-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IYHKjaBORVBcKg0X1W82KhnS7vFZMl7SyfERxmRgSx8J7mq4KzdJlTnrnD+NwOd7 gb+bwu8s5h2zWh7+I4DqXg== 0000898080-04-000051.txt : 20040130 0000898080-04-000051.hdr.sgml : 20040130 20040130145149 ACCESSION NUMBER: 0000898080-04-000051 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040129 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAN HOLDING CORP CENTRAL INDEX KEY: 0000870069 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 680211359 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19704 FILM NUMBER: 04555555 BUSINESS ADDRESS: STREET 1: 2090 MARINA AVE CITY: PETALUMA STATE: CA ZIP: 94954 BUSINESS PHONE: 7077788638 MAIL ADDRESS: STREET 1: 2090 MARINA AVE CITY: PETALUMA STATE: CA ZIP: 94954 8-K 1 form8k.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): Commission File No. 000-19704 January 29, 2004 REGAN HOLDING CORP. (Exact name of registrant as specified in its charter) CALIFORNIA 68-0211359 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2090 Marina Avenue Petaluma, California 94954 (707) 778-8638 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Item 5. Other Events and Regulation FD Disclosure. Regan Holding Corp. (the "Company") is filing this Current Report on Form 8-K for the purpose of (i) filing certain marketing agreements and administrative services agreements that contain confidential information that has been omitted and filed separately with the U.S. Securities and Exchange Commission, and (ii) filing the Purchase Option Agreement with SCOR Life U.S. Re Insurance Company ("SCOR") that the Company and SCOR executed on November 25, 2003 (the "Purchase Option Agreement"). Pursuant to the terms and conditions of the Purchase Option Agreement, the Company has the right, but not the obligation, to purchase all of SCOR's right, title and interest in Investors Insurance Corporation. Item 7. Financial Statements and Exhibits. (c) Exhibits. Exhibit 10.1 Administrative Services Agreement with American National Insurance Company dated February 15, 2003. Exhibit 10.2 Marketing Agreement with American National Insurance Company dated November 15, 2002. Exhibit 10.3 Marketing Agreement with John Hancock Life Insurance Company dated January 18, 2001. Exhibit 10.4 Administrative Services Agreement with John Hancock Life Insurance Company dated January 18, 2001. Exhibit 10.5 Amendment Four to Marketing Agreement with Transamerica Life Insurance and Annuity Company dated November 19, 2002. Exhibit 10.6 Amendment Five to Administrative Services Agreement with Transamerica Life Insurance and Annuity Company dated November 19, 2002. Exhibit 10.7 Purchase Option Agreement between SCOR Life U.S. Re Insurance Company and the Company executed on November 25, 2003. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. REGAN HOLDING CORP. ----------------------------- (Registrant) /s/ G. Steven Taylor Date: January 29, 2004 ----------------------------- G. Steven Taylor Chief Financial Officer EXHIBIT INDEX
Description of Document Exhibit No. Administrative Services Agreement with American National Insurance Company dated February 15, 2003. 10.1 Marketing Agreement with American National Insurance Company dated November 15, 2002. 10.2 Marketing Agreement with John Hancock Life Insurance Company dated January 18, 2001. 10.3 Administrative Services Agreement with John Hancock Life Insurance Company dated January 18, 2001. 10.4 Amendment Four to Marketing Agreement with Transamerica Life Insurance and Annuity Company dated November 19, 2002. 10.5 Amendment Five to Administrative Services Agreement with Transamerica Life Insurance and Annuity Company dated November 19, 2002. 10.6 Purchase Option Agreement between SCOR Life U.S. Re Insurance Company and the Company executed on November 25, 2003. 10.7
EX-10.1 3 ex10-1.txt EXHIBIT 10.1 Exhibit 10.1 ADMINISTRATIVE SERVICES AGREEMENT THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is entered into and effective on the 15th day of February, 2003, by and between American National Insurance Company, hereinafter referred to as "American National," an insurance company organized under the laws of the state of Texas, and Legacy Marketing Group, hereinafter referred to as "LMG," a California corporation, with reference to the following facts: WHEREAS, American National and LMG have entered into a certain Marketing Agreement, hereinafter referred to as the "Marketing Agreement," pursuant to which certain insurance business is to be marketed by LMG; WHEREAS, that American National desires to have LMG provide services to American National with respect to this business and LMG is willing to provide such services, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and mutual promises hereinafter contained and other good and valuable consideration, the LMG and American National hereto do agree as follows: 1. SERVICES From and after the date of this Agreement, LMG agrees to perform certain American National accounting and contract service functions. Such accounting and contract service functions shall consist of the activities described in APPENDIX C but only for the policies recited in APPENDIX A, and policies added by formal amendment. Consideration for such accounting and service functions is set forth in APPENDIX B. The term "Policies," as used throughout this Agreement, shall be deemed to encompass all policies, certificates and contracts issued by LMG on behalf of American National. Furthermore, the term "Policyholder," as used throughout this Agreement, shall be deemed to encompass all contract owners, including policyholders and certificateholders. 2. QUALITY AND LIMITATION OF SERVICES 2.1 All services to be provided by LMG under this Agreement shall be performed in a professional manner consistent with industry standards and in accordance with all applicable laws and regulations. With respect to Services described in Section 1 above, LMG's performance of those activities shall be consistent with its normal and customary business practices. 2.2 LMG may rely on instructions of any person indicated on American National's "Schedule of Authorized Personnel," attached hereto as APPENDIX D. Each of such persons is authorized to give instructions under this Section with respect to any matter arising in connection with this Agreement. 3. TERM, TERMINATION, ASSIGNMENT AND MODIFICATION OR AMENDMENT 3.1 Subject to termination as hereinafter provided, this Agreement shall remain in force and effect for a period of five (5) years, the term of this Agreement. This Agreement shall be renewed by mutual agreement for successive terms of one (1) year unless terminated by either party as provided herein. Page 1 of 25 3.2 The termination of this Agreement is governed by the following provisions: (a) American National or LMG may terminate this Agreement or any renewal thereof, without cause, upon twelve (12) months prior written notice to the other signed by authorized personnel, as provided in APPENDIX E. (b) This Agreement may be terminated by mutual agreement of LMG or American National at any time. Such termination shall be signed by authorized personnel of both parties, as shown in APPENDIX D. (c) If either American National or LMG shall materially breach this Agreement or be materially in default in the performance of any of its duties and obligations hereunder (the defaulting party), the other party shall give written notice thereof, as signed by authorized personnel, as provided in APPENDIX D, to the defaulting party. If such default or breach is not cured within ninety (90) days after such written notice is given, then the party giving such written notice may terminate this Agreement with thirty (30) days notice of such termination to the defaulting party. (d) At least ninety (90) days prior to the end of any term hereof, LMG shall give American National written notice if LMG desires to increase its fees or charges to American National or to change the manner of payment or to change any of the other terms and conditions of this Agreement. American National must respond to such request in writing within sixty (60) days of receipt. If LMG and American National do not agree to such changed fees and charges, the manner of payment and/or the other proposed changes, before the end of the term during which such notice is given by LMG, or if LMG does not withdraw the proposed changes, this Agreement may terminate following the provisions indicated in Section 3.1(a). (e) Notwithstanding anything herein to the contrary, American National or LMG may terminate this Agreement or any renewal thereof, with cause, immediately by written notice, as signed by authorized personnel, as provided in APPENDIX D, to the other. Cause is defined as fraudulent, criminal, unethical activity or blatant disregard for the terms and conditions of this Agreement. (f) If LMG elects to terminate this Agreement for other than non-payment of fees and charges and if American National shall so request in writing, LMG shall continue to provide the services described herein to American National for a period of up to twelve (12) months following such termination, such service to be provided in accordance with the terms of this Agreement and at customary fees in effect at that time, as set forth in APPENDIX B. Such customary fees shall be reviewed (and re-negotiated, if required) annually by LMG and American National. (g) Termination of this Agreement by default or breach by American National shall not constitute a waiver of any rights of LMG in reference to services performed prior to such termination; termination of this Agreement by default or breach by LMG shall not constitute a waiver by American National of any other rights it might have under this Agreement. Page 2 of 25 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. (h) In the event that this Agreement is terminated for any reason, LMG agrees that, in order to assist in providing uninterrupted service to American National, LMG shall offer all necessary information to American National's employees or agents that will assist said employees or agents in effectuating the conversion of the records of American National from the LMG system to whatever service or system is selected by American National, subject to reimbursement to LMG for such assistance at the customary fees in effect at that time, as set forth in APPENDIX B. Such necessary information shall include, but not be limited to, providing physical and/or electronic access to: Actuarial Product Specifications Product/Plan Table File Definitions & Data Product/Plan Financial History File Definitions & Data Product/Plan Premium & COI Rate File Definitions & Data Product Agent Compensation Schedules Product/Plan Correspondence Policy/Contract Master Record File Field Definitions Policy/Contract Master Record File Data Policy/Contract Application Files & Related Correspondence Lapsed Policy History/Archive File Definitions & Data Agent/Client Complaint Files & Data. As used herein, the term "Product" includes all related riders and benefits. (i) LMG and American National shall provide fifteen (15) days' written notice of termination or cancellation of the agreement to the appropriate Departments of Insurance. American National shall fulfill any lawful obligations with respect to policies affected by the written agreement, regardless of any dispute between LMG and American National. (j) In the event that this Agreement is terminated by American National pursuant to Paragraphs 3.2(c) or 3.2(e) above, or in the event that LMG is unable to fulfill its contractual obligations as set forth herein, due to its subsequent bankruptcy or insolvency, the o shall o the o, to be executed subsequent to this Agreement. The o utilized by o block of business, o, for all carriers with which it contracts, o. The parties recognize that there is no cost effective way to split o to apply only to o products, and as such, o agrees to use o upon receipt thereof for the o policies. o agrees not to utilize o for any other company. Further, o shall maintain the confidentiality of o, not releasing such without the prior written consent of o. Notwithstanding the foregoing, o acknowledges and agrees that in addition to maintaining o, o shall also obtain written consent from o, authorizing the o to release o to o for use. (k) In the event that this Agreement is terminated by LMG pursuant to Paragraphs 3.2(c) or 3.2(e) above, LMG shall immediately retrieve o from o and LMG shall retain o and LMG shall continue to provide the services described herein to American National for a period of up to twelve (12) months following such termination. In addition, o, in its sole discretion, o will either: (1) effectuate a split of o, which cost to o, under this provision, for both splitting o and purchasing the resultant "o," shall be at a significantly Page 3 of 25 increased cost, provided that the amount of the increase over the costs in Paragraph 3.2(l) for the split and purchase does not exceed 100% of the cost in Paragraph 3.2(l) at the time of termination; or (2) assist o in converting the records of o from the o to whatever o is selected by o, pursuant to the services and fees identified in section 3.2(h) above. Regardless of which option is elected by o, o must agree in writing to o splitting of o. (l) In the event that this Agreement terminates for any reason other than those provided in Paragraphs 3.2(c) and 3.2(e) above, the o shall retain o, pursuant to o executed herewith. LMG shall continue processing American National's policies for a period of not less than 12 months, at its customary fees in effect at the time of the termination. Additionally, during that 12 month period, at the request of o shall take whatever steps necessary to split o to result in a o for o only, and a separate o for any other carriers with which o contracts. If o has so requested, then o shall pay to o the cost associated with splitting o, for which the established cost for products existing at this time is o, in addition to paying a fee totaling o, (such fees shall increase o annually) to obtain the o. The o will provide all o necessary to either o policies currently o by o or, if so desired by o, to o, or other o block of business, in the future, with the costs of such o. o will hold the o until replaced with the o; thereafter, the o shall be provided to o and o returned to o, pursuant to the o executed herewith. The cost to split o and to obtain the o shall not be decreased; however, if, in the future, additional o are developed o by o, the cost to further split the o and for the additional o shall be negotiated on a case by case basis for each additional o required. Once split, o will provide o with the ability to administer their o to the same extent and standard as does o; o will not provide o to the o or o. Further, if o is not available at the time of the split of o, o will not add additional functions that o does have. (m) The remedies available to o in Paragraphs 3.1(i) through 3.1(l) above are contingent upon o obtaining o. Thereafter, o shall be responsible for providing the o pursuant to the terms of this Agreement. (n) Termination of this Agreement does not affect in any way the Marketing Agreement. 3.2 Neither party may assign or delegate all or any part of its rights and/or duties under this Agreement without the written consent of the other party signed by authorized personnel as shown in APPENDIX D. Page 4 of 25 3.3 This Agreement may be modified or amended at any time by mutual agreement of LMG and American National, provided the modifications or amendments are in writing and signed by authorized personnel, as provided in APPENDIX D. 4. INSPECTIONS OF RECORDS AND RECORDS MAINTENANCE 4.1 This Agreement shall be retained as part of the official record of both LMG and American National for the duration of the agreement and for seven (7) years after the termination of this Agreement. 4.2 LMG will maintain complete books and records of all transactions between LMG, American National, and the contract owners. LMG will preserve detailed and adequate books and records of all administered transactions among LMG, American National and contract owners, sufficient to permit the insurer to fulfill all of its contractual obligations to contract owners. These books and records shall be maintained in accordance with prudent standards generally accepted in business insurance record keeping. The documentation will contain all pertinent documents in sufficient detail to maintain complete dates, events, and persons participating in those insurance events. The books and records shall be maintained throughout the agreement and for a minimum period of ten (10) years after the completion of the entire the transaction to which they respectively relate. 4.3 American National shall own the records generated by LMG pertaining to American National; however, LMG shall retain the right to continuing access to records to permit LMG to fulfill all of its contractual obligations. All such records are proprietary information of American National. American National shall have continuing right to access and copy all accounts and records maintained by LMG related to American National's business. Any appropriately authorized governmental agency shall have access to all books, bank accounts, and records of LMG and American National for the purpose of examination, inspection, and audit. All information contained in the aforementioned books and records, including the identity and addresses of policyholders shall be kept confidential, except that such information may be used in proceedings instituted against LMG, or otherwise required to be disclosed by proper federal, state or regulatory agencies or by court order. 4.4 American National shall have on-line access to the American National policy information maintained on LMG's policy administration system and on-line access to its accounting system. LMG will provide policyholder information on request by American National within a time period mutually agreeable and appropriate with the request. 4.5 In the event that LMG and American National cancel this Agreement, LMG may, by written agreement with American National, transfer all records to a successor administrator or to American National rather than retain them for the aforementioned period. If LMG transfers the records to a successor administrator or to American National, LMG is no longer responsible for retaining such records. Any successor third party administrator shall acknowledge in writing to LMG that it is responsible for retaining the records for which LMG had previously been responsible. 5. RIGHTS AND RESPONSIBILITIES OF AMERICAN NATIONAL 5.1 American National shall be responsible for the following: Page 5 of 25 (a) It is the sole responsibility of American National to provide for competent administration of its programs. (b) Subject to American National's approval in writing, in advance, American National shall be responsible for researching, obtaining, and the registration of any service marks issued by the U.S. Patent and Trademark Office for the products developed by LMG and American National, and any costs associated therewith. (c) American National shall be responsible for product filing and any costs associated therewith. The parties may, by mutual agreement, hire a product filing consultant for whose fees American National will be responsible. (d) American National shall be responsible for the establishment and maintenance of any group trusts associated with such product filings and any costs associated therewith. (e) American National shall be responsible for determining the benefits, premium rates, underwriting criteria, and claims payment procedures applicable to such coverage and for securing reinsurance, if any. (f) American National shall have the sole responsibility for filing advertising materials in those states that so require prior to approving their use by LMG. All costs associated with such filings will be the responsibility of American National. (g) American National shall, at least semiannually, conduct a review of operations of LMG. At least one such review will be an on-site audit of the operations of LMG. American National shall forward an agenda for such audit at least five (5) days in advance of the scheduled audit. (h) American National shall immediately, within five (5) business days, provide LMG with written notice of any change of authority of persons authorized and enumerated in APPENDIX D. (i) American National shall, within five (5) days, provide LMG with written notice of any change of authority of persons authorized and enumerated in APPENDIX D to provide LMG with instructions or directions relating to services to be performed by LMG under this Agreement. 6. RIGHTS AND RESPONSIBILITIES OF LMG 6.1 LMG shall, in all cases and at all times, observe and obey the rules, regulations, instructions and directives of American National which are provided herein or such notice that American National has provided to LMG in writing, from time to time and at any time, promulgate for its operations, and shall not bind American National in contravention of any such rules, regulations, instructions, or directives. 6.2 LMG shall handle all correspondence of a routine nature and other general functions necessary for satisfactory administration of the insurance and shall maintain files relative thereto. Specific services are outlined in APPENDIX C. Subject to American National's right to approve the resolution thereof, LMG shall handle all insurance department complaints and inquiries and policy owner and Page 6 of 25 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. beneficiary complaints, whether written or oral, and all attorney letters containing complaints and any other complaints related to the policies administered hereunder. LMG will notify American National of complaints from regulatory agencies within twenty-four (24) hours of receipt thereof. Details of such complaints will be forwarded to American National within five (5) business days. However, American National will respond to summons and complaints commencing legal actions on its own behalf. 6.3 LMG will provide written notice, approved in writing by American National, to policyholders advising them of the identity of American National and LMG, and the relationship between LMG, the policyholder, and American National. 6.4 When a policy is issued to a trustee or trustees, a copy of the trust agreement and any amendment thereto, shall be furnished to American National by LMG and shall be retained as part of the official records of both LMG and American National for the duration of the policy and for six (6) years thereafter. 6.5 LMG will only use advertising pertaining to the business underwritten by American National that American National has approved in writing in advance of its use. If so required, American National shall obtain the prior approval of the appropriate Department of Insurance before approving advertising for use by LMG, as provided for in Section 5.1(f) of this Agreement. 6.6 LMG will act only in the capacity in which it is so licensed. LMG will comply with all of the relevant provisions contained in applicable Third Party Administrator statutes. If any provision of this Agreement is in conflict with the laws of the State which governs this Agreement, such provision will be deemed to be amended to conform with such laws. Further, if the laws of the State which govern this Agreement require the inclusion of certain provisions of relevant statutes, this Agreement shall be deemed to be amended to conform with such laws. 6.7 o LMG is not responsible for the costs associated for other modifications that are not necessary to the normal course of business. American National will reimburse LMG for any system modification costs that are beyond those to the normal course of business at LMG's standard rates illustrated in APPENDIX B. Such costs will be mutually agreed upon in writing, as signed by authorized personnel in APPENDIX D, prior to the commencement of such modifications. 6.8 LMG will possess and maintain an adequate fidelity and/or surety bond as so required in the states in which it is compelled to do so. LMG will file such bond, if so required, with the appropriate agency. The bond shall be executed by a corporate insurer authorized to transact business in the states which mandate the maintenance of such bond. 6.9 LMG will possess and maintain at all times errors and omissions coverage or other appropriate liability insurance, written by an insurer authorized to transact business in the states which mandate the maintenance of such insurance. Such coverage will comply with the requirements of the states in which such insurance coverage is required and such coverage shall be in a minimum amount of o per occurrence/o aggregate in a form acceptable to American National underwritten by a company rated by A.M. Best as A- or better. 7. GENERAL PROVISIONS Page 7 of 25 7.1 LMG and American National agree this Agreement is an honorable undertaking, and agree to cooperate each with the other in carrying out its provisions. 7.2 If any clause, paragraph, term, or provision of this Agreement shall be found to be void or unenforceable by any court of competent jurisdiction, such finding shall have no effect upon any other clause, paragraph, term, or provision of this Agreement, and same shall be in full force and effect. 7.3 For any notice under this Agreement, notice shall be sufficient upon receipt if sent via US Mail, postage prepaid, registered or certified, return receipt requested, or via nationally known courier. Such notice shall be directed as follows: To LMG: Legacy Marketing Group Lynda Regan, Chief Executive Officer Preston Pitts, President 2090 Marina Avenue Petaluma, California 94954 With copy to: Stokes Lazarus Carmichael LLP 80 Peachtree Park Drive, N.E. Atlanta, Georgia 30309 To American National: American National Insurance Company Richard Ferdinandtsen, President, Chief Operating Officer Kelly Wainscott, Vice President, Independent Marketing David Behrens, Executive Vice President, Independent Marketing One Moody Plaza Galveston, Texas 77550-7999 With copy to: Frederick E. Black, Greer, Herz and Adams LLP One Moody Plaza, 18th Floor Galveston, Texas 77550-7999 7.4 LMG and American National expressly represent and warrant that each has the authority to enter into this Agreement and that it is not or will not be, by virtue of entering into this Agreement or otherwise, in breach of any other agreement with any other insurance company, association, firm, person, or corporation. 7.5 The persons signing this Agreement on behalf of American National and LMG warrant, covenant, and represent that they are authorized to execute this document on behalf of such corporations pursuant to their bylaws or a resolution of their boards of directors. 7.6 LMG is an independent contractor. Nothing contained in this Agreement shall be construed to create the relationship of employer and employee between American National and LMG, nor shall LMG's employees be considered employees of American National for any purpose. 7.7 This Agreement is the result of mutual negotiations between the LMG and American National shall not be deemed to have been prepared by either party, but by both equally. The headings of the Page 8 of 25 several paragraphs contained herein are for convenience only and do not define, limit, or construe the contents of such paragraph. 7.8 This Agreement, including APPENDICES A, B, C, D, and E and the provisions thereof, and the separate Marketing Agreement, constitute the entire agreement entire agreement between the parties. No modifications hereof shall be binding upon the parties unless such Amendment is in writing and signed by authorized personnel, as shown in APPENDIX D. This Agreement shall be governed and construed in accordance with the laws of the State of Texas. 7.9 Any policies, certificates, booklets, termination notices, or other written communications delivered by American National to LMG for delivery to insured parties or covered individuals shall be delivered by LMG within ten (10) days after receipt of instructions from American National to deliver them. Costs associated with the distribution of items not normally distributed will be reviewed on a case by case basis to determine the responsible party and will be mutually agreed upon by American National and LMG. 7.10 Payment to LMG of any premiums or charges for insurance by or on behalf of the insured party shall be deemed to have been received by American National, and the payment of return premiums or claim payments forwarded by American National to LMG shall not be deemed to have been paid to the insured party or claimant until such payments are received by the insured party or claimant. 7.11 Currently, LMG does not perform underwriting for American National; however, if granted such authority, LMG will comply with all underwriting standards established by American National and adhere to all pertinent provisions contained in applicable Third Party Administrator statutes. American National shall be responsible for the underwriting or other standards pertaining to the business underwritten by American National. 7.12 Each party shall be excused from performance for any period and to the extent that the party is prevented from performing any services, in whole or in part as a result delays caused by an act of God, war, civil disturbance, court order, labor dispute, or other cause beyond that parties reasonable control, including, failures or fluctuations in electrical power, heat, light, air conditioning, or telecommunications equipment and such non-performance shall not be a default or a ground for termination of this Agreement. 7.13 In the event a malfunction of the LMG systems causes an error or mistake in any record, report, data, information or output under the terms of this Agreement, LMG shall at its expense correct and reprocess such records. In the event American National discovers any such errors or mistake it shall, within three (3) days after discovery, notify LMG in writing of such error or mistake in any record, report, data, information or output received by American National. 7.14 In the event LMG is unable to perform its obligations under the terms of this Agreement because of causes beyond LMG's control, including but not limited to strikes, equipment or transmission failure or damage, LMG will use its best efforts to assist American National to obtain alternate sources of service. LMG will not be liable for any damages resulting from such causes. American National will be the off-premises site for storage of backup computer systems and files. There will be no charge to LMG for this storage function. At any time that American National would need to perform backup processing for LMG, LMG will reimburse American National for its actual processing costs. Page 9 of 25 7.15 In no event and under no circumstances, however, shall either party under this Agreement be liable to the other party under any provision of this Agreement for lost profits or for exemplary, speculative, special, punitive or consequential damages. 7.16 Any claim or dispute arising out of or relating to this Agreement, or any breach thereof, shall be finally determined and settled pursuant to binding arbitration in Houston, Texas, by one arbitrator, to be agreed upon by the parties. The arbitrator shall be an attorney licensed to practice law in the state of Texas. Should the parties fail to agree on an arbitrator then each party shall appoint one arbitrator who shall then agree to appoint a third arbitrator. In such an event, the first two arbitrators will not be required to participate and the final arbitrator may conduct the arbitration as a sole arbitrator. Should one party fail to appoint an arbitrator as herein contemplated then the choice of the other party shall be the sole arbitrator. If the two arbitrators appointed by or on behalf of the parties as contemplated herein fail to appoint a third arbitrator within ten (10) days after the date of the appointment of the last arbitrator, then any person sitting as a District Judge in Houston, Texas, upon application of either party, shall appoint an arbitrator to fill such position with the same force and effect as though such arbitrator had been appointed or herein contemplated with the same force and effect as though such arbitrator had been appointed or herein contemplated. The arbitration proceeding shall apply the laws of the state of Texas and be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The cost of arbitration (exclusive of attending the arbitration, and of the fees and expenses of legal counsel to such party, to be borne by each party) shall be shared equally by American National and LMG unless such arbitrator deems it just to allow one party to recover such costs from the other. The arbitration award shall be final and conclusive and shall receive recognition and judgement upon such award may be entered and enforced in any court of competent jurisdiction. 7.17 LMG hereby indemnifies and holds harmless American National, its officers, directors, employees and representatives from any and all claims, damages, expenses, liabilities, losses, causes of action, costs and obligations, of whatever kind or nature, whether joint and several or otherwise (including, but not limited to, attorneys' fees and expenses and amounts paid in settlement of any claims or liabilities) to any third party, arising out of LMG's fraudulent or negligent act(s) or omission(s); LMG's failure to comply with the terms of this Agreement; LMG's failure to comply with any law or regulation with respect to its duties hereunder except that LMG shall not be required to indemnify or hold harmless American National for any act or omission of LMG which was directed orally or in writing by American National, or required by American National under the Agreement. American National hereby indemnifies and holds harmless LMG, its officers, directors, employees and representatives from any and all claims, damages, expenses, liabilities, losses, causes of action, costs and obligations, of whatever kind or nature, whether joint and several or otherwise (including, but not limited to, attorneys' fees and expenses and amounts paid in settlement of any claims or liabilities) to any third party, arising out of American National's fraudulent or negligent act(s) or omission(s); American National's failure to comply with the terms of this Agreement; American National's failure to comply with any law or regulation with respect to its duties hereunder; and any actions or omissions of LMG which were directed orally or in writing by American National, or required by American National under the Agreement. Without in any way limiting the above reciprocal indemnifications, the parties hereto expressly agree that neither party shall be prohibited under this section from seeking such indemnification on the basis that such party seeking indemnification is itself negligent. Provided, however, that no party shall be liable for that Page 10 of 25 portion of the claims, damages, liabilities, losses or causes of action resulting from the negligence of the other party, or resulting from the negligence of any third party, whether or not such third party is named in the lawsuit. In lawsuits brought against both parties by a third party, the parties agree that each shall work together in a good faith effort to defend against and/or settle such lawsuits brought by a third party. In lawsuits brought against one but not both parties, to the extent practicable, all efforts will be made to defend or settle the claim with such third party without bringing the other party into the initial lawsuit. In any case, each party shall assert and protect all mutual privileges of one another, including but not limited to the attorney-client privilege, the joint defense privilege, and the attorney work product privilege. Notwithstanding the foregoing, nothing herein shall prevent LMG or American National from seeking indemnification from the other party in a separate arbitration or other proceeding without the constraints of the joint defense privilege or joint attorney work product privilege. The parties hereto expressly agree that, prior to the institution of any action or the filing of any claim against one another under this section, the parties will confer directly in good faith to resolve any disputes. For American National, such discussions shall involve Dave Behrens, Executive Vice President, or Kelly Wainscott, Vice President, or their successors or designees. For LMG, such discussions shall involve Lynda Regan, Chief Executive Officer, or Preston Pitts, President, or their successors or designees. 8. PROPRIETARY, CONFIDENTIALITY AND PRIVACY OF INFORMATION. 8.1 Proprietary and Confidentiality. Each party acknowledges that certain information received from the other may be proprietary and/or confidential (referred to herein as "Confidential Information") in nature. All such Confidential Information shall be used by each party solely for purposes of soliciting insurance pursuant to this Agreement. Except as required by law or to inform the appropriate party or its officers, directors, employees, agents, affiliates or contractors (collectively referred to herein as "Affiliates"), for the purpose of compliance with or negotiation of or performance under this Agreement, neither party shall disclose the contents of this Agreement to third parties (other than Affiliates) without the other's written approval, which shall not be unreasonably withheld or delayed. 8.2 Privacy. To protect Confidential Information each party shall: (i) keep all Confidential Information in strict confidence; (ii) prevent disclosure of Confidential Information to third parties (except for Affiliates with a need-to-know); (iii) promptly notify the other of any loss or unauthorized use or disclosure of or access to Confidential Information; and (iv) promptly notify the other upon receipt of a request or demand pursuant to law to disclose Confidential Information, so that the appropriate party may seek a protective order or similar remedy. For the purpose of this Agreement, the term "Confidential Information" shall not include information that is: (a) in or becomes part of the public domain other than pursuant to a breach of this Agreement; (b) independently developed; (c) rightfully obtained from a third party without an obligation of confidentiality; (d) known prior to date of this Agreement without obligation of confidentiality; or (e) required to be disclosed by legal or regulatory authority. 8.3 Non-Public Personal Information. All capitalized terms used in this Section 8 and not otherwise defined shall have the meanings throughout this Agreement set forth in the Federal "Privacy of Consumer Financial Information" Regulation (12 CFR Part 40), as amended from time to time (the Page 11 of 25 "Privacy Regulation"), issued pursuant to Section 504 of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 et seq.). The parties acknowledge that the Privacy Regulation governs disclosures of Nonpublic Personal Information about Consumers and Customers, and that Nonpublic Personal Information is included in the definition of "Confidential Information" in this Agreement. Each party hereby agrees that as the party receiving or maintaining Nonpublic Personal Information (the "Receiving Party") it shall: (a) comply with the terms and provisions of the Privacy Regulation, including, without limitation, the provisions regarding the sharing, collection, access and use of Nonpublic Personal Information, the provisions regarding notice and opt-out requirements, and the provisions regarding the limitations on the sharing of account number information for marketing purposes; (b) not disclose or use any Nonpublic Personal Information that it obtains from the other party (the "Disclosing Party") except to carry out the purposes for which the Disclosing Party provided such Nonpublic Personal Information; (c) not make any changes to its security measures that would increase the risk of unauthorized access, use or disclosure of Nonpublic Personal Information; (d) not disclose any Nonpublic Personal Information provided by the Disclosing Party to any other entity, without the prior written consent of the Disclosing Party; (e) at any time, upon the Disclosing Party's request, return to the Disclosing Party all of the Disclosing Party's Nonpublic Personal Information. Neither party shall be under any obligation to take any action, which, within such party's reasonable judgment, would constitute a violation of the Privacy Regulation or its internal privacy policies; (f) safeguard Nonpublic Personal Information by maintaining security and procedural standards that comply with state and federal regulations to protect against unauthorized access, use or disclosure (or threatened access, use or disclosure) of the Disclosing Party's Nonpublic Personal Information. 8.4 Service Provider Agreements. Each party agrees that when Nonpublic Personal Information is provided to a nonaffiliated third party ("a Service Provider") who performs services for or functions on behalf of the party, including marketing of the party's own products or services, or marketing of financial products or services pursuant to Joint Agreements between the party and other Financial Institutions, such party shall disclose to its Consumers and/or Customers that (a) it will be providing such Nonpublic Personal Information to the Service Provider and (b) it has entered a contractual agreement with the Service Provider that requires the Service Provider to maintain the confidentiality of such Nonpublic Personal Information pursuant to the Privacy Regulation. LMG agrees to send, on an annual basis, American National form 9186 (or form 4977 as required by state law) to the owner(s) of all American National insurance and annuity policies administered by LMG. 8.5 Other Privacy Regulations. Each party agrees that compliance with the Privacy Regulation does not relieve either party of any of its duties and obligations to comply with other applicable privacy laws, statutes, ordinances or regulations of the appropriate authorities. Page 12 of 25 8.6 Remedies. The Receiving Party agrees that (a) any unauthorized access, use or disclosure (or threatened unauthorized access, use or disclosure) of the Disclosing Party's Nonpublic Personal Information or other Confidential Information, (b) other violation of the Privacy Regulation, or (c) violation of other applicable privacy regulations, may cause immediate and irreparable harm to the Disclosing Party for which money damages may not constitute an adequate remedy. In that event, each party agrees that injunctive relief may be warranted in addition to any other remedies the Disclosing Party may have. In addition, the Receiving Party agrees promptly to advise the Disclosing Party in writing of any unauthorized misappropriation, disclosure or use by any person of Confidential Information (including, without limitation, Nonpublic Personal Information) which may come to its attention and to take all steps at its own expense reasonably requested by the Disclosing Party to limit, stop or otherwise remedy such misappropriation, disclosure or use. 9. SURVIVAL: Sections 7.15, 7.16 and 7.17 shall survive the termination of this Agreement. Any similar agreement signed prior to the execution dates below is null and void and abrogated hereby. {Remainder of this page intentionally left blank.} Page 13 of 25 IN WITNESS HEREOF, the parties hereto have executed this Agreement. LEGACY MARKETING GROUP By: /s/ R. Preston Pitts Title: President Witness: /s/ Lynn Laub Date: November 15, 2002 AMERICAN NATIONAL INSURANCE COMPANY By: /s Kelly M. Wainscott Title: Vice President Witness: /s/ Jynx Yucra Date: November 15, 2002 Page 14 of 25 APPENDIX A GEOGRAPHIC TERRITORY: The District of Columbia and all states other than New York and Alabama. Products Periodic Pay Life Products 1. LegacyMaster Whole Life 2. LegacyMaster 5 Pay 3. LegacyMaster Universal Life 4. AmeriMaster, formerly known as the Wealth Master II-WealthMaster with loan and surrender charge modifications 5. WealthMaster 6. Executive Master Plan I, formerly known as the Personal Retirement Program I 7. Executive Master Plan II, formerly known as the Personal Retirement Program II SPDA Products 1. BenchMark 5 Annuity with premium enhancement, formerly known as the premium bonus 2. BenchMark 7 Annuity with premium enhancement, formerly known as the premium bonus 3. BenchMark 10 Annuity with premium enhancement, formerly known as the premium bonus 4. BenchMark 5 Annuity - No bonus 5. BenchMark 7 Annuity - No bonus 6. BenchMark 10 Annuity No bonus 7. BenchMark 5 Extra Series (0,2,3,4) 8. BenchMark 10 Extra Series (0,2,4,6,8) 9. BenchMark NSC Annuity, formerly known as the ValuMark Annuity SPWL Products 1. GrowthMaster Single Premium Whole Life 2. ValuMaster Single Premium Whole Life Page 15 of 25 Riders 1. Periodic Pay Whole Life products 1. Paid Up on First Death 2. First to Die 3. Contemplation of Death 4. Waiver of Scheduled Premium 5. Waiver of COI 6. Death Benefit Option B 7. Split Certificate Rider 8. Term Insurance Rider 2. Universal Life Products 1. Contemplation of Death Rider 2. Waiver of Monthly Deduction Rider 3. Guaranteed Death Benefit Rider Page 16 of 25 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. APPENDIX B Processing Fees 1. Single Premium and/or Flexible Deferred Annuities a. Acquisition Fees: A one time o fee per application received. The fee is not reversed for Not Takens ("NTO's"). b. Maintenance: Fee per policy inforce per year to be paid weekly as follows: o annual fee for existing annuity products referenced in APPENDIX A, c. Terminations: One time fee of o to be paid at time of surrender, lapse, election of a settlement option, maturity, or death claim of each policy. 2. Single Premium Whole Life a. Acquisition Fees: One time fee of o per application received. Paid when the policy is put on the system. The fee is not reversed for NTO's. b. Maintenance: o annual fee per policy inforce per year to be paid weekly. c. Terminations: One time fee of o to be paid at time of surrender, lapse, election of a settlement option, maturity, or death claim of each policy. d. Underwriting Support: o per single life. 3. Periodic Pay Whole Life Products ---- Single & Joint Issues a. Acquisition Fees: One time fee of o per single life application received, or o per joint life application received. Paid when the policy is put on the system. Not reversed for NTO's. b. Maintenance: o annual fee per policy per year to be paid weekly on Legacy Master Whole Life. o annual fee per policy per year to be paid weekly for all other policies. c. Terminations: One time fee of o to be paid at time of surrender, lapse, election of a settlement option, maturity, or death claim of each policy. d. Underwriting Support: o per single life; o per joint life. 4. Universal Life - Single and Joint issues: Page 17 of 25 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. a. Acquisition Fees: One time fee of o per single life application received, or o per joint application received. Paid when the policy is put on the system. Not reversed for NTO's. b. Maintenance: o annual fee per policy per year to be paid weekly. c. Terminations: One time fee of o to be paid at time of surrender, lapse, election of a settlement option, maturity, or death claim of each policy. d. Underwriting Support: o per single life; o per joint life. 5. Producer Appointment with American National: o per appointment. 6. Out-Of-Pocket Expenses a. In addition to the fees set forth above, LMG will forward to American National on a monthly basis an invoice for the out of pocket expenses incurred the month prior. American National will reimburse LMG within twenty (20) days of receipt of such invoice. If LMG does not receive reimbursement within twenty (20) days, American National will pay LMG interest on the outstanding balance due. Such interest shall be at the annualized rate of o above the current thirty-year Treasury Bond yield. Notwithstanding the foregoing, in no event shall the interest rate be lower than that of LMG's current monthly investment earnings rate, as evidenced by written documentation. Furthermore, in the event that American National seeks elucidation for any out of pocket expense, American National will submit to LMG a written request specifying clarification within fifteen (15) days. If American National has provided such notification to LMG, American National is no longer obligated to pay interest on the specified disputed amounts. In the event that the disputed amount on the original invoice is later determined to have been accurate, American National will pay LMG any applicable interest retroactively. Out-of-pocket expenses are those expenditures for the items such as those listed below and any other items agreed to in writing by LMG and American National: 1) Cost of any lines installed for communication between the parties to this Agreement. Costs of telecommunication lines and equipment installed to provide primary and back-up support for on-line access to LMG's system. 2) Cost involved with off-site storage for American National records, documents, correspondence, and other items, or cost of shipping those items to American National. 3) Cost of inspections and exams required for underwriting and underwriting fees, if performed by outside firm. If information is shared with other companies, the costs will be shared equally by the companies. Cost of inspections where agreed to by American National and LMG for the agent appointment process. Page 18 of 25 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. 4) Costs associated with agent appointment, including but not limited to, agent background investigations and agent credit reporting. 5) Expenses incurred to issue and maintain policies and certificates, including draft books, and check stock. b. American National will be responsible for cash management of this disbursement account and LMG agrees to provide American National records and information to properly perform this function. 7. LIMRA CAP Survey Responses American National will pay LMG a flat fee of o per reply that LMG prepares in response to LIMRA CAP survey answers. 8. Payment of Processing Fees. American National will pay LMG the processing fees from 1, 2, 3, 4, and 5, above weekly by wire transfer on the same business day or the next business day of receipt of documentation of units received. Out of Pocket Expenses will be paid as set forth in Section 6 above. 9. Systems Time and Material Rates* Under certain conditions set forth in this Agreement, American National will reimburse LMG for the costs of systems modifications or systems support at the following rates: Chief Information Officer o per hour Information Technology Director o per hour Senior Programmer Analyst o per hour Programmer Analyst o per hour Senior Business Analyst o per hour Project Manager o per hour Business Analyst o per hour Quality Assurance Analyst o per hour * such rates shall be increased o% annually, commencing on the anniversary of the execution date of this Agreement. Page 19 of 25 APPENDIX C SERVICES TO BE PROVIDED These services are to be performed subject to guidelines and directions of American National within applicable law and regulation and reasonable industry standards and including all expenses and fees related thereto. 1. Direct Services: a. Clerical processing of Producer appointments with state departments of insurance b. Clerical underwriting support including the following: Collecting and interpreting pertinent underwriting requirements to assist American National in the underwriting and issue process. LMG will assess an applicant's anticipated mortality to determine if the applicant may qualify for a life insurance policy. LMG will commence gathering the data required for a file, including interpretation of information in the application to determine when an Attending Physician's Statement, Exam, Inspection, or other information will be required to make an accurate underwriting decision. LMG will determine which requirements will be necessary due to the information developed on the application. In addition, LMG will determine, in its opinion, which applicants are not likely to be insurable. Notwithstanding the foregoing, American National retains the ultimate underwriting authority to approve or disapprove policies of life insurance issued by American National. c. Processing and reviewing of applications and premium transfers d. Contract issue e. Policyholder service f. Maintenance of policyholder records g. Data processing services h. Producer compensation i. Premium accounting j. Billing of life insurance premiums k. Annual tax reporting to policyholders and vendors except for tax reporting required on death claims or election of settlement options l. Collection of Debit Balances m. Administration of reinsurance on LMG policies; excluding the remission of premium to the appropriate reinsurance companies. 2. Other Services: a. Accounting Services 1) Maintenance of general ledger system 2) Reconciliation of all bank statements and cash accounts 3) Furnishing to American National of all applicable data necessary for preparation of American National NAIC Convention Blank. 4) Furnishing to American National of all applicable data necessary for preparation of the American National corporate tax return. Page 20 of 25 5) Furnishing to American National of all applicable data necessary for preparation of the American National GAAP financial statements. 6) Furnishing to American National of all applicable data necessary for the preparation of the American National unclaimed property reports. 7) Furnishing to American National of monthly datasets of all applicable data necessary for the preparation of the American National premium tax returns and payments. 8) Weekly backup tapes b. Actuarial Services 1) LMG will assist and provide actuarial support to American National. LMG's responsibilities will vary by each product jointly developed by LMG and American National and may include: o Provide initial product specification o Provide competitive analysis for the product o Define pricing assumptions o Provide any necessary support for pricing assumptions o Share deterministic pricing results o Perform sensitivity analysis o Provide final product specifications o Define actuarial memorandum o Provide actuarial field support o Monitor actuarial assumptions o Assist in ongoing profit/pricing management of the business 2) LMG will draft initial policy forms and applications to be used for each product jointly developed by LMG and American National. LMG will assist American National in the completion and preparation of filing such forms. LMG's responsibilities will vary with each product jointly developed by LMG and American National. 3. Collection and Disposition of Funds: 3.1 All insurance charges or premiums collected by LMG on behalf of American National, and return premiums received from American National, shall be held by LMG in a fiduciary capacity and will not be used as general operating funds of LMG. Such funds shall, within two (2) business days, be remitted to the person or persons entitled to them or shall be deposited, within two (2) business days, into a Premium Fiduciary Account established and maintained by American National in a federally or state insured financial institution, separate and apart from any funds belonging to LMG or third parties. 