seeking instructions from the
Reinsurer and in accordance with its responsibilities as
administrator of the Policies.
Section 3.8. Dividends to Policyholders. All of the Policies
are non-participating Policies, meaning that dividends are not
payable thereon. If there is any exception, the Company shall have
sole discretion and control regarding the declaration and payment of
dividends to the holders of the Policies during any and all calendar
months for which this Agreement is in effect. The Company shall be
solely responsible for funding the payment of any such dividends.
The Reinsurer shall not be liable in respect to any claim against the
Reinsurer relating to the declaration or payment of any dividend
(whether declared and/or paid before, on or after the Effective
Date), or the failure to declare or pay any dividend, and the Company
shall indemnify and hold the Reinsurer harmless in respect to any
such claim, as more fully set forth in Article XIV.
Section 3.9. Contested Claims. In the event of a claim based
on a Policy against the Company or the Reinsurer that does not
involve a Policy Obligation which results in a dispute, compromise,
or litigation ("contest"), the Company shall have the sole
responsibility for defending such claim, and all related costs,
including attorneys' fees, settlement payments, judgments, etc. In
the event of a claim involving only a Policy Obligation which results
in a contest, the Reinsurer shall have the sole responsibility for
defending such claim, and all related costs, including attorneys'
fees, settlement payments, judgments, etc. In the event of a claim
involving a Policy Obligation and any other matter which results in a
contest, the Reinsurer and the Company will share, in proportion to
the ultimately determined respective liabilities, the costs of the
contest in addition to the amount of the claim itself, or the
Reinsurer may elect (as herein provided) not to participate. The
management of such contest shall be the sole responsibility of the
Reinsurer; provided, however, that the Company, at its election and
expense, shall have the right to be present and/or represented in any
and all proceedings related thereto. Notwithstanding the foregoing,
if the Reinsurer elects not to participate in such contest, the
Reinsurer may discharge its liability by agreeing to pay to the
Company the full amount of the Policy Obligation liability on the
subject Policy, in which case all aspects (including costs,
assessments, judgments, etc.) of the contest incurred after such
payment is made by the Reinsurer shall be the sole responsibility of
the Company.
Article IV
Transfer of Assets and Ceding Fee
Section 4.1. Transfer of Assets. The Company shall transfer to
the Reinsurer an amount of assets equal to the Reserves as of October 31,
1998, as defined in Section 10.5, less the "Ceding Fee" set forth
in Section 4.2 ("Closing Net Transfer Amount"). The composition of
the assets so transferred shall be cash plus the Policy Assets as of
October 31, 1998.
Section 4.2. Ceding Fee. The "Ceding Fee" shall be $1 million.
Section 4.3. Conversion of Coinsurance of the Policies to
Assumption Reinsurance. By this Agreement the type of reinsurance in
place means that the Policies remain in the name of the Company and
the Policy Obligations are transferred to the Reinsurer (typically
referred to as "coinsurance"). Upon the occurrence of an Assumption
Reinsurance Event, the Reinsurer shall assume the Policies in effect
on the effective date thereof (the "Assumption Effective Date") by
mailing to holders of such Policies an assumption certificate as set
forth in this Section 4.3 whereby the affected Policies will be
transferred to, and assumed directly by, the Reinsurer (referred to
herein as the "assumption" of the Policies in force on the Assumption
Effective Date, or "assumption reinsurance"). The election by the
Reinsurer, in its sole discretion, to convert the coinsurance to
assumption reinsurance shall be subject to the fulfillment of the
following conditions: (a) such assumption of the Policies shall
comprise all of the Policies in force as of the Assumption Effective
Date (subject to any exceptions herein set forth); (b) the election
to convert shall be given by written notice to the Company not less
thirty (30) days in advance of the Assumption Effective Date; (c)
such notice shall designate the Assumption Effective Date (which date
shall be the end of a month following the date of such notice, which
month shall be not more than 12 months from the date of such notice);
(d) the Reinsurer shall be obligated to effect the assumption of the
Policies only to the extent set forth in this Section 4.3; (e) there
shall be no litigation or threat of litigation by a third party or
regulatory opposition seeking or threatening to prevent such
assumption reinsurance or making claims or threats against the
Company or the Reinsurer based on market misconduct on the part of
the Company; and (f) the right of recapture stated in Section 4.4
shall have expired and the Company shall not have exercised its right
of recapture. To the extent that such assumption certificate is
subject to regulatory approval prior to the mailing of same, the
Reinsurer shall make commercially reasonable efforts to obtain such
approvals at its own expense. The Reinsurer shall make commercially
reasonable efforts to obtain such approvals and to mail such
assumption certificates to the affected policyholders within six
months following the Assumption Effective Date (except that the
Reinsurer shall not be obligated to obtain a license to do business
in any state in which it is not licensed at such time as a condition
of sending assumption certificates to affected policyholders in such
state). In the event that regulatory approval is not obtained in
respect to any state in which regulatory approval is required as a
condition to sending assumption certificates to affected
policyholders in such state, the Reinsurer shall not be obligated to
send assumption certificates to affected policyholders in such state,
and the affected Policies shall continue to be governed by this
Agreement as coinsurance (except, see below regarding dissolution of
the Company). To the extent that affected policyholders in any state
have the right to elect to reject the subject assumption and in fact
exercise such election, the affected Policies shall continue to be
governed by this Agreement as coinsurance. In the event of the
assumption of the Policies as aforesaid, the Reinsurer shall have to
option to perform all administration and data processing
responsibilities relating thereto beginning after the Assumption
Effective Date. Following the assumption of the Policies, the
Reinsurer's liabilities in respect to such assumed Policies shall
continue to be limited to the Policy Obligations and shall not be
enlarged by virtue of the conversion of the form of reinsurance from
coinsurance (as set forth in this Agreement) to assumption
reinsurance, and the Company shall continue to have all liabilities
in respect to the assumed Policies except (a) the Policy Obligations
and any of the Reinsurer's liabilities resulting from the Reinsurer's
role as administrator, if the Reinsurer elects to administer the
Policies, and (b) the Company's obligation to indemnify the Reinsurer
and hold the Reinsurer harmless from all liabilities not specifically
transferred to and assumed by the Reinsurer hereunder shall continue
as set forth in this Agreement. In the event the Company is
dissolved, voluntarily or involuntarily, or placed in receivership,
and if the conversion from coinsurance to assumption reinsurance has
not theretofore occurred, the conversion from coinsurance to
assumption reinsurance shall take place automatically, provided the
following conditions are fulfilled: (a) the Assumption Effective
Date shall be not later than the effective date of the dissolution of
the Company or the date on which receivership commences, as the case
may be and (b) the Reinsurer shall obtain required approvals in the
affected states. It is the understanding of the parties that
assumption reinsurance occurring in connection with the dissolution
of the ceding company does not involve the acceptance of the affected
policyholders and, therefore, to that extent, the condition that
affected policyholders have the option to elect not to be assumed by
the Reinsurer will not apply. In the event of the assumption of the
Policies in connection with the Company's dissolution or receivership
as aforesaid, the Reinsurer shall perform all administration and data
processing responsibilities relating thereto. Following such
assumption of the Policies, the Reinsurer's liabilities in respect to
the Policies shall continue to be limited to the Policy Obligations
and liabilities resulting from its role as administrator of the
Policies, and shall not be enlarged by virtue of the conversion of
the form of reinsurance from coinsurance (as set forth in this
Agreement) to assumption reinsurance; the Company shall continue to
have all liabilities not specifically included within the Policy
Obligations or resulting from the Reinsurer's role as administrator
of the Policies; the Company's obligation to indemnify the Reinsurer
and hold the Reinsurer harmless from all liabilities not specifically
reinsured by the Reinsurer hereunder shall continue as set forth in
this Agreement.