3.2 This Premium Fiduciary Account will at all times have a balance equal to contributions plus any interest earned less authorized disbursements by American National. If LMG is authorized to draw checks on the Premium Fiduciary Account this will clearly be indicated on their face. LMG may retain float with prior written agreement of American National. Page 21 of 25 3.3 LMG may not pay any claim by withdrawals from the aforementioned Premium Fiduciary Account. Withdrawals from the Premium Fiduciary Account shall be made as provided in this written agreement between LMG and American National for any of the following: a) Remittance to American National, if so entitled to such remittance; b) Deposit in an account maintained in the name of American National; c) Transfer to and deposit in a claims-paying account, with claims to be paid as provided by American National. 3.4 LMG will maintain in a fiduciary capacity, a Disbursement Account where American National will fund the balance and LMG is authorized to make the following disbursements: a) Remittance of return premiums to the person or persons entitled thereto. b) Any policy/certificate holder disbursements, including withdrawals, loans, and surrenders. c) Payment of underwriting expenses d) Payment of weekly commissions to LMG LMG shall not disburse funds from the disbursement account for any other reason without written authorization from American National. 3.5 If LMG pays claims, it will be from funds collected on behalf of American National and shall be paid only on drafts of, and as authorized by, American National. In the event that LMG received monies to pay claims on behalf of American National, such funds will be held in a fiduciary capacity. No deposits will be made into or disbursements made from this fiduciary account except for claims and claim adjustment expenses. This fiduciary account will at all times have a balance equal to the amount deposited less claims and claims adjustment expenses paid. Page 22 of 25 4. Settlements / Reports: a. Within six (6) business days of the end of each calendar month, LMG shall provide service reports to American National, including but not limited to, the following items: 1) General ledger report, also referred to as the "Extract File" (seess.4(b)(2) of APPENDIX C) 2) Premium and commission reports 3) Benefit reports 4) Statutory reserve policy information 5) FAS 97 detail policy information 6) Reinsurance reports 7) Policy exhibit information b. LMG shall provide to American National, including but not limited to, the following items: 1) Daily, Cash control reports, beginning the first day of business 2) Weekly, Transmission of general ledger data (also referred to as the "Extract File"), beginning on a mutually agreeable date after the volume of business reaches a level determined by American National to warrant daily updates 3) Monthly, the following items: a) Extract file b) Commission accrual for the end of the month c) Complete trial balance for all accounts d) Check history reports e) Updated check inventory log f) Annuitization log g) American National check disbursement file and void reports c. Weekly (Monday, for the previous week's business activity), LMG shall provide to American National, including but not limited to, the following items: 1) Copies of check registers, check vouchers, supporting documentation for check and journal entries with support. d. Within twenty (20) business days of the end of each calendar month, LMG shall provide to American National, including but not limited to, the following items: 1) Copies bank and suspense reconciliations 2) All supplemental financial reporting information as requested by American National 3) Copies of tax withholding to policyholders 4) Transmission of issued check information. Page 23 of 25 5. Compensation Not to be Contingent 5.1 This Administrative Agreement shall not provide for compensation, commissions, fees, or charges which are contingent upon savings effected in the adjustment, settlement, and payment of losses (the loss ratio) covered by American National's obligations. In the event that LMG adjusts or settles claims on behalf of American National, such compensation shall in no way be contingent on claims experience. 5.2 This provision does not prevent the compensation of LMG from being based on premiums or charges collected or the number of claims paid or processed or performance-based compensation for providing auditing services. LMG will not receive any administrative compensation except as expressly set forth in this Agreement between LMG and American National. Page 24 of 25 APPENDIX D SCHEDULE OF AUTHORIZED PERSONNEL REPRESENTING AMERICAN NATIONAL Name Title Function Bruce Pavelka Vice President Administration Richard Crawford Vice President Reporting/Accounting & Assistant Controller Frank Broll Vice President Actuarial Valuation Rex Hemme Vice President Product and Policy Form Development Kelly Wainscott Vice President, Independent Marketing David Behrens Executive Vice President, Independent Marketing REPRESENTING LMG Name Title Function Preston Pitts President Overall Steven Taylor Chief Financial Officer Finance Lynda Regan Chief Executive Officer Overall Don Dady Vice President of Marketing Marketing Bill Hrabik Chief Operations Officer Operations and Compliance Page 25 of 25 EX-10.2 4 ex10-2.txt EXHIBIT 10.2 EXHIBIT 10.2 MARKETING AGREEMENT THIS MARKETING AGREEMENT ("Agreement") is entered into and effective on this 15th day of November, 2002, by and between American National Insurance Company, hereinafter referred to as "American National," an insurance company organized under the laws of the state of Texas, and Legacy Marketing Group, hereinafter referred to as "LMG," a California corporation, with reference to the following facts: WHEREAS, LMG and American National will enter into a certain Administrative Services Agreement, hereinafter referred to as the "Administrative Services Agreement," pursuant to which certain insurance business is to be administered by LMG. WHEREAS, the objective of this Agreement is to provide an arrangement to sell certain policies ("Policies") of American National as specified in APPENDIX A of this Agreement. The term "Policies," as used throughout this Agreement, shall be deemed to encompass all policies, certificates and contracts issued by LMG on behalf of American National. Furthermore, the term "Policyholder," as used throughout this Agreement, shall be deemed to encompass all contract owners, including policyholders and certificateholders. WHEREAS, American National desires that LMG to recruit, provide product training and appoint Wholesalers and Producers in the sale of certain Policies issued by American National as specified in APPENDIX A. Wholesalers and Producers are those duly licensed insurance agents contracted with LMG to sell American National products. NOW, THEREFORE, in consideration of the foregoing recitals and mutual promises hereinafter contained and other good and valuable consideration, LMG and American National hereto do agree as follows: 1. APPOINTMENT OF LMG AND SCOPE OF AUTHORITY 1.1 American National hereby authorizes LMG to recruit and provide product training to Wholesalers, (who in turn recruit and provide product training to Producers in their downline) and appoint Wholesalers and Producers in the solicitation of the Policies in the geographic territory specified in APPENDIX A (the "Territory"). 1.2 It is understood and agreed that LMG is an independent contractor and nothing herein shall be construed to create the relationship of employer or employee between American National and LMG or between American National and any officer, employee, agent or other associated person of LMG. Neither LMG nor any Wholesaler or Producer has authority to incur any liability on behalf of or to bind American National in any way or change its rights, duties or obligations, except as may be set forth in this Agreement or in the Administrative Services Agreement between American National and LMG. Page 1 of 26 1.3 All Wholesalers and Producers who have been recruited and are appointed to sell the Policies referenced in APPENDIX A by LMG shall be identified by American National as Wholesalers and Producers of LMG as to such Policies. Any and all contracts entered into by and between such Wholesalers and Producers with respect to the Policies shall be coded through LMG and deemed agents of LMG for such policies. American National may terminate American National's appointment of any Wholesalers and Producers with prior written notice to LMG, but may not otherwise terminate, recode, or otherwise disturb the relationship between LMG and Wholesalers and Producers without the prior written consent of LMG. 1.4 Any General Agents and Agents for American National who want to sell LMG products will need to be contracted with LMG to sell such products. Contracts will include the American National hierarchy. This will apply to the American National Agency Divisions and to any producer relationships gained through future American National acquisitions. On any sale of LMG products by American National General Agents and Agents, LMG will pay American National the highest agent hierarchy level commission. 1.5 LMG and American National both agree not to solicit business not subject to this Agreement through the other party's agency force without prior written approval of the other party. 1.6 Standard Life and Accident ("Standard") Producers who desire to sell ANICO products which are proprietary of LMG and LMG Producers who desire to sell Standard products shall adhere to the following procedures: (a) Standard Producers can market the ANICO annuities and life insurance products that are proprietary to LMG. (b) LMG Producers can market the Standard product line. (c) If a Producer is contracted with LMG, he or she may also contract with Standard directly. (d) If an American National shelf product is sold, the structure which first appointed the agent with American National will receive the commission on the case. (e) Standard Producers may contract with LMG, through one of LMG's Wholesalers, to market LMG's proprietary products through LMG's life insurance carrier relationships including, but not limited to American National. 1.7 Producers who are contracted with American National prior to contracting with LMG shall adhere to the following procedures: (a) If the Producer is a career/ordinary/multiple lines marketing Producer with American National, then this Producer is considered to be "captive." If these Producers wish to sell any products available through LMG, they need to work back through their Regional Director at American National. It is up to the Page 2 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC Regional Director as to whether or not they will allow the Producer to work directly with an LMG Wholesaler. In the event that the Producer wishes to sell a product of LMG's from time to time they may want to consider using a Single Case Agreement for these infrequent sales. (b) If the Producer is contracted through the o they are free to contract directly with LMG through one of LMG's Wholesalers. These Producers can sell LMG products without a release from the o. (c) If the agent is contracted through o the agent must receive a release from o in order to work directly with an LMG Wholesaler. Producers who are contracted through o can sell LMG products. These Producers must follow the same transfer policy that LMG asks its own Wholesalers and Producers to abide by. 2. Rights, RESPONSIBILITIES AND OBLIGATIONS OF AMERICAN NATIONAL 2.1 American National agrees to compensate LMG as follows: (a) The amount of policy commission shall be as specified in APPENDIX B and shown as Premium Commission and Fund Commission(s) One and Two. (b) Premium Commission will be paid to LMG by American National within five (5) business days of the application of the premium. The Premium Commission will be part of the weekly commission process and will be paid by American National to LMG, by authorizing LMG to write a check to itself against the American National Disbursement account for the total weekly commission amount. (c) Fund Commission One is based on month end Cash Value and shall be paid to LMG by American National within five (5) business days of receipt of LMG's report via wire transfer to an LMG bank account. (d) Fund Commission Two will be paid to LMG by American National monthly on the date on which the premium was effective beginning in the thirteenth month thereafter. Fund Commission Two will be part of the weekly commission process and will be paid by American National to LMG, by authorizing LMG to write a check to itself against the American National Disbursement account for the total weekly commission amount. (e) The marketing allowance of o of commission on first year annuity premium, single premium whole life premium and first year scheduled life premium will be paid within five (5) business days of the date that a premium was applied to a policy by American National via wire transfer to an LMG bank account. Page 3 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC 2.2 American National reserves the right to withdraw its Policies from any state or other jurisdiction, with 90 days written notice to LMG, unless mandated by any law, regulation, regulatory agency or court of law to do so immediately. Furthermore, such notice will not be required in the event that American National provides LMG with written documentation that failure to withdraw such Policy will cause significant adverse financial impact to American National. LMG and American National may mutually agree in writing to withdraw any Policy without the required notice. 2.3 LMG agrees that the compensation payable pursuant to Section 2.1 shall be accepted by it as full compensation from American National for its marketing services hereunder. 2.4 Section 2.1 of this Agreement and APPENDIX B will provide for the compensation payable to LMG from American National. APPENDIX B will be amended by written agreement of LMG and American National to conform with each new product specification as they are developed and finalized. 2.5 The commissions specified in APPENDIX B shall be modified whenever necessary to conform to the legal requirements of any state. 2.6 American National shall be responsible for ensuring that its products listed in APPENDIX A in its present form, or as amended, comply with all applicable state, federal and local laws and regulations. 2.7 American National shall have sole responsibility for filing advertising materials and policy forms pertaining to the business underwritten by American National, in those states that so require, prior to approving their use by LMG. o 2.8 American National shall immediately, within five (5) business days, provide LMG with written notice of any change of authority of persons authorized and enumerated in APPENDIX E to provide LMG with instructions or directions relating to services to be performed by LMG under this Agreement. 2.9 During the term of this Agreement, o shall not develop any proprietary products with any o without the express written approval of o. o 2.10 In the event of termination under Section 3.2(b) or 3.2(c), American National guarantees the commission payment due to Wholesalers and Producers (via payment to LMG) to which they may become entitled after the effective date of termination to the extent that American National has not previously remitted such commissions to LMG. 2.11 Subject to American National's approval in writing in advance, American National shall be responsible for researching, obtaining, and the registration of any service marks issued by the U.S. Patent and Trademark Office for use with the products developed by LMG and American National, and any costs associated therewith. American National grants to LMG a gratuitous license for the use of such marks on LMG and American National proprietary products. Notwithstanding the foregoing, LMG may register and own its own marks that may be used on Page 4 of 26 products underwritten by American National. Further, LMG grants to American National a gratuitous license for the use of its marks on LMG and American National proprietary products. 3. TERM, TERMINATION AND MODIFICATION OR AMENDMENT OF THIS AGREEMENT 3.1 Subject to termination as hereinafter provided, this Agreement shall remain in force and effect for a period of five (5) years, the term of this Agreement. This Agreement shall be renewed for successive terms of one (1) year unless terminated by either party as provided herein. 3.2 The termination of this Agreement is governed by the following provisions: (a) American National or LMG may terminate this Agreement or any renewal thereof, without cause, upon twelve (12) months prior written notice to the other signed by authorized personnel, as provided in APPENDIX E. (b) This Agreement may be terminated by mutual agreement of LMG or American National at any time. Such termination shall be signed by authorized personnel of both parties, as shown in APPENDIX E. (c) If either American National or LMG shall materially breach this Agreement or be materially in default in the performance of any of its duties and obligations hereunder (the defaulting party), the other party shall give written notice thereof, as signed by authorized personnel, as provided in APPENDIX E, to the defaulting party. If such default or breach is not cured within ninety (90) days after such written notice is given, then the party giving such written notice may terminate this Agreement with thirty (30) days notice of such termination to the defaulting party. (d) Notwithstanding anything herein to the contrary, American National or LMG may terminate this Agreement or any renewal thereof, with cause, immediately by written notice, as signed by authorized personnel, as provided in APPENDIX E, to the other. Cause is defined as fraudulent, criminal, unethical activity or blatant disregard for the terms and conditions of this Agreement. (e) Termination of this Agreement as a result of default or breach by American National shall not constitute a waiver of any rights of LMG in reference to services performed prior to such termination. Termination of this Agreement as a result of default or breach by LMG shall not constitute a waiver by American National of any rights under this Agreement. (f) Termination of this Agreement does not affect in any way the Administrative Services Agreement. Page 5 of 26 3.3 This Agreement may be modified or amended at any time by mutual agreement of the parties, provided such modification is in writing, signed by authorized personnel as provided in APPENDIX E of this Agreement. 3.4 Neither party may assign or delegate all or any part of its rights and/or duties under this Agreement without the written consent of the other party signed by authorized personnel as shown in APPENDIX E. 4. RIGHTS, RESPONSIBILITIES AND OBLIGATIONS OF LMG 4.1 At all times during the term of this Agreement, LMG (or the licensed individual who is acting on behalf of LMG in such states that do not permit the licensing of corporations) and all Wholesalers and Producers shall be properly licensed with each state or other jurisdiction and properly appointed with American National in each state or other jurisdiction within the Territory before engaging in any activity which under the laws of such state or other jurisdiction makes such licensing necessary. Without limiting the generality of the foregoing, all such Wholesalers and Producers shall at all times bear the cost of maintaining all required licenses by any such state. 4.2 LMG will itself and will communicate to each Wholesaler and Producer to use only forms, applications, advertising (as such term is generally defined by the regulation of the state or other jurisdiction in which Policies referenced in APPENDIX A are solicited), office procedures, guides and rules furnished, authorized or promulgated by American National and in each state or other jurisdiction where any Wholesalers and Producers solicit Policies. No written advertising or sales materials of any kind or recruiting material referencing the Policies of American National shall be authorized by LMG until after it has been approved in writing by American National. LMG will provide such materials with sufficient lead-time to allow appropriate review by American National. American National will then use commercially reasonable efforts to provide a timely response within five (5) business days. No oral presentation of any kind shall be authorized by LMG which does not conform to applicable statutes and regulations or which does not accurately reflect the terms and conditions of the Policies being sold. All recruiting practices of LMG's Wholesalers shall comply with all applicable laws, ordinances, and regulations of the appropriate authorities. American National shall be responsible for the maintenance of the advertising files and logs, as mandated by applicable state statutes and regulations. 4.3 LMG shall report and remit to American National or to its designated servicing organization, all first-year or other premiums collected by LMG or its Wholesalers or Producers, as specified in the Administrative Services Agreement. 4.4 LMG is responsible for the payment to American National of all monies which LMG, or its Wholesalers and Producers collect on behalf of American National. However, until American National receives all monies due, the same shall be a debt payable by LMG upon demand for which American National may at its option offset with commissions otherwise due until such liability is satisfied. Any indebtedness to American National or its affiliates or subsidiaries shall be a first lien against monies otherwise due under this Agreement. Page 6 of 26 4.5 LMG, in performance of its marketing obligations and duties, will not itself and will use its best efforts to prevent Wholesalers and Producers, appointed hereunder, in the performance of their obligations and duties hereunder, from doing any of the following: (a) Enter into any agreement or incur any obligation on behalf of American National, except with its written permission: 1. bind American National in its dealings with any Wholesaler and Producer or LMG employee, or 2. commit American National to (i) pay any money to any such Wholesaler, Producer or employee, or (ii) a date that a payment will be made. (b) Assign any compensation, other than commissions payable to Wholesalers or Producers, payable under it without the prior written consent of American National. (c) Solicit applications for American National in any manner prohibited by or inconsistent with the provisions of this Agreement or the rules and regulations as mutually agreed by LMG and American National, now or hereafter in force. (d) With respect to any Policy, 1. make any alterations, modifications or endorsements or otherwise alter American National's obligations as stated in the Policy; 2. charge special rates or extend the time for paying premiums; 3. waive forfeitures; 4. deliver or allow the delivery of any policy or contract unless: (i) the health of the person or persons proposed for insurance is in accordance with American National's requirements, and (ii) the first policy premium or payment amount required by American National rules and practices is paid in full; Page 7 of 26 5. approve evidence of insurability or bind or commit American National on any risk in any manner; 6. collect or receive any life insurance premiums after the initial premium, except as may be required in the Administrative Services Agreement; 7. adjust or settle any claim; 8. retain any issued American National policy not delivered within thirty (30) days of issue. (e) Initiate any civil or criminal action or proceeding, whether or not brought in the name of American National, which may in any way involve or affect American National, its affiliates, their business, operations, or any Policy issued by American National, as referenced in APPENDIX A. Nothing herein shall be construed to limit LMG's right to initiate any action or proceeding against American National to enforce any right of LMG. (f) Use or authorize the use of any written, oral or visual communication, circular, advertisement or other publication: 1. bearing American National's name, as advertising matter or otherwise, except with the prior written approval of American National; or 2. referring to any insurance company tending to bring it into disrepute. (g) Knowingly or willfully violate the insurance laws or the regulations of the Insurance Department of any State or any other jurisdiction in which LMG represents American National. (h) Knowingly or willfully misapply funds of American National or any other person or entity. (i) Perpetrate any fraud against American National or any other person or entity or embezzle funds of American National. 4.6 LMG shall provide American National ninety (90) days prior written request if LMG desires to increase its fees or charges to American National or to change the manner of payment or to change any other provision of this Agreement. American National must respond in writing to such request within sixty (60) days of receipt. If LMG and American National do not agree to such changed fees, then no such change shall take place. In such an event, LMG's only remedy is to withdraw this increase and/or terminate this Agreement pursuant to 3.2(a). Page 8 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC 4.7 LMG may rely on instructions of any person indicated on American National's "Schedule of Authorized Personnel," attached hereto as APPENDIX E. Each of such persons is authorized to give instructions under this section with respect to any matter arising in connection with this Agreement. 4.8 LMG shall cause each new Wholesaler and Producer to enter into Wholesaler or Producer Agreements in the form shown in APPENDIX C. LMG will provide American National with copies of the Wholesaler or Producer Agreement whenever it is changed. Subject to American National's approval of the appointment process and agent contracting criteria, for those Wholesalers and Producers who satisfy the agent contracting criteria as mutually agreed to by LMG and American National, LMG shall file appointments of such Wholesalers and Producers in the appropriate states' insurance departments and other jurisdictions. However, if any appointment process or contracting criteria is determined to be contrary to any pertinent statute or regulation, American National may modify the contracting process or criteria to be in compliance with such statute or regulation. LMG will report monthly to American National a list of current appointments, adding new appointments and terminations from the list each month. Consideration for such appointments and terminations is provided for in the Administrative Services Agreement. 4.9 LMG shall produce sales of combined life and annuity annualized premium in excess of o. In the event that the aforementioned production requirements are not attained by LMG, American National may terminate this Agreement with twelve (12) months written notice to LMG, signed by authorized personnel, as provided in APPENDIX E. 4.10 In the event that any state insurance department withdraws or cancels LMG's insurance license (or the license of the individual who is acting on behalf of LMG in such states that do not permit the licensing of corporations), or right to sell or conduct its business, LMG will stop marketing activity under this Agreement in that state and notify American National. American National may terminate the authority of LMG with regard to such affected Policies which termination of authority shall be effective on the same date as the effectiveness of the action of such state insurance department. 4.11 LMG will possess and maintain at all times errors and omissions coverage or other appropriate liability insurance in the states in which LMG does business. Such coverage shall be in a minimum amount o per occurrence o aggregate in a form acceptable to American National and underwritten by a company rated by A.M. Best as A- or better. In addition, each Wholesaler and Producer that is covered by LMG's group plan who is appointed or renewed after April 1, 2003, shall also possess and maintain at all times errors and omissions coverage with a minimum liability o per occurrence o aggregate. Commencing on April 1, 2003, current Producers or Wholesalers who have errors and omission coverage outside of LMG's group plan will be required to have a minimum liability of o per occurrence o aggregate upon policy renewal, and in no event later than January 1, 2004. Such coverage shall be in a form acceptable to American National and underwritten by a company rated by A.M. Best as A- or better. Page 9 of 26 5. RIGHTS, RESPONSIBILITIES AND OBLIGATIONS OF BOTH PARTIES 5.1 It is acknowledged by both American National and LMG that certain of American National's obligations hereunder are to be performed by LMG, pursuant to the Administrative Services Agreement between American National and LMG. This does not relieve American National of any of its duties and obligations unless the specific service is provided for in the Administrative Services Agreement, including any subsequent amendments, whereby LMG has explicitly acknowledged the responsibility of such service. 5.2 Each party agrees that it will not knowingly or willingly, directly or indirectly, at any time during the term of this Agreement or within two (2) years thereafter, induce or attempt to induce any policy holder or contract holder of the other party to terminate, reduce coverage, or replace any policy, as referenced in APPENDIX A or otherwise disturb the relationship between the other party and any of its policy holders. 5.3 Each party agrees that it will use commercially reasonable efforts to prevent any Wholesaler and Producer, directly or indirectly, at any time during the term of this Agreement or within two (2) years thereafter, from inducing or attempting to induce any insurance client of the other party to terminate or reduce coverage or replace any policy of insurance placed through the efforts of the other party or otherwise disturb the relationship between the other party and any of its insurance clients. 5.4 LMG and American National agree to inform the other of any changes to its legal structure, and of any changes in its officers or partners. Changes in officers or partners may be satisfied by making such information available on the parties' website. LMG and American National agree to inform the other of any material changes or transfers of its stock or partnership interests. Material changes shall be defined as a 20% or greater change in ownership. 5.5 Commission debit balances on American National products sold through LMG will be handled according to the following guidelines: (a) o responsible for the debit balances incurred as a result of any debit transactions occurring on or after the effective date of this Agreement. (b) o will o for the debit balances incurred as a result of any debit transactions occurring between December 1, 1996 and through the effective date of this Agreement. (c) o responsible for agent debit balances incurred as result of any transactions occurring prior to December 1, 1996. (d) Any fees associated with the debit balances, including collection agency fees, will be o. (e) Any interest earned on debit balances will be o. Page 10 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC (f) Determination and approval of debit balance write-offs will occur as outlined in the separate agreement signed May 22, 1997, incorporated by reference herein, and by any subsequent amendments made to such agreement. Within five (5) business days of debit balance write-offs, o will send o a check for the portion of the debit balance for which they are responsible. (g) With respect to monies or assets received as a personal payment or collected from a collection agency toward a debit balance, such payments will be credited on a First In First Out (FIFO) basis, regardless of the carrier. (h) Debit balances which are incurred as a result of any federal, state or regulatory change, or order of any court of competent jurisdiction, or as a result of substantial fault on the part of o shall be o on a case by case basis by o. 6. PROPRIETARY, CONFIDENTIAL INFORMATION AND PRIVACY OF INFORMATION 6.1 Proprietary and Confidentiality. Each party acknowledges that certain information received from the other may be proprietary and/or confidential (referred to herein as "Confidential Information") in nature. All such Confidential Information shall be used by each party solely for purposes of soliciting insurance pursuant to this Agreement. Except as required by law or to inform the appropriate party or its officers, directors, employees, agents, affiliates or contractors (collectively referred to herein as "Affiliates"), for the purpose of compliance with or negotiation of or performance under this Agreement, neither party shall disclose the contents of this Agreement to third parties (other than Affiliates) without the other's written approval, which shall not be unreasonably withheld or delayed. 6.2 Privacy. To protect Confidential Information each party shall: (i) keep all Confidential Information in strict confidence; (ii) prevent disclosure of Confidential Information to third parties (except for Affiliates with a need-to-know); (iii) promptly notify the other of any loss or unauthorized use or disclosure of or access to Confidential Information; and (iv) promptly notify the other upon receipt of a request or demand pursuant to law to disclose Confidential Information, so that the appropriate party may seek a protective order or similar remedy. For the purpose of this Agreement, the term "Confidential Information" shall not include information that is: (a) in or becomes part of the public domain other than pursuant to a breach of this Agreement; (b) independently developed; (c) rightfully obtained from a third party without an obligation of confidentiality; (d) known prior to date of this Agreement without obligation of confidentiality; or (e) required to be disclosed by legal or regulatory authority. 6.3 Non-Public Personal Information. All capitalized terms used in this Section 6 and not otherwise defined shall have the meanings throughout this Agreement set forth in the Federal "Privacy of Consumer Financial Information" Regulation (12 CFR Part 40), as amended from time to time (the "Privacy Regulation"), issued pursuant to Section 504 of the Gramm-Leach-Bliley Act (15 U.S.C. 6801 et seq.). The parties acknowledge that the Privacy Regulation governs disclosures of Nonpublic Personal Information about Consumers and Customers, and Page 11 of 26 that Nonpublic Personal Information is included in the definition of "Confidential Information" in this Agreement. Each party hereby agrees that as the party receiving or maintaining Nonpublic Personal Information (the "Receiving Party") it shall: (a) comply with the terms and provisions of the Privacy Regulation, including, without limitation, the provisions regarding the sharing, collection, access and use of Nonpublic Personal Information, the provisions regarding notice and opt-out requirements, and the provisions regarding the limitations on the sharing of account number information for marketing purposes; (b) not disclose or use any Nonpublic Personal Information that it obtains from the other party (the "Disclosing Party") except to carry out the purposes for which the Disclosing Party provided such Nonpublic Personal Information; (c) not make any changes to its security measures that would increase the risk of unauthorized access, use or disclosure of Nonpublic Personal Information; (d) not disclose any Nonpublic Personal Information provided by the Disclosing Party to any other entity, without the prior written consent of the Disclosing Party; (e) at any time, upon the Disclosing Party's request, return to the Disclosing Party all of the Disclosing Party's Nonpublic Personal Information. Neither party shall be under any obligation to take any action, which, within such party's reasonable judgment, would constitute a violation of the Privacy Regulation or its internal privacy policies; (f) safeguard Nonpublic Personal Information by maintaining security and procedural standards that comply with state and federal regulations to protect against unauthorized access, use or disclosure (or threatened access, use or disclosure) of the Disclosing Party's Nonpublic Personal Information. 6.4 Service Provider Agreements. Each party agrees that when Nonpublic Personal Information is provided to a nonaffiliated third party ("a Service Provider") who performs services for or functions on behalf of the party, including marketing of the party's own products or services, or marketing of financial products or services pursuant to Joint Agreements between the party and other Financial Institutions, such party shall disclose to its Consumers and/or Customers that (a) it will be providing such Nonpublic Personal Information to the Service Provider and (b) it has entered a contractual agreement with the Service Provider that requires the Service Provider to maintain the confidentiality of such Nonpublic Personal Information pursuant to the Privacy Regulation. 6.5 Other Privacy Regulations. Each party agrees that compliance with the Privacy Regulation does not relieve either party of any of its duties and obligations to comply with other applicable privacy laws, statutes, ordinances or regulations of the appropriate authorities. Page 12 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC 6.6 Remedies. The Receiving Party agrees that (a) any unauthorized access, use or disclosure (or threatened unauthorized access, use or disclosure) of the Disclosing Party's Nonpublic Personal Information or other Confidential Information, (b) other violation of the Privacy Regulation, or (c) violation of other applicable privacy regulations, may cause immediate and irreparable harm to the Disclosing Party for which money damages may not constitute an adequate remedy. In that event, each party agrees that injunctive relief may be warranted in addition to any other remedies the Disclosing Party may have. In addition, the Receiving Party agrees promptly to advise the Disclosing Party in writing of any unauthorized misappropriation, disclosure or use by any person of Confidential Information (including, without limitation, Nonpublic Personal Information) which may come to its attention and to take all steps at its own expense reasonably requested by the Disclosing Party to limit, stop or otherwise remedy such misappropriation, disclosure or use. 7. VESTING OF RENEWAL COMMISSIONS 7.1 LMG, its successors, executors, assigns, or administrators is vested as to the first year and renewal commissions and, as provided in APPENDIX B, shall continue to receive renewal commissions on premiums on Policies received by American National. 8. BONUS ARRANGEMENT 8.1 As long as this Agreement remains in effect, an annuity bonus arrangement, calculated as specified in APPENDIX D, will be payable by American National to LMG, if earned. 8.2 As long as this Agreement remains in effect, a life bonus arrangement, calculated as specified in APPENDIX D, will be payable by American National to LMG, if earned. 9. NON-COMPETE PROVISION 9.1 Except through appointed Wholesalers and Producers covered by this Agreement, American National will not, during the duration of this contract, design, develop or market a policy form or rider o to the Policies sold under this Agreement. 9.2 LMG and American National will jointly develop new products. American National will o of any o to inform LMG in writing of its decision to market or not to market the product. o. 9.3 LMG and American National will jointly develop proprietary products as mutually agreed upon. Neither LMG nor American National are obligated to pursue the development of such products. 10. GENERAL PROVISIONS 10.1 The parties agree that this Agreement is an honorable undertaking, and agree to cooperate each with the other in carrying out its provisions. Page 13 of 26 10.2 Each party will cause its employees and Wholesalers and Producers to, upon receipt of any summons or other notice of suit or regulatory authority inquiry wherein the other party is named in any manner, forward any and all such documents within twenty-four (24) hours to the attention of the other party by facsimile, overnight mail, or overnight courier. 10.3 The waiver of any breach of any term, covenant or condition of this Agreement shall not be deemed a waiver of any subsequent breach of the same or any other term, covenant, or condition. No term, covenant or condition of this Agreement shall be deemed to have been waived unless such waiver is in writing signed by the party charged therewith. 10.4 For any notice under this Agreement, notice shall be sufficient and effective five (5) business days after deposit in the U.S. Mail, postage prepaid, registered or certified, return receipt requested, or upon receipt if delivered personally or by a nationally recognized overnight carrier. Such notice shall be directed as follows: To LMG: Legacy Marketing Group Lynda Regan, Chief Executive Officer Preston Pitts, President 2090 Marina Avenue Petaluma, California 94954 With copy to: Stokes Lazarus Carmichael LLP 80 Peachtree Park Drive, N.E. Atlanta, Georgia 30309 To American National: American National Insurance Company Richard Ferdinandtsen, President and Chief Operating Officer Kelly Wainscott, Vice President, Independent Marketing David Behrens, Executive Vice President, Independent Marketing One Moody Plaza Galveston, Texas 77550-7999 With copy to: Frederick E. Black, Greer, Herz and Adams LLP One Moody Plaza, 18th Floor Galveston, Texas 77550-7999 10.5 If any clause, paragraph, term or provision of this Agreement shall be found to be void or unenforceable by any court of competent jurisdiction, such finding shall have no effect upon any other clause, paragraph, term, or provision of this Agreement, and same shall be given full force and effect. 10.6 Each party expressly represents and warrants that it has the authority to enter into this Agreement and that it is not or will not be, by virtue of entering into this Agreement or otherwise, in breach of any other agreement with any other insurance company, association, firm, person or corporation. Each party warrants that the other party will be free from Page 14 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC interference or disturbance in its use of all products, advertising, marketing techniques and all information provided by the originating party. 10.7 This Agreement shall be binding upon the successors and assigns of American National as well as upon LMG's successors and permissive assigns. 10.8 The persons signing this Agreement on behalf of American National and LMG warrant, covenant and represent that they are authorized to execute this Agreement on behalf of such corporations pursuant to their bylaws or a resolution of their board of directors. 10.9 This Agreement, including APPENDICES A, B, C, D and E and the provisions hereof, and the Administrative Services Agreement into constitute the entire agreement of the parties. No modification hereof shall be binding upon American National or LMG unless such amendment is in writing and signed by officers of American National and LMG. The Agreement shall be governed by the laws of the State of Texas. Any similar agreement signed prior to the execution dates below is null and void and abrogated hereby. No change, waiver or discharge shall be valid unless in writing, and signed by an authorized representative of the party against whom such change, waiver or discharge is sought to be enforced. No delay or omission by either party to exercise any right or power shall impair such right or power or be construed as a waiver. A waiver by either of the parties of any of the covenants to be performed by the other or any breach shall not be construed to be a waiver of any succeeding breach or any other covenant. 10.10 All future o fees for product development beyond those incurred in completing the group and individual life products as called for in the original marketing agreement signed on May 31, 1993, will be o, unless agreed to otherwise in writing. o projects to be o in this manner will be the result of joint decisions to engage the o. Such o will be billed directly to American National. American National will bill LMG separately for its share of the expenses, submitted with a copy of such fees. 10.11 In no event and under no circumstances shall either party under this Agreement be liable to the other party under any provision of this Agreement for lost profits or for exemplary, speculative, special, punitive or consequential damages. 10.12 Each party shall be excused from performance for any reasonable period and to the extent that the party is prevented from performing any services, in whole or in part, as a result of delays caused by an act of God, war, civil disturbance, court order, labor dispute, or other cause beyond that party's reasonable control, including failures or fluctuations in electrical power, heat, light, air conditioning or telecommunications equipment and such non-performance shall not be a default or a ground for termination. 10.13 Any claim or dispute arising out of or relating to this Agreement, or any breach thereof, shall be finally determined and settled pursuant to binding arbitration in Houston, Texas, by one arbitrator, to be agreed upon by the parties. The arbitrator shall be an attorney licensed to practice law in the state of Texas. Should the parties fail to agree on an arbitrator then each party shall appoint one arbitrator who shall then agree to appoint a third arbitrator. In such an event, the first two arbitrators will not be required to participate and the final arbitrator may conduct the Page 15 of 26 arbitration as a sole arbitrator. Should one party fail to appoint an arbitrator as herein contemplated then the choice of the other party shall be the sole arbitrator. If the two arbitrators appointed by or on behalf of the parties as contemplated herein fail to appoint a third arbitrator within ten (10) days after the date of the appointment of the last arbitrator, then any person sitting as a District Judge in Houston, Texas, upon application of either party, shall appoint an arbitrator to fill such position with the same force and effect as though such arbitrator had been appointed or herein contemplated. The arbitration proceeding shall apply the laws of the state of Texas and be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The cost of arbitration (exclusive of attending the arbitration, and of the fees and expenses of legal counsel to such party, to be borne by each party) shall be shared equally by American National and LMG unless such arbitrator deems it just to allow one party to recover such costs from the other. The arbitration award shall be final and conclusive and shall receive recognition and judgment upon such award may be entered and enforced in any court of competent jurisdiction. 10.14 LMG hereby indemnifies and holds harmless American National, its officers, directors, employees and representatives from any and all claims, damages, expenses, liabilities, losses, causes of action, costs and obligations, of whatever kind or nature, whether joint and several or otherwise (including, but not limited to, attorneys' fees and expenses and amounts paid in settlement of any claims or liabilities) to any third party, arising out of LMG's fraudulent or negligent act(s) or omission(s); LMG's failure to comply with the terms of this Agreement; LMG's failure to comply with any law or regulation with respect to its duties hereunder except that LMG shall not be required to indemnify or hold harmless American National for any act or omission of LMG which was directed orally or in writing by American National, or required by American National under the Agreement. American National hereby indemnifies and holds harmless LMG, its officers, directors, employees and representatives from any and all claims, damages, expenses, liabilities, losses, causes of action, costs and obligations, of whatever kind or nature, whether joint and several or otherwise (including, but not limited to, attorneys' fees and expenses and amounts paid in settlement of any claims or liabilities) to any third party, arising out of American National's fraudulent or negligent act(s) or omission(s); American National's failure to comply with the terms of this Agreement; American National's failure to comply with any law or regulation with respect to its duties hereunder; and any actions or omissions of LMG which were directed orally or in writing by American National, or required by American National under the Agreement. Without in any way limiting the above reciprocal indemnifications, the parties hereto expressly agree that neither party shall be prohibited under this section from seeking such indemnification on the basis that such party seeking indemnification is itself negligent. Provided, however, that no party shall be liable for that portion of the claims, damages, liabilities, losses or causes of action resulting from the negligence of the other party, or resulting from the negligence of any third party, whether or not such third party is named in the lawsuit. Page 16 of 26 In lawsuits brought against both parties by a third party, the parties agree that each shall work together in a good faith effort to defend against and/or settle such lawsuits brought by a third party. In lawsuits brought against one but not both parties, to the extent practicable, all efforts will be made to defend or settle the claim with such third party without bringing the other party into the initial lawsuit. In any case, each party shall assert and protect all mutual privileges of one another, including but not limited to the attorney-client privilege, the joint defense privilege, and the attorney work product privilege. Notwithstanding the foregoing, nothing herein shall prevent LMG or American National from seeking indemnification from the other party in a separate arbitration or other proceeding without the constraints of the joint defense privilege or joint attorney work product privilege. The parties hereto expressly agree that, prior to the institution of any action or the filing of any claim against one another under this section, the parties will confer directly in good faith to resolve any disputes. For American National, such discussions shall involve Dave Behrens, Executive Vice President, or Kelly Wainscott, Vice President, or their successors or designees. For LMG, such discussions shall involve Lynda Regan, Chief Executive Officer, or Preston Pitts, President, or their successors or designees. 10.15 SURVIVAL: Sections 4.4, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 7, 10.12, 10.13 and 10.14 shall survive the termination of this Agreement. {Remainder of this page intentionally left blank.} Page 17 of 26 Any similar agreement signed prior to the execution dates below is null and void and abrogated hereby. IN WITNESS HEREOF, the parties hereto have executed this Agreement. LEGACY MARKETING GROUP By: /s/ R. Preston Pitts Title: President Witness: /s/ Lynn Laub Date: November 15, 2002 AMERICAN NATIONAL INSURANCE COMPANY By: /s Kelly M. Wainscott Title: Vice President Witness: /s/ Jynx Yucra Date: November 15, 2002 Page 18 of 26 APPENDIX A GEOGRAPHIC TERRITORY: The District of Columbia and all states other than New York and Alabama. Products Periodic Pay Life Products 1. LegacyMaster Whole Life 2. LegacyMaster 5 Pay 3. LegacyMaster Universal Life 4. AmeriMaster, formerly known as the Wealth Master II-WealthMaster with loan and surrender charge modifications 5. WealthMaster 6. Executive Master Plan I, formerly known as the Personal Retirement Program I 7. Executive Master Plan II, formerly known as the Personal Retirement Program II Single Premium Deferred Annuities 1. BenchMark 5 Annuity with premium enhancement, formerly known as the premium bonus 2. BenchMark 7 Annuity with premium enhancement, formerly known as the premium bonus 3. BenchMark 10 Annuity with premium enhancement, formerly known as the premium bonus 4. BenchMark 5 Annuity - No bonus 5. BenchMark 7 Annuity - No bonus 6. BenchMark 10 Annuity No bonus 7. BenchMark 5 Extra Series (0,2,3,4) 8. BenchMark 10 Extra Series (0,2,4,6,8) 9. BenchMark NSC Annuity, formerly known as the ValuMark Annuity Single Premium Whole Life 1. GrowthMaster Single Premium Whole Life 2. ValuMaster Single Premium Whole Life Riders 1. Periodic Pay Whole Life products 1. Paid Up on First Death 2. First to Die 3. Contemplation of Death Page 19 of 26 4. Waiver of Scheduled Premium 5. Waiver of COI 6. Death Benefit Option B 7. Split Certificate Rider 8. Term Insurance Rider 2. Universal Life Products 1. Contemplation of Death Rider 2. Waiver of Monthly Deduction Rider 3. Guaranteed Death Benefit Rider Page 20 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC APPENDIX B Legacy Marketing Group's Base Compensation Schedule o Product Line Compensation to LMG shall equal o of the following tables: I. o 1. Premium and Trailer Commission Premium Band #1: Premium o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o - ----------------------- 1 o 2 o 3 o Page 21 of 26 Premium Band #2: Premium o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o Premium Band #3: Premium o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 2. o is a o annual trailer on the inforce cash value and is due monthly starting at the end of the first month after the certificate effective date. Page 22 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC
- ----------------------- ---------------------- ---------------- ------------------ ---------------- ---------------------- o o o o o - ----------------------- ---------------------- ---------------- ------------------ ---------------- ---------------------- o o o o o o - ----------------------- ---------------------- ---------------- ------------------ ---------------- ---------------------- o o o o o o - ----------------------- ---------------------- ---------------- ------------------ ---------------- ---------------------- o o o o o o - ----------------------- ---------------------- ---------------- ------------------ ---------------- ---------------------- o o o o o o - ----------------------- ---------------------- ---------------- ------------------ ---------------- ----------------------