Section 4.4. Right of Recapture. If the purchase of the stock
contemplated by the Stock Purchase Agreement does not close within
the Recapture Period (defined below), the Company, in its sole
discretion, shall have the right, but not the obligation, to
recapture the Policies at any time within six months following the
Effective Date (the "Recapture Period"). Such right shall be
exercisable by the Company's giving written notice to the Reinsurer
within the Recapture Period and designating the effective date of the
recapture, which shall be a date at the end of a month within the
Recapture Period ("Recapture Date"). Upon the exercise of the right
of recapture as aforesaid, the coinsurance of the Policies shall
terminate as of the Recapture Date, and thereafter the Company, and
not the Reinsurer, shall have all liabilities of the Policies. The
Company and the Reinsurer shall make such payment in cash that is
necessary to restore the parties to the position that they would have
had in respect to the Policies if the coinsurance had not occurred,
except that the Reinsurer shall be entitled to five percent (5%) of
the gross premium income received on the Policies during the period
starting the day following the Effective Date and ending on the
Recapture Date (the "Recapture Fee").
ARTICLE V
ACCOUNTING AND SETTLEMENT
Section 5.1. Agreement Accounting Period. The accounting
period for this Agreement shall be on a calendar month basis unless
otherwise specified herein. The first report shall be for the month
beginning November 1, 1998.
Section 5.2. Monthly Cash Settlements. No later than the 20th
of each month, beginning in December, 1998, the Company shall prepare
and deliver to the Reinsurer a "Monthly Cash Settlement" covering the
immediately preceding calendar month, which shall provide an
accounting in respect to the matters called for in this Article V.
Within five (5) working days after the receipt by the Reinsurer of
each Monthly Cash Settlement (the "Monthly Cash Settlement Date"),
the Company shall pay to the Reinsurer (for such accounting period):
(a) the premiums as defined in Section 3.2;
Simultaneously, the Reinsurer shall pay to the Company:
(c) the Commission Allowance as defined in Section 3.3;
(d) the Policy benefits as defined in Section 3.6;
(e) the premium assessment as defined in Section 3.4; and
(f) a service fee equal to 2% of the premiums received by the
Company and 7% of the claims paid by the Company during such
month.
Section 5.3. Amounts Due Monthly. Except as otherwise
specifically provided in this Agreement, all amounts due to be paid
to either the Company or the Reinsurer under this Agreement on a
monthly basis shall be determined on a net basis as of the last day
of each calendar month and shall be due and payable on or before the
Monthly Cash Settlement Date. If the amounts, as defined in Section
5.2 above, cannot be determined at such date on an exact basis as set
forth herein, such payments will be paid in accordance with an
approximate amount determined by the Reinsurer, which amount shall be
adjusted to the actual amount determined as soon as practicable
thereafter.
Section 5.4. Delayed Payments. For purposes of Section 5.3
above, if there is a delayed settlement of a payment due, interest
will be added, in an amount calculated as: the amount of the payment
which is delinquent, multiplied by ten percent (10%), multiplied by
the number of days such amount has been delinquent, regardless of
holidays or weekends, and divided by the whole number 365. For
purposes of this paragraph, a payment shall be deemed to be
delinquent after the Monthly Cash Settlement Date.
Section 5.5. Offset of Payments. All monies due either to the
Company or to the Reinsurer under this Agreement shall be offset
against each other, dollar for dollar, regardless of any insolvency
of either party.
Article VI
MUTUAL COVENANTS
Section 6.1. Covenants. The Reinsurer and the Company mutually
agree as follows:
(a) to indemnify, defend and hold harmless the other, its directors,
officers, employees and agents from any and all claims, actions,
suits, judgments, damages (including punitive or exemplary
damages), fines and other proceedings, whether civil, criminal
(only to the extent permitted by law or public policy),
administrative, investigative or otherwise, together with all
costs, expenses and other amounts, including attorney's fees,
arising out of any failure of the indemnifying party to perform
its duties, obligations or responsibilities to the other party,
its directors, officers, employees and agents, under this
Agreement, as more fully set forth in Article XIV; and
(b) the Company shall be solely liable for claims arising out of any
breach of any duty on the part of the Company to any holder,
insured, assignee, beneficiary or other claimant under any
Policy, and the Reinsurer's liabilities shall arise solely from
its obligation to pay amounts coming due under the terms of the
Policies within the scope of the Policy Obligations, and any
liability on the part of the Reinsurer to the Company resulting
solely from the Reinsurer's role as administrator pursuant to
the Intercompany Services Agreement, if applicable. Except for
the Reinsurer's role as administrator as aforesaid, the Company
shall remain solely liable for all fines, penalties or other
assessments imposed against the Company by any Insurance
Department or other governmental entity for any conduct of the
Company, its employees or authorized representatives, which was
not expressly authorized, in writing, by the Reinsurer; and
(c) any and all materials, information, proposals, studies or other
documents relative to this Agreement are confidential and
proprietary. Neither party shall disclose, directly or
indirectly, any information obtained from the other party,
relative to this Agreement, to any third party without the
express written consent of the other unless applicable statute,
law or regulation requires such disclosure, except as may be
required pursuant to the Arbitration Agreement.
Section 6.2. Policy Conservation. The Company covenants and
warrants that it will take no action that would encourage the holders
of the Policies to surrender, reduce or otherwise terminate their
existing coverages either through direct or indirect acts, including
but not limited to, a plan of internal replacement. Also, the
Company will not permit its employees, agents or other
representatives to re-write any of the Policies or to encourage the
holders of the Policies to surrender, reduce or otherwise terminate
their existing coverages either through direct or indirect acts, and
shall have an express Company policy of prohibiting its employees,
agents or other representatives from re-writing any of the Policies
and an express Company policy of directing its employees, agents and
other representatives to encourage the retention and conservation of
the Policies. "Re-writing" as used in the immediately preceding
sentence means the soliciting and accepting of applications for
insurance policies which relate to or cause the termination of an
existing Policy (such as, for example, a transaction involving,
contemplating or resulting in the replacement of a Policy by another
insurance policy).
ARTICLE VII
ARBITRATION
Section 7.1. Agreement. All disputes and differences between
the Company and the Reinsurer pertaining to this Agreement and the
related Intercompany Services Agreement (if applicable) on which an
agreement cannot be reached by the parties will be decided by
arbitration, regardless of the insolvency of either party, unless the
conservator, receiver, liquidator, or statutory successor is
specifically exempted from an arbitration proceeding by applicable
state law. Such arbitration shall be conducted in accordance with
the Arbitration Agreement, which agreement is incorporated herein by
reference thereto for all purposes. The parties agree that, in the
event the stock purchase contemplated by the Stock Purchase Agreement
does not close, the parties will execute and deliver to each other
the Arbitration Agreement contemplated by the Stock Purchase
Agreement within thirty days from the date on which the parties
terminate their obligation to close pursuant to the Stock Purchase
Agreement.
ARTICLE VIII
INSOLVENCY OR DISSOLUTION
Section 8.1. Insolvency. In the event of the Company's
insolvency, the Reinsurer's contractual liability on the Policies
shall continue to be determined by all the terms, conditions and
limitations under this Agreement, but the Reinsurer will make
settlement (1) directly to the Company's liquidator, receiver or
statutory successor, and (2) without increase or diminution because
of the Company's insolvency. The liquidator, receiver or statutory
successor of the Company shall give the Reinsurer written notice of
the pendency of a claim against the Company on any Policy within a
reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of any such claim, the Reinsurer may
investigate such claim and interpose in the Company's name (or in the
name of the Company's liquidator, receiver or statutory successor),
in the proceeding in which such claim is to be adjudicated, any
Defense or Defenses which the Reinsurer may deem available to the
Company or its liquidator, receiver or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable, subject
to court approval, against the Company as a part of the expense of
liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
Article IX
Termination
Section 9.1. Termination. This Agreement may be terminated as
follows:
(a) at any time prior to Closing by mutual written consent of the
Company and the Reinsurer;
(b) by the Company on or before Closing if the conditions set forth
in Section 12.2 have not been satisfied or waived in writing by
the Company on or before the Closing Date;
(c) by the Reinsurer if this Agreement has not been approved by the
TDI on or before November 20, 1998;
(d) by the Reinsurer if the conditions set forth in Section 12.3
have not been satisfied or waived in writing by the Reinsurer on
or before the Closing Date; or
(e) by the Company or the Reinsurer if the conditions set forth in
Section 12.1 have not been satisfied or waived in writing by the
Company or the Reinsurer, as the case may be, on or before the
Closing Date.
Section 9.2. Effect of Termination. In the event of any
termination of this Agreement, if one party is entitled to terminate
this Agreement as herein provided in Sections 9.1 (b), (d) or (e),
such party shall have the option (in lieu of electing to terminate
this Agreement) to enforce this Agreement by filing suit for specific
performance against the other party for any breach of any of the
provisions of this Agreement, and/or to recover damages incurred by
such party, including all reasonable costs of any nature whatsoever
incurred in the enforcement of its rights under this Agreement.
Article X
Representations and Warranties of the Company
The Company hereby represents and warrants to the Reinsurer
that:
Section 10.1. Organization and Existence. The Company is a
Texas-domiciled stock insurance company duly incorporated, validly
existing, and in good standing under the corporation and insurance
laws of the State of Texas. The Company has all requisite corporate
power and authority to carry on its business as it is now being
conducted, and to own, lease, and operate its properties, subject to
such regulatory approvals as may apply.
Section 10.2. Qualification and Power. The Company is duly
qualified and in good standing to do business in every jurisdiction
in which such qualification is necessary because of the nature of its
business or of the properties owned, leased, or operated by it,
except the parties recognize that the Company's state licenses have
been suspended in most jurisdictions and the Company is currently
subject to supervision under Texas law.
Section 10.3. Validity: No Violation. Subject to the Company's
right of termination as set forth in Article IX and such TDI
approvals as may apply, this Agreement is a valid and binding
obligation of the Company, enforceable against it in accordance with
its terms and conditions. Neither the execution and delivery of this
Agreement, nor the Company's compliance with any of the provisions of
this Agreement, will:
(a) conflict with or result in a breach of any provision of the
Articles of Incorporation or Bylaws of the Company, or result in
a default (or give rise to any right of termination,
cancellation, or acceleration) under any of the terms,
conditions, or provisions of any note, lien, bond, mortgage,
indenture, license, lease, agreement, consent order, or other
instrument or obligation to which the Company is a party or by
which it may be bound;
(b) violate any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental body applicable to
the Company or to any of its properties or assets; or
(c) cause, or give any person grounds to cause (with or without
notice, the passage of time or both), the maturity of any
liability of the Company to be accelerated or increased.
Section 10.4. Except for approvals required as set forth in
Article IX, no authorization, consent or approval of, or filing with,
any public body or authority is necessary for the Company to obtain
for the consummation of this Agreement, and except as set forth in
Section 12.1(b) hereof. No authorization, consent or approval of any
other person or entity is necessary for the Company to obtain for the
consummation of the transactions contemplated by this Agreement, and
no person or entity has an option, right of first refusal or
preferential right to purchase all or any part of the Policies or
that is otherwise triggered as a result of the transactions
contemplated hereby.