- ----------------------- 1 o 2 o 3 o 4 o Page 23 of 26 APPENDIX C Legacy Marketing Group: Wholesaler and Producer Agreement(s) (To be inserted) Page 24 of 26 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC APPENDIX D BONUS AGREEMENT American National will pay a Performance Bonus to LMG on both Life and Annuity premium as a reward for production and/or persistency. This bonus will be paid quarterly, within 10 business days of the end of each quarter, beginning with the end of the first quarter following the date of this Agreement and will be based on the criteria shown below. It will continue until such time as this Agreement is terminated or if both parties agree in writing to modify and/or terminate the bonus. The bonus is calculated by applying the appropriate Bonus Percentage o. No annuity bonus is paid if o. o Page 25 of 26 APPENDIX E AUTHORIZED PERSONNEL REPRESENTING AMERICAN NATIONAL Name Title Function Bruce Pavelka Vice President Administration Richard Crawford Vice President Reporting/Accounting & Assistant Controller Frank Broll Vice President Actuarial Valuation Rex Hemme Vice President Product and Policy Form Development Kelly Wainscott Vice President Marketing David Behrens Executive Vice President Overall of Independent Marketing REPRESENTING LMG Name Title Function Preston Pitts President Overall Steve Taylor Chief Financial Officer Finance Lynda Regan Chief Executive Officer Overall Don Dady Vice President of Marketing Marketing Page 26 of 26 EX-10.3 5 ex10-3.txt EXHIBIT 10.3 EXHIBIT 10.3 MARKETING AGREEMENT This Marketing Agreement is made and entered into and effective as of January 18, 2001, by and between the parties as follows: John Hancock Life Insurance Company ("Hancock"), a Massachusetts corporation, and Legacy Marketing Group ("LMG"), a California corporation, based on the following facts: A. Concurrently herewith, LMG and Hancock are entering into a certain Administrative Services Agreement pursuant to which certain insurance business is to be administered by LMG. B. The objective of this Agreement is to provide an arrangement to sell certain policies ("Policies") of Hancock as specified in APPENDIX A. C. Hancock desires to have LMG recruit, train, and appoint Wholesalers and Producers in the sale of certain Policies issued by Hancock as specified in APPENDIX A. Wholesalers and Producers are those licensed insurance agents contracted with LMG and appointed to sell Hancock products. Based on the foregoing facts, LMG and Hancock ("the parties") agree as follows: 1. DESIGNATION OF LMG AND SCOPE OF LMG'S AUTHORITY 1.1 Hancock designates LMG to recruit, train, and appoint Wholesalers and Producers in the solicitation of the Policies in the geographic territory specified in APPENDIX A (the "Territory"). 1.2 LMG is designated by Hancock for the purpose of soliciting applications for and processing the Policies referenced in APPENDIX A and otherwise transacting the business of this Agreement. LMG accepts such designation and agrees to comply with all applicable laws and regulations, and to diligently devote itself to the business of this designation in order to support sales of the Policies referenced in APPENDIX A as well as help prevent the termination of such Policies through conservation procedures mutually agreed upon by Hancock and LMG. 1.3 LMG shall cause each new Wholesaler and Producer to enter into Wholesaler and Producer Agreements in the form shown in APPENDIX C. Hancock will not be a party to the Wholesaler and Producer agreements and shall have no obligation or liability thereunder. If such Wholesaler or Producer Agreement is modified by LMG, LMG will provide Hancock with copies, within ten (10) business days of such modifications for the purpose of granting Hancock an opportunity to reject such modifications. LMG's modifications to the Wholesaler and Producer agreements will be deemed to have been ratified by Hancock absent its written objection, as hereafter required. Hancock will forward any objections to such modifications in writing to LMG within (10) business days of its notice. LMG shall file appointments of Wholesalers and Producers in the appropriate states' insurance departments and other jurisdictions. LMG will report weekly to Hancock a list of current appointments, adding new appointments and terminations from the list each week. Consideration for processing such appointments and terminations is provided for in the Administrative Services Agreement, executed concurrently herewith this Marketing Agreement. 1.4 It is understood and agreed that LMG is an independent contractor and nothing herein shall be construed to create the relationship of employer or employee between Hancock and LMG or between Hancock and any officer, employee, Wholesaler, Producer or other associated person of LMG. Neither LMG nor any Wholesaler or Producer has authority to incur any liability on behalf of or to bind Hancock in any way or change its rights, duties, or obligations, except as may be set forth in the Administrative Services Agreement between Hancock and LMG, executed concurrently herewith. 1.5 All Wholesalers and Producers who have been recruited and are appointed to sell the Policies referenced in APPENDIX A by LMG shall be identified by Hancock as Wholesalers and Producers of LMG as to such Policies. Any and all contracts entered into by and between such Wholesalers or Producers with respect to such Policies shall be coded by LMG onto its system and deemed Wholesalers and Producers of LMG. 1 Hancock may terminate Hancock's appointment of any Wholesaler or Producer, with cause, at its reasonable discretion, with prior written notice to LMG. Hancock may terminate Hancock's appointment of any Wholesaler or Producer, without cause, by mutual written agreement of LMG. Hancock may not otherwise terminate, recode, or otherwise disturb the relationship between LMG and its Wholesalers and Producers with respect the Polices without the prior written consent of LMG. 2. RIGHTS AND OBLIGATIONS OF HANCOCK 2.1 It is acknowledged by both Hancock and LMG that certain obligations of Hancock hereunder are to be performed by LMG as a servicing organization, pursuant to the Administrative Services Agreement between Hancock and LMG. This does not relieve Hancock of any of its duties and obligations unless the specific service is provided for in the Administrative Services Agreement, executed concurrently herewith, or in this Marketing Agreement, whereby LMG has explicitly acknowledged the responsibility of the service. 2.2 APPENDIX B will provide for the compensation payable to LMG from Hancock. APPENDIX B will be amended to conform with each new product specification as it is developed and finalized. The marketing allowance and commissions may vary with the development of each new product. Such marketing allowance will be specifically provided for in APPENDIX B, or any subsequent amendments pertaining to new products. 2.3 The commissions specified in APPENDIX B shall be modified whenever necessary to conform to the legal requirements of any state. Furthermore, Hancock reserves the right to withdraw its Policies from any state or other jurisdiction, with 60 days written notice to LMG, unless otherwise mutually agreed upon in writing, or unless mandated by any law, regulation, regulatory authority or court of law to do so sooner. 2.4 Hancock shall have sole authority and responsibility for filing advertising materials, pertaining to the business underwritten by Hancock, with applicable regulatory authorities prior to approving their use by LMG. All costs associated with such filings will be the responsibility of Hancock, unless the parties agree otherwise in writing. 2.5 (a) Agent Initial Appointment Fees--Unless mutually agreed upon in writing otherwise, Hancock shall be responsible for payment of LMG's Wholesaler and Producer resident initial appointment fees for such Wholesalers and Producers who have satisfied LMG's and Hancock's agreed upon selection and compliance criteria. Unless mutually agreed upon in writing otherwise, Hancock will be responsible for any Wholesaler and Producer non-resident initial appointment fees. Such non-resident appointment requirements will comply with Hancock's policies and procedures in effect as of the execution of this Agreement. If Hancock changes such policies and procedures, the responsibility for payment of such non-resident initial appointment fees will be mutually agreed in writing by both LMG and Hancock. (b) Agent Renewal Appointment Fees--Hancock will be responsible for payment of LMG's Wholesaler and Producer resident and non-resident renewal appointment fees for contracted Wholesalers and Producers. Such non-resident appointment requirements will comply with Hancock's policies and procedures in effect as of the execution of this Agreement. If Hancock changes such policies and procedures, the responsibility for payment of such non-resident renewal appointment fees will be mutually agreed in writing by both LMG and Hancock. (c) Agent Termination Fees--Hancock will be responsible for LMG's Wholesaler and Producer Appointment termination fees in the states which mandate such fees. 2.6 Hancock shall provide LMG with prompt written notice of any change of authority of persons authorized and enumerated in APPENDIX D to provide LMG with instructions or directions relating to services to be performed by LMG under this Agreement. In the absence of timely notice and LMG relies to its detriment on instructions or directions from one who is no longer authorized but otherwise acting within the scope of his authority, Hancock will indemnify LMG for any loss or claim as a result of such reliance. 2.7 It is understood between the parties that Hancock will have confidential information regarding LMG's Producers. Hancock expressly covenants and agrees that it will not, for any reason whatsoever, during the 2 o CONFIDENTIAL INFORMATION HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SEC. term of this Agreement and o, intentionally, directly, or knowingly use such confidential information to take a systematic approach toward soliciting and/or recruiting such Producers of LMG. During the term of this Agreement, in the event that o is solicited by a o, o may contract with such o only on products offered by o that are not jointly developed with o. After termination of this Agreement, in the event that o is solicited by a o, o may contract with such o. 2.8 Hancock shall pay all license or royalty fees for use of any intellectual property belonging to a third party that is utilized with any policies in APPENDIX A except to the extent of any intellectual property used by LMG in connection with performing its services pursuant to the Administrative Services Agreement between the parties or this Agreement. Notwithstanding the foregoing, in the event that this Agreement or the Administrative Services Agreements terminates and Hancock desires to process or perform any services for which LMG had previously been responsible, Hancock shall be required to obtain all licenses and pay any royalty fees on its own behalf to the extent Hancock wishes to use such intellectual property.Hancock shall be responsible for the cost of filing the policy forms with applicable regulatory authorities pertaining to the business underwritten by Hancock that are jointly developed with LMG. "Policy forms," shall include, but are not limited to, master policy forms, riders, endorsements, certificates, notices, disclosures or administartive forms. Notwithstanding the foregoing, LMG will assist in the drafting, completing, preparation of filing of such policy forms. 3. RIGHTS AND OBLIGATIONS OF LMG 3.1 At all times during the term of this Agreement, LMG (or the licensed individual who is acting on behalf of LMG in the capacity of an Officer in such states that do not permit the licensing of corporations) and all Wholesalers and Producers shall be properly licensed with each state or other jurisdiction and properly appointed with Hancock in each state or other jurisdiction within the Territory before engaging in any activity which under the laws of such state or other jurisdiction makes such licensing and appointment necessary. Without limiting the generality of the foregoing, LMG shall require all such Wholesalers and Producers to, at all times, bear the cost of maintaining all licenses required by any such state, it being understood that Hancock is not responsible for licensing fees or other costs of licensing. 3.2 LMG will itself and will communicate to and cause each Wholesaler and Producer to use only forms, applications, advertising (as such term is generally defined by the regulation of the state or other jurisdiction in which Policies, referenced in APPENDIX A, are solicited), office procedures, guides and rules furnished, authorized or promulgated by Hancock and agreed to by both parties and in each state or other jurisdiction where any Wholesaler or Producer solicits Policies, referenced in APPENDIX A. No written advertising or sales materials of any kind, including sales illustrations, or recruiting material referencing the Policies, referenced in APPENDIX A, of Hancock shall be authorized by LMG until after it has been approved in writing by Hancock. LMG will provide such materials with sufficient lead-time to allow appropriate review by Hancock. Hancock will then use its best efforts to provide a timely response. A time period not to exceed ten (10) business days shall be deemed timely. No oral presentation of any kind shall be authorized by LMG that does not conform to applicable statutes and regulations or which does not accurately reflect the terms and conditions of the Policies, referenced in APPENDIX A, being sold. All recruiting practices of LMG shall comply with all applicable laws, ordinances, and regulations of the appropriate authorities. Hancock shall be responsible for the maintenance of the advertising files and logs, as mandated by applicable laws and regulations. 3.3 LMG agrees to maintain the following insurance coverages: (a) LMG will possess an adequate fidelity bond for any losses caused by the dishonesty of LMG's employees or agents (not Wholesalers or Producers) with limits of at least o. LMG will also maintain a surety bond(s) as so required in the states which it is compelled to do so. LMG will file such bond, if so required, with the appropriate agency. The bond shall be executed by a corporate insurer authorized to transact business in the states that mandate the maintenance of such bond. (b) LMG will possess and maintain at all times errors and omissions coverage with a limit of not less than o written by an insurer with a minimum Best's rating of A-. Such coverage will comply with the requirements of the states in which such insurance coverage is required. 3 o CONFIDENTIAL INFORMATION HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SEC. (c) LMG will possess and maintain commercial, general and liability insurance with limits of not less than o per occurrence combined single limit. (d) LMG will require its Wholesalers and Producers to maintain Errors and Omissions coverage with a limit of at least o per Wholesaler and Producer, or per occurrence. 3.4 LMG may rely on instructions of any person indicated on Hancock's "Schedule of Authorized Personnel," when acting within the scope of their authority, attached hereto as APPENDIX D. Each of such persons is authorized to give instructions under this section with respect to any matter arising in connection with this Agreement. 3.5 In the event a malfunction of the LMG systems, used in the offering and/or sale of Polices specified in APPENDIX A, causes an error or mistake in any record, report, data, information or output under the terms of this Agreement, LMG shall at its expense correct and reprocess such records in the most expeditious manner possible, with the understanding that time is of the essence. LMG will reimburse Hancock for any costs and/or expenses associated with such error or mistake. In the event Hancock discovers any such errors or mistake it shall, within three (3) business days after discovery, notify LMG in writing of such error or mistake in any record, report, data, information or output received by Hancock. 3.6 LMG is responsible for the payment to Hancock of all monies, which LMG collects on behalf of Hancock. However, until Hancock receives all monies due, the same shall be a debt payable by the debtor upon demand for which Hancock may at its option offset with commissions otherwise due until such liability is satisfied. Any indebtedness to Hancock shall be a first lien against monies otherwise due under this Agreement. 3.7 LMG, in performance of its marketing obligations and duties, will not itself, and will use its best efforts, to prevent Wholesalers or Producers appointed hereunder, in the performance of their obligations and duties hereunder, from any of the following: (a) Enter into any agreement or incur any obligation on behalf of Hancock, except with Hancock's written permission, or commit Hancock to: (i) pay any money to any such Wholesalers, Producer or employee, or (ii) a date that a payment will be made. (b) Assign this Agreement or any compensation, other than commissions payable to Wholesalers and Producers, payable under it without the prior written consent of Hancock. (c) Solicit applications for Hancock in any manner prohibited by or inconsistent with the provisions of this Agreement or the rules and regulations mutually agreed by both parties, now or hereafter in force. (d) With respect to any Policy, (i) make any alterations, modifications or endorsements or otherwise alter Hancock's obligations as stated in the Policy, as referenced in APPENDIX A; (ii) collect or receive any premiums after the initial premium, except as may be required in the Administrative Services Agreement executed concurrently herewith, between Hancock and LMG; (iii) adjust or settle any claim; except as provided for in the Administrative Services Agreement, executed concurrently herewith. (e) Initiate any civil or criminal action or proceeding, whether or not brought in the name of Hancock, which may in any way involve or affect Hancock, its affiliates, their business, operations, or any Policy, as referenced in APPENDIX A, issued by Hancock. The foregoing shall not be construed as a waiver of any other right or entitlement hereunder, at law or in equity, that LMG may have to enforce its rights arising out of this Agreement. 4 (f) Use or authorize the use of any written, oral or visual communication, circular, advertisement or other publication except as follows: LMG agrees that it will not place into use, or distribute to any person, any advertising, sales material or other document (including, without limitation, illustrations, telephone scripts and training materials) referring directly or indirectly to Hancock or its Policies, or cause, authorize or permit any person to do so, without Hancock's prior written consent. LMG agrees that it will not use the name of Hancock on any business card, letterhead, website or marquee or in any directory listing, or in any other manner, or cause, authorize or permit any producer or other person to do so, without Hancock's prior written consent. LMG agrees that it will not, nor will LMG permit its Wholesalers and/or Producers to misrepresent Hancock or its Policies, as referenced in APPENDIX A, or make any oral or written representation which is inconsistent with the terms of such policies or sales literature or is misleading in any way, or refer to any insurance company tending to bring it into disrepute. (g) Knowingly or willfully violate the insurance laws or regulations of any regulatory authority of any State or any other jurisdiction in which LMG represents Hancock. (h) Embezzle or knowingly or willfully misapply funds of Hancock or any other person or entity. (i) Perpetrate any fraud against Hancock or any other person or entity. 3.8 LMG agrees that the compensation payable pursuant to Section 2.2 shall be accepted by it as full compensation from Hancock for its marketing services hereunder, except as otherwise agreed by mutual written consent of LMG and Hancock. 3.9 LMG will be solely responsible for any commissions to be paid to its Wholesalers or Producers, which are earned as a result of selling Hancock products through LMG, except as hereafter in Section 8 of this Agreement. 3.10 LMG shall have no authority, nor shall it represent itself as having such authority, other than as specifically set forth in this Agreement. Without limiting the generality of the foregoing sentence, LMG specifically agrees that it will not do any of the following without the prior written consent of Hancock: (a) Litigation: Institute, prosecute or defend any legal proceedings in connection with any matter pertaining to the offering and/or sale of the Policies identified in APPENDIX A. (b) Alterations: Waive, amend, modify, alter, terminate or change any term, provision or condition stated in any Policy Form or discharge any contract in the name of Hancock. Notwithstanding the foregoing, LMG may waive, amend, modify, alter, terminate or change any term, provision or condition stated in any Policy Form or discharge any contract in the name of Hancock in the resolution of complaints from policyholders or regulatory authorities in accordance with mutually acceptable written guidelines and procedures. (c) Advice to Policyholders/Prospective Policyholders: Offer tax, legal, or investment advice to any policyholder or prospective policyholder of Hancock under any circumstances, with respect to a Policy. 4. ASSIGNMENT, MODIFICATION AND TERMINATION OF AGREEMENT 4.1 Neither party may assign or delegate all or any part of its rights and/or duties under this Agreement without the written consent, as signed by one or more of the personnel shown on APPENDIX D, of the granting party. 4.2 This Agreement may be modified or amended at any time by mutual agreement of the parties, provided the modification or amendment is in writing, signed by authorized personnel, as provided in APPENDIX D of this Agreement. 5 4.3 The termination of this Agreement is governed by the following provisions: (a) LMG or Hancock may terminate this Agreement without cause by twelve (12) months written notice to the other, sent by mail. This Agreement may be terminated by mutual agreement of the parties in writing at any time. The terminating party shall provide fifteen (15) days written notice of termination or cancellation of this Agreement to the appropriate Departments of Insurance if and to the extent required by applicable law or regulation. LMG and Hancock shall fulfill any lawful obligations with respect to such policies affected by this Agreement, regardless of any dispute between LMG and Hancock. (b) In the event that any state insurance department withdraws or cancels LMG's license (or the license of the individual who is acting on behalf of LMG in such states that do not permit the licensing of corporations), or right to sell or conduct its business, LMG will stop its marketing activity under this Agreement in that state and notify Hancock. Hancock may terminate the authority of LMG with regard to such affected Policies which termination of authority shall be effective immediately. (c) Each party shall provide ninety (90) days prior written notice to the other of a request to revise the rates in APPENDIX B, or to revise the manner of payment or to change any of the other terms of this Agreement. The party receiving such notice must respond in writing to such request within sixty (60) days of receipt. No such change shall become effective unless and until it is agreed to in writing by both parties. (d) If either of the parties hereto shall materially breach this Agreement or be materially in default in the performance of any of its duties and obligations hereunder (the defaulting party), the aggrieved party hereto may give written notice thereof to the defaulting party and if such default or breach shall not have been remedied within forty-five (45) days after such written notice is given, then the aggrieved party may terminate this Agreement by giving thirty (30) days written notice of such termination to the defaulting party. This Agreement shall terminate immediately upon expiry of the 30 day notice period. (e) Either party may terminate this Agreement after providing 180 days advance written notice of termination to the other party in the event that the actual production levels fall below expected levels, as determined by LMG and Hancock. This Agreement shall terminate immediately upon expiry of the 180 day notice period, unless the parties mutually agree otherwise in writing. (f) Notwithstanding anything herein to the contrary, Hancock or LMG may immediately terminate this Agreement with cause, upon written notice to the other. Cause includes, without limitation, acts or omissions that constitute fraudulent, criminal or unethical activity or blatant disregard for the terms and conditions of this Agreement. (g) Termination of this Agreement by default or breach by Hancock shall not constitute a waiver of any rights of LMG in reference to services performed prior to such termination; termination of this Agreement by default or breach by LMG shall not constitute a waiver by Hancock of any other rights it might have under this Agreement. (h) Termination of this Agreement does not affect in any way the Administrative Services Agreement executed concurrently herewith. 5. HOLD HARMLESS AND INDEMNIFICATION 5.1 LMG shall indemnify and hold harmless Hancock from any and all claims, liability, costs and expenses, including reasonable attorneys' fees, arising out of LMG's negligent act(s) or omission(s); LMG's refusal to comply with the terms of this Agreement; LMG's failure to comply with any law or regulation with respect to its duties hereunder except that LMG shall not be required to indemnify or hold harmless Hancock for any act or omission of LMG which was directed orally or in writing by Hancock unless LMG knew that 6 o CONFIDENTIAL INFORMATION HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SEC. 5.2 such direction by Hancock was contrary to applicable law or regulation or was otherwise contrary to good business practices and LMG failed to advise Hancock. 5.3 Hancock shall indemnify and hold harmless LMG from any and all claims, liability, costs and expenses, including reasonable attorneys' fees arising out of Hancock's negligent act(s) or omission(s); Hancock's refusal to comply with the terms of this Agreement; Hancock's failure to comply with any law or regulation with respect to the offering or sale of contracts, or the records maintained. 5.3 Neither party shall be entitled to indemnification from the other party for any claim resulting from its own negligent act(s) or omission(s). 5.4 If any claim is made by a party which would give rise to a right or indemnification under paragraph 5.1 the party entitled to indemnification (the "Indemnified Party") promptly will give notice of the claim to the party required to provide indemnification (the "Indemnifying Party"). The Indemnifying Party shall have the right, at its option and its own expense and by its own counsel, to participate in the defense of any such indemnified claim for which indemnification is provided by this Agreement. Notwithstanding the foregoing, the Indemnifying Party shall not have the right to control or represent the Indemnified Party in the defense of any claim. 6. RIGHTS AND OBLIGATIONS OF BOTH PARTIES 6.1 Each party agrees that it will not, knowingly or willingly, directly or indirectly, at any time during the term of this Agreement or within two (2) years thereafter, induce or attempt to induce any policyholder or contract holder of the other party to terminate, reduce coverage, or replace any Policy, as referenced in APPENDIX A, or otherwise disturb the relationship between the other party and any of its policyholders or contract holders. 6.2 During the term of this Agreement, o agrees not to develop any proprietary products with any o without the express written approval of o since the termination of such Wholesaler or Producer in connection with this Agreement. o 6.3 Any Agent for Hancock who desires to sell the Hancock--LMG proprietary products will need to contract with LMG to sell such product. 6.4 Hancock and LMG agree to provide the other with ninety (90) days written notice of any intent to make significant changes or modifications to any contract or Policy form for products co-developed by Hancock and LMG except to the extent of any charge or modification that is necessary to conform to applicable law or regulation. Both parties will make best efforts to achieve a satisfactory resolution to the cause of the proposed changes and may also agree to extend the timeframe to implement such change if such change is pursued, unless otherwise mutually agreed upon in writing by LMG and Hancock. 6.5 Each party shall be excused from performance for any period and to the extent that the party is prevented from performing any services, in whole or in part as a result of delays caused by an act of God, war, civil disturbance, court order, labor dispute, or other cause beyond that parties reasonable control, including failures or fluctuations in electrical power, heat, light, air conditioning, or telecommunications equipment and such non-performance shall not be a default or a ground for termination. Notwithstanding the above, LMG agrees that it will establish and maintain reasonable recovery steps, including technical disaster recovery facilities, uninterruptable power supplies for computer equipment and communications and that as a result thereof LMG will use its best efforts to ensure that the Computer System shall be operational within 48 hours of a performance failure. LMG's Rome, Georgia, and Petaluma, California, offices will provide for each others' off-premises site for storage of backup software for the operating systems and data files. 6.6 LMG and Hancock shall each be liable for fifty-percent (50%) of the net debit balances (outstanding commission debit balances less any debit amounts recovered via collection efforts) incurred by Wholesalers and Producers that are mutually agreed in writing deemed to be uncollectible. 7. PROPRIETARY AND CONFIDENTIAL INFORMATION 7 o CONFIDENTIAL INFORMATION HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SEC. 7.1 LMG acknowledges that certain information received from Hancock including, without limitation, information concerning Hancock customers or consumers, may be proprietary and/or confidential in nature. All such information shall be used by LMG solely for purposes of soliciting Policies pursuant to this Agreement or for providing services pursuant to the Administrative Services Agreement between the parties. LMG agrees to indemnify and hold Hancock harmless from any and all loss and expenses sustained by Hancock as a result of the unauthorized use of proprietary and/or confidential information by LMG. 7.2 Hancock acknowledges that certain information received from LMG may be proprietary and/or confidential in nature. All such information shall be used by Hancock solely for purposes contemplated by, and in a manner that is consistent with, this Agreement or the Administrative Services Agreement between the parties. Hancock agrees to indemnify and hold LMG harmless from any and all loss and expenses sustained by LMG as a result of the unauthorized use of proprietary and/or confidential information by Hancock. 7.3 LMG and Hancock shall each have in place reasonable security measures to safeguard the confidentiality of the other's proprietary and confidential information and the nonpublic information of consumers and customers in their possession. 8. VESTING OF RENEWAL COMMISSIONS 8.1 LMG, its successors, executors, assigns, or administrators are vested as to commissions provided in APPENDIX B, and shall continue to receive commissions on premiums on Policies received by Hancock for as long as the Policy remains in force. 8.2 In the event of any dispute between LMG and Hancock, Hancock shall continue to pay to LMG any commissions due to any Wholesaler or Producer that were earned prior to such dispute except to the extent such commissions are disputed by Hancock. Furthermore, in the event of the termination of this Agreement, Hancock guarantees the commission payment due to Wholesalers and Producers to which they may have become entitled prior to the effective date of termination to the extent that Hancock has not previously remitted such commissions to LMG. Hancock shall either pay any outstanding commissions directly to the Producer or Wholesaler, or to LMG, who will remit such monies to the appropriate Producer or Wholesaler. Hancock will provide written notice to LMG of its election to pay such commissions directly to the Producers or Wholesalers or to LMG. Upon written notice, LMG will use its best efforts to provide Hancock with information concerning the Producer(s) and transaction(s) required to pay such commissions. 9. NON-COMPETE PROVISION 9.1 Hancock agrees that it will not, during the term of this Agreement and for a o after the termination of this Agreement, sell or market any insurance product with features or specifications that are substantially similar to those unique features in any proprietary product developed by LMG and Hancock, with any individual or entity other than LMG. LMG agrees that it will not, during the term of this Agreement and for a o after the termination of this Agreement, sell or market any insurance product whose features or specifications are substantially similar to those unique features in any proprietary product developed by LMG and Hancock. APPENDIX A shall identify all proprietary products with any unique feature. 9.2 Notwithstanding the foregoing, in the event that o, and LMG has not satisfied the premium objective for such product as set forth in APPENDIX E, o may separately begin to sell and/or market the same or a substantially similar product. 10. GENERAL PROVISIONS 10.1 The parties agree this Agreement is an honorable undertaking, and agree to cooperate each with the other in carrying out its provisions. 8 10.2 Each party will cause its employees to, and LMG will advise its Wholesalers and Producers to, upon receipt of any summons or other notice of suit or regulatory authority inquiry wherein the other party is named in any manner, forward any and all such documents within five (5) business days to the attention of the other party by facsimile, express or overnight mail, or courier. 10.3 The waiver of any breach of any term, covenant or condition of this Agreement shall not be deemed a waiver of any subsequent breach of the same or any other term, covenant, or condition. No term, covenant, or condition of this Agreement shall be deemed to have been waived unless such waiver is in writing signed by the party charged therewith. 10.4 For any notice under this Agreement, notice shall be sufficient and effective five (5) business days after deposit in the U.S. Mail, postage prepaid, return receipt requested, or upon receipt if delivered personally or by fax or facsimile or by a delivery service. Such notice shall be directed as follows: To LMG: Legacy Marketing Group To Hancock: John Hancock Life Insurance Company Preston Pitts, President Bruce Jones, Vice President 2090 Marina Avenue 200 Clarendon Street Petaluma, California 94954 Boston, Massachusetts 02117 With copy to: John Hancock Life Insurance Company With copy to: Stokes Lazarus & Carmichael LLP Marylou Gill Fierro, Senior Counsel 80 Peachtree Park Drive 200 Clarendon Street Atlanta, Georgia 30309 Boston, Massachusetts 02117
10.5 To the extent that the rules and regulations do not conflict with the terms of this Agreement, LMG and Hancock will conform to the rules and regulations as mutually agreed upon by LMG and Hancock. This provision shall not be construed to alter the relationship of the parties as provided above. 10.6 Each party expressly represents and warrants that it has the authority to enter into this Agreement and that it is not or will not be, by virtue of entering into this Agreement or otherwise, in breach of any other agreement with any other insurance company, association, firm, person or corporation. Each party warrants that the other party will be free from interference or disturbance in its use of all products, advertising, marketing techniques and all information provided by the originating party. 10.7 This Agreement shall be binding upon the successor and assignees of Hancock as well as upon LMG's successor and permissive assignees. 10.8 The persons signing this Agreement on behalf of Hancock and LMG warrant, covenant and represent that they are authorized to execute this document on behalf of such corporations pursuant to their bylaws or a resolution of their board of directors or other authority. 10.9 This Agreement, including APPENDICES A, B, C, D and E attached and the provisions thereof, constitute the entire agreement between the parties. This Agreement shall be governed and construed in accordance with the laws of the State of California. Any similar agreement signed prior to the execution dates below is null and void and abrogated hereby. No change, waiver, or discharge shall be valid unless in writing and signed by an authorized representative of the party against whom such change, waiver, or discharge is sought to be enforced. No delay or omission by either party to exercise any right or power shall impair such right or power or be construed as a waiver. A waiver by either of the parties of any of the covenants to be performed by the other or any breach shall not be construed to be a waiver of any succeeding breach or of any other covenant. 10.10 LMG shall provide reasonable access during normal business hours to any location from which LMG conducts its business and provides services to Hancock pursuant to this Agreement to auditors designated in writing by Hancock for the purpose of performing audits for Hancock. Hancock shall give reasonable advance written notice of an audit and include in that notice the matters, which it will audit. LMG shall 9 provide the auditors any assistance they may reasonably require. Such auditors shall have the right during normal business hours to audit any business record, activity, procedure, or operation of LMG that is reasonably related to the business marketed under this Agreement, including the right to interview any LMG personnel involved in providing or supporting such responsibilities. LMG will comply with all the relevant provisions contained in applicable state and federal codes or statutes. If any provision of this Agreement is in conflict with applicable laws or regulations, such provision will be deemed to be amended to conform with such laws. Further, if the laws of the State that governs this Agreement require the inclusion of certain provisions of relevant statutes, this contract shall be deemed to be amended to conform with such laws. 10.11 LMG and Hancock agree to inform the other of any changes in its legal structure, and of any material changes in its officers or partners listed in APPENDIX D. 10.12 Hancock shall be responsible for researching, obtaining, and the registration of any service marks issued by the U.S. Patent and Trademark Office for use with the products jointly developed by LMG and Hancock, and any costs associated therewith, and Hancock shall own all such rights. Hancock grants to LMG a gratuitous license for the use of such marks on LMG and Hancock proprietary products. Notwithstanding the foregoing, LMG may register and own its own marks that may be used by LMG to market products jointly developed by LMG and Hancock that are underwritten by Hancock. Further, LMG grants to Hancock a gratuitous license for the use of its marks on LMG and Hancock proprietary products. Each party will not use the other's Service Marks, Trademarks and Tradenames, or the name of any affiliate of the other in any way or manner not specifically authorized in writing by the other. 10.13 In no event and under no circumstances, however, shall either party under this Agreement be liable to the other party under any provision of this Agreement for lost profits or for exemplary, speculative, special, consequential punitive damages. 10.14 Any claim or dispute arising out of or relating to this Agreement, or any claimed breach thereof, or arising out of or relating to the relationship between the parties shall be settled by arbitration administered by the American Arbitration Association, in San Francisco, California, under its Commercial Arbitration Rules and the judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. 10.15 If any clause, paragraph, term or provision of this Agreement shall be found to be void or unenforceable by any court of competent jurisdiction, such clause, paragraph, term or provision shall be severed from the Agreement, and such findings shall not affect the remainder of this Agreement. 10.16 Survival: Sections 2.7, 5, 6.1, 6.2, 8, 9, 10.14 and 10.15 shall survive the termination of this Agreement. {Remainder of this page intentionally left blank.} 10 In witness whereof, the parties here to have executed this Agreement to take effect on the effective date specified. LEGACY MARKETING GROUP By: /s/ Don J. Dady ---------------- Title: V.P. Product Development ------------------------ Date: January 18, 2001 ---------------- John Hancock Life Insurance Company By: /s/ Bruce M. Jones ------------------ Title: Vice President -------------- Date: January 18, 2001 ---------------- 11 APPENDIX A GEOGRAPHIC TERRITORY: The District of Columbia and all states except Alabama POLICY FORMS (To be incorporated upon completion of final product specifications.) 12 APPENDIX B COMMISSION AND MARKETING ALLOWANCE FEES COMMISSION OVERRIDE COMMISSION MARKETING ALLOWANCE LMG TRAIL COMMISSION (To be incorporated upon completion of final product specifications.) 13 APPENDIX C WHOLESALER AND PRODUCER AGREEMENTS AND/OR APPROPRIATE AMENDMENTS 14 APPENDIX D SCHEDULE OF AUTHORIZED PERSONNEL Representing Hancock Michele Van Leer, Senior Vice President Bruce Jones, Vice President Representing LMG Lynn Stafford Chief Information Officer Gregg Egger Chief Officer of Strategic Development Steve Taylor Chief Financial Officer Lynda Regan Chief Executive Officer Bill Hrabik Chief Operations Officer Don Dady Vice President of Product Development Niju Vaswani Vice President of Distribution Greg Carney Officer of Special Markets 15 APPENDIX E Premium Level Goals (To be incorporated upon completion of final product specifications.) 16 EX-10.4 6 ex10-4.txt EXHIBIT 10.4 EXHIBIT 10.4 ADMINISTRATIVE SERVICES AGREEMENT This Administrative Services Agreement ("Agreement") is entered into and effective as January 18, 2001 between John Hancock Life Insurance Company ("Hancock"), a Massachusetts corporation, and Legacy Marketing Group ("LMG"), a California corporation, with reference to the following facts: A. Concurrently herewith Hancock and LMG are entering into a certain Marketing Agreement pursuant to which certain insurance business is to be marketed by LMG. B. That Hancock desires to have LMG provide services to Hancock with respect to this business and LMG is willing to provide such services, subject to the terms and conditions of this Agreement. Based on the foregoing facts, LMG and Hancock agree as follows: 1. SERVICES 1.1 From and after the date of this Agreement, LMG agrees to perform certain Hancock accounting and service functions. Such accounting and service functions shall consist of the activities described in APPENDIX C, but only for the Policies recited in APPENDIX A. Consideration for such accounting and service functions is set forth in APPENDIX B. 1.2 LMG may provide additional services for Hancock that are not specified in APPENDIX C. Consideration and other terms for such additional services will be agreed to by LMG and Hancock in writing prior to LMG's performance of such services. 2. RIGHTS AND OBLIGATIONS OF HANCOCK 2.1 Hancock has the sole obligation to its customers to provide for competent administration of the policies administered by LMG. Hancock hereby delegates to LMG certain duties as specified herein. 2.2 Hancock shall be responsible for researching, obtaining, and the registration of any service marks issued by the U.S. Patent and Trademark Office for use with the products jointly developed by LMG and Hancock, and any costs associated therewith, and Hancock shall own all such rights. Hancock grants to LMG a gratuitous license for the use of such marks on LMG and Hancock proprietary products. Hancock will not use LMG's Service Marks, Trademarks and Tradenames or the name of any affiliate of LMG in any way or manner not specifically authorized in writing by LMG. Notwithstanding the foregoing, LMG may register and own its own marks that may be used by LMG to market products jointly developed by LMG and Hancock that are underwritten by Hancock. 2.3 With respect to claims that LMG is authorized to pay on behalf of Hancock, Hancock shall be responsible for any and all costs of litigation associated with the payment of such claims. Hancock shall have the sole discretion whether to litigate a claim. These expenses shall include, but are not limited to, counsel fees and court fees. Notwithstanding the foregoing, Hancock shall not be responsible for any costs or expenses that arise out of any bad faith, gross misconduct or fraud on LMG's part. 2.4 Hancock shall have sole responsibility for filing advertising materials in those states that so require prior to approving their use by LMG. All costs associated with such filings will be the responsibility of Hancock. 2.5 Hancock shall be responsible for the establishment and maintenance of any group trusts associated with such group product filings and any costs associated therewith. 2.6 Hancock shall be responsible for the processing of payments under the election of a settlement option by the beneficiary or owner. LMG's responsibilities as they relate to this function are detailed in APPENDIX C, Policyholder Services, Section 2. Hancock will supply LMG with software to calculate estimated settlement option payments. Notwithstanding the foregoing, this provision shall not preclude LMG from processing such in the future. 1 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. 2.7 Hancock shall be responsible for determining the benefits and claims payment procedures applicable to such coverage, if any. 2.8 Hancock shall, at least semiannually, conduct a review of operations of LMG. At least one such review will be an on-site audit of the operations of LMG. 2.9 Currently, LMG does not perform medical underwriting for Hancock, however, if granted such authority, LMG will comply with all underwriting standards established by Hancock and adhere to all pertinent provisions contained in applicable Third Party Administrator statutes. Hancock shall be responsible for the underwriting or other standards pertaining to the business underwritten by Hancock. 2.10 LMG shall have no authority, nor shall it represent itself as having such authority, other than as specifically set forth in this Agreement. Without limiting the generality of the foregoing sentence, LMG specifically agrees that it will not do any of the following without the prior written consent of Hancock: (a) Litigation: Institute, prosecute or defend any legal proceedings in connection with any matter pertaining to the Services provided pursuant to this Agreement or Hancock's business. (b) Alterations: Waive, amend, modify, alter, terminate or change any term, provision or condition stated in any Policy Form or discharge any contract in the name of Hancock, except as otherwise specifically provided in this Agreement, such policy forms or as a result of a complaint resolution in accordance with mutually acceptable written guidelines and procedures. (c) Advice to Policyholders/Prospective Policyholders: Offer tax, legal, or investment advice to any Policyholder or prospective Policyholder of Hancock under any circumstances, with respect to a Policy or the Services provided pursuant to this Agreement. 2.11 Hancock shall provide LMG with written notice of any change of authority of persons authorized and enumerated in APPENDIX D to provide LMG with instructions or directions relating to services to be performed by LMG under this Agreement. In the absence of timely notice and LMG relies to its detriment on instructions or directions from one who is no longer authorized, Hancock will indemnify LMG for any loss or claim as a result of such reliance. 3. RIGHTS AND OBLIGATIONS OF LMG 3.1 LMG agrees to maintain the following insurance coverages: (a) LMG will possess an adequate fidelity bond for any losses caused by the dishonesty of LMG's employees or agents (not Wholesalers or Producers) with limits of at least o. LMG will also maintain adequate surety bond(s) as so required in the states which it is compelled to do so. LMG will file such bond, if so required, with the appropriate agency. The bond shall be executed by a corporate insurer authorized to transact business in the states which mandate the maintenance of such bond. (b) LMG will possess and maintain at all times errors and omissions coverage with a limit of not less than o written by an insurer with a minimum Best's rating of A-. Such coverage will comply with the requirements of the states in which such insurance coverage is required. (c) LMG will possess and maintain commercial, general and liability insurance with limits of not less than o per occurrence combined single limit. (d) LMG will require its Wholesalers and Producers to maintain Errors and Omissions coverage per Wholesaler or Producer, or per occurrence, or through LMG's exclusive coverage with a limit of not less than o, which is offered on a per contract sold basis. 3.2 In the event malfunction of the LMG systems causes an error or mistake in any record, report, data, information or output under the terms of this Agreement, LMG shall at its expense correct and reprocess 2 such records. LMG will reimburse Hancock for any costs and/or expenses associated with such error or mistake. In the event Hancock discovers any such errors or mistake it shall, within three (3) business days after discovery, notify LMG in writing of such error or mistake in any record, report, data, information or output received by Hancock. 3.3 LMG shall respond to all correspondence of a routine nature and other general functions necessary for satisfactory administration of the Policies referenced in APPENDIX A. LMG shall maintain complaint files and complaint logs to comply with applicable laws and regulations. LMG shall use its best efforts to comply with the service standards attached hereto as APPENDIX E. Notwithstanding the foregoing, Hancock retains the ultimate responsibility for the filing of such complaint logs or files with the appropriate regulatory agencies. If LMG receives: (a) notice of the commencement of any legal proceeding involving any of Hancock's customers; or (b) a communication from any insurance department, other administrative agency or any other person identifying a complaint by any Hancock customer or calling a hearing involving any Hancock practice; or (c) written complaints regarding Hancock Policies referenced in APPENDIX A from customers of Hancock (oral complaints are directed to make such complaint in writing and therefore will be handled in accordance with such written complaint handling procedures); or (d) a demand or request by any court, government agency or regulatory body to examine any of the books and records of Hancock relating to Policies or services; or (e) LMG will notify Hancock within two (2) business days of such receipt. LMG will send copies of any necessary documentation to Hancock within three (3) business days or sooner if reasonably requested by Hancock, and will cooperate with and assist Hancock in responding to such document . Notwithstanding the foregoing, written guidelines and procedures for such assistance will be established by mutual agreement of LMG and Hancock. 3.4 LMG will maintain a file containing any correspondence relating to complaints received from Hancock customers and/or government agency or regulatory body for a period of seven (7) years from receipt of the complaint letter. Hancock will respond to summons and complaints commencing legal actions on its own behalf. Hancock will also be responsible for the costs associated with responding to such summons and complaints commencing legal action on its own behalf. 3.5 LMG will provide a written notice, approved in writing by Hancock, to policyholders advising them of the identity of Hancock and LMG, and the relationship between LMG, the policyholder and Hancock. 3.6 LMG will only use advertising pertaining to the business underwritten by Hancock that Hancock has approved in writing in advance of its use. If so required, Hancock shall obtain the prior approval of the appropriate Department of Insurance before approving advertising for use by LMG. Hancock will also be responsible for all costs associated with obtaining such approval. 3.7 LMG is responsible for system modification costs for initial new product development. LMG is not responsible for the costs associated for other modifications that are not necessary to the normal course of business. "New product development" will be defined and agreed on prior to development. Hancock will reimburse LMG for any system modification costs requested that are beyond those necessary to the normal course of business at its standard rates illustrated in APPENDIX B. 3 3.8 LMG will comply with all of the relevant provisions contained in applicable Third Party Administrator statutes including, without limitation, applicable licensing or authorization requirements. LMG is licensed or otherwise authorized as a third party administrator in all states which require such licenses or authorizations. If any provision of this Agreement is in conflict with the laws of the State which governs this agreement, such provision will be deemed to be amended to conform with such laws. Further, if the laws of the State which governs this Agreement require the inclusion of certain provisions of relevant statutes, this Agreement shall be deemed to be amended to conform with such laws. 3.9 LMG grants to Hancock a gratuitous license for the use of its marks on LMG and Hancock proprietary products. LMG will not use Hancock's Service Marks, Trademarks and Tradenames, or the name of any affiliate of the other in any way or manner not specifically authorized in writing by the other. 4. QUALITY AND LIMITATION OF SERVICES 4.1 All services to be provided by LMG under this Agreement shall be performed in accordance with the policies and procedures mutually agreed to by both parties, industry standards, good faith efforts to comply with the service standards attached hereto as APPENDIX E and in accordance with all applicable laws and regulations. Hancock and LMG will use their best efforts to agree to and document within 60 days of execution of this Agreement the policies and procedures for all such services to be provided by LMG on behalf of Hancock. 5. HOLD HARMLESS AND INDEMNIFICATION 5.1 LMG shall indemnify and hold harmless Hancock from any and all claims, liability, costs and expenses, including reasonable attorneys' fees, arising out of LMG's negligent act(s) or omission(s); LMG's refusal to comply with the terms of this Agreement; LMG's failure to comply with any law or regulation with respect to its duties hereunder except that LMG shall not be required to indemnify or hold harmless Hancock for any act or omission of LMG which was directed orally or in writing by Hancock unless LMG knew that such direction by Hancock was contrary to applicable law or regulation or was otherwise contrary to good business practices and LMG failed to advise Hancock. 5.2 Hancock shall indemnify and hold harmless LMG from any and all claims, liability, costs and expenses, including reasonable attorneys' fees, arising out of Hancock's negligent act(s) or omission(s); Hancock's refusal to comply with the terms of this Agreement; Hancock's failure to comply with any law or regulation with respect to the offering or sale of contracts, or the records maintained. 5.3 Neither party shall be entitled to indemnification from the other party for any claim resulting from its own negligent act(s) or omission(s). 5.4 If any claim is made by a party which would give rise to a right or indemnification under paragraph 5.1 the party entitled to indemnification (the "Indemnified Party") promptly will give notice of the claim to the party required to provide indemnification (the "Indemnifying Party"). The Indemnifying Party shall have the right, at its option and its own expense and by its own counsel, to participate in the defense of any such indemnified claim for which indemnification is provided by this Agreement. Notwithstanding the foregoing, the Indemnifying Party shall not have the right to control or represent the Indemnified Party in the defense of any claim. 