Section 10.5. The reserves and other Policy-related liabilities
with respect to each of the Policies were, or will be, established on
the books of the Company as of October 31, 1998, (i) were, or will
be, calculated and determined in accordance with generally accepted
actuarial and statutory accounting standards consistently applied,
(ii) were, or will be, based on actuarial assumptions that are in
accordance with those specified in the related Policies, (iii) meet
the requirements of the insurance laws of the State of Texas, and
(iv) in the aggregate are not less the amounts that would be required
for lines 2, 4.2, and 9 of page 3 of the Company's Annual Statement
if such Annual Statement were prepared as of the Effective Date. In
addition, the reserves for the period ended October 31, 1998 were, or
will be, established on the books of the Company with respect to the
reported but unpaid as well as the incurred but unreported policy
claims ("Claims Reserves") (i) were, or will be, calculated and
determined in accordance with generally accepted actuarial and
statutory accounting standards consistently applied, (ii) are, or
will be, sufficient to pay all of the liabilities in respect to such
claims incurred before November 1, 1998, and (iii) meet, or will
meet, the requirements of the insurance laws of the State of Texas.
The reserves as set forth in this Section 10.5 shall be referred to
in this Agreement as "Reserves." While the Claims Reserves shall be
established as aforesaid, if the claims paid by the Reinsurer
attributable to the Policies which were incurred on or before the
Effective Date are in the aggregate more than the amount of the
related Claims Reserves, the Company shall reimburse the Reinsurer
for the amount of the excess within 30 days following written notice
from the Reinsurer identifying the payment or payments in excess, as
aforesaid. If, after twelve (12) months from the Effective Date, the
aggregate claims attributable to the related Claims Reserves are less
than the Claims Reserves, then the Reinsurer shall pay the Company
the amount by which the related Claims Reserves exceeds the aggregate
amount of such claims. The due premium asset with respect to each of
the Policies for the period ended October 31, 1998, were, or will be,
established on the books of the Company (i) were, or will be,
calculated and determined in accordance with generally accepted
actuarial and statutory accounting standards consistently applied and
(ii) meet, or will meet, the requirements of the insurance laws of
the State of Texas. Such due premium asset shall be referred to in
this Agreement as "Policy Assets." In the event any portion of the
due premium asset is not collected within ninety (90) days of the
Effective Date, the Company will pay the Reinsurer an amount equal to
such uncollected due premium asset.
Section 10.6. Since December 31, 1997, there has not been any
material adverse change, or changes in the Policies or operations of
the Company taken as a whole which in the aggregate may be deemed
materially adverse to the Policies, or which could affect the
validity or enforceability of this Agreement, consummation of the
transactions contemplated hereby or compliance with the terms hereof
by the Company. For purposes of this Section, "Historical Policy
Data" means the Policy Assets, Reserves, and Policy statistical
information and results as reflected in the Company's Annual
Statements (as filed by the Company with insurance regulators on the
NAIC Convention Blank) for the years 1996-1997. The Historical
Policy Data were prepared and presented in conformity with statutory
accounting practices prescribed or permitted by applicable insurance
regulatory laws and regulations applied on a consistent basis and
presented completely and accurately such data at the respective dates
and for the respective periods indicated therein.
Section 10.7. There are no claims, actions, suits,
investigations and administrative, arbitration or other proceedings
(i) pending against the Company with respect to the Policies or (ii)
threatened against the Company with respect to the Policies. The
Company is not subject to or in default with respect to any order,
writ, judgment, decree, injunction or similar order of any court or
any foreign, federal, state or other governmental body. There are no
claims, actions, suits, investigations or administrative, arbitration
or other proceedings pending or threatened against or affecting the
Company which individually or in the aggregate could have a material
adverse effect on the Polices which could affect the validity or
enforceability of this Agreement, consummation by the Company of the
transactions contemplated hereby or compliance by the Company with
the terms of this Agreement, and (ii) the Company is not subject to
or in default with respect to any order, writ, judgment, decree,
injunction or similar order of any court or any foreign, federal,
state or other governmental body, the result of which being subject
to or of which default individually or in the aggregate could have a
material adverse effect on the Polices or which could affect the
validity or enforceability of this Agreement, consummation by the
Company of the transactions contemplated hereby or compliance by the
Company with the terms of this Agreement. The Parties acknowledge
that the Company is subject to regulatory supervision by the TDI.
Section 10.8. The Company is in compliance in all respects with
all laws, ordinances, regulations, orders, judgments, injunctions, or
decrees of any court, arbitrator or governmental authority where the
failure to comply, individually or in the aggregate, could reasonably
be expected to have a material adverse effect on the Policies.
Section 10.9. The Company is not in default under any of the
terms, provisions or conditions of any contract between the Company
and any of its agents, past or present. The failure of any agent who
wrote Policies for the Company to have been duly licensed (for the
type of business which such agent wrote) as an agent in the
particular jurisdiction in which such agent wrote for the Company
will not individually or in the aggregate have a material adverse
effect on the Policies of the Company. To the knowledge of the
Company, there is no actual or threatened plan on the part of any
insurance agent or broker to rewrite any of the Policies.
Section 10.10.
(a) it has been the practice of the Company to send all
communications involving holders of the Policies directly to the
affected policyholders, and the Documents and Records of the
Company to be delivered to the Reinsurer contain adequate
information to enable the Reinsurer (if it becomes administrator
of the Policies) to send written notifications or other
communications directly to each policyholder whose policy or
contract is included in the Policies;
(b) except for lists provided to the Company's reinsurers for the
purpose of reinsurance transactions and accounting in the
ordinary course of business, no lists or master list of all or
any substantial number of the holders of the Policies has been
provided by the Company to any of its agents, representatives or
third party except to the Company's consulting actuary, and such
lists or master list are not available in the public domain; and
(c) no policyholder or group of policyholders, which individually or
in the aggregate account for five percent or more of the premium
income included in the Policies has threatened to terminate its
or their relationship with the Company.
Section 10.11. With respect to each of the Policies:
(a) the Company is a party to each of such Policies and owns all of
the rights and interests of an insuring, reinsuring or ceding
party, as the case may be, in and to each of such Policies, free
and clear of any Lien;
(b) each of such Policies is in full force and effect and
constitutes a valid and legally binding obligation of each of
the parties thereto in accordance with its terms; the
transactions contemplated by this Agreement will not affect the
validity or binding character of any such Policy; the Company is
not in violation, breach or default of any such Policy and no
event has occurred which (with or without notice or lapse of
time or both) constitutes a breach or default by the Company
under any such Policy and no such Policy contains any provision
providing that the other party thereto may terminate the same by
reason of the transactions contemplated by this Agreement or any
other provision which would be altered or otherwise become
applicable by reason of such transactions;
(c) such Policies are, to the extent required under applicable law,
on forms approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not
objected to by such authority within the period provided for
objection;
(d) all current benefits payable by the Company under any such
Policy have been paid or will be paid in the ordinary course of
business under the terms of the Policies under which they arose
or to the satisfaction of the parties thereto;
(e) no such Policy entitles the holder thereof or any other person
or entity to receive dividends or similar benefits in which the
right to receive such dividends or benefits is determined other
than at the discretion of the board of directors of the Company;
(f) the underwriting standards utilized and ratings applied by the
Company with respect to Policies issued by the Company conform
in all material respects to customary insurance industry
practices as such practices apply to the markets in which the
Company has sold its policies and, with respect to any such
Policy reinsured in whole or in part, conform in all material
respects to the standards and ratings required pursuant to the
terms of the related reinsurance, coinsurance or other similar
Policy;
(g) each of such Policy was issued and has been serviced in the
ordinary course of business; and
(h) there has been no discrimination in violation of applicable
insurance laws among the policyholders whose policies and
contracts of insurance are included in such Policies with
respect to the rates charged such policyholders for the
insurance in force afforded such policyholders by such Policies.
Section 10.12. The Documents and Records are accurate and
complete in all material respects and, in all material respects,
completely record and reflect all of the Company's liabilities and
obligations. The Policy records are sufficiently well labeled and
organized to permit reasonable access (by industry standards) and
there are no deficiencies in the Documents and Records which could
reasonably be expected to have a material adverse effect on either
the Reinsurer's satisfaction of its obligations in respect of the
Policies or the servicing by the Reinsurer of the Policies in
accordance with customary insurance industry practices. There are no
facts or other circumstances that would prevent the Reinsurer (or
which raises a material probability that the Reinsurer might be
prevented) from servicing the Policies in accordance with customary
insurance industry practice and in the manner in which the Policies
have been serviced prior to the Effective Date.
Section 10.13. Neither this Agreement nor any certificate or
document furnished by the Company to the Reinsurer in connection with
this Agreement or the transactions contemplated hereby contains any
untrue statement of material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading in
light of the circumstances in which they were made.
Section 10.14. Survival of Representations and Warranties. The
representations and warranties of the Company contained in this
Article X and elsewhere in this Agreement shall survive the Closing
until all of the liabilities reinsured hereunder have been discharged
or otherwise expire.
Article XI
Representations and Warranties of the Reinsurer
The Reinsurer hereby represents and warrants to the Company
that:
Section 11.1. Organization and Existence. The Reinsurer is a
Texas-domiciled stock insurance company duly incorporated, validly
existing, and in good standing under the corporation and insurance
laws of the State of Texas. The Reinsurer has all requisite
corporate power and authority to carry on its business as it is now
being conducted, and to own, lease, and operate its properties.
Section 11.2. Qualification and Power. The Reinsurer is duly
qualified and in good standing to do business in every jurisdiction
in which such qualification is necessary because of the nature of its
business or of the properties owned, leased, or operated by it.
Section 11.3. Validity; No Violation. Subject to the
Reinsurer's right of termination as set forth in Article IX, this
Agreement is a valid and binding obligation of the Reinsurer,
enforceable against it in accordance with its terms and conditions.
Neither the execution and delivery of this Agreement, nor the
Reinsurer's compliance with any of the provisions of this Agreement,
will:
(a) conflict with or result in a breach of any provision of the
Articles of Incorporation or Bylaws of the Reinsurer, or result
in a default (or give rise to any right of termination,
cancellation, or acceleration) under any of the terms,
conditions, or provisions of any note, lien, bond, mortgage,
indenture, license, lease, agreement, consent order, or other
instrument or obligation to which the Reinsurer is a party or by
which it may be bound;
(b) violate any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental body applicable to
the Reinsurer or to any of its properties or assets; or
(c) cause, or give any person grounds to cause (with or without
notice, the passage of time or both), the maturity of any
liability of the Reinsurer to be accelerated or increased.
Section 11.4. Survival of Representations and Warranties. The
representations and warranties of the Reinsurer contained in this
Article XI and elsewhere in this Agreement shall survive the Closing
until all of the liabilities reinsured and assumed hereunder have
been discharged or otherwise expired.
Article XII
Covenants and Conditions Precedent to Closing
Section 12.1. The obligations of each of the parties hereto to
proceed with the Closing were subject to the fulfillment (unless
waived by each party in writing), prior to or at the Closing, of each
of the following conditions:
(a) No suit, action or other proceeding shall have been initiated
and be pending or be threatened by any governmental agency in
which it is sought to restrain, prohibit, invalidate, modify or
condition, or set aside, the transactions contemplated by this
Agreement, and no statute, rule or regulation having such effect
shall have been promulgated or enacted, nor shall any such suit,
action or proceeding have been initiated by any other third
party not affiliated with the parties hereto in which such third
party shall have obtained preliminary or permanent injunctive
relief or which, in the opinion of counsel to either party, has
a reasonable likelihood of success; provided, however, that each
party shall use reasonable efforts in good faith to cause such
suit, action or proceeding, or the threat thereof, to be
dismissed or withdrawn, to cause such injunction to be dissolved
or vacated or to cause such statute, rule or regulation to be
repealed or rescinded.
(b) The receipt of the required approval of this Agreement from the
TDI.
(c) The parties shall execute and deliver at Closing the
Administrative Services Agreement.
Section 12.2. The obligations of the Company to proceed with
the Closing are subject to the fulfillment (unless waived by the
Company in writing), prior to or at the Closing, of each of the
following conditions:
(a) The representations and warranties of the Reinsurer contained in
Article X of this Agreement shall be true and correct in all
material respects at and as of the Closing, as if each such
representation and warranty had been made as of the Closing.