6. ASSIGNMENT, MODIFICATION AND TERMINATION OF AGREEMENT 6.1 Neither party may assign or delegate all or any part of its rights and/or duties under this Agreement without the written consent, as signed by one or more of the personnel shown on APPENDIX D, of the granting party. 6.2 This Agreement may be modified or amended at anytime by mutual agreement of the parties, provided the modification or amendment is in writing, by one or more of the personnel shown on APPENDIX D or by any other authorized officer of such party. APPENDIX D may be modified by a party by notice to the other party, signed by an authorized officer of such party. 4 6.3 The termination of this Agreement is governed by the following provisions: (a) LMG or Hancock may terminate this Agreement without cause by twelve (12) months written notice to the other. This Agreement may be terminated by mutual agreement of the parties in writing at any time. (b) LMG shall provide Hancock ninety (90) days written notice if LMG desires to increase its fees or charges to Hancock or to change the manner of payment or to change any of the other terms and conditions of this Agreement. Hancock must respond to such request within sixty (60) days of receipt. Processing fees, systems time and material rates may be increased annually. (c) If either of the parties hereto shall materially breach this Agreement or be materially in default in the performance of any of its duties and obligations hereunder (the defaulting party), the aggrieved party hereto may give written notice thereof to the defaulting party and if such default or breach shall not have been remedied within forty-five (45) days after such written notice is given, then the aggrieved party may terminate this Agreement by giving thirty (30) days written notice of such termination to the defaulting party. This Agreement shall terminate immediately upon expiry of the 30 day notice period. (d) Notwithstanding anything herein to the contrary, Hancock or LMG may immediately terminate this Agreement with cause, upon written notice to the other. Cause includes, without limitation, acts or omissions that constitute fraudulent, criminal or unethical activity or blatant disregard for the terms and conditions of this Agreement. (e) Termination of this Agreement by default or breach by Hancock shall not constitute a waiver of any rights of LMG in reference to services performed prior to such termination; termination of this Agreement by default or breach by LMG shall not constitute a waiver by Hancock of any other rights it might have under this Agreement. (f) In the event that this Agreement is terminated, LMG agrees that, in order to assist in providing uninterrupted service to Hancock, LMG shall offer reasonable analysis and programming assistance to Hancock in converting the records of Hancock from the LMG system to whatever service or system is selected by Hancock, subject to reimbursement to LMG for such assistance at its standard rates as illustrated in APPENDIX B. (g) In the event that this Agreement terminates for any reason other than by mutual written agreement, as provided for above in Section 6.3(a), LMG and Hancock agree that LMG, at Hancock's option, will continue to provide the administrative services on behalf of Hancock, as set forth in this Agreement, for up to one year from the date of such termination. (h) In the event either party becomes or is declared insolvent or bankrupt, is the subject of any proceedings relating to its liquidation, insolvency or for the appointment of a receiver or similar officer for it, makes an assignment for the benefit of all or substantially all of its creditors, or enters into an agreement for the continuation, extension, or readjustment of all or substantially all of its obligations, other than those agreements entered into as part of LMG's normal course of business, the other party may immediately terminate this Agreement for cause. (i) Hancock shall provide fifteen (15) days written notice of termination, modification or cancellation of this Agreement to the appropriate Departments of Insurance if and to the extent required by applicable law or regulation. Hancock shall fulfill any lawful obligations with respect to the Policies referenced by APPENDIX A of this Agreement, regardless of any dispute between LMG and Hancock. (j) Termination of this Agreement does not affect in any way the Marketing Agreement, executed concurrently herewith. 5 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. 7. RECORDS MAINTENANCE AND CONFIDENTIALITY 7.1 This Agreement shall be retained as a part of the official record of both LMG and Hancock for the duration of this Agreement and for seven years after the termination of this Agreement. 7.2 LMG will maintain complete books and records of all transactions between LMG, Hancock and its policyholders. LMG will preserve detailed and adequate books and records of all administered transactions, among LMG, Hancock and its policyholders, sufficient to permit the insurer to fulfill all of its contractual obligations to insured persons. These books and records shall be maintained in accordance with prudent standards generally accepted in business record keeping. LMG will maintain Hancock's records intact and separate and apart from the records of any other carrier. The documentation will contain all pertinent documents in sufficient detail to identify the relevant dates, events, and persons participating in those insurance events. LMG will maintain complete records of all transactions taken pursuant to its Third Party Administrator license. The books and records shall be maintained throughout this Agreement and for ten years after the transaction to which they respectively relate. 7.3 Hancock shall own the records generated by LMG pertaining to Hancock; however, LMG shall retain the right to continuing access to records to permit LMG to fulfill all of its contractual obligations. Hancock and LMG shall have continuing right to access and copy all accounts and records maintained by LMG related to Hancock's business. Any appropriately authorized governmental agency shall have access to all books, bank accounts and records of LMG and Hancock for the purpose of examination, inspection and audit. All information contained in the aforementioned books and records, including the identity and addresses of policyholders shall be kept confidential, except that such information may be used in proceedings instituted against LMG or Hancock. 7.4 In the event that LMG and Hancock cancel this Agreement, LMG may, by written agreement with Hancock, transfer all records to Hancock or the successor administrator rather than retain them for the period referenced in Section 7.2. If LMG transfers the records to a successor administrator or to Hancock, LMG is no longer responsible for retaining such records. The successor third party administrator shall acknowledge in writing in its agreement with Hancock, or Hancock itself shall acknowledge in writing, that it is responsible for retaining the records for which LMG had previously been responsible. 7.5 LMG will be given on-line access during Hancock's normal business hours to Hancock's producer/agent database for the purpose of inquiring on such system prior to LMG processing agent appointments. Such access will continue until such time as LMG ceases to process agent appointments for Hancock. 7.6 LMG acknowledges that certain information received from Hancock including, without limitation, information concerning Hancock customers or consumers, may be proprietary and/or confidential in nature. All such information shall be used by LMG solely for purposes of providing services pursuant to the Administrative Services Agreement between the parties. LMG agrees to indemnify and hold Hancock harmless from any and all loss and expenses sustained by Hancock as a result of the unauthorized use of proprietary and/or confidential information by LMG, or its Wholesalers or Producers. 7.7 Hancock acknowledges that certain information received from LMG may be proprietary and/or confidential in nature. All such information shall be used by Hancock solely for purposes contemplated by, and in a manner that is consistent with, this Agreement or the Marketing Agreement between the parties. Hancock agrees to indemnify and hold LMG harmless from any and all loss and expenses sustained by LMG as a result of the unauthorized use of proprietary and/or confidential information by Hancock. 7.8 LMG and Hancock shall each have in place reasonable security measures to safeguard the confidentiality of the other's proprietary and confidential information and the nonpublic information of consumers and customers in their possession. 8. TERM 8.1 This Agreement shall remain in force and effect until such agreement terminates as provided for in Section 6.3 of this Agreement. 6 9. COMPUTER SYSTEM AND PROPRIETARY RIGHTS 9.1 Definitions: As used in this Agreement, the following terms shall have such meanings: (a) "Administrative Computer System" or "Computer System" shall refer to all computer systems and related materials used by LMG to administer the Policies, including LMG proprietary software and third party licensed software comprised of computer programs and supporting documentation, including, but not limited to, source code, object code input and output formats, program listings, narrative descriptions and operating instructions and shall include the tangible media upon which the computer programs and supporting documentation are recorded as well as the deliverable forms and documents. LMG's proprietary software and third party licensed software are used to administer the Policies listed in APPENDIX A. (b) "Property" shall mean all property of either party including, but not limited to, data records, materials, supplies, computer software, customer records, premium information, underwriting files, customer lists, sales data, policyholder data, data on Wholesalers and Producers and any other distribution systems. 9.2 oo. The o will be and remain the property of o shall have no rights or interest in the o except as provided in this Agreement. o developed for o that are mutually agreed to be proprietary to o shall not be sold, licensed, transferred, assigned or otherwise distributed without the express written consent of o. (a) The o currently uses the o, o. o understands and agrees that, at o option, the o or any replacement o may be replaced at any time and from time to time, at o expense, with other suitable o of o choice. In the event that o decides to replace such o, o agrees to test the replacement o prior to its installation to be certain that it will properly perform the services contemplated by this Agreement. o will provide o with reasonable notice prior to any such replacements. (b) Notwithstanding the above, o understands and agrees that in no event shall o provide to o during the term of this Agreement or any extension thereto, access to o. o warrants that the o is the property of o and utilizes o . o further warrants that the use of the o to provide the Services contemplated by this Agreement will not infringe upon or violate any patent, copyright, trade secret or other proprietary right of any third party. These warranties shall survive termination of this Agreement. (c) Under the terms of the o is not authorized to o . Accordingly, in the event that o is unable to fulfill its contractual obligations as set forth herein, due to its subsequent bankruptcy or insolvency and o desires to use the o to administer o policies. Further, o shall contract with o, as hereafter defined. The o is the o, for all carriers with which o contracts, required to administer the products. All costs associated with o obtaining of the o shall be borne by o. Once split, o will provide o with the ability to administer their o products to the same extent and standard as does o; the o. In the event that o indicated above, o shall adhere to the terms as set forth above with the pertinent licensure. Notwithstanding the foregoing, o to administer the policyholder data. If o elects to implement a different choice of o, o will only be required to provide o. 10. GENERAL PROVISIONS 10.1 LMG and Hancock agree this Agreement is an honorable undertaking, and each agree to cooperate with the other in carrying out its provisions. 7 10.2 If any clause, paragraph, term or provision of this Agreement shall be found to be void or unenforceable by any court of competent jurisdiction, such finding shall have no effect upon any other clause, paragraph, term or provision of this Agreement, and same shall be in full force and effect. 10.3 For any notice under this Agreement, notice shall be sufficient and effective five (5) business days after deposit in the U.S. Mail, postage prepaid, return receipt requested, or upon receipt if delivered personally or by fax or facsimile or by a delivery service. Such notice shall be directed as follows: To LMG: Legacy Marketing Group Preston Pitts, President 2090 Marina Avenue Petaluma, California 94954 With copy to: Stokes Lazarus & Carmichael LLP 80 Peachtree Park Drive Atlanta, Georgia 30309 To Hancock: John Hancock Life Insurance Company Bruce Jones, Vice President 200 Clarendon Street Boston, Massachusetts 02117 With copy to: John Hancock Life Insurance Company Marylou Gill Fierro, Senior Counsel 200 Clarendon Street Boston, Massachusetts 02117 10.4 Each party expressly represents and warrants that it has the authority to enter into this Agreement and that it is not or will not be, by virtue of entering into this Agreement or otherwise, in breach of any other agreement with any other insurance company, association, firm, person, or corporation. 10.5 The persons signing this Agreement on behalf of Hancock and LMG warrant, covenant and represent that they are authorized to execute this document on behalf of such corporations pursuant to their bylaws or a resolution of their boards of directors. 10.6 LMG shall, in all cases and at all times, observe and obey the rules, regulations, instructions and directives of Hancock which shall be equitable and consistent with the terms of this Agreement. Hancock may, from time to time and at any time, promulgate such rules, regulations, instructions and directions for its operations. 10.7 LMG is an independent contractor. Nothing contained in this Agreement shall be construed to create the relationship of employer and employee between Hancock and LMG, nor shall LMG's employees, Wholesalers or Producers be considered employees of Hancock for any purpose. 10.8 This Agreement is the result of mutual negotiations between the parties and shall not be deemed to have been prepared by either party, but by both equally. The headings of the several paragraphs contained herein are for convenience only and do not define, limit, or construe the contents of such paragraph. 10.9 This Agreement, including APPENDICES A, B, C, D and E attached and the provisions thereof, constitute the entire agreement between the parties. This Agreement shall be governed and construed in accordance with the laws of the State of California. Any similar agreement signed prior to the execution dates below is null and void and abrogated hereby. No change, waiver, or discharge shall be valid unless in writing and signed by an authorized representative of the party against whom such change, waiver, or discharge is sought to be enforced. No delay or omission by either party to exercise any right or power 8 shall impair such right or power or be construed as a waiver. A waiver by either of the parties of any of the covenants to be performed by the other or any breach shall not be construed to be a waiver of any succeeding breach or of any other covenant. 10.10 When a policy is issued to a trustee or trustees, a copy of the trust agreement and any amendment thereto, shall be furnished to Hancock by LMG and shall be retained as part of the official records of both LMG and Hancock for the duration of the policy and for six years thereafter. 10.11 Any policies, certificates, booklets, termination notices or other written communication delivered by Hancock to LMG for delivery to insured parties or covered individuals shall be delivered by LMG within ten (10) days after receipt of instructions from Hancock to deliver them unless applicable law or regulation requires an earlier delivery. 10.12 Payment to LMG of any premiums or charges for insurance by or on behalf of the insured party shall be deemed to have been received by Hancock, and the payment of return premiums or claim payments forwarded by Hancock to LMG shall not be deemed to have been paid to the insured party or claimant until such payments are received by the insured party or claimant. 10.13 During the term of this Agreement and for one (1) year thereafter, Hancock and LMG shall not, directly or indirectly, solicit for employment any person employed or working on the services provided hereunder within the preceding 12 months by the other party or any affiliate of the other party without the prior written consent of the other party; provided however; that (i) in the event either party uses the services of a professional recruiter and provides such recruiter solely with generic job duties and job descriptions (without making any reference to the other party or the party's affiliates) and such recruiter contacts a qualified candidate who happens to be an employee of the other party and that candidate initiates contact through a recruiter with that party, then that party may employ that employee, or (ii) in the event an employee of the other party responds to a general advertisement placed by a party, then that party may employ that employee. 10.14 LMG shall provide reasonable access during normal business hours to any location from which LMG conducts its business and provides services to Hancock pursuant to this Agreement to auditors designated in writing by Hancock for the purpose of performing audits for Hancock. Hancock shall give reasonable advance written notice of an audit and include in that notice the matters which it will audit. LMG shall provide the auditors any assistance they may reasonably require. Such auditors shall have the right during normal business hours to audit any business record, activity, procedure, or operation of LMG that is reasonably related to LMG's responsibilities identified in this Agreement, including the right to interview any LMG personnel involved in providing or supporting such responsibilities. 10.15 Each party shall be excused from performance for any period and to the extent that the party is prevented from performing any services, in whole or in part as a result of delays caused by an act of God, war, civil disturbance, court order, labor dispute, or other cause beyond that parties reasonable control, including failures or fluctuations in electrical power, heat, light, air conditioning, or telecommunications equipment and such non-performance shall not be a default or a ground for termination. Notwithstanding the above, LMG agrees that it will establish and maintain reasonable recovery steps, including technical disaster recovery facilities, uninterruptable power supplies for computer equipment and communications and that as a result thereof LMG will use its best efforts to ensure that the Computer System shall be operational within 48 hours of a performance failure. LMG's Rome, Georgia, and Petaluma, California, offices will provide for each others' off-premises site for storage of backup software for the operating systems and data files. 10.16 In no event and under no circumstances, however, shall either party under this Agreement be liable to the other party under any provision of this Agreement for lost profits or for exemplary, speculative, special consequential or punitive damages. 10.17 Any claim or dispute arising out of or relating to this Agreement, or any claimed breach thereof, or arising out of or relating to the relationship between the parties shall be settled by arbitration administered by the American Arbitration Association, in San Francisco, California, under its Commercial Arbitration Rules and the judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction. 9 10.18 The parties agree that this Agreement constitutes the full, complete and entire Agreement between them and supersedes all prior understanding, agreement, conversations, or representations between them with respect to the subject matter of this Agreement. Any prior agreement between LMG and Hancock regarding the same subject matter is null and void and abrogated hereby. 10.19 Survival: Sections 5, 6.3(f), 6.3(g), 7, 10.9, 10.13, 10.14 and 10.16 shall survive the termination of this Agreement. {Remainder of this page intentionally left blank.} 10 In witness whereof, the parties here to have executed this Agreement to take effect on the effective date specified above. LEGACY MARKETING GROUP By: /s/ Don J. Dady Title: V.P. Product Development Date: January 18, 2001 JOHN HANCOCK LIFE INSURANCE COMPANY By: /s/ Bruce M. Jones Title: Vice President Date: January 18, 2001 11 APPENDIX A GEOGRAPHIC TERRITORY: The District of Columbia and all states except Alabama POLICY FORMS State required variations of the above referenced forms may be required. 12 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. APPENDIX B PROCESSING FEES 1. Multi Year Guarantee Products a. Acquisition Fees: One time fee of [___] per application received. b. Maintenance: [___] per inforce Policy per year to be paid weekly pro rata. c. Terminations: One time fee of [___] to be paid at time of surrender, maturity, election of a settlement option or death claim of each Policy. d. Payment of Claims: [___] per death claim paid by LMG in addition to the [___] termination fee, as provided above in ss. c. 2. Agent Appointment and Termination: [___] per agent appointment per state; [___] per agent termination per state. 3. Out-Of-Pocket Expenses a. In addition to the fees set forth above, LMG will forward to Hancock on a monthly basis a bill for the out of pocket expenses listed below. Such invoice will include adjustments for any fees due to Hancock from LMG as a result of Agent initial and renewal appointment fees which are due or have been collected from such Wholesalers and Producers. Hancock will reimburse LMG with fifteen (15) days of receipt of such bill. If LMG does not receive reimbursement within fifteen (15) days, Hancock will allow LMG to draw the following out of pocket expenses from the disbursement account. Out-of-pocket expenses are expenditures for the items such as those listed below and any other items agreed to in writing by the parties: (1) Costs of telecommunication lines and equipment installed to provide primary and back-up support for on-line access to LMG's administrative system and transmission of data. (2) The costs involved with off-site storage for Hancock records, documents, correspondence and other items as provided in this Agreement, or cost of shipping those items to Hancock. (3) The costs associated with Agent (Wholesalers and Producers) appointments and terminations, including Agent background investigations and Agent initial appointment fees and termination fees referenced in the Marketing Agreement executed concurrently with this Agreement. b. Hancock will be responsible for cash management of this disbursement account and LMG agrees to provide Hancock records and information to properly perform this function. 4. Systems Time and Materials Rates Under certain conditions as set forth in this Agreement, Hancock will reimburse LMG for the costs of systems modifications or systems support at the following rates: Chief Information Officer o per hour Director--Technical Support o per hour Senior Programmer Analyst o per hour Programmer Analyst o per hour Senior Business Analyst o per hour Project Manager o per hour Business Analyst o per hour Tester o per hour 5. Payment of Processing Fees. 13 Hancock will pay LMG the processing fees from 1 and 2 weekly. Fees from 1 and 2 will be paid by wire transfer within 5 days of receipt of such documentation. 6. Compensation Not To Be Contingent This Agreement shall not provide for compensation, commissions, fees or charges which are contingent upon savings effected in the adjustment, settlement and payment of losses (the loss ratio) covered by Hancock's obligations. In the event that LMG adjusts or settles claims on behalf of Hancock, such compensation shall in no way be contingent on claims experience. This provision does not prevent the compensation of LMG from being based on premiums or charges collected or the number of claims paid or processed or performance-based compensation for providing auditing services. LMG will not receive any administrative compensation except as expressly set forth in this Agreement between LMG and Hancock. 7. LIMRA CAP Survey Response Fees Hancock will pay LMG a flat fee of [___] per reply that LMG prepares in response to LIMRA CAP survey answers. LMG will maintain a record of the responses to policyholders that it prepares on behalf of Hancock. The record will indicate the number of such responses prepared and will be forwarded as an invoice to Hancock on a monthly basis. Hancock remit payment to LMG within twenty (20) days of receipt of such invoice. 8. Additional compensation to be paid to LMG by Hancock for services not contemplated herein shall be mutually decided by both parties. All fees set forth in this Agreement shall be reviewed annually by LMG and Hancock to ensure that such fees remain constant with any inflation. 14 APPENDIX C SERVICES TO BE PROVIDED These services are to be performed by LMG in accordance with the policies and procedures mutually agreed to by both parties, applicable laws and regulations and reasonable industry standards. 1. Services: Clerical Processing of Agent Appointment and Termination with States Appointment 1. Review signed Producer Agreement for completeness and accuracy, input agent information into the Computer System 2. Conduct Background Investigation on Producer, including credit report, NAIC RIRS inquiry, Vector Check, state licensing check (in all States in which Producer requests appointment), criminal check, and past employment check. 3. If Producer meets LMG/Hancock contracting criteria, complete and mail all state required appointment forms or electronic transmission of appointment data to state. 4. Depending on state criteria, once appointment is effective, input appointment information into the Computer System system for renewal tracking, new business processing and weekly transmission to carrier. Termination 1. Complete and mail state required forms or electronic transmission to terminate agent's appointment in state(s). 2. Update the Computer System with appropriate appointment termination into the Computer System to prohibit new business processing. Monthly transmission of agent termination information to carrier. Appointment Renewal Processing 1. LMG will forward to Hancock within three (3) business days of a written request by Hancock any Producer address that is required to be provided to a regulatory agency. Clerical Processing of Transfers (1035x, CD Money Market, Mutual Fund Qualified Transfers) 1. Review all transfer documentation for completeness and accuracy, including receipt of all state specific forms (replacements). 2. Contact transfer institution for verification of account information. 3. Mail required documentation including state specific forms to transfer institution. 4. Mail initial letter to applicant confirming receipt of application. 5. Contact transfer institution on a regular basis until receipt of such funds. 6. Once all funds are received complete Contract Issue. 15 Contract Issue 1. Review all annuity applications for completeness and accuracy, including state product availability and agent licensing. 2. Input application into LMG's administrative system. 3. Process any transfers, as previously defined. 4. Generate state specific policy forms. 5. Mail policy to Producer for delivery. 6. Follow-up on any outstanding delivery requirements and delivery receipt. 7. Once all outstanding requirements are received, apply the premium to policy, place the policy inforce and generate a commission payment to agent. Policyholder Service Includes all maintenance on all certificates/policies after issue (inforce). Responsibilities include the following: 1. Responding to all written or verbal consumer or agent inquiries regarding an inforce policy. 2. Clerical processing of the following financial transactions: Withdrawals (including systematic withdrawal income and Minimum Required Distributions). Partial surrenders. Full surrenders, including 1035X. Strategy transfers. Election of a settlement option by owner or beneficiary (however LMG will not process the actual payments under a settlement option). LMG will provide Hancock with the all required documentation to process the payments under such election within ten (10) business days of receipt of completed forms. Free Look or Not Taken processing Additional Deposit(s) Claims processing, as defined in this Agreement 3. Clerical processing of the following non-financial transactions. Address changes Beneficiary changes Ownership changes Mailing of quarterly statements Collateral Assignment Review of legal documents (not limited to POA, Guardianship). 4. Maintain a toll-free telephone line for policyholders. Clerical processing is defined as reviewing requests to determine all state and carrier mandated forms have been completed, data entry into ALS (administrative system) to record such transaction and providing written confirmation to policyholder of such clerical processing. Maintenance of Policyholder Records LMG will be responsible for the maintenance of policyholder records. Specifically, LMG will maintain accurate and complete policyholder records according to the provisions of this Agreement. Paper records will be maintained in an offsite storage facility. Copies of all paper records will be permanently scanned with LMG's imaging system. Records of all transactions will also be maintained in LMG's administrative system. Data Processing Services - All data files provided to Hancock will be in formats that are mutually agreed to by both parties. Month end cutoff for all accounting files will be the 21st of each month or the prior business day unless otherwise agreed upon by both parties. {Need to specify month end.) 1. Maintenance of the general ledger for all premium and disbursement cash accounting as well as all policy related financial transactions. 2. Within ten (10) days of month end LMG will transmit the general ledger interface to Hancock for financial statement preparation. 3. Maintain policy transaction data files. 4. Transmission of policy transaction data files to Hancock for the preparation of reserve calculations. 16 5. Provide computer-accessible valuation data: account balance information, policyholder activity, and policy provision data (such as changing schedules of interest) at a sufficient level of detail to make Statutory Valuation and GAAP accounting possible without resorting to estimates. Create and transmit the data files with a sufficiently early effective date that they may be used by Hancock before the calendar month end. 6. Provide ledger input data whose end-of-month close date coincides with the effective date for the valuation data. 7. Provide Hancock with a complete file extract of all policyholder data from the administration system once per month in a mutually agreed upon format. Such policyholder data is confidential and shall only be used by Hancock for the purpose of performing demographic and marketing research. Any other use of such data requires prior written consent by LMG. More frequent updates or incremental updates will be provided at a mutually agreed upon date. Agent Compensation LMG is responsible for weekly processing and payment via check or ACH of first year and trailing commissions to its Wholesalers and Producers. Commission payments result from premium being applied to appropriate Hancock policies. LMG is responsible for generating the weekly commission statements, maintenance of year to date commission information, and processing of the actual commission payment. Agent compensation amounts are determined by the Producer's LMG contract level, product type, age of annuitant and owner, and premium amount. Premium Accounting LMG is responsible for receiving premium checks and depositing into Hancock depository bank account. The receipt of premium is recorded in the administrative system and a general ledger entry is created to record the deposit. However, LMG is not responsible for investing and managing these assets. Tax Reporting to Agents LMG will be responsible for the reporting on a yearly basis to its Producers and Wholesalers information on all commissions earned, as well as other compensation from incentive trips, etc. Such reporting to Wholesalers and Producers will consist of generating and mailing of 1099 forms. LMG will also be responsible for the transmission of such records to the applicable federal and state taxing authorities. LMG policies and procedures comply with all state and federal regulations. Tax Reporting to Policyholders LMG is responsible for the reporting on a yearly basis to policyholders information regarding certain financial transactions on such Hancock policies. Reporting to policyholders consists of generating and mailing of 1099 forms, Year End Account Balances and 5498 forms. LMG will also be responsible for the transmission of such records to the applicable federal and state taxing authorities. LMG policies and procedures comply with all state and federal taxing authority regulations. Such tax reporting only encompasses disbursements that are made by LMG on behalf of Hancock. Hancock shall be responsible for any tax reporting for disbursements that are made by Hancock directly. Tax Reporting to Vendors LMG will be responsible for the reporting on a yearly basis to its vendors information on all compensation paid. Such reporting to vendors will consist of generating and mailing of 1099 forms. LMG will also be responsible for the transmission of such records to the applicable federal and state taxing authorities. LMG's policies and procedures comply with all state and federal regulations. Tax Reporting to Beneficiary(ies) LMG is responsible for the reporting to beneficiary(ies) on a yearly basis information regarding receipt of lump sum claim payments. Reporting to beneficiary(ies) consist of generating and mailing of 1099 forms. LMG will also be responsible for the transmission of such records to the applicable federal and state taxing authorities. LMG policies and procedures comply with all state and federal taxing authority regulations. Such tax reporting only encompasses disbursements that are made by LMG on behalf of Hancock. Hancock shall be responsible for any tax reporting for disbursements that are made by Hancock directly. 17 2. Other Services: a. Accounting Services (1) Maintenance of general ledger system (2) Reconciliation of all cash and suspense accounts monthly (3) Furnishing to Hancock of all applicable data necessary for preparation of Hancock NAIC Convention Blank (4) Furnishing to Hancock of all applicable data necessary for preparation of the Hancock corporate tax return (5) Furnishing to Hancock of all applicable data necessary for preparation of the Hancock GAAP financial statements (6) Furnishing to Hancock of all applicable data necessary for the preparation of the Hancock unclaimed property reports (7) Furnishing to Hancock of monthly data sets of all applicable data necessary for the preparation of the Hancock premium tax returns and payments b. Actuarial Services (1) LMG will assist and provide actuarial support to Hancock. LMG's responsibilities will vary by each product jointly developed and may include: Provide initial product specification Provide competitive analysis for the product Define pricing assumptions Provide any necessary support for pricing assumptions Share deterministic pricing results Perform sensitivity analysis Provide final product specifications Define actuarial memorandum Provide Actuarial field support Monitor actuarial assumptions Assist in ongoing profit/pricing management of the business (2) LMG will draft initial policy forms and applications to be used for each product jointly developed. LMG will assist Hancock in the completion and preparation of filing such forms, and assist in the approval process, LMG's responsibilities may vary with each product jointly developed. c. Advertising Material Development LMG will be responsible for the creation, printing and distribution of all advertising material used by LMG for such products jointly developed. However, LMG will obtain the necessary approval from Hancock prior to use of such advertising material. It is LMG's intention to provide all administrative services, with the exception of the following: a. Administration after the election of a settlement option by Owner, and any subsequent payments after such election. b. Administration after the election of a settlement option resulting from a death, and any subsequent payments after such election. 3. Collection and Disposition of Funds: All insurance premiums collected by LMG on behalf of Hancock, and return premiums received from Hancock, shall be held by LMG in a fiduciary capacity and will not be used as general operating funds of LMG. Such funds shall be immediately, within two (2) business days be remitted to the person or persons entitled to them or shall be deposited promptly, within two (2) business days, in a Premium Fiduciary Account. Such Premium Fiduciary Account will be held in the name of Hancock. However, it will be established and maintained by LMG in a federally or state insured financial institution, separate and apart from any funds belonging to LMG or third parties. 18 This Premium Fiduciary Account will at all times have a balance equal to contributions plus any interest earned less, authorized disbursements by Hancock. If LMG is authorized to draw checks on the Premium Fiduciary Account, this will be clearly indicated on their face. LMG may not pay any claim by withdrawals from the aforementioned Premium Fiduciary Account. Withdrawals from the Premium Fiduciary Account shall be made as provided in this Agreement between LMG and Hancock for any of the following: a. Remittance to Hancock, if so entitled to such remittance; b. Deposit in an account maintained in the name of Hancock; c. Transfer to and deposit in a claims-paying account, with claims to be paid as provided by Hancock. LMG will maintain in a fiduciary capacity, Disbursement Accounts where Hancock will fund the balance and LMG is authorized to make the following disbursements: a. Payment to LMG of its out of pocket expenses, as defined in Appendix B, Section 3a, and weekly commissions. b. Remittance of return premium to the person or persons entitled thereto. c. Any policy/certificate holder disbursements, including payment of claims. LMG will pay claims from funds collected on behalf of Hancock and shall be paid only on drafts of, and as authorized by Hancock. In the event that LMG receives monies to pay claims on behalf of Hancock, such funds will be held in a fiduciary capacity. No deposits will be made into or disbursements made from this fiduciary account except for claims and claim adjustment expenses. This fiduciary account will at all times have a balance equal to the amount deposited less claims and claims adjustment expenses paid. 4. Settlements/Reports: a. As agreed upon but no later than twenty (20) calendar days of the end of each month, the prior month's balance sheet activity shall be reconciled by LMG. b. As agreed upon, LMG shall provide reports to Hancock, including but not limited to the following items: (1) General ledger report (2) Premium and commission reports (3) Claim reports (4) Statutory reserve policy information (5) FAS 97 detail policy information c. Daily, LMG shall provide to Hancock, including but not limited to the following items: (1) Cash control reports, beginning the first day of business d. Weekly (Monday, for the previous week's business activity), LMG shall provide to Hancock, including but not limited to the following items: (1) Copies of check registers (2) Bi-weekly--Transmission of general ledger data (including state code detail), beginning on a mutually agreeable date after the volume of business reaches a level determined by Hancock to warrant daily updates e. As agreed upon but no later than twenty (20) calendar days of the end of each month, LMG shall provide to Hancock, including but not limited to the following items: (1) Copies of all bank reconciliations (2) All supplemental financial reporting information as requested by Hancock (3) Copies of tax reporting to policyholders and vendors f. Miscellaneous ad hoc sales reporting. 19 5. Claims Payment: All Policy claims services, with the exception of the adjudication of death claims not paid out as a lump sum, shall be performed by LMG on behalf of Hancock. All Policy claims shall be investigated, processed and paid in accordance with the policies and procedures mutually agreed to by both parties. Hancock's claim personnel shall be made available at Hancock's expense to answer any questions that might arise from LMG's claims personnel relating to claims investigation, processing and payment of Policy claims. In addition to the foregoing, in the case of a decision by LMG that a Policy claim should be denied, LMG shall communicate its proposed action to appropriate Hancock personnel who must agree and approve the proposed claim denial before the claims decision is finalized. LMG will communicate appropriate details of any proposed claim denial in accordance with notification procedures to be jointly developed by the parties. If no response is received within five (5) business days of transmission, LMG shall have the right to proceed on the basis that Hancock is in agreement with the decision to deny the claim. All claims paid by LMG from funds collected on behalf of or for Hancock shall be paid on only drafts or checks of and as authorized by Hancock. All monies received by LMG to pay claims on behalf of Hancock shall be held in an administrative capacity. No deposits will be made into, nor disbursements made from this fiduciary account, with the exception of claims and claims adjustment expenses. This fiduciary account will at all times have a balance equal to the amount deposited less claims and claims adjustment expenses paid. LMG is responsible for all correspondence with the claimant and preparation of the claim checks. For those claims referred to Hancock by LMG, LMG will provide Hancock with copies of the following: 1) Policy records (including but not limited to: all correspondence relating to the policy) 2) All correspondence with the claimant. 3) Diary screens. 4) Claim proofs. 20 APPENDIX D SCHEDULE OF AUTHORIZED PERSONNEL Representing Hancock Michele Van Leer, Senior Vice President Bruce Jones, Vice President Representing LMG Lynn Stafford Chief Information Officer Gregg Egger Chief Officer of Strategic Development Steve Taylor Chief Financial Officer Lynda Regan Chief Executive Officer Bill Hrabik Chief Operations Officer Don Dady Vice President of Product Development Niju Vaswani Vice President of Distribution Greg Carney Officer of Special Markets 21 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. APPENDIX E Service Standards Process Standard New Business Policy Issue Policy will be issued within o days* of receipt Reissue Policy will be reissued within o days* of receipt New Business Transfers New business transfers will be mailed within o days* of receipt Transfer Follow-up Transfers will be follow-up on every o business days* or as otherwise determined effective based on the transfer company Agent Contracting All new agent contracts will be reviewed and all necessary background investigation reports ordered within o days* of receipt Appointment Processing Agent appointment(s) will be completed within o days* of receipt Commission Processing Process and mail checks on Friday of each week for all complete new business applications received by Thursday of that week Commission Inquiries Process and confirm within o business days* Premium Deposit Premium will be deposited the day it is received Policyholder Services Claims Processing Process and approve within o business days* of receipt Financial Transactions Process and confirm within o business days* of receipt Non-Financial Transactions Process and confirm within o business days* of receipt Customer Service Call Center Answer Rate o Abandon Rate o Average Hold Time o * Turnaround times are from the date of receipt of complete policyholder/beneficiary/Producer documentation or approval from Hancock when applicable. Further, the times given above are average times. 22 EX-10.5 7 ex10-5.txt EXHIBIT 10.5 EXHIBIT 10.5 AMENDMENT FOUR TO MARKETING AGREEMENT THIS FOURTH AMENDMENT TO THE MARKETING AGREEMENT is entered into this 19th day of November, 2002, and effective as indicated herein, by and between TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY, hereinafter referred to as "Transamerica," a North Carolina corporation, and LEGACY MARKETING GROUP, hereinafter referred to as "LMG," a California corporation. WHEREAS, Transamerica and LMG entered into a Marketing Agreement, dated May 29, 1998, as amended, hereinafter referred to as the "Agreement," wherein Transamerica and LMG agreed to jointly develop proprietary annuity products, wherein LMG would market such products on behalf of Transamerica, utilizing its nationwide distribution channels of duly licensed and appointed Producers in consideration of the fees as set forth in APPENDIX B of the Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and mutual promises hereinafter contained and other good and valuable consideration, the parties hereto do agree as follows: 1. Add to APPENDIX A, Policy Forms, as follows:
- ------------------------------------------------------------------------------------------- Product Name Policy Form Numbers Effective Dates - ------------------------------------------------------------------------------------------- SelectMark(R) Special Edition Series - ------------------------------------------------------------------------------------------- Selectmark(R)5 Special Edition T-P-SMSE-0801-5; 01/02/02 T-C-SMSE-0801-5 - ------------------------------------------------------------------------------------------- Selectmark(R)Special Edition Plus 4 T-C-SMSE-0402-10-4; 04/26/02 T-P-SMSE-0402-10-4 - ------------------------------------------------------------------------------------------- Selectmark(R)Special Edition Plus T-C-SMSE-0402-10-0; 05/06/02 T-P-SMSE-0402-10-0 - -------------------------------------------------------------------------------------------
Page 1 of 3 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. 2. Add to APPENDIX B, "Commission," as follows:
- --------------------- ---------------------- ---------------------------------------------------------------------------------- Compensation to Legacy Age Mandated Commission Reduction --------------------------------- (a) (b) (c) (d) (e) (f) (g) Commission Comm. % Trail Mkt. Override LMG Policy Form Numbers/ Reduces Reduction (Annual) Allow. Trail Product Name Effective Dates @ Age Com. - --------------------- ---------------------- ------------ --------------------------------- ---------- ---------- ------------- SelectMark(R) Special Edition Series - --------------------- ---------------------- ------------ --------- ------------- --------- ---------- ---------- ------------- SelectMark(R)5 T-P-SMSE-0801-5; o 80 o o o o o Special Edition T-C-SMSE-0801-5 - --------------------- ---------------------- ------------ --------- ------------- --------- ---------- ---------- ------------- SelectMark(R) T-C-SMSE-0402-10-0; o 80 o o o o o Special Edition Plus T-P-SMSE-0402-10-0 - --------------------- ---------------------- ------------ --------- ------------- --------- ---------- ---------- ------------- SelectMark(R) T-C-SMSE-0402-10-4; o 80 o o o o o Special Edition T-P-SMSE-0402-10-4 Plus 4 - --------------------- ---------------------- ------------ --------- ------------- --------- ---------- ---------- -------------