(b) The Reinsurer shall have performed and complied in all material
respects with all covenants, agreements, obligations,
commitments and conditions required by this Agreement to be
performed or complied with prior to or at the Closing.
(c) The Reinsurer shall have delivered to the Company a certificate
dated the Closing Date and signed by the president or a vice
president of the Reinsurer certifying to the fulfillment of the
conditions specified in this Section 12.2.
(d) The Reinsurer shall have delivered to the Company at the Closing
such other documents as the Company may reasonably request.
Section 12.3. The obligations of the Reinsurer to proceed with
the Closing are subject to the fulfillment (unless waived by the
Reinsurer in writing), prior to or at the Closing, of each of the
following conditions:
(a) The representations and warranties of the Company contained in
Article X of this Agreement shall be true and correct in all
material respects at and as of the Closing, as if each such
representation and warranty had been made as of the Closing.
(b) The Company shall have performed and complied in all material
respects with all covenants, agreements, obligations,
commitments and conditions required by this Agreement to be
performed or complied with prior to or at the Closing.
(c) The Company shall have delivered to the Reinsurer a certificate
dated the Closing Date and signed by the president or a vice
president of the Company certifying to the fulfillment of the
conditions specified in this Section 12.3.
(d) The Company shall have delivered to the Reinsurer at the Closing
such other documents as the Reinsurer may reasonably request,
including evidence reasonably satisfactory to the Reinsurer that
this Agreement and the related agreements have been approved by
the Company's Board of Directors.
(e) The Reinsurer, by and through its designated representatives,
shall have completed to its satisfaction a legal, financial and
business due diligence review and investigation of the Policies
and related information, and in the course of such due diligence
review and investigation the Reinsurer shall not have discovered
any facts, information, potential risks, or other problems which
the Reinsurer reasonably believes to have an actual or potential
adverse impact or effect on the Policies, or upon the respective
values of the Policies, as a result of the consummation of the
subject transactions relative to the information heretofore
furnished to the Reinsurer by the Company; and that the Policy-
related assumptions used in the Actuarial Appraisal are
reasonably supported by the historical performance of the
Policies, and the modeling and sampling decisions and related
methodology are reasonable.
Section 12.4. Cooperation. The parties shall assist and
cooperate with each other by making all reasonable efforts to seek
and obtain the aforementioned approvals and any other approvals the
parties agree are necessary or advisable, and each party shall bear
its own expenses related thereto.
Article XIII
Closing
Section 13.1. Time and Location. The closing of the
transactions contemplated by this Agreement ("Closing") shall take
place on at 10 A. M., local time, on November 20, 1998, except that
Closing may occur on a different time and date by mutual written
agreement of the parties (the "Closing Date").
Section 13.2. Deliveries by the Company. At Closing the
Company shall deliver to the Reinsurer (a) an accounting as of
October 31, 1998, in contract level detail as to the Policies,
including a detail listing of the Policies, which are the subject of
this Agreement, and (b) the assets comprising the Closing Net
Transfer Assets shown on Schedule 4.1 by wire transfer.
ARTICLE XIV
INDEMNIFICATION
Section 14.1 Losses. As used in this Agreement, "Loss" and/or
"Losses" shall mean all claims, lawsuits, proceedings by insurance
regulatory authorities or any other regulatory authority,
investigations, expenses, settlements, assessments, obligations,
damages, losses, deficiencies, interest, late charges, adjustments,
costs, judgments, payments, liabilities, refunds, taxes, fines and
penalties, including, without limitation, costs and expenses of
litigation and reasonable attorneys' fees, reasonable actuarial and
accounting fees and reasonable costs of investigations.
Section 14.2 Indemnity by the Company. The Company shall
indemnify, defend and hold harmless the Reinsurer and the Reinsurer's
subsidiaries and affiliates including, without limitation, its
officers, directors, employees and shareholders and those of its
subsidiaries and affiliates from and against Losses that arise out
of:
(a) the non-performance of any covenants, warranties,
agreements, obligations or commitments contained in this
Agreement or in any exhibit, schedule, certificate or other
document delivered pursuant hereto required to be performed by
the Company; or
(b) the fact that any representation or warranty made by
the Company contained in this Agreement or in any exhibit,
schedule, certificate or other document delivered pursuant
hereto was untrue as of the Closing Date (determined as if such
representation or warranty had been made as of the Closing
Date).
Section 14.3 Indemnity by the Reinsurer. The Reinsurer shall
indemnify, defend and hold harmless the Company from and against
Losses that arise out of:
(a) the non-performance of any covenants, warranties,
agreements, obligations or commitments contained in this
Agreement or in any exhibit, schedule, certificate or other
document delivered pursuant hereto required to be performed by
the Reinsurer; or
(b) the fact that any representation or warranty made by
the Reinsurer contained in this Agreement or in any exhibit,
schedule, certificate or other document delivered pursuant
hereto was untrue as of the Closing Date (determined as if such
representation or warranty had been made as of the Closing
Date).
Section 14.4 Payment. Payment required to be made to any party
entitled to indemnification hereunder shall be made within ten days
after receipt of an invoice or claim ("claim") therefor from a party
seeking indemnification. In the event of any dispute with respect to
a party's obligation to make any such payment, the parties shall use
their best efforts to resolve such dispute as promptly as
practicable. In any event, however, that the claim made by a party
entitled to indemnification hereunder is not paid in full within said
10 day period, such party (the "Indemnity" as hereinafter defined)
shall be entitled to initiate arbitration proceedings in accordance
with the Arbitration Agreement. Any such payment amount shall
include interest thereon at the rate of ten percent (10%) per annum
(compounded annually) which shall accrue beginning on the first day
of the obligation that resulted in a finding that an amount became
payable, and shall continue to accrue until paid.
Section 14.5 Notice. Any person, corporation or other legal
entity entitled to indemnification under this Agreement, as the case
may be, making a claim under this Article XIV is hereinafter referred
to as the "Indemnitee" and the party against whom such claim is
asserted is hereinafter referred to as the "Indemnitor." All claims
by any Indemnitee under this Article XIV shall be asserted by
Indemnitee delivering or causing to be delivered, to Indemnitor, a
written notice (the "Claim Notice") describing in reasonable detail
the facts or circumstances which may result in a claim of Loss.
(Such claim of Loss is hereinafter referred to as an "Asserted
Liability.") Indemnitee shall use reasonable efforts to give the
Claim Notice not later than the earlier of:
(i) Three months after the time at which Indemnitee is
notified in writing, actually becomes aware of or otherwise
obtains actual knowledge of any action, proceeding,
investigation, demand or claim (whether actual or threatened) or
any other circumstance or state of facts which could give rise
to an Asserted Liability, or
(ii) With respect to any Asserted Liability which has
become the subject of proceedings before any court or tribunal
or in which Indemnitee has been served with legal process within
such time as would allow Indemnitor to timely file responsive
pleadings in such proceeding or action.
If a claim is not given by the Indemnitee as herein provided,
the Indemnitee shall be entitled to indemnification hereunder only
(i) if the Indemnitee can establish that the time elapsed between the
time the Claims Notice should have been given pursuant to this
Agreement and the actual giving of the Claims Notice is reasonable
under all the circumstances, (ii) to the extent that the Indemnitee
can establish that the Indemnitor has not been prejudiced by such
time elapsed, or (iii) if the Indemnitee can establish that the
Indemnitor received actual notice of such Asserted Liability from a
party other than the Indemnitee, or otherwise had actual notice of
the basic facts constituting the Asserted Liability, within the time
periods specified in this Agreement or that the receipt of such
notice satisfies the requirements of either clause (i) or (ii) of
this paragraph.
Section 14.6 Defense of Claims.
(a) Subject to the limitations hereinafter set forth,
Indemnitor shall have the right to control the contest of any
Asserted Liability and shall defend, at its own expense and by
its own counsel, any Asserted Liability. If Indemnitor does not
notify Indemnitee in writing within sixty days after receipt of
the Claim Notice, or within the time period prior to the date on
which responsive pleadings must be filed, whichever is less,
that it elects to undertake the defense thereof, Indemnitee
shall have the right to defend the Asserted Liability with
counsel of its choosing reasonably satisfactory to Indemnitor.
Even in the event that Indemnitor does not notify Indemnitee
that it elects to undertake the defense of an Asserted Liability
within the applicable time periods set forth in this Agreement,
Indemnitor shall have the right to assume the defense of such
Asserted Liability, and to select counsel reasonably
satisfactory to Indemnitee, at any time prior to settlement or
final determination thereof; provided, however, that in such
event Indemnitor shall be responsible for and shall pay (or
reimburse Indemnitee for) the fees and expenses of counsel
employed by Indemnitee prior to Indemnitor's assumption of the
defense of any such Asserted Liability.
(b) In the event that Indemnitor commences or thereafter
assumes the defense of any Asserted Liability as provided in
this Agreement, Indemnitee shall have the right to employ
separate counsel with respect to such claim and to participate
in the defense thereof, provided that the fees and expenses of
counsel employed by Indemnitee shall be at the expense of
Indemnitee unless the employment of such counsel has been
specifically authorized in writing by Indemnitor.
Section 14.7 Cooperation. After the Closing Date, the
Reinsurer and the Company shall each cooperate fully with the other
(including, without limitation, affording the other an opportunity to
participate in the defense) as to all Asserted Liabilities, shall
make available to the other as reasonably requested all information,
records and documents relating thereto and shall preserve all such
information, records and documents until the termination of any
claim. The Reinsurer and the Company shall each also make available
to the other, as reasonably requested, its personnel, agents and
other representatives who are responsible for preparing or
maintaining information, records or other documents, or who may have
particular knowledge with respect to any such Asserted Liability.
Section 14.8 No Insurance. The indemnifications provided in
this Agreement shall not be construed as a form of insurance and
shall be binding upon and inure to the benefit of the Reinsurer, and
the Company; and the indemnification provisions shall apply with full
force and effect notwithstanding the fact the Indemnitee has
insurance covering all or a portion of the Losses.
ARTICLE XV
SURVIVAL OF OBLIGATIONS
Unless otherwise specifically set forth in this Agreement or in
any of the exhibits, schedules, certificates or other agreements
delivered pursuant hereto, all covenants, representations and
warranties and other obligations of the parties hereto as expressed
in this Agreement shall survive indefinitely. Any obligation
resulting from or arising out of the non-performance of any such
covenant, agreement, obligation or commitment or of any
representation or warranty being untrue as of the Closing Date as to
which a written notice of possible Loss shall have been given to the
indemnifying party in accordance with the requirements of Article XIV
hereof shall survive, as to matters identified with particularity in
such notice, until the resolution of the matters referred to therein.
Unless otherwise specifically set forth herein or in any of the
exhibits, schedules, certificates or other agreements delivered
pursuant hereto, in case of any representation or warranty being
untrue as of the Closing Date or any non-performance of any covenant,
agreement, obligation or commitment contained in this Agreement, or
in any exhibit, schedule, certificate or other agreement delivered
pursuant hereto, the exclusive remedy therefor shall be
indemnification pursuant to Article XIV hereof, except to the extent
the remedy of specific performance may be available under applicable
equitable principles.
Article XVI
Miscellaneous Provisions
Section 16.1. Extracontractual Damages. The Reinsurer does not
agree to indemnify the Company for, and shall not be liable for, any
extracontractual damages or liability of any kind whatsoever of the
Company's, except for any of the Reinsurer's obligations as
administrator of the Policies, if applicable.
Section 16.2. Misunderstandings and Oversights. If any failure
to pay amounts due or to perform any other act required by this
Agreement is unintentional and caused by oversight, the Company and
the Reinsurer will adjust the situation to what it would have been
had the oversight not occurred.
Section 16.3. Facility of Reinsurance. The Company shall not
enter into any other reinsurance agreements, including assumption
reinsurance that would cover the Policies, or by any other act impair
the value of the Policies ceded to the Reinsurer under this
Agreement, without the express written approval of the Reinsurer.
Section 16.4. Policy Changes. The Company shall not make any
changes after the Effective Date of this Agreement in the provisions
and conditions of the Policies.
Section 16.5. Law and Venue. It is agreed that this Agreement
is subject to and is to be interpreted in accordance with the laws of
the State of Texas. Venue for any action, suit or other proceeding
shall be exclusively in ▇▇▇▇▇▇ County, Texas.
Section 16.6. Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the
same instrument.
Section 16.7. Severability. In the event that any provision or
term of this Agreement shall be held by any court to be illegal or
unenforceable, all of the other terms and provisions shall remain in
full force and effect, except if the provision or term held to be
illegal or unenforceable is also held to be a material part of this
Agreement such that the party in whose favor the material term or
provision was stipulated herein would not have entered into this
Agreement without such term or provision, then the party in whose
favor the material term or provision was stipulated shall have the
right, upon such holding, to terminate this Agreement.