3. Appendix D, "Schedule of Authorized Personnel," is hereby amended to read as follows: Representing Legacy Marketing Group Lynda L. Regan, Chief Executive Officer R. Preston Pitts, President Steve Taylor, Chief Financial Officer Don Dady, Vice President of Marketing Representing Transamerica Ken Kilbane Ron Wagley Lana Ash Caroline Kirst 4. All other provisions in the Agreement not specifically amended above remain in effect and unchanged. Page 2 of 3 IN WITNESS HEREOF, the parties have hereto executed this Agreement. LEGACY MARKETING GROUP TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ Don Dady By: /s/ Ken Kilbane Title: Vice President Title: Vice President Witness: /s/ Jackie Petersen Witness: /s/ Caroline Kirst Date: November 21, 2002 Date: November 25, 2002 Page 3 of 3 EX-10.6 8 ex10-6.txt EXHIBIT 10.6 o CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SEC. EXHIBIT 10.6 AMENDMENT FIVE TO ADMINISTRATIVE SERVICES AGREEMENT THIS FIFTH AMENDMENT TO THE ADMINISTRATIVE SERVICES AGREEMENT is entered into this 19th day of November, 2002, and effective as indicated herein, by and between TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY, hereinafter referred to as "Transamerica," a North Carolina corporation, and LEGACY MARKETING GROUP, hereinafter referred to as "LMG," a California corporation. WHEREAS, Transamerica and LMG entered into an Administrative Services Agreement, dated May 29, 1998, as amended, hereinafter referred to as the "Agreement," wherein LMG agreed to provide certain Transamerica accounting and service functions in consideration of the fees as set forth in APPENDIX B of the Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and mutual promises hereinafter contained and other good and valuable consideration, the parties hereto do agree as follows: 1. Add to APPENDIX A, Policy Forms, as follows: - -------------------------------------------------------------------------------- Product Name Policy Form Numbers Effective Dates - -------------------------------------------------------------------------------- SelectMark(R) Special Edition Series - -------------------------------------------------------------------------------- Selectmark(R)5 Special Edition T-P-SMSE-0801-5; 01/02/02 T-C-SMSE-0801-5 - -------------------------------------------------------------------------------- Selectmark(R)Special Edition Plus 4 T-C-SMSE-0402-10-4; 04/30/02 T-P-SMSE-0402-10-4 - -------------------------------------------------------------------------------- Selectmark(R)Special Edition Plus T-C-SMSE-0402-10-0; 05/06/02 T-P-SMSE-0402-10-0 - -------------------------------------------------------------------------------- 2. Appendix B, "Processing Fees," Section 2, is hereby amended to read as follows: "2. Agent Appointment and Termination: o per agent appointment per state; o per agent termination per state, effective July 1, 2002." 3. Appendix C, "Services to be Provided, Section 1 Services, Clerical Processing of Agent Appointment and Termation with States" is hereby amended to read as follows: "Clerical Processing of Agent Appointment and Termination with States 1 of 3 Appointment 1. Review signed Producer Agreement for completeness and accuracy, input agent information into LCS system (LMG agent database). 2. Conduct Background Investigation on Producer, including credit report, NAIC RIRS inquiry, Vector Check, state licensing check (in all States in which Producer requests appointment), criminal check, and past employment check. 3. If Producer meets LMG/Transamerica hiring criteria, complete and mail all state required appointment forms or electronic transmission of appointment data to state. 4. Depending on state criteria, once appointment is effective, input appointment information into LCS system for renewal tracking, new business processing and weekly transmission to carrier. Termination 1. LMG will complete the contract termination for a Producer with Transamerica. LMG will update their database and mail to the Producer a letter communicating the Contract termination. LMG will send the Contract Termination letter to Transamerica C&L. Transamerica will determine if a state(s) Appointment termination is required. If Transamerica terminates the producer state(s) appointment Transamerica will send a letter informing the producer and will copy LMG. 2. Update LCS with appropriate appointment termination into LCS system to prohibit new business processing. Weekly transmission of agent termination information to carrier. Appointment Renewal Processing 1. LMG will forward to Transamerica within three (3) business days of a written request by Transamerica any Producer address that is required to be provided to a regulatory agency." 4. Appendix D, "Schedule of Authorized Personnel," is hereby amended to read as follows: Representing Transamerica "Authorized to modify this Agreement Ken Kilbane Ron Wagley Lana Ash Caroline Kirst 2 of 3 Authorized to provide day to day direction of LMG employees for items not covered in this Agreement Caroline Kirst Jeff Aaron Kristina Barker Nancy DeWitt Representing Legacy Marketing Group Lynda L. Regan, Chief Executive Officer R. Preston Pitts, President Steve Taylor, Chief Financial Officer Don Dady, Vice President of Marketing" 5. All other provisions in the Agreement not specifically amended above remain in effect and unchanged. IN WITNESS HEREOF, the parties have hereto executed this Agreement. LEGACY MARKETING GROUP TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY By: /s/ Ken Kilbane By: /s/ Don Dady Title: Vice President Title: Vice President Date: November 25, 2002 Date: November 21, 2002 Witness: /s/ Caroline Kirst Witness: /s/ Jackie Petersen 3 of 3 EX-10.7 9 ex10-7.txt EXHIBIT 10.7 EXECUTION COPY PURCHASE OPTION AGREEMENT THIS PURCHASE OPTION AGREEMENT (this "Agreement"), dated as of the 1st day of July, 2002, between SCOR Life U.S. Re Insurance Company, a Texas corporation ("SCOR") and Regan Holding Corp., a California corporation ("RHC"). WHEREAS, SCOR is the owner of 100% of the issued and outstanding shares of capital stock (the "IIC Stock") of Investors Insurance Corporation, a Delaware corporation ("IIC"); and WHEREAS, the parties hereto desire that RHC be granted the right to purchase the IIC Stock from SCOR on the terms and conditions set forth herein. W I T N E S S E T H : NOW, THEREFORE, in consideration of the foregoing, the covenants and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Grant of Option. SCOR hereby grants to RHC in exchange for the option fees (as defined in Section 4 below) the right, exercisable at any time prior to the termination of this Agreement pursuant to Section 10 hereof, to purchase or have assigned from SCOR all of SCOR's right, title and interest in and to the IIC Stock for the Purchase Price (as defined in Section 2 below) (the "Option"). In the event that RHC exercises the Option, SCOR and RHC (or its designee) shall enter into a definitive stock purchase agreement, on substantially the terms set forth in the form of stock purchase agreement set forth as Exhibit A to this Agreement (the "Stock Purchase Agreement"). The disclosure schedules to the Stock Purchase Agreement shall not reflect disclosures that would individually or in the aggregate have a Material Adverse Effect (as defined below), other than (i) disclosures reflected on the disclosure schedules to this Agreement, and (ii) such additional disclosures that reflect any change or effect that is caused by or that arises out of the business of IIC generated by LMG or a change in the market value of investments made in accordance with the investment guidelines previously approved by RHC. For purposes of this Agreement, the following terms shall have meanings as set forth below: "Affiliate" means, with respect to any Person, at the time in question, any other Person directly or indirectly controlling, controlled by or under common control with such Person. "Annuity Contract" means any annuity contract, funding agreement, guaranteed investment contract or similar contract, and forms with respect thereto, issued, assumed or reinsured by IIC. "Assets" shall mean all rights, titles, franchises and interests in and to every type of property, real, personal and mixed, including, but not limited to, investment assets, Intellectual Property, Contracts, licenses, leaseholds, privileges and all other assets whatsoever, tangible or intangible. "Books and Records" means all records, documents, databases, administrative records, claim records, policy files, sales records, files and records relating to regulatory matters or correspondence with regulatory authorities, reinsurance records, underwriting records, accounting records and all other records, data and information (in whatever form maintained) in the possession or control of IIC or IMG relating to the conduct of IIC's business. "Closing Agreement" means a written and legally binding agreement with a taxing authority. "Closing Date" has the meaning set forth in Section 2. "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. "Company Financial Statements" means the SAP Statements (as defined in Section 6(m) and the GAAP Statements (as defined in Section 6(m)). "Contract" shall mean a contract, agreement, guarantee, commitment, indenture, note, bond, mortgage, non-governmental license or assignment, whether written or oral. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Escrow Amount" means the amount deposited in an escrow account by RHC pursuant to Section 2.04 of the Stock Purchase Agreement. "GAAP" shall mean generally accepted accounting principles as used in the United States of America as in effect at the time any applicable financial statements were prepared or any act requiring the application of GAAP was performed. "Insurance Contract" means any Contract of insurance or reinsurance (and any certificates thereunder) and forms with respect thereto, including any Life Insurance Contract, accident and health insurance Contract or Annuity Contract, issued, assumed or reinsured by IIC. "Intellectual Property" means intellectual property rights, including, but not limited to, all inventions, patents and patent applications, trademarks, copyrights, copyright 2 registrations and applications, computer programs, technology, trade secrets, know-how, confidential information, proprietary processes and formulae. "Knowledge" shall mean (i) with respect to the knowledge of SCOR, the actual knowledge of John Brill, Chief Financial Officer of IIC and Yves Corcos, Chief Executive Officer of IIC; and (ii) with respect to the knowledge of RHC, the actual knowledge of R. Preston Pitts, President and Chief Operating Officer of RHC and G. Steven Taylor, Chief Financial Officer of RHC. "LMG" means Legacy Marketing Group. "Life Insurance Contract" means any life insurance Contract (including any group term life insurance contract), and forms with respect thereto, issued, assumed or reinsured by IIC. "Material Adverse Effect" shall mean a material adverse effect on (i) the ability of SCOR to perform in all respects its obligations under this Agreement or to consummate the transactions contemplated hereby; (ii) the business, financial condition or results of operations of IIC; or (iii) as to matters which can reasonably be quantified in economic terms, any effect which has resulted in or could be reasonably expected to result in, with respect to IIC, a diminution or decrease in the value of properties or assets, an increase in liabilities or obligations (whether accrued, contingent or otherwise), an adverse change in the cash flows, business or financial condition, or any combination thereof involving, individually or in the aggregate more than $1,000,000; provided, however, to the extent such effect results from any of the following, such effect shall not be considered a Material Adverse Effect: (1) any adverse change or effect that is caused by or that arises out of the business of IIC generated by LMG; (2) a change in the market value of investments made in accordance with the investment guidelines previously approved by RHC; (3) any adverse change or effect that is caused by or that arises out of conditions affecting the economy or securities markets generally; (4) any adverse change or effect that is caused by or that arises out of conditions affecting the insurance or financial services industries generally, including but not limited to circumstances, changes or effects in or affecting interest rates, securities markets, accounting principles, practices or conventions or applicable law (whether federal, state, local or foreign); or (5) any adverse change or effect resulting from the announcement or the pendency of the transactions contemplated hereby. "Permits" means all licenses, permits, orders, approvals and non-disapprovals, registrations, authorizations, qualifications and filings with and under all federal, state, local or foreign laws and governmental or regulatory bodies. "Permitted Liens" means each of the following: (a) Liens for Taxes, assessments and governmental charges or levies not yet due and payable which are not in excess of $50,000 in the aggregate or which are being contested in good faith, and for which adequate reserves have been established and recorded on the Company Financial Statements; (b) Liens imposed by law, including, without limitation, materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of 3 business; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) Liens related to deposits to secure policyholders' obligations as required by the insurance departments of the various states, each of which is listed on Schedule 1 hereto. "Person" means any individual, corporation, limited liability company, partnership, limited partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, governmental, judicial or regulatory body or other entity. "SAP" means statutory accounting practices prescribed or permitted by the insurance regulatory authorities of the applicable states. "Subsidiary" means, with respect to any Person, any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other Subsidiary) owns, directly or indirectly, more than 50% of the outstanding stock or other equity interest the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. "Taxes" (or "Tax" as the context may require) mean (i) all federal, state, county, local, foreign and other taxes (including, without limitation, income, profits, business and occupation, estimated, payroll, withholding, disability, workers compensation, unemployment insurance, social security, premium, stamp, customs, license, transfer, excise, sales, use, gross receipts, franchise, ad valorem, environmental, production, severance, capital and property taxes, duties, fees, levies or other governmental charges and assessments), and including any interest, additions to tax and penalties (civil or criminal) with respect thereto or in respect of a failure to comply with any requirement relating to such taxes or any Tax Return and any expenses incurred in connection with the determination, settlement or litigation of any tax liability and (ii) any liability of IIC for the payment of amounts with respect to payments of a type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group, or as a result of any obligation of IIC under any Tax Sharing Arrangement or Tax indemnity arrangement, in each case, whether imposed directly on a Person, as a transferee or successor, by contract or otherwise. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, including any amendment thereof and including, where permitted or required, combined, consolidated, unitary, or any similar tax returns for any group of Persons. "Tax Ruling" means a written ruling of a governmental entity relating to Taxes. "Tax Sharing Agreement" means any written or unwritten agreement, indemnity or other arrangement for the allocation or payment of Tax liabilities or payment for Tax benefits between IIC and any Person (other than any indemnity provided pursuant to this Agreement). 2. Purchase Price. Subject to the terms and conditions of the Stock Purchase Agreement, the Purchase Price to be paid by RHC to SCOR on the closing date of the 4 acquisition of IIC by RHC (the "Closing Date") shall be the "Purchase Price" set forth in Section 2.01 of the Stock Purchase Agreement. 3. Term of Option. (a) The Option shall initially be exercisable for a one-year period beginning on July 1, 2002 and ending on June 30, 2003. The Option shall be renewable by RHC for two additional one-year periods, for a total of three years. Each one-year period during which the Option is exercisable is referred to herein as an "Option Year." (b) RHC shall notify SCOR in writing of its intention to renew the Option for any subsequent Option Year no later than the May 1 prior to the end of the current Option Year (the first such renewal request to be delivered by May 1, 2003) (each such written request, an "Option Renewal Request"). In the event that RHC fails to provide an Option Renewal Request by the due date thereof, SCOR shall promptly notify RHC of such failure, and RHC will then have five (5) business days following the receipt of such notification to provide the Option Renewal Request. If the Option Renewal Request is not received by SCOR within the five (5) business days following notification, this Agreement shall terminate as of the last date of the current Option Year (June 30), and thereafter RHC shall have no rights hereunder. 4. Option Fees. (a) The annual, non-refundable option fee with respect to each Option Year shall be $656,846 (five percent (5%) of the capital and surplus of IIC as of June 30, 2002, as set forth on IIC's quarterly statutory financial statement) (the "Annual Option Fee"), payable as hereinafter provided. (b) The Annual Option Fee for the first Option Year shall be due and payable in three installments, as follows: the first installment in the amount of $250,000 has been paid, and the second and third installments, each in the amount of $203,423, shall be due and payable on November 1, 2002 and March 1, 2003, respectively. If applicable, the due dates for the payment of the Annual Option Fees for the second and third Option Years shall be July 1, 2003 and July 1, 2004, respectively. (c) In the event that RHC exercises the Option and the parties contemplate that the Closing Date will occur after the end of the third Option Year, Annual Option Fees, on the same terms as set forth in Section 4(a) above, shall be due and payable by RHC to SCOR with respect to the period from the end of the third Option Year to the Closing Date, prorated accordingly in the event that such period or periods do not equal full years. (d) In the event that any capital or surplus contribution is made to IIC by SCOR or an affiliate thereof prior to the Closing Date to support the business 5 generated by LMG, SCOR shall notify RHC in writing of its intention to increase IIC's capital and surplus no later than 30 days prior to the date of the capital and surplus contribution and such notice shall specify the date of the contribution. SCOR shall also notify RHC that such contribution has been made and RHC shall, within ten (10) business days after notification that such contribution has been made, pay to SCOR or such SCOR affiliate an annual option fee of five percent (5%) of such additional capital and surplus contribution, which fee shall be prorated to the period remaining in the current Option Year, and shall pay such option fee thereon in each subsequent Option Year, prorated accordingly in the event that such period or periods do not equal full years. The Annual Option Fees and each fee paid pursuant to this Section 4(c) are collectively referred to as the "Option Fees". (e) In the event that RHC fails to make any required option fee payment within five (5) business days after the later of (i) the due date thereof and (ii) the date RHC receives notice of its failure to make such required option fee payment, this Agreement shall terminate and thereafter RHC shall have no rights hereunder. (f) Except as provided in Section 10 hereof, the option fees payable pursuant to this Section 4 shall be non-refundable, including the Annual Option Fee paid with respect to the Option Year in which the Option is exercised. 5. Exercise of Option. Unless already terminated, RHC may exercise its rights under this Agreement at any time during the three years following the Option Inception Date by tendering two executed copies of the Stock Purchase Agreement to SCOR. SCOR shall execute and return one to RHC. Subject to the terms and conditions of the Stock Purchase Agreement, the Closing Date shall occur within two (2) years following the date the Option is exercised by RHC. The date the Option is exercised by RHC is referred to hereinafter as the "Option Exercise Date." Notwithstanding the foregoing, if at the time the Option is exercised IIC is commercially domiciled in California within the meaning of California Insurance Code Section 1215.13, RHC will not acquire the IIC Stock, vote the IIC Stock or otherwise acquire control over IIC without the prior approval of the California Insurance Commissioner under California Insurance Code Section 1215.2. 6. Representations and Warranties of SCOR. The representations and warranties of SCOR shall be true and correct in all respects when made and shall be true and correct at and as of the Option Exercise Date as if made at and as of such time. SCOR represents and warrants to RHC as follows: (a) Organization and Power of SCOR. SCOR is a corporation duly organized, validly existing and in good standing under the laws of Texas. SCOR has all requisite power and authority to own the IIC Stock and to carry on its business as now being conducted. (b) Organization and Standing of IIC; Corporate Power and Authority. IIC (i) is a corporation duly organized, validly existing and in good standing under the laws of Delaware; (ii) has the corporate power and authority to conduct its business as 6 currently conducted; and (iii) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business makes such qualification necessary, except as would not, individually or in the aggregate, have a Material Adverse Effect. (c) Authority Relative to Agreement. SCOR has full power and authority to enter into and perform its obligations under this Agreement and the Stock Purchase Agreement and to consummate the transactions contemplated herein and therein. The execution, delivery and performance of this Agreement and the Stock Purchase Agreement by SCOR has been duly authorized by all necessary corporate actions. This Agreement is, and when executed by SCOR the Stock Purchase Agreement will be, the legal, valid and binding obligations of SCOR enforceable in accordance with their respective terms, except as enforceability may be limited by equitable principles or by bankruptcy, fraudulent conveyance or insolvency laws affecting creditors' rights generally. (d) Title to IIC Stock. SCOR is the holder of record and beneficial owner of the IIC Stock free and clear of any lien, mortgage, pledge, security interest, encumbrance, claim charge or defect of title of any kind (any of the above, a "Lien"). SCOR is not party to any option, warrant, purchase right or other contract or commitment that could require the sale, transfer or other disposition of any shares of IIC capital stock or other equity interest in IIC (other than this Agreement). SCOR is not party to any voting trust, proxy or other agreement or understanding with respect to the voting of the IIC Stock. Upon consummation of the transactions contemplated hereby and by the Stock Purchase Agreement, RHC will acquire good, valid and marketable title to the IIC Stock, free and clear of any Lien. (e) Capital Structure. (i) The authorized capital stock of IIC consists of 1,000 shares of common stock, par value $3,400 per share, of which 750 shares, constituting the IIC Stock, are issued and outstanding. All shares of the IIC Stock are duly authorized, validly issued, fully paid, nonassessable and free of any preemptive rights. There is no outstanding option, warrant, right, subscription, call, unsatisfied preemptive right or other agreement or right of any kind to purchase or otherwise acquire any shares of capital stock of IIC from SCOR or IIC. There is no outstanding security of any kind convertible into such capital stock, and there is no outstanding contract or other agreement of SCOR or IIC or any other party, to purchase, redeem or otherwise acquire any outstanding shares of capital stock or any other equity security of IIC. (ii) Other than IMG, IIC does not have any Subsidiaries, nor does it directly or indirectly own any equity interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture, limited liability company or other business association or entity. 7 (iii) No indebtedness of IIC contains any restriction upon (x) the prepayment of any indebtedness of IIC, (y) the incurrence of indebtedness by IIC or (z) the ability of IIC to grant any Lien on the properties or assets of IIC. (f) No Conflict or Violation. The execution, delivery and performance of this Agreement and, when executed, the Stock Purchase Agreement, and the consummation by SCOR of the transactions contemplated hereby and thereby do not and will not (i) violate or conflict with any provision of its or IIC's constituent documents, (ii) result in the creation of any Lien on any of IIC's assets or properties, (iii) violate, conflict with or result in the breach of any of the terms of any contract to which it or IIC is a party or (iv) violate any order, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, or any agreement with, or condition imposed by, any governmental entity. (g) Consents and Approvals. No consent, approval, authorization, ruling, order of, notice to, or registration with, any governmental entity, shareholder or any person that is party to any material contract (a contract involving amounts in excess of $50,000 annually) with SCOR or IIC is required on the part of SCOR in connection with the execution and delivery of this Agreement or the consummation by SCOR of the transactions contemplated hereby, except that the approval of the Delaware Insurance Department and the approval of the California Insurance Commissioner (if at such time IIC is commercially domiciled in California within the meaning of California Insurance Code Section 1215.13), will be required prior to the closing of the purchase by RHC of the IIC Stock. (h) Broker's or Finder's Fee. No broker or finder has acted directly or indirectly for SCOR or IIC, nor has SCOR or IIC incurred any obligation to pay any brokerage or finder's fee or other commission in connection with the transactions contemplated by this Agreement or the Stock Purchase Agreement. (i) No Proceeding or Litigation. No claim, action, suit, arbitration, investigation or other formal proceeding is pending or, to the Knowledge of SCOR, threatened, which seeks to (i) enjoin, restrain or prohibit the transactions contemplated herein or (ii) impose limitations on the ability of SCOR to consummate the transactions contemplated herein. (j) Licenses and Permits. IIC has all Permits necessary for the ownership and operation of its Assets and Owned Real Property (as defined in Section 6(u)) and the conduct of its business as presently conducted, except where the failure to have such Permits would not have a Material Adverse Effect. IIC is in compliance with all applicable statutes, laws, regulations and orders of any governmental entity, except as would not have individually or in the aggregate a Material Adverse Effect. Schedule 6(j) hereto sets forth a true and complete list of all such Permits including the jurisdiction covered thereby and the types of insurance IIC is authorized to write thereunder. All of the Permits listed on Schedule 6(j) are valid and in full force and effect, except for any limitations or restrictions placed thereon by any Governmental 8 Entity as a result of the pendency of the transactions contemplated by this Agreement and the Purchase Option Agreement. Any such limitations or restrictions are listed on Schedule 6(j). There are no pending or, to the Knowledge of SCOR, threatened suits or proceedings with respect to the suspension, revocation, restriction, amendment or nonrenewal of any such Permit, and no event which (whether with notice or lapse of time or both) would result in a suspension, revocation, restriction, amendment or nonrenewal of any such Permit has occurred, except with respect to such Permits which, if suspended, restricted, amended or not renewed would not individually or in the aggregate have a Material Adverse Effect. (k) Compliance with Applicable Law. IIC is in compliance with all laws and regulations with respect to the conduct of its business in all jurisdictions in which it is presently conducting its business and has filed all reports, registrations, filings or submissions required to be filed with any governmental entity with respect to the conduct of its business in such jurisdictions, except where the failure to be in compliance with such laws or regulations, or the failure to file such reports, registrations, filings or submissions, would not have a Material Adverse Effect. (l) Reserves. The statutory reserves, and other liability amounts required by SAP to be determined using actuarial methods, in the SAP Statements (the "Reserves") were determined in accordance with commonly accepted actuarial standards applied in each case in a manner consistent with past practices, are fairly stated in accordance with sound actuarial principles, and are based on actuarial assumptions which are in accordance with those necessary to meet the minimum requirements of the insurance laws and regulations of the state of Delaware; provided, however, that RHC acknowledges that the mere fact that any such Reserve is, or is determined to be, inadequate shall not, in and of itself, constitute a breach of the representations and warranties set forth in this Section 6(l). (m) Financial Statements. (i) SCOR has previously made available to RHC true, complete and correct copies of the statutory financial statements of IIC, as filed with the Delaware Insurance Department (A) as of and for the years ended December 31, 2000 and 2001 and (B) as of and for the quarter ended June 30, 2002 (together with all notes, exhibits and schedules thereto (collectively, the "SAP Statements")). Except as set forth on Schedule 6(m), each of the SAP Statements presents fairly, in all material respects, the statutory financial condition of IIC 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 except as otherwise specifically noted therein. (ii) There are no liabilities, whether accrued, contingent, absolute, determined, determinable or otherwise (including, without limitation, any Liens other than Permitted Liens), of IIC other than (A) liabilities reflected or 9 reserved against in the June 30, 2002 SAP Statements, not heretofore discharged, (B) policyholder benefits payable or other liabilities arising after June 30, 2002 in the ordinary course of business consistent with past practice and in amounts consistent with past practice or (C) liabilities disclosed in Schedule 6(m). (iii) Since June 30, 2002, IIC has operated its business only in the usual, regular and ordinary course of business and since such date there has not occurred (A) any event or change that is reasonably likely to have individually or in the aggregate a Material Adverse Effect; (B) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of IIC's outstanding capital stock; (C) any employment contract entered into by IIC with any officer or employee, or any other Person; (D) any other material transaction out of the ordinary course of business. (n) Books and Records. The Books and Records are consistent with and accurately reflect the business of IIC in all material respects. (o) Actions Pending. Except as set forth on Schedule 6(o), there is no claim, action, suit, arbitration, investigation or other proceeding pending or, to the Knowledge of SCOR, threatened against IIC or any properties or rights of IIC, by or before any court, arbitrator or administrative or governmental entity, which could reasonably be expected to have a Material Adverse Effect. There is no judgment, decree, injunction or order of any governmental entity or arbitrator outstanding against IIC having, or which would reasonably be expected to have, a Material Adverse Effect on IIC. There is no claim, action, suit, arbitration, investigation or other proceeding pending or, to the Knowledge of SCOR, threatened against SCOR, by or before any court, arbitrator or administrative or governmental entity, which would reasonably be expected to have a Material Adverse Effect on IIC. (p) Employee Matters. (i) Schedule 6(p) contains a list of each material plan, program, arrangement and Contract which is maintained by IIC or under which IIC is obligated to make contributions and which provides benefits or compensation to or on behalf of employees or former employees of IIC, including, but not limited to, executive arrangements and "employee benefit plans" as defined in Section 3(3) of ERISA. All such material plans, programs, arrangements or Contracts are referred to herein as "Company Employee Plans." SCOR has made available to RHC the plan documents or other writing constituting each Company Employee Plan that has been reduced to writing (or a written description of any Company Employee Plan which has not been reduced to writing) and, if applicable, the trust, insurance contract or other funding arrangement, the ERISA summary plan description and the three most recent Forms 5500 financial statements and actuarial reports for each such Company 10 Employee Plan. SCOR has made available to RHC accurate copies of the most recent favorable determination letters for all Company Employee Plans qualified under Section 401(a) of the Code. (ii) There does not now exist, nor do any circumstances exist that would result in, any Company Controlled Group Liability (as defined below) that is reasonably likely to be a liability of IIC following the consummation of the transactions contemplated by this Agreement. "Company Controlled Group Liability" means any and all liabilities under (1) Title IV of ERISA, (2) Section 302 of ERISA, (3) Sections 412 and 4971 of the Code and (4) the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code. IIC has not (1) participated in any multiemployer plan (as defined in Section 3(37) of ERISA) or (2) incurred any liability to a multiemployer plan that has not been satisfied in full. (iii) Except as set forth on Schedule 6(p), IIC is not obligated to provide post-employment or retirement medical benefits or any other unfunded welfare benefits to or on behalf of any Person who is no longer an employee, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA. (iv) Each Company Employee Plan has at all times been maintained in all material respects, by its terms and in operation, in accordance with all applicable laws, and each of those Company Employee Plans which are intended to be qualified under Section 401(a) of the Code has at all times been maintained in all material respects, by its terms and in operation, in accordance with Section 401(a) of the Code. (v) Neither SCOR nor IIC is party to, or bound by, any collective bargaining agreement or other Contract with a labor union or labor organization and, to the Knowledge of SCOR, there are no organizational efforts with respect to the formation of a collective bargaining unit currently being made or threatened involving the employees of IIC. There is no unfair labor practice or labor arbitration proceeding or, to the Knowledge of SCOR, threatened against SCOR or IIC. SCOR and IIC are each in compliance, in all material respects, with all applicable laws regarding employment, consulting, employment practices, wages, hours and terms and conditions of employment. (vi) There have been no prohibited transactions within the meaning of Section 4975 of the Code or Section 406 of ERISA with respect to the Company Employee Plans for which an exemption is not available, no fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any Company Employee Plan, and no action, suit, proceeding, hearing or investigation with respect to any Company Employee Plan (other than routine claims for benefits) is pending or, to the Knowledge of SCOR, threatened. 11 (vii) Any Company Employee Plan (or liability related thereto) is by its terms able to be amended or terminated by IIC. (viii) All accrued contributions, premiums and other payments that would be (without regard to the transactions contemplated hereby), but are not yet, due from IIC to (or under) any Company Employee Plan have been adequately and properly provided for on the Company's financial statements. The funding method used in connection with each Company Employee Plan which is subject to the minimum funding requirements of ERISA is acceptable under law, and the actuarial assumptions used in connection with funding each such plan are reasonable. (ix) All contributions and payments required by law or any Company Employee Plan agreement to have been made under any such Company Employee Plan (without regard to any waivers granted under Section 412 of the Code to any fund, trust, or account established thereunder or in connection therewith) have been made or will have been made by the due date thereof. (x) The consummation of the transactions contemplated by this Agreement will not (1) entitle any current or former employee of IIC to severance pay, unemployment compensation, retention pay or any other payment from IIC, except as expressly provided in this Agreement, or (2) accelerate the time of payment or vesting, or increase the amount of compensation from IIC due to any such current or former employee of IIC. (xi) IIC does not have any "leased employees" within the meaning of Code Section 414(n). (q) Insurance Business. All policy forms issued by IIC prior to July 1, 2002, and all amendments, applications, brochures, illustrations and certificates pertaining thereto have, where required by applicable law, been approved by all applicable governmental entities or filed with and not objected to by such governmental entities within the period provided by applicable law for objection, subject to such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. All such forms comply in all material respects with, and have been administered in all material respects in accordance with, applicable law. Any rates of IIC which are required to be filed with or approved by any governmental entity have been so filed or approved and the rates used by IIC conform in all material respects thereto. For the avoidance of doubt, the representations and warranties made by SCOR in this Section 6(q) shall not apply to policy forms (or amendments, applications, brochures, illustrations or certificates pertaining thereto) or rates that are jointly developed or produced by, or are related to business that is jointly developed or produced by, RHC and SCOR (including IIC). SCOR has made available to RHC copies of all financial examination reports of the Delaware Department of Insurance with respect to IIC which have been completed and issued since January 1, 1999. 12 Except as set forth in Schedule 6(q), since January 1, 1999, no violations material to the financial condition of IIC have been asserted in writing by the Delaware Department of Insurance, other than any violation which has been cured or otherwise resolved to the satisfaction of the Delaware Department of Insurance or which is no longer being pursued by the Delaware Department of Insurance following a response from IIC. (r) Reinsurance. Schedule 6(r) contains a list of all reinsurance treaties and agreements, including retrocessional agreements, to which IIC is a party or under which it has any existing rights, obligations or liabilities, and Schedule 6(r) contains a list of all reinsurance treaties and agreements, including facultative certificates, between SCOR or any of SCOR's Affiliates, on the one hand, and IIC, on the other hand. All reinsurance treaties and agreements set forth on Schedule 6(r) are in full force and effect as of the date hereof and, to the Knowledge of SCOR, no party thereto is in default in any material respect as to any provision thereof; and, except as set forth on Schedule 6(r) no such agreement contains any provision providing that any party thereto may terminate such agreement by reason of the transactions contemplated by this Agreement. (s) Contracts. (i) Schedule 6(s) contains a true and complete list of all the following Contracts (true and complete copies of all such written Contracts having been made available to RHC), currently in force, to which IIC is a party or by which any Assets of IIC are or may be bound, as such Contracts may have been amended as of the date hereof: (1) all Contracts with (A) SCOR or any of its Affiliates, (B) any director, officer or employee of IIC or SCOR or its Affiliates, (C) any Affiliate of any director, officer or employee of IIC or SCOR or its Affiliates, or (D) any Person, the equity interests of which are more than 5% owned by any director, officer or employee of IIC or SCOR or any of its Affiliates, other than any such Contracts that will terminate or expire without further liability to IIC prior to or as of the Closing; (2) all Contracts providing for employment of any individual, whether or not such Person is considered an employee or independent contractor and all Contracts providing for specific severance benefits or parachute payments; (3) all Contracts with any Person including, but not limited to, any governmental entity, containing any provision or covenant (A) limiting the ability of IIC to engage in any line of business, to compete with any Person, to do business with any Person or in any location or to employ any Person or (B) limiting the ability of any Person to compete with or obtain products or services from IIC; 13 (4) all Contracts relating to the borrowing of money by IIC or the direct or indirect guarantee by IIC of any obligation of any Person for borrowed money or other financial obligation of any Person or any other liability of IIC in respect of indebtedness for borrowed money or other financial obligations of any Person, including, but not limited to, lines of credit or similar facilities and any Contract relating to or containing provisions with respect to any obligation to satisfy any financial obligation or covenants; (5) all Contracts (other than Insurance Contracts and other Contracts entered into in the ordinary course of business) with any Person containing any provisions or covenant relating to the indemnification or holding harmless by IIC of any Person which is reasonably likely to result in a liability of IIC of fifty thousand dollars ($50,000) or more; (6) all leases or subleases of real property used in the conduct of the business of IIC and all other leases, subleases or rental or use Contracts providing for annual rental payments to be paid by or on behalf of IIC, involving, in the case of each of the foregoing, annual payments in excess of fifty thousand dollars ($50,000); (7) all Contracts relating to the future disposition (including, but not limited to, restrictions on transfer or rights of first refusal) or acquisition of any interest in any business enterprise, and all Contracts relating to the future disposition of a material portion of the Assets of IIC other than, in the case of each of the foregoing, any investment asset or interest in any material business enterprise or Assets to be acquired or disposed of in the ordinary course of business; (8) all Contracts or arrangements (including, but not limited to, those relating to allocations of expenses, personnel, services or facilities, management contracts and appointments as attorneys-in-fact) between or among IIC and Affiliates of IIC; (9) all outstanding proxies (other than routine proxies in connection with annual meetings or guarantee associations), powers of attorney or similar delegations of authority of IIC to an unrelated Person, other than those entered into in the ordinary course of business; (10) all other Contracts (other than (A) Insurance Contracts, (B) Contracts otherwise required to be set forth on Schedule 6(r), Schedule 6(s), Schedule 6(w) or Schedule 6(z) and (C) other Contracts which are expressly excluded under any other subsection of this Section 6(s) that involve or are reasonably likely to involve the payment pursuant to the terms of such Contracts by or to IIC of fifty thousand dollars ($50,000) 14 or more; (11) any partnership, joint venture, joint marketing, strategic alliance, tenancy in common or similar Contracts; and (12) any Contracts that (A) require IIC to purchase or sell any product or service exclusively from or to any Person, (B) prohibit IIC from selling products or services to any Person, (C) require IIC to pay for any product or service regardless of whether or not IIC avails itself of such product or service. (ii) Each of the Contracts listed on Schedule 6(s), and each material Contract to which IIC is a party, is in full force and effect and constitutes a legal, valid and binding obligation of IIC, to the extent that it is party thereto, and, to the Knowledge of SCOR, of each other Person that is a party thereto. Except as set forth on Schedule 6(s), IIC is not, and to the Knowledge of SCOR, no other party to such Contract is, in material violation, breach or default of any such Contract or, with or without notice or lapse of time or both, would be, in material violation, breach or default of any such Contract, except for any violation, breach or default which would not have Material Adverse Effect. (t) Assets. Except as set forth on Schedule 6(t) and except for Assets disposed of since June 30, 2002 in the ordinary course of business: (i) IIC has good title to all Assets that are disclosed or otherwise reflected in the SAP Statements for such year and all Assets acquired thereafter, and all such Assets are owned by IIC, free and clear of all Liens, other than Permitted Liens; and (ii) IIC owns, has a valid leasehold interest in or has a valid right under contract to use, all personal property that is material to the conduct of its business, free and clear of all Liens, other than Permitted Liens. (u) Real Property. Schedule 6(u) sets forth a complete and correct list of (i) all real property owned by IIC (together with all improvements or fixtures thereon owned by IIC, the "Owned Real Property") and (ii) all real property in which IIC has a leasehold interest (the "Leased Real Property") that is material to the conduct of the business of IIC. IIC has good and marketable fee simple title to the Owned Real Property free and clear of all Liens, other than Permitted Liens. IIC has a valid leasehold interest in the Leased Real Property. (v) Environmental Matters. There is no legal, administrative, or other proceeding, claim or action of any nature seeking to impose on IIC any liability relating to the release of hazardous substances as defined under any local, state or federal environmental statute, regulation or ordinance including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, pending or, to the Knowledge of SCOR, threatened against IIC; to the Knowledge of SCOR, there is no reasonable basis for any such proceeding, claim or 15 action; and to the Knowledge of SCOR, IIC is not subject to any agreement, order, judgment, or decree by or with any court, Governmental Entity or third party imposing any such environmental liability on IIC. (w) Insurance. Schedule 6(w) sets forth a list of all policies and binders of fire, liability, product liability, workers' compensation, vehicular and other insurance covering IIC as of the date of this Agreement, other than reinsurance treaties and agreements listed on Schedule 6(r). The policies and binders listed on Schedule 6(w) are valid and enforceable in accordance with their terms and are in full force and effect (assuming no default by any such insurer). (x) Taxes. (1) (i) All Tax Returns required to be filed by or with respect to IIC (the "Company Tax Returns") have been or will be timely filed (taking into account permitted extensions) with the appropriate Governmental Entity in the manner prescribed by Applicable Law; (ii) the Company Tax Returns, in all material respects, are true, complete and have accurately disclosed and will be true, complete and accurately disclose, all liability for Taxes of IIC required to be shown thereon for the periods covered thereby; (iii) IIC has timely paid (or there has been paid on its behalf) all Taxes with respect to IIC shown as due and payable on any Company Tax Return and has timely paid (or there has been paid on its behalf) all Taxes with respect to IIC, whether or not shown on any Company Tax Return, in each case, in the manner prescribed by Applicable Law; (iv) no Liens (other than Permitted Liens) for Taxes exist on IIC's Assets; (v) IIC has not requested nor is it currently the beneficiary of any extension of time within which to file any Company Tax Return; (vi) as of the date of the SAP Statements, to the extent that Tax liabilities and assessments have accrued but not yet become payable, such Tax liabilities and assessments have been reflected as liabilities in accordance with SAP on the SAP Statements and adequate reserves have been established for the payment thereof and no difference exists between the amount recorded on the SAP Statements and the amount of such Tax liability as determined by the appropriate Governmental Entity; (vii) no written claim has ever been made by a Governmental Entity in a jurisdiction where IIC does not file Company Tax Returns that IIC is or may be subject to taxation by that jurisdiction; (viii) there are no actions, suits, investigations, audits, claims administrative or court proceedings, or assessments ("Audits") pending or proposed or, threatened with respect to Taxes of IIC; (ix) all deficiencies asserted or assessments made as a result of any examination of the Company Tax Returns have been paid in full; (x) there are no Tax Rulings, request for Tax Rulings, or Closing Agreements relating to IIC or the Seller Consolidated Group which could affect IIC's liability for Taxes; (xi) as a result of a change in accounting method IIC will not be required to include any adjustment under Section 481(c) of the Code (or any corresponding provision of foreign, state or local Tax law) in taxable income for any Tax period; (xii) as a result of any Closing Agreement, 16 IIC will not be required to include any item of income in, or exclude any Tax Credit or item of deduction from, any taxable period (or portion thereof); (xiii) there are no intercompany obligations between IIC on the one hand, and any other member of the affiliated group of which SCOR is the common parent, within the meaning of Section 1504(a) of the Code (the "Seller Consolidated Group") on the other hand and IIC has not engaged in any transaction with SCOR or any of its Affiliates which would result in the recognition of income by IIC with respect to such transaction (including, but not limited to, Code sections 355 and 1502); (xiv) no power of attorney currently in force has been granted with respect to any matter relating to the Taxes of IIC; (xv) no indebtedness of IIC is "corporate acquisition indebtedness" within the meaning of Code Section 279(b); (xvi) no property of IIC is property that IIC or any party to this transaction is or will be required to treat as being owned by another Person pursuant to the provisions of Code Section 168(f)(8) (as in effect prior to its amendment by the Tax Reform Act of 1986) or is tax-exempt use property within the meaning of Code Section 168; and (xvii) IIC has not (A) filed a consent pursuant to Code Section 341(f) or (B) agreed to have Code Section 341(f)(2) apply to any disposition of a subsection (f) asset (as such term is defined in Code Section 341(f)(4)). (2) IIC is a member of the Seller Consolidated Group , and such affiliated group files a consolidated Federal Income Tax Return. IIC has not at any time been a member of an affiliated group filing a consolidated Federal Income Tax Return other than the Seller Consolidated Group. Except with respect to any liability under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) that directly results from IIC being a member of the Seller Consolidated Group, IIC will not have any liability for Taxes of any Person other than IIC (i) as a transferee or successor, (ii) by contract (including any Tax Sharing Agreements) or (iii) otherwise. (3) IIC has complied with all applicable laws relating to the payment and withholding of Taxes and has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any Person. (4) Schedule 6(x) sets forth the amount of any net operating loss, net capital loss, unused credit, unused foreign tax, or excess charitable contribution allocable to IIC as of June 30, 2002. (5) There are no disputes or claims concerning any material Tax liability of IIC. Schedule 6(x) lists all Company Tax Returns filed on or after January 1, 1999 that have been the subject of an Audit, and indicates all Company Tax Returns that currently are the subject of an Audit. SCOR has delivered or made available to RHC correct and complete copies of all Income Tax Returns and examination reports and all other relevant written materials with respect to any Audit which pertain to IIC. 17 (6) IIC has not executed any waiver or comparable consent to any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (7) IIC (i) has not made any payments, (ii) is not obligated to make any payments, and (iii) is not a party to, any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. (8) IIC does not have an existing policyholder surplus account as defined in Code Section 815(e). (y) Products. All Life Insurance Contracts issued, assumed, modified, exchanged or sold by IIC which are subject to Sections 101(f) or 7702 of the Code qualify (and have qualified since issuance) as "life insurance contracts" within the meaning of Sections 101(f) or 7702(a) of the Code, as applicable. No Life Insurance Contract issued, assumed, modified, exchanged or sold by IIC is a "modified endowment contract" within the meaning of Section 7702A of the Code, except for those Life Insurance Contracts that IIC is administering as modified endowment contracts and with respect to which IIC has notified the policyholder, before the date hereof, that the contract constitutes a modified endowment contract. IIC has not issued or assumed any Insurance Contracts (i) as, or in connection with, plans that are intended to qualify under sections 401, 403, 408 or 457 of the Code, (ii) that are subject to Section 817 of the Code or (iii) with respect to individual or group retirement or deferred compensation plans or arrangements. (z) Technology and Intellectual Property. (i) IIC owns or possesses, or has enforceable rights or licenses to use, the Intellectual Property that is necessary to carry on its business as presently conducted (each, an "Intellectual Property Right"), except where the failure to so own or possess, or have enforceable rights or licenses would not have a Material Adverse Effect. Neither IIC nor any of its Subsidiaries has received any written notice of any infringement of the rights of others with respect to any Intellectual Property Right that, if such infringement is determined to be unlawful, would have a Material Adverse Effect on IIC. Except as set forth in Schedule 6(z), the execution and delivery of this Agreement by SCOR, and the consummation of the transactions contemplated hereby, will neither cause IIC or any of its Subsidiaries to be in violation or default under any licenses, sublicenses or other agreements to which IIC or any of its Subsidiaries is a party and pursuant to which IIC or its Subsidiaries is authorized to use any Intellectual Property Right, nor entitle any other party to any such license, sublicense or agreement to terminate or modify such license, sublicense or agreement, except where any such violation, default, termination or modification would not have a Material Adverse Effect. (ii) No use of any Intellectual Property Right by IIC or any of its Subsidiaries infringes any rights of any third party or (except for the payment of licensing fees) requires any payment for the use of any proprietary rights or rights in 18 Intellectual Property or technology owned by any third party. 7. Representations and Warranties of RHC. The representations and warranties of RHC shall be true and correct in all respects when made and shall be true and correct at and as of the Option Exercise Date and the Closing Date as if made at and as of such time. RHC represents and warrants to SCOR as follows: (a) Organization and Power. RHC is a corporation duly organized, validly existing and in good standing under the laws of California. RHC has all requisite power and authority to carry on its business as now being conducted. (b) Authority Relative to Agreement. RHC has full power and authority to enter into and perform its obligations under this Agreement and the Stock Purchase Agreement and to consummate the transactions contemplated herein and therein. The execution, delivery and performance of this Agreement and the Stock Purchase Agreement by RHC has been duly authorized by all necessary corporate actions. This Agreement is, and when fully executed the Stock Purchase Agreement will be, the legal, valid and binding obligations of RHC enforceable in accordance with their respective terms, except as enforceability may be limited by equitable principles or by bankruptcy, fraudulent conveyance or insolvency laws affecting creditors' rights generally. (c) No Conflict or Violation. The execution, delivery and performance of this Agreement and, when fully executed, the Stock Purchase Agreement, and the consummation by RHC of the transactions contemplated hereby and thereby do not and will not (i) violate or conflict with any provision of its constituent documents, (ii) result in the creation of any Lien on any of its assets or properties, (iii) violate, conflict with or result in the breach of any of the terms of any contract to which it is a party or (iv) violate any order, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, or any agreement with, or condition imposed by, any governmental entity. (d) Consents and Approvals. No consent, approval, authorization, ruling, order of, notice to, or registration with, any governmental entity or any person that is party to any material contract (a contract involving amounts in excess of $50,000 annually) with RHC is required on the part of RHC in connection with the execution and delivery of this Agreement or the consummation by RHC of the transactions contemplated hereby, except that the approval of the Delaware Insurance Department and the approval of the California Insurance Commissioner (if at such time IIC is commercially domiciled in California within the meaning of California Insurance Code Section 1215.13), will be required prior to the closing of the purchase by RHC of the IIC Stock. (e) Broker's or Finder's Fee. No broker or finder has acted directly or indirectly for RHC, nor has RHC incurred any obligation to pay brokerage or finder's fees or other commissions in connection with the transactions contemplated by this 19 Agreement or the Stock Purchase Agreement. (f) No Proceeding or Litigation. No claim, action, suit, arbitration, investigation or other formal proceeding is pending or, to the knowledge of RHC, threatened, which seeks to (i) enjoin, restrain or prohibit the transactions contemplated herein or (ii) impose limitations on the ability of RHC to consummate the transactions contemplated herein.. 8. Covenants of the Parties. During the term of this Agreement through the Closing Date: (a) RHC shall have the right to audit the balance sheet supporting IIC's total capital and surplus as of June 30, 2002. SCOR shall make a contribution to IIC's capital and surplus if the foregoing audit results in any material adjustment (any adjustment exceeding $250,000) to IIC's balance sheet, which contribution shall be in the amount of the material adjustment. (b) RHC shall have the right to audit the books of IIC so as to enable RHC to prepare GAAP financial statements for IIC. (c) SCOR shall cause IIC to be operated in the ordinary course of business and shall communicate to RHC all material information regarding IIC. Until the Closing Date, SCOR shall cause IIC to provide to RHC usual and customary information to enable RHC to perform its due diligence review of IIC, as if RHC were an unaffiliated third party seeking such information. (d) RHC shall have the right, through its officers, employees, consultants, accountants, actuaries, attorneys and other designated agents and representatives, upon reasonable notice, during normal business hours and in a manner so as not to disrupt the orderly conduct of business of IIC, to (i) inspect (and make copies of) such of the Books and Records as RHC may reasonably request; and (ii) make such reasonable investigation of the assets, liabilities, financial condition, properties, business and operations of IIC as RHC may reasonably deem necessary or appropriate, and for such purposes to have access to the Books and Records and contracts and facilities of IIC, and access to the personnel of IIC, SCOR and SCOR's Affiliates that perform work for, or have knowledge of facts relating to, IIC (including the employees), including an examination of the corporate records and minute books, financial statements and projections, insurance department filings, reports and examinations, summaries of pending litigation, tax returns, accounting and actuarial methods, business plans and prospects, in each case wherever located, of IIC, provided, that RHC will take reasonable steps to maintain the confidentiality of all Books and Records. SCOR shall, and shall cause IIC and SCOR's Affiliates, and their respective officers, employees (including the employees), agents and representatives, including their respective counsel and independent public accountants, to cooperate fully with RHC in connection with such investigation, access and examination. 20 (e) At least 30 days prior to entering into any such contract or making any such commitment, SCOR shall provide notice to RHC of IIC's intent to enter into any contract or commitment that by its terms extends beyond one year and is either not cancelable by IIC or is cancelable by IIC with a penalty (other than insurance contracts with respect to which LMG acted as agent or to which LMG or RHC is a party). RHC shall have the right to notify SCOR of its objection to any such contracts or commitments in its reasonable discretion within thirty (30) days of its receipt of notice from SCOR or IIC of IIC's intent to enter into any such contract or commitment; provided, however, that the ultimate decision of whether to enter into any such contract or commitment shall rest with IIC. If the transactions contemplated by this Agreement and the Stock Purchase Agreement are consummated, SCOR agrees to indemnify RHC or adjust the Purchase Price in the Stock Purchase Agreement for any losses to IIC or RHC caused by any contract or commitment that IIC enters into as to which RHC has provided a timely objection as provided in this Section 8(e). (f) At least 30 days prior to IIC making any capital expenditures in excess of $100,000 in the aggregate (except as required to support the business generated by LMG), SCOR shall notify RHC of such proposed capital expenditure and RHC shall have the right to notify SCOR of its objection to such capital expenditure; provided, however, that the ultimate decision of whether to make any such capital expenditure rests with IIC. If the transactions contemplated by this Agreement and the Stock Purchase Agreement are consummated, SCOR agrees to indemnify RHC or adjust the Purchase Price in the Stock Purchase Agreement for any losses to IIC or RHC caused by any capital expenditure that IIC makes as to which RHC has provided a timely objection as provided in this Section 8(f). (g) SCOR covenants and agrees that it shall not cause IIC to pay dividends, distributions, loans, capital or extraordinary payments to SCOR, or to make any other payments by IIC to SCOR other than payments in the ordinary course of business by IIC to SCOR (including but not limited to, payments under existing reinsurance, management service or tax allocation agreements), which shall be permissible; provided, however, the parties acknowledge that the ultimate decision to make any such dividends, distributions, loans or extraordinary payments rests with the board of directors of IIC. Copies of any such intercompany agreements shall be made available to RHC. The parties agree that the Purchase Agreement will provide for adjustments to the Purchase Price for any dividends, distributions, loans, capital or extraordinary payments made by IIC. (h) SCOR shall provide prompt notice to RHC of any significant NAIC, state insurance department or other governmental (including judicial) actions or issues relating to IIC. SCOR shall provide to RHC a copy of any correspondence requiring action on the part of IIC. (i) SCOR shall not and SCOR shall cause IIC to not engage in any transaction with any independent producer group with respect to any annuities or life insurance products which transaction is similar to the Marketing Agreement dated as 21 of June 5, 2002 between LMG and IIC; provided, however, the parties acknowledge that the ultimate decision of IIC to enter into any such contracts rests with the board of directors of IIC. If the transactions contemplated by this Agreement and the Stock Purchase Agreement are consummated, SCOR agrees to indemnify RHC or make an appropriate adjustment to the Purchase Price pursuant to the terms of the Stock Purchase Agreement for any current or projected future losses to IIC or RHC caused by any contract or commitment that IIC enters into as to which RHC has provided a timely objection as provided above. SCOR will maintain strict confidentiality with respect to any products jointly developed with RHC. (j) RHC agrees that IIC shall be permitted to sell its non-RHC third party administrator ("TPA") activities to an unaffiliated third party, and in connection therewith employees working for the TPA may cease to be employees of IIC; provided, however, that such sale shall be at a price not less than book value, and IIC shall have no post-closing liabilities to the TPA or the purchaser thereof. (k) SCOR shall give RHC 30 days advance notice of any proposed new non-RHC related TPA agreements that involve Investors Marketing Group ("IMG") or IIC. RHC shall have the right to review any such agreements and object to any such agreements involving IIC; provided, however, the parties acknowledge that the ultimate decision to enter into any such agreements rests with the board of directors of IIC. RHC shall also have the right to request that IIC transfer IMG at its statutory book value as of June 30, 2002 (current value) with no after-tax gain or loss to IIC based on current value, to another SCOR company; provided, however, the parties acknowledge that the ultimate decision to make any such transfer rests with the board of directors of IIC. SCOR agrees to provide RHC with indemnification against any liabilities resulting from any such TPA agreements or adjust the Purchase Price pursuant to the terms of the Stock Purchase Agreement. (l) SCOR shall provide RHC with statutory financial information that shows separate reporting lines for (i) business produced through RHC or its subsidiaries including LMG and (ii) non-RHC produced business. If the transactions contemplated by this Agreement and the Stock Purchase Agreement are consummated, SCOR agrees to indemnify RHC or adjust the Purchase Price in the Stock Purchase Agreement for any losses to RHC or IIC resulting from the non-RHC produced business. (m) SCOR shall provide to RHC, at least quarterly, a standard package of financial reports concerning IIC, which shall include (i) statutory financial statements, (ii) reserve valuation and cash flow testing detail, (iii) investment reports and (iv) any relevant and available information regarding the business produced by RHC or its subsidiaries including LMG. (n) RHC will provide to SCOR a formal acknowledgment of the current investment guidelines for IIC, and any revisions thereto. RHC understands and agrees that the investment advisor for SCOR will continue to act with discretionary authority 22 under the approved investment guidelines to construct comparable investment portfolios between SCOR and IIC, it being understood that investments allocated to IIC shall be representative of SCOR's total investment portfolio as to yield, credit rating and risk. SCOR shall advise RHC of all investment review conclusions. From and after the Option Exercise Date, on a prospective basis, RHC may recommend to SCOR the exclusion or further limitation of any approved asset class in the investment guidelines; provided, however, the ultimate investment decisions shall rest with the board of directors of IIC. To the extent such recommendations are accepted by SCOR, RHC must then accept any impact that this action has on the pricing of the underlying policies or interest credited to the policyholders. On a prospective basis, RHC may also provide SCOR with a specific list of individual securities that RHC does not wish to be purchased for the portfolios. On a retrospective basis, however, both SCOR and RHC will accept the financial impact of the securities purchased for the portfolios and will work together to optimize the economic results. (o) RHC shall have the right to participate in IIC's Investment and Product Management Committee decisions with respect to interest rate setting, product design and pricing, and asset / liability modeling. SCOR and RHC acknowledge and agree that (i) they shall endeavor to reach consensus with respect to the matters in the previous sentence and (ii) ultimate decision making authority shall rest with IIC. (p) SCOR agrees to provide or find capacity for RHC-produced products meeting SCOR's return on investment objectives either in IIC or another insurance company; provided that the ultimate decision of IIC to underwrite any such products shall rest with the board of directors of IIC. SCOR will provide capacity for $1.0 billion of annual production and will use its best efforts to provide or find capacity for amounts in excess of $1.0 billion annually. (q) SCOR agrees to reinsure IIC business produced by RHC or its subsidiaries (including LMG) (i) on an automatic 80% quota share coinsurance basis pursuant to one or more treaties with terms that would be found in agreements negotiated on an arm's length basis, and (ii) on an additional automatic 10% quota share funds withheld coinsurance basis pursuant to one or more treaties under which SCOR will provide IIC with surplus in exchange for an annual expense and risk charge of 2% of surplus provided until the Closing Date, after which the expense and risk charge shall be adjusted to a market rate as determined by a nationally recognized actuarial firm, but in no event in excess of 6% per year. Beginning on the Closing Date, IIC shall have the right to require recapture of the 10% quota share funds withheld treaties pursuant to their terms. In addition, SCOR agrees (subject to receipt of regulatory approval or non-disapproval) to amend all IIC reinsurance treaties (including those covering IIC business not produced by RHC or its subsidiaries) as of the Closing Date to include (i) a DAC tax provision designed to achieve equitable allocation between the parties and (ii) a provision for reinsurer participation in state guaranty fund assessments. SCOR will not otherwise amend such reinsurance treaties and will cause IIC to maintain such reinsurance treaties in force prior to the Closing Date; provided, however, the parties acknowledge that the ultimate decision of IIC to 23 amend or terminate such treaties rests with the board of directors of IIC. Notwithstanding the preceding sentence, SCOR may at its sole option cause the management of IIC to amend or novate reinsurance treaties covering business not produced by RHC or its subsidiaries provided that any such amendment or novation does not have an adverse effect on IIC. If the transactions contemplated by this Agreement and the Stock Purchase Agreement are consummated, SCOR agrees to indemnify RHC or make an appropriate adjustment to the Purchase Price for any current or projected future losses to IIC caused by any amendment, novation or termination of any reinsurance treaty between SCOR or its Affiliates and IIC for which SCOR has not obtained the prior written consent of RHC. (r) SCOR will use its best efforts to maintain IIC's A.M. Best rating at its current level or at "A-" or better. 9. Cure Period. Except as provided in Sections 3(b) and 4(e), if either party violates any provision of this Agreement, the violating party shall have forty-five (45) calendar days from receipt of written notice of the violation from the other party to cure the violation to the satisfaction of the other party. 10. Termination. (a) In the event that there is a material breach of Seller's representations and warranties or covenants hereunder, which breach is not cured in accordance with Section 3(b) or 9, or in the event that the A.M. Best rating of IIC falls below A- prior to the Closing Date, RHC shall be entitled to terminate this Agreement (and the Stock Purchase Agreement, if the Stock Purchase Agreement has been executed by the parties), in which case SCOR shall refund to RHC the Annual Option Fees and any other Option Fees paid to SCOR pursuant to Section 4 of this Agreement since the Option Inception Date, and the Escrow Amount, if it has been paid, with interest at a rate of seven percent (7%) per annum on each such Option Fee and the Escrow Amount, from the date each such payment was made. (b) In the event of a change in the ultimate control of SCOR prior to the Closing Date (a change in ownership of stock resulting in over fifty percent (50%) of the voting power of SCOR Life Re being held by an unaffiliated third party) or a breach by SCOR prior to the Closing Date of its obligation to pursue the sale of product or support of capital, RHC may terminate this Agreement (and the Stock Purchase Agreement, if the Stock Purchase Agreement has been executed by the parties), in which case SCOR shall refund to RHC all Option Fees paid to SCOR since the Option Inception Date, and the Escrow Amount, if it has been paid, with interest at a rate of seven percent (7%) per annum on each such Option Fee and the Escrow Amount from the date each such payment was made. (c) In the event of a material change in the senior management of RHC (which, for the avoidance of doubt, shall mean that neither Lynda Regan nor Preston Pitts hold senior management positions at RHC, or if LMG is acquired by a competitor 24 to SCOR), RHC shall so notify SCOR in writing. For purposes of this Section 10(c) "a competitor to SCOR" shall mean an entity the principal business of which is the reinsurance of life insurance products. SCOR may terminate this Agreement within ninety (90) days from receipt of such notice, in which case it shall provide RHC six (6) months from the date of SCOR's receipt of such notice to exercise the Option. (d) In the event of termination by SCOR of the marketing or administrative agreements between IIC and RHC or LMG as a result of an uncured material breach thereof by RHC or LMG (including, without limitation, a breach by RHC or LMG as a result of market conduct issues), SCOR may terminate this Agreement and retain all Option Fees paid to the date of termination. (e) The parties agree that in the event that the Option is not exercised, each party shall retain the right to market and sell the jointly developed insurance products, subject to the Non-Compete Provision (Section 9.1) of the Marketing Agreement dated as of June 5, 2002 by and between LMG and IIC (the "Marketing Agreement"), which provision is hereby incorporated herein by reference and shall survive the termination of this Agreement for a period of two (2) years thereafter, regardless of whether the Marketing Agreement remains in effect. 11. Indemnification by SCOR. SCOR shall indemnify and hold harmless RHC against: (a) any damages, losses, obligations, liabilities, claims, actions or causes of action sustained or suffered by RHC arising from a breach of any representation, warranty, covenant or agreement made by SCOR contained in or made pursuant to this Agreement; and (b) all ordinary and necessary costs, expenses or settlement payments (including, without limitation, reasonable attorneys', accountants' and other professional fees) incurred by RHC in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against under this Section 11. 12. Indemnification by RHC. RHC shall indemnify and hold harmless SCOR against: (a) any damages, losses, obligations, liabilities, claims, actions or causes of action sustained or suffered by SCOR arising from a breach of any representation, warranty, covenant or agreement made by RHC contained in or made pursuant to this Agreement; and (b) all ordinary and necessary costs, expenses or settlement payments (including, without limitation, reasonable attorneys', accountants' and other professional fees) incurred by SCOR in connection with any action, suit, proceeding, demand, assessment or judgment incident to any of the matters indemnified against 25 under this Section 12. 13. Expenses: Each party shall bear its own expenses in connection with the transaction, whether or not the Option is exercised. 14. Governing Law: This Agreement shall be governed by the laws of the State of New York without regard to conflicts of laws principles thereof. 15. Assignment; Successors. This Agreement shall not be assigned by any party without the prior written consent of the other party. This Agreement is intended for the exclusive benefit of the parties hereto and their respective permitted successors and assigns and shall not create any rights in or be enforceable by any other person. This Agreement shall inure to the benefit of, and be binding on and enforceable against, the permitted successors and assigns of the respective parties. 16. Amendment and Modification; Waivers. This Agreement or any term hereof may be changed, waived, discharged or terminated only by agreement in writing signed by both parties hereto. No waiver by a party of any condition or of any breach of any term, covenant, representation or warranty contained herein shall be effective unless in writing, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in any other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty. 17. Notices. All notices, consents, requests, instructions, approvals and other communications provided for herein and all legal process in regard thereto shall be validly given, made or served, if in writing and delivered personally or sent by fax or nationally recognized overnight courier: if to SCOR, at the following address: SCOR Life U.S. Re Insurance Company Colonnade Building III, Suite 700 15305 Dallas Parkway Addison, TX 75001 Attention: Yves Corcos, Chief Executive Officer Fax: 972-560-9535 with a copy to: Dewey Ballantine LLP 1301 Avenue of the Americas New York, NY 10019 Attention: Kirk M. Reische Fax: 212-259-6333 26 and, if to RHC, at the following address: Regan Holding Company 2090 Marina Avenue Petaluma, CA 94954 Attention: R. Preston Pitts Fax: 707-778-1524 with a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P. 125 West 55th Street New York, NY 10019 Attention: Joseph L. Seiler III and Jane Boisseau Fax: 212-424-8500 or, in each case, at such other address as may be specified in writing, but no such change shall be deemed to have been given until it is actually received by the party sought to be charged with its contents. 18. Further Assurances. Each party shall cooperate and take such actions, and execute all such further instruments and documents, at or subsequent to the Closing Date, as any other party may reasonably request in order to convey title to the IIC Stock to RHC and to otherwise effectuate the terms and purposes of this Agreement. 19. Confidentiality. Except as may otherwise be required by law or the rules of any applicable stock exchange or other regulatory authority, no release or announcement concerning this Agreement or the transactions contemplated hereby shall be made by SCOR or RHC without the advance written approval of the other party, which approval shall not be unreasonably delayed or withheld. Each party shall cooperate with the other in making any release or announcement to the extent reasonably practicable. In addition, the parties shall maintain strict confidentiality during the development and pre-marketing stages with respect to any products jointly developed by them except with respect to information that has otherwise become publicly known, or as required by applicable law, court order or regulatory authority. 20. Attorneys' Fees. If any legal action, arbitration or other proceeding is brought for the enforcement of this Agreement, because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled from the other party. 21. Entire Agreement; Counterparts. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, 27 among the parties with respect to the subject matter hereof. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which, together, shall constitute one and the same instrument. 22. Headings. The headings of sections contained in this Agreement are inserted for purposes of convenience only and shall not be construed to affect the meaning or construction of any of the provisions hereof. 23. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall be, as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 24. Specific Performance. SCOR and RHC acknowledge that the Option is a unique and valuable right, without which the parties hereto would lose substantial benefits. The parties hereto have concluded that, upon breach of this Agreement by any of the parties hereto, legal remedies would be inadequate and impracticable to enforce, in that, among other things, it would be difficult to calculate with reasonable certainty the legal damages payable as a result of such breach; therefore, the obligations of each of the parties hereto shall be enforceable by means of a suit for specific performance brought by the other party hereto. (The remainder of this page is intentionally left blank.) 28 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. SCOR LIFE U.S. RE INSURANCE COMPANY By: /s/ Yves I. Corcos ---------------------------------- Name: Yves I. Corcos Title: Chief Executive Officer REGAN HOLDING CORP. By: /s/ R. Preston Pitts ---------------------------------- Name: R. Preston Pitts Title: President 29 Exhibit A to Purchase Option Agreement [FORM OF] STOCK PURCHASE AGREEMENT between SCOR LIFE U.S. RE INSURANCE COMPANY and REGAN HOLDING CORP. Dated as of [______________], 200[ ] TABLE OF CONTENTS Page ARTICLE I DEFINITIONS..........................................................1 Section 1.01. Definitions................................................1 ARTICLE II PURCHASE OF SHARES..................................................8 Section 2.01. Purchase of Shares.........................................8 Section 2.02. Closing....................................................9 Section 2.03. Closing Deliveries.........................................9 Section 2.04. Escrow Amount.............................................10 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER..........................10 Section 3.01. Organization and Standing; Corporate Power and Authority..10 Section 3.02. Authorization.............................................11 Section 3.03. Consents and Approvals....................................11 Section 3.04. Capital Structure.........................................11 Section 3.05. Actions Pending...........................................12 Section 3.06. No Conflict or Violation..................................12 Section 3.07. Licenses and Permits......................................13 Section 3.08. Contracts.................................................13 Section 3.09. Compliance with Applicable Law............................15 Section 3.10. Reserves..................................................15 Section 3.11. Financial Statements......................................15 Section 3.12. Taxes.....................................................16 Section 3.13. Employee Matters..........................................18 Section 3.14. No Brokers................................................20 Section 3.15. Insurance Business........................................20 Section 3.16. Assets....................................................21 Section 3.17. Real Property.............................................21 Section 3.18. Environmental Matters.....................................21 Section 3.19. Books and Records.........................................21 Section 3.20. Insurance.................................................21 Section 3.21. Reinsurance...............................................21 Section 3.22. Products..................................................22 Section 3.23. Technology and Intellectual Property......................22 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER............................23 Section 4.01. Organization and Standing.................................23 Section 4.02. Authorization.............................................23 Section 4.03. Consents and Approvals....................................23 Section 4.04. No Conflict or Violation..................................23 Section 4.05. Actions Pending...........................................24 Section 4.06. Resources.................................................24 Section 4.07. Investment Intent.........................................24 Section 4.08. No Brokers................................................24 ARTICLE V PRE-CLOSING COVENANTS...............................................24 Section 5.01. Right of Access and Inspection............................24 Section 5.02. Conduct of Business.......................................25 Section 5.03. Cooperation...............................................26 Section 5.04. Regulatory Approvals......................................26 Section 5.05. Notification of Changes...................................27 Section 5.06. Confidentiality of Information............................27 Section 5.07. Intercompany Accounts.....................................27 Section 5.08. Long-Term Contracts.......................................27 Section 5.09. Extraordinary Payments....................................27 Section 5.10. Board of Directors Meetings...............................28 Section 5.11. NAIC/State Investigations.................................28 Section 5.12. Annuity and Life Insurance Products.......................28 Section 5.13. TPA Business..............................................28 Section 5.14. Separate Reporting Lines..................................29 Section 5.15. Participation in Meetings.................................29 Section 5.16. Capacity for Buyer-produced Products......................29 Section 5.17. Amendments to Reinsurance Agreements......................29 Section 5.18. Maintenance of Credit Rating..............................30 Section 5.19. Acknowledgement of Investment Guidelines..................30 ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE...........30 Section 6.01. Representations and Covenants.............................30 Section 6.02. Administrative Services Agreement.........................31 Section 6.03. Approvals and Consents....................................31 Section 6.04. Injunction and Litigation.................................31 Section 6.05. Employee Matters..........................................31 Section 6.06. Lease Obligations.........................................32 ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE.........32 Section 7.01. Representations, Warranties and Covenants.................32 Section 7.02. Approvals and Consents....................................32 Section 7.03. Injunction and Litigation.................................32 Section 7.04. Certificate of Non-Foreign Status.........................32 ARTICLE VIII POST-CLOSING COVENANTS...........................................32 ii Section 8.01. Cooperation...............................................32 Section 8.02. Post-Closing Obligation to Obtain Permits.................33 Section 8.03. Regulatory Compliance.....................................33 Section 8.04. Use of Names..............................................33 Section 8.05. Investment Intent of Buyer................................33 Section 8.06. Transfer Taxes............................................34 ARTICLE IX SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..............34 Section 9.01. Survival of Representations, Warranties and Covenants.....34 ARTICLE X INDEMNIFICATION.....................................................34 Section 10.01. Obligation to Indemnify..................................34 Section 10.02. Notice of Asserted Liability.............................35 Section 10.03. Opportunity to Defend....................................35 Section 10.04. Exclusive Remedy.........................................36 Section 10.05. Third Party Beneficiaries................................36 Section 10.06. Tax Loss.................................................36 Section 10.07. After-tax Basis..........................................36 ARTICLE XI TAX MATTERS........................................................36 Section 11.01. Tax Indemnification......................................36 Section 11.02. Tax Sharing Agreements and Powers of Attorney............40 Section 11.03. Transfer Taxes...........................................40 Section 11.04. Return Filings, Payments, Refunds and Credits............40 Section 11.05. Defects with Respect to Insurance Products...............42 Section 11.06. Treatment of Indemnity Payments..........................42 Section 11.07. Section 338(h)(10) Election..............................43 Section 11.08. Reimbursement of Excess Tax Cost.........................44 ARTICLE XII TERMINATION PRIOR TO CLOSING......................................45 Section 12.01. Termination of Agreement.................................45 Section 12.02. Survival.................................................45 Section 12.03. Remedies.................................................46 ARTICLE XIII MISCELLANEOUS....................................................46 Section 13.01. Publicity................................................46 Section 13.02. Notices..................................................46 Section 13.03. Entire Agreement.........................................47 Section 13.04. Waivers and Amendments; Preservation of Remedies.........47 Section 13.05. Governing Law............................................48 Section 13.06. Jurisdiction.............................................48 Section 13.07. Binding Effect; No Assignment............................48 iii Section 13.08. No Third Party Beneficiaries.............................48 Section 13.09. Expenses.................................................48 Section 13.10. Counterparts.............................................48 Section 13.11. Headings.................................................49 Exhibit A Opinion of Maxine Verne, Esq. Schedule 1.01 Permitted Liens Schedule 3.03 Consents and Approvals Schedule 3.05 Pending and Threatened Actions Schedule 3.06 Conflicts and Violations Schedule 3.07 Licenses and Permits Schedule 3.08 Contracts Schedule 3.09 Compliance with Law Schedule 3.10 Reserves Schedule 3.11 Liabilities Schedule 3.12 Taxes Schedule 3.13 Employee Matters Schedule 3.15 Insurance violations Schedule 3.16 Assets Schedule 3.17 Real Property Schedule 3.20 Insurance Schedule 3.21 Reinsurance Schedule 3.23 Intellectual Property Schedule 4.03 Consents and Approvals Schedule 4.04 Conflicts and Violations Schedule 4.05 Pending and Threatened Actions Schedule 5.02 Conduct of Business Schedule 5.07 Intercompany Accounts Schedule 8.04 Use of Names iv [FORM OF] STOCK PURCHASE AGREEMENT THIS AGREEMENT, dated as of the day of , 200 (this "Agreement"), has been made and entered into by and between SCOR Life U.S. Re Insurance Company, a Texas corporation ("Seller"), and Regan Holding Corp., a California corporation ("Buyer"). WHEREAS, Seller is the owner of 100% of the issued and outstanding shares of capital stock (the "Shares") of Investors Insurance Corporation, a Delaware corporation (the "Company"); and WHEREAS, Seller and Buyer have entered into a Purchase Option Agreement, dated as of July 1, 2002 (the "Purchase Option Agreement"), pursuant to which Buyer was granted the right to purchase the Shares from Seller on the terms and conditions set forth therein; and WHEREAS, Buyer has delivered notice to Seller pursuant to the terms of the Purchase Option Agreement of its intention to exercise its rights thereunder to purchase the Shares from Seller; and WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, the Shares on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties, promises, agreements and conditions contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. For all purposes of this Agreement, the following terms shall have the respective meanings set forth below (such definitions to be equally applicable to both the singular and plural forms of the terms herein defined): "Accident and Health Insurance Contract" means any accident or health insurance contract (including, without limitation, stop loss coverage on self-funded employee medical plans, if any, and medical supplement business), and forms with respect thereto, issued, assumed or reinsured by the Company. "Accountant" means an accounting firm of recognized national standing other than accounting firms that regularly audit the annual financial statements of any of the parties, which is mutually acceptable to the parties. "Accounting Firm" has the meaning set forth in Section 11.07(b) "Administrative Services Agreement" has the meaning set forth in Section 6.02. "Affiliate" means, with respect to any Person, at the time in question, any other Person directly or indirectly controlling, controlled by or under common control with such Person. "Agreement" has the meaning as set forth in the first paragraph of this Agreement. "Allocation Agreement" has the meaning set forth in Section 11.07(b). "Annuity Contract" means any annuity contract, funding agreement, guaranteed investment contract or similar contract, and forms with respect thereto, issued, assumed or reinsured by the Company. "Applicable Law" means any domestic or foreign federal, state or local statute, law, ordinance or code, or any rules, regulations, administrative interpretations, or orders issued by any Governmental Entity pursuant to any of the foregoing, and any order, writ, injunction, directive, judgment or decree applicable to a Person or any such Person's subsidiaries, properties, assets, officers, directors, employees or agents. "Asserted Liability" has the meaning as set forth in Section 10.02. "Assets" shall mean all rights, titles, franchises and interests in and to every type of property, real, personal and mixed, including, but not limited to, investment assets, Intellectual Property, Contracts, licenses, leaseholds, privileges and all other assets whatsoever, tangible or intangible. "Audit" has the meaning set forth in Section 3.12(a). "Books and Records" means all records, documents, databases, administrative records, claim records, policy files, sales records, files and records relating to regulatory matters or correspondence with regulatory authorities, reinsurance records, underwriting records, accounting records and all other records, data and information (in whatever form maintained) in the possession or control of the Company or IMG relating to the conduct of its business. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are required or authorized by law to be closed. "Buyer" has the meaning set forth in the first paragraph of this Agreement. "Claims Notice" has the meaning as set forth in Section 10.02. "Closing" has the meaning set forth in Section 2.02. 2 "Closing Agreement" means a written and legally binding agreement with a taxing authority. "Closing Date" means the date designated by Buyer in writing to Seller at least 30 days prior to such date, which date shall be after the later of (i) June 30, 2003 and (ii) the date that all of the conditions set forth in Articles VI and VII have been satisfied or waived. "Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. "Company" has the meaning set forth in the first recital of this Agreement. "Company Affiliated Group" has the meaning set forth in Section 3.12(b). "Company Controlled Group Liability" has the meaning set forth in Section 3.13(b). "Company Employees" mean any persons who, prior to the Closing Date, are employed by the Company. "Company Employee Plans" has the meaning set forth in Section 3.13(a). "Company Financial Statements" means the SAP Statements and the GAAP Statements. "Company Tax Returns" has the meaning set forth in Section 3.12(a). "Consolidated Returns" has the meaning set forth in Section 11.04(a). "Contract" shall mean a contract, agreement, guarantee, commitment, indenture, note, bond, mortgage, non-governmental license or assignment, whether written or oral. "Controlling Party" has the meaning set forth in Section 11.01(i). "Election" has the meaning set forth in Section 11.07. "Election Cost" has the meaning set forth in Section 11.08. "Enforceability Exceptions" has the meaning set forth in Section 3.02. "ERISA" has the meaning set forth in Section 3.13(a). "Escrow Amount" has the meaning set forth in Section 2.04. "Excepted Amounts" has the meaning set forth in Section 11.01(a). "Excess Tax Cost" has the meaning set forth in Section 11.08. 3 "Excess Tax Cost Computation" has the meaning set forth in Section 11.08. "Final Determination" means with respect to any issue (a) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final and not subject to further appeal, (b) a Closing Agreement (whether or not entered into under Section 7121 of the Code) or any other binding settlement agreement (whether or not with the Internal Revenue Service) entered into in connection with or in contemplation of an administrative or judicial proceeding, or (c) the completion of the highest level of administrative proceedings by a Governmental Entity if a judicial contest is not or is no longer available. "Founder's Policies" means all policies issued by the Company that require the Company to pay to the owners of such policies an amount that is equal to all or a portion of the Company's gains from lapses, surrenders, excess interest earnings or mortality savings resulting from the class of policies including such policy. "GAAP" means generally accepted accounting principles as used in the United States of America as in effect at the time any applicable financial statements were prepared or any act requiring the application of GAAP was performed. "GAAP Statements" has the meaning set forth in Section 3.11(a). "Governmental Entity" means any foreign, federal, state, local, municipal, county or other governmental, quasi-governmental, administrative or regulatory authority, body, agency, court, tribunal, commission or other similar entity (including any branch, department, agency or political subdivision thereof). "IMG" means Investors Marketing Group, a Florida corporation. "Income Tax" has the meaning set forth in Section 11.01(b). "Insurance Contract" means any Contract of insurance or reinsurance (and any certificates thereunder) and forms with respect thereto, including any Life Insurance Contract, Accident and Health Insurance Contract or Annuity Contract, issued, assumed or reinsured by the Company. "Intellectual Property" means intellectual property rights, including, but not limited to, all inventions, patents and patent applications, Trademarks, copyrights, copyright registrations and applications, computer programs, technology, trade secrets, know-how, confidential information, proprietary processes and formulae including all licenses and rights relating to the foregoing. "Knowledge" shall mean (i) with respect to the knowledge of Seller, the actual knowledge of John Brill, Chief Financial Officer of the Company and Yves Corcos, Chief Executive Officer of the Company; and (ii) with respect to the knowledge 4 of Buyer, the actual knowledge of R. Preston Pitts, President and Chief Operating Officer of Buyer and G. Steven Taylor, Chief Financial Officer of Buyer. "Leased Real Property" has the meaning set forth in Section 3.17. "Lien" means any lien, mortgage, pledge, security interest, encumbrance, restriction, easement, limitation, claim, charge or defect of title; provided that such term shall not include restrictions imposed by any applicable insurance law or regulation or state or federal securities laws. "Life Insurance Contract" means any life insurance Contract (including any group term life insurance Contract), and forms with respect thereto, issued, assumed or reinsured by the Company. "LMG" has the meaning set forth in Section 2.01(b). "Losses" and individually "Loss" has the meaning set forth in Section 10.01. "Material Adverse Effect" means a material adverse effect on (i) the ability of Seller to perform in all respects its obligations under this Agreement or to consummate the transactions contemplated hereby; (ii) the business, financial condition or results of operations of the Company; or (iii) as to matters which can reasonably be quantified in economic terms, any effect which has resulted in or could be reasonably expected to result in, with respect to the Company, a diminution or decrease in the value of properties or assets, an increase in liabilities or obligations (whether accrued, contingent or otherwise), an adverse change in the cash flows, business or financial condition, or any combination thereof involving, individually or in the aggregate more than $1,000,000; provided, however, to the extent such effect results from any of the following, such effect shall not be considered a Material Adverse Effect: (1) any adverse change or effect that is caused by or that arises out of the business of the Company generated by LMG; (2) a change in the market value of investments made in accordance with the investment guidelines previously approved by Buyer; (3) any adverse change or effect that is caused by or that arises out of conditions affecting the economy or securities markets generally; (4) any adverse change or effect that arises out of conditions affecting the insurance or financial services industries generally, including, but not limited to, circumstances, changes or effects in or affecting interest rates, securities markets, accounting principles, practices or conventions or applicable law (whether federal, state, local or foreign); or (5) any adverse change or effect resulting from the announcement or the pendency of the transactions contemplated hereby. "Non-Buyer Business" has the meaning set forth in Section 5.14. "Non-Controlling Party" has the meaning set forth in Section 11.01(i). "Option Exercise Date" means the date the Option is exercised by Buyer pursuant to the terms of the Purchase Option Agreement. 5 "Option Inception Date" means June 30, 2002. "Option Inception Date Capital and Surplus" means $13,136,922, the Company's total statutory capital and surplus as of the Option Inception Date as set forth in its statutory filing. "Owned Real Property" has the meaning set forth in Section 3.17. "Permits" means all licenses, permits, orders, approvals and non-disapprovals, registrations, authorizations, qualifications and filings with and under all federal, state, local or foreign laws and governmental or regulatory bodies. "Permitted Liens" means each of the following: (a) Liens for Taxes, assessments and governmental charges or levies not yet due and payable which are not in excess of $50,000 in the aggregate or which are being contested in good faith, and for which adequate reserves have been established and recorded on the Company Financial Statements; (b) Liens imposed by law, including, without limitation, materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) Liens related to deposits to secure policyholders' obligations as required by the insurance departments of the various states, each of which is listed on Schedule 1.01 hereto. "Person" means any individual, corporation, limited liability company, partnership, limited partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, governmental, judicial or regulatory body or other entity. "Post-Closing Tax Period" has the meaning set forth in Section 11.01(a). "Pre-Closing Tax Period" has the meaning set forth in Section 11.01(a). "Purchase Option Agreement" has the meaning set forth in the second recital to this Agreement. "Purchase Price" has the meaning set forth in Section 2.01. "Reserves" has the meaning set forth in Section 3.10. "SAP" means statutory accounting practices prescribed or permitted by the insurance regulatory authorities of the applicable states. "SAP Statements" has the meaning set forth in Section 3.11(b). "Securities Act" means the Securities Act of 1933, as amended. "Seller" has the meaning in the first paragraph of this Agreement. 6 "Shares" has the meaning set forth in the first recital of this Agreement. "Specified Matter" means the matter specified in Schedule 6(o) of the Disclosure Schedules to the Purchase Option Agreement "Subsidiary" means, with respect to any Person, any corporation, partnership, joint venture or other legal entity of which such Person (either alone or through or together with any other Subsidiary) owns, directly or indirectly, more than 50% of the outstanding stock or other equity interest the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. "Taxes" (or "Tax" as the context may require) mean (i) all federal, state, county, local, foreign and other taxes (including, without limitation, income, profits, business and occupation, estimated, payroll, withholding, disability, workers compensation, unemployment insurance, social security, premium, stamp, customs, license, transfer, excise, sales, use, gross receipts, franchise, ad valorem, environmental, production, severance, capital and property taxes, duties, fees, levies or other governmental charges and assessments), and including any interest, additions to tax and penalties (civil or criminal) with respect thereto or in respect of a failure to comply with any requirement relating to such taxes or any Tax Return and any expenses incurred in connection with the determination, settlement or litigation of any tax liability and (ii) any liability of the Company for the payment of amounts with respect to payments of a type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group, or as a result of any obligation of the Company under any Tax Sharing Arrangement or Tax indemnity arrangement, in each case, whether imposed directly on a Person, as a transferee or successor, by contract or otherwise. "Tax Contest" has the meaning set forth in Section 11.01(d). "Tax Detriment" means an increase in Liability for Taxes or a reduction of (i) a refund for Taxes or (ii) other Tax attributes. "Tax Indemnified Liability" has the meaning set forth in Section 11.01(c). "Tax Indemnifying Party" has the meaning set forth in Section 11.01(c). "Tax Indemnitee" has the meaning set forth in Section 11.01(c). "Tax Loss" has the meaning set forth in Section 11.01(a). "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, including any amendment thereof and including, where permitted or required, combined, consolidated, unitary, or any similar tax returns for any group of Persons. 7 "Tax Ruling" means a written ruling of a Governmental Entity relating to Taxes. "Tax Sharing Agreement" means any written or unwritten agreement, indemnity or other arrangement for the allocation or payment of Tax liabilities or payment for Tax benefits that may exist between the Company and any Person (other than any indemnity provided pursuant to this Agreement). "TPA" means any third party administrator. "TPA Agreements" means any third party administrator Contract. "Trademarks" shall mean all United States and foreign trademarks (including service marks and trade names, whether registered or at common law), registrations, renewals and applications therefor, domain names, logos and designs owned by the Company or IMG and used in connection with the conduct of the business as currently conducted by the Company or IMG. "Transfer Taxes" has the meaning set forth in Section 11.03. ARTICLE II PURCHASE OF SHARES Section 2.01. Purchase of Shares. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Shares for an aggregate purchase price (the "Purchase Price") equal to the sum of: (a) the Option Inception Date Capital and Surplus; (b) plus any capital or surplus contributions made in cash to the Company by Seller or an Affiliate of Seller to support the business generated by Buyer's subsidiary, Legacy Marketing Group ("LMG"), during the period from the Option Inception Date to the Closing Date; (c) less any dividends, distributions, loans, capital or extraordinary payments made by the Company between June 30, 2002 and the Closing Date; (d) less any Losses to the Company related to the Specified Matter; (e) less any Purchase Price adjustments required by Sections 5.02(c), 5.08, 5.09, 5.12, 5.13, 5.14 and 5.17; (f) plus interest at the rate of 5% percent per annum on an amount equal to the Option Inception Date Capital and Surplus, calculated from the Option Inception Date to the Closing Date, compounded annually; 8 (g) plus interest at the rate determined by the following formula on any capital and surplus contributions referred to in clause (b) above, if any, in each case calculated from the date of such contribution to the Closing Date compounded annually on the date of such contribution: Interest = (5% * (A/B) where: A is equal to the Moody's Aaa corporate bond rate (Federal Reserve Statistical Release H.15) at the time of the surplus contribution, and B is 6.61% (the Moody's Aaa corporate bond rate as of June 30, 2002); and (h) less interest at the rate determined by formula set forth in (f) above on any dividends, distributions, loans, capital or extraordinary payments referred to in clause (c) above, if any, in each case calculated from the date of such distribution to the Closing Date compounded annually on the date of such distribution. Section 2.02. Closing. Upon the terms and subject to the conditions of this Agreement, the closing of the purchase and sale of the Shares (the "Closing") shall be at 10:00 a.m. local time at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York 10019 (or such other location as Buyer and Seller shall mutually agree), on the Closing Date. Section 2.03. Closing Deliveries. At the Closing, the parties hereto shall take the following actions: (a) Seller shall deliver to Buyer certificates representing all of the Shares, duly executed in blank or accompanied by stock powers duly executed in blank, in proper form for transfer, with all appropriate stock transfer tax stamps affixed; (b) Seller shall deliver to Buyer certificates as to the good standing of the Company and IMG (unless IMG shall have been sold or transferred prior to the Closing Date) in their respective jurisdictions of incorporation, together with a copy of the Certificate of Incorporation of the Company certified by the Delaware Secretary of State or other appropriate authority; (c) Seller shall deliver to Buyer resolutions of the board of directors of Seller, certified by the Secretary or Assistant Secretary of Seller, approving and authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby; (d) Seller shall deliver to Buyer the officer's certificate contemplated by Section 6.01 of this Agreement; (e) Seller shall deliver to Buyer a receipt evidencing receipt of the Purchase Price; 9 (f) Seller shall deliver to Buyer an executed copy of the Administrative Services Agreement (as defined in Section 6.02); (g) approvals of the Delaware Insurance Department and if required, approval of the California Insurance Commissioner, and any other consent and approvals set forth on Schedule 3.03; (h) Buyer shall deliver to Seller the Purchase Price by wire transfer of immediately available funds to such account or accounts as shall have been designated in writing to Buyer by Seller; (i) Buyer shall deliver to Seller resolutions of the board of directors of Buyer, certified by the Secretary or Assistant Secretary of Buyer, approving and authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby; (j) Seller shall provide the legal opinion of in-house counsel to Seller, and/or such other counsel to Seller reasonably acceptable to Buyer, substantially in the form of Exhibit A, with such modifications as shall be reasonably acceptable to Buyer; (k) Seller shall have provided, on or before the Closing Date, copies of the Company's current licenses in each of the jurisdictions listed in Schedule 3.07; (l) Buyer shall deliver to Seller the officer's certificate contemplated by Section 7.01 of this Agreement; and (m) Buyer shall deliver to Seller a receipt evidencing receipt by Buyer of the Shares. Section 2.04. Escrow Amount. On the one-year anniversary of the Option Exercise Date, Buyer shall deposit into an escrow account on behalf of Seller an amount equal to $1,313,692, (being ten percent (10%) of the Option Inception Date Capital and Surplus) (the "Escrow Amount"). In the event that the Closing Date occurs within two (2) years following the Option Exercise Date, the Escrow Amount shall be applied to the Purchase Price. In the event that the Closing Date does not occur within two (2) years following the Option Exercise Date, the Escrow Amount shall be non-refundable, except as provided in Section 12.03(b). ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer as follows: Section 3.01. Organization and Standing; Corporate Power and Authority. 