Section 16.8. Amendments. This Agreement shall be amended only
by mutual consent and written agreement executed and delivered by the
parties.
Section 16.9. Schedules and Paragraph Headings. Schedules
attached hereto are made a part of this Agreement. Paragraph
headings are provided for reference purposes only and are not made a
part of this Agreement.
Section 16.10. Financial Reports. The Company and the
Reinsurer each agree to furnish the other with their respective NAIC
Annual and Quarterly Statements, as required by their respective
state laws within five (5) days after such reports are filed with
such respective states.
Section 16.11. Survival. The representations, warranties,
covenants and agreements respectively made by the Company and the
Reinsurer in this Agreement shall survive the termination or
expiration of this Agreement.
Section 16.12. Notices. Any notices made pursuant to this
Agreement shall be in writing and shall be deemed to have been duly
given on the date of delivery if delivered personally (including
overnight delivery service) or by facsimile transmission to the party
to whom notice is given, or on the third day after mailing if mailed
to the party to whom notice is to be given by certified mail, return
receipt requested, and properly addressed as follows:
If to the Company:
The Statesman National Life Insurance Company
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Reinsurer:
American Capitol Insurance Company
Attn: ▇▇▇▇▇▇▇ ▇. Guest, Chairman
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
Any party to this Agreement may change the address to which notice is
to be delivered to such party under this Section 16.12 by delivering
written notice to that effect to the other party in accordance with
this Section 16.12. Any document delivered via facsimile
transmission shall be treated as the original for all purposes unless
the original is substituted therefor.
Section 16.13. Understanding of Agreement. The Parties agree
that the drafting of this Agreement has been a joint effort and no
special weight or presumption should arise in favor of or against
either Party based on whether one Party or the other was more
responsible for the drafting of this Agreement. Each Party has
consulted with its accounting, actuarial and legal advisers in
respect to the negotiations and the drafting of this Agreement. Each
Party has read and understands this Agreement, and each party agrees
that it shall not be entitled to claim a failure to understand the
meaning and effect of this Agreement, or any part thereof, as a
defense under any circumstances.
Section 16.14. Assignment. No party may assign this Agreement
or any of its rights, interests, or obligations hereunder without the
prior written consent of the other party, if the assignment is to an
entity other than an affiliate of the Reinsurer.
Section 16.15. Broker Fees. Each party hereby represents and
warrants that it has not taken any action that would impose on any
other party hereto liability for payment of any broker, finder, or
similar fee in connection with the origin, negotiation, execution, or
performance of this Agreement.
Section 16.16. Cooperation. The parties agree that they will
from time to time, upon the request of any other party and without
further consideration, execute, acknowledge, and deliver in proper
form any further instruments and take such other action as the other
party may reasonably require in order to carry out effectively the
intent of this Agreement.
Section 16.17. Entire Agreement. This Agreement constitutes
the entire agreement and understanding of the parties pertaining to
the subject matter contained in this Agreement and supersedes all
prior and contemporaneous oral and written agreements,
representations, and understandings of the parties (provided,
however, that the values assigned to the Policies, including the post-
closing adjustment values, as set forth in the Stock Purchase
Agreement shall not be affected by this Agreement).
Section 16.18. Exhibits and Schedules. All exhibits and
schedules attached to and referenced in this Agreement are hereby
incorporated by reference into this Agreement as if they were set
forth at length in the text of this Agreement.
Section 16.19. Expenses. Unless otherwise expressly provided
in this Agreement, each party shall pay all of its own costs, fees,
and expenses incurred or to be incurred in negotiating and preparing
this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
Section 16.20. Severability. If any part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable law or
regulations, that provision shall not apply and shall be omitted to
the extent so contrary, prohibited, or invalid; but the remainder of
this Agreement shall not be invalidated and shall be given full force
and effect insofar as possible.
Section 16.21. Successors. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
Section 16.22. Third Party Beneficiaries. Except as to the
holders of the Policies, nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any persons or entities other than the
parties to it and their respective successors and permitted assigns.
In addition, nothing in this Agreement is intended to relieve or
discharge the obligation or liability of any third person or entity
to any party to this Agreement or give any third person or entity any
right of subrogation or action against any party to this Agreement.
Section 16.23. Waiver of Compliance. The party for whose
benefit a warranty, representation, covenant, or condition is
intended may waive any inaccuracies in the warranties and
representations contained in the Agreement or waive compliance with
any of the covenants, warranties, or conditions contained herein and
so waive performance of any of the obligations of the other party and
any defaults under this Agreement, but to be effective any such
waiver must be in writing signed by the party granting such waiver.
A waiver shall not affect or impair, however, the waiving party's
rights with respect to any other warranty, representation, or
covenant or any default hereunder not specifically waived, nor shall
any waiver constitute a continuing waiver.
Section 16.24. Waiver of Right to Trail by Jury. The Company
and the Reinsurer both expressly waive any right to trial by jury of
any claim, demand, action or cause of action (a) arising under this
Agreement or any other instrument or document executed or delivered
in connection herewith, or (b) in any way connected or incident to
the dealing of the parties hereto in connection with the transactions
related hereto, in each case whether now existing or hereafter
arising; and the Company and the Reinsurer both hereby agree and
consent that any such claim, demand, action or cause of action shall
be decided by arbitration and to the extent applicable by a court
trial without a jury, and that any party to this Agreement may file
an original counterpart or a copy of this Agreement with any court as
written evidence of the consent of the Company and the Reinsurer to
the waiver of the right to trial by jury.
IN WITNESS WHEREOF, the parties have caused their duly
authorized representatives to execute this Agreement as of the date
first written above.
THE STATESMAN NATIONAL LIFE INSURANCE COMPANY
By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
-------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Witness: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
Corporate Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Secretary
Printed Name and Title
AMERICAN CAPITOL INSURANCE COMPANY
By:/s/ ▇▇▇▇▇▇▇ ▇. Guest
-------------------------------
▇▇▇▇▇▇▇ ▇. Guest, Chairman
Witness: /s/▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
Corporate Officer
▇▇▇▇ ▇▇▇▇▇▇▇, President
Printed Name and Title