10 (a) Each of Seller and the Company (i) is a corporation duly organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation and (ii) has the corporate power and authority to conduct its business as currently conducted. (b) The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business makes such qualification necessary, except as would not, individually or in the aggregate, have a Material Adverse Effect. Section 3.02. Authorization. (a) Seller has the full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the performance by Seller of its obligations hereunder has been or will be duly and validly authorized and approved by all requisite corporate action of Seller and no other acts or proceedings on its part are necessary to authorize the execution, delivery and performance of this Agreement or the transactions contemplated hereby. Assuming the due authorization and execution by Buyer, this Agreement constitutes the legal, valid and binding obligations of Seller, and is and will be enforceable in accordance with its terms except (i) as the same may be limited by applicable bankruptcy, insolvency, rehabilitation, moratorium or similar laws of general application relating to or affecting creditors' rights, including, without limitation, the effect of statutory or other laws regarding fraudulent conveyances and preferential transfers, and (ii) for the limitations imposed by general principles of equity. The foregoing exceptions set forth in clauses (i) and (ii) of this Section 3.02 are hereinafter referred to as the "Enforceability Exceptions." Section 3.03. Consents and Approvals. Except as set forth on Schedule 3.03 hereto, no consent, approval, non-disapproval, authorization, ruling, order of, notice to, or registration with, any Governmental Entity or any other Person, is required on the part of Seller or the Company in connection with the execution and delivery of this Agreement or the consummation by Seller of the transactions contemplated hereby, except that the approval of the Delaware Insurance Department and the approval of the California Insurance Commissioner (if at such time the Company is commercially domiciled in California within the meaning of California Insurance Code Section 1215.13), will be required prior to the closing of the purchase by Buyer of the Shares. Section 3.04. Capital Structure. (a) The authorized capital stock of the Company consists of 1,000 shares of common stock, par value $3,400 per share, of which 750 shares, constituting the Shares, are issued and outstanding. The Shares are owned beneficially and of record by Seller free and clear of any Lien and constitute all of the issued and outstanding shares of capital stock of the Company. Seller has the power to sell, assign, transfer and deliver the Shares to Buyer upon the terms and subject to the conditions of this Agreement. All of the Shares are duly authorized, validly issued, fully paid, nonassessable and free of any preemptive rights. There is no outstanding option, warrant, right, subscription, call, unsatisfied preemptive right or other agreement or right of any kind to purchase or otherwise acquire any shares of capital stock of the Company 11 from Seller or the Company. There is no outstanding security of any kind convertible into such capital stock, and there is no outstanding contract or other agreement of Seller or the Company or any other party, to purchase, redeem or otherwise acquire any outstanding shares of capital stock or any other equity security of the Company. Seller is not party to any voting trust, proxy or other agreement or understanding with respect to the voting of the Shares. Assuming Buyer has the requisite power and authority to be the lawful owner of the Shares, upon delivery of and payment for the Shares at the Closing as herein provided, Buyer will acquire good, valid and marketable title to the Shares, free and clear of any Lien, other than any Liens arising from acts of Buyer. (b) Other than IMG, the Company does not have any Subsidiaries, nor does it directly or indirectly own any equity interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture, limited liability company or other business association or entity. (c) No indebtedness of the Company contains any restriction upon (i) the prepayment of any indebtedness of the Company, (ii) the incurrence of indebtedness by the Company or (iii) the ability of the Company to grant any Lien on the properties or assets of the Company. Section 3.05. Actions Pending. Except as set forth on Schedule 3.05, there is no claim, action, suit, arbitration, investigation or other proceeding pending or, to the Knowledge of Seller, threatened against the Company or any properties or rights of the Company, by or before any court, arbitrator or administrative or Governmental Entity, which could reasonably be expected to have a Material Adverse Effect. There is no judgment, decree, injunction or order of any Governmental Entity or arbitrator outstanding against the Company having, or which would reasonably be expected to have, a Material Adverse Effect on the Company. There is no claim, action, suit, arbitration, investigation or other proceeding pending or, to the Knowledge of Seller, threatened against Seller, by or before any court, arbitrator or administrative or Governmental Entity, which would reasonably be expected to have a Material Adverse Effect on the Company. Section 3.06. No Conflict or Violation. Except as set forth on Schedule 3.06, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Seller in accordance with the terms and conditions hereof, will not (i) violate any provision of (a) the articles of incorporation, (b) the bylaws or (c) other charter or organizational document of Seller or the Company; (ii) result in the creation of any Lien on any of the assets or properties of the Company; (iii) result in the breach of the terms and conditions or cause an impairment of any license or government authorization of the Company; (iv) violate, conflict with or result in the breach of any of the terms of, result in any modification of, accelerate or permit the acceleration of the performance required by, otherwise give any other contracting party the right to terminate, or constitute (with or without notice or lapse of time, or both) a default under, any agreement to which the Company is a party or by or to which the Company or any of its assets or properties may be subject; (v) violate any order, 12 judgment, injunction, award or decree of any court, arbitrator or Governmental Entity against, or binding upon, or any agreement with, or condition imposed by, any Governmental Entity, foreign or domestic, with respect to the Company; or (vi) violate any statute, law or regulation of any jurisdiction, except, in the case of clause (iv) of this Section 3.06, as would not individually or in the aggregate have a Material Adverse Effect. Section 3.07. Licenses and Permits. The Company has all Permits necessary for the ownership and operation of its Assets and Owned Real Property and the conduct of its business as presently conducted, except where the failure to have such Permits would not have a Material Adverse Effect. The Company is in compliance with all applicable statutes, laws, rules, regulations and orders of any Governmental Entity, except as would not have individually or in the aggregate a Material Adverse Effect. Schedule 3.07 hereto sets forth a true and complete list of all such Permits, including the jurisdiction covered thereby and the types of insurance the Company is authorized to write thereunder. All of the Permits listed on Schedule 3.07 are valid and in full force and effect, except for any limitations or restrictions placed thereon by any Governmental Entity as a result of the pendency of the transactions contemplated by this Agreement and the Purchase Option Agreement. Any such limitations or restrictions are listed on Schedule 3.07. There are no pending or, to the Knowledge of Seller, threatened suits or proceedings with respect to the suspension, revocation, restriction, amendment or non-renewal of any such Permit, and no event which (whether with notice or lapse of time or both) would result in a suspension, revocation, restriction, amendment or nonrenewal of any such Permit has occurred, except with respect to such Permits which, if suspended, restricted, amended or not renewed would not individually or in the aggregate have a Material Adverse Effect. Section 3.08. Contracts. (a) Schedule 3.08(a) contains a true and complete list of all the following Contracts (true and complete copies of all such written Contracts having been made available to Buyer), currently in force, to which the Company is a party or by which any Assets of the Company are or may be bound, as such Contracts may have been amended as of the date hereof: (1) all Contracts with (i) Seller or any of its Affiliates, (ii) any director, officer or employee of the Company or Seller or its Affiliates, (iii) any Affiliate of any director, officer or employee of the Company or Seller or its Affiliates, or (iv) any Person, the equity interests of which are more than 5% owned by any director, officer or employee of the Company or Seller or any of its Affiliates, other than any such Contracts that will terminate or expire without further liability to the Company prior to or as of the Closing; (2) all Contracts providing for employment of any individual, whether or not such Person is considered an employee or independent contractor and all Contracts providing for specific severance benefits or parachute payments; 13 (3) all Contracts with any Person, including, but not limited to, any Governmental Entity, containing any provision or covenant (i) limiting the ability of the Company to engage in any line of business, to compete with any Person, to do business with any Person or in any location or to employ any Person or (ii) limiting the ability of any Person to compete with or obtain products or services from the Company; (4) all Contracts relating to the borrowing of money by the Company or the direct or indirect guarantee by the Company of any obligation of any Person for borrowed money or other financial obligation of any Person or any other liability of the Company in respect of indebtedness for borrowed money or other financial obligations of any Person, including, but not limited to, lines of credit or similar facilities and any Contract relating to or containing provisions with respect to any obligation to satisfy any financial obligation or covenants; (5) all Contracts (other than Insurance Contracts and other Contracts entered into in the ordinary course of business) with any Person containing any provisions or covenant relating to the indemnification or holding harmless by the Company of any Person which is reasonably likely to result in a liability of the Company of fifty thousand dollars ($50,000) or more; (6) all leases or subleases of real property used in the conduct of the business of the Company and all other leases, subleases or rental or use Contracts providing for annual rental payments to be paid by or on behalf of the Company, involving, in the case of each of the foregoing, annual payments in excess of fifty thousand dollars ($50,000); (7) all Contracts relating to the future disposition (including, but not limited to, restrictions on transfer or rights of first refusal) or acquisition of any interest in any business enterprise, and all Contracts relating to the future disposition of a material portion of the Assets of the Company other than, in the case of each of the foregoing, any investment asset or interest in any material business enterprise or Assets to be acquired or disposed of in the ordinary course of business; (8) all Contracts or arrangements (including, but not limited to, those relating to allocations of expenses, personnel, services or facilities, management contracts and appointments as attorneys-in-fact) between or among the Company and Affiliates of the Company; (9) all outstanding proxies (other than routine proxies in connection with annual meetings or guarantee associations), powers of attorney or similar delegations of authority of the Company to an unrelated Person, other than those entered into in the ordinary course of business; (10) all other Contracts (other than (i) Insurance Contracts, (ii) Contracts otherwise required to be set forth on Schedule 3.08(a), Schedule 3.15, Schedule 3.22 or Schedule 3.23(a) and (iii) other Contracts which are expressly excluded under any other subsection of this Section 3.08) that involve or are reasonably likely to involve the 14 payment pursuant to the terms of such Contracts by or to the Company of fifty thousand dollars ($50,000) or more; (11) any partnership, joint venture, joint marketing, strategic alliance, tenancy in common or similar Contracts; and (12) any Contracts that (i) require the Company to purchase or sell any product or service exclusively from or to any Person, (ii) prohibit the Company from selling products or services to any Person, or (iii) require the Company to pay for any product or service regardless of whether or not the Company avails itself of such product or service. (b) Each of the Contracts listed on Schedule 3.08(a), and each material Contract to which the Company is a party, is in full force and effect and constitutes a legal, valid and binding obligation of the Company, to the extent that it is party thereto, and, to the Knowledge of Seller, of each other Person that is a party thereto. Except as set forth on Schedule 3.08(b), the Company is not, and to the Knowledge of Seller, no other party to such Contract is, in material violation, breach or default of any such Contract or, with or without notice or lapse of time or both, would be, in material violation, breach or default of any such Contract, except for any violation, breach or default which would not have Material Adverse Effect. Section 3.09. Compliance with Applicable Law. The Company is in compliance with all laws and regulations with respect to the conduct of its business in all jurisdictions in which it is presently conducting its business and has filed all reports, registrations, filings or submissions required to be filed with any Governmental Entity with respect to the conduct of its business in such jurisdictions, except as set forth on Schedule 3.09, or where the failure to be in compliance with such laws or regulations, or the failure to file such reports, registrations, filings or submissions, would not have a Material Adverse Effect. Section 3.10. Reserves. Except as set forth on Schedule 3.10, the statutory reserves, and other liability amounts required by SAP to be determined using actuarial methods, in the SAP Statements (the "Reserves") were determined in accordance with commonly accepted actuarial standards applied in each case in a manner consistent with past practices, are fairly stated in accordance with sound actuarial principles, and are based on actuarial assumptions which are in accordance with those necessary to meet the minimum requirements of the insurance laws and regulations of the state of Delaware; provided, however, that Buyer acknowledges that the mere fact that any such Reserve is, or is determined to be, inadequate shall not, in and of itself, constitute a breach of the representations and warranties set forth in this Section 3.10. Section 3.11. Financial Statements. (a) Seller has previously made available to Buyer true, complete and correct copies of the statutory financial statements of the Company, as filed with the Delaware Insurance Department (i) as of and for the years ended December 31, 2000 and 15 2001 and (ii) as of and for the quarter ended June 30, 2002 (together with all notes, exhibits and schedules thereto (collectively, the "SAP Statements")). Except as set forth on Schedule 3.11, each of the SAP Statements, if any, presents fairly, in all material respects, the statutory financial condition of the 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 except as otherwise specifically noted therein. (b) There are no liabilities, whether accrued, contingent, absolute, determined, determinable or otherwise (including, without limitation, any Liens other than Permitted Liens), of the Company other than (i) liabilities reflected or reserved against in the June 30, 2002 SAP Statements, not heretofore discharged, (ii) policyholder benefits payable or other Liabilities arising after June 30, 2002 in the ordinary course of business consistent with past practice and in amounts consistent with past practice, or (iii) Liabilities disclosed in Schedule 3.11(c). (c) Since June 30, 2002, the Company has operated its business only in the usual, regular and ordinary course of business and since such date there has not occurred (i) any event or change that is reasonably likely to have individually or in the aggregate a Material Adverse Effect; (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's outstanding capital stock; (iii) any employment contract entered into by the Company with any officer or employee, or any other Person; or (iv) any other material transaction out of the ordinary course of business. Section 3.12. Taxes. Except as provided in Schedule 3.12: (a) (i) All Tax Returns required to be filed on or before the Closing Date by or with respect to the Company (the "Company Tax Returns") have been or will be timely filed (taking into account permitted extensions) with the appropriate Governmental Entity in the manner prescribed by Applicable Law; (ii) the Company Tax Returns, in all material respects, are true, complete and have accurately disclosed and will be true, complete and accurately disclose, all liability for Taxes of the Company required to be shown thereon for the periods covered thereby; (iii) the Company has timely paid (or there has been paid on its behalf) all Taxes with respect to the Company shown as due and payable on any Company Tax Return and has timely paid (or there has been paid on its behalf) all Taxes with respect to the Company, whether or not shown on any Company Tax Return, in each case, in the manner prescribed by Applicable Law; (iv) no Liens (other than Permitted Liens) for Taxes exist on the Company's Assets; (v) the Company has not requested nor is it currently the beneficiary of any extension of time within which to file any Company Tax Return; (vi) as of the date of the SAP Statements, to the extent that Tax liabilities and assessments have accrued but not yet become payable, such Tax liabilities and assessments have been reflected as liabilities in accordance with SAP on the SAP Statements and adequate reserves have been established for the payment thereof and no difference exists between the amount recorded on the SAP Statements and the amount of such Tax liability as determined by the appropriate Governmental Entity; (vii) no written claim has ever been made by a Governmental Entity in a jurisdiction 16 where the Company does not file Company Tax Returns that the Company is or may be subject to taxation by that jurisdiction; (viii) there are no actions, suits, investigations, audits, claims administrative or court proceedings, or assessments ("Audits") pending or proposed or, threatened with respect to Taxes of the Company; (ix) all deficiencies asserted or assessments made as a result of any examination of the Company Tax Returns have been paid in full; (x) there are no Tax Rulings, request for Tax Rulings, or Closing Agreements relating to the Company or the Seller Consolidated Group which could affect the Company's liability for Taxes for any period after the Closing Date; (xi) as a result of a change in accounting method for a Tax period beginning on or before the Closing Date, the Company will not be required to include any adjustment under Section 481(c) of the Code (or any corresponding provision of foreign, state or local Tax law) in taxable income for any Tax period (or portion thereof) beginning on or after the Closing Date; (xii) as a result of any Closing Agreement, the Company will not be required to include any item of income in, or exclude any Tax Credit or item of deduction from, any taxable period (or portion thereof) beginning on or after the Closing Date; (xiii) no intercompany obligation (as described in Treas. Reg. ss. 1.1502-13(g)) between the Company, on the one hand, and any other member of the Seller Consolidated Group, on the other hand, will remain outstanding following the Closing and the Company has not engaged in any transaction with Seller or any of its Affiliates which would result in the recognition of income by the Company with respect to such transaction for any period ( or portion thereof) ending on or after the Closing Date (including, but not limited to, Code sections 355 and 1502); (xiv) no power of attorney currently in force has been granted with respect to any matter relating to the Taxes of the Company; (xv) no indebtedness of the Company is "corporate acquisition indebtedness" within the meaning of Code Section 279(b); (xvi) no property of the Company is property that the Company or any party to this transaction is or will be required to treat as being owned by another Person pursuant to the provisions of Code Section 168(f)(8) (as in effect prior to its amendment by the Tax Reform Act of 1986) or is tax-exempt use property within the meaning of Code Section 168; and (xvii) the Company has not (A) filed a consent pursuant to Code Section 341(f) or (B) agreed to have Code Section 341(f)(2) apply to any disposition of a subsection (f) asset (as such term is defined in Code Section 341(f)(4)). (b) The Company is a member of the affiliated group of which Seller is the common parent, within the meaning of Section 1504(a) of the Code (the "Seller Consolidated Group"), and such affiliated group files a consolidated Federal Income Tax Return. The Company has not at any time been a member of an affiliated group filing a consolidated Federal Income Tax Return other than the Company Affiliated Group. Except with respect to any liability under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) that directly results from the Company being a member of the Seller Consolidated Group, the Company will not have as of the Closing Date any liability for Taxes of any Person other than the Company (i) as a transferee or successor, (ii) by contract (including any Tax Sharing Agreements) or (iii) otherwise. (c) The Company has complied with all applicable laws relating to the payment and withholding of Taxes and has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any Person. 17 (d) Schedule 3.12(d) sets forth the amount of any net operating loss, net capital loss, unused credit, unused foreign tax, or excess charitable contribution allocable to the Company as of June 30, 2002. (e) Other than as set forth in Schedule 3.12(e), there is no dispute or claim concerning any material Tax liability of the Company. Schedule 3.12(e) lists all Company Tax Returns filed on or after January 1, 1999 that have been the subject of an Audit, and indicates all Company Tax Returns that currently are the subject of an Audit. Seller has delivered or made available to Buyer correct and complete copies of all Income Tax Returns and examination reports and all other relevant written materials with respect to any Audit which pertain to the Company. (f) The Company has not executed any waiver or comparable consent regarding any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (g) The Company (i) has not made any payments, (ii) is not obligated to make any payments, and (iii) is not a party to, any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. (h) The Company does not have an existing policyholder surplus account as defined in Code Section 815(e). Section 3.13. Employee Matters. (a) Schedule 3.13 contains a list of each material plan, program, arrangement and Contract which is maintained by the Company or under which the Company is obligated to make contributions and which provides benefits or compensation to or on behalf of employees or former employees of the Company, including, but not limited to, executive arrangements and "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All such material plans, programs, arrangements or Contracts are referred to herein as "Company Employee Plans." Seller has made available to Buyer the plan documents or other writing constituting each Company Employee Plan that has been reduced to writing (or a written description of any Company Employee Plan which has not been reduced to writing) and, if applicable, the trust, insurance contract or other funding arrangement, the ERISA summary plan description and the three most recent Forms 5500 financial statements and actuarial reports for each such Company Employee Plan. Seller has made available to Buyer accurate copies of the most recent favorable determination letters for all Company Employee Plans qualified under Section 401(a) of the Code. (b) There does not now exist, nor do any circumstances exist that would result in, any Company Controlled Group Liability (as defined below) that is reasonably likely to be a liability of the Company following the Closing Date. "Company Controlled Group Liability" means any and all liabilities under (i) Title IV of ERISA, (ii) Section 18 302 of ERISA, (iii) Sections 412 and 4971 of the Code and (iv) the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code. The Company has not (i) participated in any multiemployer plan (as defined in Section 3(37) of ERISA) or (ii) incurred any liability to a multiemployer plan that has not been satisfied in full. (c) Except as set forth on Schedule 3.13, the Company is not obligated to provide post-employment or retirement medical benefits or any other unfunded welfare benefits to or on behalf of any Person who is no longer an employee, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA. (d) Each Company Employee Plan has at all times been maintained in all material respects, by its terms and in operation, in accordance with all applicable laws, and each of those Company Employee Plans which are intended to be qualified under Section 401(a) of the Code has at all times been maintained in all material respects, by its terms and in operation, in accordance with Section 401(a) of the Code. (e) Neither Seller nor the Company is party to, or bound by, any collective bargaining agreement or other Contract with a labor union or labor organization and, to the Knowledge of Seller, there are no organizational efforts with respect to the formation of a collective bargaining unit currently being made or threatened involving the employees of the Company. There is no unfair labor practice or labor arbitration proceeding or, to the Knowledge of Seller, threatened against Seller or the Company. Seller and the Company are each in compliance, in all material respects, with all applicable laws regarding employment, consulting, employment practices, wages, hours and terms and conditions of employment. (f) There have been no prohibited transactions within the meaning of Section 4975 of the Code or Section 406 of ERISA with respect to the Company Employee Plans for which an exemption is not available, no fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any Company Employee Plan, and no action, suit, proceeding, hearing or investigation with respect to any Company Employee Plan (other than routine claims for benefits) is pending or, to the Knowledge of Seller, threatened. (g) Any Company Employee Plan (or liability related thereto) is by its terms able to be amended or terminated by the Company. (h) All accrued contributions, premiums and other payments that would be (without regard to the transactions contemplated hereby), but are not yet, due from the Company to (or under) any Company Employee Plan have been adequately and properly provided for on the Company's financial statements. The funding method used in connection with each Company Employee Plan which is subject to the minimum funding requirements of ERISA is acceptable under law, and the actuarial assumptions used in connection with funding each such plan are reasonable. 19 (i) All contributions and payments required by law or any Company Employee Plan agreement (including all employer contributions and employee salary reduction contributions for any period on or before the Closing Date) to have been made under any such Company Employee Plan (without regard to any waivers granted under Section 412 of the Code to any fund, trust, or account established thereunder or in connection therewith) have been made or will have been made by the due date thereof. (j) The consummation of the transactions contemplated by this Agreement will not (i) entitle any Company Employee (or any former employee of the Company) to severance pay, unemployment compensation, retention pay or any other payment from the Company, except as expressly provided in this Agreement, or (ii) accelerate the time of payment or vesting, or increase the amount of compensation from the Company due to any such Company Employee (or former employee of the Company). (k) The Company does not have any "leased employees" within the meaning of Code Section 414(n). Section 3.14. No Brokers. No broker or finder has acted directly or indirectly for Seller or the Company, nor has Seller or the Company incurred any obligation to pay any brokerage or finder's fee or other commission in connection with the transactions contemplated by this Agreement. Section 3.15. Insurance Business. All policy forms issued by the Company prior to July 1, 2002, and all amendments, applications, brochures, illustrations and certificates pertaining thereto have, where required by applicable law, been approved by all applicable Governmental Entities or filed with and not objected to by such Governmental Entities within the period provided by applicable law for objection, subject to such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. All such forms comply in all material respects with, and have been administered in all material respects in accordance with, applicable law. Any rates of the Company which are required to be filed with or approved by any Governmental Entity have been so filed or approved and the rates used by the Company conform in all material respects thereto. For the avoidance of doubt, the representations and warranties made by Seller in this Section 3.15 shall not apply to policy forms (or amendments, applications, brochures, illustrations or certificates pertaining thereto) or rates that are jointly developed or produced by, or are related to business that is jointly developed or produced by, Buyer and Seller (including the Company). Seller has made available to Buyer copies of all financial examination reports of the Delaware Department of Insurance with respect to the Company which have been completed and issued since January 1, 1999. Except as set forth in Schedule 3.15, since January 1, 1999, no violations material to the financial condition of the Company have been asserted in writing by the Delaware Department of Insurance, other than any violation which has been cured or otherwise resolved to the satisfaction of the Delaware Department of Insurance or which is no longer being pursued by the Delaware Department of Insurance following a response from the Company. 20 Section 3.16. Assets. Except as set forth on Schedule 3.16 and except for Assets disposed of since December 31 of the year preceding the Closing Date in the ordinary course of business: (i) the Company has good title to all Assets that are disclosed or otherwise reflected in the SAP Statements for such year and all Assets acquired thereafter, and all such Assets are owned by the Company, free and clear of all Liens, other than Permitted Liens listed on Schedule 3.16; and (ii) the Company owns, has a valid leasehold interest in or has a valid right under contract to use, all personal property that is material to the conduct of its business, free and clear of all Liens, other than Permitted Liens listed on Schedule 3.16. Section 3.17. Real Property. Schedule 3.17 sets forth a complete and correct list of (i) all real property owned by the Company (together with all improvements or fixtures thereon owned by the Company, the "Owned Real Property") and (ii) all real property in which the Company has a leasehold interest (the "Leased Real Property") that is material to the conduct of the business of the Company. The Company has good and marketable fee simple title to the Owned Real Property free and clear of all Liens, other than Permitted Liens listed on Schedule 3.17. The Company has a valid leasehold interest in the Leased Real Property. Section 3.18. Environmental Matters. There is no legal, administrative, or other proceeding, claim or action of any nature seeking to impose on the Company any liability relating to the release of hazardous substances as defined under any local, state or federal environmental statute, regulation or ordinance, including, without limitation, the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, pending or, to the Knowledge of Seller, threatened against the Company; to the Knowledge of Seller, there is no reasonable basis for any such proceeding, claim or action; and to the Knowledge of Seller, the Company is not subject to any agreement, order, judgment, or decree by or with any court, Governmental Entity or third party imposing any such environmental liability on the Company. Section 3.19. Books and Records. The Books and Records are consistent with and accurately reflect the business of the Company in all material respects. Section 3.20. Insurance. Schedule 3.20 sets forth a list of all policies and binders of fire, liability, product liability, workers' compensation, vehicular and other insurance covering the Company as of the date of this Agreement, other than reinsurance treaties and agreements listed on Schedule 3.21(a). The policies and binders listed on Schedule 3.20 are valid and enforceable in accordance with their terms and are in full force and effect (assuming no default by any such insurer). Section 3.21. Reinsurance. Schedule 3.21(a) contains a list of all reinsurance treaties and agreements, including retrocessional agreements, to which the Company is a party or under which it has any existing rights, obligations or liabilities, and Schedule 3.21(b) contains a list of all reinsurance treaties and agreements, including facultative certificates, between Seller or any of Seller's Affiliates, on the one hand, and the Company, on the other hand. All reinsurance treaties and agreements set forth on 21 Schedule 3.21(a) and on Schedule 3.21(b) are in full force and effect as of the date hereof and, to the Knowledge of Seller, no party thereto is in default in any material respect as to any provision thereof; and, except as set forth on Schedule 3.21(c) no such agreement contains any provision providing that any party thereto may terminate such agreement by reason of the transactions contemplated by this Agreement. Section 3.22. Products. All Life Insurance Contracts issued, assumed, modified, exchanged or sold by the Company which are subject to Sections 101(f) or 7702 of the Code qualify (and have qualified since issuance) as "life insurance contracts" within the meaning of Sections 101(f) or 7702(a) of the Code, as applicable. No Life Insurance Contract issued, assumed, modified, exchanged or sold by the Company is a "modified endowment contract" within the meaning of Section 7702A of the Code, except for those Life Insurance Contracts that the Company is administering as modified endowment contracts and with respect to which the Company has notified the policyholder, before the date hereof, that the contract constitutes a modified endowment contract. Section 3.23. Technology and Intellectual Property. (a) The Company owns or possesses, or has enforceable rights or licenses to use, the Intellectual Property that is necessary to carry on its business as presently conducted (each, an "Intellectual Property Right"), except where the failure to so own or possess, or have enforceable rights or licenses would not have a Material Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries has received any written notice of any infringement of the rights of others with respect to any Intellectual Property Right that, if such infringement is determined to be unlawful, would have a Material Adverse Effect on the Company. Except as set forth in Schedule 3.23, the execution and delivery of this Agreement by Seller, and the consummation of the transactions contemplated hereby, will neither cause the Company or any of its Subsidiaries to be in violation or default under any licenses, sublicenses or other agreements to which the Company or any of its Subsidiaries is a party and pursuant to which the Company or its Subsidiaries is authorized to use any Intellectual Property Right, nor entitle any other party to any such license, sublicense or agreement to terminate or modify such license, sublicense or agreement, except where any such violation, default, termination or modification would not have a Material Adverse Effect on the Company. (b) No use of any Intellectual Property Right by the Company or any of its Subsidiaries infringes any rights of any third party or (except for the payment of licensing fees) requires any payment for the use of proprietary rights or rights in Intellectual Property or technology owned by any third party. 22 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller as follows: Section 4.01. Organization and Standing. Buyer (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of California, (ii) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business makes such qualification necessary and (iii) has the corporate power and authority to conduct its business as currently conducted, except in the case of each of clauses (ii) and (iii), as would not individually or in the aggregate impair the ability of Buyer to perform its obligations under this Agreement. Section 4.02. Authorization. Buyer has full corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the performance by Buyer of its obligations hereunder have been duly and validly authorized and approved by all requisite corporate action of Buyer, and no other acts or proceedings on its part are necessary to authorize the execution, delivery and performance of this Agreement or the transactions contemplated hereby. Assuming due authorization by Seller, this Agreement constitutes the legal, valid and binding obligation of Buyer enforceable in accordance with its terms, subject to the Enforceability Exceptions. Section 4.03. Consents and Approvals. Except as set forth in Schedule 4.03 hereto, no consent, approval, non-disapproval, authorization, ruling, order of, notice to, or registration with any Governmental Entity or any other Person, is required on the part of Buyer in connection with the execution and delivery of this Agreement or the consummation by Buyer of the transactions contemplated hereby or thereby. Section 4.04. No Conflict or Violation. Except as disclosed in Schedule 4.04, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby by Buyer in accordance with the terms and conditions hereof, will not (i) violate any provision of Buyer's (a) articles of incorporation, (b) bylaws or (c) other charter or organizational document; (ii) violate, conflict with or result in the breach of any of the terms of, result in any modification of, accelerate or permit the acceleration of the performance required by, otherwise give any other contracting party the right to terminate, or constitute (or with notice or lapse of time, or both) a default under, any agreement to which Buyer is a party or by or to which it or any of its assets or properties may be subject; (iii) violate any order, judgment, injunction, award or decree of any court, arbitrator or Governmental Entity against, or binding upon, or any agreement with, or condition imposed by, any Governmental Entity, foreign or domestic, binding upon Buyer, or upon the assets or business of Buyer; or (iv) violate any statute, law or regulation of any jurisdiction as each statute, law or regulation relates to Buyer or to the assets or business of Buyer, except, in the case of clauses (ii) through (iv) of this Section 4.04, as would not materially impair the ability of Buyer to perform its obligations under this Agreement. 23 Section 4.05. Actions Pending. Except as set forth in Schedule 4.05, there is no claim, action, suit, arbitration, investigation or other formal proceeding pending or, to the Knowledge of Buyer, threatened against Buyer, or any properties or rights of Buyer, by or before any court, arbitrator or administrative or Governmental Entity, which action, suit, investigation or proceeding would materially impair the ability of Buyer to perform its obligations under this Agreement. Section 4.06. Resources. Buyer 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 Closing under the terms of this Agreement. Section 4.07. Investment Intent. Buyer is acquiring the Shares for its own account for investment purposes only and not for purposes of, or with a view to, or for offer or sale in connection with, any distribution. Buyer is an "accredited investor" within the meaning of Regulation D pursuant to the Securities Act. Section 4.08. No Brokers. No broker or finder has acted directly or indirectly for Buyer, nor has Buyer incurred any obligation to pay any brokerage or finder's fee or other commission in connection with the transactions contemplated by this Agreement. ARTICLE V PRE-CLOSING COVENANTS Seller and Buyer covenant as follows for the period from the date of this Agreement through the Closing Date: Section 5.01. Right of Access and Inspection. Buyer shall have the right, through its officers, employees, consultants, accountants, actuaries, attorneys and other designated agents and representatives, upon reasonable notice, during normal business hours and in a manner so as not to disrupt the orderly conduct of business of the Company, to (i) inspect (and make copies of) such of the Books and Records as Buyer may reasonably request; and (ii) make such reasonable investigation of the Assets, liabilities, financial condition, properties, business and operations of the Company as Buyer may reasonably deem necessary or appropriate, and for such purposes to have access to the Books and Records and Contracts and facilities of the Company, and access to the Personnel of the Company, Seller and Seller's Affiliates that perform work for, or have knowledge of facts relating to, the Company (including the Employees), including an examination of the corporate records and minute books, financial statements and projections, insurance department filings, reports and examinations, summaries of pending litigation, Tax Returns, accounting and actuarial methods, business plans and prospects, in each case wherever located, of the Company; provided, that Buyer will take reasonable steps to maintain the confidentiality of all Books and Records. Seller shall, and shall cause the Company and Seller's Affiliates, and their respective officers, employees (including the Employees), agents and representatives, including their 24 respective counsel and independent public accountants, to cooperate fully with Buyer in connection with such investigation, access and examination. Buyer shall have the right to audit the books of the Company so as to enable Buyer to prepare any GAAP financial statements for the Company that may be required to be filed with the SEC on consummation of the transaction. Section 5.02. Conduct of Business (a) Except as set forth on Schedule 5.02, prior to the Closing Date or the termination of this Agreement pursuant to the terms hereof, Seller shall cause the Company to (i) conduct its business only in the ordinary course of business; (ii) not issue, sell, grant, pledge or otherwise encumber any shares of its capital stock, any other equity securities or any securities convertible into equity securities, or any rights, warrants, options to acquire, any such shares, equity securities or convertible securities; (iii) not amend its certificate of incorporation, by-laws or other comparable organizational documents; (iv) not acquire any corporation, partnership, joint venture, association or other business organization or division thereof, or substantially all of the assets of any of the foregoing; (v) not (A) incur any indebtedness for borrowed money or guarantee or otherwise become responsible for any such indebtedness of another Person, except in the ordinary course of business or (B) make any material loans, advances or capital contributions to, or investments in, any other Person, other than to the Company and loans and advances to agents and employees in the ordinary course of business and other than as to such matters related to the investment portfolio of the Company in the ordinary course of business; (vi) preserve intact its present organization, business and franchise; (vii) maintain in effect all material licenses, approvals, qualifications, registrations and authorizations necessary to carry on its business as currently conducted; (viii) preserve material existing relationships with its employees and agents, other distribution sources, customers, lenders, suppliers, regulators, insureds, rating agencies and others with which it has material business relationships; (ix) continue its advertising and promotional activities, pricing and purchasing policies, operations and business plan implementation consistent with past practice; (x) continue in full force and effect without material modification all existing policies or binders of insurance currently maintained in respect of its Assets, properties, business, operations, employees, officers or directors except as required by applicable law; and (xi) not undertake any material new business initiatives without the prior written consent of Buyer, which consent shall not be unreasonably withheld; (xii) not make any material changes to any of the accounting, underwriting, pricing, actuarial, tax, administrative, marketing or agency principles, practices, methods or policies (including, but not limited to, any reserving methods, practices or policies) employed with respect to the Company, except as may be required as a result of a change in Applicable Law, including SAP; and (xiii) not (A) make or rescind any express or deemed election relating to Taxes, (B) make a request for a Tax Ruling or enter into a Closing Agreement, or settle or compromise any Audit or other controversy relating to Taxes, to the extent such action results in a Tax Detriment to the Company for any Post Closing Tax Period, (C) change any of its methods of reporting income, deductions or accounting for federal income tax purposes from those employed in the preparation of its federal income Tax Return for the taxable year ending December 31,1999, except as may be required by a change in Applicable Law after the date hereof or (D) file any Tax 25 Return in manner inconsistent with past custom and practice, except as may be required by a change in Applicable Law after the date hereof. (b) Without the prior written consent of Buyer, which consent shall not be unreasonably withheld, Seller will not, and will not permit the Company to (i) take or omit to take any action that would be reasonably likely to cause any of the representations and warranties made by Seller in this Agreement to become untrue; or (ii) take any action that would prevent or materially impair the ability of Seller to consummate the transactions contemplated by this Agreement, including, without limitation, actions that would be reasonably likely to prevent or materially impair the receipt of any consent, registration, approval, permit or authorization, that is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. (c) At least 30 days prior to the Company making any capital expenditures in excess of $100,000 in the aggregate (except as required to support the business generated by LMG), Seller shall notify Buyer of such proposed capital expenditure and Buyer shall have the right to notify Seller of its objection to such capital expenditure; provided, however, that the ultimate decision of whether to make any such capital expenditure rests with the Company. The Purchase Price shall be reduced pursuant to Section 2.01(d) for any losses to the Company caused by any capital expenditure that the Company makes as to which Buyer has provided a timely objection as provided in this Section 5.02(c) and if the Closing has occurred, Seller shall indemnify Buyer pursuant to Section 10.01(a)(iii) for any such losses that have not been applied to reduce the Purchase Price. Section 5.03. Cooperation. Each party shall use its reasonable best efforts, in cooperation with the other party, to satisfy all conditions precedent to the consummation of the transactions contemplated by this Agreement. Section 5.04. Regulatory Approvals. Each of Seller and Buyer shall use its reasonable best efforts, and shall reasonably cooperate with each other in such efforts, to obtain the approvals of all Governmental Entities required to be obtained by Seller or Buyer or by any Affiliate of Seller or Buyer in order to consummate the transactions contemplated by this Agreement. Seller and Buyer shall make and cause their respective subsidiaries to make all necessary filings as soon as practicable, including, without limitation, those required by the Hart-Scott-Rodino Act (if deemed necessary by the parties) and applicable insurance laws in order to facilitate prompt consummation of the transactions contemplated by this Agreement. Seller and Buyer shall use reasonable best efforts to provide such information and communications to any Governmental Entity as such Governmental Entity may reasonably request. Each of Seller and Buyer shall provide to the other copies of all non-confidential portions of applications filed or submitted with any Governmental Entity in connection with this Agreement and shall keep the other apprised of the status of matters relating to the completion of the transactions contemplated by this Agreement. 26 Section 5.05. Notification of Changes. Each party shall give each other prompt notice after it has obtained knowledge of (a) any fact or circumstance which renders untrue, incorrect or misleading in any material respect any of the representations and warranties made by it in this Agreement, whether as of the date such representation and warranty was made or as of the date such knowledge was obtained and (b) any failure on its part to comply with or satisfy in any material respect any covenant, condition or agreement which they are to comply with or satisfy under this Agreement and (c) any adverse change affecting its ability to perform its obligations under this Agreement. Section 5.06. Confidentiality of Information. The parties shall maintain strict confidentiality during the development and pre-marketing stages with respect to any products jointly developed by them except with respect to information that has otherwise become publicly known, or as required by applicable law, court order, or regulatory authority. Section 5.07. Intercompany Accounts. Schedule 5.07(a) contains a complete list of all intercompany balances, including loans and advances and commitments with respect thereto, and specifies the principal amount, rate of interest and payment terms thereof in respect of the Company, on the one hand, and Seller and Seller's Affiliates (other than the Company), on the other hand. All intercompany balances listed on Schedule 5.07(a) (other than those set forth in Schedule 5.07(b)) shall have been satisfied and all commitments with respect thereto shall have been terminated on or before the Closing Date. Section 5.08. Long-Term Contracts. At least 30 days prior to entering into any such contract or making any such commitment, Seller shall provide notice to Buyer of the Company's intent to enter into any Contract that by its terms extends beyond one year and is either not cancelable by the Company or is cancelable by the Company with a penalty (other than any Insurance Contract with respect to which LMG acted as agent or to which LMG or Buyer is a party) (a "Long Term Non-Cancelable Contract"). Buyer shall have the right to notify Seller of its objection to any such contracts or commitments in its reasonable discretion within thirty (30) days of its receipt of notice from Seller or the Company of the Company's intent to enter into any such contract or commitment; provided, however, that the ultimate decision of whether to enter into any such contract or commitment shall rest with the Company. The Purchase Price shall be reduced pursuant to Section 2.01(d) for any losses to the Company caused by any contract or commitment that the Company enters into as to which Buyer has provided a timely objection as provided in this Section 5.08 and if the Closing shall have occurred, Seller shall indemnify Buyer pursuant to Section 10.01(a)(iii) for any such losses that have not been applied to reduce the Purchase Price. Section 5.09. Extraordinary Payments. Seller covenants and agrees that it shall cause the Company not to pay dividends, distributions, loans, capital or extraordinary payments to Seller, or to make any other payments by the Company to Seller other than payments in the ordinary course of business by the Company to Seller (including but not limited to, payments under existing reinsurance, management service or tax allocation agreements), which shall be permissible; provided, however, the parties 27 acknowledge that the ultimate decision to make any such dividends, distributions, loans or extraordinary payments rests with the board of directors of the Company. The Purchase Price will be reduced by the amount of any such dividends, distributions, loans, capital or extraordinary payments pursuant to Section 2.01(c). Copies of any such intercompany agreements shall be made available to Buyer. Section 5.10. Board of Directors Meetings. Seller shall cause the Company to allow two persons designated by Buyer to (i) attend meetings of the Company's board of directors and (ii) attend meetings with representatives of rating agencies relating to the business and operations of the Company. Section 5.11. NAIC/State Investigations. Seller shall provide prompt notice to Buyer of any investigations initiated, or issues identified, by the National Association of Insurance Commissioners or any state insurance department or any other Governmental Entity with respect to the Company, and Seller shall provide Buyer with copies of any and all correspondence pertaining thereto. Section 5.12. Annuity and Life Insurance Products. Seller shall not and Seller shall cause the Company to not engage in any transaction with any independent producer group with respect to any annuities or life insurance products which transaction is similar to the Marketing Agreement dated as of June 5, 2002 between LMG and the Company; provided, however, the parties acknowledge that the ultimate decision to enter into any such contracts rests with the board of directors of the Company. If the transactions contemplated by this Agreement and the Purchase Option Agreement are consummated, the Purchase Price shall be reduced pursuant to Section 2.01(d) for any current or projected future losses to Buyer caused by any contract or commitment that the Company or Seller enters into for which Seller has not obtained the prior written consent of Buyer, or if the Closing shall have occurred, Seller shall indemnify Buyer pursuant to Section 10.01(a)(iv) for any such losses that have not been applied to reduce the Purchase Price. Seller will maintain strict confidentiality with respect to any products jointly developed with Buyer. Section 5.13. TPA Business (a) Seller shall give Buyer 30 days advance notice of any proposed new non-Buyer related TPA Agreements that involve IMG or the Company. Buyer shall have the right to review any such agreements and object to any such agreements involving the Company; provided, however, the parties acknowledge that the ultimate decision to enter into any such agreements rests with the board of directors of the Company. (b) Buyer shall also have the right to request that the Company transfer IMG at its statutory book value as of June 30, 2002 (current value) with no after-tax gain or loss to the Company based on current value, to another Seller company; provided, however, the parties acknowledge that the ultimate decision to make any such transfer rests with the board of directors of the Company. The Purchase Price shall be reduced pursuant to Section 2.01(d) or Seller shall indemnify the Company pursuant to Section 10.01(a)(iii) for the liabilities related to any such TPA Agreements. 28 Section 5.14. Statutory Financial Information. Seller shall provide Buyer with statutory financial information that shows separate reporting lines for (i) business produced through Buyer or its subsidiaries including LMG and (ii) business of the Company not produced through Buyer or its subsidiaries ("Non-Buyer Business"). The Purchase Price shall be reduced pursuant to Section 2.01(d) for any losses to Buyer or the Company resulting from the Non-Buyer Business or Seller shall indemnify Buyer pursuant to Section 10.01(a)(ii) for any such losses that have not been applied to reduce the Purchase Price. Section 5.15. Participation in Meetings. Buyer shall have the right to attend and participate in the Company's investment and product management committee meetings with respect to interest rates, product design/pricing and asset/liability modeling; provided, however, that the Company shall have ultimate decision making authority at such meetings. Section 5.16. Capacity for Buyer-produced Products. Seller agrees to provide or find capacity for Buyer-produced products meeting Seller's return on investment objectives either in the Company or another insurance company; provided that the ultimate decision of the Company to underwrite any such products shall rest with the board of directors of the Company. Seller will provide capacity for $1.0 billion of annual production and will use its best efforts to provide or find capacity for amounts in excess of $1.0 billion annually. Section 5.17. Amendments to Reinsurance Agreements. Seller agrees to reinsure Company business produced through Buyer or its subsidiaries (including LMG) (i) on an automatic 80% quota share coinsurance basis pursuant to one or more treaties with terms that would be found in agreements negotiated on an arm's length basis, and (ii) on an additional automatic 10% quota share funds withheld coinsurance basis pursuant to one or more treaties under which Seller will provide the Company with surplus in exchange for an annual expense and risk charge of 2% of surplus provided until the Closing Date, after which the expense and risk charge shall be adjusted to a market rate as determined by a nationally recognized actuarial firm, but in no event in excess of 6% per year. Beginning on the Closing Date, the Company shall have the right to require recapture of the 10% quota share funds withheld treaties pursuant to their terms. In addition, Seller agrees (subject to receipt of regulatory approval or non-disapproval) to amend all Company reinsurance treaties (including those covering Non-Buyer Business) as of the Closing Date to include (i) a DAC tax provision designed to achieve equitable allocation between the parties and (ii) a provision for reinsurer participation in state guaranty fund assessments. Seller will not otherwise amend such reinsurance treaties and will cause the Company to maintain such reinsurance treaties in force prior to the Closing Date; provided, however, the parties acknowledge that the ultimate decision of the Company to amend or terminate such treaties rests with the board of directors of the Company. Notwithstanding the preceding sentence, Seller may at its sole option cause the management of the Company to amend or novate reinsurance treaties covering Non-Buyer Business provided that any such amendment or novation does not have an adverse effect on the Company. If the transactions contemplated by this Agreement and the Stock Purchase Agreement are consummated, the Purchase Price shall 29 be adjusted pursuant to Section 2.01(d) for any current or projected future losses to the Company caused by any amendment, novation or termination of any reinsurance treaty between Seller or its Affiliates and the Company for which Seller has not obtained the prior written consent of Buyer, and if the Closing shall have occurred, Seller shall indemnify Buyer pursuant to Section 10.01(a)(iv) for any such losses that have not been applied to reduce the Purchase Price. Section 5.18. Maintenance of Credit Rating. Seller shall use its best efforts to maintain the Company's credit rating issued by A.M. Best & Co. at "A-" or better. Section 5.19. Acknowledgement of Investment Guidelines. Buyer has provided Seller a formal acknowledgment of the current investment guidelines for the Company, and any revisions thereto. Buyer understands and agrees that the investment advisor for Seller will continue to act with discretionary authority under the approved investment guidelines to construct comparable investment portfolios between Seller and the Company, it being understood that investments allocated to the Company shall be representative of Seller's total investment portfolio as to yield, credit rating and risk. Seller shall advise Buyer of all investment review conclusions. Buyer may recommend to Seller the exclusion or further limitation of any approved asset class in the investment guidelines; provided, however, the ultimate investment decisions shall rest with the board of directors of the Company. To the extent such recommendations are accepted by Seller, Buyer must then accept any impact that this action has on the pricing of the underlying policies or interest credited to the policyholders. On a prospective basis, Buyer may also provide Seller with a specific list of individual securities that Buyer does not wish to be purchased for the portfolios on a prospective basis. Both Seller and Buyer accept the financial impact of the securities purchased previously for the portfolios and will work together to optimize the economic results. ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE Buyer's obligation to consummate the transactions contemplated by this Agreement is subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Buyer to the extent permitted by law: Section 6.01. Representations and Covenants. The representations and warranties of Seller contained in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except that any such representations and warranties that are given as of a particular date and relate solely to a particular date or period shall be true and correct as of such date or period. Seller shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Seller on or prior to the Closing Date. On the Closing Date, Seller shall have 30 delivered to Buyer a certificate dated as of the Closing Date, and signed by a senior officer of Seller, to the effect contemplated by this Section 6.01. Section 6.02. Administrative Services Agreement(a) . Seller and the Company shall have entered into an administrative services agreement (the "Administrative Services Agreement") on terms acceptable to Buyer in its sole discretion, pursuant to which the Company shall administer Non-Buyer Business, if such business remains with the Company, or Seller or an Affiliate of Seller will assume the administration thereof. Section 6.03. Approvals and Consents. The approvals and consents listed on Schedules 3.03 and 4.03 hereto shall have been received, or deemed received; provided, however, that if Seller cannot obtain a consent listed in Schedule 3.03 from a Person other than a Governmental Entity, Seller shall have the option (but not the requirement) to provide Buyer with substantially equivalent arrangements with respect to the item for which such consent could not be obtained, in which event the condition contained in this Section 6.03 shall be deemed satisfied. All applicable waiting periods under any federal or state statute or regulation shall have expired or been terminated. Section 6.04. Injunction and Litigation. There shall not be in effect or threatened any injunction, writ, preliminary restraining order or any order of any nature directing that the transactions contemplated by this Agreement not be consummated as herein provided. Section 6.05. Employee Matters. Immediately prior to the Closing, Seller shall have caused the Company to terminate the employment of all Company Employees. Buyer shall have the right, but not the obligation, to offer employment to any or all Company Employees on such terms and conditions as may be determined by Buyer. From and after the Closing Date, Buyer shall grant all Company Employees who become employees of Buyer or any subsidiary of Buyer (including the Company) ("Transferred Employees"), for purposes of all such benefit rights, credit for all service with Seller, the Company or any other Affiliate of Seller prior to the Closing Date (to the same extent that such service would have been taken into account if it had been service with Buyer) except, in the case of retirement benefits, to the extent that this would result in duplication of accruals. Buyer and Seller agree that where applicable with respect to any medical or dental benefit plan of Buyer, (i) Buyer shall waive, with respect to any Transferred Employee, any pre-existing condition exclusion and actively-at-work requirements (to the extent such exclusion or requirement would not have applied under the applicable Company Employee Plan) and (ii) any covered expenses incurred on or before the Closing Date by a Transferred Employee or a Transferred Employee's covered dependents shall be taken into account for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions after the Closing Date to the same extent as such expenses would be taken into account if incurred by similarly situated employees of Buyer. 31 Section 6.06. Lease Obligations. Seller shall have assumed all obligations, including, without limitation, rental obligations, related to all Leased Real Property. Section 6.07. Certificate of Non-Foreign StatusSection 6.08. . Buyer shall have received a certificate from Seller (which complies with Section 1445 of the Code) of non-foreign status executed in accordance with the provisions of Section 897 of the Code. ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE Seller's obligation to consummate the transactions contemplated by this Agreement is subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Seller to the extent permitted by law. Section 7.01. Representations, Warranties and Covenants. The representations and warranties of Buyer contained in this Agreement shall be true and correct on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except that any such representations and warranties that are given as of a particular date and relate solely to a particular date or period shall be true and correct as of such date or period. Buyer shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Buyer on or prior to the Closing Date. On the Closing Date, Buyer shall have delivered to Seller a certificate dated as of the Closing Date, and signed by a senior officer of Buyer, to the effect contemplated by this Section 7.01. Section 7.02. Approvals and Consents. The approvals and consents listed in Schedule 3.03 and 4.03 hereto shall have been received or deemed received. All applicable waiting periods under any federal or state statute or regulation shall have expired or been terminated. Section 7.03. Injunction and Litigation. There shall not be in effect or threatened any injunction, writ, preliminary restraining order or any order of any nature directing that the transactions contemplated by this Agreement not be consummated as herein or therein provided. ARTICLE VIII POST-CLOSING COVENANTS Section 8.01. Cooperation. After Closing, Seller and Buyer shall, and Buyer shall cause the Company to, cooperate with each other by furnishing any additional information and executing and delivering any additional documents as may be 32 reasonably requested by the other to further perfect or evidence the consummation of, or otherwise implement, any transaction contemplated by this Agreement, or to aid in the preparation of any regulatory filing, financial statement or Tax Return; provided, however, that any such additional documents must be reasonably satisfactory to each of the parties and not impose upon either party any material liability, risk, obligation, loss, cost or expense not contemplated by this Agreement. Section 8.02. Post-Closing Obligation to Obtain Permits. Following the Closing, Seller and Buyer will, and Buyer will cause the Company to, cooperate fully in obtaining all necessary additional foreign, federal, state, local and any other approval and/or consents and complying with any notice or filing requirements of any such jurisdiction, as may be required in connection with the consummation of the transactions contemplated hereby. Section 8.03. Regulatory Compliance. Buyer and Seller and their agents, representatives and Affiliates shall, and Buyer shall cause the Company to, comply in all material respects with all laws, regulations, administrative orders, bulletins and governmental pronouncements applicable to their conduct in performing their obligations under this Agreement. Section 8.04. Use of Names (a) Notwithstanding any inference contained herein or in any prior course of conduct to the contrary, except as permitted by written agreement, in no event shall Buyer or any of its Affiliates have any right to use, nor shall Buyer or any of its Affiliates use, any corporate name or acronym of Seller or any of its Affiliates (other than the Company) in any jurisdiction, including the names and acronyms set forth in Schedule 8.04, or any Intellectual Property, domain name or URL or any application or registration therefor, owned by, licensed to, or used by Seller or any of its Affiliates (other than the Company), or any other name, term or identification that suggests, simulates or is otherwise confusing due to its similarity to the foregoing. It is further understood that Buyer and its Affiliates shall not have the right to use, and shall not use, the name "SCOR." (b) The parties hereto acknowledge that any damage caused to Seller or any of its Affiliates by reason of the breach by Buyer or any of its Affiliates of this Section 8.04 would cause irreparable harm that could not be adequately compensated for in monetary damages alone; therefore, each party agrees that, in addition to any other remedies, at law or otherwise, Seller and any of its Affiliates shall be entitled to an injunction issued by a court of competent jurisdiction restraining and enjoining any violation by Buyer or any of its Affiliates of this Section 8.04, and Buyer further agrees that it will stipulate to the fact that Seller or any of its Affiliates, as applicable, has been irreparably harmed by such violation and not oppose the granting of such injunctive relief. Section 8.05. Investment Intent of Buyer. Buyer will refrain from transferring or otherwise disposing of any of the Shares acquired by it, or any interest 33 therein, in such manner as to violate any registration provision of the Securities Act or any applicable state securities law regulating the disposition thereof. Section 8.06. Transfer Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees incurred in connection with this Agreement shall be borne equally by Seller and Buyer. ARTICLE IX SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS Section 9.01. Survival of Representations, Warranties and Covenants. The representations and warranties contained in Sections 3.01, 3.02, 3.04, 3.12, 3.22, 4.01 and 4.02 shall survive the Closing for 45 days following the expiration of all applicable statutes of limitations including all extensions, whether automatic or permissive. Except as provided in the previous sentence, all representations, warranties and covenants made by Seller and Buyer in Articles III, IV and VIII of this Agreement shall survive for a period of two years after the Closing Date, whereupon they shall expire, and all claims for breach of said representations and warranties will be deemed waived unless the nonbreaching party notifies in writing the breaching party of the matters constituting the breach prior to the expiration of said two-year period. ARTICLE X INDEMNIFICATION Section 10.01. Obligation to Indemnify (a) Seller agrees to indemnify, defend and hold harmless Buyer and its directors, officers, employees, Affiliates and assigns from and against (i) the financial impact, if any, of Founders' Policies, (ii) all claims, losses, liabilities, damages, deficiencies, costs or expenses, penalties and reasonable outside attorneys' fees and disbursements (collectively, "Losses," and individually a "Loss"), asserted against, imposed upon or incurred by Buyer directly or indirectly, by reason of or arising out of or in connection with in-force contracts and Non-Buyer Business, (iii) Losses and liabilities incurred by the Company or Buyer related to the Specified Matter, but only to the extent that such Losses have not previously been deducted from the Purchase Price; (iv) Losses and liabilities incurred by the Company or Buyer for capital expenditures, long term contracts and TPA Agreements as to which Buyer has timely objected pursuant to Sections 5.02(c), 5.08, or 5.13, as applicable, but only to the extent that such Losses have not previously been deducted from the Purchase Price; (v) current and projected Losses incurred (1) by the Buyer pursuant to Section 5.12 or (2) by the Company pursuant to Section 5.17, as applicable, but only to the extent such Losses have not previously been deducted from the Purchase Price; (vi) Losses incurred by the Company from investments not made in accordance with the investment guidelines established pursuant to Section 5.20; (viii) Losses asserted against, imposed upon or incurred by Buyer directly or indirectly, by reason of or arising out of or in connection with any misrepresentation, breach of or failure to perform any representation, warranty, covenant 34 undertaking or agreement of Seller in this Agreement; and (ix) liability incurred by Buyer or the Company related to or arising out of the employment of the Employees or any other employees of the Company or its Affiliates on or prior to the Closing Date (including any liability related to or arising out of any Plan and any liability related to termination of employment on or prior to the Closing Date). The maximum amount for which Seller shall be liable under this Article X shall not exceed in the aggregate the Purchase Price. No individual Loss not in excess of $25,000 shall be indemnifiable under this Article X or considered in determining the amounts for which indemnity would otherwise be provided under this Section 10.01(a). (b) Buyer agrees to indemnify, defend and hold harmless SCOR, the ultimate parent holding company of Seller ("SCOR"), from and against (i) any claims relating to business generated by LMG arising under (1) that certain Letter of Guarantee Agreement from SCOR dated as of September 1, 2000, (2) Letter of Guarantee dated February 1, 2002 and (3) Guarantee Agreement dated December 27, 2002, pursuant to which SCOR guaranteed that the Company would perform its claims payment obligations, and any renewals or extensions thereof, (ii)Losses asserted against, imposed upon or incurred by Seller directly or indirectly, by reason of or arising out of or in connection with any misrepresentation, breach of or failure to perform any representation, warranty, covenant undertaking or agreement of Buyer in this Agreement, and (iii) the conduct of the business of the Company from and after the Closing. The maximum amount for which Buyer shall be liable under this Article X shall not exceed in the aggregate the Purchase Price and no individual Loss not in excess of $25,000 shall be indemnifiable under this Article X or considered in determining the amounts for which indemnity would otherwise be provided under this Section 10.01(b). Section 10.02. Notice of Asserted Liability. Promptly after receipt by an indemnified party hereunder of notice of any demand, claim or circumstances which, with or without the lapse of time, would give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an "Asserted Liability") that may result in a Loss, such indemnified party shall give notice thereof (the "Claims Notice") to the indemnifying party. The Claims Notice shall describe the Asserted Liability in reasonable detail and shall indicate the amount (estimated, if necessary) of the Loss that has been or may be suffered by such indemnified party and shall include a statement as to the basis for the indemnification sought. Failure to provide a Claims Notice in a timely manner shall not be deemed a waiver of the indemnified party's right to indemnification other than to the extent that such failure prejudices the defense of the claim by the indemnifying party. Section 10.03. Opportunity to Defend. The indemnifying party may elect to compromise or defend, at its own expense and by its own counsel, any Asserted Liability; provided, however, the indemnifying party may not compromise or settle any Asserted Liability without the consent of the indemnified party (which consent shall not be unreasonably withheld or delayed) unless such compromise or settlement requires no more than a monetary payment for which the indemnified party hereunder is fully indemnified or involves no other matters binding upon the indemnified party. If the indemnifying party elects to compromise or defend such Asserted Liability, it shall 35 within 30 days from receipt of the Claims Notice notify the indemnified party of its intent to do so, and the indemnified party shall cooperate, at the expense of the indemnifying party, in the compromise of, or defense against, such Asserted Liability. Section 10.04. Exclusive Remedy. The parties hereto expressly acknowledge that (a) the provisions of this Article X shall be the sole and exclusive remedy for damages caused as a result of breaches of the representations, warranties and covenants contained in this Agreement, except that the parties shall not be limited to the remedies provided in this Article X with respect to any covenants or agreements to be performed after the Closing Date and (b) no indemnifying party shall be liable or otherwise responsible to any other Person for special, consequential, incidental or punitive damages or for diminution in value or lost profits that arise out of or relate to this Agreement or the Related Agreements or the performance or breach hereof or thereof. Section 10.05. Third Party Beneficiaries. All indemnified parties are intended to be third party beneficiaries of this Article X. Section 10.06. Tax Loss. Any Losses with respect to Taxes shall be subject to indemnification solely pursuant to the provisions of Article XI and the provisions of this Article X shall not apply. Section 10.07. After-tax Basis. The Parties agree to treat any payment made with respect to any Losses pursuant to this Article X as an adjustment to the Purchase Price to the extent permissible under Applicable Law. In the event such payment can not be treated as an adjustment to purchase price, the payment will be made on after-Tax basis, computed as though the indemnified party will be taxed on such payment at the highest applicable marginal income tax rate under federal, state and local law. ARTICLE XI TAX MATTERS Section 11.01. Tax Indemnification (a) Seller shall be liable for and shall indemnify and hold Company, Buyer and its Affiliates harmless from and against Taxes of the Company arising out of, relating to or otherwise attributable to (i) any Pre-Closing Tax Period, (ii) Treasury Regulation Section 1.1502-6 (or any similar provision of foreign, state or local law) with respect to Taxes of Seller or the Seller Consolidated Group, (iii) any Tax Sharing Agreement in effect on or prior to the Closing Date, (iv) misrepresentations or breaches of warranties provided on Section 3.12 and 3.22 of this Agreement, or (v) Transfer Taxes (as defined below), including in each case, but not limited to, any Taxes attributable to any transaction specifically contemplated by this Agreement other than any election under Code section 338(h)(10), ((i), (ii), (iii), (iv) and (v) being referred to as a "Tax Loss"); provided, however, that Seller shall only be liable for and shall only be required to indemnify and hold Buyer harmless from and against the Tax Loss to the extent, if any, 36 that the Tax Loss exceeds the amount specifically reserved and accrued as a liability for Taxes on the June 30, 2002 SAP balance sheet with respect to such Tax Loss (the "Excepted Amounts"). Buyer shall be liable for and shall pay (and shall promptly indemnify and hold Seller and their Affiliates harmless from and against) all Post-Closing Period Taxes of or attributable to the Company that are not indemnifiable or payable by Seller pursuant to this Agreement. The term "Pre-Closing Tax Period" shall mean all taxable periods ending on or before the Closing Date and the portion ending on the Closing Date of any taxable period that includes the Closing Date. The term "Post-Closing Tax Period" shall mean all taxable periods that begin after the Closing Date and the portion beginning after the Closing Date of any taxable period that includes (but does not end on) the Closing Date. (b) For purposes of this Section 11.01, in the case of any Taxes that are imposed on a periodic basis and are payable for a Tax period that includes (but does not end on) the Closing Date, the portion of such Tax related to the portion of such Tax period ending on the Closing Date shall (i) in the case of any Taxes other than Income Taxes (as defined below), be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction the numerator of which is the number of days in the Tax period ending on the Closing Date and the denominator of which is the number of days in the entire Tax period, and (ii) in the case of any Tax directly or indirectly based upon or related to gross income, net income, gains, sales, gross receipts, premiums, wages, capital expenditures or expenses ("Income Taxes"), be deemed to be equal to the amount which would be payable if the relevant Tax period ended on the Closing Date. In the case of Income Taxes described in the preceding sentence, if either Buyer or its Affiliates, on the one hand, or Seller or their Affiliates, on the other hand, incurs a material Tax Detriment as a result of a Tax period not ending on the Closing Date, and the other party is materially benefited from such circumstance, the party benefited shall reimburse the party adversely affected to the extent of the lesser of (1) the Tax benefit realized or (2) the Tax Detriment incurred. Seller and Buyer agree to cause the Company to file all Tax Returns for the period including the Closing Date on the basis that the relevant taxable period ended as of the close of business on the Closing Date, unless the relevant Governmental Entity will not accept a Tax Return filed on that basis. For the purposes of this paragraph (b), a Tax benefit or Tax Detriment is "material" to the extent it exceeds $100,000. (c) Except as otherwise provided under this Agreement, to the extent that any party has an indemnification or payment obligation (a "Tax Indemnifying Party") to another party pursuant to this Article XI (a "Tax Indemnitee"), the Tax Indemnitee shall provide the Tax Indemnifying Party with its calculation of the amount of any liability owning hereunder (the "Tax Indemnified Liability"). Such calculation shall provide sufficient detail to permit the Indemnifying Party to reasonably understand the calculations, the existence of a Tax Indemnity Liability or the appropriate indemnity amount. All indemnification payments shall be made to such Tax Indemnitee or to the appropriate Governmental Entity as specified by the Tax Indemnitee within the time prescribed for payment in this Agreement, or if no period is prescribed, within thirty (30) days after delivery by the Tax Indemnitee to the Tax Indemnifying Party of written notice of a payment or if such Tax Indemnified Liability is contested pursuant to Section 11.01 of this Agreement, within thirty (30) days of the incurrence of such an amount based on a 37 Final Determination, together with a computation of the amounts due. Any disputes with respect to indemnification payments shall be resolved in accordance with the procedures provided under Section 11.04(d). (d) If, after the date of this Agreement: (1) Seller or any Seller Affiliate receives written notice of, or relating to, an Audit from a Governmental Entity that asserts, proposes or recommends a deficiency, claim or adjustment (a "Tax Contest") that, if sustained, could result in Taxes for which Buyer, Company or any Buyer Affiliate is responsible under this Agreement, then Seller shall provide or cause to be provided a copy of such notice to Buyer within ten (10) Business Days of receipt thereof and Seller shall promptly forward or cause to be forwarded to Buyer relevant portions of any reports or other communications which relate to such matters. (2) Buyer, Company or any Buyer Affiliate receives written notice of, or relating to, a Tax Contest that, if sustained, could result in Taxes for which Seller or any Seller Affiliate is responsible under this Agreement, then Buyer shall provide or cause to be provided a copy of such notice to Seller within ten (10) Business Days of receipt thereof and Buyer shall promptly forward or cause to be forwarded to Seller relevant portions of any reports or other communications which relate to such matters. (e) Tax Indemnifying Party may discharge, at any time, its indemnification obligation under this Section 11.01 by paying to Tax Indemnitee the amount of the applicable Tax Loss (in excess of the Excepted Amounts, if any) calculated on the date of such payment. Tax Indemnifying Party may, at its own expense, participate in and, upon notice to Tax Indemnitee, assume the defense of any Tax Contest for which the Tax Indemnifying Party has sole liability by providing written notice to the Tax Indemnitee within 10 (ten) Business Days of the receipt of the notice required under Section 11.01(d) of this Agreement. If the Indemnifying Party does not assume the defense of any such Tax Contest, the Tax Indemnitee may defend the same in such manner as it may deem appropriate, including, but not limited to, settling such Tax Contest after giving ten (10) Business Days' prior written notice to the Tax Indemnifying Party setting forth the terms and conditions of settlement. (f) In the event of a Tax Contest that involves issues (i) relating to a potential adjustment for which the Tax Indemnifying Party has liability and (ii) that are required to be dealt with in a proceeding that also involves separate issues relating to a potential adjustment for which any Tax Indemnitee would be liable, (A) the Tax Indemnifying Party shall have the right at its expense to control the Tax Contest but only with respect to the former issues and (B) the Tax Indemnitee shall have the right at its expense to control the Tax Contest but only with respect to the latter issues. (g) With respect to a Tax Contest involving an issue for which both (i) Seller or their Affiliates or (ii) Buyer or any Buyer Affiliate could be liable or otherwise 38 bear the burden of any Tax liability or Tax Detriment relating to such issue, each party may participate in the Tax Contest, and the Tax Contest may be controlled by that party which would bear the burden of the greater portion of the sum of the adjustment and any corresponding adjustments that may reasonably be anticipated for future taxable periods. The principle set forth in the immediately preceding sentence shall govern also for purposes of deciding any issue that must be decided jointly (including, without limitation, choice of judicial forum) in situations in which separate issues are otherwise controlled under Section 11.01(f) of this agreement by Seller or Buyer. (h) Whether or not the Tax Indemnifying Party chooses to defend or prosecute any Tax Contest, all of the parties hereto shall cooperate in the defense or prosecution thereof. The Tax Indemnifying Party shall not be liable under this Section 11.01 for (i) any Tax claimed or demanded by any Governmental Entity, the payment of which was made without the Indemnifying Party's prior written consent unless the Tax Indemnifying Party refused to participate in the proceedings and assume the defense or (ii) any settlements effected without the consent of the Tax Indemnifying Party, resulting from any Audit in which the Tax Indemnifying Party was not permitted an opportunity to participate as provided herein. (i) In the case of any Tax Contest, the party that is controlling the Tax Contest pursuant to Sections 11.01(e), (f) or (g) (the "Controlling Party") shall: (1) in the case of any material correspondence or filing submitted to a Governmental Entity or any judicial authority that relates to the merits of such Tax Contest (A) provide the other party (the "Non-Controlling Party") in advance of submission, but subject to applicable time constraints imposed by such Governmental Entity, with a draft copy of the portion of such correspondence or filing that relates to such Tax Contest, (B) incorporate, subject to applicable time constraints imposed by such Governmental Entity, the Non-Controlling Party's reasonable comments and changes on such draft copy of such correspondence or filing, and (C) provide the Non-Controlling Party with a final copy of the portion of such correspondence or filing that relates to such Tax Contest; and (2) provide the Non-Controlling Party with notice reasonably in advance of, and the Non-Controlling Party shall have the right to attend, any meetings with a Governmental Entity (including meetings with examiners) or hearings or proceedings before any Governmental Entity to the extent they relate to such Tax Contest. (j) The failure of a Tax Indemnitee to promptly notify the Tax Indemnifying Party of any matter relating to a particular Tax for a taxable period or to take any action specified in Section 11.01 of this Agreement shall not relieve the Tax Indemnifying Party of any liability and/or obligation which it may have under this Agreement with respect to such Tax for such Tax period except to the extent that Tax Indemnifying Party's rights hereunder are materially prejudiced by such failure and in no event shall such failure relieve the Tax Indemnifying Party of any other liability and/or obligation which it may have to a Tax Indemnitee. 39 (k) The Tax Indemnifying Party shall have no right to contest any Tax Contest in accordance with Section 11.01 unless: (1) within thirty (30) Business Days of a reasonable request by the Tax Indemnitee, the Tax Indemnifying Party shall deliver to the Tax Indemnitee a written opinion of a nationally recognized Tax attorney or Tax accountant that is a member of a recognized law firm or accounting firm, to the effect that the Tax Indemnifying Party's position with respect to such deficiency, claim or adjustment is supported by a reasonable basis (within the meaning of Treasury Regulations Section 1.6662-3(b)(3)); (2) the Tax Indemnifying Party shall have agreed to be bound by a Final Determination of such Tax Contest; (3) the Tax Indemnifying Party shall have agreed to pay, and shall be currently paying, all reasonable costs and expenses incurred by the Tax Indemnitee to contest such deficiency, claim or assessment including reasonable outside attorneys', accountants' and investigatory fees and disbursements to the extent such costs relate to the issue being contested by the Tax Indemnitee, and (4) the Tax Indemnifying Party shall have advanced to the Tax Indemnitee, on an interest-free basis (and with no additional net after-tax cost to the Tax Indemnitee), the amount of Tax in controversy (but not in excess of the lesser of (A) the amount of Tax for which the Tax Indemnifying Party could be liable under this Agreement or (B) the amounts actually expended by the Tax Indemnitee) to the extent necessary for the contest to proceed in the forum selected by the Tax Indemnifying Party. Section 11.02. Tax Sharing Agreements and Powers of Attorney. (a) All Tax Sharing Agreements with respect to or involving the Company, shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder. (b) Any powers of attorney with respect to any Tax matter related to the Company shall be cancelled, revoked or otherwise terminated as of the Closing Date. Section 11.03. Transfer Taxes. Seller shall prepare, execute and file all Tax Returns regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes or fees which become payable in connection with the transactions contemplated by this Agreement ("Transfer Taxes"). Seller shall bear any Transfer Taxes arising out of or in connection with the transactions effected pursuant to this Agreement. Section 11.04. Return Filings, Payments, Refunds and Credits. (a) Seller shall include the income of the Company for the Pre-Closing Tax Period in (I) the federal consolidated Income Tax Returns of Seller Consolidated Group and (II) any state consolidated, combined or unitary Income Tax Returns that are 40 required and that include the Company and any other member of Seller Consolidated Group other than the Company (together the "Consolidated Returns"), and shall file and be responsible for remitting all Taxes reflected on such Consolidated Returns. Buyer shall cause the Company to provide to Seller on a timely basis pro forma Income Tax Returns for the Pre-Closing Tax Period to be included in the Consolidated Returns. Seller shall prepare or cause to be prepared, and file or cause to be filed, all Tax Returns with respect to the Company, other than the Consolidated Returns, due on or before the Closing Date (taking into account extensions) and all Tax Returns that are required to be filed by or with respect to the Company for taxable years or periods ending on or before the Closing Date and shall be responsible for remitting or causing to be remitted all Taxes reflected on such Tax Returns. All Tax Returns prepared by Seller pursuant to this Section 11.04(a) shall be prepared in a manner consistent with past practice and without any change in elections or accounting methods (except as required by Applicable Law). Copies of all such Tax Returns (or the relevant portion thereof relating to the Company) shall be furnished to Buyer. (b) Buyer shall prepare or cause to be prepared, and file or cause to be filed, on a timely basis, all Tax Returns, other than the Consolidated Returns referred to in Section 11.04(a), with respect to the Company for taxable years or periods ending after the Closing Date and shall be responsible for remitting all Taxes reflected on such Tax Returns. (c) Seller and Buyer shall reasonably cooperate, and shall cause their respective Affiliates, agents, auditors, representatives, officers and employees to reasonably cooperate, in preparing and filing all Tax Returns (including amended Tax Returns and claims for refund), including maintaining and making available to each other all records necessary in connection with Taxes (at the sole expense of the requesting party) and in resolving all disputes and audits with respect to all taxable periods relating to Taxes. Seller and Buyer agree to retain or cause to be retained all books and records pertinent to the Company until the last relevant applicable period for assessment under Applicable Law (giving effect to any and all extensions or waivers) has expired, and to abide by or cause the abidance with all record retention agreements entered into with any Governmental Entity. Seller and Buyer shall cooperate with each other in the conduct of any Audit or other proceedings involving the Company for any Tax purposes and each shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this subsection. (d) Any Tax Return prepared by Seller pursuant to Section 11.04(a) for which Seller intends to seek reimbursement from Buyer or, effective after Closing, the Company, for any portion of the Taxes reflected on such Return, or any Tax Return prepared by, or at the direction of, Buyer pursuant to Section 11.04(b) for which Buyer intends to seek indemnification from Seller for any portion of the Taxes reflected on such Tax Return, shall be prepared in a manner consistent with past practice and without a change of any election or any accounting method (except as required by Applicable Law) and shall be submitted to Seller or Buyer, as the case may be, in sufficient time to permit a reasonable review prior to the due date (including extensions) of such Tax Return. Buyer or Seller, as the case may be, shall have the right to review (at such party's 41 expense and upon reasonable notice in a manner so as not to disrupt the orderly conduct of business) all work papers and procedures used to prepare any such Tax Return. Buyer or Seller, as the case may be, shall pay to the other party any amounts shown as due at least five (5) Business Days prior to filing of such Tax Return unless such Person, within twenty (20) Business Days after delivery of any such Tax Return, notifies the other party in writing that it objects to any items in such Tax Return. In connection with any disputed item, the parties shall proceed in good faith to resolve the disputed items and, if they are unable to do so within ten (10) Business Days, the disputed items shall be resolved (within a reasonable time, taking into account the deadline for filing such Tax Return) by the Accountant. Upon resolution of all disputed items, the relevant Tax Return shall be adjusted to reflect such resolution and shall be binding upon the parties without further adjustment. The costs, fees and expense of such Accountant shall be borne equally by Buyer and Seller. (e) Any refunds with respect to Income Tax Returns paid to Buyer, or the Company for any Pre-Closing Tax Period shall be paid to Seller by Buyer within ten (10) Business Days after receipt in cash or as a credit to Buyer's or the Company's Tax liability; provided, however, that any refund of a Tax relating to a Pre-Closing Tax Period resulting from the carryback of a net operating or capital loss of the Company arising in a Post-Closing Tax Period shall be paid to Buyer within ten (10) Business Days after receipt in cash or as a credit to Seller's or any member of the Company's Consolidated Group's Tax liability. Upon a request by Buyer, Seller Consolidated Group shall be required to include on a Consolidated Return any net operating losses or net capital loss of the Company in a Post-Closing Tax Period to the extent allowed under the Code; provided, that if Seller or any member of Seller Consolidated Group incurs a Tax Detriment, Buyer shall indemnify Seller for the amount of such Tax Detriment. (f) Seller shall not file or cause to be filed any amended Consolidated Return or Tax election if such return or election results in a Tax Detriment to the Company for any Post-Closing Tax period without the prior written consent of Buyer. Section 11.05. Defects with Respect to Insurance Products. To the extent that any Insurance Contract issued, assumed, modified, exchanged or sold by Company on or before the Closing Date is materially different from that which such Company represented at the time of its issuance, purchase, modification, exchange or assumption, any adverse consequences or damages relating to Taxes resulting therefrom will be cured at the expense of Seller within a reasonable time from notification of such defect. Section 11.06. Treatment of Indemnity Payments. (a) The Parties agree to treat any payment made with respect to any Tax Indemnified Liability or Transfer Taxes as an adjustment to the Purchase Price to the extent permissible under applicable Tax Law. In the event such payment can not be treated as an adjustment to purchase price, the payment will be made on after-Tax basis, computed as though the Tax Indemnitee will be taxed on such payment at the highest applicable marginal income tax rate under federal, state and local law. 42 Section 11.07. Section 338(h)(10) Election. (a) At Buyer's direction, Buyer and Seller shall make a joint election under Section 338(h)(10) of the Code and under any comparable or equivalent provisions of foreign, state or local law with respect to the purchase of by Buyer (the "Election"). Seller and Buyer shall report, in connection with the determination of Taxes, the transactions contemplated by this Agreement in a manner consistent with the Election, including the determination of the fair market value of the assets of the Company and the allocation of the deemed purchase price among the assets of the Company within the meaning of Section 338(h)(10) of the Code and the Treasury Regulations promulgated thereunder. (b) Buyer and Seller agree that they shall use their best efforts to enter into an agreement (the "Allocation Agreement") concerning the computation of the Aggregate Deemed Sale Price (as defined under applicable Treasury Regulations) of the assets of the Company and the allocation of such Aggregate Deemed Sale Price among such assets. Buyer and Seller agree that they shall use their best efforts to revise the Allocation Agreement to the extent necessary to reflect the differences, if any, between such computations and post-Closing Date adjustments to the Purchase Price no later than sixty (60) days before the last date on which the Election may be filed. If, sixty (60) days before the last date on which the Election may be filed, Buyer and Seller have not adopted or revised the Allocation Agreement as described above, any disputed aspects of the Allocation Agreement or such revision shall be resolved at a time prior to 35 days before the last date on which the Election may be filed, by the Accountant, or other independent accountants of nationally recognized standing (the "Accounting Firm") reasonably satisfactory to Buyer and Seller and having no material relationship with Buyer or Seller. The costs, expenses and fees of the Accounting Firm shall be borne equally by Buyer and Seller. Buyer and Seller agree to act in accordance with the allocations contained in the Allocation Agreement in any relevant Tax Returns or similar filings and to abide by any determination made by the Accounting Firm. (c) Buyer shall be responsible for the preparation and filing of all forms and documents required in connection with the Election. In connection with the Election, not later than forty-five (45) Business Days prior to the required due date thereof, Buyer shall provide Seller with copies of (i) a properly executed Form 8023A (or any successor form), (ii) all attachments required to be filed therewith pursuant to applicable treasury regulations and (iii) any comparable forms and attachments with respect to any applicable state or local elections being made pursuant to the Election, based upon Buyer's good faith allocation of the Purchase Price in the event the Parties have not agreed upon an Allocation Agreement. Seller shall execute and deliver to Buyer within thirty (30) days of the required due date therefor, such documents or forms as are required by the Applicable Laws to properly complete the Election as well as provide any information required to complete any documents or forms or otherwise required to be provided to any Governmental Entity in connection with the Election. Seller and Buyer shall cooperate fully with each other and make available to each other such Tax data and other information as may be reasonably required by Seller or Buyer in order to timely file the Election and any other required statements or schedules. Buyer shall promptly execute 43 and deliver to Seller any amendments made to Form 8023A (or any successor form) (and any comparable state and local forms) subsequent to the filing of the Election and any attachments which are required to be filed under Applicable Law, including any amendments to Form 8023A (or any successor form) necessitated by any indemnification payments made pursuant to Section 11.01. (d) Seller shall take no action which is inconsistent with the requirements for filing the Election under the Code and the applicable Treasury Regulations. (e) To the extent permitted by state or local laws, the principles and procedures of this Section shall also apply with respect to any and all Elections. (f) Buyer shall have no liability to Seller for, and shall not be deemed to have indemnified, under any provision of this Agreement or otherwise, Seller from and against, for or in respect of, any Taxes which may be imposed upon or assessed against Seller as a result of the Election. Section 11.08. Reimbursement of Excess Tax Cost. In the event that the Election under Section 11.07 is made, Buyer shall pay to Seller the Excess Tax Cost, if any, resulting from such Election. For purposes of this Agreement, the term "Excess Tax Cost" means the excess of the Tax that Seller would incur on the sale of the Company resulting from the Election ("Election Cost") over the Tax that Seller would incur had the Election not been made. In calculating the Election Cost, any taxable income generated by the Election shall be reduced by (a) the Company's "net operating losses" and "net capital losses," as defined in the Code, to the extent any such net operating losses and net capital losses are actually available to reduce a Tax on the sale. In calculating the Excess Tax Cost, the payment of the Excess Tax Cost itself shall be taken into account as additional purchase price. In order for Buyer to make a timely decision regarding the Election and prepare such Elections within the periods set forth in Section 11.07, Seller agrees to provide to Buyer a calculation of the Excess Tax Cost (including copies of supporting documentation) within 45 days of the Closing Date. If Seller does not provide Buyer such a calculation within 45 days of the Closing Date or notifies Buyer prior to the expiration of such 45 days that the Excess Tax Cost is zero, the Excess Tax Cost shall be zero. If within 30 days of Buyer's receipt of the computation of the Excess Tax Cost from Seller ("Excess Tax Cost Computation"), Buyer shall not have objected in writing to the Excess Tax Cost Computation, the Excess Tax Cost shall be equal to the Excess Tax Cost Computation. If within 45 days of Buyer's receipt of Excess Tax Cost Computation, Buyer and Seller have not agreed to the Excess Tax Cost Computation, the parties shall submit any disputed matter to the independent Accounting Firm, and cause the independent Accounting Firm to deliver a final, binding and conclusive written report resolving all such disputed matters within 30 days of the submission thereof to the Independent Accounting Firm. 44 ARTICLE XII TERMINATION PRIOR TO CLOSING Section 12.01. Termination of Agreement. This Agreement may be terminated at any time prior to the Closing: (a) By Seller in writing, without liability (except as provided in Section 12.03), if Buyer shall (i) fail to satisfy in any material respect its obligations contained herein required to be satisfied by it on or prior to the Closing Date, or (ii) breach any of its representations or warranties contained herein, which failure or breach is not cured within thirty (30) days after Seller has notified Buyer in writing of its intent to terminate this Agreement pursuant to this subsection (a) of Section 12.01. (b) By Buyer in writing, without liability (except as provided in Section 12.03), if Seller shall (i) fail to satisfy in any material respect its obligations contained herein required to be satisfied by it on or prior to the Closing Date, or (ii) breach any of its representations or warranties contained herein, which failure or breach is not cured within thirty (30) days after Buyer has notified Seller in writing of its intent to terminate this Agreement pursuant to this subsection (b) of Section 12.01. (c) If the A.M. Best rating of Company falls below A- prior to the Closing Date, Buyer shall be entitled to terminate this Agreement. (d) By Buyer or Seller in writing, without liability (except as provided in Section 12.03) if there shall be any order, writ, injunction or decree of any court or Governmental Entity binding on Buyer or Seller which prohibits or restrains Buyer or Seller from consummating the transactions contemplated hereby; provided that Buyer and Seller shall have used their commercially reasonable best efforts to have any such order, writ, injunction or decree lifted. (e) By Buyer or Seller if the Closing has not occurred within two (2) years following the date of this Agreement, provided that the party seeking termination under this Section 12.01(e) shall have used its reasonable best efforts to satisfy its obligations under this Agreement during such period. (f) By Buyer in the event of a change in the ultimate control of Seller prior to the Closing Date (a change in ownership of stock resulting in over fifty percent (50%) of the voting power of Seller being held by an unaffiliated third party) or a breach by Seller prior to the Closing Date of its obligation to pursue the sale of product or support of capital. (g) At any time on or prior to the Closing Date, by mutual written consent of Seller and Buyer. Section 12.02. Survival(a) . If this Agreement is terminated pursuant to Section 12.01, this Agreement shall become null and void and of no further force and effect, except for the provisions of Sections 5.06, 13.01 and 13.09 and this Section 12.02. 45 Section 12.03. Remedies. (a) If (1) Seller has terminated this Agreement pursuant to Section 12.01(a), or (2) the conditions set forth in Article VI have been satisfied and either Seller or Buyer terminates this Agreement pursuant to Section 12.01(e), Seller shall be entitled to retain all option fees and the Escrow Amount previously paid to Seller pursuant to the Purchase Option Agreement and this Agreement. Notwithstanding the satisfaction of the conditions set forth in Article VI, if Buyer is unable to obtain third party financing on commercially reasonable terms in an amount sufficient to allow Buyer to consummate the transactions contemplated hereby, Seller's sole remedy for Buyer's failure to consummate the transactions contemplated by this Agreement shall be Seller's right to terminate this Agreement in accordance with the provisions of Section 12.01(e), and to retain the Escrow Amount and option fees in accordance with the provisions of this Section 12.03(a). (b) If (1) Buyer has terminated this Agreement pursuant to Sections 12.01(b), 12.01(c), or 12.01(f), or (2) the conditions set forth in Article VI have not been satisfied and either Seller or Buyer terminates this Agreement pursuant to Section 12.01(e), Seller shall immediately refund all option fees and the Escrow Amount previously paid by Buyer pursuant to the Option Purchase Agreement and this Agreement together with interest at the rate of seven percent (7%) per annum on each such option fee and Escrow Amount. ARTICLE XIII MISCELLANEOUS Section 13.01. Publicity. Except as may otherwise be required by law or the rules of any applicable stock exchange or other regulatory authority, no release or announcement concerning this Agreement or the transactions contemplated hereby shall be made by Buyer or Seller without the advance written approval of the other party, which approval shall not be unreasonably delayed or withheld. Each party shall cooperate with the other in making any release or announcement to the extent reasonably practicable. Section 13.02. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission (and immediately after transmission confirmed by telephone) or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally or sent by facsimile transmission (and immediately after transmission confirmed by telephone) or, if mailed, ten (10) Business Days after the date of deposit in the United States mails, as follows: (i) If to Seller to: SCOR Life U.S. Re Insurance Company Colonnade Building III, Suite 700 46 15305 Dallas Parkway Addison, Texas 75001 Attn: Chief Executive Officer Fax No.: (972) 560-9535 With a copy to: Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Attn: Kirk M. Reische Fax No.: (212) 259-6333 (ii) If to Buyer to: Regan Holding Company 2090 Marina Avenue Petaluma, California 94954 Attn: Chief Executive Officer Fax No.: (707) 778-1524 With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P. 125 55th Street New York, NY 10019 Attn: Joseph L. Seiler III and Jane Boisseau Fax No.: 212-424-8500 Any party may, by notice given in accordance with this Section 13.02 to the other parties, designate another address or person for receipt of notices hereunder. Section 13.03. Entire Agreement. This Agreement and the Purchase Option Agreement contain the entire agreement between Buyer and Seller with respect to the subject matter hereof and supersede all prior agreements, written or oral, with respect thereto. Section 13.04. Waivers and Amendments; Preservation of Remedies. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by each of the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power, remedy or privilege, nor any single or partial exercise of any such right, power, remedy or privilege, preclude any further exercise thereof or the exercise of any other such right, remedy, power or privilege. The rights and remedies herein provided are cumulative and, other than as provided in Sections 10.04 and 12.03, are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. 47 Section 13.05. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof. Section 13.06. Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of The United States District Court for the Southern District of New York or, if such court does not have jurisdiction, New York State Supreme Court, Commercial Division, in the borough of Manhattan, for purposes of enforcing this Agreement. In any such action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above court, that such action is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 13.02 shall be deemed effective service of process on such party. Section 13.07. Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors, assigns and legal representatives, whether by merger, consolidation or otherwise. This Agreement shall not be assigned by any party without the prior written consent of the other party. Section 13.08. No Third Party Beneficiaries. Except as otherwise expressly set forth in any provision of this Agreement, nothing in this Agreement is intended or shall be construed to give any Person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. Section 13.09. Expenses. Except as otherwise provided herein, the parties hereto shall each bear their respective expenses incurred in connection with the negotiation, preparation, execution, and performance of this Agreement and the transactions contemplated hereby, including, without limitation, all fees and expenses of agents, representatives, counsel, actuaries and accountants. Section 13.10. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 48 Section 13.11. Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement. 49 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SCOR LIFE U.S. RE INSURANCE COMPANY By: --------------------------------------- Name: Title: REGAN HOLDING CORP. By: --------------------------------------- Name: Title: 50 -----END PRIVACY-ENHANCED MESSAGE-----